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.
2 comments:
Interesting anecdote. If you would be so kind, summarize 3 steps you would take as president, to eradicate the current debt issue. Thanks!
Tobias, I would be delighted to put it in these terms. The constitutional way the executive branch can act to reduce the debt is to present a budget to congress that falls well short of the revenue stream on a year by year basis; so if I were president I would enact the following major budget changes.
1. Eliminate funding of non-essential functions of the US government. I would start with the Departments of Energy, Education, Health and Human Services, and Homeland Security. This would include not only the money necessary to run these organizations, but the money they are given to allocate to their pet causes. This does several useful things: It lets people know that they need to begin making their own informed choices for energy, education, health, and security. No more will subsidies for wind farms or ethanol, or hydro, or any other hairbrained scheme cause distortions in the market. A 1% improvement in the efficiency of coal fired plants, for example, would tower above the net energy added by all these inefficient technologies put together. Let the markets decide where the money should be spent. Education can be done much cheaper and more effectively if local schools were compelled to teach the skills that serve local markets. This is one of the many things Washington should not do. Our schools do not teach, do not motivate, do not nurture. They merely process. When people are responsible for their own security, too, they will do a much better job than if they rely on the government's implied promise of safety. It's never safe enough, and it's always inefficient.
The offloading of these functions will add to the productivity of the work force, because there will be more producers and fewer bureacrats. Plus, people will be empowered to do the right thing for their own communities, families, and livelihoods.
2. I would grandfather out the social security system as we know it, and replace it with a real trust fund that is audited every 5 years. The plan would be closer to a defined contribution plan with a minimum benefit assured through insurance payments deducted from the plan balance. Similarly, I would replace medicare with real health insurance paid out of the same account. Only when people are responsible for their own health decisions will the cost of health care match the demand.
3. Finally, I would increase tax revenue by lowering tax rates. I would require everyone to pay at least some amount for federal services (if only to instill a little ownership among the electorate). Tax rates should never rise above one fourth of a person's income. The total income tax (state plus federal) should never exceed 30%. Those states that charge more than 5% should be responsible for more of their own services. Ideally in time, the federal government is fully funded by the states, and the federal income tax can be eliminated. Then, the states will compete with each other for the talent and industry available by offering competitive discounts on the overall tax rate. That way, the cost of government is right-sized to the population.
Since your Wizer is not planning to run for president (I wouldn't want to take the pay cut), I do hereby bequeath these ideas to anyone who wants my vote.
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