Market Economy, Command Economy and Market Failures

Posted by PITHOCRATES - April 30th, 2012

Economics 101

Money replaced the Barter System making it Easier to Trade Freely and Voluntarily

We did our first economic exchanges in a market economy.  Agricultural advances gave us our first food surpluses.  These food surpluses gave people free time.  To do other things besides growing food.  Like developing an alphabet and writing.  Mathematics.  A code of laws.  And we made material goods.  Like pottery.  Farming tools.  Processing olive oil for lamps.  People who were good at making one thing made a lot of that one thing and traded with other people.  Who were good at making one thing themselves.  These people met.  And traded.  Freely and voluntarily.

Free trade.  A key element of the market economy.  Where people freely met and traded the things they made.  With other people who are freely trading the things they made.  Free trade came before money.  We bartered our first trades.  Trading goods for goods.  We then created money to make our trades easier.  Reducing the search time to find people to trade with.

Money is something that can store value.  Which allowed people to trade their goods for money.  Then they took that money and traded it with someone else.  To get something they wanted.  Money allowed people to spend less time finding people to trade with.  Because you didn’t have to find that one person that had what you wanted AND was willing to trade it for what you made.  Money allowed us to advance beyond the barter system.  Which proved more and more inefficient as we produced more and more goods.

Because of Market Failures the Government taxes to Provide Public Goods and Eliminate the Free-Rider Problem

As we produced more and more goods our standard of living rose.  We had more things in our lives that made that life easier.  More comfortable.  And more enjoyable.  Civilizations with a bustling market economy were great places to live.  Because there were a lot of nice things to make life better.  Which other people saw.  From beyond the civilization.  And they wanted what they saw.  And they took it.  By force.  Raiding parties would enter a developed civilization and rape, murder and plunder.  So to enjoy the amenities of an advanced civilization required the ability to protect your civilization.  Which led to one of the first market failures.  The failure of the market to provide city defenses through the free and voluntary trading of people engaged in economic activity.

We call it a market failure because building city defenses and creating an army are things the market economy can’t provide.  One person can’t make a fort or an army.  And trade it with someone else.  It’s too big.  It takes a lot of people and a lot of effort to make these things.  But it doesn’t take everyone.  If everyone else is contributing one person could skip contributing.  That person would still be able to enjoy the benefits of that fort and army.  Living in safety.  And enjoy living in safety for free.  Something we call the free-rider problem.  The fort and army are examples of public goods.  Things the free market can’t provide.  Or that the free market fails to provide.  Not that the market is broken or operating poorly.  It’s because people rarely act freely and voluntarily to benefit other people.  Because any time and money spent doing this is time and money taken away from their own families.  Which would bring hardship to them.  So the government provides these things that are necessary AND cause personal hardship to individuals to provide.  The government forces everyone to contribute.  Which minimizes the hardship each individual must bear.

Some in power like to take this further.  And call things that people can provide for themselves that benefit only themselves public goods, too.  Such as health care.  Higher education.  Housing.  Food.  Everything the people can buy for themselves by working to earn the money to buy these things.  And when they do they alone enjoy the benefits of these goods.  These goods they incurred hardships to obtain.  By working to earn a paycheck.  Or sacrificing other things to have these things instead.  It’s their call.  Their choice.  A choice they enter freely and voluntarily.  Therefore these things are not public goods.  But that doesn’t stop some people from acting like they are public goods.  Usually to help them win an election to office.  Or to overthrow the government.

A Command Economy reduced Economic Activity and Introduced a Police State

Civilizations with a bustling market economy were great places to live.  If you had talent and ability.  If you did then you could work hard and trade your talent and ability for a paycheck.  That you could use to trade for other things in that bustling economy.  Those with great talent and ability would be able to trade these for great paychecks.  Those with less talent and ability would be able to trade these for lesser paychecks.  Which, of course, caused income inequality.  Which is a handy thing to exploit if you want to seize power.  So you can enjoy the best things the civilization has to offer.  When your talent and ability only can trade for one of those lesser paychecks.

History is full of people trying to seize power.  So this is nothing new.  What was new was the way these people seized power.  By using the teachings of Karl Marx and Friedrich Engels.  As they wrote in the Communist Manifesto.  Who attacked market economies.  And capitalism.  Saying that the new middle class, the bourgeois, maximized profits by exploiting the working class.  The proletariat.  Which they said was unfair.  And that the only way to make things fair was to destroy the very concept of private property.  Because only the bourgeois accumulated private property.  The proletariat had none.  And only got poorer and poorer while the bourgeois got richer and richer.  Under their system, then, nothing belonged to the person.  Everything belonged to the state.  If you created something with your talent and ability it belonged to the state.  And then the state determined how to distribute the fruit of your labors.  Basically according to the rule ‘from those according to ability to those according to need’.  Those with the greatest need got the most stuff.  And those with the most ability worked the hardest.  Well, you can just guess how that worked out.  Everyone tried to show as little ability as possible and the greatest need as possible.

Because people weren’t the masters of their talent and ability anymore they couldn’t trade freely and voluntarily.  Which meant there was no longer a market economy.  Instead there was a command economy.  Where the government made all the decisions.  What to make.  How to use resources.  Where people lived.  Where they worked.  And what prices they paid for the things in the state-run stores.  Which had shelves full of things no one wanted to buy.  And empty shelves where the staples went (soap, toilet paper, etc.).  Because the government decided what to bring to the state-run stores.  And in what quantity.  Not people trading freely and voluntarily.  Which reduced economic activity.  Reduced living standards.  And introduced a police state.  Because anyone who had a chance to escape to a market economy did.  Which is why the East Germans built a wall in Berlin.  To keep their people from escaping their command economy.  And going to the market economy across the street.

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The NHS to offer a new National Institute of Dance Medicine and Science

Posted by PITHOCRATES - April 29th, 2012

Week in Review

Sure, we have Obamacare.  But it looks like the NHS may be putting one over on the Americans when it comes to health care.  They’re introducing a brand new specialty (see First dance injury clinic for NHS to open posted 4/29/2012 on the BBC News Health).

The NHS is opening its first specialist dance injury clinic, with hopes for others to follow around the UK.

It is part of a new National Institute of Dance Medicine and Science which is backed by several dance organisations and two universities.

The clinic will offer highly specialised treatment and rehabilitation services…

Dance UK, the professional organisation for dancers, estimates that 80% are injured every year.

Those who are part of an established company may get limited access to private healthcare, but the majority of dancers who are freelance rely on the NHS…

Many within the world of dance talk about a culture of tolerating pain as part of the physical endurance needed. It can make it hard for dancers to know when to stop.

Perhaps I’ve been wrong.  Perhaps national health care is better.  I mean, here’s the NHS creating a specialty to heal dancers.  A specialty in Dance Medicine and Science.  My hat’s off to the NHS.  Introducing a specialty like this clearly shows that they care for their people.  All of their people.  And will provide for them.  Every last one of them.  So bravo, national health care.  You are indeed better than the private health care we have in America.  But we have seen the errors of our way.  And will soon embrace Obamacare.  And join your caring ranks.  Following your lead to a better health care future.

The inspiration for the clinic comes partly from New York where the dance community has been able to access highly specialised care for more than 20 years.

Never mind.

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Even Democrats are Complaining about the High Cost of Government Workers Bankrupting their Cities and States

Posted by PITHOCRATES - April 29th, 2012

Week in Review

So who isn’t paying their fair share?  I know who you’re probably thinking.  And if you are you’re wrong.  For here it is direct from a Democrat mayor’s mouth (see Steven Malanga: How Retirement Benefits May Sink the States by STEVEN MALANGA posted 4/27/2012 on The Wall Street Journal).

Chicago Mayor Rahm Emanuel recently offered a stark assessment of the threat to his state’s future that is posed by mounting pension and retiree health-care bills for government workers. Unless Illinois enacts reform quickly, he said, the costs of these programs will force taxes so high that, “You won’t recruit a business, you won’t recruit a family to live here.”

We’re likely to hear more such worries in coming years. That’s because state and local governments across the country have accumulated several trillion dollars in unfunded retirement promises to public-sector workers, the costs of which will increasingly force taxes higher and crowd out other spending. Already businesses and residents are slowly starting to sit up and notice…

Government retiree costs are likely to play an increasing role in the competition among states for business and people, because these liabilities are not evenly distributed. Some states have enormous retiree obligations that they will somehow have to pay; others have enacted significant reforms, or never made lofty promises to their workers in the first place.

Indiana’s debt for unfunded retiree health-care benefits, for example, amounts to just $81 per person. Neighboring Illinois’s accumulated obligations for the same benefit average $3,399 per person…

Back in Illinois, Dana Levenson, Chicago’s former chief financial officer, has projected that the average city homeowner paying $3,000 in annual property taxes could see his tax bill rise within five years as much as $1,400. The reason: A 2010 Illinois law requires municipalities to raise the funding levels in their pension systems using property tax revenues but no additional contributions from government employees. The legislation prompted former Chicago Mayor Richard Daley in December to warn residents that the increases might be so high, “you won’t be able to sell your house.”

What was that about the 1%?  Just who is it living off of the generosity of the 99%?  Who isn’t paying their fair share?  And is asking others to pay far more than their fair share?  Who is it that has pension and retiree health care plans worth several trillions of dollars?  All funded by tax dollars from the 99%?  As well as the 1%?  Our government workers.  That’s who.  Those people who have made themselves more equal than the 99%.  Even though they claim to be a part of the 99%.  While living more like the 1%.  But one thing you can say about the 1%.  They’re not bankrupting their cities and states like these government workers are.  Or destroying our lives to pay for their lives.

You want to talk class warfare?  Let’s talk class warfare.  The richest 1% pay approximately 30% of all federal income taxes.  The richest 10% pay approximately 70% of all federal income taxes.  And we don’t pay any of these rich people with our taxes.  They get it however they get it.  But they don’t get it from us.  The taxpayers.  So they providing a huge net good for us.  Paying the lion’s share of taxes.  And not taking our money from us.  And yet these are the people that we vilify.  While those who are harming us the most get a free pass.  Now that’s some clever class warfare.  Making it sound like it’s the rich who are oppressing the middle class.  While it is the wealthy government class oppressing the middle class.  And they do it very well.  You’ll hear people everywhere say that the government should stick it to the rich.  But they never say a word about these government workers who live a better life than they do.  Even though they are paying for that better life.  Through ever higher taxes.

So when your property taxes go up think about your retirement plans.  And though you may not have much be comforted in the fact that your government workers do.  Thanks to you.  So even though you may not be able to travel the world in your retirement you’ll know that somewhere a retired government worker is.  Because that’s only fair.  And being fair is important.  Fair share sacrifice.  That’s all they want.  As long as, of course, your share of sacrifice is greater than theirs.  The wealthy government class.

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Climate Data shows Anti-Pollution Emission Standards cause Global Warming

Posted by PITHOCRATES - April 29th, 2012

Week in Review

Global warming is real.  So says all the global warming climate scientists’ science.  With some interesting qualifiers.  Where they explain drops in global temperatures.  Which are caused by the very things that are causing global warming.  Man putting smoke, soot and ash into the atmosphere from our fossil fuels (see Climate Canard No. 2: ‘Warming Has Stopped’ — A Very Temporary Duck by Bill Blackmore posted 4/29/2012 on ABC News).

The slight dip in the 1950s is believed by climate scientists to have been caused at least partly by the post-World War II economic boom, which produced great amounts of industrial smog whose tiny particles reflect warming sunlight back into outer space — as does the thick smoke from volcanoes.

Now see, this is the reason why there are climate skeptics.  There is no science that explains this dip in temperature.  Just anti-science.  Hunches.  And guesses.  If smog and smoke lowered temperatures why didn’t they lower temperatures during World War II?  For American industry was humming during the war, too.  Not to mention all those trucks, tanks, jeeps, ships and airplanes pumping all of that pollution into the atmosphere.  None of which had any emission controls.  Then add in all those fires from the destruction of oil refineries.  Ships.  Planes.  Tanks.  And the burning down of cities.  Like Dresden.  And Tokyo.  Throw in a couple of mushroom clouds.  You add all of this up and it should at least equal the pollution we were throwing up into the atmosphere during the Fifties.  Yet this same chart shows higher temperatures during the war.  Which would make sense if pollution caused global warming.  Instead of preventing it.  As they claim happened during the Fifties.

If you back up one decade to the Thirties, it appears there was no change in global temperatures.  Again, this would make sense if man was causing all of the warming.  Because man wasn’t doing much during the Great Depression.  But then even this logic fails if you back up one more decade to the Twenties.  To the Roaring Twenties.  When the world was modernizing.  The new electric power supported a manufacturing boom.  Included in that boom was the new automobile.  That jammed our city streets.  Filling them with raw emissions.  While steam locomotives puffed soot, smoke and ash into our cities and across the country.  And what did all of this manmade pollution do?  It lowered temperatures.  Which supports their original claim that air pollution prevents global warming.  But then this doesn’t agree with the data from the Forties.  When air pollution caused global warming.  And to confuse us a little more they have another chart that shows temperatures fell during the Forties.

The dip in the global temperature from about 1942 to 1970 is believed by climate scientists to be due partly to the intense industrial activity of World War Two and the economic boom that followed.

The gray and black particles in the smoky emissions from factories actually help cool the earth by reflecting some of the warming sunlight back into outer space, thus preventing it from hitting the earth where it changes into the invisible infrared light that is trapped by greenhouse gasses, warming the air.

So what are they telling us?  Are we causing global warming by cutting emissions from fossil fuels?  Should we create more electricity from coal?  And should we let those plants belch pollution into the atmosphere?  To save us from the perils of global warming?  For if there is any correlation between the rise in global temperatures and manmade activity it is this.  Global temperatures took off when we started reducing manmade polluting emissions.  The data absolutely supports this.  And no one can deny it.  Not even the most respective global warming climate scientists.

Again, this is the reason why there are climate skeptics.  Because global warming climate scientists make it so easy to be skeptical.

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Global Warming is Bad unless that Warming is the Byproduct of Efforts to Prevent Global Warming

Posted by PITHOCRATES - April 29th, 2012

Week in Review

One of the solutions to global warming has one minor drawback.  Wind farms may cause global warming.  Talk about your ironies (see Wind farms can increase night time temperatures, research reveals by Damian Carrington posted 4/29/2012 on The Guardian).

Large windfarms can increase local night time temperatures by fanning warmer air onto the ground, new research has revealed. The study used satellite data to show that the building of huge wind farms in west Texas over the last decade has warmed the nights by up to 0.72C…

The scientists say the effect is due to the gentle turbulence caused by the wind turbines. After the sun has set, the land cools down more quickly than the air, leaving a cold blanket of air just above the ground. But the turbine wakes mix this cold layer with the warmer air above, raising the temperature. A previous study found a similar effect but was based on data from only two weather stations over just six weeks.

“The result looks pretty solid to me,” said Steven Sherwood at the climate change research centre at the University of New South Wales, Australia. “The same strategy is commonly used by fruit growers, who fly helicopters over the orchards rather than erect windmills, to combat early morning frosts…”

He told the Guardian that his results could not be used as an justification for blocking new wind farms. “The warming might have positive effects,” he said. “Furthermore, this study is focused only on one region and for only 9 years. Much more work is needed before we can draw any conclusion.”

For those outside the metric system, that 0.72 degrees Celsius temperature rise is almost 2 degrees Fahrenheit.  Which can be the difference between water and ice.  Or frost.

This warming might have positive effects?  As opposed to the kind of warming that wind farms are supposed to prevent?  Interesting.  Warming is bad.  So we need to build wind farms.  Wind farms may cause warming.  But, hang on, warming can now be beneficial (such as when it improves crop yields in orchards).  What is this?  Schrödinger’s Cat?  That is both alive and dead when sealed in a box.  And only do we know its true state when we open the box and observe what’s inside.  If so then why do the global warming alarmists, I mean scientists, always assume the cat is dead when it could very well be alive?

Of course it’s premature to draw any conclusions because it’s been barely a decade of study.  We don’t want to jump to any conclusions like they did when they said an ice age was coming.  Just before they changed their mind and said it was global warming.  And the science had always said it was global warming.  Despite what conclusions they jumped to back then.  Back to Schrödinger’s Cat we go.  Where apparently they observe what they want to observe to favor the prevailing political climate.  So I guess it’s climate science after all.  The science of political climate.

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Drill, Baby, Drill works well in Russia, Nigeria, Saudi Arabia, Kuwait and the UAE

Posted by PITHOCRATES - April 29th, 2012

Week in Review

So if we drill, baby, drill for oil everywhere it won’t do a thing to lower oil prices.  According to the Obama administration.  Besides, we’ll just export the oil (or refined gasoline) anyway.  So what’s the point?  Well, here’s a thought.  Oil prices are high.  So if the U.S. drilled for oil everywhere and exported all of that oil it may not impact the price of gasoline (though most rational people believe it would) here’s something else that could come from it (see Petrodollar profusion posted 4/28/2012 on The Economist).

FIRST, the good news: China, the country at the centre of the debate about global imbalances, has a current-account surplus that has fallen sharply over the past few years. Now the bad: China was never really the prime culprit when it comes to imbalances at the global level. The biggest counterpart to America’s current-account deficit is the combined surplus of oil-exporting economies, which have enjoyed a huge windfall from high oil prices (see left-hand chart). This year the IMF expects them to run a record surplus of $740 billion, three-fifths of which will come from the Middle East. That will dwarf China’s expected surplus of $180 billion. Since 2000 the cumulative surpluses of oil exporters have come to over $4 trillion, twice as much as that of China…

The most effective policy tool to reduce oil exporters’ current-account surpluses is public spending, and investment in particular because of its high import content. Increased public spending could also help these economies diversify away from oil. That would support their future economic development and create more private-sector jobs for young, growing populations. To maintain social stability, many of these governments need to spend more on education, health care, housing and welfare benefits. Some oil producers, such as Russia and Nigeria, are running fairly balanced budgets, but the governments of the Gulf states are awash with cash. Since 2005 Saudi Arabia, Kuwait and the UAE have increased public spending by 7-8 percentage points of GDP. Even so, the three countries are expected to run an average budget surplus of over 15% this year. That leaves plenty of room to be a little more spendthrift.

Europe, Japan and the United States are suffering under huge budget deficits and trade deficits.  Their aging populations and the pensions and health care for them is threatening the solvency of these nations.  Who have no choice but to raise taxes and borrow ever more money to pay these obligations.  You know who doesn’t have these problems?  Those big oil-exporting economies.  Who are “awash with cash.”  Unlike Europe, Japan or the United States.  Seems to me that it’s better to be “awash with cash” than to be mired in debt.

So drill, baby, drill I say.  Let’s have the same problem the oil exporters are having.  Too much cash.  We could eliminate income taxes.  AND pay all our Social Security and Medicare obligations.  As well as all the education and women’s health programs you desired.  Wouldn’t that be nice?  I mean who would be opposed to that?  Except, of course, the Obama administration.  Because according to them there is nothing to gain from putting more oil onto the market during record prices.  Too bad our president isn’t as much a free market capitalist as they are in Russia, Nigeria, Saudi Arabia, Kuwait and the UAE.

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Obamacare will Slash Medicare Advantage to the Bone – After the 2012 Election

Posted by PITHOCRATES - April 29th, 2012

Week in Review

First Nancy Pelosi said we had to pass Obamacare to find out what’s in it.  So our representatives passed it.  Along pure party lines.  Against the will of the people.  Something the people didn’t forget by the 2010 midterm elections.  Voting the Democrats from power in the House.  Removing their filibuster-proof majority in the Senate.  Taking a majority of the governorships.  And state houses.  The Democrats paid a high price for passing legislation the people did not want.  And now it may be their president who has to answer for this assault on the will of the people.  Who has no illusions that his signature piece of legislation was rammed down the people’s throats with some of the dirtiest political deal making to ever besmirch the halls of Congress.  And he’s working his hardest to hide the facts of Obamacare before the 2012 election (see Obama’s $8.3 Billion Re-Election Slush Fund posted 4/23/2012 on Investors.com).

Backers like to say the more people know about ObamaCare, the more they’ll like it. So why is the administration spending $8.3 billion to hide a key provision from millions of seniors until after the election?

That’s precisely what administration officials are doing right now as a way to mask the effect of ObamaCare’s deep cuts to the popular Medicare Advantage program.

Championed by Republicans in 1997, Medicare Advantage offers seniors an escape valve from the creaky, government-run Medicare insurance program…

Medicare Advantage has proved popular with seniors, 12 million of whom have enrolled. But the left loathes it, arguing that Medicare overpays insurance companies, thereby ripping off taxpayers to enrich this industry…

Medicare’s own actuary reported that ObamaCare would eventually force more than 7 million seniors off their private plans and back onto traditional Medicare as insurers flee the market.

Obama may not care that this violates his endlessly repeated promise that “if you like your health plan you can keep it.”

But somewhere along the way, someone in his administration realized that millions of seniors would soon catch on that he was lying — and that this would happen just before the November election, when seniors make their annual Medicare Advantage selections.

Not wanting to confront angry voters who’ve seen their health care choice eliminated by ObamaCare, the administration apparently decided instead to paper over these spending cuts, pumping $8.3 billion back into the program through “bonuses” to Medicare Advantage plans…

Almost all the bonus money is front-loaded. In fact, in the first year, the extra bonuses will fill in more than 70% of ObamaCare’s scheduled Medicare Advantage cuts. That will, conveniently, keep Medicare Advantage plans up and running through the election.

So the more you learn about Obamacare the more Barack Obama fears his reelection chances.  So he’s spending $8.3 billion to hush up the truth.  To lie to seniors.  Apparently.  So the seniors don’t learn that Obamacare is going to reduce the quality of their health care.  To lull them in a false sense of security to get him through the 2012 election.  For by hiding the truth his chances of reelection improve.  Which is a sad commentary on President Obama.  And Obamacare.

Should he win reelection then he’ll spring the truth on these unsuspecting seniors.  By destroying Medicare Advantage.  And forcing them into health care plans they don’t want.  Confessing that he was lying when he said “if you like your health plan you can keep it.”  Which makes one wonder what else he has in store for our seniors.  For the cost of programs for seniors (Social Security and Medicare) are the largest and fastest rising costs in the federal budget.  So if he will ax Medicare Advantage just how much more will he cut from programs for seniors?  Now that there are no more elections to worry about?

No wonder he’s spending $8.3 billion to hide the truth.  If this truth comes out who knows what else will come out before the 2012 election.  And that’s something clearly the president can’t afford to chance.  For when you are passing policies the people don’t want the truth is the last thing you want to come out.

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Militant Irish Nationalists still Planting Bombs in Northern Ireland

Posted by PITHOCRATES - April 28th, 2012

Week in Review

Ireland and England have a history.  And it isn’t a very good one.  With things getting really bad when the English went Protestant.  And the Irish remained Catholic.  Which aligned Ireland with England’s Catholic enemies on the continent.  France and Spain.  England would go on to conquer Ireland.  But it didn’t stop the Catholics from rising up against English rule.  So the English colonized Northern Ireland with Protestants in the 17th century.  Plantation of Ulster.  To dilute the Catholic threat.  With English Anglicans.  And Scottish Presbyterians.   Which did nothing to improve relations between the Irish and the English.  Even to this day (see Bomb defused in Northern Ireland would have caused devastation by Ivan Little posted 4/28/2012 on Reuters UK).

Two bombs planted by militant Irish nationalists, including one packed with enough explosives to have killed anyone within a 50-metre (yard) radius, were defused in Northern Ireland on Saturday, police said…

Army bomb disposal experts defused a similarly sized bomb in the border town of Newry this time last year. Another bomb was also found near the main Dublin-to-Belfast motorway earlier this month that police said had the potential to kill.

The other bomb also made safe by the army on Saturday was discovered under a parked car in Belfast where 80 people were moved from their homes for five hours overnight. There was no confirmation yet of its size…

The 1998 peace agreement called a halt to more than three decades of violence between mainly Catholic Irish nationalists opposed to British rule of Northern Ireland and predominantly Protestant unionists who wanted it to continue.

The British founded America.  While the Irish built much of it.  The British gave us our language, our representative government, our institutions and our economic principles.  Despite two wars we’ve remained close.  The Irish helped us to win our independence from the British.  And subsequent waves of immigration swelled our population.  And, later, our cities.  Filling our factories.  And building our infrastructure.

We have great numbers of both Catholics and Protestants living peacefully together.  Which makes this continuing struggle between Ireland and England difficult for many Americans.  For we probably would not be who we are if it wasn’t for both of these people.  We abhor this violence.  Especially when those who suffer this violence are not responsible for the sins of their distant ancestors.  But worse for Americans is that both the Irish and English are our ancestors.  And they’re not that distant from us.  Which is what makes this struggle so difficult for us.  They’re both family.  Unlike they are to each other.

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Japan’s Future is Bleak thanks to their Welfare State and their Aging Population

Posted by PITHOCRATES - April 28th, 2012

Week in Review

Japan made two great mistakes since World War II.  Establishing a great welfare state.  And interfering into the private sector economy during the Eighties.  Causing a great asset bubble.  And a deflationary spiral lasting a decade or two.  Which has compounded their first mistake (see As Japan strains to care for elderly, sacrifices begin by Chico Harlan posted 4/28/2012 on The Washington Post).

In recent months, Prime Minister Yoshihiko Noda has staked his job and bet his support on a tax increase designed to fund Japan’s soaring social security costs.

And the potential tax hike is only a sneak preview of the burdens to come as Japan grows into the world’s grayest society, a nation where two decades from now seniors will outnumber children 15 and younger by nearly 4 to 1.

Economists and government officials say that Japan, in the coming years, will probably raise the retirement age, again increase taxes and trim spending on everything from education to defense, all to care for its elderly.

Young Japanese — those entering the workforce amid two decades of stagnation — will face the greatest burden: They will earn less in real terms than their parents, pay higher pension premiums, receive fewer social services and, eventually, retire with a less-generous pension package.

Talk about inverting the pyramid.  Which is what social security is.  A pyramid scheme.  Which will work as long as those entering the scheme outnumber those collecting benefits from the scheme.  Because everyone pays a little to support the big consumers at the top.  But what happens when the big consumers at the top outnumber those paying into the system 4 to 1?  You suffer.  And sacrifice.  With a capital ‘s’.  Especially those at the bottom.  Who will pay in more than those at the top ever did.  While only collecting a fraction of their benefits.  If they collect anything at all.

This is the problem an aging population causes a spendthrift government.  You simply can’t spend at a greater rate than the rate your population is growing.  Because all government spending has to be financed by the taxpayers.  Those with jobs.  In the private sector.  So if the population growth rate falls (i.e., the population is aging) the tax contributions from the individual taxpayers must increase.  Basically enslaving the younger generation to the older generation.  The lesson of Japan should be a cautionary tale to governments everywhere.  For it will happen to you if you try to be too generous with your state benefits.

As it rose into an economic power after World War II, Japan created a generous social security net, with a universal health-care system and a universal pension system in which people were covered as employees or via a basic national program. But since the collapse two decades ago of the real estate and stock market bubble, the foundation of that system has started to crack. Tax revenue has dropped amid deflation, forcing Japan, whose debt-to-GDP ratio is highest among developed countries, to fund its social programs with more and more borrowing…

Kakuta [a 20-year-old college student] said he didn’t think the cutbacks to the current system were coming fast enough. And he doubted the ability of Japanese politicians to draft the right policies.

“To me,” he said, “it sounds more and more like we’re passing this on to the younger people. . . . I feel especially bad for the generation after mine. And that certainly doesn’t motivate me to have more children.”

Who would want to burden their children with a life of near-subsistence?  So it is not surprising that the younger generation may not have the same number of children that their parents did.  Which is the worst thing possible for the government.  For there will be fewer people entering the workforce.  While the population of those leaving the workforce will grow ever larger.  Making the burden on the young even greater.  For each individual will have to support more retirees.  The retirees will, in effect, become their children.

The U.S. is following the Japanese.  For we already know Social Security and Medicare are going bankrupt.  And now with Obamacare thrown in the mix the U.S. will run to catch up with Japan.  As the Europeans are trying to do as well.  Perhaps heralding the end of Western Civilization.  As we turn the hands of time back.  To when there was a ruling elite and impoverished masses.  Who will work for no one but the state.  In exchange for their meager state allowance.

Marx and Engels had it all wrong.  You don’t destroy the middle class with a revolution of the working class.  You do it with the welfare state.  And let the middle class destroy themselves.  By demanding ever more from the welfare state.  It may take a little longer.  But it is so much easier to do.  All you have to do is give people lots of free stuff.  And the people will take it from there.  To the European sovereign debt crisis.  Or to something worse.  To something like that lurking in Japan’s future.

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The US and UK following Keynesian Policies and Suffering Jobless Recoveries

Posted by PITHOCRATES - April 28th, 2012

Week in Review

The US is not the only country suffering through a ‘jobless’ recovery.  Which is just another way of saying continued recession.  Or double-dip recession.  The UK is having the same problems we’re having.  And using inept government policies to try and fix them.  Just like in the US (see A recession made in Downing Street – but not caused by cuts by ALLISTER HEATH posted 4/26/2012 on City A.M.).

The first problem has been the composition of the austerity package. Much of the tightening has been via tax hikes rather than spending cuts – capital gains, national insurance, stamp duty, value added tax, and now pasties and the rest. That was the wrong choice: lower taxes are good for growth, higher taxes are bad. The trick is to deliver austerity by cutting spending, not by hiking taxes.

The next issue is that the government’s supply-side agenda has failed miserably. By now, developers should have been set free to build new airports and even cities; the labour market should have been liberalised; job-reducing red tape eliminated; the top rate of tax abolished; mad EU rules abolished, and so on and so forth. Britain needed a revolution; it was granted a few over-hyped reforms…

…excessive inflation has slashed real incomes and real wealth; this, rather than cuts, is what has depressed spending the most…

Last but not least, banking rules. It was right to ensure banks held more capital and that credit became priced rationally – but the reforms have spiralled out of control…

What is most depressing is that the double-dip (if that is indeed what it is) will wrongly discredit austerity, even though the state remains incredibly profligate…

President Obama has broken deficit and debt records.  While he chastises the Right for irresponsibly spending beyond their means.  Demanding that they raise taxes to pay for this irresponsible spending.  That somehow higher taxes will fix all of America’s ills.  Or, at the least, address the social injustice of prosperity.  And happiness.

Both the UK and the US are steadfastly following the failed policies of John Maynard Keynes.  Demand-side Keynesian economics.  Tax and spend.  Because they’ve ‘worked so well’ in the past.  Of course they haven’t.  They never have.  And they never will.  What works are supply-side economics.  Those policies embraced by Margaret Thatcher.  And Ronald Reagan.  Who enjoyed real economic recoveries.  The kind that created jobs.

Politics never change.  Politicians dumb down public education so the people never learn the lessons of history.  That all of their policies are tried and failed.  So they make the same arguments every election cycle.  And the young believe in the goodness of these policies.  The fairness of these policies.  Never knowing the lives they have destroyed through the years.  Which is why politicians work so hard to get the youth vote.  Before they learn the truth.  And become conservative.

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