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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.

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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.

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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.

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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.

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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.