Economics and Idiots

This past week it seems that the idiots in the field of economics have been particularly vocal.

Namely Nobel Laureate Paul Krugman demonstrated that winning a Nobel Prize basically shows that you are either well connected or duly shilling the appropriate political message.  Paul gleefully announces that unless we engage in more wasteful government spending (aka “stimulus spending”) we are heading for a terrible depression.  He uses the specious argument that it is spending that will prevent us from falling into a horrible abyss never to return for years and it is the government who is the right entity to do that spending.

President Obama in his weekly address announced how $2 billion dollars will be siphoned from the pockets of each and every tax payer into the coffers of two profit making companies so that they will grace us with their business.  Does this mean I will get some solar panels in return for my and my children’s investment in this?  Will I get some free electricity from that power plant?  Probably not and it begs the question “Why won’t the companies come and create these plants here on their own?  Is it because the fact is what they are doing actually isn’t profitable and thus we just spent $2 billion on businesses that will shut down after that money runs out?"

Paul Krugman and President Obama both know that we need economic activity but are sorely misguided on how to make it happen.  It seems they believe it is the governments job to create that economic activity and the way to do that is to spend.

Well lets take a look at our economy and the argument of “spend vs. don’t spend”.  We are being told that someone needs to be spending and since private citizens won’t do it then the government will borrow on our behalf and use force of law to make us spend.  The government spending will put money into the economy and voila – economic recovery.  Right?!?  Our government of about 500 bureaucrats are very highly educated and they know what the “industries of the future” are so they will spend this money well.  But don’t even worry about that – it doesn’t really matter what the money is spent on – just spend it.

Wrong.  Spending on things that do not add value to the economy will result in inflation and oxygen depleting tax burdens on the true engine of our economy.  That kind of spending will cause the economy to sputter and lose power and that is exactly the kind of spending that is most likely to occur when the government does the spending.

Does anybody think that a group of about 500 people will correctly use hundreds of billions of dollars to add the necessary value to an economy of 300 million people?  That these 500 people won’t waste the money or spend it on stupid things to help out their buddies?  They won’t bicker among each other trying to get money for their own special interests which will, in and of itself, waste not only money but time?  They won’t make mistakes and spend a couple billion on things that look good through academic glasses from Washington but in reality are useless?

What we need is spending on things that add value to the economy.  How do we do that?  Who is to judge what “adds value”?  If you are an Eskimo what would add value for you? Perhaps more portable and cheaper sources of heat and a sauce that makes arctic eel taste like ambrosia.  If you live Florida you want better air conditioning and a new sauce that makes gator taste like ambrosia.  In other words each and every individual makes those decisions and value is relative so 500 people will never ever be able to get it right for a population of 300 million people.  Sorry Barack and Paul.

So what should the government do?  Cut their own spending and “grant giving” to the point that we can eliminate both corporate and individual income tax and get rid of our sovereign debt.  Then stop making excuses that there isn’t enough regulation while not even doing the job of enforcing the regulation that does exist.  The economy needs stable rule of law and not a shifting landscape.  Remove those regulations that give advantages to certain interests and simply enforce an honest business climate.

It’s not hard and it’s not complicated.  In the end we the people are responsible for this mess because we do not hold our politicians accountable and we have been complacent.  But it is never too late.

The Recession is Over!

Thank goodness the 'worst recession since the Great Depression' is over! The Wall Street Journal has declared that the recession will end in September, CNN changed their slogan from 'America in Crisis' to 'Road to Rescue' about a month or so ago. Obama has changed his tone to one of optimism.

It all started after we let the Government borrow another $800 billion dollars because 'disaster was imminent' and we had to bailout what is apparently the American Aristocracy. Shortly thereafter the Fed Chairman stated that the recession would end this year. A message he repeated and then other media outlets started to fall in line.

I guess I am still a bit curious as to how 3 percent of the U.S. mortgage market caused the 'worst recession since The Great Depression'. It's not even that all those subprime loans were defaulting. I have read about the credit default swaps too and in the end it seems that all that was blown out of proportion too. Certainly there were companies that did some stupid things and brought themselves to the brink of disaster. Unfortunately it was also an election year and there was one party that knew the worse the economic picture was the more they would benefit. So bad economic news was inflated and since economic predictions are mostly self fulfilling next thing we know we really do have a problem because confidence dried up. Since the amount of cash in an economy is really a reflection of confidence that dried up and we enter a dwindling spiral.

So our elected representatives in both the Bush and Obama administrations answered this problem by scaring us into saving what must be some very well connected corporations. They gave those corporations hundreds of billions of our money which in the end appears to have been a thorough waste aside from preserving the fortunes of companies and their principles that really should have simply suffered the consquences of making bad decisions. We were nicely distracted by quibbling loudly about a couple hundred million in bonuses while hundreds of BILLIONS went unaccounted for.

I rant but it is good news that at last what is happening is what is really necessary to save this economy. For all that can be said about President Obama it is undeniable that he and his team are very good at public relations. Saving an economy is about changing a bad and insecure sentiment into one of hope and confidence. With hope and confidence then money flows back into the economy naturally and growth resumes.

Obama and his administration are also correct that to save the economy requires stimulating it with energy (a.k.a money). I think the main question here is whether or not it is the government that should decide where the money gets "flowed" or you and I. Under the current administration they have taken our money by taking out loans that we will have to repay via taxes and will spend it as they see fit. A small centralized group of people deciding how trillions of dollars are to be spent. A great set of circumstances for those that are currently well connected. Hence real change will not really be brought about.

There is also alot of talk now about inflation. Inflation will come about certainly if all the money that is dumped into the economy does not result in goods and services equivalent to or greater than that amount of money. History has shown that this is usually what happens when government does the stimulus spending. This is largely because the government only has as it's goal spending the money. They don't really ensure that the money results in added goods and services of at least equal value to what was spent. A certain portion usually lines the pockets of corrupt individuals, some goes towards projects that were not really needed or wanted and some may go towards things of actual value. There is nothing to say that the government couldn't do this correctly - it just seems that it has never happened that way.

In any case what does one do to participate in the recovery and not get screwed by inflation? This is actually simple - make sure you are producing goods and services that are of value. If there is inflation then your recompense for those goods and services will simply increase along with everything else. If a time comes when we are paying $10 for a dozen eggs it won't matter because people earning $40K a year will now be earning $400K a year. Another part of this is don't sit back apathetically letting the government waste this stimulus money. Those deals are done but Obama has promised transparency and we can hold his and the Congresses feet to the fire. Pay attention, monitor the websites that make public where this money is going. If it is used to add value to our country and its economy we really can come out of this in a much better situation.

Everybody is an Economic Expert

On a morning radio the announcer exclaimed that it seems like everyone is an economic expert these days. I guess as compared to how our finance and banking system has been run and our governments current answer to economic distress most people are economic experts.

It's very scary to hear President Obama exclaiming that "trickle down economics" and tax cuts are "the failed economic policies that got us here." I actually don't think that Obama is that stupid but like any other politician is simply pushing some partisan rhetoric to help him implement his agenda and strengthen his party's influence. It is unfortunate because as Obama and his PR machine are trying to lead us away from the hard won personal liberty that this country is about with misleading statements about what caused the economic crisis he is also not bringing about any meaningful change in this country.

Let's be clear about what caused the economic meltdown: financial institutions sold risky debt as though it wasn't risky. What some bankers and mortgage brokers and other financial firms committed was flat out fraud. We don't need new regulations or bank bailouts or other nonsense. We need those organizations that mis-represented risky loans as not being risky to be sued for the damage they caused and their executives to be imprisoned for fraud and their ill begotten assets seized. That is the government's responsibility in this situation. If a bank was bamboozled into making bad loans based on fraud then they should sue whoever ripped them off and if they can't and go broke as a result then tough.

The new administration could bring about real change by for once not bowing to the political clout of Wall Street and Bankers and just start investigating for fraud and legal violations in this sub-prime mortgage meltdown. We don't need new laws - just enforce the ones already in existence.

Tax cuts and de-regulation are so far the only proven policy to ever bring about rapid economic recovery. Socialism has never resulted in anything but pushing a society to a base mediocrity at best and in the extreme impoverishes all citizens except politicians and the politically connected. Socialist countries like France hope for 7.6% unemployement in GOOD times.

Economics and banking are not complicated subjects. Economics is about people supplying each others needs. Banking is the service of using the excess produced by a society to fund new enterprises and raise the standard of living. The system can expand continuously with an ever improving standard of living for all participants. There doesn't have to be booms and busts and ups and downs. Governments role is to ensure that the participants act honestly and do not misrepresent their products or services. This should extend to honesty in the press and laws against the press being used to spin situations which is simply another form of fraud.

Generally when governments get into the business of "managing" the economic system they simply wind up reducing the economy's effectiveness to raise the standard of living and maintain a continuous expansion. That's why socialism and it's extreme communism when implemented on a large scale leads always to lower standards of living for everyone. This is because the government has to try and guess the needs and desires of its constituents which it cannot do effectively. That's why the government trying to save an economy with bailouts or government spending is a very inefficient way to save an economy.

So what is this "economic expert's" solution: I offer a 3 pronged attack -
1. Start vigorously enforcing current laws and removing fraud from the system. Loudly start arresting the bankers, corrupt regulators, politicians who committed the fraud that lead up to this mess.
2. Agressive corporate and personal income tax cuts that will immediately energize the economy and make the U.S. the best place to make investments.
3. Instead of hundreds of billions in bailouts use that money to put out some positive press about the economy. Press manipulation is a fact in this country (if you don't believe this then WAKE UP). So be that as it may lets use it to bring about a more positive economic attitude because you can pump all the money you want to into the economy if people don't feel upbeat and confident that will kill any economy even in the best of times.

I'm no community organizer but I think that will work. Unfortunately it also means less opportunity for political power - after all when you are a politician doling out billions of dollars it is pretty easy to get "favors". That doesn't happen with tax cuts.

Why I didn't vote for Obama but I'm glad he won...

When Barak Obama and John McCain both supported the $700 billion bank bailout/junk stock purchasing waste-of-tax-payer money program they both lost my support.  But that's for another post...

I think Barak is a very intelligent and charismatic person.  He ran the better campaign which says something - but not that much given how badly McCain ran his.  In the end I am certain he was the better candidate but it's scary that he won on what was an unabashed socialist platform.

Yes, yes - I know...how dare I use the "s" word.  One of the funniest things I saw during the campaign was a fact check segment on CNN where they were analyzing this claim of whether or not Barak Obama's policy of increasing progressive taxation both for individuals and corporations is socialistic.  In the end the conclusion by the "expert" was that the claim was false on the condition that we already have progressive taxation so unless you thought the current tax system was socialistic then Barak Obama's tax policy is not socialistic.

Hmmm...that doesn't make sense.  The correct analysis is actually that progressive taxation IS socialistic and making taxation MORE progressive is thereby more socialistic.  Karl Marx's defining slogan was From Each According to his Ability, To Each According to his Needs.  Progressive taxation is about greater taxes for people who are able to earn more because "they can afford it" and give that wealth to people who earn very little via welfare and other subsidies because they are in need.  Sorry but to quote Obama - "You can put lipstick on a pig..."  Actually that saying is even more appropriate given the Animal Farm referrence.

Anyway I couldn't vote for him since I disagree with the policies he espoused while campaigning and I felt that casting a vote for him would show support for his campaign platform.  I wanted him to win but not by a large margin so that he would see that we Americans do not support socialism.  In the end he won by only 4% and the "record voter turnout" turned out to not be true.  It seems that he may have won largely because Republicans are disgusted with their own party, and rightly so, and didn't vote.

I was also a bit disparaged because so many people did vote for him despite his platform but as it turns out the more I listen to people who voted for Obama it seems they just voted for him because they liked him better and didn't really understand his platform at all.

In the end I don't believe that his win represents that we as Americans are turning away from personal responsibility and small government toward a culture of dependence and big government.  He did not get a mandate and most people who voted for him didn't do so because of his platform.  I do think Barak is very intelligent and has enough personal integrity to see that socialism is not the solution to our ills and that the campaign platform will fade into memory...

Bank Bailout

Does anyone else out there feel like they are being taken for a ride on this bank bailout?

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