The Big Knob

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.  -- Paul Krugman, "Dubya's Double Dip?", The New York Times, 2 August 2002

If you only have a hammer, you tend to see every problem as a nail. -- Abraham Maslow


For nearly all my adult years, I have advocated against the size of government on the simple basis that government and freedom are inverses of each other. This is 100% true, and reason enough all by itself for patriots to act. Large governments are overly restrictive and a burden and a brake on productivity. It's a fine line between economic freedom and personal freedom. If a person's wealth derives from his or her work, then the two are certainly one and the same. A person's output is also his impact on an economy. The economy naturally produces savers and those who need access to someone's savings to accomplish their goals. Think of the farmers that share a tractor. It is borrowed and loaned regardless of who owns it. The local economy works.

Back when your Wizer was an average citizen, I was also a small investor. I would get an extra hundred bucks, and would buy a few shares of a well managed company.  In this way, money was loaned into a capital market. Then, the government sponsored terrorism known as the global financial meltdown happened, and that money was inexplicably lost. What went wrong? It occurred to me that the CEO of the well managed company was no match for the financial big-wigs that were creating this crisis. So, instead of suing Bernanke, I sought to watch and learn whatever I could about macro-economics. My studies have been continuous since about 2007, and I've read up on the crisis and other writings from many economists, including those who seek to influence public opinion (like Paul Krugman and Thomas Woods).

The basics are pretty simple. The Federal Reserve is this politically appointed, though independently run organization that is paid for by a tax on the bankers. In return the bankers get first dibs on freshly printed money. When unemployment goes up, the Fed increases the money supply (by initiating bond purchases), thereby lowering interest rates. In turn, a flurry of credit activity from the banks to the businesses quickly puts people back to work. That's the way it's designed and supposed to work. As soon as full employment is reached, the Fed can then sell off all the bonds it bought with printed money, and let the money supply fall back to it's normal trajectory (some rational trajectory, I imagine, mirroring the natural growth of the economy). It's supposed to be the only knob the Fed can turn, but it's a big one. If they overturn this knob, you get runaway inflation.

Since this unemployment cycle was itself a big one, the Fed found it necessary to turn this knob all the way up. That's where it is set now. However, the expected result (increased "velocity of money", full employment, and highly active credit market) has not materialized. There are many reasons for this:

The excess reserves that the banks are holding are at historic highs. The risk of lending outweighs the benefits (after all market rates are too low to take on a lot of risk). People are deleveraging now, it is said, because their home equity took an enormous hit; they are therefore not seeking to borrow more money at any rate.

Large companies have stockpiled capital to prepare for a very serious backlash that may occur when the costs of Obamacare and other new regulations are fully known. As a group, they are not willing to add to employment. Small companies are concerned because large companies are concerned, and they are not taking on the risk of a large payroll either.

From this, we can consider a hypothetical scenario. Let's say this concern about new government regulations turns out to be not as bad as thought, and the Russell 2000 small companies resume their pre-2008 hiring plans. Then, employment more or less unexpectedly spikes up. If it does, then the outstanding capital, 800 Billion in excess reserves, a like number in reserve corporate capital, and finally, the borrowing and spending at the consumer level will heats up.  All this will happen at the same time. Because the money supply is enormous compared to the size of the economy, this will create an inflationary tsunami that will make 1979 look like a kiddie pool.

The other scenario is worse, so I'll stay with this one for now. In the best case scenario for Obamacare (which is a blow for freedom, but may have short term economic firepower), employment returns to normal. Then the result is inflation which feeds the next bubble (probably the bond market). The incredibly large money reservoir will burst. All these dollars will be chasing anything of value, and inflation could reach 10% per month. Think Zimbabwe. If there's any doubt that this could happen, consider the difference between 2007 and 2008 in terms of economic activity. Everything happens faster in the future.

So, is there a way to keep that from happening? Yes, but no political animal is likely to attempt this. The bigger bolder thing to do is to mop up all the excess liquidity, and allow a deflationary period to ensue. Eliminate wage floors, so that full employment can be reached in the private sector, and despite a strong dollar, exports will grow due to better cost and price on the global market. Reduce government spending so that it does not crowd out private investment. Oh, and roll back the debt on a very aggressive schedule. This is the right way get out of a depression.

Instead, the Fed seems intent on replaying 1932, and this time with new multipliers: The incredibly high debt (which we will cover in some detail later), and the large percentage of government spending as a percent of GDP (also to be covered later). Both are choking off any semblance of a recovery.

See also:
http://www.washingtontimes.com/news/2011/dec/19/government-spending-jobs-myth/

Asking the Wrong Question, 2012

Most voters continue to believe the government bailouts were a bad idea, but at the same time concern that the government won’t do enough in response to the bad economy has reached its highest level in over three years of regular surveying.


Just 39% of Likely U.S. Voters worry more that the federal government will do too much in reacting to current economic problems. A new Rasmussen Reports national telephone survey shows that 50% now are more worried that the government will not do enough, up three points from last month. Eleven percent (11%) are not sure.  Rasmussen Reports, December 19th, 2011

Pollsters really can influence the accounting of public opinion by how they phrase a question. For example, a poll on "do you approve of Herman Cain's harassment and womanizing ways" is designed to slice and dice Herman Cain, by linking him to behavior that people certainly do not like. It's the old unanswerable question: "Have you stopped beating your wife?". Pollsters can certainly anticipate the impact of public opinion questions, and the better outfits are careful to ask neutral questions.
 
Normally I find Rasmussen's polls to be reasonably well formed, and they usually do ask the right questions. In the case of the most recent poll, where 50% of the people "don't believe that government will do enough" to fix the bad economy, I think Rasmussen missed the mark. What the results don't parse very well is: of the 50% who answer this way, how many would prefer that the government act differently. Perhaps the message is for the government to undo much of what they have done to cause the problem: e.g.,  by eliminating regulations like wage controls, unemployment extensions, and other productivity dis-incentives. It's certainly the only useful tool under the government's control, and I think, perhaps a large number of people are thinking that that is the thing that government could and should do.
 
The Rasmussen stats can be mis-read by politicians that the people want government to do something. Of the two somethings government can do, one is right and one is wrong, and the politicians will doubtless  use this kind of data to justify their wrong action.
 
I'd like to see the pollster ask a more relavent multiple choice question.
 
Should government:
a)  Improve the economy by reducing disincentives to work, and barriers to hiring.
b)  do Nothing
c)  do More of what they are doing now.
 
The results would be far more revealing about the will of the people, and not give politicians more tools for our continued destruction.

Chart of the Day #1

Although some of the goods and services provided by government are essential, it is not essential that they be provided by government. On the contrary, the private market place, operating on the principle of voluntary cooperation and exchange, is not only able to provide these goods and services, but can provide them more efficiently and for less money. – Sy Leon,  None of the Above: Why Non-Voters Are America's Political Majority

Today's Chart shows the money supply vs the housing price index over the last ten years:

 
If I get this right, the money supply needs to grow with the population so that the free flow of capital can be efficiently enabled. Loosely translated,  the banks should have enough money to loan to meet the demand, so that consumers and businesses can reach their maximum potential.
 
Okay, so now, there appears to be enough money out there to buy every house on the market. Can we stop the printing press now?
 

Chart of the Day #2

The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. -- Henry Hazlitt;  Economics in One Lesson

Not to worry. The Rich will cover it.

Okay, so what IS a terrorist then?

Last night I saw an item on cable news relating the story of a gunman/grenadist in Belgium that killed five and wounded 125 people. The reporter was quick to interject that the guy was "not a terrorist".

That got me thinking.

Just because a fellow hasn't pledged allegiance to Hamas, Al Quaeda or SEIU; it doesn't mean he's not a terrorist. Clearly anyone who practices mayhem on large groups of people is a terrorist; regardless of his motives or affiliations.  Do we need the government to classify terrorists for us now?

This guy may be too optimistic.

Our Decade from Hell will Get Worse

The case for any republican

Dear Wize-guys,

I apologize for being remiss in my blogging duties. All my wize time for the last three months had been tied up in money school. You'll probably hear more about those adventures as the paper chase continues. Suffice to say for now that I am an expert in matters regarding the Fed (which is to say that I know more than President Obama about how it should work) and I can also read between the lines of a financial statement for any publicly traded company like Enron, etc. I am a danger only to myself, however, if I spot something interesting I will also let you know about it. Hopefully the added dimension of my econ training will make me a better blogger too.

While I was gone, I did manage to see a few segments of the big government preservation debates. On the plus side, I think some good topics have gotten some air. Unfortunately, I don't see that anyone other than Ron Paul gets a vote.

Here are the tiebreaker scenarios (to cop an NFL analogy):

1. Ron Paul: Gets a bye all the way to Super Tuesday. Sentimental favorite.
2. Newt. Vulnerable but a high scorer.Very creative.
3. Mitt: Best defense but no firepower.
4. Pick 'em

If Ron Paul is still in the race when he gets to my state's primary: Hands down. It's not even close. A pro-life libertarian can not be topped in this ranking.

If for some reason he's out of the race, then it gets difficult.  You then apparently have to choose among three remaining options. Stay home. Newt. Mitt.

Maybe it's better to work from the bottom up:

Herman's out. Tim Pawlenty is out. Who else? Gary Johnson? His ideas are mostly right, but he can't even get on the debate stage, and when he does, he scares people.

I can't make a case for Michele B. or for Rick S. I know they mean well. I know they would want to do the right thing, but neither one has advanced any thoughts beyond framing their own bona fides. We get it. You are both wonderful people. The problem is, you can't fix this. This economy, this climate of stagnation and non-productivity. What would you do to fix it? I'm not hearing ideas.

Perry? I can get past his mental lapses, and his heart also seems to be in the right place. However, his solution to America's problems is to treat everybody like a Texan. Suck it up, big boy. It's a free world, get out there and get to work. You know. Texas works because Texas works, not because Rick made it work; and unfortunately, Rick thinks he can export Texas to Minnesota, Oregon, and Delaware. I'm not seeing it.

Stay home is a pretty decent option.

Romney. Romney. What to do about Romney. Seems to have a good grasp of what's wrong. Doesn't seem to be too driven to change things though. He totally represents the right wing of the big government party (which is establishment republicans and all democrats). Would I get out of bed to vote for Romney? I think I'll have to do more research.

Which leaves us with Newt. Could I vote for Newt? Maybe. I think his ideas are bigger than anyone else on the planet. I like having him around. He would be highly entertaining, especially if he wields his veto pen. My positive recollections of Newt were when he shut down the government. It was the only week in the last 23 years that I felt the oppression of big government start to lift. He pushed Bill Clinton to drop health care, and revamp welfare, and balance the budget. Sounds just like the kind of stuff we need now.

Yeah sure. I've heard the bad stuff. He accepted an advance on a book. He worked for Fannie Mae. Sounds like a free market guy so far. Left two wives. That's actually better than keeping one while cheating on her (hello again Bill). He's a loose cannon. Okay, but at least he fires in the right direction.

Am I ready to vote for Newt? Maybe. Watch this space. He may be an acceptable backup, in case people aren't ready for Dr. Paul.

So, fellow Wize-guys. Let me have it.

Wizer One-Liner #27

When you take into consideration that most of the establishment republicans - and all the democrats - are against Newt Gingrich, it's pretty easy to see why he's winning this particular beauty pageant.

Prisons on The Tarmac

Every street is choking

Looks like too much traffic on the road
No fun in driving
You wait in line forever just to go
Heavy roar of engines
Sitting in your prisons on the road
-- John Mayall, Prisons on the Road

The old Mayall tune makes its way into my consciousness every once in a while when I find myself in a traffic situation. As bad as a 15 minute delay is to us highway bound low-lings, it's even worse for people who are in enough of a hurry that they resort to buying a seat on an airplane.

The recent Hartford situation reminded me why I judiciously avoid flying. People spend hours of their lives waiting in security lines, waiting for shuttle buses, waiting hours for the simple process of taking off and landing, only to wind up in a different city with natives that may or may not be up to the task. For the question of whether I would take a two hour flight, or drive for 7 hours, I pick the latter. It's not the time, it's the hassle. I'm blessed with relatively clear middle-of-the-country highways, so driving is not as much of a chore as it might be if I were on, say, the Jersey Turnpike. Still, there are countless recent "innovations" that have soured me for air travel.

1. Obviously, the TSA
2. Not just the TSA, but the whole security thing. -- A security station is supposed to make us feel safer, but actually has the opposite effect: If it was safe, why do they need security? If there is security, it must be inherently unsafe. I think L. Neil Smith in his Prometheus Award winning The Probability Broach had the right idea: Let people carry their weapons on the airplane, but issue plastic bullets. That way if a gunfight breaks out, it won't compromise the hull integrity. People will be safer, because it's a self evident situation. ...but I digress.
3. Time. So much time and energy is wasted in the process of boarding and deboarding a plane. If airplane service actually met the expectations of the flyers, there would be plane-side parking, heated garages, and food service much like an NFL stadium. Instead, you park 3 miles away, crowd into a shuttle bus, only to stand in a 30 minute bafggage line and a 30 minute security line. Air travel is supposed to save time.
4. Very often it doesn't, especially when you wind up in a different city from the one listed on your boarding pass.
5. Nickels and Dimes: Due to the inefficiency of most corporate travel policies, the airlines have to quote the lowest possible fare price, and as a result must charge you to check luggage, charge you for an aisle seat, charge you for overhead compartment space, and even now for the bag of peanuts. All just to make their minimum acceptable margin of profit. I liked it better when the prices were simply too high, and everything was covered.
6. Why does my laptop have to be shut off and put under the seat? In the event of unexpected turbulence, where my laptop winds up is the least of our problems. Leave me alone. My computer is the only productive piece in this entire flight. Better yet give me enough room so I can arrange things in a more organized fashion.
7. Enough room. Right. In days past, you could select a slightly higher priced flight that would have some open seats, so you could lay your work out on the seat next to you. Fat chance of that, now. You are the middle seat. All the flights are the same price. And all of them are full.
8. How did things get so that there is no differentiation between airlines? Why are they all the same? I would have paid more for better service. Is the whole air travel industry a slave of the business bean-counters, who would just as soon fedex their employees to the next client meeting in Tucson?
9. Then there's sheer incompetence. Gates being unavailable, because the previous airplane hasn't left, because, he can't get pushed away from the gate, because  the staff is overloaded, because the babysitter couldn't make it.
10. Let the people off the damn airplane. They would rather be 4 blocks away from the terminal and on the ground than couped up on the airplane. Who in the world thinks it's better to sit there waiting for an impossible situation to get better?

Give me my prison on the road. I'm clearly better off than the poor folks in that prison on the tarmac.

Wizer One-Liner #26

Attention Occupiers: Crony Socialism is not a solution.

Karl Marx and the false premise

Capitalism is not an 'ism.' It is closer to being the opposite of an 'ism,' because it is simply the freedom of ordinary people to make whatever economic transactions they can mutually agree to. -- Dr.Thomas Sowell

I have spent some time defending the notion of capitalism but have now discovered that it's a false premise. From now on, the question of "How do you defend capitalism", will be relegated to the wrong question heap. The real question is "how can you defend (or not defend) the free market?"

Here's an important distinction, put into play by Chris Whalen.

"Marx created the term 'capitalism'. It's a pejorative, insulting description that says all economic activity is a matter of greed," Whalen explains. "If you're any sort of libertarian. If you believe in American principles of democracy and free enterprise, just the fact we use the term 'capitalism' should insult you. We need new labels."

People are conditioned to blame "capitalists" for a lot of economic ills. To be sure, it's still the best descriptor for "Crony Capitalists", and many other such capitalists who are not of the free market variety. These would include Jeffrey Immelt, Warren Buffet, Ken Lay, and Bernie Madoff.

From now on, I am no longer a capitalist.

Pardon me, but..

It's not the kind of thing you really want to commemorate, is it? Every time our enemies see us wringing our hands over the missing towers, they can take deep satisfaction that we still feel the effects. Maybe, just maybe, we would have been better off clearing the space and putting up a Wendy's, a Starbucks, and a Walmart. That would have showed the bastards that they didnt leave a permanent dent in America.

I know one thing, the endless rehashing was irritating at best. This incessant decade-long weepathon is not something we want our enemies to count on every time they try to take us down, is it?

Productivity Growth is key

When I said 'Change we can believe in,' I didn't say, 'Change we can believe in tomorrow.' Not 'Change we can believe in next week.' We knew this was going to take time.  -- Barry Obama , Chicago Birthday Fundraiser

I ran out of gas. I... I had a flat tire. I didn't have enough money for cab fare. My tux didn't come back from the cleaners. An old friend came in from out of town. Someone stole my car. There was an earthquake. A terrible flood. Locusts! IT WASN'T MY FAULT, I SWEAR TO GOD! -- Jake Blues, to the Mystery Woman, The Blues Brothers Movie, 1980
 
Markets will rise and fall but no matter what some ratings agency might say, we're still America, and we always have been and always will be a triple-A country -- Barry Obama, first press conference 8/8/11 after the S&P downgrade on 8/5/11
"First Comes Denial" .  -- Elizabeth Kübler-Ross
 
I did, I promised a moratorium on Obama bashing. Sorry, It's just that it's hard to do a consequential blog these days without giving credit where credit is due. 
 
I am amazed that the Tea Party is assigned any blame whatsoever in all this. The 56 members of congress who pledged any allegance to the Tea Party were eventually cut out of the debt deal, and then when S & P downgrades the government for not cutting anything of consequence, all of a sudden it's the Tea Party's fault? Wow, talk about poor aim.
 
And the S&P? Finally the folks paid to watch it all call it like they see it, and both teams want to kill the umpire.
 
Meanwhile, the Bush-Obama depression continues unabated. QE3 will probably be launched today, which will boost the stock market, and tie up another trillion in capital. More support for Wall Street, at a time when it is Main Street that needs the help.
 
The answer is productivity growth, of course. We need everybody working. We need to create an environment where private investments are made, where people are free to work, and where companies are free to hire them. I believe we're not that far away, in economic proximity if you will, from a recovery. But we are far away politically. The additional headwinds applied by Obama make it all the harder, but it's evident that less federal spending is the one crucial thing that will free the capital and create the positive momentum Main Street needs. Yes, lower taxes, if applied correctly could work. And fewer employment regulations would help as well.
 
The Wizer's Plan for Productivity Growth?: A one year moratorium on the minimum wage.
 
Instead, we get speeches about taxing corporate jets and subsidizing electric cars. These are not big ideas. No one can rally around government interference in technology. This is policy by sound-bite. 
 
Finally, there is this Obama notion of a balanced approach. What in the world is balanced about increasing taxes on one percent of the citizenry? Seriously?
 
The most tragic and pathetic aspect of all this? That we feel powerless to improve the situation before November of 2012. Unbelievable. We have to do better.
 

Help me out with this

London Telegraph News item:

(...) Fears that a recovery in the world's biggest economy is running out of steam were heightened as official figures showed GDP in the US rising 1.3pc in the second quarter, against expectations of a 1.8pc rise. In a chastening statement the Commerce Department also downgraded first-quarter growth from an initial estimate of 1.9pc to just 0.4pc.

(...) The extent of the uncertainty hanging over the US economy was underlined as the head of the World Bank warned that politicians were courting "calamity" by not coming to an agreement ahead of a deadline on Tuesday next week. "To be blunt, to have a debt default in the United States would not only be a financial calamity but should be an embarrassment for every American," said Robert Zoellick.

Okay, so if I understand this correctly, our ecnomy is running out of steam, and the thing we are patently expected to do is raise the debt limit. I had to read that twice. I might be dense (or is it daft), or maybe the London Telegraph's version of The Queen's English is a little imprecise on this, but I don't quite see how raising the debt limit improves the GDP situation. In fact, by raising the debt limit, we will have yet more capital reallocated to government programs and less available for productive work.

Shouldn't everybody be calling on us to lower the debt limit? As Mark Thornton writes:

(...) reducing the debt ceiling would force the government to stop borrowing so much money from credit markets. This would leave significantly more credit available for the private sector. The shortage of capital is one of the most often cited reasons for the failure of the economy to recover.

Lowering the debt ceiling would force federal-government budget cutting on a large scale, and this would free up resources (labor, land, and capital) and force a cutback in the federal government's regulatory apparatus. This would put Americans back to work producing consumer-valued goods

It's clear that the current administration has positioned us between the proverbial rock and the hard place. The confidence in the economy depends on raising the limit. The future of the economy requires that we lower it. Both of these must happen. The "When" of when these triggers are pulled will be defining and historic. It is going to create many millionaires, and ruin many thousandaires. Paul Volcker might have been able to prescribe the right sequence, but the administration chased him away. No one left in the executive branch who knows what to do.

Even the big boys (outside of perhaps Soros and Immelt) don't know which road to take right now. There's no reason to be confident that the right levers will be pulled, or even in the right order. But when the newspapers (especially the ones in Europe) start to lecture us with the kind of conflicting advice we're getting, it's high time to tune them out.

Coffee Economics

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance. – Murray Rothbard

Let's have a moratorium on the subject of what you can buy if you didn't buy that cup of coffee this morning, shall we? I have now read my 3000th article and saw a 3000th TV clip regarding how I can save $3.95 a day by skipping a trip to Starbucks. Please. Don't do me that way. I know little things add up.

Sure, I can make better coffee at home, and often do. I can make cheaper coffee at home, too, and I do that every morning. But if I stroll into the coffee emporium, I have already made my decision. I'm not going to think about the $52,312 I could have had in the bank if I just didn't do this another 250 times a year.

Not all of economics can be boiled down to coffee, though you would think so reading some of these accounts.

At the risk of decaffienating my own point, I now do a real public service, and show what you can buy if Starbucks were money.

1 ounce of gold: approximately 531 Quad Grande Americanos

Going to ponder this a little while enjoying my morning cup.

Not Just Unconstitutional

Health care is too expensive, so the Clinton administration is putting Hillary in charge of making it cheaper. (This is what I always do when I want to spend less money — hire a lawyer from Yale.) If you think health care is expensive now, wait until you see what it costs when it's free. -- P.J. O'Rourke, Speech delivered May 6, 1993 for the opening of the Cato Institute's headquarters in Washington, D.C.

When I hear partisans in Washington talk about Obamacare, I hear things like, "too expensive", "problems with death panels", "need to roll back some of the provisions", and so forth. I hate debating the finer points of Obamacare, because to do so is to concede the validity of it.

Obamacare. Excuse me, but what article of the constitution covers this one? Seems to me we could have already dispensed with this insanity on simple constitutionality grounds. Like a B-class horror movie, where the weapon surely already exists to kill the beast, the monster won't die. Instead, we're trying to figure out how to save it. As with many other monstrous provisions of the administration, this one needs to be defeated dramatically and completely.

Aside from the non-constitutionality, which is reason enough, there are plenty of common sense reasons to dump this approach.

1) The cost to the US for all uncompensated care is estimated at 35-50 billion /year. Why do we need a 1.44 trillion dollar program to cover that? If it were simply about covering the medical providers for the shortfalls, we could pay for it out of petty cash. I could run that program with 25 people.

2)  Obamacare is a disproportional tax on the healthy. Why subsidize the unhealthy by forcing the healthy to pay for their care? If I don't have to pay for it, maybe I will take up smoking, carousing, and eating at McDonalds. This one really frosts me because on so many other issues, the government wants to engineer a result, like more ethanol, less food; or higher stock prices, lower wealth. Here, they want everyone to have average health, at the expense of the truly healthy.

3) Obamacare is a disproportional tax on the young. Young persons simply do not need a full measure of health insurance. We already tax the young to fund the social security and medicare administrations. They will be paying the 14.3mm debt until the end of time. Please, let my children go.

4) Obamacare eliminates choice. That is unAmerican on the face of it, isn't it? Senator John Sherman is surely rolling in his grave.

5) Obamacare eliminates incentives to stay healthy. When a health care recipient finds out what it really costs to keep him safe and healthy, he might try a little harder to stay that way. Instead, he probably won't see the bill.

Off the top of my head, there must be at least a couple dozen other reasons not to do this. If we would start every bill with the constitutional authority well defined as to why it has a right to exist as a bill, we could avoid lengthy debates (let alone lengthy blog posts). Again, it seems that we are trying to tame this beast, when by all points of reason, we should be killing it.

But let's talk about one of the reasons given for why Obamacare would make sense in any society. The high cost of health care. How did we get here? Andrew Foy sums it up really well here. At one time, people did their own relationships (personal and transactional) with their doctors. Service was provided like many others, and paid for in the same way.

Then, government muscled in on the business, and the rest was gobbled up by private insurance companies. Now (as can be quickly seen from the chart), we pay less of our own medical care than ever. That would seem to be a strong case for leaving it alone, but in that trend are the seeds of the system's destruction. By paying 10% of our health care costs, we have lost track of what it really costs to bandage up a foot, or diagnose a boil.

With big insurance, medicare, medicaid, and union negotiated co-pays, none of us has the slightest clue what health care really costs and why. Why anyone would think that that would change for the better by paying a bureacrat to stand in the way of the transaction is ludicrous.

So, now, the government wants to eliminate the last vestige of a free market. Only two outcomes are possible and both of them bad.

1) Health care costs skyrocket as a new layer of bureacracy settles in. 36 million people and the other 300 million who had insurance are now finding more reasons to seek free medical care. If its free, demand surely goes up, doesn't it? Doctor's offices are flling quickly, and 20% of the doctors are checking out of the system, because the pay no longer justifies the long hours.

2) Real health care drops to subsistence levels with people opting to get healthcare outside the system. to avoid the long lines and poor service. Overall health falls dramatically, and people are discouraged from getting the help they need.

Probably both.

In a few short years, people will be finding ways to opt out of government medical care. But they won't be able to opt out of the higher taxes that feed it. In that way it is the same exact problem as social security. An ineffective and expensive insurance program, that people will cease to rely on.

End it, don't mend it.

Follow the Money

Our civil rights have no dependence on our religious opinions, any more than our opinions in physics or geometry. -- Virginia Statute for Religious Freedom (1777), Thomas Jefferson

Follow the money is a term I have come to appreciate over the years, as a last resort it often explains the unexplained.

Take gay marriage for example. A lot of demagoguic energy is spent harping about gay marriage, but when it comes right down to it, there's no legal distinction to gay marriage that could not be achieved by civil contracts. I mean, people can enter into whatever contract they want with each other, and call it marriage if that's what they want to do. In fact, they have a lot more freedom to enter such a contract than non-gay people who have to get a license and find a preacher or a justice of the peace (not to mention the cake, the hall rental, and the dress)

So, what is the difference? Why would gay persons want to get married, when it is at face value a burdensome, ritualistic ceremony, signifying the traditions that so many gays badly want to have diminished if not eliminated.

I have no quarrel with whatever contract any two people want to enter into; whether marriage or the non-traditional equivalent. Go for it. I think 90-99% of people feel the same way. We're happy for you.

Oh, but simply letting people enter and exit relationships freely would not be sufficient. No, what the proponents of gay marriage want appears to be something else. This is where the money comes in. Proponents of gay marriage do not want marriage, so much as they want whatever perceived tax breaks and extended insurance coverage exist for traditional marriage .

So why didn't they say so? Insisting that this group or that  hates gays and wants to discriminate against them misses the point entirely. There are not enough gay haters out there to have any kind of influence on the matter. So, what we are really talking about is special interests for tax breaks and family insurance plans.

To me, the solution is simple. It appears necessary to eliminate all implied financial incentives. No tax breaks, no automatic coverage for spouses, none of that. Once that is done, we won't have to listen to any more demagoggery on the subject, and there won't be any a reason for people to enter a relationship other than their love for each other. Call it tough love. But let's stop calling each other bigots and hate-mongers over something as obvious as this money trail.

Soaking the Rich

The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.  -- Thomas Jefferson, 1816

Insanity, they say, is doing the same thing over and over again, and expecting a different result. This is why voting republican is insane. It is also why voting democrat is insane. Neither party has our best interests at heart (or even in mind) when they talk about limited government. When they talk limited government they are referring to limiting the other party from doing what they want to do. Meanwhile, all current politicians believe they have a better idea how to spend our money.  But do they have the first clue on how to raise it? Consider this chart:

Most politicians talk about raising and lowering the marginal tax rates like it is the magic dial that determines how much revenue is received. Many of us simply take it on faith that this is true. However, the dirty little secret is that no matter what the tax rates are, the revenue remains a straight percentage of GNP. How can this be?

At high marginal tax rates, the wealth is moved to outside the country, or is never created in the first place. It's a law of supply and demand. When you tax something, you get less of it. When people are taxed at a high rate, their capital is quickly invested where the tax rates are lower. People with capital do not free it up when rates are confiscatory. They wait. Patiently, quietly, and without reservation. This, in turn, causes GNP to fall.

The main idea should be to raise revenue. Since revenue (as a percent of GNP) is independent of tax rate, burdening the rich is an illogical and ineffective remedy  The only thing that will raise revenue is higher GNP. That requires an economy that achieves an increasing productivity jolt. Less government would work. Fewer regulations would work. Ways of unlocking higher productivity would work. Soaking the rich? That won't work.

Intersecting Hayek with Keynes: a brief confluence of thought

In general, the art of government consists in taking as much money as possible from one party of the citizens to give to the other. – Voltaire (1764).

Recently I had occasion to talk at length with another friend on the subject of economics and investment strategies. We started out on the very same page, agreeing that the government had badly screwed up the recent past, and that inflating the money supply was the only possible outcome as far as the eye could see. There was no argument that the range of possible investments had narrowed, and the further away we got from the US Dollar, the better off we were going to be.

So far, so good. Then my friend laid the foundation of the collapse at the feet of GWB (okay, sure), and thought Obama was doing the best he could to keep us out of the soup (Whu- what?) And that lack of government oversight under Bush caused this problem in the first place. ("lack of?")

As the conversation went along, it became clear that my friend had come from a different point on the scale to his present (correct) assessment of the future. A very intelligent fellow, who usually has a good handle on things that require study (like science and the arts).

Maynard (I'll call him --after John Maynard Keynes himself) is a dyed in the wool Keynesian, who believes that all useful economic theory was tied neatly into the bundle with Keynes. He believes in the veracity of the historical record as outlined by traditional economic texts. Among other things, Maynard believes that Hoover was an unrepentent  free market fundamentalist, and FDR did the best he could to keep us out of the soup.

Well, as John Adams said, facts are stubborn things, and it was necessary to inform Maynard that not only was Hoover not a free market anything, he was a government interventionist of the highest order. He believed in central planning and huge public works projects ---perhaps you've heard of one of them:  the Hoover Dam.

Fast forward now to 2011, you see Obama has inherited not only the interventionist and spendthrift legacies of Bush, but those of FDR, Truman, Eisenhower, JFK, LBJ, etc., all since the ruinous days of Herbert Hoover. And Obama has his own redistributionist agenda to advance too, don't forget.

Anyway, while resolving why Maynard and I both see the future exactly the same, I thought, well perhaps some clarity is coming to the average American, some kind of convergence of thought. Is this what Obama meant by bringing us all together? That the future holds for high inflation, high energy costs, much slower growth and a sustained deterioration of the currency. But Wait, Maynard believes that it is a good thing that all savings accounts and fixed pension accounts are going to be depleted. (Too much unused money out there anyway I suppose), and that it's our last best way to get the economy going. In other words, Maynard believes it is a valid function of the government to tamper with the money.

Well, after all that, maybe we don't see things the same at all. Maybe we just both see clearly what happens between now and January 2013. Total agreement is such a temporary thing.

Productivity in the Education Sector

 

“Education is the kindling of a flame, not the filling of a vessel”  -- Socrates

Walter Russell Mead put up a new blog post which is recommended reading. Although it is quite long, it lays some groundwork for what I think is an important set of circumstances soon to affect us all. Among the ideas it presents (and that I agree with) are:

1. There is an education bubble. Much like other organized labor bubbles (both public and private sector), this one is also about to pop.
2. Productivity has been the one thing that repeatedly saves our bacon when things get dicey, as in great recessions, for example.
3. Productivity in the education business will be a major change, in that the whole idea of teachers and classrooms may soon be widely seen as out of date. People will find more efficient ways to learn what they want to learn, and sheepskins will be replaced with achievement tests. Testing out of college, as it were will be the norm for the gifted.
4. That those who currently "deliver education" will first ask for subsidies on the old processes. Resistance to their calls will be branded as heartless; but the transformation will be eventually seen as real progress. 
5. Productivity will eventually infuse all of our information based institutions. Lawyers could be replaced by robo-lawyers in very short order. Productivity in the lawyerscape means faster and faster information processing to the point that a legal brief will be available at the push of a button. Why would this not be true of other services we currently rely on people to provide?

I personally was wondering, even worrying about where the next productivity growth was going to come from. I think Mr. Mead may have unlocked a large piece of it here.

Toward a more perfect union

Recently, a good friend sent me the following note:

There should be about a dozen lawmakers and their staffs. They would be elected by direct vote every two years. They would listen to private special interest groups alike the N.R.A., the Sierra Club, Boeing, Puritans of the former State of Mass., etc. They would be guided by a modernized version of the Constitution and campaign statements of "What Americanism means to me." In 25 words or less.


They would make and delete laws as needed, confirm Supreme Court Judges and declare war. The population or corporations would contribute to the special interest groups directly or not, depending on how important each issue was to them. Never directly to a lawmaker.


There would be no political States. An area could declare itself a "State" with a Governor embracing a certain quality of life such as, Greater New York City, Montana Countryside, or Rural Midwest. Everyone would have a "home" State.


They could spend time in another state, but they would have to pay a "Tourist tax" which could be negative. The States would receive a portion of tax dollars depending on how much they paid (about 70%). Only the Feds could collect taxes.


They would keep some for Fed projects and a baseline representation of all
citizens including illegal aliens who are here but do not contributive anything and have no State.

Some very good, very forward looking (I can't use the term progressive any more) ideas.
I like the idea of very few term-limited legislators, although I would suggest that the risks are great, because any 12 persons can more easily conspire to perpetuate the tyranny. On the other hand, managing this or any other useful constitution shouldn't require much more than 12 people.

When I revert to my natural anarchic state, I visualize utopia as no central government whatsoever. In a perfect wold, all governments are local. And if you don't like your local government, move. Odds are there's a better one within walking distance.

I recognize that there would be some confusion. For example, you'd have to pay a toll every 8-12 miles, but maybe some creative consolidator could manage that effectively, much like the Indiana and Illinois do with their toll pass system.

Also, when I go back to this 'no central government' construct, I recall that we had exactly that between 1776 and 1791. We had the commonwealth of Massachusetts, and the commonwealth of Virginia, and all the other governments that the people were perfectly happy with. Everybody knew the governor, or at least was free to go see him. Then, in 1791 the states signed up for whatever reason to a federal government, which many rightly felt they didn't really need. It was sold to these people on the basis that the entity's role was limited. Someone had to maintain the Atlantic police fleet. Since New York was mostly landlocked, and it wouldn't be right to have Delaware, Virginia, etc. foot the entire bill for protecting the coastal ship traffic. So, to provide for the defense was the one compelling reason to unify the states.

The only reason this new republic did not suffer immediate tissue rejection was because Thomas Jefferson and a few other early presidents were careful not to overstep their charter.

Then, starting a few decades later, states rights were subjugated to federal authority, and the rest, as they say, is (literally) history.

So if, as some of our "progressive friends" like to say, the constitution is a living document, we need to move on from the old ways. Okay, I say, let's try a new system where we assign all rights to the states, and let them decide piece by piece how much federal government we want to allow. How's that for progressive? Better yet, we could start at the municipal level, and decide from there what constitutes a state.

Something tells me that Hoosiers will be perfectly happy to stay Hoosiers, and even happier to not have to send their best politicians and 28% of their money to DC. They'd be happy to spend, say, their full share or more of the defense budget, but that money wouldn't have to go through the big government bureacracy. instead, their state would pay a fee to the public defense utility which would be responsible to its own shareholders and to its customers (the residents of that state) for protection. A lot like the electric company.

To those who are looking for the economies of scale where the federal government is responsible for collecting all the money. I think the closer the money is spent to where it is being earned, the better. It simply loses too much value in the round trip through Washington DC. The poor schlubs in Washington who are chartered to spend it have no clue what would have a positive impact on that local economy. Let the mayor spend it. Let the locals decide how much they want to be taxed, and let them see the results of what they bought.

Anyway, with the collusion that goes on now between the two big-government
parties, I see no real relief initiated at the federal government level. Until a state decides to secede, the federal government will continue to own us all, and in ever increasing ways. Maybe the Alamo in a more literal sense will be the last outpost of freedom.

What's the holdup?

The 112th Congress has been around for a week, yet we still have this problem. When are we going to see some action?

Taxes are not the problem

In the lame duck session of the 111th congress, a status quo extension of nominal tax cuts for two more years was hailed as a victory for the Republicans. After all, it's what the Republicans always seem to want. Taxes that are merely too high, instead of "OMG high".  Once again, both sides play us for suckers. For the average guy, it isn't the difference between the $10,000 he now pays and the $13,500 dollars he would have paid without the tax cut continuation. Sure, $300 a month would have brought the spending down considerably, and real jobs would have been lost in the process. But this is small potatos.

Small potatos, I say, because while they are delivering this flaming bag of manure they call a tax cut, they are taking action to devalue our currency by 3 times this amount, through collaboration with the Fed.  Why squeeze another 3 grand out of the citizen, when we can much more easily print 10 grand per taxpayer and hand it out like it was real money.

The income tax has not been the issue in some time. The issue is the big dose of inflation the country is about to suffer through. No sense in taxing just income, because they can tax everything you own just by making your dollars worth that much less.

So come ON. The issue is not income tax. It is the size and scope of government, and how much of our national resource is being reallocated to grow it. Whether taxes rise or fall matters far less than whether the government grows or shrinks. Don't fool yourself. It all gets paid for one way or another, and we need far less of it than we are buying right now. Far, far less.