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.

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.