Wednesday, September 28, 2011

Should the Federal Government be in the Business of Should?

This country began as a democracy with significant limits and has evolved into a democracy with virtually none.  How did this happen?  If healthcare, education and housing are all rights, how could the Founders have overlooked them?  Didn't Thomas Jefferson and James Madison have these rights?  Maybe they weren't rights when the Constitution was written but became rights later on?  When exactly was that and what makes them different from cell-phones or cable television?  Or are having cell-phones and cable television now rights too?  

If healthcare is a right, why does anyone have to pay for it?  Why isn't it free?  Freedom of speech and freedom of association are rights under the Constitution.  They are free.  No one has to pay to speak or to hang out.  So what makes healthcare different?  Oh yeah, healthcare doesn't just exist, you need someone else, a doctor or nurse who has spent years of his or her life training and studying, to provide it.  Likewise with education and housing.  How can anything that requires someone else to act be considered a right?  Do doctors and nurses have rights?  What if they decide not to act?  Where do you get your healthcare from then?

Which leads to the point of this post:  the United States and other "enlightened" countries around the world have confused rights with shoulds--everyone should have healthcare insurance, everyone should have a home, everyone should be educated, everyone should have cable television, everyone should have a cell-phone (and, believe it or not, the government does provide cable television and cell-phones for those in "need").

Now, if a large group of society gets healthcare, housing, education, cable television and cell-phones for free what do you think that does to the prices of those items for everyone else?  Or to overall employment?  Here's a hint--prices for all of these items are distorted higher than they should be causing other people to spend more on them than they would have otherwise leaving them with less money to spend on other things, which reduces employment outside of the chosen shoulds.  Of course spending on the shoulds has resulted in many more people being employed in those areas than there should be leading to big problems (witness Fannie Mae which, at the behest of Barney Frank et al, created a massive housing bubble by financing millions of unfit borrowers because everyone should own a home).  


While I most certainly agree that everyone should have housing, education and healthcare, the problem is that relying on the federal government to provide these things has invariably resulted in dislocations that are worse than the initial problem.  Medical care was expensive before Obamacare.  Does anyone really believe that creating an additional bureaucracy and mandating that small businesses, many of which already barely make enough to justify their own existence, pay an additional healthcare tariff will reduce the overall cost?  Won't businesses at the margin just close, leaving their employees without jobs?  Isn't employment more important to a family than lack of health insurance?  In the first instance, at least you can eat and pay your rent.  Likewise, why is owning a home, which we all now understand is not the investment we were led to believe, so important?  Isn't the issue housing, not home ownership? [If Congress had understood this distinction we might not be in our current economic situation.]  


Before the federal government was involved in housing, did the poor all live on the street?  Before it was involved in healthcare, did they get no care?  Were they ignorant before it became involved in education?  The answer is no to all of these questions.  Communities, local and state governments handled each situation.  What has the federal government added besides bureaucracy and inefficiency?  New Orleans was devastated by Hurricane Katrina as it waited for federal action.  Where was Louisiana's emergency response? Atlanta schools have cooked their books in order to qualify for federal education aid.  Medicare fraud has driven the cost of healthcare skyward.  How have these helped the poor?  Whatever happened to local accountability?  


Churches have long been known to provide healthcare, education and housing for a fraction of the cost of their government provided alternatives. How can that be?  The simple answer is that they don't have thirty layers of bureaucracy sucking up most of the money before spending what's left on the actual service.  The more subtle answer is that churches actually care, care about the actual people receiving their aid, as opposed to the faceless bureaucrat in Washington who knows them as little more than numbers.


So while I firmly believe that all of the shoulds really are shoulds, I also believe, for one simple reason, that the federal government should not be the one to address them--and that reason is that the federal government is just no good at it.  Finally, as I've written previously, when you venture into the land of should--a word that flashes BELIEF in my head--it's my opinion that you've crossed into the realm of religion, the one place where the federal government is specifically prohibited from entering.  (See previous post, Church of the United States.)

Tuesday, September 27, 2011

Thoughts on Gasoline

Last weekend it cost me $80 to fill up the tank of my car, much more than it used to.  As the parent of a travel hockey player, the increase has been very significant to my family's overall expenses.  Just for the fun of it I searched the web for a chart of historical gasoline prices and found the following:  http://www.randomuseless.info/gasprice/gasprice.html  

As you can see, the price rise has been extraordinary, from an average of approximately $1.20 per gallon for premium from 1980-2000 to the present price of approximately $3.80, it has more than tripled.  And since gasoline is a relatively inelastic part of many of our lives (like I said, travel hockey), the crowding out effect on other purchases, at least in my case, has been very meaningful.

Now what's particularly pernicious about this situation is that it's not like it takes any more people to sell gasoline that costs three times as much--and we're not letting oil companies search or drill to any great extent in the lower United States (and most definitely not in Alaska).  So even though they reinvest most of what they earn in exploration and development, most of that reinvestment--and the employment that goes with it--is occurring in places like Russia, Brazil, Canada and the Middle East.

So, in a nutshell, we're paying more for gasoline and shipping the jobs that go with producing it to other places.  Now that would be understandable if we were like Japan, which has no local energy sources.  The United States, though, has purposefully decided NOT to fully use much of its ABUNDANT energy resources and in so doing has done not only itself, but the entire rest of the oil consuming world, a huge disservice--because we are not the only ones paying the new high prices.  By reducing the total supply of oil, we raise the price of energy worldwide!  [Imagine what would happen tomorrow to oil prices if Russia, which is actually the world's largest single nation producer of oil suddenly decided to stop all exploration and production because it wanted to save the planet. I imagine that the world might not be happy--so much so that China might, with our blessing, decide to make an extended visit.]

If we can agree that a major oil producer shuttering its production wouldn't be a good thing at the current time (maybe solar power is viable in 25 years--it ain't now), can we also agree that another major oil producer--say the United States--purposefully producing far less than its own needs when it has the ability to meet them is also not a good thing?  It's certainly not very neighborly.

It's also not very smart.  How many jobs would be created if we permitted our own companies to drill on our own public land?  What would happen to the price of gasoline?  Or the businesses where you and I spend the money we don't spend on gasoline?  Or the businesses which themselves spend less on gasoline?  How much money would the government receive from royalties?  Wouldn't becoming less reliant on Russian thugs and Middle East dictators be a good thing?  

Environmental concerns are obviously legitimate.  But having concerns doesn't mean we give up on producing the most economically viable energy source now available.  It just means we look for ways to solve them.  And besides, aren't we being selfish by using oil produced in other nations while holding back our own production, driving the price up for everyone else in the world?  We need them to produce as much as they can yet we won't reciprocate?  Don't other countries have environments too?  With its current energy policy the United States is behaving like a little kid hoarding his own piece of cake and eating everyone else's.  And no one likes that kid.

Thursday, September 22, 2011

On the Verge of Anarchy

(this is excerpted from a short book I wrote nearly 20 years ago, never imagining that it would come true so soon, as is most certainly the case right now in Greece at least)

There is only one system which can maintain world peace and eco­nomic prosperity.  That is the system which requires each man to bear the responsibility for his own life and property:  Capitalism.  Climbing onto Capitalism's invisible stairway, though, is an intimidating prospect.  To do so requires citizens to exchange lives that may seem comfortable for the unknown voyage of responsibility.

The choice is made easier, however, when one realizes that the benefits provided by socialized nations do not have long lives.  Unless the governments of socialized nations loosen the grip of regulation and taxation, they will be left distributing an ever diminishing economic pie.  Only free market Capitalism expands a nation's wealth.  By rewarding men for their efforts, this system motivates the creativity which leads to the rising standard of living that has historically characterized Capitalist nations.

The Social Democracies of the world may, however, have already reached the point where their decline is irreversible.  When the number of citizens that receive benefits at government's behest is larger than the group that produces those benefits it will be too late.  The recipients will perceive that they must maintain this system simply in order to preserve their own welfare--and their numerical strength will ensure them the power to do so.  This segment of the population, which gains from government action, will never act on its own to reduce the benefits that it receives.  That said, unless the citizens who produce the benefits provided by Social Democracies soon unite to force their nations back towards Capitalism, the citizens that consume those benefits will, most certainly, drag society down into anarchy.  

Thursday, September 15, 2011

Who's Afraid of the Big Bad Spending Cuts?

Front and center to the debate regarding whether or not government spending should be cut is the notion that doing so at this time would be dangerous for the economy.  Once again, failure to look at both sides of the equation leads to an erroneous conclusion.

If cutting government spending meant that overall spending was reduced that might be a problem, but money doesn't just disappear.  If the government doesn't take as much money--either by taxes or borrowing--more money/purchasing power stays in people's pockets!  People who will spend it (and maybe even save a little)!

The difference is that people making their own choices where to spend their money do a much better job of it than the government.  Think of the legendary $500 hammers bought by the Defense Department.  Or the Big Dig in Boston that was supposed to cost $2.6 billion and ended up costing almost $15 billion!

Of course, right now pundits like Paul Krugman are saying that the problem is people aren't spending enough so the government has to pick up the slack.  Can you see why that argument makes no sense?  First, any money the government spends has to be taken from consumers--either via taxes or inflation (anyone notice prices rising the last couple of years?)--eliminating an equal amount of purchasing power.  Second, government employees actually do the spending, and history has shown that they're really not that good at their jobs.  Once again, just think of the hammers.

If, on the other hand, we assume that individuals are only 5% more efficient at spending their money than the government, then even if individuals save 5% of any money the government doesn't spend--and spend the rest--the effect on the economy would be the same.  [I used 5% because that is estimated to be the current savings rate in the United States.]  If they are more than 5% more efficient (i.e., they can buy hammers for less than $475) then the economy is net-net better off, disregarding the increase in savings!!  Since I'm pretty sure that individuals are better at buying hammers--or just about anything else--than the government, what's so scary?

Further, since individuals making rational purchase decisions can buy a lot more goods and services--goods and services that are produced and provided by people employed to do so--for the same amount of money as a government that spends too much on everything it buys, you can see why taking spending out off government's hands would actually increase employment!  And why increased government spending has had the opposite effect!

So, instead of Americans spending (or saving) their money as they would like, the government takes it and spends it on the wages of government employees and overpriced goods and services.  Is it any surprise this strategy hasn't worked for President Obama the first five times he's tried it?  Or that government workers and unions say that spending cuts would be harmful?  To them maybe, but not to anyone else.

Tuesday, September 13, 2011

Vote for Me!

Well, it turns out the President couldn't leave bad enough alone.  Instead of simply being satisfied with raiding Social Security to fund his so-called "Jobs" plan, he decides to double-down and raise taxes as well on everyone making more than $200k per year--you know, the Millionaires and Billionaires!  [I guess he thinks that anyone making less than that is too stupid to realize that $200k doesn't make you a Millionaire--"Ooooh, you make $200k, you must be a Millionaire!"]

So now the net effect, if you can believe it, is a tax increase!  You can't make this stuff up!  Here's how it works:  (1) reduce payroll taxes and thereby reduce amount going to Social Security so Social Security liability increases--net effect zero, then (2) reduce deductions for anyone who is a Millionaire--you know, the guys making more than $200k--which, to anyone with a brain, is the same as raising taxes and would predictably result in job losses.

If the tax increase was going back to Social Security, then the whole charade would just be a thinly veiled "tax the Republicans, bribe my base" strategy.  But nothing has been said about returning anything to SS, so I'm not really sure what the strategy is--my best estimation is that it's a "fool my base by telling them I'm going to give them money that I will take from rich people but will really be taken from their own Social Security and use the money that I actually take from the middle-class, which by this point is mostly Republican, to pay for more Democrat pet projects--you know, vital ones like repaving the Delaware Turnpike for, what, the 10th time in the last 10 years using, of course, union labor" strategy.

The sad thing is that if the President hadn't passed Obamacare, the country would by now be well into a recovery (just look at long bond yields, which began to fall immediately after its passage, for evidence).  And now he wants to raise taxes as part of a Jobs plan!  Is he really that clueless about how economies work?

Ultimately, my take on the President's Jobs program is that it's all just a show anyhow.  Like I've said before, it appears to me that he really has just given up.  He likes the perks but by now knows he's in over his head.  Weeks of vacation while the country waits for his Jobs pronouncement?  80+ rounds of golf in less than three years?  Is this guy President or King?  [Any golfers out there? Even for the President it probably takes most of a day to play a round (motorcade to and from golf course, 4+ hours to play, lunch...etc.).  At that rate, 80+ rounds is nearly 3 months of golf!  If I hadn't seen his swing I'd swear he was practicing for the Senior Tour!]

All that being said, at this point, I think that the only thing President Obama really cares about is being re-elected (like I said, he likes the perks) and that he's gone back into the one mode he understands:  election mode.  He knows the Republicans won't accept higher taxes and is just using the whole situation to support his new campaign slogan:  "I tried."

Monday, September 12, 2011

Are you kidding me?

So the President finally revealed his new "Jobs" bill last week and it's even worse than I suspected.  The payroll tax cuts that make up most of the bill and are supposed to encourage hiring don't even go to employers!  Instead, the cuts are simply a reduction of the Social Security tax paid by employees.  What part of lowering the cost of hiring don't the Democrats understand?  Are they so antagonistic towards employers that they won't do anything to encourage them to hire?

What's ironic about the President's proposal is that it's a clear example of the trickle-down economics that the Democrats have mocked for years--writ very, very teeny.  The problem, in this instance, though, is that the money is coming out of a program that's already in danger of failing and will just push it a little closer to the brink.  Since the reduction in payroll taxes will be exactly offset by an increase in Social Security's liabilities, how exactly is that supposed to boost the economy?  [When tax cuts are actually offset by spending cuts, that's a different ballgame.  Then spending shifts to the private sector, which is far more efficient at producing goods and services--and the jobs that go with them--than the government.  Tax cuts that aren't offset by spending cuts, whether made by Republicans or Democrats, have the same incremental utility:  NONE.]

While the President's plan may boost spending in the short-run it's very unlikely that any meaningful increase in employment will result.  Business people look past this sort of short-term manipulation when they decide whether or not to hire.  They aren't as stupid as the President thinks they are and he isn't as smart as he is constantly told.

Thursday, September 8, 2011

Party of the Not Working Man

In my opinion, the Democrat Party should be redefined as the party of the Not Working Man since nearly everything it does or supports is destined to increase their number.

The Democrats seem to have forgotten the basic concept that in order to have employment you have to have employers!  And successful employers make money!  Employers that don't are not employers for very long!  If Democrats were truly the party of the WORKING Man, they would want to increase the number of successful businesses so that the demand for employees (i.e., the Working Man) would increase as well.  If that were the case, the law of supply and demand would take over and, breathe deeply Democrats, wages of the Working Man would actually rise!  [The ironic thing is that by increasing the number of businesses competing for the Working Man, the proportional profits of employers would also decline.  The great income inequality that Democrats bemoan so much can be laid at the steps of their own policies!]  

If you wanted to reduce the number of Working Men, you would do things like raise taxes, make businesses pay for increased benefits, pile on regulations.  All of those things make it less profitable for a businessperson who might actually have wanted to hire them, reducing demand for employees and driving down wages.  Oh yeah, isn't that the Democrat Party's economic platform??!!

Who are the Democrats biggest supporters, without whom no Democrat would ever be elected?  Unions, the most anti-employer, anti-Working Man group ever conceived.  "Wait", you say, "you are crazy, Unions are the defender of the Working Man."  Nothing could be further from the truth.  Unions are the defenders of no one but their own self-interest.  By demanding usurious wages and benefits, Unions single-handedly drove nearly all of American manufacturing off-shore, destroying millions of jobs that used to be filled by the Working Man.  Now they are bankrupting our cities and states.

The few unionized manufacturers who remain are mere shadows of their former greatness, a greatness that for the likes of General Motors and United States Steel was forged in the shadow of World War II when demand for their products exploded and supply was constrained due to the fact that their competition in Germany and Japan had been destroyed in the War.  When those countries rebuilt and their heavy industrial capacity was brought back on line, they thrashed America's unionized manufacturers for one simple reason--their companies were not saddled with the same onerous labor costs as in the United States so they could actually invest in technology and innovation.

The math is very simple:  union wages at double the norm could employ twice as many if halved.  Twice as many employees would mean more production which would mean more competition which would lower prices for consumers.  Lower prices for consumers would mean more consumption.  More competition also means more innovation to manage scarce resources (n.b., in my opinion John D. Rockefeller probably did more for the environment than any environmental group ever has or will.  By innovating, Mr. Rockefeller's company eliminated nearly all waste from the oil refining process, waste which had previously been dumped in Lake Erie and is now sold as by-products.  He didn't do this because he was a nice guy.  He wasn't.  He did it because it made him money.  He also employed a LOT of Working Men.).

Now reverse the process and you'll understand the true impact of unions:  higher wages for the fewer employed, less production, less competition, higher prices, less consumption and less innovation.  And this is the group that the Democrats have allied themselves most closely with!      

So while the Democrats advertise themselves as the party of the Working Man, nothing could be further from the truth.  Party of the Not Working Man is how I see it.

Tuesday, September 6, 2011

The Church of the United States

When the Founding Fathers wrote the Constitution, keeping religion out of government was deemed so important that it was codified as the First Amendment.  Which begs the question, what is religion? 


One definition found in Webster's dictionary is  "the service and worship of God or the supernatural."  The definition I am more interested in, however, is "a cause, principle, or system of beliefs held to with ardor and faith."  Essentially if a belief requires its adherents to have faith that it is true (i.e., it cannot be proven), I would suggest that it really should be considered religious in nature.

That being the case, it seems to me that while the Democrats have fought so hard to keep the Religious Right at bay, they themselves constitute a Religious Left, a sort of anti-religion religion, and all of the beliefs that they so passionately espouse are themselves religious in nature and should be as separate from government as any policy of the Religious Right.  

Let me give you an example: while the Religious Right opposes abortions, the Religious Left is not satisfied for the Supreme Court to have simply permitted them.  No, the Left requires the Federal Government to pay for abortions with public money, a portion of which is necessarily taken from members of the Religious Right!  Could there be any clearer violation of the First Amendment?  

But abortion is not the only issue that has crossed the divide.  Schools spend as much time teaching social policy, which is simply beliefs, as they do mathematics.  Services historically provided by the Church (e.g., feeding and caring for the poor) now are now the domain of government.       

All of these issues involve questions of belief.  And beliefs are religious in nature, whether in the service and worship of God or not.  Freedom of religion means not only that no one imposes their beliefs on you, but that you don't impose your's on them.  However if your Religion, like the Left's, is Government, its not surprising that the rights of everyone else get trampled.  

The pilgrims left England to escape the Church of England.  How disappointed they would be to find a new Church of the United States in its place.  

Monday, September 5, 2011

The Fed's Gun is Empty


According to Ben Bernanke, the Fed stands ready with additional potential undisclosed policy responses if the economy continues to struggle.  My question is to what effect?

As noted several times, the Fed's powers are limited to those of monetary impact; essentially it controls the money supply, historically by raising and lowering short-term interest rates that it charges banks, thereby encouraging or discouraging them from lending and speeding or slowing the economy as the case may be, and more recently by "Quantitative Easing", which is simply printing money.  With rates now at nearly 0% the Fed’s lending power is essentially spent; Quantitative Easing has produced the specter of inflation, nothing else. 

Under normal circumstances, rates this low would have already spurred the economy. But instead of giving the system time to reset and take advantage of the low rates, our President decided that the Great Recession was “too good to waste” and passed Obamacare, the most onerous piece of legislation in history, more than cancelling out the positive interest rate effect. 

That being the case, can anyone truly be surprised that the economy is still bumbling along.  I'm surprised it's not worse.  What's really amazing is that the President does seem to understand the basic reason why since his coming so-called "jobs speech" is rumored to contain a number of reductions, albeit small ones, to business taxes and possibly some regulatory easing.  Duh!  I guess he's not totally clueless regarding the impact of Obamacare!

But the point of this post is not, once again, that the President made a huge mistake by passing Obamacare. It's that counting on the Federal Reserve to do anything else beyond what it's already done is like believing in the Wizard of Oz.

When Lehman Brothers failed, the Fed arguably saved the world from a catastrophic meltdown by providing liquidity and backstopping the survival of American banks.  That's what it didn't do in 1929 and no doubt pushed the country into the Depression.   Beyond providing liquidity, however, which is really just a fancy term for printing money (or making sure everyone knows it will), the Fed can't do anything!  Everything it does--or has ever tried to do--is just some variant on that power. So when the Fed says they still have options, all they mean is that they have other ways of printing money, which would really only be useful if the system threatens to lock up again—not for creating jobs or growing the economy.  It has no secret job or growth creating powers.  And I'm not sure that either the President or the Congress realizes that.