Squaring the Culture




"...and I will make justice the plumb line, and righteousness the level;
then hail will sweep away the refuge of lies,
and the waters will overflow the secret place."
Isaiah 28:17

10/06/2009 (5:32 pm)

Socialism is Better — Because We Say So

It was about 10 months ago that I took on Nobel laureate Joseph Stiglitz over his common-for-the-left-but-intellectually-laughable notion that deregulation had led to the meltdown that occurred last fall. I can’t say whether time has proved I was correct or not, but a recent announcement in France has proved that Stiglitz is both socialist-friendly and, so far as intellectual probity goes, nuts. Well, not nuts, exactly. More like devious and dishonest.

France announced, based on work by Dr. Stiglitz, that they are going to count “well-being” in their measurements of Gross Domestic Product (GDP.) By well-being, they mean things that everybody recognizes as beneficial: you know, things like government-sponsored health care, a short work week, and an expensive welfare system. [/sarc] These count as economic “output,” according to Stiglitz and French President Sarkozy.

France’s president on Monday urged other countries to adopt proposed new measures of economic output unveiled by a panel of international economists led by Joseph Stiglitz, the US Nobel Prize winner.

Mr Sarkozy, who set up the Stiglitz-led commission last year, said the world had become trapped in a “cult of figures”.

Insee, the French statistics agency, would set about incorporating the new indicators in its accounting, Mr Sarkozy said.

One consequence of the commission’s proposed enhancements to gross domestic product data would be to improve instantly France’s economic performance by taking into account its high-quality health service, expensive welfare system and long holidays. At the same time, the commission’s changes would downgrade US economic output.

The first cut at restating French GDP managed to erase half the difference between French per capita output and US per capita output. I’m shocked. [/sarc²]

In case you’re not comfortable with macroeconomics, what’s happening here is that with the cooperation of an American academic leading a team of international economists, France has decided that a given unit of French output counts for more than the same unit of American output — because the French are “happier.” How do we know they are happier? Well, because the government does things liberals want it to do for people. That’s how we know.

So, socialist government policies boost a country’s output, not because it actually produces output, but because Joseph Stiglitz says socialist policies make them count more. Because it makes everybody happy, you see. That’s how economics works. This is science, don’t you know.

A friend sent me this via email as an example of things so stupid they’re funny. This is not funny to me, though; it’s chilling. Basically, what is happening is that an international team of economists has decided to market socialism using “science” as an advertising tool, by arbitrarily making socialist countries appear richer than they are. They do this by declaring the illusory well-being of people living under socialism as “production” — illusory because the only evidence of it is their enlightened leftist opinion that people are happier under socialism. France is going along with this, and urging other nations to do so as well.

Keep this in mind when leftists start touting the economic benefits of socialism, and insisting that this “happiness” is a human right. They’re lying, and they’re getting help in constructing their lies from Nobel-laureate economists.

Why are the nations in an uproar
And the peoples devising a vain thing?
The kings of the earth take their stand
And the rulers take counsel together
Against the LORD and against His Anointed, saying,
“Let us tear their fetters apart
And cast away their cords from us!”
He who sits in the heavens laughs,
The Lord scoffs at them.
Then He will speak to them in His anger
And terrify them in His fury, saying,
“But as for Me, I have installed My King
Upon Zion, My holy mountain…”
Now therefore, O kings, show discernment;
Take warning, O judges of the earth.
Worship the LORD with reverence
And rejoice with trembling.
Do homage to the Son, that He not become angry, and you perish in the way,
For His wrath may soon be kindled
How blessed are all who take refuge in Him!

Psalm 2, New American Standard Version

10/05/2009 (1:42 am)

Capitalism: A True Love Story

Steve Forbes has written a solid essay on the value and ascendancy of capitalism, explaining how wealth is created and how the Obama administration is wrecking the basis for wealth. This is must reading for defenders of American liberty.

Let’s set the record straight: Far from having failed, democratic capitalism is the world’s greatest success story. No other system has improved the lives of so many people. The recent turmoil by no means mitigates the explosion of prosperity that has taken place since the early 1980s, when President Ronald Reagan enacted pro-market measures–low tax rates and less stringent regulation–that unleashed job-creating capital. The result: a surging economy that produced a flood of innovation, from personal computers and cellular phones to the Internet. Not only “the rich” but people at all income levels are today doing better.

The success of the U.S. did not go unnoticed. Free-market economic reforms–especially since the fall of the Berlin Wall–have brought an unprecedented surge of wealth to India, China, Brazil and nations in central and eastern Europe as well as in Latin America and Africa. Capitalism has helped usher in an era of wealth and economic growth that foreign-aid programs have tried but failed to do since World War II. The current recession should be seen historically as an interruption of, not an end to, this extraordinary expansion.

What’s getting lost in the crisis and the political turmoil is that capitalism is based on trust. Transactions in free markets are about achieving the greatest possible advantage, but that advantage must be mutual. To cite Adam Smith’s classic example, the baker or the butcher sells you food in exchange for your money. True, as Smith points out, this relationship is based on self-interest: They provide your dinner because they seek your money. However, for a transaction to occur, each party must benefit.

Note the emphasis on trust; this is crucial. The basis for the Invisible Hand to work is the mutual self-interest of the parties that leads them to create a vast, thriving network of cooperative enterprises, each part supplying things that the others need. Transactions never take place unless all parties to the transaction agree that they benefit from it. No part of it can take place without sufficient trust to produce without full payment in hand, or to pay before accepting delivery, nor can it take place if production is subject to arbitrary theft by the government; if trust breaks down, the economy halts.

He produces the example of a simple pencil. The pencil requires resources from loggers, graphite miners, processors of rapeseed oil (for the erasers), manufacturers of paint, cutting machinery, assembly… literally millions of individuals are involved somehow in the creation of a pencil, each benefiting from his or her role in the process, most of them with no idea of a pencil in mind, most of them knowing few or none of the others in the process.

This is how wealth is produced in society: Countless individuals seek to meet their own needs by meeting the needs and wants of others. That’s indeed the moral basis of capitalism. It is the antithesis of greed. Forming networks of cooperation, individuals create businesses that produce innovations–not just pencils but inventions ranging from laptops to washing machines. In the process of providing for themselves, people generate the capital and innovations that yield economic growth, improving living standards and enabling society to advance. (Emphasis mine.)

Next, he explains briefly how governmental interference caused the most serious interruptions in the development of wealth in our economy. The recent meltdown, far from being the result of free markets, was caused by politicians, by the Fed printing money in 2001 and 2002 and by runaway behavior of two organizations established by acts of Congress and free for political reasons from ordinary accounting requirements — FNMA and FHLMC (Fannie and Freddie.)

He goes on to name the societal elements that need to be present in order for a free economy to flourish: the rule of law, respect for property rights, stable money, a pro-growth tax system, ease in starting a business and few restrictions to doing business. He cites the manner in which the Obama administration is bringing to an end the traditional robustness of these elements in American economy. And, he offers hope that we are watching the last, desperate gasp of 20th century statism.

This and other themes about capitalism are covered in the book to be released on Nov 3, How Capitalism Will Save Us: Why Free People and Free Markets Are The Best Answer In Today’s Economy, by Steve Forbes and Elizabeth Ames (Crown Business).

09/25/2009 (6:25 am)

Got Teenagers Who Want to Make Videos?

The Fraser Institute is offering prizes to students for videos that answer the question, “What is the appropriate role of government in the economy?” Students who can answer this question can get a piece of $10,000 in cash and electronics prizes in the Fraser Institute’s 2009 Student Video Contest. Full contest details can be found at: www.fraserinstitute.org/videocontest.

Courtenay Vermeulen
Education Programs Assistant

The Fraser Institute
Direct: (604) 714.4533

Toll free: 1.800.665.3558 x 533
courtenay.vermeulen@fraserinstitute.org

The Fraser Institute is an independent international research and educational organization with offices in Canada and the United States and active research ties with similar independent organizations in more than 70 countries around the world. Their vision is a free and prosperous world where individuals benefit from greater choice, competitive markets, and personal responsibility. Their mission is to measure, study, and communicate the impact of competitive markets and government interventions on the welfare of individuals.

07/22/2009 (4:49 pm)

Big Government, Big Corporations: Not Exactly the Change Anyone Had in Mind

Maneuvers in the Obama administration’s planning for the government’s takeover of health care display a disturbing pattern in their handling of America’s private enterprise; where large corporations thrive, the Obama administration seems to be aligning them with the government and protecting their power, in exchange for cooperation with the new regime.

In a report recalling the furor over Vice President Dick Cheney’s meetings with energy company officers, the LA Times reported today that the White House has refused a Freedom of Information Act request from the citizen’s group Citizens for Responsibility and Ethics in Washington, asking for information regarding meetings with representatives of health insurers, pharmaceutical companies, and medical providers. CREW has filed suit to obtain the records.

According to the Times:

Invoking an argument used by President George W. Bush, the Obama administration has turned down a request from a watchdog group for a list of health industry executives who have visited the White House to discuss the massive healthcare overhaul.

Citizens for Responsibility and Ethics in Washington sent a letter to the Secret Service asking about visits from 18 executives representing health insurers, drug makers, doctors and other players in the debate. The group wants the material in order to gauge the influence of those executives in crafting a new healthcare policy.

The Secret Service sent a reply stating that documents revealing the frequency of such visits were considered presidential records exempt from public disclosure laws. The agency also said it was advised by the Justice Department that the Secret Service was within its rights to withhold the information because of the “presidential communications privilege.”

Citizens for Responsibility and Ethics said it would file suit against the Obama administration as early as today. The group already has sued the administration over its failure to release details about visits from coal industry executives.

Candidate Obama ran on a platform of greater openness in government; in fact, he claimed he would invite C-SPAN into his negotiations and discussion regarding overhauling health care. President Obama, by contrast, seems intent on closed-door negotiations with the powers that be, far from the public, with no opposition party allowed. And the resulting negotiations seem always to favor the powerful.

According to Tom Carney at the Washington Times:

Democrats’ plans for health-care reform include many policies that would benefit drug makers, insurers, and others in the health-care sector, which favored Obama over McCain by 2.5 to 1 margin in 2008 campaign contributions.

For instance, Democrats are now planning to mandate that all individuals carry health insurance and that most employers offer it. Health-care reform also includes subsidies that will help drug-makers, insurers, and providers.

In earlier moves from the White House, plans to improve seniors’ access to prescription medication favor brand-name pharmaceuticals over generics, apparently as a reward for pharmaceutical companies’ contributing to the health care overhaul. Also, the Obama administration back in June signed a bill giving the Food and Drug Administration power to regulate tobacco companies that was favored by tobacco industry giant Phillip Morris but opposed by smaller competitors, apparently because the bill creates barriers for competitors trying to enter the market.

The power nexus between a powerful, central government and the largest industrial companies historically indentifies a fascist government, and has been the focus of opposition from progressives for many decades here in America. Free-market conservatives tend to welcome the contribution of large corporations, but dislike market concentration and oppose barriers to new entrants into the market. The Obama approach seems aimed at consolidating power more than anything else, and should be opposed by activists on both sides of the aisle. It will be interesting to hear whether progressives object to Obama’s closed-door meetings with industry in the same terms they used for Cheney’s meetings.

07/09/2009 (11:56 am)

Waxman-Markey: Read It and Weep

Depressed by what I already know, I don’t think I have the energy, and I’m sure I don’t have the time, to completely analyze the entire Waxman-Markey bill, known as Cap-and-Trade. However, motivated by questions I had about a couple of blog posts I read yesterday reciting building code requirements in the bill, I read enough of it to comment.

This is absolutely the end of limited federalism, for one thing. The bill establishes national standards for energy efficiency for buildings, cars, light bulbs and all sorts of lighting fixtures, washing machines… you name it, it controls it. It makes its limits a part of every building code in America, and it enforces itself by threatening to withhold substantial federal funding from states who refuse to implement it — and upon such refusal, asserts itself as the law of those states. After this, there is no aspect of life that the national government has not asserted absolute right to control. Granted, there have been national standards before — and they, also, stomped on limited federalism — but none of them asserted control at this level. Kiss the 10th Amendment the US Constitution goodbye.

For another thing, this bill literally defines 2005 as the peak of American economic growth. From now on, growth will be negative. Why? Because the total amount of carbon to be emitted by the entire US economy is limited to a percentage of the gas emitted in 2005. This literally puts a cap on growth. If the bill says that the amount of carbon from all measured sources cannot exceed 97% of total carbon emitted in 2005 (which it does), then the amount of economic growth possible is hard-tethered to the amount of reduction produced by technological improvements; if technology has produced only 3% improvement by then, the economy is not permitted to grow at all. If technology has produced a 4% improvement by then, the economy may grow only 1%. If technology has produced only 2% improvement by then, the economy must shrink at least 1%. And naturally, the cap tightens even more as time goes on: 83% by 2020, 58% by 2030, and the practically impossible 17% by 2050.

Remember Plumb Bob’s Rule of Electrical Generating Reality: the alternatives are nowhere near ready to replace any substantial portion of our nation’s electrical generating capacity, and will not be for many decades. Attempts to force progress up the curve will only result in further declines in GDP, as the huge dollar subsidies and immense rise in electricity costs will rob growth from other economic sectors. Guys, if it takes one woman 9 months to make a baby, that does not mean 9 women can do it in a month. Some things just take as long as they take, and technological change is one of them.

epaco2liebermanThe good news is that with the unbelievable burden this bill will place on the entire economy, we will have to do nothing remarkable to reach those goals; the resulting economic depression will certainly achieve them for us even without technological improvements.

And this is all being done to produce exactly zero improvement in the environment, even if you believe the disingenuous horse manure about human-generated carbon affecting climate (it does a little, perhaps enough to boost plant growth by around 10% worldwide; aside from that, peer-reviewed science documents no known harm from human-generated CO²). Last year, while preparing for the Warner-Lieberman bill, the EPA produced a chart showing how little global CO² would change with the US acting unilaterally, and how dependent genuine reduction in global CO² was on cooperation from China, India, and other producing nations. These nations are smarter than we are; they are not going to hobble their own economies for carbon reduction.

Let’s take a lesson from our Honduran brothers, and recognize this bill for what it is; the American experiment in self-government ends if we adopt this bill. And it’s only the beginning of the new restrictions our Supreme Leader Obama intends to lay on our backs. Time to grow huevos and protect our republic.

03/23/2009 (8:01 am)

Why Free Markets Are Best

Newsmax sent me a link to this telling exchange between Milton Friedman and Phil Donahue from 1979. Donahue unloads the full arsenal of mindless liberal guilt manipulation against Friedman’s free market capitalism, and Friedman tears it to pieces in less than 3 minutes. Listen and learn. Key portions are transcribed below:

Regarding the inequality between the haves and the have-nots:

In the only cases in which the masses have escaped the kind of grinding poverty you’re talking about, the only cases in recorded history are where they’ve had capitalism and largely free trade. If you want to know where the masses are worst off, it’s in exactly the kinds of societies that depart from that, so that the record of history is absolutely crystal clear that there is no alternative way so far discovered of improving the lot of ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system…

Answering the challenge that capitalism does not reward virtue:

What does reward virtue? You think the Communist commissar rewards virtue? You think a Hitler rewards virtue? Excuse me, but do you think American Presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed, or on the basis of their political clout? Is it really true that political self-interest is nobler somehow than economic self-interest? Just tell me, where in the world do you find these angels who are going to organize society for us?

This exposes the true heart of socialist, Marxist, and American liberal thinking. The answer to the last question, “Where do you find these angels,” is invariably, in the mind of the liberal, “Me.” They think of themselves as angels, and of all others as fools; this is the always-unspoken, always-unrecognized assumption in all Utopian plans. They all fail at exactly the same point — those who think such thoughts are not only far from angels, but they’re the greatest fools of all. Friedman emphasizes this when he chides Donahue, “I don’t even trust you to do that,” nailing the fact that Donahue is at that very moment thinking “Let me do it.” And Friedman alludes to the problem earlier on: “Of course, none of us are greedy. It’s always the other fellow who is greedy.”

The human systems that work are those which recognize and structurally minimize the inherent weakness in human character, but which recognize and structurally liberate the inherent creativity in the human soul. Systems based on political self-interest and the innate goodness of leaders result in oppression, the only exceptions occurring when there is a truly extraordinary leader (and no, my liberal friends, Barack Obama is not one of those, and neither are you.) The unintended genius of the American system was that political self-interest was stymied by pitting political players against each other in a system structured to maximize political tension, while private, economic self-interest was given a free hand to grow. It was “unintentional” in that the focus lay entirely on creating the political tension, whereas the economic freedom was simply taken for granted.

Opposition to free markets arises from envy. Some people cannot accept the massive improvement in the well-being of the ordinary person because the same system also allows for disproportionate well-being for the exceptional. Because some people envy the exceptional, they aim to cripple them; but in so doing, they remove all possibility for ordinary people to prosper. The same system that permits ordinary people to prosper, permits extraordinary people to prosper extraordinarily; thus, the only way to permit ordinary people to prosper is to restrain one’s envy toward the extraordinary.

One cannot empower the weak by weakening the strong. If it were the strong who were holding the weak down, then weakening the strong might empower the weak. It’s not the strong who hold the weak down; the weak are held down by their own sin, and if one removes the strong, the sin remains in the weak and continues to hold them down. The only way weak people are made strong is by changing themselves.

The correct answer to Friedman’s challenge, “What does reward virtue,” is that God rewards virtue, independent of human systems, though He frequently uses human systems to send the reward. However, the greatest good to the greatest number occurs in a free economic system with severely limited government.

03/20/2009 (12:39 pm)

First They Came for AIG…

The text of the US House of Representatives’ reaction to the AIG Wage Rage, HR 1586, is available to the public, and it’s frightening on several levels.

Launched because of envy masquerading as a quest for justice, the law was supposed to confiscate most of the bonuses paid to AIG employees out of funds supplied by Congress to rescue the failing insurer. However, the actual wording of the law gives it far wider applicability. The law targets employees of any company that has received more than $5 billion from the TARP fund, mostly financial giants (GMAC, Wells Fargo, JP Morgan, Chase, etc. See here.) It establishes a 90% tax rate for “TARP bonuses.”

Is a bonus just a bonus? No; a TARP bonus, according to this law, includes any adjusted gross income for the family exceeding $250,000 for a married employee, or $125,000 for a single employee.

So basically, if a person works for one of the big US banks or brokerage firms, the gross income for their family has just been capped at $250,000.

Now, I’m not saying that’s it’s difficult to live on $250,000 a year. However, since the confiscation occurs only among very large brokerage houses, and since the skills used by the employees of such firms are useful elsewhere, what we’re going to see in very short order is an exodus of talent from large banks and brokerage firms. The best people will leave and go to work elsewhere, where they can make what the market is willing to pay for their talent. The shortage of labor in the big firms that will be created will be filled with the lesser talent that cannot command higher salaries, or workers that have been hoping for promotion into more responsible positions but have been unable to get there. Thus smaller firms will acquire better talent, and larger firms will be staffed by lesser talent.

In short, the Congress has just consigned large, American financial firms to a slow and painful death by incompetence. In doing so, the Congress has guaranteed the decline of the American financial industry and the rise of large foreign financial entities. Thus, the industry that made New York City the hub of the world is being driven offshore… by Congress.

Knowing the impact, many firms from here on will choose not to participate in TARP funds. This will, in effect, cripple any impact that the federal stimulus might have had, either positive or negative. Firms that refuse to participate in TARP will simply muddle through the economic downturn without capital. This is an instance where the unintended consequences of an overreaching Congressional acts might be positive; by frightening companies away from TARP funds, the negative effect of the bailouts might be reduced.

Congress has been warned of the impact. However, true to the character of American liberals, they are more concerned with displaying the appearance of doing something moral to quell inequality than they are with preserving prosperity, genuine virtue, or anything that works. They will persist in their policy even if it demolishes American business, because, after all, there’s nothing more important for the American people than that liberals can say they are brave and moral.

Historically, demagogues and tyrants begin their tyranny by encouraging outrage against a hated group, and creating precedent in their treatment of that group that later gets applied more widely. Do not be surprised if the US government moves to cap income generally; this is just one aspect of the income redistribution that candidate Obama accidentally let slip in Ohio, and which he later denied. He was lying; anybody familiar with the candidate (and not addled by idol worship) knew it. And the more the government attempts to enforce “justice” (which is actually not justice, but a faux virtue that has more to do with hubris than it has to do with anything decent,) the more talent will leave our shores and enrich foreign nations.

We elected them, and now they’re destroying us. Hope you enjoy the rule of Democrats, America.

Oddly enough, the blogger that’s gotten this right is Josh Marshall at TPM. I don’t recall agreeing with him before, even a little. Have a look.

03/20/2009 (2:35 am)

It Starts

With the US economy declining and the deficits exploding, it is only a matter of time before the world drops the dollar as its default store of value and shifts to something more reliable. It’s starting.

LUXEMBOURG (Reuters) – A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar…

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value — though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel’s recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings

In and of itself, this move does not hurt us all that much. The sales of dollars should drop the price of the dollar some, but that will be temporary. This is more an indicator of the decline of the economic strength of the US. It was not inevitable; it’s the consequence of refusing to tame government spending and renouncing economic liberty.

Currency specialist Avinash Persaud, a member of the panel of experts… has long argued that the dollar would give way to the Chinese yuan as a global reserve currency within decades.

That’s been my guess as well. But, what do I know?

02/20/2009 (11:54 am)

Chicago Tea Party? I’m Loving This…

Rick Santelli of CNBC, standing on what appears to be the floor of the Chicago Mercantile Exchange, declares the nation’s disgust with the Obama administration’s plan to use their tax dollars to pay the mortgages of people who bought houses they cannot afford, and the crowd behind him approves loudly. The message: they cannot abide by a plan that penalizes those who have lived sensibly, and rewards those who have squandered. Americans instinctively know this is wrong.

Click on this link if you want to give CNBC their hit statistics, or watch the YouTube clip below.

The response to the video on CNBC’s web site, while not a scientific sample, is overwhelming enough to show how people feel:

teapartysurveybig

Cue Will Smith from Men in Black: “I mean… damn.

The sensible citizen in me wants to press on the brakes. Mobs are ugly things, and usually, they produce ugly results, even if the intent arises from a sound ethic. There’s a superb and thoughtful film done by HBO called The Jack Bull that illustrates the problem profoundly, and if you haven’t seen it, I recommend you link up with somebody on Netflix and borrow it for a night. It’s a western starring John Cusack (hard to imagine, but he really does it well) and John Goodman, and it addresses the problem caused by the use of mob action to obtain justice. In the end, what it argues is that the proper, courageous, and honest execution of the law is the only barrier between civilization and anarchy.

I think Santelli of CNBC would understand this, though, and I think his call for “a Chicago Tea Party” is well within the bounds of civilized conduct. It’s good that sensible Americans would object to just, plain wrong policy in such numbers that the government might not feel entirely safe pursuing it.

Notice how carefully he circumscribes what he wants.

How about this, President and new administration? Why don’t you put up a web site to have people vote on the Internet as a referendum to see if we really want to subsidize the losers’ mortgages, or would we like to, at least, buy cars and buy houses in foreclosure, and give them to people who might have a chance to actually prosper down the road, and reward people that could carry the water, instead of drink the water?

Americans are not greedy people, for the most part. He doesn’t just want to keep his; he’d go along with giving folks assistance who have a chance to prosper. He’s against bailing out folks who behave irresponsibly. The folks who charge that opposition to socialism is all about greed, are simply playing a rhetorical game; the alternative to redistribution is not “greed,” it’s “responsibility.” The comments of folks on the CNBC site illustrate how well people understand this.

Why are the very people who never seem to do the right things, being rewarded with my tax dollars? This country has come to the point where there is no incentive to do what’s right! … The government should be rewarding the successful people, not making them out to be the villain and confiscating their tax dollars,to redistribute it to the people living above their means! — David

Here is the message Obama and Congress are sending: Work hard, pay your bills on time, and you will be penalized by having your hard-earned money reward those who wallow in irresponsibility and have a total disdain for those who play by the rules. — Kathy

The Obama housing plan is absolutely ridiculous. As a disabled person, I could not afford to buy a home after housing prices took off. To think that if I had bought above my means the government would have paid my mortgage makes me now feel like a jerk. — Rob

I paid off my mortgage this month. What a mistake, I should have just sat back and demanded that the government [taxpayers] help me. I’m being punished for being successful and doing what was once deemed right. — Don

There’s also a complicated question of culpability. How much of the foreclosure crisis is the result of irresponsible buyers, how much of irresponsible mortgage salesmen, how much of irresponsible bankers, how much of irresponsible housing rights activists, how much of irresponsible legislation, and how much of irresponsible government incentives? There are lots of culpable agents in the mix; but certainly, a huge percentage of the blame lands on those who simply planned badly and bit off more house than they could chew (an interesting mental image, that — chewing a house.) It is not only appropriate, but necessary for the character development of the person making the mistake, that such people pay for their mistake by the loss of the asset. I’m speaking as one who has made that mistake and paid that price personally, and I assure you: it was painful, but I survived, and it was the right thing.

So, a tea party is being planned for Lake Michigan. Will anything actually happen? I suspect that President Obama is not particularly interested in whether most Americans agree with him or not; he seems more the pragmatic type, the type who would be more worried about whether he can get away with a plan than whether most people approve of it. In some contexts, that’s not a bad thing; we might call that “a principled stand,” except in this instance, the principles on which he’s standing are insane. Among Presidents, who are responsible to the people, principled stands should be rare, and limited to those principles that are of profound worth. I don’t agree that Mr. Obama’s criteria-free egalitarianism fits the bill.

I suspect, also, that President Obama won’t change a thing until he sees that he’s actually going to suffer personally from the reaction — an impeachment effort, for instance. He may be pragmatic enough to respond to a plausible threat to his Congressional majorities, but it’s not clear that such a threat exists, nor is it clear that he would care if it did; he may just be acting out a “let’s get as much irreversible change in place as quickly as we can” strategy. There are lots of unknown quantities here; we don’t know much about the President. Thank the press.

However, protecting the legal and economic foundations of America must begin with this sort of outrage, and it’s about time somebody expressed it. Well done, Mr. Santelli.

Santelli takes an arcane shot at the very end which I’m afraid most people outside the field of finance and economics won’t get. It’s important, though: Santelli exposes the idiocy of the Keynesian notion of a government spending multiplier, the claim that whereas a dollar of consumer spending results in growth of some factor, X, a dollar of government spending results in growth of X multiplied by some number greater than 1: consumer spending X, government spending, 1.2X. If that’s true generally — as simple Keynesian models suggest — then we’d all get immensely rich if the government just spent every penny there was. It’s sheer nonsense. At best, it might be true in some narrow range of spending levels (which is not what’s claimed,) but really it doesn’t make any sense in any range. Short version, we’re not going to spend our way out of the recession. Ever. It just doesn’t work.

02/18/2009 (12:16 pm)

Microcosmic Cali

Friends of mine used to observe that what you see in California at any point in time is what you should expect to see in the rest of the nation 10 years later. I think they must have been correct; California is broke.

The proximate cause of California’s current budget crisis that is forcing the layoff of more than 100,000 workers (20,000 state, 90,000 construction) is a partisan battle in the state legislature over next year’s budget. There’s a projected deficit close to $40 billion, and the legislature is deadlocked over how to address it. California has a budgetary rule that requires a 2/3 majority in the legislature for any budget that calls for tax increases. This gives the Republican minority the power — barely — to insist on spending cuts rather than tax increases. The Democratic majority refuses to cut spending; they love their liberal Utopia projects. Without a budget, California cannot pay its bills.

That’s the immediate cause. The real cause, however, is the rising, structural deficit in California’s budget. How it came about reads like a tribute to Ronald Reagan’s economic policies.

Read this simple analysis from the Summary to the governor’s proposed 2009-2010 budget (emphasis is mine):

In 1998‐99, the state’s budget was balanced and projected to remain in balance. Figure INT‐01 displays General Fund revenue and spending growth since 1998‐99. As the figure shows, one year later, revenues increased by 23 percent, due to a stock market and dot‐com boom that drove unprecedented increases in stock option and capital gains income. These were magnified from a state revenue perspective, because the state’s income tax system relies disproportionately on the very high‐end earners most likely to receive such gains.

The surge in revenues resulted in massive – and unsustainable – new spending commitments. When revenues declined, the state relied mostly on one‐time measures, such as borrowing, to temporarily reduce spending without cutting back underlying program commitments. Thus, the structural deficit was born.

Mind you, the new spending commitments at the turn of the millennium, proposed by Democrats, had the solid support of Republicans as well. This was not a partisan event, but rather an illustration of a rule that our nation’s founders understood very well and President Reagan used to talk about frequently: when you give government money, it expands. Reagan opposed nearly every tax increase proposed by Congress to cover rising deficits on the premise that Congress would not use the money to reduce the deficits, but would instead use the influx of new revenue to support new, permanent spending measures. This is what California did in 1998-99, and it’s what Washington did with its paper surpluses at the same time. When the surpluses vanished — because they were, in fact, mostly just smoke and mirrors — the new programs remained, and they remain to this day. Government never shrinks except through revolution.

The US Congress has just passed a measure containing hundreds of billions of dollars in new, structural spending that will never go away. It didn’t even wait for a surplus; it just responded to an imagined need for spending increases, Keynesians giving them an excuse to do what they’d wanted to do all along. This, too, will never go away, except by revolution.

California’s plight gives us a few more clues regarding what we can expect for the nation.

For one thing, people are leaving California in droves. Decades of nonstop, liberal fantasy-land social engineering has created an environment that is hostile to families and successful entrepreneurs. Despite the sun, sand, and beauty of the west coast. productive citizens are packing their bags and taking their business elsewhere. Listen to this summary of a 2007 study from Laffer and Moore written by the National Center for Policy Analysis:

It takes a lot of public policy folly to persuade people to pack their bags and abandon California’s sunshine, 70-degree weather, scenic mountains, and beaches, but, lately the politicians in Sacramento have proved themselves up to the task, say Arthur Laffer and Stephen Moore in their study, “Rich State; Poor States.”

Major findings:

* The latest Census Bureau data indicate that in 2005, 239,416 more Californians left the state than moved in; this was also the case in 2003 and 2004.
* The native-born outmigration flows have become so systematic that the cost to rent a U-Haul to move from Los Angeles to Boise, Idaho is $2090 — or some six times more that the cost of moving in the opposite direction.

What’s gone wrong with the Golden State? A big part of the story is a tax and regulatory culture in Sacramento that treats rich people as if they were cash dispensing ATM machines, say Laffer and More. The cost for businesses of complying with California’s rules, regulations, and paperwork is more than twice as high as other states. But the real growth killer is California’s steeply “progressive” income tax with 10.3 percent rate applied to high-income residents — the highest in the nation outside New York City.

* The richest 10 percent of earners pay almost 75 percent of the income tax burned in the state.
* Most of these “evil rich” are small business owners, i.e. the people who create jobs.

The study itself confirms that the most productive citizens leave high-tax, high-spending states (like California. New York, and Massachusetts) and move to states with lower taxes and greater liberty; the attempt to redistribute wealth results in an eroding tax base that leaves a greater burden on the poor than before. A recent survey of corporate executives by Development Counselors International confirms Laffer’s and More’s findings.

The following chart from Schwarzenegger’s budget proposal (clipped from Adam Haverstock’s article at The Policy Report) illustrates a huge part of the problem, and the reason for the 2/3 rule in the legislature:

2006-cal-taxes

This looks remarkably like what will result nationwide from President Obama’s proposed tax code changes, after which more than 50% of American voters will pay no taxes at all. The difference is, the US Congress does not have the 2/3 rule to prevent the poor majority from using their voting power to soak the wealthier minority. The result in California was unwieldy taxes and the flight of productive citizens; what will be the result in the nation?

Ironically, California liberals demonstrate that they understand the problem perfectly well. They’ve created a set of incentives to attract “green” energy and auto producers — by reducing taxes.

California’s green-friendly atmosphere is encouraging clean businesses from around the world to invest in California, stimulating our economy and contributing to the fight against global warming. According to the California Green Innovation Index by Next10, a non-partisan research organization, in 2006 venture capital investment in energy technology companies in California was just shy of $1 billion, more than double the total from 2005…

Last Wednesday, CAEATFA approved a new program that exempts new ZEV manufacturers [author notes: ZEV = “Zero emission Vehicle”] from paying sales and use tax on the purchase of manufacturing equipment to encourage ZEV manufacturing in California. For Tesla, these incentives will mean millions of dollars in savings when the company invests in building their new plant in California. And if they choose a city that is in an Enterprise Zone, they will save millions more. Tesla will also be eligible for at least $1 million in Employment Training Panel Workforce Development Funds to train employees.

The tactic sounds familiar, no? Californians also pay almost $.50 more per gallon of gasoline than other Americans, thanks to taxes on carbon, another familiar-sounding tactic. California boasts more than 95% of the nation’s solar energy projects, thanks to $2 billion in government incentives, still another familiar-sounding tactic. President Obama is moving in this direction, aiming to tax carbon and create incentives for green energy technology. He claims it will produce hundreds of thousands of jobs. I suppose he has not noticed that this move has not rescued California’s budget, and that tax-paying citizens are leaving by the hundreds of thousands. When your policy destroys a few hundred thousand jobs, the creation of a new hundred thousand jobs does not really compensate all that well; that’s what incentives accomplish when paid for by destructive taxation.

The lesson of California is that the expansive, Utopian dreams of modern American “liberalism” (it’s really a lot closer to Stalinism these days) cannot work. The attempt to create Utopia by taxing the wealthy and forcing social policy down the citizens’ throats creates a massive, coercive, top-heavy, easily corrupted Monarch State that structurally fails of its own weight and drives its most productive and mobile citizens elsewhere. Even if we grant — which I will not, ever — that their Utopian vision rests on morally valid hopes and sound ethics, theirs is a vision that cannot be achieved. In fact, it’s because the vision rests on an improper model of humanity that it cannot be achieved; the power and coercion required to force people into behaviors that run contrary to their legitimate self-interest inherently produces misery, and drives away anyone with the ability and good sense to flee.

Welcome to the Age of Obama. We are SO screwed…

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