18 February 2009

Really as Bad as You Think

One of the most important skills for political success is the ability to make confident assertions of absurdities or lies.” -Thomas Sowell

If you think I am some rethuglican, guess again. I opposed the Bush tax cuts. I opposed the Iraq War. I opposed the Bush stimulus in early 2008. I opposed TARP 1. I also opposed Obama’s stimulus. Why? I see ineffective and dangerous governmental policy behind each one. I look beyond the short-term effects to the long-term consequences. Looking at the result of the first four I can state with some confidence that I was right in opposing each and every one of them.

The stimulus touted by Obama to create 3.5 million jobs (funny how that number keeps increasing) provides a paltry $16 extra per paycheck this year ($400 dollar credit divided by 26 paychecks) which drops to $8 per paycheck next year. NPR was interviewing some so-called expert. The interviewer asked if the “expert” really thought that extra $16 per paycheck would be stimulating. The “expert” actually said that he thought it would. You have got to be kidding; what freaking planet was this idiot from? The only thing an extra $16 per paycheck will stimulate is McDonald’s. Don’t get me wrong, I am all for creating jobs. But this is not the way to do it.

The stimulus is nothing more than a spending stop gap to hide the underlying issues of our economy and delay the inevitable real pain (You can put your finger in the dam to stop the leak…). It does very little to stimulate innovation which creates real jobs. True stimulus would have been a massive $500 billion+ investment in energy of the future and a rehab of our electric grid - I could have supported that because I understand the need for it and I can see how it would benefit our economy. The little dribs and drabs towards an investment in infrastructure in the current stimulus plan fall far short of providing a healthy footing for an economy beyond the next election cycle. As one comment put it: “[The stimulus is] like eating more food to lose weight!”

We had the tech bubble, the housing bubble and next we will have the government spending bubble. When the government money runs out, what then? Will we be told that we need another porktastic spending spree because the first one was not large enough? Can’t we see that this is simply no longer sustainable? And here I thought the progressives were all about sustainability. It is obvious that their idea of what sustainability is does not translate to the pocket book. Of course, if they really adhered to the idea of a sustainable society they would kill themselves because the majority of what humans do is not sustainable. But I digress.

Do not believe for one instant the pundits when they say that the national debt is still only a percentage of the gross domestic product (GDP). They forget to add in the debt held by business and you and me. That total is $52 trillionthree times the GDP of around $14 trillion. Adding more debt is a very bad idea. Some pundits want us to do what Japan did in the 1990s. If only it were that simple. We would have to have a stimulus package worth more than $20 trillion to match what Japan did because we have a much larger economy. And I am not including the unfunded liabilities of social security and Medicare that is an estimated $60 trillion.

Even scarier is what the Federal Reserve (Fed) is doing to straighten out the mess the banks are in. The Fed has committed trillions to the bail out of insolvent financial institutions. Robert Reich in his blog recently wrote:

“To date, the Fed has already committed some $2.5 trillion to rescuing the financial ystem, yet no one outside the Fed knows exactly how or where this money went. The Fed is subject to almost no political oversight. Yet if the trillions of dollars the Fed has already committed and the trillions more it's about to commit can't be recouped, the federal debt explodes and you and I and other taxpayers are left holding the bag.

In other words, Geithner and Fed Chair Ben Bernanke continue to do pretty much what Hank Paulson and Bernanke did: They hide much of the true costs and risks to taxpayers of repairing the banking system.”
And we should trust Turbo Tax Tim? Why am I and others like me marginalized for speaking out? We are raising the alarm and the sheeple simply would rather watch American Idle. Congress voted on nearly a $1 trillion spending plan that contained more than 1,000 pages of text and had less than 24 hours to look it over before voting on it. We are simply to take on faith that politicians are looking out for our best interests?

The dumb are leading the dumber towards the cliff. The sheeple look idly by without a clue as to what is going on. We the Idiots deserve every bit of what we have sown.

Question everything and everyone. Trust no one.

Photo by KCThinker, Butterfly at Ohama Henry Doorly Zoo

13 February 2009

Repeating Mistakes of the Past

Probably one of the most frustrating things about the financial crisis we are in is that the response is eerily familiar to past crises. Yes, I am talking mainly about the Great Depression. The history we learned in school that FDR’s New Deal brought us out of the Great Depression is patently false.

World War II did end the Great Depression, as revisionists are apt to claim, in a manner of speaking, but not in the way you may think. The U. S. did benefit from the massive war building effort, but after the war was over all that manufacturing had to be turned somewhere else, it simply could not keep churning out guns and ammo for a war that did not exist. When WWII finally came to a close the majority of countries with industries similar to ours before the war were in shambles. The U. S. was intact, had the manufacturing infrastructure and was able to quickly start producing. Another key was that the war effort led to considerable innovations which spurred more job growth. In conclusion, FDR’s New Deal did nothing. In fact, Henry Morgenthau, FDR’s Treasury Secretary, testified before the House Ways and Means Committee in May 1939:

“We are spending more money than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. We have never made good on our promises. I say after eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot.”
Of course the economists today (and even presidents) don’t let the truth stop them from making idle claims. It is interesting to note that, like psychologists, economists adhere to different schools of thought (or ideology if you will). There are the Keynesians, the Austrian School, and others. Frederic Bastiat, a French politician in the 19th century wrote:

“Essentially, economics is the science of determining whether the interests of human beings are harmonious or antagonistic.”

In a way, economics is like psychology because much of it is based on human emotion and interaction, so it should not come as a surprise that economists rally around different schools of thought than reality.

The idea that the government is like Superman coming to save the day is absolutely ludicrous. Time and time again, history has shown us that the government is inept. Yes, they are necessary, but only to a point. The role of government is not to be some big brother making sure you don’t fall and if you happen to fall not only picking you up, but dusting you off and carrying you to bed to rest. Government may provide some programs for people to better themselves by, but for the most part it is not government’s responsibility to make sure you have a roof over head and food on your table – that is called personal responsibility, something that seems to be a foreign concept nowadays. The role of government is to provide a safe environment for life, liberty and the pursuit of happiness; to ensure there are sufficient, but not burdensome, laws to protect society. Government is at its best when it gets out of the way of commerce. Government also wastes a lot of our tax-payer funded time on moral issues like homosexuality, abortion, and gay marriage, and non-political issues like steroids in baseball and the NCAA football championship.

What is now going on is the perversion of the idea of government. President Bush presided over a doubling of our national debt and was at the helm of largest expansion of federal government in decades. Republicans insisted that regulations on financial institutions be relaxed. Democrats forced banks to make bad loans. The Federal Reserve cut interest rates to rock bottom levels. You and I spent more money than we had. Everyone wanted everything now. People borrowed against a home with an inflated value. They ran up their credit cards. People bought houses with no credit, no job, and no money down. Financial instruments like Credit Default Swaps were created. Banks bundled the loans and sold them off only to be sold again by others. The result: a combined $56 trillion debt - $12 trillion for the government and $44 trillion for businesses and individuals. That is approximately four times our annual gross domestic product. How is something like that sustainable? It simply is not.

The government’s response? Pump billions (soon to be trillions, mark my words) into insolvent banks. Spend nearly $1 trillion to get the economy going. It did not work in the 1930’s and it won’t work today. Why? Even though the circumstances are somewhat different, the fundamentals are the same. The banks also don’t trust anyone, especially government, after they got burned for making stupid decisions. They are rightfully (and finally) tightening up credit again. There is no credit crunch. Banks are just getting back to fundamentals. If you don’t have a job you should not be given a loan for a car, let alone a house. The government refuses to understand that the last couple of decades have been built on personal and public debt. The government tries to prop up businesses that should be allowed to fail because they are poorly run (banks and American car companies). The government also refuses to understand that government spending projects do not grow an economy. There needs to be real demand and not more artificial demand based on borrowed money no one has. Once the money is spent to build a road, there is no incentive for that employer to employ that person any more. Once the food stamps are spent, more are needed. Yet, the government, in its infinite wisdom (more like denial), is galloping to the rescue of an empty burning building.

As usual, the government is blind to the consequences of its actions. It cannot think beyond Stage One. “In the Economic Sphere,” Frederic Bastiat wrote:

“An act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.”

To prove his point, Bastiat described what happens when a vandal breaks a shopkeeper’s window. The seen effect is that repairing the glass creates economic value in the payment to the glazier, who then has money to buy a new suit or hire a part-time employee. What is unseen is that the shopkeeper has to pay the glazier with money that he would otherwise have used to buy a suit or add an employee. “The broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics,” wrote the economic journalist Henry Hazlitt in 1946. Another similar parable is Uncle Sam, Cousin Maynard, and the miracle seeds.

There is a hidden cost to everything. It is in the stimulus package and it will be in other legislation that the Obama administration will try to ram through Congress. This so-called stimulus will cost each and every household approximately $6,700 in additional debt, paid for by our children and grandchildren. That does not include the $12 trillion of debt we already have - add each citizen's share of that debt is more than $35,000!

The longer government keeps its blinders on, the more likely the real problems will never get solved and the more likely the future integrity of the U. S. is in doubt. Of course, historians will probably take creative license with Obama’s story and undoubtedly shape it in positive nature, much like they have with Lincoln and FDR.
Photo by KCThinker. My daughter walking along the beach.

07 February 2009

Why the Stimulus is a Bad Idea

I may just be a simpleton from "fly over country" who sees this stimulus as an utter waste of money. Only about $100 billion is for true infrastructure. You might as well as throw the rest in the fire along with the TARP money. That’s trillions of dollars we will never see any benefit from and that my children will have to pay for now. Why is no one asking how this largesse will be paid for? They simply take it on face value that we need to rush headlong into unwisely spending nearly a trillion dollars. The same crap was pulled with TARP and the Patriot Act and look at where it got us. I am tired of the fear mongering. I thought that would be over when President Bush left office. However, President Obama obviously took a page out of Bush’s playbook and is using fear to get this travesty of a spending bill passed.

What will creating a massive spending government spending bubble actually do? The way I see it, once the money is spent the jobs go away. Government spending as a means to create jobs is not sustainable from my perspective, especially when you have to borrow that money in the first place. How does the stimulus provide long-term sustainable job growth, if at all? That is not change I can believe in.

A good number of jobs were created under during the Clinton Administration because there was innovation in the form of the internet boom. Innovation leads to positive job growth. Under the Bush Administration there were far fewer jobs created because there was no innovation behind the government’s deficit spending. The majority of the stimulus is deficit spending. Little in the stimulus package is geared towards innovation. Sure there is a portion directed to renewable energy and increasing broadband accessibility, but the vast majority of the $800+ billion package is directed to short-term jobs with absolutely no innovation.

The whole idea of getting back to where we were is ridiculous. It was all artificial in the first place. Just when we are finally coming to our senses after decades of spending like sailors in a whore house and now everyone wants to once again spend money no one has. Have we learned nothing? How can that possibly be a good idea when we have so much debt in the first place and we are nowhere close to addressing the long-term fiscal problems associated with social programs such as Medicare?

My gut tells me that this is a bad idea and we will regret it. I look at it and I shake my head because it seems common sense has left the building. You can quote all the economists you want, cite all the job creation numbers from one president to another, and compare it to Sweden or Japan, but ask yourself if you can truly make those apple to apple comparisons. Something tells me that the situation we are in is far worse, much deeper, and far more complex than any of those other situations. Throwing money at it is not necessarily the answer to every problem. Taking a step back and coming up with the right response is always better than merely responding quickly.

We need to feel some true pain. And an unemployment rate of 7.6% is not true pain (yes, those without a job would disagree, but let’s be realistic and look at historic jobless rates and we must also consider ourselves fortunate when looking at the state of the rest of world). All we are doing is providing temporary pain relief but not looking at the symptoms. We want to give aspirin when we may have to amputate a leg.

Please keep in mind I am no economist, I am just a simple civil/environmental engineer who has not knowingly cheated on his taxes so obviously I am not qualified to have made any of the comments above.

Photo by my daughter. Winter weather in Iowa.

02 February 2009

Living Beyond Our Means - A Short Story

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship." - Unattributed

The curator sighed. After 36 years working for the Smithsonian he was filled with sadness. This is not how he wanted to end his career. This would be the last piece of artwork that would be boxed up from this gallery. It was one of his favorites from the early 1900s – a beautiful painting from the Arts and Crafts era of the Snake River with the Grand Teton mountain range in the background.

Under the Debt Reconciliation and Repayment Act all valuable artwork was categorized and sold off in large lots to countries holding the United States’ massive $43 trillion national debt – even after making payments it was now still 127 times the current estimated gross domestic product. Most of the extremely valuable pieces had already been packed up and sent away. Even priceless artifacts were given an estimated value. The majority of the Library of Congress had been divided up and sold to collections in Europe, Asia, Africa, and South America. The most horrifying acquisition was the sale of the Declaration of Independence to China. He supposed that everything had its price in the end. He wondered why America was still suffering when the rest of the world had returned to ecomonic normalcy more than 6 years ago.

The less valuable pieces and displays were merely discarded or burned rather than being placed in long-term storage. During a recent trip to a Smithsonian Warehouse to catalog a number of items destined to Venezuela, he had even caught a glimpse of a minor modern piece of art being used as a roof in one of the many shanty towns outside of Washington, D.C. The Emergency Homeland Austerity Measures Act called for strict budget expenditures. They had no choice; the International Monetary Fund and World Bank had stepped in to mediate the settling of the America’s debt in the aftermath of the collapse of the dollar. Under the terms of the agreement, the United States had to enact the EHAMA. Such trivial things like preserving history were ignored in favor of feeding Americans.

His thoughts drifted to the many times he discussed the economy with friends. They all assured him that everything would be fine. He was convinced that America could no longer afford to live beyond its means. His friends told him that he was overreacting, that the trillions spent in financially securing the banks and the many stimulus packages would finally set America on the right course. Of course, no one in the government considered how all that spending would be paid for. They were all surprised when foreign investors stopped buying U.S. Treasury Bills. With no funding, the bottom finally fell out from under the unsustainable initiatives. He grimaced with a pang of guilt at being right. He felt the heat in his head rising as his anger of what had been done to his country surfaced.

Five years ago a ragtag contingent of Iraq and Afghanistan war veterans disabled security and managed to storm the Capital. They demanded real change and ended up killing 15 senators and 53 congressmen before being killed themselves in the standoff. The government fearing another act like that quickly instituted martial law, disbanded the armed forces, formed the National Police, and passed The Firearm Prohibition Act. It took over three years but the majority of firearms had been confiscated. Rumor had it that there were some serious firefights between the National Police and the last holdouts who loudly proclaimed “…From My Cold, Dead Hands.” Well that is exactly what ended up happening. The metal from the guns was melted down and sold to countries to pay down the debt. The remaining gun stocks were initially destroyed in huge public bonfires vaguely reminiscent of the infamous Nazi book burning pyres. Later they were quietly destroyed after some environmentalists complained about the pollution. Now and then there was a report of someone who had slipped through the system and was caught with a firearm – mainly hunters trying to feed their families – and were sent to prison work camps without a trial. It was hard labor. Many in the camps died.

The official government press was tightlipped during the firearm prohibition campaign. The main news providers quickly towed the government line. Those that did not where conveniently shut down by the Federal Communications Commission under an emergency law. What real news was available from the internet was quickly silenced when Congress passed The Fairness in Media Act in an attempt to control what was being said in the media. The act essentially shut down the internet. They felt that too much negative news would incite more violence and demoralize Americans.

He stared at the blank walls around him. After so many years of providing the public with a venue to see, hear, and touch the history of the United States and the world one more Smithsonian Museum would be closed. Not that the public had been allowed access to the National Mall in several years; the entire area around the Capital and White House was cordoned off and only accessible to government employees on official business. The public was not allowed to enter the area because of security concerns.

The painting he was packing up was part of a collection destined for Brazil and their new museum of North American Art History. Not much he could do about it now. He called his wife and told her that he was leaving soon. It would be the last call made from the building. The workers were coming tomorrow to salvage the wiring and gut the building of anything of worth. The windows and doors would be bricked over and the yet another government building would be mothballed. He doubted the interiors would ever see any daylight except when the roof finally caved in. There was no money in the budget for even simple maintenance. The only living things to step in these halls again would likely be rats, spiders, and other insects.

Over the phone his wife told him that the elderly man next door had died that day. One of the more heinous parts of The Emergency Homeland Austerity Measures Act was the refusal of medical care for anyone over 65 years of age. The man next door had a history of cancer. Ten years ago at the age of 63, he had survived colon cancer. He was supposedly in remission, but he had not been feeling well of late and many of the same pains he had when he had first been diagnosed with cancer were returning. The hospital turned him away saying there was nothing they could do for him. They told him that he had no right using up valuable medical resources. His wife could not afford any outside treatment. They were left to suffer. To add insult to injury, dead bodies were discarded on the streets because no one could afford burial or cremation. The government came around and collected the bodies and dumped them in large pits. He was thinking of setting fire to his house just before he died to save them the trouble. At least he would go out on his terms.

He hoped that he would not have to wait long to get his rations today; one piece of hard bread, a bit of meat with questionable origin, rice or potatoes and if he was lucky a piece of fruit or vegetable. A tear rolled down his cheek as he turned from the building and walked down the overgrown and unkempt National Mall to his government-issued home.

An original short story by KCThinker. The story pretty much sums up how I feel right now – hopeless.