FT148: “You only know what someone taught you.” —Old Pithy

Posted by PITHOCRATES - December 14th, 2012

Fundamental Truth

If we Grew up on a Deserted Island isolated from Hate we’d Probably Grow up Better Adjusted to live with One Another

No one is born a racist.  It’s something you have to learn.  Someone has to teach it to you.  If a parent is a racist chances are the child will be bombarded with racial slurs growing up.  And become a racist.  Just like his or her parent.  But if you raised a bunch of babies of different races together on a deserted island in isolation would any of them grow up to be a racist?   No.  For they wouldn’t even know what racism is.  Because the life they knew would be normal.  It would be normal for black, white, brown, red and yellow to live together.

Catholics and Protestants have spent a few centuries killing each other.  Ever since the Protestant Reformation in 1517.  People have been persecuting Jews since forever.  The Palestinians, Hezbollah and Hamas have been killing Israelis for decades.  Shiite and Sunni have also been killing each other for a very long time.  These people have hated each other so much that they just want to see the other dead.  Yet if you took a Catholic, a Protestant, a Jew, a Palestinian, a Shiite and a Sunni baby from their parents and raised them on a deserted island in isolation they wouldn’t grow up wanting to kill each other.  They wouldn’t even know they were supposed to hate each other.

Europe was just itching to go to war.  Nationalistic fervor was just bursting at the seams.  Germans, Austrians, Hungarians, French, Russians and British were ready and waiting.  Filled with nationalist pride.  Just jonesing to open a can of whup-ass on anyone that wasn’t from their own great nation.  Having learned nothing from the Crimean War.  Or the American Civil War.  Thinking they would march their magnificent armies onto the field of battle, fight a glorious battle and watch the enemy throw down their arms and run away.  Even though tactics hadn’t changed much from the Crimean War and the American Civil War.  Though the weapons were far more lethal.  Making World War I one of the bloodiest wars of all time.  But had you taken a German, an Austrian, a Hungarian, a French, a Russian and a British baby from their parents at the turn of the century and raised them on a deserted island in isolation they wouldn’t have grown up wanting to go to war with each other.  As they wouldn’t know that they were supposed to hate each other.

Of all the Things the State did Poorly perhaps the Worst was being Husband and Father

When our parents grew up they often went to bed without locking the doors to their houses.  Even during the days of Prohibition when armed gangs shot each other in the street with automatic weapons.  Today we have deadbolts and alarm systems.  And metal detectors at our schools.  For kids today are taking guns to school.  And they’re shooting people.  This didn’t happen during the days of Prohibition when gangs were armed with Thompson 45-caliber submachine guns.  Why?  Because during Prohibition there weren’t violent video games, graphic violence in movies & television and rap & hip-hop songs glorifying gun violence.  So even though we have less lethal weapons on the streets today we have more gun violence than before.  Because kids have been so desensitized to violence that killing people just isn’t a big deal to them.  Raise these kids on a deserted island away from this violence in our pop culture, though, and they’re not going to kill indiscriminately.  Instead they’ll stay innocent kids longer.

Add to this violence in our pop culture our secular progressive culture.  The Left’s quest to remove religion and God from as much of our lives as possible.  And their attacks on Christianity.  For imposing their moral code on people.  And opposing free love and abortion.  They have gone so far as to call for the removal of the Ten Commandments from our government buildings.  And our schools.  Because teaching kids things like ‘Thou shall not kill” is a bad thing.  Or any other morality lesson.  For who’s to say what is right and wrong?  Of course when we teach our kids growing up that there are no moral absolutes it sure weakens the argument for them not to do bad things.  It detaches them from society.  And makes them lack empathy for their fellow citizens.  Making it easier to hurt them.  If you pulled these kids out of our public schools and put them and their parents on a deserted island away from this secular progressive culture and filled them with the fear of God for misbehaving they probably could sleep at night with their doors unlocked.  For hurting one another would be the last thing on their minds.

When LBJ passed his Great Society legislation it included Aid to Families with Dependent Children (AFDC).  An unmitigated disaster for poor people.  For it let men father and abandon their children.  Leaving women to turn to the state to act as husband and father.  And of all the things the state did poorly perhaps the worst was being husband and father.  It just decimated poor families.  Single mothers filled housing projects.  Their children, with no male role model, turned to the street.  Got into a lot of trouble.  And into drugs.  Even taking that behavior into their schools.  Which is part of the reason why metal detectors are needed today at our schools.  Forcing organizations like Big Brothers Big Sisters of America to pick up the parenting slack.  Had these deadbeat dads lived on a deserted island untouched by AFDC there would have been less fathering and abandoning of children.  Like there was before AFDC.

Keynesian Policies have Historically Resulted in High Unemployment and Painful Recessions

After World War II the world went Keynesian.  Classical economics (that favored savings over consumption, low taxes, the gold standard, little government intrusion into the private sector and responsible fiscal policy as in DON’T spend so much) that made America a superpower went out the window.  In came the disaster we call Keynesian economics (that favored consumption over savings, deficit spending, printing lots of money, high taxes and a lot of government intervention into the private sector.  Warren Harding and Calvin Coolidge in the Twenties were the last of the classical economists.  Their policies gave us great prosperity.  JFK adopted policies of the classical economics variety to pull America out of a recession in the Sixties.  Nixon, Ford and Carter were big Keynesians whose policies destroyed America.  Ronald Reagan rebuilt America in the Eighties by returning to policies of the classical economics variety.  As George W. Bush did to pull us out of the bad recession caused by Bill Clinton’s dot-com bubble bursting.

So the record shows the success of classical economics.  And the failure of Keynesian economics.  Yet about half the population voted for the Keynesian policies of President Obama in 2012.  Why?  Why did they vote for more of the failed policies of the past?  Because most Americans learn only of Keynesian economics in their economic courses.  While politicians, economists and the mainstream media endorse Keynesian policies as if they have a record of success.  They do this because Keynesian economics does something that classical economics doesn’t.  Empowers big government.  Sanctions class warfare.  Giving them the moral high ground when raising taxes.  And printing money.  Despite these actions causing the worst economic recovery since the Great Depression.

President Obama won reelection for one of two reasons.  Either people want more free stuff.  Or they don’t understand economics.  Or the consequences of handing out all that free stuff.  For if they understood economics they would not have voted for a Keynesian.  For Keynesian policies have historically resulted in high unemployment and painful recessions.  So even if you’re voting for the free stuff you’d vote for the classical economics candidate.  For without people working there is no income to tax to pay for all of that free stuff.  But few people understand economics.  Which is lucky for President Obama.  In fact, few people understand the disaster that has been the liberal agenda as the liberals control the public schools, our colleges, the mainstream media and the entertainment establishment.  So few are learning the long record of liberal failures.  Which helps liberals win elections.  For you only know what someone taught you.  And if the liars are in charge of teaching us the only things we will learn are their lies.  Unless, of course, we can find some deserted island to grow up on where their policies can’t reach us.  Then when we come back we can make the world a better place.  A place with sound economic policies.  With no racism, no religious intolerance, no blind nationalist fervor, no culture of gun violence and no epidemic of deadbeat dads.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

People sign Petitions to Secede from the United States following President Obama’s Reelection

Posted by PITHOCRATES - November 15th, 2012

Politics 101

Wealth Redistribution requires High Taxes to get the Wealth from those who Create It which reduces Economic Activity

President Obama’s reelection has left the nation bitterly divided.  President Obama won only 50% of the popular vote.  Down from 53% in 2008.  So the president has become less popular with the American people.  No surprise, really, with one of the worst economic recoveries in history.  Despite the trillions in new spending to stimulate economic activity.  Which didn’t stimulate economic activity.  People concerned about this anemic economy are in the other 50%.  Those who didn’t vote for keeping Obamacare law.  Those who didn’t vote for a massive increase in regulatory powers over the private sector economy.  Those who didn’t vote to raise taxes.  Those who didn’t vote for continued record deficits.

With every contentious election some people will say they will move out of the country if their candidate loses.  Few do.  Although some rich people are doing that now.  As they feel they have a bulls-eye on their back.  With the whole Occupy Wall Street thing.  The 99% against the 1%.  The clarion call to get the wealthy to pay their fare share.  Even though the top 10% income earners are already paying some 70% of all income taxes.  So no doubt the wealthy are concerned.  Wondering where this will all end.  Higher income tax rates?  A higher capital gains tax?  A wealth tax?  Confiscation of all earnings over a ‘fair’ amount?  Who knows?  The sad thing is that these things don’t really seem farfetched.  For there is an angry mob out there.  Stirred up by those on the far Left.  Who is telling them that the only reason why they don’t have everything they want in life is because these rich people have taken it away from them.  And that these oppressed should rise up and demand egalitarianism.  Wealth redistribution.  From those according to ability to those according to need.  Which they are.  Because it’s only fair.

Of course wealth redistribution requires high taxes to get the wealth from those who create it.  Higher taxes, though, are a drag on the economy.  And leads to higher unemployment.  So it’s just not the wealthy worried about where this advance of liberal, anti-business policies will end.  Up to 50% of the population voted in favor of the wealth creators creating wealth.  And jobs.  Something most of the people want.  As already high unemployment will only get worse with another 4 years of anti-business policies.  As well as leading this country closer to a European-style social democracy.  That economic system favored by European countries currently wallowing in a sovereign debt crisis that appears to have no end.

If the Nation broke down into Two Confederacies Steve Jobs would probably have moved to Conservative America

So people are concerned about the direction the country is going.  So concerned that there are actually secessionist movements popping up across the nation.  Where people are signing petitions to advance the secession of their state from the union.  For the growth of federal power has far exceeded the limits envisioned by the Founding Fathers.  And the federal government is only going to get bigger.  European big.  So big that even Alexander Hamilton would have joined his sworn enemy, Thomas Jefferson, in opposing this federal power grab.  For Jefferson’s greatest fear appears to be coming true.  The federal government has reduced the states to little more than federal districts of a consolidated federal nation.  Where all power is consolidating in Washington.  In the hands of a few people.  Who rule over the masses.  Much like a monarchy.  The kind the Founding Fathers fought against to win their independence.  Something this other 50% understands.  Which is helping fuel these secessionist movements.

So people in some states with a historical understanding of our Founding are concerned.  And they’re signing petitions for secession.  While the Left mocks them as whiny sore losers.  When they threaten to leave the union Jon Stewart on the Daily Show mocked them with a line from Willy Wonka & the Chocolate Factory:  Stop, don’t, come back.  That Gene Wilder delivered in a tone of voice that basically said, “Go and good riddance.”  Much to the delight of the Daily Show audience.  Not fully understanding what that would mean.  For it wouldn’t just mean that they would get a country of free health care, birth control, abortion, legal marijuana, gay marriage, open borders, etc.  The Liberal utopian dream.  No, succession would probably result in regional confederacies.  The Northeast, the Midwest and the West Coast would probably join together in a liberal confederacy (Liberal America) where they pass all their liberal policies.  While the remaining states would probably join together in a conservative confederacy (Conservative America).  Which would pose a great problem for the Liberal America.  How?  In a word, egalitarianism.

Business owners who oppose excessive regulations and taxes would probably pack up shop and move to Conservative America.  If they weren’t there already.  So you would have a net movement of businesses, and jobs, from Liberal America to Conservative America.  Where government policies are less anti-business.  Even the liberals would admit this would happen.  As they blame business for outsourcing jobs to foreign countries to escape the high cost of regulatory policies and taxes.  So businesses will move.  Leaving a reduced tax base behind.  Where fewer workers would be paying all those taxes to give everyone all of those free government benefits.  And the best and brightest of our entrepreneurs would head to Conservative America, too.  For they will go where it is easier to realize their dream.  If the nation broke apart into these two confederacies it would be highly probably that if he were alive Steve Jobs would move to Conservative America.  Just as he outsourced his manufacturing to more business-friendly China.  Don’t think this would happen?  Well, it would.  Because it has always happened in the past.

If America divides into Two Confederacies People will flee the Liberal Paradise for Jobs in Conservative America

At the end of World War II the German capital, Berlin, lay in Soviet occupied Germany.  What became East Germany.  Berlin, however, was occupied by the Soviets, the French, the British and the Americans.  Giving those living in Berlin access to the West.  As long as they got to the French, British or American sectors.  Which became a real sore spot for the Soviet Union.  Because East Berlin was a communist paradise.  Located in East Germany.  Also a communist paradise.  The height of egalitarianism where the state provided everything for the people.  It was everything the American Left wanted.  But nothing those living there wanted.  East Germans headed to Berlin en masse to escape to the West.  Especially the best and brightest.  It was a brain drain of the East.  So the Soviets did the only thing they could do.  They built the Berlin Wall.  To prevent their people from escaping their Communist paradise.

West Berlin bounced back after the war quickly.  Becoming a rich and exciting city to live in.  Because they had free market capitalism.  Providing a business-friendly environment.  That created jobs.   While across the Berlin Wall people were stuck in time.  In a dark and dreary existence.  Where they waited in line for their basic needs.  Often hungry.  And cold.  With nothing to look forward to.  For the government didn’t allow anyone to leave their paradise.  Why?  Because the few who did rarely went back.  So they worked.  And sat at home.  Dreaming of how to get past that wall.  To freedom.  And a better life.

If America divides into two confederacies people will flee the Liberal paradise.  For jobs in Conservative America.  Leaving Liberal America with a reduced tax base.  Making it harder to pay for all of those government benefits.  As the benefit-consumers will flock to Liberal America for all that free stuff.  But the people who pay for all of that free stuff will be going the other way.  So fewer people will be paying for more stuff.  Which, of course, will make it impossible to provide all of that free stuff.  Unless Liberal America also builds walls to keep their people from fleeing their utopia.  Keeping the wealth creators on their side of the wall.  So they can tax them.  To pay for their Liberal paradise.  Which will have a close resemblance to East Berlin.  So the liberals should be careful what they wish for.  For if these states secede life will get worse for those dependent on government benefits.  How worse?  Behind the Iron Curtain worse.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Sixteenth Amendment, Revenue Act of 1913, Progressive Tax, Marginal Tax Rate, Tax Shelter, Tax Cuts and Decade of Greed

Posted by PITHOCRATES - July 10th, 2012

History 101

Americans find Taxes Repugnant and have a Long History of Making this Repugnance Known

American independence began with a tax revolt.  The ratification of the U.S. Constitution happened only with safeguards against the new federal government from growing too powerful.  And great efforts went to limiting the amount of money it could spend.  For a long time all federal tax revenue came from import tariffs.  Then from sales of federal lands as the population moved west.  It took a civil war for us to impose an income tax.  Our first income tax was 3% on incomes over $800 (or about $20,000 today).  The first income tax was a flat tax.  They passed this income tax to pay for the war.  They repealed the income tax following the war.  Americans wouldn’t see another federal income tax until 1913 when we ratified the Sixteenth Amendment.  And President Woodrow Wilson signed into law the Revenue Act of 1913.

Woodrow Wilson was a progressive.  The precursor to today’s liberals.  Who thought beyond the limited government of our Founding Fathers.  They wanted to expand government.  To make it a part of our everyday life.  Where the brilliant progressive politicians would make better decisions for us than we ever could.  And their changing of society included the funding of the federal government.  For their income tax was a progressive tax.  Everyone paid a flat tax of 1% on income of $3,000 or more.  About $66,100 today.  Then the progressive taxes came into play.   Adding another percentage to the income tax rate for increasing amounts of income.  The thresholds for these increases were as follows: $20,000 (roughly $440,400 today), $50,000 ($1,101,000 today), $75,000 ($1,651,600), $100,000 ($2,202,100), $250,000 ($5,505,300) and $500,000 ($11,010,700).  The top marginal tax rate on the super rich (earning $11,010,700) was 7%.

Our second income tax was quite controversial.  A lot of people hated it.  For Americans find taxes repugnant.  And have a long history of making this repugnance well known.  But thanks to the American Civil War a generation of men was lost.  And a generation of boys grew up without fathers.  Tended on by doting mothers.  Smothering them with love and affection.  And these boys grew up without knowing the manly hardships of life.  And they entered politics.  Becoming those early progressives.  Who wanted to change the government into a great doting mother.  And now they could.  For they had their income tax.

Few paid the Confiscatory Tax Rates of the Seventies by Hiding their Income in Tax Shelters

The rich paid our first federal income taxes after the Revenue Act of 1913.  And these were very small percentages we had them pay.  Back then the top marginal tax rate was lower than our lowest income tax rate today.  Think about that.  The richest of the rich paid only 7% of their income ($11,010,700 or more today) in federal income taxes.  While today single people earning the lowest bracket of taxable income (from $0 to $8,700) pay 10% of their income in federal income taxes.  Clearly the growth of government exploded thanks to the Sixteenth Amendment.  Much as our Founding Fathers feared it would if they had too much money to spend.

Of course, this is ancient history.  Few know about this today.  For few could even tell you why we fought for our independence.  Or even who we fought for our independence from.  (We fought for our independence from Great Britain because of their policies to tax us despite our having no representation in Parliament.  That’s where the phrase taxation without representation came from).  Today high taxes are sadly just an accepted part of life.  In fact, we have referred to our paychecks as take-home pay.  Our net pay.  Because gross pay is a myth.  No one sees their gross pay.  About a third or more of that disappears in withholding taxes.  So gross pay is a meaningless expression for us today.  (It wasn’t before the Sixteenth Amendment or before the progressives came to power).  Something that we sadly accept.  And we now fund our lives on the take-home pay the government allows us to keep.  All the while accepting these high tax rates.

Government spending took off in the Sixties and the Seventies.  As did our taxes.  If we had once thought that a 7% tax on incomes of $11,010,700 or more was an outrage, we didn’t see anything yet.  In 1978 the top marginal tax rate was 70% on incomes of $351,712 or more.  And there were 25 marginal tax rates.  As shown here adjusted for inflation (sources: Tax Rates, Tax Receipts, and Celebrity Incomes).

 In this example we calculated the average of some top celebrities.  And the top celebrities on average earned about $30,000,000 in 2010.  Using the 1978 tax brackets they would have owed $20,936,506 in federal income taxes.  Or approximately 69.8% of their total income.  Which is pretty much equal to the top marginal tax rate.  Of course, few paid these confiscatory tax rates.  They hid their income as best as they could in the Seventies.  In tax shelters.  And you know they did because despite these confiscatory tax rates the federal government still ran budget deficits.  Having to print money to pay for their explosion in government spending. 

The Low Tax Rates of the Eighties created so much Economic Activity the Opposition called it the Decade of Greed

The heyday of Keynesian economics was in the Seventies.  After Richard Nixon decoupled the dollar from gold the Keynesians were free to print money to stimulate the economy.  Which was their answer to ending a recession.  Stimulus spending.  Have the government print money to create economic activity that wasn’t happening in the private sector.  Their policy tool to end a recession was inflation.  By pouring money into the economy people would borrow it and buy cars and houses and furniture.  And everything else under the sun.  Creating a surge of economic activity.  And creating jobs in the process as businesses must hire new workers to meet that government stimulated demand.  With the dollar decoupled from the ‘cross of gold’ the Keynesians were finally able to prove their mettle.  And solve all the country’s economic problems.  It was the dawn of a brave new world.

And that world sucked.  For the implementation of Keynesian economic policy proved those policies did not work.  Instead of replacing high unemployment with inflation they just added high inflation to the high unemployment.  Something that was impossible to happen in Keynesian textbooks.  But it happened.  Stagnant economic activity.  And inflation.  What we called stagflation.  We added the unemployment rate to the inflation rate to come up with a new economic indicator.  The misery index.  The economy was so miserable during Jimmy Carter’s 4 years in office that he lost in a landslide to Ronald Reagan.  Who was a proponent not of Keynesian economics but of the Austrian school.  Or supply side economics.   And the Austrians believed in low tax rates.  For low tax rates would stimulate economic activity.  And the greater amount of economic activity would generate a greater amount of tax revenue even at lower tax rates.  Let’s look at that same celebrity paying taxes a decade later under Ronald Reagan.

 Much simpler.  And more in keeping with the Founding Fathers.  Instead of paying 70% of their earnings in federal income taxes they will only pay 28% (again, equal to the top marginal tax rate.  Which is pretty much the only tax rate the rich pay).  That’s still a lot of money to give to the federal government.  But it’s so much smaller that in many cases it was cheaper and easier to pay Uncle Sam than trying to hide that income.  So economic activity took off in the Eighties.  It was so great that the opposition called it the Decade of Greed.  Out of sour grapes because their policies could never produce anything like it.  But what about tax revenue?  Those on the Left say this economic activity came at a price.  Exploding deficits.  Well, the deficits did grow.  But it wasn’t because of the cuts in the tax rates.

Higher Tax Rates do not Necessarily Increase Tax Revenue 

In 1978 total tax revenue was $1,113.6 billion.  In 1988 total tax revenue was $1,421.1 billion.  So Reagan’s cuts in the tax rates produced $307.5 billion more in tax revenue.  An increase of about 27.6%.  Dropping the top marginal tax rate from 70% to 28% actually increased tax revenue.  So the cut in tax rates did not cause the deficits.  It wasn’t a revenue problem.  Revenue went up.  Spending just increased more.  And it was this excessive government spending that caused the deficits.  Not the tax cuts. 

The lesson here is that higher tax rates do not necessarily increase tax revenue.  Because changes in tax rates changes behavior.  Higher tax rates discourage people from investing in businesses.  They discourage businesses from expanding.  Or hiring new workers.  Higher tax rates may decrease the opportunity costs for hiding income.  The cost and inconvenience of hiding income in tax shelters and offshore accounts may become less that the cost of paying higher taxes.  Like it was during the Seventies.  Where despite confiscatory tax rates the government could not generate enough tax revenue to meet their spending obligations.

Income tax rates grew from a very small percentage on only the largest of incomes to high tax rates on very modest incomes.  And yet our deficits have never been larger.  Proving that our tax rates are either too high and dampen economic activity (as well as encouraging people to avoid paying their taxes).  Or that government spending has just grown too large.  More than likely it’s a combination of the two.  A fact that would shock and dismay the Founding Fathers were they alive to see what we did with the republic they gave us.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Recession and Depression

Posted by PITHOCRATES - June 25th, 2012

Economics 101

A Depression is an Exceptionally Bad Recession 

When campaigning for the presidency Ronald Reagan explained what a recession, a depression and a recovery were.  He said a recession is when your neighbor loses his job.  A depression is when you lose your job.  And a recovery is when Jimmy Carter loses his job.  This was during the 1980 presidential election.  Where Reagan included that famous question at the end of one of the debates.  “Are you better off now than you were four years ago?”  And the answer was “no.”  Ronald Reagan surged ahead of Jimmy Carter after that and won by a landslide.  And he won reelection by an even bigger landslide in 1984.

There are a couple of ways to define a recession.  Falling output and rising unemployment.  Two consecutive quarters of falling Gross Domestic Product (GDP).  A decline in new factory orders.  The National Bureau of Economic Research (NBER) in Cambridge, Massachusetts, officially marks the start and end dates of all U.S. recessions.  They consider a lot of economic data.   It’s not an exact science.  But they track the business cycle.  That normal economic cycle between economic expansion and economic contraction.  The business cycle has peaks (expansion) and troughs (contraction).  A recession is the time period between a peak and a trough.  From the time everyone is working and happy and buying a lot of stuff.  Through a period of layoffs where people stop buying much of anything.  Until the last layoff before the next economic expansion begins.

A depression has an even more vague science behind it.  We really don’t have a set of requirements that the economy has to meet to tell us we’re in a depression.  Since the Great Depression we haven’t really used the word anymore for a depression is just thought of as an exceptionally bad recession.  Some have called the current recession (kicked off by the subprime mortgage crisis) a depression.  Because it has a lot of the things the Great Depression had.  Bank failures.  Liquidity crises.  A long period of high unemployment.  In fact, current U.S unemployment is close to Great Depression unemployment if you measure more apples to apples and use the U-6 rate instead of the official U-3 rate that subtracts a lot of people from the equation (people who can’t find work and have given up looking, people working part-time because they can’t find a full-time job, people underemployed working well below their skill level, etc.).  For these reasons many call the current recession the Great Recession.  To connect it to the Great Depression.  Without calling the current recession a depression.

Whether Inventories sell or not Businesses have to Pay their People and their Payroll Taxes

So what causes a recession?  Good economic times.  Funny, isn’t it?  It’s the good times that cause the bad times.  Here’s how.  When everyone has a job who wants a job a lot of people are spending money in the economy.  Creating a lot of economic activity.  Businesses respond to this.  They increase production.  Even boost the inventories they carry so they don’t miss out on these good times.  For the last thing a business wants is to run out of their hot selling merchandise when people are buying like there is no tomorrow.  Businesses will ramp up production.  Add overtime such as running production an extra day of the week.  Perhaps extend the working day.  Businesses will do everything to max out their production with their current labor force.  Because expanding that labor force will cause big problems when the bloom is off of the economic rose.

But if the economic good times look like they will last businesses will hire new workers.  Driving up labor costs as businesses have to pay more to hire workers in a tight labor market.  These new workers will work a second shift.  A third shift.  They will fill a manufacturing plant expansion.  Or fill a new plant.  (Built by a booming construction industry.  Just as construction workers are building new houses in a booming home industry.)  Businesses will make these costly investments to meet the booming demand during an economic expansion.  Increasing their costs.  Which increases their prices.  And as businesses do this throughout the economy they begin to produce even more than the people are buying.  Inventories begin to build up until inventories are growing faster than sales.  The business cycle has peaked.  And the economic decline begins.

Inventories are costly.  They produce no revenue.  But incur cost to warehouse them.  Worse, businesses spent a lot of money producing these inventories.  Or I should say credit.  Typically manufacturers buy things and pay for them later.  Their accounts payable.  Which are someone else’s accounts receivable.  A lot of bills coming due.  And a lot of invoices going past due.  Because businesses have their money tied up in those inventories.  But one thing they can’t owe money on is payroll.  Whether those inventories sell or not they have to pay their people on time or face some harsh legal penalties.  And they have to pay their payroll taxes (Social Security, Medicare, unemployment insurance, withholding taxes, etc.) for the same reasons.  As well as their Workers’ Compensation insurance.  And they have to pay their health care insurance.  Labor is costly.  And there is no flexibility in paying it while you’re waiting for that inventory to sell.  This is why businesses are reluctant to add new labor and only do so when there is no other way to keep up with demand.

The Fed tries to Remove the Recessionary Side of the Business Cycle with Small but ‘Manageable’ Inflation

As sales dry up businesses reduce their prices to unload that inventory.  To convert that inventory into cash so they can pay their bills.  At the same time they are cutting back on production.  With sales down they are only losing money by building up inventories of stuff no one is buying.  Which means layoffs.  They idle their third shifts.  Their second shifts.  Their overtime.  They shut down plants.  A lot of people lose jobs.  Sales fall.  And prices fall.  As businesses try to reduce their inventories.  And stay in business by enticing the fewer people in the market place to buy their reduced production at lower prices.

During the economic expansion costs increased.  Labor costs increased.  And prices increased.  Because demand was greater than supply.  Businesses incurred these higher costs to meet that demand.  During the contraction these had to fall.  Because supply exceeded demand.  Buyers could and did shop around for the lowest price.  Without fear of anything running out of stock and not being there to buy the next day.  Or the next week.  And when prices stop falling it marks the end of the recession and the beginning of the next expansion.  When supply equals demand once again.  Prices, then, are key to the business cycle.  They rise during boom times.  And fall during contractions.  And when they stop falling the recession is over.  This is so important that I will say it again.  When prices stop falling a recession is over.

Jimmy Carter had such a bad economy because his administration still followed Keynesian economic policies.  Which tried to massage the business cycle by removing the contraction side of it.  By using monetary policy.  The Keynesians believed that whenever the economy starts to go into recession all the government has to do is to print money and spend it.  And the government printed a lot of money in the Seventies.  So much that there was double digit inflation.  But all this new money did was raise prices during a recession.  Which only made the recession worse.  This was the turning point in Keynesian economics.  And the end of highly inflationary policies.  But not the end of inflationary policies.

The Federal Reserve (the Fed) still tries to remove the recessionary side of the business cycle.  And they still use monetary policy to do it.  With a smaller but ‘manageable’ amount of inflation.  During the great housing bubble that preceded the subprime mortgage crisis and the Great Recession the Fed kept expanding the money supply to keep interest rates very low.  This kept mortgage rates low.  People borrowed money and bought big houses.  Housing prices soared.  These artificially low interest rates created a huge housing bubble that eventually popped.  And because the prices were so high the recession would be a long one to bring them back down.  Which is why many call the current recession the Great Recession.  Because we haven’t seen a price deflation like this since the Great Depression.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Inflation and Deflation

Posted by PITHOCRATES - December 26th, 2011

Economics 101

When Demand is Greater than Supply there’s Inflation, when Supply is greater there is Deflation

Agriculture advances gave us food surpluses.  Food surpluses gave us a division of labor.  The division of labor gave us trade.  Money made that trade more efficient.  Religion and the Rule of Law allowed great gatherings of people to live and work together in urban settings.  Free trade let us maximize this economic output and elevated our standard of living.  Free labor sustained economic growth by increasing the number of people making economic exchanges.  Prices automated the process of assigning value and allocating scarce resources (that have alternative uses).  And provided incentive and competition.  The free movement of prices in our economy, then, is very important.  So important that we track extremes in these movements and give them special names.  Inflation.  And deflation.

When the economy is good we typically see prices increase.  Because the greater amount of economic activity is competing for the same scarce resources.  So businesses ‘bid’ up the price of these scarce resources.  To make sure they get what they need before someone else beats them to them.  This more intense competition for these resources causes their prices to rise.  We call this inflation.  Telling other suppliers that demand is greater than the current supply.  This encourages suppliers to bring more supplies to market.  And attracts others into the market.  As this happens the available supply of these scarce resources increases.  And approaches the level of demand.  Where prices then stabilize.

This is the free market correcting prices.  Prices were high because demand was greater than supply.  When supply caught up to demand they stopped rising.  And if supply continues to grow and exceeds demand they will start falling.  Because those scarce resources won’t be so scarce anymore.  Which happens when people bring too much supply to market.  Of course they have no way of knowing this.  Until the prices tell them so.  Falling prices, then, are a signal that supply has exceeded demand.  So suppliers scale back on what they bring to market.  We call this fall in prices deflation.  And when supply drops at or below demand the price correction is complete.  And prices stop falling.

When Government Interferes with Market Prices we can get Bubbles where both Prices and Supply are High

This price-correction deflation goes by another name.  Recession.  And we call this inflation/deflation cycle the business cycle.  Often referred to as a boom-bust cycle.  Times are good on the inflation side.  But not so good on the deflation side.  Because recessions aren’t fun.  Unless you like periods of high unemployment.  But it’s a natural and necessary part of the business cycle.  It’s how the free market corrects prices.  Allocates scarce resources that have alternative uses.  And provides incentive and competition.  Everything that makes free market capitalism function.  Providing the highest standard of living man has ever known.

But some in government like to tinker.  They think why not make the inflation part last longer?  And try to end the deflation part?  So they play with the tools at their disposal.  Monetary policy.  Fiscal policy.  And regulatory policy.  To stimulate demand beyond what the market is demanding.  To keep the good times rolling.  Where we live with permanent but ‘manageable’ inflation.  And avoid deflationary periods all together.  And recessions.  Sounds good.  In theory, at least.  But it rarely ends well when the government interferes with market prices.

When they interfere with market prices they give false information to those in the market.  Continued inflation means continued high prices.  Prices go even higher than they would have if left to market forces.  Indicating a high demand when there is none.  So suppliers rush in to meet this false demand.  Greatly increasing supply beyond demand.  Creating what we call a bubble.  Where both prices and supply are high.  An artificial creation.  And one that cannot last.  And when prices do correct they have a lot farther to fall.  As excess supply is sold off at discount prices.  And employers cut back and shed excess capacity.  Creating high levels of unemployment.  And a long and unpleasant recession until prices finally stabilize once again.  When supply once again matches demand.

The More we try to Eliminate the Deflationary Side of the Business Cycle the More Painful the Recession

Interestingly, government interference into the free market was to eliminate the business cycle.  Especially the unpleasant deflationary side of it.  But their actions only made the deflationary side far more painful.  Because it was their actions that created those inflationary bubbles.  Not the market.  Their actions only delayed the inevitable market correction.  It couldn’t stop it.  Nothing can.  The more they tried the bigger the bubbles they created.  And the bigger the bubble the bigger the correction.  And the more painful the recession.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Continued Bad Economic Data sends Investors to Safe Harbors

Posted by PITHOCRATES - June 10th, 2011

Times are Good when the Junk Market is Good

Junk bonds were big in the Eighties.  During the great economic boom courtesy of Ronal Reagan.  Lower tax rates.  Fewer regulations.  It was a time for entrepreneurs to take chances.  And they did.  Some took some really big chances.  They were thinking way outside the box.  In new technologies.  So there weren’t a lot of people lining up to finance their risky ideas.  Because they were too risky for most.  That’s where junk comes in.  A junk bond is a high yield bond.  It pays a high interest rate.  Because there is a very good chance the bond issuer may fail.  Making those bonds worthless.  So to attract capital to fund these risky ideas required a larger return on investment.  And the junk bond market was the place to go.

A lot of things happened that wouldn’t have had it not been for junk.  MCI Communications is a junk bond success story.  The Chrysler bailout in the Eighties was another.  Even Ted Turner owes the success of Turner Broadcasting to junk.  Yes, there were a lot of failures.  But that’s what makes junk so enticing.  You get a high return for that high risk.  A lot of entrepreneurs became millionaires.  And a lot of rich investors got richer.  So when the junk market is doing well, people are taking chances.  Taking risks.  Creating things.  New technologies.  And jobs.  Growing the economy.  But when the junk market isn’t doing well, few are taking risks.  Few are creating jobs.  And the economy isn’t growing.  Or won’t be growing.  For if the economic outlook is bleak, investors look for safe harbors for their cash.  Until a more favorable business/investing climate returns (see Junk bonds hit a speed bump by Ben Rooney posted 6/10/2011 on CNNMoney).

Investors had been flocking to corporate “junk” bonds since the early months of 2009 amid a broad flight to risky assets because of the high yields that come along with that risk. But demand for those bonds has tapered off in the last few weeks following a spate of lousy economic news.

“There’s a lot of uncertainty in market,” said Jody Lurie, corporate credit analyst at Janney Capital Markets. “We’ve had a lot of bad news in the last few weeks and that’s making people hesitant.”

Business owners as well as investors hate uncertainty.  And there’s a lot of that these days.  Suffice it to say the Obama administration is not the most business-friendly administration.  Unless you’re a crony of the administration.  But few small business owners and entrepreneurs can afford what it takes to be a crony capitalist.  Because special favors don’t come cheap.  And there’s that ugly recession that just won’t end.  Few want to invest and create jobs when so many are unemployed and are unable to buy things.

“This market is extremely expensive,” [William Larkin, a bond portfolio manager at Cabot Money Management] said. “I’m afraid that we could get some hot inflation data on top of the prices,” he added. And that could leave bondholders with a negative return.

Inflation is another reason why the junk bond market is losing its appeal.  The value of a bond lies in the difference between your bond interest rate and the prevailing interest rate on the street.  Inflation increases interest rates.  So as inflation increases, that premium you had over the interest rates of ‘safe’ investments decreases.  Making the return on your junk more similar to ‘safe’ investments.  Only you still carry that high risk of your bonds becoming worthless.  If inflation pushes interest rates over your bond interest rate, you lose money.  Because your high-risk bonds pay less than safer investments like government treasury bonds.  So a bad economic outlook and/or inflation worries will make people run away from junk bonds to something safer.

A Six Week Losing Streak

In fact, when bad economic news comes out that says we’ll have more recession before we have any economic recovery, junk bond holders aren’t the only ones looking for safer investments.  Investors also flee the stock market.  Especially when the stock market is setting near-record losing streaks (see At noon: Dow surrenders 12,000 by David Berman posted 6/10/2011 The Globe and Mail).

The Dow was recently spotted at 11,980.78, down about 144 points or 1.2 per cent, marking its lowest level since March amid ongoing concerns about the health of the U.S. economy…

With Friday’s decline, U.S. indexes are well on their way to posting their sixth consecutive losing week – a losing streak noted by Bloomberg as the worst string of down weeks since 2002…

Meanwhile, investors have been diving into the safety of bonds. The yield on the 10-year U.S. Treasury bond recently dipped below 3 per cent as bond prices (which move in the opposite direction to yields) have risen to their highest levels since early December.

And this despite the possibility of a U.S. default after reaching their legal debt limit.  Everyone in the administration is predicting doom and gloom about a U.S. default.  Apparently the investors are more frightened by the horrible economy, high unemployment numbers and a recession that never ends.

Time to call the Recession a Depression?

Of course, this recession will end.  There hasn’t been one that hasn’t yet.  They’re usually over anywhere from 6 months to a year or so.  That’s usually sufficient for the market to correct.  But it may take a little longer this time (see U.S. Will Trail Global Growth for Decade: Fink by Sree Vidya Bhaktavatsalam and Charles Stein posted 6/10/2011 on Bloomberg).

BlackRock Inc. (BLK)’s Laurence D. Fink, chief executive officer of the world’s biggest asset manager, said the U.S. will trail the global economy for much of the next decade.

The U.S. economy will grow 2 percent to 3 percent for the next five to 10 years, lagging behind global growth of 3 percent to 5 percent, Fink said today in a Bloomberg Television interview with Erik Schatzker from the Morningstar conference in Chicago. ..

A series of reports suggests the world’s largest economy is decelerating. Manufacturing grew at its slowest pace in more than a year in May, consumer spending rose less than forecast in April, and the unemployment rate unexpectedly climbed to 9.1 percent in May.

You know, after 10 years I don’t think you call it a recession anymore.  I think you start calling it a depression.

Where’s a Good World War when you Need One?

The last time we had a depression as bad as this there was a Big Government president in the White House.  He spent money like there was no tomorrow.  And none of it helped.  Every New Deal program was a failure.  They didn’t put people back to work in the private sector.  You know what did?  World War II.  It wasn’t FDR that ended the Great Depression.  It was Adolf Hitler.  Because someone had to build all that war material to defeat him.  And that someone was us. 

Things are different today, though.  There is no villain to come to Obama’s rescue.  It will be up to him alone to make his policies more business friendly.  Or his successor in 2012.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , ,

Government as Usual, Making a Bad Financial Situation Worse

Posted by PITHOCRATES - June 8th, 2011

The Federal Debt is Bad; what we’re Adding is Worse than can be Imagined

If you thought the debt was bad, you ain’t seen nothing yet (see U.S. funding for future promises lags by trillions by Dennis Cauchon posted 6/7/2011 on USA Today).

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation’s gross domestic product.

The current outstanding U.S. debt is $14 trillion and change.  So, in addition to that debt, the U.S. has to borrow an additional $61.6 trillion sometime in the future.  Meanwhile they debate deficit reduction in Washington.  And the Obama administration is desperately trying to get the Republican-controlled House to raise the legal debt ceiling.  By a whopping $2.4 trillion.  You don’t have to be a whiz kid to see that something bad financially is coming this way.

Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.

Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.

It’s those social democracy things.  The same things that are bankrupting countries in the European Union.  Free health care.  And free pensions (with everyone living longer people are collecting far, far more than they ever paid into these programs).  Which just goes to show that free things are very expensive.

The $61.6 trillion in unfunded obligations amounts to $527,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

Imagine yourself living as you are.  Working hard to pay your bills (mortgages, car loans and other debt).  And then adding another mortgage to the mix for a magnificent half-million dollar home.  Only without the home.  Just the mortgage payments.  If you’re not good at imagining that’s okay.  Because you’ll be living it within 20 years.  Can it get worse?

The government has promised pension and health benefits worth more than $700,000 per retired civil servant. The pension fund’s key asset: federal IOUs.

Why, yes.  It can.  While you struggle to pay these enormous bills you can think about this.  Your civil servants.  The people that work for you.  They will be making about $173,000 more in retirement than you.  Their boss.  That ought to put a smile on your face.  And a skip in your step.

Here Comes National Health Care

And it’s going to get worse.  Because national health care is coming (see Study Sees Cuts to Health Plans by Janet Adamy posted 6/8/2011 on The Wall Street Journal).

A report by McKinsey & Co. has found that 30% of employers are likely to stop offering workers health insurance after the bulk of the Obama administration’s health overhaul takes effect in 2014.

The findings come as a growing number of employers are seeking waivers from an early provision in the overhaul that requires them to enrich their benefits this year. At the end of April, the administration had granted 1,372 employers, unions and insurance companies one-year exemptions from the law’s requirement that they not cap annual benefit payouts below $750,000 per person a year.

But the law doesn’t allow for such waivers starting in 2014, leaving all those entities—and other employers whose plans don’t meet a slate of new requirements—to change their offerings or drop coverage.

Bill Clinton lost the 1994 midterm election because he campaigned as a moderate and governed as a liberal.  With Hillarycare being the poster child of his liberal agenda.  Barack Obama lost the 2010 midterm election because he campaigned as a moderate and governed as a liberal.  With Obamacare being the poster child of his liberal agenda.  The people spoke.  Then.  And now.  They don’t want national health care.  That’s why Hillarycare failed.  And why they watered Obamacare down to be something short of national health care.  But Obamacare will serve its purpose.  It will kill the private health insurance market.  Setting the stage once and for all for national health care in the United States.

In surveying 1,300 employers earlier this year, McKinsey found that 30% said they would “definitely or probably” stop offering employer coverage in the years after 2014. That figure increased to more than 50% among employers with a high awareness of the overhaul law.

The Obamacare legislation was something like a thousand pages long.  Guaranteed to confuse.  In fact, it was so confusing that Democrats voted for it without reading it.  Republicans read as much of it as they could.  And because they saw what was in it they voted against it.  Those who take the time to read it don’t like it.  Including the 50% of employers surveyed.

The nonpartisan Congressional Budget Office, in a March 2010 report, found that by 2019, about six million to seven million people who otherwise would have had access to coverage through their job won’t have it owing to the new law. That estimate represents about 4% of the roughly 160 million people projected to have employment-based coverage in 2019.

So let’s crunch some numbers.  Private insurers can’t cap benefits below $750,000 per person per year.  Some 6-7 million people will lose their insurance because of Obamacare.  So if the government has to pick up the costs for half of the lower amount (3 million) of these people consuming $750,000 each that comes to…$2.25 trillion.  That’s a lot.  Now let’s say the 160 million who have employment-based coverage lose it.  And that half of them need $750,000 in benefits.  That comes to…$60 trillion.  How about that?  That’s about the same as the amount of the government’s unfunded financial liabilities. 

So, in addition to the $14 trillion or so in debt, there may be another $120 trillion that we’ll have to borrow.  And that’s a little more than the $2.4 trillion the Obama administration is desperately trying to get the House to approve.  And warn about dire consequences if the Republicans refuse to do so.  This reminds me of that scene in Jaws where Chief Brody was throwing out that chum to attract the shark.  It worked.  The shark appeared.  Only it was a lot bigger than Brody thought it’d be.  He told Captain Quint, “You’re gonna need a bigger boat.”  Because fighting a $120 trillion debt with a $2.4 trillion dingy is going to lose the battle.  And by ‘lose the battle’ I mean the United States will end up like Greece.  Only without anyone big enough to bail her out.

OPEC not increasing Oil Production, no Help for Depressed Economies

That’s some pretty doleful news.  Maybe there’s a white knight rushing to the rescue.  Perhaps the economy will rebound and go gang busters.  Maybe the United States will grow itself out of this debt sinkhole (see OPEC Keeps Lid on Oil Production Targets by The Associated Press posted 6/8/2011 posted on The New York Times).

OPEC decided on Wednesday to maintain its crude oil output levels and meet again within three months to discuss a possible production increase.

The decision was unexpected and reflected unusual tensions in an organization that usually works by consensus.

Saudi Arabia and other influential oil-producing nations had pushed to increase production ceilings to calm markets and ease concerns that crude was overpriced for consumer nations struggling with their economies.

To quote a line from Planes, Trains and Automobiles, they have a better chance of playing pickup sticks with their butt cheeks.  The moratorium on oil drilling in the Gulf of Mexico put pressure on supply.  Then the unrest in the Middle East and North Africa added more.  The recession had kept oil down for the last year or so.  But with supply being squeezed that wasn’t going to last.  It’s back up.  With an assist from Ben Bernanke.  Whose quantitative easing devalued the dollar and sparked some inflation.  For we buy and sell the world’s oil in U.S. dollars.  So consumer prices are up.  While high unemployment and flat wages continue to make life hard for the American consumer.

Those opposed were led by Iran, the second-strongest producer within the Organization of the Petroleum Exporting Countries…

Iran and Venezuela came to the meeting opposing any move to increase output, which would have probably lowered prices for benchmark crude from the present levels of around $100 a barrel.

But OPEC powerhouse Saudi Arabia, which favors prices of around $80 a barrel, wanted higher production levels — and served notice that it was prepared to raise production unilaterally, to close to 10 million barrels a day from its present daily production of about 8.7 million barrels.

How about that?  Our enemies want to keep the price of oil up.  While our friends want to bring it back down to $80 per barrel.  Yet the Obama administration demanded that Mubarak step down from power in Egypt (a move the Saudis did not like as Egypt was anti-Iran and kept a lid on radical Islam like the Muslim Brotherhood) while doing nothing to help the democracy movement in Iran.  And Obama himself has a close and personal relationship with the Venezuelan dictator.  Hugo Chavez.

Policies like these will do little to bring the price of oil down.  Or make the economy rebound and go gang busters.  So there’s little hope of the U.S. growing its way out of their unfunded financial obligations. 

Monetary Policy doing more Harm than Good

And it doesn’t help to have Big Government Keynesians trying to fix things (see Sizing up the Fed’s few options by Cyrus Sanati posted 6/8/2011 on CNNMoney).

At the time the Fed began its second round of quantitative easing, inflation was low, so Bernanke felt comfortable instituting a program that would see $600 billion injected into the economy. After all, how much inflation can $600 billion cause when the country has a national debt load of $14 trillion and a personal debt load of $30 trillion?

Inflation has jumped in the last three months at a much faster pace than historical averages. The consumer price index rose by 6.1% annually during the April quarter, and core CPI, which excludes food and energy, rose by 2%. Such an accelerated move in inflation would be explainable if there was strong economic growth, but that’s not the case.

Higher prices without economic growth.  We saw this in the Seventies.  Under Jimmy Carter.  His treasury secretary, Paul Volcker, raised rates to reduce inflation.  Interest rates soared.  But he tamed inflation.  And he didn’t do it with quantitative easing.  He did it by doing the exact opposite.  Bernanke could learn a lesson from Volcker.

“If you’re Bernanke and you are seeing this rapid acceleration in core inflation and a high unemployment rate, you got to be thinking to yourself, ‘Gee, my models aren’t working right,'” says Drew Matus, senior U.S. economist at UBS Investment Research. “This should cause more caution in the part of the Fed and it is this caution that will keep them from doing QE3.”

Yes.  The models don’t work.  They’ve never worked.  And never will.  Because monetary policy is not the be all and end all of economic activity.  Think of it this way.  Say there is a restaurant not doing well.  The Keynesian would help that restaurant with monetary policy.  It would lower prices on the menu.  To make the menu items cheaper (like making money cheaper to borrow from a bank).  The only problem is that this restaurant has problems.  People aren’t going there.  The food is bad, the service is poor and it’s dirty.  Lowering the menu prices isn’t going to fix those problems.  So lowering prices is not going to bring the people back.  Just as making money cheap to borrow won’t bring the consumers back to the market.

People need Disposable Income and Responsible Government

Unemployment is high.  A lot of people have no jobs.  Or disposable income.  Meanwhile, prices are going up.  Leaving even less disposable income.  Businesses aren’t going to borrow cheap money to hire people to expand production.  Because current production levels are already in excess of current demand.

People need disposable income.  Inflation is taking that money away from the people.  And two things are driving inflation.  High oil prices (demand greater than supply).  And bad monetary policy (a devalued dollar increases the price of oil and everything else).  We need to fix these things.  We need to drill.  We need to increase American production of oil.  And we need to stop printing money.  We need to do these two things ASAP.

Then we need to address the insanity of spending money we don’t have.  And stop it.  Sooner or later, we have to address entitlements.  Actually, later may no longer be an option.  With $60 trillion in unfunded liabilities in the pipeline.  And with Obamacare potentially adding another $60 trillion.  That’s just too much.  Trying to pay this will kill economic activity.  It will require more taxes, more borrowing and more printing.  Everyone of which will increase the cost of doing business or investing.  Which will ultimately kill jobs.  Giving people even less disposable income.

Benjamin Franklin warned, “When the people find that they can vote themselves money, that will herald the end of the republic.”  That’s why they designed the republic to have disinterested, responsible people between the treasury and the people.  But that was then.  When disinterested, responsible people were in government.  Perhaps not everyone, but enough to keep the republic solvent.  Today most serve themselves.  The treasury is just a tool to buy votes.  And to hell with the consequences because most of them will be dead by the time the republic ends.

So don’t expect them to do the right thing anytime soon.  Because doing the right thing will not make their lives better.  Only ours.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Save the Economy or Save the Planet, it’s One or the Other

Posted by PITHOCRATES - June 5th, 2011

Pushing back against the EPA’s Assault against Business

With the economy in the toilet where it will probably remain for a long time to come, a lot of people have given up on environmentalism.  They take a look around them and see that things look pretty good.  Environmental-wise.  In fact, it’s a regular paradise compared to all the environmentalists’ alarmist predictions from a decade or two ago.  Which look rather silly today.  Children in the UK will no longer know what snow is.  The overwhelming stench of dead fish decaying on America’s beaches (killed by warming ocean temperatures).  Flooded coastal areas due to melting of Arctic ice.  None of it happened as predicted.  We got all worked up over nothing.  That’s why environmentalism is more of a young person’s game.  Because after you lived through 20-30 years of failed predictions, you tend to grow a little skeptical.  Especially during times of high unemployment.

That’s why a lot of people don’t give a rat’s rear end about global warming now.  They want a job.  And the way they see it, all this environmentalist nonsense is killing the job market.  And the Republican-controlled House they’re starting to push back on the job killer itself.  The EPA (see Soaring emissions posted 6/2/2011 on The Economist).

The Republicans’ chief concern is the EPA’s authority, as affirmed by the Supreme Court in 2007, to regulate emissions of greenhouse gases. But more broadly they worry that the EPA is constantly tightening restrictions on pollution, at ever higher cost to business but with diminishing returns in terms of public health. They point to a slew of new rules about industrial boilers, cooling water at power plants, the disposal of coal ash, and emissions of mercury, ozone and other chemicals from smokestacks, which cumulatively, they say, will have a crippling effect on power generation and other industries. “Even God,” says Joe Barton, a Republican congressman, “couldn’t meet some of the ozone standards.”

…The Republican leadership in the House has accused the administration of plotting to raise the price of energy through onerous regulation, in an effort to promote otherwise uncompetitive green technologies. It wants the EPA to give more weight to the impact on the economy and jobs when drawing up future rules.

The Obama administration has.  And is.  Trying to raise the price of ‘cheap’ energy to promote their green energy initiatives.  It’s on record they want gasoline to cost as much in the U.S. as it does in Europe (as in $8/gallon).  To make more costly and shorter-range electric cars easier to sell.  And they want to do the same with cheap fossil fuel-produced electricity.  To make more costly and less reliable wind and solar generated electricity easier to sell.

EPA officials appear baffled by this barrage of hostility… The agency, they say, already conducts cost-benefit analyses of all important regulations, in addition to submitting them for expert review and public comment. Every dollar spent on pollution controls mandated by the Clean Air Act, including the ozone restrictions that Mr Barton is complaining about, will bring $30 in benefits to public health, the EPA reckons.

Expert review and comment?  By who?  It certainly isn’t the businesses affected by their regulations.  Who know exactly the costs their regulations will add.  No, they can’t be the experts.  Not when they are protesting the onerous costs these regulations are adding.

And the $30 in benefits for every dollar spent on pollution controls is a specious argument.  No one can know this.  It’s made up math based on fallacious assumptions and unrealistic projections.  Much like the math they used some 2-3 decades ago when they made all those alarmist global warming predictions that never came true.

Saving the Trees but Killing the Planet

We were saving the trees going to a paperless world thanks to the Internet.  Little did we know that we were killing the planet by saving those trees (see Could the Net be killing the planet one web search at a time? by Alex Roslin, for Post Media News, posted 6/3/2011 on The Vancouver Sun).

Ironically, despite the web’s green promise, this explosion of data has turned the Internet into one of the planet’s fastest-growing sources of carbon emissions. The Internet now consumes two to three per cent of the world’s electricity…

The bulk of all this energy is gobbled up by a fast-growing network of huge “server farms” or data centres that form the backbone of the Internet. They are hush-hush facilities, some the size of five Wal-Marts, packed from floor to ceiling with tens of thousands of computers…

All those computers have a voracious appetite for energy, especially for cooling equipment to prevent overheating.

This means that every time you do an Internet search you’re releasing polluting carbon into the atmosphere.  Because the majority of our cheap and reliable electricity is produced with cheap and reliable fossil fuels.  And some of these server farms are fossil fuel beasts with voracious appetites.

Apple’s mega-facility is part of a cluster of gigantic new data centres coming on line in North Carolina that are powered largely by cheap and highly polluting coal power. Google has a 44,000-square-metre data centre in the state that eventually will consume an estimated 60 to 100 MW. Facebook has a 28,000-square-metre facility under construction there that will eat up 40 MW.

Greenpeace calls the three facilities “North Carolina’s dirty data triangle.” Coal, it says, is the most polluting of all fossil fuels and the world’s single largest source of greenhouse gas emissions.

“The technologies of the 21st century are still largely powered by the dirty coal power of the past,” the environmental group said in a report card on the IT sector in April, titled How Dirty is Your Power?

There is a reason why we use so much coal.  And it’s not because we hate the planet.

North Carolina offers industrial customers one of the lowest electricity rates in the U.S. — 5.8 cents per kilowatt hour, versus the U.S. average of 6.7 cents.

It just so happens that the state’s electricity is also some of the dirtiest in the country. Nearly two-thirds of the state’s electricity comes from coal.

And here is the tradeoff between global warming and jobs.  Coal is dirty but cheap.  Which keeps electricity costs down.  Which attracts business.  Like in North Carolina.  Other locations lost these new jobs because their environmental policies made energy more expensive in those locations.

The real solution, [Bill St. Arnaud, an engineer and green IT consultant in Ottawa] said, is for governments to impose measures like carbon taxes and emissions caps that make dirty energy less attractive financially.

“The planet is warming up, and it’s going to get very bad. We need a price on carbon. It’s the only way to get people to move off coal because coal is currently so cheap,” he said.

The environmentalist want to raise the cost of electricity.  So cheap coal-generated electricity isn’t so cheap.  So business have no less costly solution.  Thus guaranteeing their costs will rise.  Making them look elsewhere to cut costs.  As in not hiring people.  Or laying them off.  All the while passing these higher costs onto the consumer.  Increasing their utility costs.  As well as the goods they purchase.  Leaving them with less disposable income.  Thus reducing economic activity.  With them buying less business will sell less.  Which means they won’t expand.  Instead, they’ll probably cut their production.  And lay off people.

However you look at it, increasing the cost of energy ends badly for the consumer.  And that’s exactly what the EPA wants to do.  And the Obama administration.  So they can implement their green initiatives.  And, of course, adding a tax on carbon, the most abundant byproduct of energy production, provides a lot of revenue for an overextended federal government.  Which is, I’m sure, just a coincidence.  And by coincidence I mean it’s the driving force behind all green initiatives.  Increasing tax revenue.

The EU wants to Emission Tax the World’s Airlines

But this is not an American phenomenon.  It’s even bigger in the European Union.  And they’re looking to export their regulations to other nations (see Airlines, EU in escalating trade row over emissions by David Fogarty and Pete Harrison posted 6/5/2011 on Reuters).

Global airlines attacked the European Union on Sunday over its plan to force them into the bloc’s emissions trading scheme, as the EU vowed to stand firm against threats of retaliation…

The EU will require all airlines flying to Europe to be included in the Emissions Trading Scheme (ETS) from January 1 next year. The system forces polluters to buy permits for each tone of carbon dioxide they emit above a certain cap.

You want to fly to the EU?  Well, that’s fine, but there’ll be an additional tax.  You see, we’re trying to save the planet.  And our treasury.  As these EU bailouts are getting expensive.  And don’t appear to be ending any time soon.

Airlines say the scheme will increase costs and comes at a time when fears are growing about a faltering global economy, which could slash industry profit expectations…

“The last thing that we want to see is a trade war,” said Giovanni Bisignani, director-general of the International Air Transport Association. The EU had to heed a “growing chorus of countries strongly opposing an illegal extraterritorial scheme.”

“We have to absolutely avoid this because the risk of retaliation for Europe that is in survival mode would be the kiss of death,” he told Reuters on the sidelines of IATA’s annual meeting in Singapore.

The younger people today may not know what a trade war is.  It’s when one country raises the price of doing business in your country to every other country trying to do business in your country.  This is to protect the higher-priced domestic industries.  By removing lower-priced consumer alternatives.  When countries retaliate by doing the same you get a trade war.  And it is the consumer who suffers.  Because everything they buy becomes more expensive.  Oh, and it was a trade war that caused the Great Depression.

Under the scheme, the aviation sector will receive 213 million carbon permits, called EU Allowances (EUAs) in 2012 and then 209 million from 2013 to 2020, representing the cap. As many as 82 percent of them will be given free to airlines, meaning most of the rest will have to be bought from the market.

With six months before the sector joins the ETS, opposition is growing.

A China Southern executive has said the China Air Transport Association is preparing to sue the EU over the issue, a Chinese media report said.

“The opposition is broad,” said Andrew Herdman, Director-General of the Association of Asia Pacific Airlines, which represents 15 airlines such as Cathay, Japan Airlines and Singapore Airlines…

China says Europe should adjust the ETS to reflect the differences between rich and poor countries, while Vijay Mallya, chairman of India’s Kingfisher Airlines, said he could not accept it.

The EU may know what’s best for the planet.  And their bank.  But the world doesn’t appear that it will sit back and transfer sovereignty and money to them without a protest.  Or a fight.  Perhaps even a trade war.  Which would be a bad thing as much of the world tries to pull itself out of the worst recession since the Great Depression.  And it would be a terrible shame for history to repeat itself on that score.  For one Great Depression was quite enough.

Carbon Taxes and Carbon Trading kills Jobs and crashes Economies

Green energy initiatives are just a cover for massive tax increases.  For desperate nations who can’t control their spending.  That’s why nations everywhere are fighting against carbon taxes and trading.  They see the cost to business.  And the jobs they will kill.  It’s not that they want to kill the planet.  They just don’t want to subsidize another nation’s financial problems.  Or see their own economies crash.  Which it will under a carbon taxing/trading scheme.

Environmental policies and economic activity are a trade off. You advance one by reducing the other.   Which makes advancing environmental policies during recessionary times difficult.  Because it’s one thing to save the planet when you have a job.  But another when you don’t.  At such a time, yes, you care about the planet.  But you care more about your family.  You think to yourself that the planet can take care of itself.  It survived ice ages.  Cataclysmic meteorite collisions.  Huge volcanic explosions.  Droughts.  Fires.  Hurricanes.  Tornadoes.  Earthquakes.  Plagues.  And if it can survive all that, you think it’ll be able to survive your having a job so you can support your family.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Obama Looking less George W. Bush and more Jimmy Carter/LBJ

Posted by PITHOCRATES - April 1st, 2011

Construction Spending down despite all those Shovel-Ready Projects

Some days it just sucks to be Obama (see February construction spending down 1.4% by Steve Goldstein posted 1/1/2011 on MarketWatch).

February construction spending fell 1.4% to a seasonally-adjusted annual rate of $760.6 billion, the lowest level in more than 11 years, the Commerce Department said Friday. January spending was revised lower to a decline of 1.8% from a previous estimate of a 0.7% fall. Economists polled by MarketWatch had forecast a 0.1% rise.

Construction is the last to enter recession.  And it’s the last to emerge from recession.  Because it takes a long time to go from design to completion.  But after all those shovel-ready projects bought and paid for by the stimulus bill back in 2009, construction should not be the worse it has been in 11 years.  That means the economy is still a mess.  And it may very well get messier.

First bad Fiscal and Monetary Policy, then Inflation

Yes, we’re still mired in recession.  But recession may soon be joined with something we haven’t seen since the 1970s.  At least, not during a recession (see Fed Is Likely to Raise Rates By End of the Year: Lacker by CNBC.com and Reuters posted 1/1/2011 on CNBC).

Richmond Federal Reserve President Jeffrey Lacker told CNBC Friday that he “wouldn’t be surprised” if the central bank raised interest rates before the end of the year…

He said his greater concern is rising inflation and controlling it in the next nine months “will be critical for us.”

Jimmy Carter must be smiling.  Many say he was the worst president.  Mainly because of the stagflation of the 1970s.  High unemployment and high inflation.  Normally, you don’t get the two together unless you really managed to make a mess of the economy.  And now it looks like Obama may go all Jimmy Carter on us.  We still have record unemployment.  And the Fed, while they’re still planning to go ahead with more quantitative easing in June:

At its last meeting, the Fed voted unanimously to continue as planned with its $600 billion bond purchase program, designed to lower interest rates and stimulate growth, which is scheduled to end in June.

is already talking about battling the inflation their previous actions have given us.  Which they did in a futile attempt to counter Obama’s job-killing fiscal policies.  No doubt Carter is grateful he has lived to see this day.  When another president has ruined the economy greater than he did.

TARP bails out Libyan Owned Bank

But it gets better.  For Carter, that is (see Libya-Owned Arab Banking Corp. Drew at Least $5 Billion From Fed in Crisis by Donal Griffin and Bob Ivry posted 1/1/2011 on Bloomberg).

Arab Banking Corp., the lender part- owned by the Central Bank of Libya, used a New York branch to get 73 loans from the U.S. Federal Reserve in the 18 months after Lehman Brothers Holdings Inc. collapsed.

The bank, then 29 percent-owned by the Libyan state, had aggregate borrowings in that period of $35 billion — while the largest single loan amount outstanding was $1.2 billion in July 2009, according to Fed data released yesterday. In October 2008, when lending to financial institutions by the central bank’s so- called discount window peaked at $111 billion, Arab Banking took repeated loans totaling more than $2 billion…

Arab Banking reported a loss of $880 million in 2008 as it took a $1.1 billion charge tied to structured investment vehicles and derivative products known as collateralized debt obligations. Arab Banking recovered during the next two years, posting profits totaling $265 million.

So, Arab Banking Corp., part-owned by the Central Bank of Libya, the country we’re currently bombing now to ‘encourage’ regime change, was ‘bailed out’ in our TARP program.  That hurts in so many ways.  Our tax dollars that our Congress authorized to purchase trouble assets (i.e., all those Fannie Mae and Freddie Mac subprime mortgages) not only bailed out Obama’s friends on Wall Street, they bailed out foreign banks.  Even helped a Libyan dictator.  Who we’re now trying to ‘accidentally’ kill.  I mean, you can’t make this stuff up.  Meanwhile, Carter looks like a better president with each day that passes by.  Who’d’ve thunk it?

Liberal Base says Obama is Worse than George W. Bush

And speaking of that Libyan…thing…that’s not a war but has all the bombing and killing of a war…how’s that going?  Not so good with the president’s base (see Liberals outraged by Libya intervention posted 1/1/2011 on UPI).

Liberal Democrats, key to Barack Obama’s election as U.S. president, are some of the loudest critics on his strategy on Libya, a review of reaction indicates…

“In two years we have moved from President [George W.] Bush’s doctrine of preventive war to President Obama’s assertion of the right to go to war without even the pretext of a threat to our nation,” Rep. Dennis Kucinich, D-Ohio, an anti-war liberal, said Thursday during a House floor speech. “This is a clear and arrogant violation of our Constitution. Even a war launched for humanitarian reasons is still a war — and only Congress can declare war.”

Rep. John Conyers, D-Mich., said Congress and the White House have argued for years over the division of power in wartime, but “the Constitution grants sole authority to the Congress to commit the nation to battle in the first instance.”

That sounds like they’re saying that Obama is worse than George W. Bush.  Wow.  At least Bush had the pretext of weapons of mass destruction.  What’s Obama got?  Well, had he not acted, there may have been another civil war in the world.  As bad as that is, it isn’t an imminent risk to American security.  Which means the president did not have the Constitutional authority to do what he did.  Unlike George W. Bush in Iraq.

The Military doesn’t want Obama’s Libyan War

So he’s losing his liberal base.  But he’s still got the military establishment, doesn’t he?  As the Left well knows, they don’t care about right or wrong.  They just like to kill people and blow things up.  Right?  Not exactly.  You see, actually knowing a thing or two about war, they are not all that eager to go to war (see U.S. Military Not Happy Over Libya by Leslie H. Gelb posted 1/31/2011 on The Daily Beast).

Pentagon civilian leaders and the military brass see nothing but trouble looming as the Obama administration takes one step after another into the Libyan morass. The next step appears to be arming the Libyan rebels, a move that would inevitably entail pressures to send U.S. trainers and even more potent arms—and a move that Defense Secretary Robert Gates flat-out rejected in testimony before Congress on Thursday. “What the opposition needs as much as anything right now is some training, some command and control, and some organization,” Gates said. As for providing weapons, that is “not a unique capability for the United States, and as far as I’m concerned, somebody else can do that.”

Libyan morass?  Wow.  That’s some heavy criticism.  That’s the kind of language they used back in the day of the Vietnam War.  Which was an unwinnable morass.  Interesting, too, that liberal presidents with aggressive domestic agendas created both of these morasses.  But can Obama win his war?  Even though LBJ couldn’t win his?  Or will Obama follow LBJ’s example and not seek nor accept his party’s nomination for a second term as president?  Guess time will tell.

U.S. aircraft took the lead in junking a good chunk of the Libyan Air Force and launched devastating attacks against Libyan tanks, artillery, and other ground forces. Despite the severity of these attacks, Libyan forces survived, regained the offensive, and are now moving back toward rebel strongholds in eastern Libya. And the expectation of U.S. intelligence is that without having to face U.S. air power, Gaddafi’s troops will build further momentum. So, U.S. military officials haven’t stopped worrying about being dragged yet again into the air war.

You know, this is a lot like the Vietnam War.  Every time we pulled back the enemy advanced.  Then we’d pound them back with our superior airpower.  Until Congress stopped paying for that superior airpower.  And then you know what happened?  No?  Not familiar with our actions to protect South Vietnam?  Okay.  Look on a current map for South Vietnam to find out how that turned out.  But don’ spend too much time looking for it. Because it’s not there anymore.

The rebels won’t be able to use most arms, even relatively simply ones like anti-tank rockets and rifles, without extensive training…

Remember, underneath everything happening now are the two driving goals that President Obama set: to protect populations and to oust Colonel Gaddafi. In all likelihood, U.S. coalition partners cannot achieve these goals without U.S. jets resuming combat missions. Even with more U.S. air power, it probably won’t be possible to stop Gaddafi without using some coalition ground forces. So, pressures to do more and more will continue to lurk. All the Pentagon can do, then, is to raise tough questions (Who are those rebels we’re determined to help, could they be Muslim extremists?) to diffuse pressures on the U.S. military to do more.

If you ever wondered how Vietnam happened, here’s a good teachable moment.  JFK sent in military advisors to train the Army of the Republic of Vietnam (ARVN).  These were the ‘good guys’ in South Vietnam.  But when the very well trained and well supported North Vietnamese Army (NVA) threw them back we needed more than advisors.  We started supporting the ARVN.  Then the ARVN started supporting us as we took over more and more of the war.  Next thing we knew hundreds of thousands of U.S. ground troops were fighting it out in the jungles of Vietnam.  And the rest is history.

Barack Obama makes Jimmy Carter look Good

The last month or so hasn’t been too good for our president.  The economy is still mired in recession.  Inflation is about to join those high unemployment numbers to give us some good old-fashioned Jimmy Carter misery.  Our taxpayer TARP money found its way to Libya.  Instead of buying our troubled assets.  The Liberal base is abandoning him.  The Libyan war is less Constitutional than Bush’s Iraq War.  And appears about as winnable as the Vietnam War.

Yup.  Sucks to be him.  When he’s not on vacation, that is.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

FUNDAMENTAL TRUTH #55: “Liberals are all for trickle-down economics as long as the wealth trickles down from those who support liberals.” -Old Pithy

Posted by PITHOCRATES - March 1st, 2011

 Under Carter it was ‘in Government we Trust’

Mention Ronald Reagan in a room full of liberals and no doubt you’ll hear some derisive comment about trickle-down economics.  You see, liberals don’t like Reagan.  They liked Jimmy Carter.  But hated Ronald Reagan.  Because Reagan dared to say the king was wearing no clothes.  Metaphorically, of course.  But not Carter.  He clung onto the illusion of Big Government as the people’s savior.  Though a practicing Baptist, for Carter it was ‘in government we trust’.

Carter was a one term president.  Liberals may have liked him but the rest of the country didn’t.  Granted, he came into office with some pretty bad economic problems.  He can thank LBJ‘s Great Society for that.  The greatest explosion of government spending since FDR‘s New Deal.  And then Nixon decoupling the dollar from gold didn’t help.  The left doesn’t much care for Nixon, either.  Which is funny.  Because he governed as a liberal.  He spent money and grew government.  And when he decoupled the dollar from gold he called himself a Keynesian (i.e., a Big Government guy when it came to economics).  Carter’s misfortune was to follow all of this financial devastation.  Well, that, and the fact he didn’t have a clue about how to fix things.

Reagan did.  “Government isn’t the solution to our problems, government is the problem,” Reagan said in 1981.  And the warning Klaxons went off throughout liberal-land.   There was imminent danger.  And his name was Ronald Reagan.  You see, Carter did all the right things.  For those on the left.  And what did he get?  High inflation.  High interest rates.  And high unemployment.  They measured the economy with the misery index as we wallowed through the stagflation of the Carter years.  During the 1980 presidential campaign, Reagan asked the simple question heard round the world.  Are you better off now than you were 4 years ago?  Reagan went on to win the election.  So the answer was ‘no’.

Reagan Fixed the Economy and Fired Air Traffic Controllers

Reagan cut tax rates.  And the economy eventually exploded.  We said goodbye to stagflation.  And the misery index.  They were relics of the Carter years.  It was a new morning in America.  People had jobs.  They were happy.  Optimistic.  And this infuriated liberals.  Because Reagan’s conservatism flew into the face of everything they held dear.  And then came PATCO

The Professional Air Traffic Controllers Organization.  A federal government union.  They went on strike in 1981.  Which was against the law.  Government unions could not go on strike.  The strike shut down much of air traffic in the U.S.  This was big.  No business travel.  No sports travel.  No vacations.  No mail.  A small group of some 11,000 controllers shut down air travel.  And greatly disrupted the economy.  Reagan ordered them back to work per the law.  They refused.  He fired them.  And the left howled.

So you can see why liberals hate Reagan.  He was a destroyer and debunker of liberalism.  And the people loved him.  He won reelection with 49 states.  The man was more popular than sliced bread.  Worse, people were happy.  Whistling a happy tune while they went on their merry way.  Which is all well and good if you’re one of the ones whistling.  But when you’re part of that tiny 20% of the population that wants to run the other 80%, there was nothing to whistle about.  Reagan had become liberal enemy number one.

Reaganomics Replaces Failed Keynesian Economic Policies

So they attacked.  Then.  And now.  And they zero in on those tax rate cuts.  Sure, they say, the tax cuts stimulated the economy, but at what cost?  Huge deficits and a skyrocketing debt.  This, of course, is not true.  The cuts in the tax rates nearly doubled tax receipts.  The Democrat House (Tip O’Neil and his fellow Democrats had the power of the purse) just went on a spending spree with all that cash pouring into Washington.  Remember, all spending bills originate in the House of Representatives.  Defense.  Entitlements.  And all discretionary spending.  And when tax receipts nearly doubled with cuts in the tax rates, it proved that Reagan was right.  And liberals were wrong.

But they keep repeating the lie.  Hoping that if people hear it enough people will believe it.  Then they move on to trickle-down economics.  Supply-side economics.  Reaganomics.  They love to disparage this term.  Despite the fact that under Reaganomics, the 1980s was one of the most prosperous periods in American history.  So what is supply-side economics?  Well, think of it this way.  When do you live better?  When you have a job?  Or don’t have a job?  It’s pretty hard to pay your bills if you don’t have a job.  You can’t buy gasoline.  Food.  Clothes.  Electronic toys.  Etc.  So I think most will agree that life is better when we have a job.  And where do jobs come from?  From businesses.  That are pursuing a profit.  If they can make a profit they expand their businesses.  And hire more people.  Thus creating more jobs.  And this is supply-side economics in a nutshell.  They’re economic policies that are business-friendly to encourage their growth.  So they will hire more people.

Makes sense.  To the sensible.  But not to a liberal.  Because liberals are Keynesians.  They want to redistribute the wealth.  Take money from the rich.  And give it to the poor.  They believe that is how you create economic activity.  By giving other people’s money to other people so they can spend it.  And we tried it.  Under LBJ, Nixon, Ford and Carter.  Didn’t work.  Liberals will blame everything under the sun why it didn’t work.  But never the ideology itself.  Which is flawed.  Because higher taxes reduce profits.  Which hinders business expansion.  Which hinders job creation.  Which hinders economic activity.  And this is exactly what happened under LBJ, Nixon, Ford and Carter.  Which is why Carter was a one term president.

Trickle-Down is Okay as long as it Fills Union Coffers

The funny thing is that the left often supports trickle-down economics.  Whenever they are supporting the UAW.  They support high pay and benefits for unskilled labor on the assembly line.  Because it stimulates the economy. Yes, we pay these people a lot.  But they go out and spend that money.  And that pumps a lot of money into the local economy.  We’ve all heard these arguments.  Whenever liberals are defending high union wages and benefits.  Of course, liberals got so greedy that they killed the golden goose.  Assembly plants left the country.  Robots replaced workers on the line.  The few jobs remaining have nice wage and benefit packages.  But at what cost?  Hundreds of thousands of jobs were lost in the deal.  A terrible cost as jobs drive the economy.  The more the better.  While fewer higher-paid jobs just don’t help anyone but the few who have those jobs.

It’s the same thing with public sector workers.  No one has a better salary and benefit package.  For many it’s like getting two paychecks for one job.  For every dollar in pay they get something like $0.75 in benefits.  Mostly health care and pensions.  Teachers are often some of the greatest beneficiaries when you factor in all the time off they get.  There’s a reason why these public sector workers strike and never quit these ‘horrible’ jobs.  Because they can’t find a better job.  So when states and cities have trouble balancing their budgets because of out of control health care and pension costs they raise taxes.  Make the rest of us live on less.  To save these jobs.  For these good people.  Sure, we pay them a lot.  But they go out and spend that money.  And that pumps a lot of money into the local economy.

So that kind of trickle-down economics is okay.  But Reaganomics was nothing but tax breaks for the rich paid for by the working poor.  While fat union pay and benefits stimulated local economies.  A double standard?  Yes.  But there is a difference.  Trickle-down from job creators doesn’t generate a lot of union dues.  Trickle-down from union workers and the public sector do.  That’s why the liberals support unions.  Because liberals get a lot of that dues money.  And loyal foot soldiers to advance their agenda.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

« Previous Entries