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Aug 17, 2013

Roosevelt Fights the Depression

Government:  We love farmers. We will help them by raising their prices.
Mike:  How?
Government:  By destroying their crops and paying them not to grow more.
Mike:  Hold on. I will have to pay more.
Government:  Sorry. You don't see the big picture.
Mike:  You don't see me at all.

Econlog by David HendersonGalbraith and the Southern Sharecroppers
08/16/13 - Econlog by David Henderson

[edited]  The government's goal was to reduce output and thus raise prices for crops. This helped farmers, but it hurt everyone else. You don't make people better off in general by reducing production and consumption. The only way to increase a nation's real income is to increase its real production.

Farmers received so-called "allotment payments" to not grow crops. An unintended and totally predictable consequence was that farmers no longer needed sharecroppers. Sharecroppers were mainly in the South and were already in bad shape. They suddenly found themselves out of work, with no crops to grow.

Did Galbraith and Steinbeck Ever Discuss This?Econlog by David Henderson
08/17/13 - Econlog by David Henderson

[edited]  President Franklin D. Roosevelt's NYTimes - FDR's Disastrous Experimentagricultural policy in 1933 was to pay farmers not to grow crops and to destroy crops and animals in order to drive prices up. This did increase prices, and more people went without or starved because of this.

Economist John Galbraith knew this. Yet, Galbraith's friend John Steinbeck attributed those policies to farmers rather than to the government. I wonder if Galbraith ever told Steinbeck the truth: the criminal here was Franklin D. Roosevelt. He's the man against whom Steinbeck should have directed his wrath.

In "The Grapes of Wrath", Steinbeck describes that farmers sprayed oranges with kerosene to make them inedible, and what this meant.

There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success.

The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificates "died of malnutrition" because the food must rot, must be forced to rot.

The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quicklime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is a failure; and in the eyes of the hungry there is a growing wrath.

In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.

See the article at Collecting My ThoughtsNew Deal Spending
Henry Morgenthau Jr. was Treasury Secretary to FDR in 1939.

We have tried spending money. We are spending more than we have ever spent before and it does not work. I say, after eight years of this administration, we have just as much unemployment as when we started, and an enormous debt to boot!

Click to the articleCash for Clunkers Folly
09/2010 - Boston.com by Jeff Jacoby   (v)Via Cafe Hayek

FDR's wrongheaded policies are promoted by today's government. We can supposedly increase prosperity by destroying property that would be useful to poorer people. Government acts to help specific people by harming people in general.

[edited]  Prices for used cars are up 10% from last year, partly from increased demand for used vehicles in a poor economy.

A bigger reason is that the supply of used cars is artificially low because of the government's hare-brained Car Allowance Rebate System, "Cash for Clunkers".

The government paid up to $4,500 to subsidize trading-in an old car and buying a new one with better gas mileage. The trade-in had to be driveable. Then, dealers had to chemically wreck the engine and crush the body. This destroyed hundreds of thousands of good automobiles.

Congress and Obama claimed "success beyond anybody’s imagination." Yes, if success is giving out money to buy a car most people would buy anyway, and wiping out productive assets that could provide value to other consumers.

The environmental benefits cost $237 per ton of reduced carbon emissions, compared to $20 per ton in the carbon offset market.

Click for the articleA Few Words About Policy
07/2009 - Easy Opinions

How do our representatives know that their legislation will help anything? The legislative language is less important than the research showing that the legislation will be of good effect. Where are the research papers that support the bills? This research has to be there. We need to see it.

No research? Then at least show me the notes on the cocktail napkin.

Jul 18, 2013

The Illogic of the Keynes Multiplier - 1

John:  Here are my restaurant bills for the last 5 years.
Mike:  Another discovery?

John:  My restaurant spending is always close to 10% of my income. That is, my income is 10 times my restaurant spending. So now I know a fun way to increase my income.
Mike:  I have to hear this.

John:  I will increase my restaurant spending by $2,000, and I will enjoy every minute of it. Then, my income will go up by about $20,000. That is what the chart says.
Mike:  You're nuts.
John:  No, I'm Keynes.

Reading Notes:  If you are familiar with the Keynes Multiplier or are impatient, jump directly to the section An Unreal InterpretationA link there will return.. Then read Equations and CausationA link there will return.. Then read the rest, of course.

The Keynes Multiplier Is Important

The Keynes Multiplier is probably the most important equation in history, despite using only introductory algebra. It has changed the world. It supports the big spending (fiscal, borrow and spend) policies of the United States government and the European Union.

 Total Income = 5 * (Investment + Govt Spending) 

It supports the belief that increased government spending (stimulus) produces more wealth than the money spentSpending decreases your wealth. It is only what you get in return, if anything, which increases it., at least when there are people out of work or economic growth is slow. If government spending increases total wealth, then huge spending is always good.

The famous economist John Maynard KeynesSee a few criticisms of Keynes at The Political Dictionary (1883-1946) (M)See Wikipedia for his life story. proposed ending the Great Depression by having the government spend lots of money, by first taxing, borrowing, or printing it. Politicians heartily agree, spending to fix every problem in good times and bad. This doesn't seem to help much, so their plan is to keep spending until it does.

Something Is Wrong

Steven E. LandsburgMore about him  is a Professor of Economics at the University of Rochester. He has two excellent posts at his blog TheBigQuestions.com exploring an amazing defect in the logic used to explain the Keynes Multiplier.

•  The Landsburg Multiplier
  -   How to Make Everyone RichSee his post.

•  Comments on the Multiplier postSee his post.

Landsburg derives his multiplier by using the same logic that Keynesian economists use to derive the Keynes Multiplier. He analyzes the relation of national income to his own income.

The Keynes Multiplier is about spending. The Landsburg Multiplier is about income. Both derivations use the same procedures, math, and logic.

Landsburg shows:

 Total Income = 100 million * Landsburg's Income 

So, Landsburg wryly suggests that people send him all the extra dollars they have, this will add to his income, and $100 million of added production will appear in the economy for each dollar sent to him. This will make us all rich.

Landsburg says correctly that this is an absurd result. This derivation of the Landsburg Multiplier must be wrong, and so the derivation of the Keynes Multiplier must be wrong.

Where is the error? It is puzzling that the facts are true and the math is simple. Landsburg suggests that the derivations may be wrong because they do not allow for the changes in consumer spending which likely follow changes in government spending. Equations describing economic behavior are unlikely to remain valid after a change in economic policy.

Economics is supposed to guide policy. This general criticism is that any economic formula might not be true after changes in economic policy. The formula might not predict results because the participants change their actions in response to the policy that the formula recommends.

This applies to all formulas and derivations. They represent what you think is true at some time. Rarely does everything interact in the same way after a significant change. Whatever the formula, you must verify the results in reality.

That criticism is good and often overlooked. But, it can't be what is wrong with the Multiplier. We get impossible results from the logic alone.

The truth is that the Multiplier is a wildly unrealistic result derived from an illogical argument. That is bad enough in a high school paper. It is alarming for a false insight which is used to mismanage societies.

An irony. It is harder to unravel and identify the errors in a simple argument than in a complex one. Those errors contain subtle defects, changes in meaning, and illogical conclusions. Once a person believes a simple argument, his tendency is to reject criticism, because it is hard to stop believing something he thought was obvious.


The Keynes Multiplier is the statement that the total income of the United States (or any country) is about five timesThe actual claim varies according to a broad estimate of consumer spending. This is an omen that something is not right. the amount of money invested in businesses and spent by government.

 Total Income (GDP) = 5 * (Investment + Govt Spending) 

GDP is Gross Domestic Product, the total production of goods and services in the US in a year or other specified time interval. Income is the flip side of production. Each person's income is the value he receives from his production. Someone receives income for every bit of production.

Keynesian economists see this as a fundamental economic truth first discovered by Keynes. They continue to the Keynes Conclusion that the total income of the country increases by 5 times any increase in government spending, or some similar multiplier.

They could conclude the same thing about increases in Investment, but politicians and Keynesian economists don't understand investment.

That increased income is supposed to appear as increased production, namely increased real wealth.

The Keynes Multiplier presented here is derived from reasonable assumptions and is only complex enough to make it seem significant. The 7th grade mathematics is simple and correct. Yet:

  • The derivation presents a reversal of cause and effect.
  • The conclusion presents a fact about the equations as if it is a fact about reality.

These fatal errors hide in a few simple equations and a seemingly obvious conclusion. Like a magician pulling a rabbit from his hat, everything seems ordinary until the rabbit appears. You may think that I am exaggerating, but bear with me.

Landsburg reports that this derivation is widely taught. For example, it is presented in the popular textbook "Macroeconomics" by Robin Wells and Paul Krugman, and in a textbook by Paul Samuelson. Those noted economists apply an equation to economic policy without checking on reality, and they have made fundamental errors in logic.

How could Keynesian economists with advanced degrees and world acclaim present this idiotic derivation and conclusion about what they have studied in great detail? It is a puzzle.

Landsburg notes a subtlety. Defenders of the conclusion might agree that the Landsburg Multiplier is absurd, that we can't trust the reasoning which produced it, and so we can't trust that same reasoning to produce the Keynes Multiplier. But, the conclusion might be shown in some other way.

The conclusion confuses cause and effect. It is no wonder that it can be derived from a confused argument.

This Derivation of the Keynes Multiplier

We first allocate All Production into three categories depending on who buys it: Household Spending (Consumption), Business Spending (Investment), or Government Spending (Govt). The flip side of production is income; all production is someone's income, so we can write All Income (Y, GDP) for All Production.

K1:   All Income  =  Household + Business + Govt 

K2:   Household  =  0.8 * All Income 

K2 is the estimate that 80% of all production goes to households as Consumption spending. This estimate might be incorrect, but this doesn't change the logic and general conclusion. It is plausible.

This is somewhat different from Keynes' Propensity to ConsumeSee also Economics Exposed.com.. That is the fraction
  (consumption spending) / (disposable income)
for any level of disposable income.

K3:   Business + Govt  =  0.2 * All Income 

Business and government purchase the remaining 20% of production.

K4:   All Income  =  5 * (Business + Govt) 

Switch the sides in K3, then multiply each side by 5. The result is K4, the Keynes Multiplier.

K5:   Increased All Income  =  5 * Increased Govt 

This is the Keynes Conclusion. Supposedly, if we increase Govt SpendingPoliticians, report to your tax and spend stations!, All Income will go up by 5 times that increase, and the additional income (GDP) will heal the economy.

What is the mechanism that increases production by a factor of 5? Amazingly, that detail is not in the equations. A statistical observation is supposedly telling us that spending $1 creates $5 of new production.

If we do the above using the Household fraction (K2), we get a spending multiplier of 1.25 for any increase in Household Spending. What is it about Household Spending in reality that gives it a different multiplier than Government Spending or Business Spending? It seems that this puzzle has remained unexplained.

Equations and Causation

Equations are convenient for relating quantities. They can "model" known or proposed relationships between physical things in the real world. But, equations don't care about how they are interpreted or about cause and effect. That is the responsibility of the user. For example:

Economist Bill studies how people react to rain. He observes:

 Raining  =  Many people wear raincoats 

Bill reads this as "When it rains, many people wear raincoats", and the reverse is also true "When many people wear raincoats, it is raining". Bill has observed this for many years without exception. It is an established result in the physical world.

Bill knows that rain causes people to wear raincoats and that wearing raincoats does not causeThis has been extensively studied and verified. it to rain. The mechanisms of the physical world are not part of the equation.

Bill's inexperienced assistant John looks at the equation and says "Now I know how to make it rain. If I can get more people to wear raincoats, then it will very probably rain. If I change the right side of the equation, that will change the left side. That is what '=' means."

Bill explains to John. "If you hear that many people are wearing raincoats, then in all of my experience it is raining. If you hear that it is raining, then in all of my experience many people are wearing raincoats. The equation expresses what we observe in nature, but it doesn't say anything about one thing causing the other. You have to look at the physical world to see what is going on."

An equation can accurately describe the observed relationship between quantities in the physical world. Still, that says nothing about what will happen if you try to physically change the system that you hope is represented by the equation. It is the difference between observing a system of many parts and changing one of those parts. You can't know from your past observations what that system will do in its changed form. You can't know the real cause and effect unless you specifically determine that by examining the physical world.

John understands. He can't conclude from the equation that raincoats cause rain. But, clearly rain causes raincoats.

Maybe simulated rain also causes raincoats. He uses a water hose to sprinkle the public, just like rain. But, they don't put on raincoats. Instead, they punch him in the face.

What is it about real rain, but not simulated rain, which causes many people to wear raincoats?

Life is complicated. Even if you respect cause and effect, you cannot know how a change will affect reality unless you have studied the physical details and have shown by observation that the changes do what you predict.

This is especially true of economics, which is the study of amazing complexity, namely of people, their interactions, and motivations. You can record what people do. This may suggest that changing something will have a desired effect. In reality, you don't know unless you study the change and the effect.

The simulated rain example may seem contrived. John was punched for reasons completely apart from the quality of the sprinkled water. That is the point. There is immense complexity in simulating economic conditions. The participants will see the manipulation, include that information into their response, and may act in a different way than they did before.

Mathematics is only an aid to thinking. It represents insights and quantities in a way which can be easily written and combined. The results can suggest more things to think about and investigate.

Physics gives mathematics a reputation for predicting the future. The universe seems to follow mathematical results, but it is actually mathematics which has been constructed to model the universeSee also About.com - The role of mathematics in physics.

Physicists know that their mathematics is almost always a simplified model of reality. They are dismayed but not surprised to find that an equation makes bad predictions. They always compare their expectations to reality to correct inevitable mistakes. When in doubt, they distrust the math, not reality.

The inspiring particle physicist Richard Feynman (1918-1988) fought for open, transparent science. He wrote:Cargo Cult Science, from the 1974 Caltech commencement address.

When someone says, "Science teaches such and such", he is using the word incorrectly. Science doesn’t teach anything; experience teaches it. You should ask, "How does science show it?"

How did the scientists find out? How? What? Where? It should not be "science has shown". And, you have as much right as anyone else, upon hearing about the experiments and after hearing all the evidence, to judge whether a sensible conclusion has been arrived at.

Airplanes are designed with well understood equations representing tested physical principles. Still, every airplane design is thoroughly tested for flight worthiness. Mathematics is a sophisticated guide to building and testing, but assumptions and math may not predict reality.

Which airplane would you like to fly on? One has been designed by teams of engineers using super-computers, but never tested. The other has been built from rough estimates and is thoroughly tested.

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An Unreal Interpretation

We will look at the derivation again and keep track of cause and effect. To save space and thought, BusGovt means Business + Government Spending, and All is All Income

K1:  All  =  Household + BusGovt
K2:←   Household  =  0.8 * All
K3:BusGovt    =  0.2 * All
K4: → All  =  5 * BusGovt
K5: → Increased All  =  5 * Increased BusGovt

This derivation describes a relationship between numeric values. It doesn't care about cause and effect, and it may not represent reality even if the reader thinks that some or all of the relationships are realistic. Math models may do a good job of representing reality in some ways, and be wildly wrong in others.

Physicists know this about mathematics. It seems that Keynesian economists do not, or choose to ignore it. The following facts are so basic that it is embarrassing to explain them.

The red arrows above are a reminder of what we see as cause and effect. When I say "the equation tells us", remember that we are getting back in some form just what was put in.

( Click on the K1 .. K5 labels below to pop up the above equation being explained. )

K1    All  =  Household + BusGovt  is an accounting identity. The "=" tells us that these amounts always add up. The double arrow says that I expect both sides to be equal in reality, even if I meddle. If I increase my total spending by $100 to buy donuts, production of donuts also goes up by $100 (after some inventory fluctuations), and others get $100 more in income. K1 balances approximately even if I meddle with the physical world.

K2    Household  =  0.8 * All  says that Household Spending is 80% of All Income (All Spending). We might be thinking that it is approximately 80%, but we have specified that it is exactly 80%.

The red arrow points to the left. It reminds us that we think Household Spending is a result of total spending (total production). If we can increase total production through better government policy, we expect that Household Spending will get 80% of that production. We think Household spending is a part of total production.

Still, all of this would have to be checked against reality. Increasing total production might not increase the part going to households. For example, building tanks for war does not result in households receiving 80% of the tanks. If households buy 80 more donuts, they get just those donuts. There is no reason to believe that 100 donuts are produced so that households receive 80 and BusGovt receives 20.

K3    BusGovt    =  0.2 * All  is all spending other than Household. The proper interpretation is:

The red arrow for K3 points to the left. It reminds us that we start with All Income produced in unspecified ways. We know that production supports investment, taxes, and government borrowing. Somehow, that averages out to BusGovt getting 20% of production. Our knowledge of physical processes makes the cause and effect in K3 believable.

K3 is a summary of past observations. The economy is a natural system resulting from the complex interplay of people and politics. It has produced values approximately satisfying K3.

If we are interested in a particular value of BusGovt, then we can use the model to calculate the naturally occurring value of All Income that would produce that value of BusGovt.

If we meddle and change that natural system by redirecting spending, K3 is only a weak suggestion about how the economy will change. Only direct observation could tell us that.

K4    All  =  5 * BusGovt  is a restatement of K3, having the same meaning in all respects. The cause and effect arrow now points to the right. We still believe that All Income determines (causes) BusGovt.

But, the presentation of K4 suggests that we start with BusGovt to calculate All Income. The strong suggestion is to reverse cause and effect, to accept that somehow BusGovt causes All Income.

We must decide if that possibility has physical meaning. It is illogical to believe that the equation alone is enough to predict that BusGovt Spending causes 5 times its value in Income. It is laughable that this interpretation rests on no physical processes whatsoever.

K5    Increased All Income  =  5 * Increased BusGovt  is the conclusion repeated everywhere. It reverses cause and effect, and it assumes that we can predict the results of changing a natural system.

The cause and effect we specified starts with Increased All Income to produce a 20% increase in BusGovt, enough to balance the equation. That is truly boring.

It is much more exciting to accept a reversal of cause and effect merely because the usual computational flow of K4 suggests it. It is illogical to believe that the physical world cares about the order of the terms in K4 and the resulting K5.

Say that I increase BusGovt Spending by $1 billion. By what possible physical mechanism is the universe going to respond to this by increasing All Income just so K5 will balance? What has caused learned economists to interpret this model in this unphysical way?

Many cars have a dial odometer. A red pointer moves like the hand of a clock, pointing to the speed of the car. The odometer always shows the correct speed if you limit yourself to observing the odometer and verifying the speed. A Keynesian observes that the car is traveling 30 miles per hour and takes action. He grabs the red arrow and pulls it to the right, believing this will speed up the car. That is what the equations say to him.

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The Undead

The analysis above is enough to discredit this simple derivation of the Keynes Multiplier. Anyone using this derivation should be ashamed. But, as Landsburg points out, a bad derivation doesn't prove that the result is wrong, only that it remains unproven.

There is another more complicated derivation more closely associated with Keynes. I will pick that one apart in another post.

That complicated derivation must also be wrong. It has all of the characteristics of the derivation above, but with flashier mathematics. It is also an accounting derivation. It mentally tracks the supposed flow of money through the economy without providing any physical analysis. It does not consider how production is accomplished. Amazingly, it blames investment for lowered incomes. It says that we could all consume a multiple more if we invested less of our incomes.

That goes against the physical observation of how income is produced, and it ignores cause and effect. The problem of producing more cannot be solved by the act of spending. An individual can only spend the income that he earns from his production, or has saved from his past production, or has borrowed from the production or savings of others. The government can only spend what it first takes from current production and savings.

The idea that Spending causes Production is a reversal of cause and effect. We can only exchange what we produce (or promise that we will produce). Exchange with other people is called Spending.

All we need for a utopia is to reverse cause and effect. All we need for infinite energy is to reverse a few physical laws. All we need for a happy and productive society is to give all resources to the government for wise spending and multiplying.

- -
Keynes' Propensity to ConsumeGet a feel for it. I don't recommend reading it deeply.

This is a chapter from "The General Theory of Employment, Interest and Money" by Keynes. This type of dense writing impresses some people. To me, it is used to obscure any proposed theory and prevent any clear analysis. Any criticism can be met with "you didn't properly understand the detail in section 3.6".

Let's Counterfeit Our Way to WealthI wish it were true.
02/2009 - Easy Opinions

A fantasy supports the idea that our government increases the wealth of our society when it borrows and spends. Supposedly, government spending increases wealth by a conservative multiplier of 1.5.

There is no wealth multiplier from the flow of money. If there were, we would all be living in Aruba by now as a result of huge government borrowing and spending.

See posts about Keynes and his economics ...Search Label: Keynes at EasyOpinions

Jun 11, 2013

Government by the Best of Men

Jay LenoNationally broadcast comedian.:  "The National Security Agency seized millions of Verizon phone records, and of course this has caused a panic among civil libertarians, constitutional scholars, and cheating husbands everywhere. Oh my God. How ironic is that? We wanted a president who listens to all Americans. Now we have one."

Obama's Power GrabMr. Reynolds is a law professor and nationally known blogger.
06/10/13 - USA Today by Glenn Reynolds  [edited]

Our government has used the IRS to attack political enemies. It has gone after journalists who publish unflattering material. It has jailed a filmmaker as scapegoat, hoping to support an election-season claim that al-Qaeda was finished [and avoid explaining the security failures of the Benghazi mission].

Would our government have any qualms about misusing the massive power of government-run snooping and Big Data?

We have seen a pattern of abuse. There's little reason to think that pattern will change, absent a change of administration, and quite possibly not even then. Sooner or later, power granted tends to become power abused. Then there is the risk that information might leak, as recent events demonstrate.

Obama's supporters present him as an unusually talented, smart, and articulate man. He has been elected twice to the presidency. His skin color gives him experience for understanding the needs of the common man beyond any possible understanding possessed by a white candidate. He is both academically and politically excellent. He has been called "the One" and a "lightbringer" by his supporters.

He promised a new era. Government would be honest and transparent. It would be everyone's government, and would bridge the differences between Democrat and Republican to bring us all together with scientific reason.

Obama is the counterexample to the repeated claim that centralized government and Socialist policies will work, if only men of good quality are elected. Obama is the best. These scandals and failures show that even an extraordinarily gifted and benevolent person cannot control the dangerous tendencies of a huge government with the power to supposedly correct all problems high and low.

The government under Obama has been doing some very bad things that Obama has loudly denounced. The puzzling part of this is that he has been in charge for 4 1/2 years. He didn't bring the agencies of government under his benevolent control. If Obama is not up to the job, then who would be?

The IRS, Obama, and Plausible DeniabilityClick for the article.
05/24/13 - The Washington Times

Which sounds worse? Obama the Liar who knew everything or Obama the Dense who knew nothing? Obama's surrogates have a hard time choosing the lesser of two evils.

“Plausible deniability” manages to avoid both interpretations. Supposedly, Obama was deliberately shielded. His subordinates did not want him to know. They are so loyal, they will take the fall by enabling him to say with a straight face that he was uninvolved in the scandal.

I was sarcastic above describing Obama as the best. I never wanted Obama as president. He delivers a great speech from a teleprompter. He believes things which are uneconomic and unworkable. We will see this in more ways than just the current failures.

So, how can I say Obama proves that big government is unmanageable even by the best? Because, he was presented as the best possible candidate by liberals who also acknowledge the mismanagement of our government. If their "best candidate ever" cannot make it work, then who can? It doesn't matter that I didn't like him. It only matters that they loved him. Where will we find the angels who will rule over us with an ever-more-powerful government?

I don't want big government under any president, whether liberal, conservative, or libertarian. People are too flawed to be given great and unchecked power.

Richard Epstein Discusses Barack Obama04-2009 Easy Opinions

Richard Epstein is a Professor of Law at the University of Chicago Law School. He talked occasionally to Barack Obama when Obama was there as lecturer.

Epstein [edited]: The fundamental mistake of Obama's entire world view is that he treats contracts as devices for exploitation and not as devices for mutual gain, and he assumes that redistribution can take place without any negative impact upon production.

If you live in that kind of a fairy land, which I think he does, every one of his major social and economic initiatives are going to misfire. And, if they succeed, God forbid, in getting through, they are going to intensify the downturn that we have already experienced. He is the wrong guy for the job based on his intellectual format. The question is whether you can force him back

Top Twenty Obama Administration ScandalsClick to the original post.
05/31/13 - White House Dossier by Keith Koffler   [edited, information added]

Here are some of the accusations against Team Obama's people, policies, and actions. The defenses fall into the categories:

  • [silence]
  • We don't apologize.
  • I want to work with Congress to update the law to prevent us from doing this again.
  • No one here knew about this until we read it in the papers.
  • My staff, senior managers of government departments (eg. the IRS), and/or my cabinet secretaries knew, but didn't tell me about it until I read it in the papers.

1.  The IRS delayed tax-status approval of conservative and pro-Israel groups prior to the 2012 election. Liberal groups were approved promptly. Method: Extended bureaucratic inquisition.

2.  The administration failed to protect the US diplomatic site in Benghazi, Libya, did not send military aid to personnel under attack, initially described the attack as a demonstration, and will not say what Obama was doing that evening.

3.  The Justice Department collected the phone records of Associated Press reporters as part of a leak investigation.

4.  The Justice Department monitored phone calls and emails by Fox News reporter James Rosen and his parents. They obtained a warrant by saying he was a co-conspirator and flight risk for asking about classified information.

5.  Attorney General Eric Holder told Congress he had never been associated with a “potential prosecution” of James Rosen. Yet, he had signed the affidavit for the warrant in (4).

6.  The ATF “Fast and Furious” scheme sold weapons illegally to go-betweens for Mexican drug cartels. The ATF lost track of hundreds, many of which were used in crimes, including the December 2010 killing of Border Patrol Agent Brian Terry.

7.  Eric Holder told Congress in May 2011 that he had just recently heard about the Fast and Furious scheme. But, he may have known much earlier.

8.  HHS Secretary Kathleen Sebelius solicited donations from companies which HHS might regulate. The money would be used to help her sign up uninsured Americans for ObamaCare.

9.  "Pigford" is an Agriculture Department effort to compensate black farmers who had suffered discrimination by the agency. It evolved to deliver several billion dollars to thousands of additional minority and female "could have been farmers" who probably didn’t face discrimination.

10.  The General Services Administration in 2010 spent $823,000 on a training conference in Las Vegas. It featured a clown and a mind reader. The GSA administrator resigned.

11.  The Veterans Affairs agency wasted more than $6 million on two conferences in Orlando. An assistant secretary was fired.

12.  Kathleen Sebelius called for the election of the Democratic candidate for governor of North Carolina during an official speech. A US special counsel said this violated the Hatch Act, which prevents politicking using official resources.

13.  Team Obama funded and promoted Solyndra to make solar panels, despite warnings of bankruptcy. It allegedly pressed Solyndra to delay layoff announcements until after the 2010 midterm elections.

14.  Former EPA Administrator Lisa Jackson used the name “Richard Windsor” on unofficial email accounts within the agency, against existing rules.

15.  The Justice Department applied a racial double standard. It dropped a case against Black Panthers who appeared to be menacing voters at a Philadelphia polling place in 2008.

16.  Obama violated the Constitution and the War Powers Resolution by attacking Libya without the approval of Congress.

17.  Vice President Biden’s office has repeatedly interfered with news coverage. It forced a reporter to wait in a closet, made a reporter delete photos, and edited pool reports.

18.  The administration paid millions to AKPD Message and Media to promote passage of Obamacare. Was AKPD hired to help pay Axelrod $2 million that AKPD owed him?

19.  Former White House Chief of Staff Rahm Emanuel used Bill Clinton to ask former Rep. Joe Sestak (D-PA) to drop out of the 2010 primary against former Sen. Arlen Specter (D-PA). Sestak could have a prominent, unpaid White House advisory position in exchange.

20.  Obama has repeatedly implemented policy by selectively enforcing laws. Had Congress passed the "Dream Act", some illegal immigrants would have gained legal residency. Obama accomplished the same end by refusing to deport those immigrants.

May 2, 2013

Investing in New Technology

Cabinet Secretary:  We will assure a bright energy future by investing in exciting, new technology on an impressive scale.
Mike:  Have you evaluated the business plans?
Secretary:  They are new and have no real comparison.
Mike:  How do you know they will work?
Secretary:  We have the best and the brightest. The government has deep pockets. We must explore the future. We can't just do nothing. Think of how wonderful it will be if it works.

Partisan Thinking About Energy
04/30/13 - CoyoteBlog by Warren Meyer  [edited]

[edited]  Kevin DrumAt Mother Jones:  The Right does not use empirical data [facts] to discuss climate change and global limits on oil production. This is weird as hell. I mean, why would they disparage development of renewable energy?

Statists like Drum believe that support for renewable energy requires support for government subsidies and interventions. Few people, even conservatives, oppose renewables per se. This is a straw man. They oppose the subsidies and government mandates for renewable energy.

Conservatves criticize the incentives of politicians, their weak oversight over spending, and the typical wasteful results from political incentives. Money is almost always directed toward supporters who provided campaign contributions. These supporters mysteriously increase their contributions after winning contracts.

New technologies are particularly ripe for graft and manipulation. The government always "invests" (spends) for technology that private investors will not voluntarily pursue on a large scale. These projects by definition have no comparison to private projects. There is no way to compare a government investment in "new technology" to similar investments, until the disaster at the end.

Politicians proudly announce along the way that the new technology is more expensive than current alternatives. That is why "the government must do it", because no one else is going to invest into a product which starts out more expensive (wasteful of resources) than the competition.

The politicians announce that the price will come down after a few years of experience. They don't consider that the price of the alterntives is also likely to come down during those years.

The result has been obvious and awful. Massive "green energy" projects regularly go bankrupt when they produce an unreliable product which is more costly than the already existing alternatives. Politicians excuse the huge expense and waste of these failures by saying "Private projects also fail. Don't blame us."

What do you expect?

Consider this business plan. I will sell candy bars, drinks, and sandwiches for far less than the competition. You can examine my spreadsheets. This is a winner. I will lower my costs through a revolutionary idea. I will place the goods on shelves in the morning, and people will pay for the goods on the honor system, leaving the money in a small box. I will collect the money in the evening, and will save on overhead by not employing any staff or cash register clerks.

I hear the shouting now. "You're nuts. Some people will steal your goods, and the money too. You will be broke in 5 days." I might object that most people are honest and will follow the rules. But, I would have to agree that some immoral people would ruin this plan. Oh well.

The Process of Government

Consider this business plan. I will empower politicians to select the best and the brightest to subsidize the best energy plans for a glorious future. Naturally, the investments will be huge and somewhat risky. That is why the fraidy-cat private markets won't do this necessary work.

I hear the shouting now. "You're nuts. The contracts will go to cronies who will bend the projects to their private benefit. These government plans are proposed by groups that expect to benefit. Most of the money will disappear with no viable project remaining. You will be broke in 5 years." I might object that most poltiicians are honest, patriotic, and will follow the rules. But, I would have to agree that some immoral politicians and businessmen would ruin this plan. Oh well.

Faith in Government

Here is the funny thing. An even louder shouting arises that "Government is good. Let's plan for a glorious energy future. Don't let a few immoral people spoil what can be a great plan and a better society. Don't be so pessimistic. You have an irrational hatred for government."

Both of these plans must entirely fail for the same reason. They must both work on trust. Even if most people and politicians are honest and good, it only takes a minority to steal all of the money. Each plan can only work in a world of angels. So, they can't possibly work.

Why do most people immediately see the problems with the sandwich plan, but can't see the problems with the energy plan?

This mystifies me.

Jan 30, 2013

Upper Class Inequality

Progressives:  We must break the cycle of privilege where lucky, wealthy businessmen bestow the means of production onto their children.
Mike:  Instead, wealthy politicians and bureaucrats will bestow their connections and access to prestigious schools onto their more worthy children.
  Notice how often the children of politicians enter politics. Just name recognition, I guess.

Upper Class InequalityRead the whole thing
01/30/13 - ChicagoBoyz by David Foster  [edited]

Progressivism is not about equality. It is about shifting the distribution of power and wealth in a way that benefits those with certain educational credentials and connections.

Many progressives graduated from Ivy League universities. How many of them would eliminate alumni preferences and have their children considered for admission on the same basis as everyone else? An alumni preference is an inter-generational asset in the same way as a small businessman’s store or factory.

Power and connections are convertible into wealth.

  • Former president Bill Clinton was paid millions of dollars in speaking fees last year.
  • Former government officials leverage their contacts into executive jobs with green energy companies, despite having minimal knowledge of either energy or business.
  • There are in-kind benefits, like a university president’s mansion. Residents of the old Soviet Union and Eastern Europe know all about those benefits for nominally low-paid officials.
  • Today’s progressivism is almost always about transfering power from individuals to credentialed experts who will coerce or “nudge” people to do what they think is best.

The talk about equality is substantially a smokescreen, possibly unconscious, behind which progressives pursue wealth, status, and ego satisfaction.

T.S. EliotThomas Stearns Eliot was an American-born English poet, dramatist, and literary critic (1888–1965).:  Half of the harm that is done in this world is due to people who want to feel important. They don't mean to do harm, but the harm does not interest them. Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves.

Jan 21, 2013

Prudent Spending

Republican:  Your spending is out of control.
Democrat:  We are only continuing the Bush 2009 spending, so stop complaining.
Pub:  You exploded that budget with the $831 billion stimulus.
Dem:  And you agreed.
Pub:  But, that stimulus was supposed to be a one-time thing.
Dem:  Yes, but we are continuing the goodness. We want more stimulation. If you disagree, just vote against that spending.
Pub:  We are trying to, but you won't discuss a budget, or even support Obama's budget.
Dem:  You are trying to wreck the country by dismantling the government. Have you no shame?

Democrats say that Republicans are spinning lies about Democrat spending. Here are the Democrat talking points, and they are mostly true from a distorted perspective:

  • Bush's outrageous FY 2009 spending is causing our huge yearly deficits and exploding debt.
  • Obama has been stingy in increased spending since 2009, every year he has been in office.
  • House Republicans approve of US spending every year, so why are they complaining? First they approved increased spending, and now they are making a fuss about the amount of debt, which their spending must increase.
  • The House and Senate have passed a budget every year as a continuing resolution. Yet, Republicans claim that we have no budget.
  • Republicans want to block the established, default operation of our government.

The Rest of the Story

Approving a federal budget in "normal order" means constructing and approving a budget in each of the House and Senate, then reconciling differences, and presenting that legislation to the the President for signature, if he approves.

The last US budget established in normal order was for the 12 months ending Sep 30, 2009. That is FY 2009 (Budget year, or spending yearFiscal Year 2009). Obama became President in January 2009. No usual budget has been passed under his direction for four years. See below for why.

The 2009 flood

The unusual spending event in 2009 was the Wikipedia$831 billion of stimulus spending proposed by Obama, generally approved by Bush, and signed by Obama in Feb 2009. That was added into the spending limits for government departments in FY 2009, and implicitly into the 2009 budget. It was sold as a one-time kick-start to the economy. It increased the FY 2009 NPR.org - The federal government collected taxes of $2,300 billion, borrowed $1,300 billion, and spent a total of $3,600 billion in 2011debt by $831 billion and did little except reward Democratic government agencies and political groups.

Since that time, Obama takes credit for an historically slow increase in spending in the following years, a model of spending restraint. Democrats point to Bush's 2009 budget as the spending blowout that is creating all of our debt today. They don't mention the $831 billion increase to that budget pushed through by Obama.

A flood every year

What about following years?  Senate Democrat majority leader Harry Reid has refused to even hold budget conferences in the Senate since 2009. Instead, the House and Senate pass "continuing resolutions" which allow the President and executive agencies to spend what they did in the previous year, plus some. The $831 billion "kick-start" has become a repeated increase in spending every year. That is why the US is accumulating massive, unprecedented debt.

Why does the majority Republican House agree to these continuing resolutions?  They have proposed and passed budgets for each year 2010 - 2012,  just as they should. These budgets call for less spending. The Senate did not even consider them.

Irresponsible Republicans

If the Republicans forced the issue and did not agree to the continuing resolutions, then there would be no spending authorization, and the government would "shut down".  They don't want to face a politicized press, which would report this action as an irresponsible blocking of vital government services. So, the Democrats get their way on spending.

President Obama has submitted his own budgets for consideration. The Senate has voted unanimously against the outrageous spending contained in them. No Democrat wants it reported that he voted for such spending, or that he voted to reduce spending. So, Sen. Reid won't consider a detailed budget.

The common wisdom

We have the above set of talking points supposedly showing Obama's responsible administration of the government. It would be nice if the mainstream press explained what is really happening.

Jan 12, 2013

American Revolution Against British Gun Control

Fred:  Amazing. Colonial Americans started a shooting war because of high taxes.
Mike:  Not quite. They didn't like the taxes. They really didn't like the British army going town to town taking their rifles and gun powder.
Fred:  They could have negotiated.
Mike:  They didn't like the prospect of negotiating after being disarmed.

American Revolution Against British Gun ControlWhy the American revolution started
01/11/13 - DailyPundit by Bill Quick  [edited]

General Thomas Gage was the Royal Governor of Massachusetts. He had restricted town meetings to once a year.

He dispatched the Redcoats to break up an illegal town meeting in Salem. 3000 armed Americans responded, and the British retreated. Everyone in the area aged 16 years or older owned a gun and plenty of gunpowder.

Military rule would be difficult to impose on an armed populace. Gage had only 2,000 troops in Boston. There were thousands of armed men in Boston and more in the surrounding area. One response was to deprive the Americans of gunpowder.

Government evolves. It can be reasonable one year, and tyrannical ten years later. The government is armed and dangerous. A free people must remain armed and dangerous to preserve a reasonable negotiating position.

President George WashingtonGeneral of the revolutionary army and first president of the United States:

•  Government is not reason. It is not eloquence. It is force. Like fire, it is a dangerous servant and a fearful master.

•  Firearms are second only to the Constitution in importance. They are the teeth of the people's liberty.

The Connecticut Gun Ban04/02/13 by Bob Owens
04/02/13 by Bob Owens  [edited]

The second amendment to the US Constitution:

A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.

AMG:  Some people want a powerful government which directs each person's life for his own good and forces community through high taxes and detailed regulation. They usually dismiss the Second Amendment as applying to bands of fighters who haven't been around since the end of the American Revolutionary War. But, there are eloquent people of that time who explained the purpose of the Second Amendment.

Owens:  The men who wrote the Constitution and the Bill of rights were some of the most educated and intelligent men to assemble anywhere at any time. They were all “damned rebels” who had taken up arms against a far-away tyrant. They meant for every American citizen to be armed with weapons of war, to beat back not just frontier raiders or encroaching foreign powers, but to beat back government itself.

Tenche Cox was a Pennsylvania delegate to the Continental Congress. He wrote to his fellow citizens in The Pennsylvania Gazette of Feb. 20, 1788  [edited for modern usage]:

The militia of these free commonwealths are entitled and accustomed to their arms. They must be tremendous and irresistible when compared with any possible army. Who are the militia? Are they not ourselves? Should we fear that we shall turn our arms against ourselves?

Congress has no power to disarm the militia. Their swords and every other terrible implement of the soldier are the birth-right of an American. The unlimited power of the sword is not in the hands of either the federal or state governments. I trust in God that power will always remain in the hands of the people.

[a year later]

Civil rulers may forget their duty to the people and attempt to tyrannize. We must occasionally raise military forces to defend our country, and they may misuse their power to the injury of their fellow citizens. The Second Amendment confirms the right of the people to keep and bear their private arms to oppose these misuses of power.

Nov 29, 2012

Pickled Jalapenos and Spicy Carrots

Fred:  A recipe? Really?
AMG:  Munching on spicy carrot sticks aids thinking about the big issues.

Warning: Cook at your own risk

-  Don't burn or cut yourself, and don't blame me.


4 ounces apple cider vinegar
2 teaspoons sugar
2/3teaspoon salt
7 ounces water
Stainless steel saucepan
Clean 16 ounce pickle jar with cover, washed, no need to sterilize.

Pickled Thin Sliced Jalapenos

6 green jalapeno peppers
- Wash, cut off stems, slice in half the long way, remove the seeds and white membranes. The seeds and membranes are edible, but are the hottest parts. Slice into very thin half-moons, the better to distribute in sandwiches.

Bring brine to a simmer, dissolve the sugar and salt. Add the sliced jalapenos, 30 seconds on medium heat. Spoon the jalapenos into the pickle jar, fill nearly to top with the hot brine. Place cover loosely on the jar 3 minutes to become hot. Tighten. Allow to cool. Refrigerate.

These are about half as salty, acidic, and sweet as the store product. For more heat, leave more of the white membranes attached to the green. Include some seeds in the brine for the most heat.

These must be refrigerated from the start, and will keep about 3 months. They are not safe for cupboard storage. Throw out if the brine becomes cloudy or if mold develops. This hasn't happened to mine.

Spicy Pickled Carrot Sticks


3-4 carrots (12 ounces)
- Wash, peel if you wish, cut into 1/4 inch thick spears and rounds to fit into your pickle jar.
1/3 teaspoon crushed red pepper flakes
- Add to the brine as you bring it to a simmer.

Follow the recipe for the jalapeno peppers, substituting the carrots. Simmer the carrots in the brine for 1-2 minutes if you like them softer. Adjust the sugar and red pepper flakes as you wish, and prepare as much carrot as will fit into the jar.

These must be refrigerated from the start. Treat like the jalapenos above.

Oct 4, 2012

Obama's Foreign Policy

Fred:  What is our foreign policy?
Official:  Our model could be called "the reformed alcoholic".
Fred:  What?
Official:  We were alcoholic. We now dislike our former friends who used to party with us. We will not continue to be co-dependent by supporting them.
  We now agree with our former enemies, that our behavior was outrageous. We will apologize and make reparations.
Fred:  But, our enemies hate and want to kill us.
Official:  We think they have good reasons for that attitude.

The Disgust Limit
10/03/12 - The DiploMad  [edited excerpt]

Everywhere one looks abroad, one sees the consequences of Team Obama's incompetence, delusions, and anti-Americanism.
  • Qaddafi was cooperating with us against Al Qaeda. Team Obama removed Qaddafi with no real thought to what would replace him. This created a chaotic situation in Libya that has greatly benefitted AQ's rebuilding efforts, and has resulted in the murder of the US Ambassador and three other diplomatic staff.
  • We turned victory in Iraq into defeat. Iran is now the predominant player in Iraq.
  • We have done the same in Afghanistan, allowing the Taliban and AQ to reappear after the decisive defeat administered them.
  • In Egypt, we sold out Mubarak, and got in exchange the Muslim Brotherhood. The Muslim world openly ridicules and attacks us.
  • Israel increasingly fears for its survival as Obama refuses to stand up to Iran's mad pretensions.
  • Obama has betrayed Poland and actively sought to undermine the UK in its confrontation with the Argentines over the Falklands.
  • In Asia, the misadministration's fecklessness re Russia and China is having serious consequences for the global economy and for key US interests and allies in the region.
  • The insane Communist monarchy in North Korea grows evermore aggressive and dismissive of the United States.
  • We see a deliberate stiffing of our Canadian friends.
  • We have a policy of drift and disengagement that alienates allies such as Chile and Colombia.
  • We allow autocrats such as Chavez, Ortega, Correa, Morales, and Castro a free hand, and encourage clowns such as Cristina Fernandez to drive Argentina's economy into the ground.
  • We have turned the OAS into an anti-American sounding board.
  • Our one effective policy  [sarcasm]  in Latin America was the selling of guns to drug cartels.

Sep 10, 2012

Sending Jobs to Other States

Fred:  We should stop importing cheap foreign goods and support US jobs instead.
Mike:  May I ask, what work do you do?
Fred:  I make donuts.
Mike:  Well, I saved $100 last year buying Korean tools.
Fred:  That must stop.
Mike:  If so, I'll have to buy $100 less donuts.

There is much concern about "sending jobs overseas". Some people call for consumers and businesses to "Buy American" even if it costs more. They claim that much of US unemployment is caused by selfish businessmen who buy foreign goods or invest in foreign factories merely to increase their profits. They say that people should be more important than profits.

Maybe these claims don't go far enough.

A Glorious Plan For Jobssarcasm

This plan will benefit all US workers. Each state must stop outsourcing its demand for great products to the two states who happen to be the best producers.

Identify the two states that are the most efficient producers of each product, and ban that product from being shipped to the other states.

If a ban is too sudden, then impose increasing taxes on the production in those two states. The Constitution may currently prevent this ban, but that doesn't make this a bad idea, and we should change the Consititution to benefit us all.

This will redirect demand in all of the other states. Local production will no longer be savagely depressed by the competition of the former top two states. Local producers outside those two states will agree with this. Jobs will be created locally to produce these goods, possibly at lower efficiency. No caring person thinks cold efficiency is more important than warm, local jobs.

Yes, there will be some gnashing of teeth from the former cold hearted, most efficient producers. And, there will be some realignment of resources and prices. Prices for goods might go up.

Some former top dogs will need to be dissuaded from manufacturing for a black market. They may attempt to retain jobs for themselves by selfishly selling goods at a lower price, to the harm of all other producers. They should be punished for predatory under-pricing.

Workers could take pride in producing goods less efficiently at higher prices and lower wages, in good local jobs. They would support their counterparts taking the same pride in their work across America.

Apologists for business will argue that the goods from the top two states were cheaper due to hard-won experience and previously high volume. They will argue that cheaper goods allowed consumers to spend the difference on other products, many from the other 48 states. That seems to make sense, but I wouldn't bet on it.

In later rounds, we can continue to identify the top producers and limit them also. The increased jobs and wealth will support a grand solution:  No trading between the states. Each state will have local jobs producing fine local products. No more job-stealing by the other states, and certainly not by foreign countries.

If this doesn't produce enough jobs, then we can limit trading between all cities and incorporated areas. Our motto: "Good, local jobs. No scab competition from other states or cities".

We can no longer allow efficiency to sap the strength and eliminate the jobs of this great nation. Maybe we can have special rules for California and Florida strawberries, but that is it.


The above is sarcasm. In reality, most people understand that producers in any state should be allowed and enouraged to sell their great products to consumers everywhere. Most people do not think it is unfair for companies in Ohio to compete with companies in Tennesee, even if this means (say) fewer jobs in Tennessee making a particular product.

Products don't care about political boundaries. A product purchased from a company in China, or a job outsourced to China, is no worse than purchasing a product from Ohio or moving a job to Ohio. The Chinese or the Ohioans use the dollars they earn to spend them on something else in the US economy. The pattern of production and employment changes, but not spending demand. Overall production goes up and prices come down.

Efficiency Is Prosperity

Efficiency produces prosperity. Whatever you personally produce, whatever is your income, you are better off buying things at lower prices, because you can buy more things which benefit your life. Lower prices result from the invention and work of companies that produce a greater volume of products using fewer people.

Necessarily, other companies and other people will not be producing those products. Either they won't try to produce, or they will reluctantly lose customers and the jobs associated with those products.

Your charitable instinct may suggest that people should not lose their jobs. But, that would require telling you, and everyone else, that you cannot ever do anything better. If you do it better, then someone loses the customer that you gain. If you can never do it better, then you can never increase your income.

In reality, increased efficiency producing one product sends a signal to other people, to work on producing other products. Eventually, that signal of lower prices requires them to work on something else. At the same time, consumers save money which they can spend on those other products. Thousands of such rearrangements result in more and better goods available at lower cost. Everyone becomes more efficient and is able to buy more things.

The Problem Of Regulation

The problem for the United States is not that the Chinese and others are supplying inexpensive goods to us. The problem is that we are preventing business development in the US that would employ people to produce many things that we would like. Limiting trade does not create jobs overall or increase prosperity. We need to free ourselves from suffocating government restrictions on being productive.

Selling us what we won't make ourselves

Why was the IPad manufactured in Asia?

Dallas Weaver:  [edited]  You cannot manufacture products in the US for rapidly changing markets. Our malevolent government permit system and legal parasites slow projects far beyond the point of responding to changed market opportunities.

Jul 26, 2012

Taxing the Sort Of Rich

Fred:  The Democrats are going to tax the rich. I like that.
Mike:  They might collect $60 billion more per year.

Fred:  That's a lot.
Mike:  They need $1,140 billion more.

Fred:  Where are they going to get that?
Mike:  Guess.

Over the Cliff We Go
07/26/12 - WSJ Opinions by Stephen Moore

[edited]:  The Democrats' official position is to continue current tax rates for the middle class and raise taxes on upper-income individuals by ending their "tax cuts".

Un-advertised, Senate Majority Leader Harry Reid's (D. NV) tax plan retains the alternative minimum tax, with Obama's support. It imposes a $3,400 tax hike on 28.8 million middle-class families. The Republican controlled House will probably ignore it.

House Ways and Means Committee Chairman Dave Camp: "The Democrats almost have to raise taxes on the middle class. Where else could the money come from?"

Reid's and Obama's plan would reduce the deficit by only 5%  (if it raises any money at all), and Democrats don't want to cut spending. Democrats will have to tax the middle class if they want to seriously reduce the $1.2 trillion deficit. There aren't enough millionaires and billionaires to pay for it.

Jun 11, 2012

Statistical Prosperity

Gov't Economist:  Eureka! We can hire more government workers. Everything we pay them will add to GDP according to our accounting rules. And, they will be employed.

Assistant:  What will be hire them to do?
Economist:  That doesn't matter. The statistics will be better.

Assistant:  Why not just "adjust" the statistics?
Economist:  You should be ashamed. That would be dishonest.

Government promotes itself as a scientific manager. It sets goals with numeric precision and finds direct ways to meet those goals.

Obama's economists come into his office each week and discuss how to improve the economy. They discuss the official statistics of GDP (Gross Domestic Production) and jobs held. The government wants a statistical recovery.

They want to report hard numbers, however that is accomplished. If you argue with numbers, you are a moron. Who are you to question the non-partisan measurements of a government bureaucracy analyzing huge datasets with giant computers? You are a peasant.

Those economists offer a direct plan. When government hires more workers, their pay and benefits are counted as increasing GDP no matter what they do or accomplish. Obviously, they now have a job, so the employment statistics improve. This is a no brainer!  It's a two'fer.

Expanding government employment directly and immediately improves the two statistics which government cares about. It is the direct path to statistical prosperity.

Plus, Team Obama believes in the Keynesian Multiplier. They actually believe that they will produce more wealth for us all, if they can pay out more cash to accomplish anything or nothing. So, it is a three'fer.

If the Multiplier were true, then we could Counterfeit Our Way to Wealth. But sorry, it isn't true.

Here is how government master plans, oversight, and statistics work out in reality.

Unintended Consequences and Perverse Incentives
06/2012 by M.J. Perry

[edited]  Managers and employees of glass plants in the former Soviet Union followed master-plan production guidelines.

First, they were rewarded according to the tons of sheet glass produced. Unsurprisingly, most plants produced sheet glass so thick that one could hardly see through it.  (And, this glass did not fit prior applications such as broken windows.)

The rules were changed to reward the total area of glass produced. Then, they produced glass so thin that it broke easily.

Team Obama wants to manufacture higher statistical GDP and jobs numbers in any way it can. Thick or thin doesn't matter.

May 28, 2012

Street Light Economics

It is dark. Jim is looking around under a streetlight.

Frank:  What are you looking for?
Jim:    I lost my keys up the street a way.

Frank:  Why are you looking for them here?
Jim:    The light is better here.

This is a funny comment on human nature. The tragedy is that this type of thinking rules our political and policy world. It is the problem of the seen and unseen. Politicians and economists report in official tones about their measurement of what is under the light, when there is a big, complicated world in the darkness. They should know better

Prosperity and Vacations

Suppose that a Prof  (Professor of Economics) studies past spending on vacation travel and lodging, and finds that periods of higher income are definitely associated with higher spending on vacations. The Prof has assembled the data with statistical precision.

So, the Prof proposes to raise everyone's income and end a recession by requiring that people use their savings to spend more on vacations.

He says that this will increase GDP directly (Gross Domestic Production), and vacation spending was associated in the past with even larger gains in personal income. He calls this the "Vacation Spending Multiplier". Everyone will become wealthier when they buy more vacations.

That advice would be crazy.

A cushion of savings gives people some flexibility in uncertain times when they might lose their own job. Yes, spending more on vacations would temporarily employ more people. But, at the end of the forced spending, those other people would again lose their jobs, and the buyers would have spent their savings. They would only have some nice memories.

The Prof has completely confused cause and effect. People buy more vacations when their income increases. More vacations is not the key to building the wealth of society.

Prosperity and Government Spending

Instead, the Prof  (one of many government economists) reports that past periods of increasing personal income highly associate with increasing GDP and higher government spending. The Prof has assembled the data with statistical precision.

So, the Prof proposes to raise everyone's income and end this recession through massive government borrowing applied to massively higher spending.

Not only does this increase GDP directly, but it has associated in the past with even larger gains in personal income. The Prof calls this the "Government Spending Multiplier".

The Prof says that everyone will become wealthier when they indirectly buy more of anything through the government.

That policy is crazy. That is our current policy.

Yes, spending more on government bureaucracies, planning meetings in Hawaii, and filing cabinets has temporarily employed more people. But, at the end of the forced spending, those other people have again lost their jobs, and the people of our country miss their savings. They don't even get a nice memory of a vacation.

The Other Guy

The public is truly doing the buying, because it will have to pay back the government loans from the economy created from that extra spending. Additional sidewalks, filing cabinets, and regulations do not support producing more things that support people's lives.

You may think that the other guy, the rich guy, is going to pay back the loans, so why worry?

  • The amounts are so large that the politicians are coming after you through innovative taxes.
  • Even if the rich pay an outsized portion, that comes from money that they would have invested in things that produce more opportunities for jobs. They are only trying to make a profit, but they will want to hire you along the way. More businesses produce a long-lasting need for more workers and managers.

    Government borrowing has a temporary effect and wastes resources. It is unsustainable at the current, massive levels.

  • The government may convince the rich that they can't gain anything personally from investing. So, they will stop, and go on vacation. OK for them, bad for you.


I might forgive Jim above for looking only under the light. He might figure that he has no chance of finding his keys in the dark. He is an amateur.

But, people who call themselves economists claim to have studied the situation. They claim to be experts about the dark. They should know the probability of finding those keys. They should be expert at presenting just what is seen and unseen, known and unknown.

Instead, they crunch statistics about past events, ignore the uncertainties, mash together the complexities into simplistic measures such as GDP itself, and recommend policy based on the numeric results of untested (and often unverifiable) "models". Not all economists, but almost all who advise the government.

A Choice

We mistakenly trust in supposed experts who bask in the precision of their statistics. Yet, they measure only what is under the light, and then recommend using government force to guide the public through the darkness.

We are going to face a world-wide breakdown caused by governments printing money, borrowing wealth, and wasting it. Immoral and ignorant politicians have failed to provide the utopia promised to a gullible public. The outcome will depend on what the populace comes to believe.

Some politicans will say that this is another stage in the collapse of Capitalism, unable to be restrained by a caring government.

Or, people may see that government was in control, printed the money, borrowed the wealth, and failed miserably. Maybe, as after WWII, the people will reject goverment plans and promises and cut the power of government. Another prosperous period of growth and power like the 50's and 60's would follow.

- -
Spending did not end the Great Depression
Reduced spending and lowered tax rates did it.

[edited] What happened in 1945 at the end of WWII? FDR was convinced the only way to employ the 12 million returning soldiers was another New Deal program, but he died before he could impose his plan. The new President Truman proposed it, along with national healthcare.

Both the Congress and Senate had Democratic majorities. They said "No" to the whole New Deal revival:  no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits.

Instead, Congress reduced taxes across the board. Top marginal corporate tax rates effectively went from 90% to 38% after 1945.

By the late 1940s, a revived economy was generating more annual federal revenue than the US had received during the higher tax rates of the war years. Price controls ended in late 1946. The US began running budget surpluses.

Unemployment had remained double-digit throughout the whole New Deal. One year after the end of New Deal policies and the return of economic freedom, it was under 4%,  despite the return of a huge number of soldiers.

May 24, 2012

Bankruptcy of the West

Official:  The government offers a great life. I get a good salary and very nice retirement benefits, including lifetime healthcare.
10 Year Old:  Dude, whatever.

The West is bankrupt. The solution is to declare bankruptcy. People were stupid to loan resources to their governments, and they will receive the usual reward for their stupidity.

The meaning of government debt is that governments have taken real, current resources and have applied those resources to whatever is now built. Almost all has been wasted, building the wrong things in the wrong places, or building nothing. Politicians have nice houses by lakes and on beautiful hilltops. That is all.

Let the people who bought government bonds take the loss. Sorry, they should have looked into the plans and the planners before entrusting their wealth to those guys. Investing with crooks will always result in losing your wealth, especially when those loans are promoted as "riskless". Their only expectation of repayment was by the use of government force to extract higher taxes from the populace. That expectation was ruthless and immoral.

Don't come to me, or my children, or anyone's children and say that the politicians were acting on their behalf, so they must be bond slaves and return the stolen wealth to the oh-so-trusting baby boomers who lent that wealth to the government.

If you say "rule of law" to me, I will reply "rule by liars and thieves", trading wealth for votes to remain in power. The rule of law will recover only when rule by thieves is outlawed in the common mind. Unfortunately, collapse is the only way that the organized theft will stop.

The dictator Idi Amin stole billions from loans to Uganda made by international agencies. Most of this debt was written off as worthless, because no one in good conscience could enslave the people of Uganda to pay off debts extended to a psychopathic criminal who ruled their country.

US politicians do not always show the psycopathology of Idi Amin, but they have been quite effective in stealing the wealth of our society. The willing participants were the bond buyers.

Most of the public collected some of that borrowing and stealing. That wealth cannot be recovered. Possibly there are some nice houses on lakes and hills which can be recovered, houses paid for by malfeasance in office.

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Obamacare Bails Out Medicare

The government is ending the free market in healthcare. Our policy makers have already designed a system of price controls that doesn't work. Their next plan is to cover up this failure by blaming "the market". The market is short for the freedom of people to produce and cooperate among themselves, always delivering value and achieving efficiencies that government cannot match.

That freedom is what the government has taken and is taking away, in favor of higher hidden taxes and rationing. Our leaders have been buying votes with lavish promises of what the government will deliver. Their plan is to put us all in one boat, then make us pay for their promises to prevent the boat from sinking.

- -
Downgrading the West
03/09/12 - OpenMarket by Matt Patterson

[edited]:  The government has been spending our wealth for decades. First everything we made, then everything we are ever going to make, and now everything our children and their children will ever make.

- -
The Real Federal Deficit
05/18/12 - USA Today   (via Dinocrat)

[edited]:  The typical American household would have paid 85% of its income in taxes last year to balance the budget, if the government used standard accounting rules.

Standard accounting gives a deficit last year of $42,054 per household, nearly four times the official number. Median income is $49,445.

The official deficit was $1.3 trillion ($1,300 billion). Liabilities (future promises) for Social Security, Medicare, and other retirement programs increased by $3.7 trillion, for a total of $5 trillion.

Standard accounting used by companies, states, and local governments must include retirement commitments. Congress ignores them when reporting the deficit.

The total wealth (Gross Domestic Product) created in the US in 2011 was about $13 trillion ($13,000 billion).   ( A trillion dollars on display. )

In proportion by wealth, if a family earned $50,000, that would be like borrowing and spending $5,000, and also promising to pay an additional $14,250 to the parents when they retire. All in one year.

Do you think that the parent's retirement is secure? Will the children pay?

May 13, 2012

The Systematic Organization of Hatreds

Assistant:  We won! Now we can accomplish some good things.
Senator:  And, punish our enemies.

Economics usually studies the gains from cooperation. People and businesses usually cannot force others to serve them. They must offer beneficial, voluntary arrangements.

Politics distributes power. It is not surprising that politicians use that power not just for the good, but to punish their competitors, their "enemies", and anyone else they may dislike. Who is going to stop them?

The Systematic Organization of Hatreds
05/05/12 - The Beacon by Robert Higgs [edited]

Democrats and Republicans are but two wings of the predatory government that rules the United States. Why does their feuding reach such vitriolic extremes? Despite their similarity of fundamental positions, they are somewhat different sorts of people and tend to dislike and sometimes despise one other. Although inclined to conspire and cut deals, they also represent their supporter's hatreds.

When we move some decision from private life into politics and government, we will likely move it from a world where hatred is incidental and avoidable to a world in which hatred is central and inescapable.

A government imposes one rule and one outcome on everyone. The hatreds within that outcome become infused throughout the society. We live in a politicized world fashioned in large part by those organized expressions of hatred.

Small wonder that some of us view the entire apparatus of politics and government as the living embodiment of evil.

- -
EPA Official explains his "crucify" enforcement policy

[edited]  In a 2010 video, EPA Region VI Administrator Al Armendariz explained his philosophy of enforcement to his staff, which he acknowledged being crude and perhaps inappropriate, but shared anyway:
It is kind of like how the Romans conquered villages in the Mediterranean. They’d go into a Turkish town, find the first five guys, and crucify ‘em. That little town was really easy to manage for the next few years.

You make examples out of people who are not complying with the law. You hit ‘em as hard as you can. There’s a deterrent effect. And companies that are smart see that. They decide that it’s time to clean up. And that won’t happen unless you have somebody out there making examples.

This might be excused if the EPA were enforcing a few laws with clearly beneficial results. But, this is the EPA enforcing thousands of vague laws, most with huge costs and imperceptible results.

Mar 1, 2012

Waiting for Oil

Fred:  I wish we had half as much oil as Saudi Arabia.
Mike:  Shhh. We do, but it's illegal.
Fred:  I suppose what we don't know won't hurt our politicians.

Proven Oil Reserves

Worldwide "proven oil reserves" is a very restricted definition. Even those reserves have been expanding as technology has improved and as the oil price has stayed high. There is no "peak oil" on the horizon.

Saudi Aramco is the world's largest oil company. Radford by Bill KovarikIts CEO said in 2006:

[edited]  There are more than 4.5 trillion barrels of potentially recoverable oil, 140 years at our current rate of consumption. The world has consumed about 18% of conventional oil potential. That fact alone should discredit the argument that peak oil is imminent, and put our minds at ease concerning future petrol supplies.

US proven oil reserves are defined by US law as oil in the ground which can be recovered under current  prohibitions and regulations. For example, Alaskan ANWR oil is not included, as its development is not allowed.

US Energy Information Administration

EIA defines proved reserves as those volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

North America Radfordhas 400 billion barrels of recoverable oil with current technology. That is one-half of the 800 billion barrels in Saudi Arabia, if there were more reasonable regulation.

The US consumes 21 million barrels/day.  400 billion barrels at that rate would last 52 years. That is plenty of time to develop new technologies without turning our lives over to government energy controls.

Time to Market

The time needed to develop new US oil is commonly reported as 10 years. Yes, under those same regulations.

Less than ten years to develop offshore oil if regulations were modified
July 2008  -  Next Big Future

[edited]  Monica Showalter at Investors Daily proposes that California's 10 billion barrels in offshore oil could be brought to market in as little as a year if the moratorium were lifted. The oil is under shallow water and drilling platforms already exist.

The time offered to develop oil resources includes regulatory delays. It is not an engineering limit of technology. The Gulf of Mexico offers an example. There is a dramatic slowdown in approvals in an area which has had oil development for 50 years. This followed a large accidental spill which was remediated by the BP oil company. The extreme slowdown is not required as a technical response to prevent future spills.

Regulations Delay Revenue, Jobs, and Oil Supplies
07/22/11 - Rigzone

[edited]  The permit moratorium in the gulf of Mexico ended October, 2010. The federal approval process has not returned to previous levels in the following six months.
  • 86% fewer approvals/month for plans.
  • 38% more time needed to approve plans.
  • 2.5 times greater backlog of deepwater plans pending approval. It was 18 per year, and now is 67 per year.
  • 60% fewer drill permits (combined shallow water and deepwater).

When you want to fool the peasants public about possibilities in life, write a regulation and only report what is possible under that regulation, no discussion needed.

Oil Supply and Speculation

Is Obama Responsible for High Gas Prices?
03/10/12 - EconLog by David Henderson

[edited]  The primary reason for the increased price of gasoline is the price of oil in the world market.

People are nervous about war with Iran, which would likely cut Iran's production. The world uses 90 MBD (million barrels per day) and prices are inelastic. Cutting supply by just 1 MBD (1.1%) would raise the market price by about 10%. Speculators anticipate this, bid up the future price, and the current price follows upward.

A price is "inelastic" when small changes in supply produce large changes in price. The world already conserves oil by applying it almost entirely to productive uses. Living patterns are established, and people must get to work, manufacture products, and have heat and hot water. It takes a large change in price to cause people to use less oil.

Higher US oil production would shift oil costs lower. Obama talks about US oil production as being an insignificant fraction of world production. He is correct that oil prices are determined mostly by world production, and incorrect that our production doesn't matter.

The US could easily produce 1% to 2% more of world production, which would lower prices by 10% to 20%. This competition at the current price would remove pricing power from big producers such as Saudi Arabia, Russia, and Iran. They would lower their expectations, set lower long term prices, and increase planned production.

Is 1% insignificant? Consider that 1% for a full-time worker is 2.5 days of additional paid vacation.

Oil Prices
04/07/08 - Economist Robert P. Murphy

[edited]  The demand for oil is unpredictable. This partially explains record-high oil prices.

The major oil companies in the 1980's and 90's underestimated the economic growth 25 years later in countries such as China and India. The necessary infrastructure was not in place to comfortably meet the increase in oil consumption. So, spare capacity margins have become extremely narrow, leading to price spikes.

The major oil companies are all owned by foreign governments. Exxon is a bit player in that world. Does it reassure you that our government has hindered US oil development for those 25 years? High oil and gasoline prices are a predictable result of government refusal to allow expanded US oil production.

Are Oil Speculators Bad or Good?
08/04/08 - Economist Robert P. Murphy

Many companies want to arrange for the delivery of oil to them in the future. This is agreeable to oil producers who want to "lock in" a sale today, to cover their expenses producing that oil for future delivery. The collection of these contracts is the Oil Futures Market. The public prices of these contracts allow anyone to estimate or guarantee what their oil will cost for some time into the future.

Every contract specifies actual delivery of the oil. "Speculators" are companies or people who buy or sell such contracts without having any means for either producing or receiving that oil. They expect to hold these contracts and sell them back into the market for a higher price at some time before they would have to take actual delivery (or produce the oil). If they are wrong, they must "unwind" their position at a loss.

[edited]  Have speculators "artificially" driven futures prices far above the level justified by fundamentals? We don't see indicators of this, neither higher futures prices nor large increases in stored oil inventories. Oil prices have been lower in the futures market for much of the run-up in prices, and commercial oil inventories in the United States have hovered in a stable range for a decade.   (Talk like a traderWhen the future price of oil is higher than the current "spot" price, the market is "in contango". When the future price is lower, the market is "in backwardation".).

Say that we knew that speculators were responsible for a huge increase in oil prices to $140 per barrel. Ironically, there would be a good case for saluting their behavior!

For example, people fear that Israel may bomb Iran, and Iran will cut off exports and mine the Strait of Hormuz to block tanker traffic. Spot oil prices (outside already arranged contracts) might then exceed $400 per barrel. People would then be grateful for large inventories that had accumulated because of the speculative increases in prices, and grateful for the conservation that $140 oil had enforced in the months before the war.

Free-market economists understand the beneficial role that prices play in smoothing out production and consumption. This role holds true for futures prices and the allocation of resources between present and future uses. True speculators ensure that futures prices are as accurate as possible, so futures prices coordinate production and use as effectively as possible.

People risking their own money have the highest incentive to apply their knowledge correctly. If you do not have knowledge about oil production, delivery, and demand, then you had better not buy or sell those contracts. If you do have fundamental knowledge, that market is the best mechanism for collecting your knowledge and paying you for sharing it, to all of our benefit.

The futures market of participants and speculators collects the best information about how to balance current and future supply, demand, risk, and reward.