Depression Package

The stimulus package that Congress is about to pass will not stimulate the economy. The past weeks have seen Liberals saying that it will work, conservatives believing it will not work, and most citizens just hoping blindly that it can. It cannot. What I haven't seen is a good explanation of exactly why it cannot work, so I'm going to take a crack at that myself. I apologize, but this will probably be a little long.

I read a comment recently on somebody else's blog that basically claimed an economy is a closed system; that whether you spend your own money, or the government spends it for you, the money is still being spent, so economically speaking the results are the same. You can't get rid of the money unless you burn it. I suddenly realized that this misconception, shared by millions of people, is the false concept behind the idea that spending makes an economy work. It is a self-falsifying argument, because in a closed system it shouldn't matter who does the spending, the effect would be the same. Therefore a government stimulus would be useless. About the only possible difference is when the spending would happen: You might have plans to spend your money during your retirement, but the government wants to spend it for you right now instead. Either way it's a moot point, since an economy is not a closed system. If it were, we would still be banging rocks together in a field and hunting with sticks. Instead, we have space ships and internet video. This change would be impossible in a closed system.

The value that is traded with money, represented by gold, sought after by politicians and measured by economists is called work. That's it. If the economy goes up, more work happened. Now, a narrow view of work would mean that more people were simply busy. That's almost right, but not quite. The real definition of work (here, not in physics) is not the busyness itself, but the results of people being busy. So if two companies produce the same thing with the same number of employees, but one company produces more of those things, then that company did more work.

Now, who's to say what's worth working for? Is a car worth more than a motorcycle? Which car? Which motorcycle? Is it better for the economy to produce lots and lots of cars, or is it better for the economy to produce one diamond bracelet? If you happen to work in congress, you'd probably say lots and lots of cars, because that keeps more people in jobs. You'd be wrong. The correct answer is that it's better for an economy to produce something that can be sold, whatever that is. If nobody wants it, it isn't worth making. If you think it's objectively useless, but someone else will pay you exorbitant amounts of money for it, then it's worth producing. Things have value only because people want them. Beyond the basic necessities of life like food and shelter, everything we have is luxury. We're not talking about perishing in this bad economy; we're talking about mediocrity. A recession won’t to kill you; it will prevent you from accomplishing, buying, or doing something that you want to do.

Now, this all sounds very basic and simple. You knew all this, right? But what does it have to do with the stimulus package? Waste. Busyness is made more efficient when it is applied intelligently. You could stay busy for a week building something in your garage and sell it for $100. Or, you could sit for the exact same amount of time on an assembly line and make $800. The difference between the two is that whoever is paying you has made you more efficient with his assembly line. You now do more work. He used his own intelligence and through invested money used the collected work of other intelligent people to increase your efficiency. You both win. The only reason he, or anybody, would do this is for profit. For his own good, not for yours. But he needs you to do the producing, so it's worth paying you that $800 which, by a happy coincidence, is exactly what is good for you!

These kinds of transactions, uncountable numbers of them per day, are not just A stimulus, but THE stimulus of our economy and every other economy possible. What the government plans to do now is to take some of your work and spread it around as they see fit. A lot of people seem to think that this is a fine plan, so long as when something is produced with that stolen money, they get it back.

The problem is, it never works out like that. It can't work out like that. From the very start, there is the overhead cost of the government itself. You have to pay somebody at the IRS to collect those taxes, the collection of which doesn't produce anything to sell. Then there are accountants and bureaucrats and others involved along the way that get their salaries paid. Somebody has to author bid requests, sort through responses, study environmental impacts, investigate banks' financial documents, pay for over-runs, and then have dinner with a congressman. In the end, not all of the money makes it out the other end. Sure, the people paid in between will spend it again, but what value did they create with it in the mean time? And in the end, how much of the money intended for… let's say infrastructure, is actually used for infrastructure? Eighty percent? If only we were so lucky. It's never even close (As you can see here with transportation spending as an example) How much does that missing 20% matter? It's more than a business’ average profit, that's for sure. So the government just lost more than a company would make with that same investment, and that is the harm. There are inefficiencies in everything, including the private sector, but two things control business inefficiencies: 1. The need for the value of what they create to compete with other products of value to see which one is the best. 2. The need to make a profit from that value. If they do this, they stay in business and their work is rewarded. If not, they don't and it isn't.

Government never submits to these controls. Never. They don't have to sell you their roads, and they have nobody under-bidding them.

These differences in spending through government and spending through the private sector may seem small. If the total outcome is a difference of 5% in production, what does that matter? Well, many companies hold on for many years without much more than a 5% profit. If that's lost through misappropriated funds and work with no value, then what has been created? How has this helped the economy? The answer is that it hasn't.

A simple real world example comes down to this: If GM isn't producing something that people want to buy, it is not helping the economy. If we give them billions of dollars to continue producing something people don't want to buy, that is not helping the economy. If the billions of dollars the government just gave GM are taxes that would have otherwise been used to buy or produce something of value, then taking that money away does not help the economy. So the rescue of GM damages the economy three times over. If GM goes under and everybody -- even the working age retirees who were consuming money but not making any -- gets jobs making something people actually want, that would improve the economy.

Beyond simply leaving the market alone, tax cuts are the only way to stimulate an economy. Tax cuts get money back into the hands of the people who produce. But not tax cuts in lower-income tax brackets. In fact, just ignore income taxes entirely. If you want money to be used to make even more money, and thus get the economy going, there are two taxes you should cut: capital gains and corporate Income. Capital gains taxes are on the money that you make on investments. People who are smart enough to make money by investing keep re-investing money when they make it. If you cut that tax, they'll invest more. Period. Corporate income taxes are taxes on the profit made by companies. The federal rate right now is 35% (link) http://www.taxfoundation.org/publications/show/22917.html If you’re barely making a profit, losing 35% of it is disastrous. This is the highest rate in the modern world and it is a really poor incentive to hiring more people or reinvesting in your own business. In effect, our tax rates are so high that even very efficient companies go out of business. In both situations, tax cuts here would get money, and therefore work, back into the hands of the people who use it most efficiently.

There are many, many reasons to oppose these bailouts, but only one that you need to know: They will not end the recession. They will prolong it, deepen it, and risk a true depression. The American economy is an amazing and powerful thing. It has pulled out of previous depressions even with poor policy and no leadership. While not likely, it could do the same thing again. Attitude does matter, and ours is indomitable. But no matter how short or long this recession would be, Congress will make it longer. No matter how deep or shallow, it will be deeper because of them. Throw the bums out.

Simplicity

Well, I was feeling pretty wordy the other day. But I guess all that last post can be said much more succinctly like this:

If Obama succeeds, the country fails.

The Clarity of Truth

I DO NOT hope that Barak Obama is successful. I know why that is, but I've had trouble figuring out how to say so without developing "Limbaugh Echo Syndrome". I've known for a while that I've got something more to add to it, and Ayn Rand has helped me figure out what that is. It's truth.

I am a newly minted Ayn Rand devotee. I finally started reading Atlas Shrugged about a month before the election and finished a little more than a week ago. The the world that she created more than 50 years ago is absolutely stunning, not just in its applicability today, but in its tonal accuracy. I can't believe the number of situations and statements in this book that I heard repeated in our world on the same day I read them in the novel.

I am not going to become a rabid follower. There are people who have pretty much formed a cult around this lady, and I won't be one of them. In the short term, however, I will have to work at not constantly referencing our real world back to her imagined one since it is so fresh in my mind. I'll let it happen a few times, and I may even do a "book review" on the pages that I've marked. It could make an interesting article as well as a handy "cliff's notes" for anybody who can't stomach her hyper-wordiness. The point of this prelude is that what I got from this book was clarity. Not strict adherence to her philosophy, but a functional way of looking at something. I think the power of a philosophy is exactly its ability to clarify the world. My personal maturity when reading this notwithstanding, every other philosophy I've read up to this point has muddled the truth rather than exposing it. They've asked questions that merely led to more questions and a distinct lack of utility. Objectivism, at least in its political applications, leads me down no blind alleys.

So how did Ms. Rand show me a clear way of explaining my wish for a mitigated disaster during the Obama administration? I think I'd better give my original logic first: Barack Obama, if he's not a socialist, sure ran as one. He's a pandering populist who wants to restrict freedom at every turn and redistribute wealth. His Tax policies will depress the economy. The bailouts he'll sign will devalue the dollar, which will devalue everything I have, everything I save, and everything I earn. His conciliatory foreign policy will weaken the United States' standing in the world, which "lowers the tide for all boats" and will result in even more economic pain. And finally, to hope for Obama success is to hope for the ascendence of moral bankruptcy along with all the actual bankruptcy of these times. This is what I would have said before reading this book and, in fact, earlier today before I had my little epiphany. But I can already hear the futile argument that would follow:

Them: "But if he's successful, then those things won't be true!"
Me: "But he won't be."
Them: "Because people like you hope that he won't! You'll make it come true!"
Me: "No, I just know that it can't. Socialism cannot work"
Them: "But you just don't want it to work, because then you'd be wrong!"
Me: "No, I don't want it to work, because it is wrong."

And so on. I was thinking along these lines today, looking for a way to clarify the fact that I think Socialism and income redistribution in all forms are wrong, and if they "worked" that would be worse, and the opposite of what I want. I could make that exact argument, but it falls on deaf ears over and over again. People want us to give Obama a chance, but I now say, a chance to do what? If we take him at his word, if we accept his campaign as being his plan, then they are asking us to give socialism a chance. I'm afraid that it's already been tried, and it's failed every time. But here is the clarity: Socialism and income redistribution are ineffective and immoral. That is a truth. They fail because they should fail. An immorality of that size can appear successful for a period of time by mortgaging the future, and they can hold on with moderate, "acceptable" levels of failure for quite a while, but they can never approach the success of freedom. If Obama's reign is billed as success, it will be a lie. And that is all we need to know.

The Block

It's been a while since I've posted here. At first it was because I'd hit my personal political saturation level. I had no more capacity to give a damn as the unimaginable happened. I know, It's not like I'm a particularly prolific poster. It wasn't the writing that I was swamped by, it was watching stupidity march forward in spite of readily available facts. I've since gone from that kind of frustration as the election happened, to now having the opposite of writer's block: There are so many things that I want to write about that I'm continuously unable to decide where to start. I also don't want to be repetitive, because so many of the connections and causal relationships in society and life in general seem so clear and direct that I can't imagine everybody doesn't know them. Which I guess is stupid of me, because the very proof of that fact is what frustrated me in the first place. Anyway here it comes, in no particular order!

Bailouts and pain medication

Sometimes the general "wisdom" of the people is astoundingly stupid. I could rail for hours about how dumb the idea of every single bail-out proposal we've heard in the last month is, and I'd still have more material left. The problem is that I consistently can't believe that anybody is really stupid enough to think that they're a good idea. I haven't come across one, not one person in my daily life who thinks that it'll work. A few examples of colossal genius have actually told me that no, they don't think it'll work but yes, they think it's a good idea. Ummm. Well, that's a whole new level of stupid, but at least they're aware that it won't work. Unfortunately these mental masters are at least as smart as our congress and media, and likely smarter. Folks in congress either think it WILL work, or agree that it's a good idea anyway.

Alas, I may be shouting into the hurricane here, (or preaching to the choir... I'm not sure which metaphor is more appropriate. Perhaps peeing into the wind?) but I'm going to go ahead and point out some simple reasons that this is really stupid.

For starters, there's historical precedent. The "Great Society" didn't pull us out of the depression, it prolonged it. If WWII hadn't come about, who knows how long it might have taken to get our economy back. I'd like to think that if it hadn't, it would prove undeniably that socialism and government programs don't work, but socialists and liberals don't respond to facts anyway, so... never mind.

Ignoring historical precedent, let's look at the fact that we're rewarding poor performance. If Detroit is paying millions of people not to work, and can't figure out why they're losing to imports, it's not my responsibility to give them more money through the government. It's the equivalent of just charging twice as much for the cars they're already selling, and it's wrong. Their manufacturing model is obviously inefficient, and supporting inefficiency will NEVER improve an economy. It's simply using manufactured "crisis" as an end-run around government directly paying for the retirement and medical benefits for swaths of people who were obviously guaranteed more compensation than their work was worth.

• "But don't I deserve a good living wage, retirement, and medical plan for my 30 years of service to the auto industry?" Answer: No. You deserve what the market says your labor is worth, not what your union forced the company to accept. Wanna know why so many American jobs go overseas? Unions.

Incentives. In order to receive this government "bailout" money, do you realize that there is an incentive for me to not pay my bills? Every version of the plan that I've seen for bailing out lenders includes "helping" home-owners to stay in their homes by lowering the interest rates and/or the principal on their homes, but only if they're at least 90 days delinquent on their payments. So what you're telling me is that you're going to take more taxes from me and the "rich" (slowing the economy further), run them through a government agency (losing money along the way), give those taxes to companies that deserve to fail (promoting and extending inefficiency), and then give more to people who don't pay their bills (and aren't going to start), while finally expecting me to go on paying the higher amount... just because? Awesome. That'll fix things.

Crisis. Who, other than the Obama campaign and our media (but I repeat myself), decided that this was a crisis in the first place? It seems to me that this was really only a crisis for some banks. Again, those were the bad banks anyway, so who really cares if they fail? Oh, I'm sure their stock-holders do, but hey stocks are a risk in the first place. If you bet on the wrong horse, too bad. Don't bet if you can't afford to. And don't go telling me about how horrible it is for people to have their houses forclosed on. A bunch of those people were investors, and even if they weren't, so what? Ever heard of apartments!? Besides, the banks will just turn around and sell those houses for less, thereby lowering the costs of housing for whoever now does qualify for a loan. Who knows, maybe it'll be the people paying low taxes who invested in good banks buying cheap houses and renting them back to the same people. Voila! Market forces. But instead it's talked up into a crisis, and markets being what they are, people got scared. Others saw this as an opportunity to get some cash themselves and talked down they're own industry (auto, home-builders, etc) and extended the appearance of crisis. And now it becomes real. Panic sets in, the goverment destroys wealth, and a real crisis arrives.

The whole situation is akin to going to the doctor for an ingrown toe-nail and dying from a morphine overdose. Sure, it was going to hurt a little, but we've skipped local anesthetic for a lethal overdose of pain-killer.

A socialist?

Patriot Girl links to an article here by Donald J. Boudreaux that asks the question "Is Barack Obama really a Socialist?" It was a worthwhile article about the dangers of "Socialist-lite", but he's wrong when he answers his own question:

• No. At least not in the classic sense of the term. "Socialism" originally meant government ownership of the major means of production and finance, such as land, coal mines, steel mills, automobile factories, and banks. ... A principal promise of socialism was to replace the alleged uncertainty of markets with the comforting certainty of a central economic plan.

The author's first point is wrong for two reasons. First, while there may be a scholastic definition of socialism that fits the one he presents, I'm unconvinced that it has such a narrow and specific meaning. Socialism can be what he says, but it can also refer to the entire left wing of the political spectrum. In my understanding, Marxism, Chinese Communism, Socialism (with a capital S) and Social-Democracies all fall under the broader category of socialist since they are based on a concept of wealth distribution and equality of results rather than equality before the law. The second reason I think he's wrong is that even if I give him the first point - that socialism is based on government ownership of the means of production - I still think Obama qualifies. When the Government gets an "Ownership Stake" in the private market, it does own and control the means of production. I've heard this argument before, and it sounds pretty lame. Just because Obama isn't quoting directly from Marx and Engels (currently) it doesn't mean that he - and most of congress for that matter - isn't advocating socialism.

Now let's take on his second point, that socialism tries to "replace the alleged uncertainty of markets with the comforting certainty of a central economic plan." Trying to replace market uncertainty with central economic planning is exactly what our loving leaders in Washington are doing with the economic bailouts. What else could it possibly be? They've stated as much publicly. They're trying to get the market to settle down by heading off the failure of business that by all rights should fail. You say you gave bad loans to people that you knew couldn't pay them back? No worries, Uncle Sugar-daddy will guarantee them. Mortgaged your future profit margins by promising unrealistic pensions and health care? (albeit while being blackmailed by unions) No worries, we'll spend $25 Billion covering up the problem for a bit without doing anything to fix the systemic problems.

Sorry, but from where I sit, Obama is not only a socialist, he's just a 5-year plan away from Communist.

The source of my anger

I'm truly angry about the outcome of this election, but until now I've had trouble pinning down why. I've said that I'm angry about the stupidity of the general electorate, but that doesn't quite explain it. I know that stupidity simply exists, it's not a thing to be angry about but rather simply a fact to deal with. It occurred to me that it might be the cheating. I hate cheaters, and I hate feeling that I've been cheated, especially when it's something that matters as significantly as an election. (No, I'm not conspiratorial, but it does bother me that every election brings more and more stories of dead voters registering 15 times in Ohio and I can't stand that it could continue to exist). But I don't think there were enough of those votes to sway this election, so I'm not really mad about that, either. I hate that an election about ideology, truth, and governing philosophy is daily diminished to a racial landmark in the media. But again, that's not enough to explain the depths of what I'm feeling.

These questions aren't new. I've been distraught for a while at the liberal direction that my country has been taking. I've been bothered since Reagan by the lack of truly visionary leadership on the right. But tonight I realized the source.

I can't leave. I have no options, and the frustration is killing me. Every election year we here a bunch of liberals claiming that if the Republican wins, they'll leave the country, but the cowards never do. You never hear a conservative say that. It's because we have nowhere else to go. As bad as it's gotten since the 80's we're still the most free country in the world. That sounds like a compliment, but it's not. It's a lament. If I found somewhere with more freedom and better protections of my liberty, I'd leave in a heartbeat, because America is an idea, not a land. But I don't have the option. Liberals do.

And THAT is the source of my anger: If you like socialized health care, redistribution of wealth, public transportation and high taxes, more power to you. Go to Sweden. Go to England. Go anywhere in Europe. But don't ruin my America because it's all I've got. If I ruin your America, there's always France.