Tag: government

A New Federal Role in Economic Recovery

Post author By David
Post date December 4, 2009
15 Comments on A New Federal Role in Economic Recovery

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My post on fundamental assumptions generated some good discussion which began waxing economic in flavor. As part of that discussion I had a new idea about a more reasonable approach the federal government could take to soften economic hard times without outright manipulating our expectations of reality as they do now.

I should start by clarifying my perspective on what the federal government does and what is economically realistic. Economic realism insists that we recognize the inevitability of economic downturns. They are going to happen. Unfortunately the assumption at the federal level seems to be that we must strive for perpetual economic growth – we might tolerate one or two quarters of a mild contraction but anything beyond that is unacceptable. As proven by our significant and now two year old recession sometimes the economy needs to undergo a much harsher adjustment – especially after the government has been pumping the supposedly healthy market with perpetual stimulus for years. (I know, they have not called anything they did stimulus until the stimulus bill in early 2008.)

Personally I think a better approach to the federal government smoothing the rough spots out would be to establish a baseline – let’s say 5% unemployment – where any state meeting that baseline would not receive any federal economic assistance to combat unemployment. Then they would look a the spread between the unemployment rate of various states and be allowed to give economic aid to any state with at least 5% higher unemployment than the state with the lowest unemployment. The upper limit of that aid would be equal to 1/3 of the difference in unemployment between the higher of 5% and the unemployment rate of the state with the lowest unemployment with the limitation that government aid cannot help one state leapfrog another. Let’s show what that would mean with current (October 2009) numbers.

The state with the lowest unemployment is North Dakota at 4.2% so any state with more than 9.2% unemployment could get aid from the federal government to help lower their unemployment. For the October 2009 numbers that would mean that only 21 states could get any federal assistance rather than having the federal government trying to jump start the economies of all 50 states. Of those 21 states Arizona, Missouri, and Washington (at 9.3% unemployment) could receive aid equal to 0.3% of their respective economies (they would not be allowed to leapfrog Idaho and new York which have 9% unemployment and cannot receive this federal aid because they are within 5% unemployment of North Dakota’s unemployment rate). In fact, 12 of the 21 states would receive enough aid to bring them equal to the 9% unemployment rate of Idaho and New York because that would be less than 1/3 of the difference between their actual unemployment rates and the magical 5% unemployment. At the other end of the scale Michigan, with the highest unemployment would have their rate cut below 12% from their current 15.1%.

If every state had unemployment rates over 5% the new benchmark would be the lowest unemployment rate of any state. If we imagine that lowest unemployment rate was 6.5% (adjusting all states up to 6.5% and leaving states with higher unemployment where they are) only states with unemployment over 11.5% would receive aid, six states in all, and only Michigan would get the full 1/3 of the difference between their rate and the base rate of 6.5% (leaving them with 12.2% unemployment).

If all states were below 5% unemployment or if they were all clustered between 3.5% and 8.5% unemployment then the federal government would not give unemployment assistance to any of the states. If anyone is curious to see them, I have all my numbers in a spreadsheet that you can download.

The fact is that of the economy of the entire nation is slumping then no government program can provide a solid foundation to real economic growth – all it can do is produce the illusion of economic stability. Real economic growth can only be build on fundamental economic change, not on the illusion of stability provided by printing money and manipulating interest rates. While committed free marketers would likely hate my proposal just like they hate the current government intrusions in the economy and while those who don’t object to socialism will find my suggestions very harsh on downtrodden regions of the nation, I think that my idea is much better at providing a cushion for the hardest hit areas while allowing the economy to shrink or grow towards whatever the realities of our national economy are which the government tries so hard to mask right now as if our perceptions were the only economic reality worth considering.

Tags bailout, economics, government, KVNU FTP, money

culture National

The Dangers of a Crisis Mentality

Post author By David
Post date October 30, 2009
16 Comments on The Dangers of a Crisis Mentality

photo credit: paparutzi

Soon after the election last year in the Wall Street Journal, Gerald Seib wrote about the opportunity presented by the financial crisis for Barack Obama. Perhaps he was simply reacting to Rahm Emanuel’s statement that, “you never want a serious crisis to go to waste.” Seib summed up that perspective on crisis by saying that:

The thing about a crisis is that it creates a sense of urgency. Actions that once appeared optional suddenly seem essential.

That really captures the essence of a crisis mentality. Unfortunately it only looks at the silver lining while ignoring the cloud in front of it. The assumption is that we all can see the dangers of the crisis cloud. Unfortunately the only part of the crisis cloud that most people see is the front side – the possibility with any crisis that we will fail. The problem is that right in front of the silver lining he spoke of there is the hidden backside of the crisis cloud which we conveniently forget.

Because of the sense of urgency that tends to accompany a crisis we not only begin to view once optional courses of action as essential, in many cases we go beyond that and begin to view once forbidden courses of action as excusable.

Tags change congress, Elevated, government, health care, issues, liberty, Obama, unconstitutional, Wall Street Journal

National

Budget Hero Revisited

A post from last year that came up in my daily archive caught my attention with its title, A Budgetary Hat-Trick, I had a look to remind myself and rediscovered Budget Hero. When I played last year the budget was projected to go bust in 2033 barring any changes and I managed to balance the budget, increase security, achieve energy independence, and eliminate government waste at the same time so that the budget bust date was pushed back to sometime after 2070. When I looked this year I saw that the game had been updated after the stimulus and bailouts of the past year. The budget is now scheduled to go bust in 2028 without changes. That made me curious about whether I could still balance the budget. Remembering that all of this is completely dependent on the assumptions built into the game, here are the results I got.

I was able to balance the budget and run huge surpluses within 9 years by cutting virtually everything I could think of and jacking up the taxes on everything under the sun. Being a bit more reasonable I was able, like last year, to push the budget bust date into the indefinite future and achieve the goals of increasing national security, cutting government waste, and becoming energy independent.

Besides changing the starting numbers for the federal government fiscal situation the game was also updated to include new priorities to pursue (at least my memory tells me that “Health and Wellness” and “Economic Stimulus” are new since last year). I decided to see if it was even possible to increase national security, reduce government waste, and promote health and wellness simultaneously. It took more work than achieving energy independence and it was absolutely necessary to pass the Cap and Tax to get it done, but I was able achieve these goals.

It should be noted that I only achieved a very modest reduction in the deficit with these goals and I barely managed to earn the “Efficient Government” badge when trying to also get “Health and Wellness” but I did figure it out. I am absolutely confident that if the game were to allow players to choose 4 goals rather than 3 it would be impossible to get “Health and Wellness” and “Energy Independence” while still increasing national security and making government more efficient – something would have to give. (There are other sets of four badges that could probably be accomplished simultaneously.)

Tags archives, economics, fiscal restraint, government

General

How Economies Work

photo credit: unforth

When Adam Smith wrote The Wealth of Nations he was not writing about how economies and markets should work, he was writing about how they do work. Anyone who wants to know how they do work must read that book. Be prepared – it’s long and very detailed and you must be committed to doing a good deal of intellectual work if you are going to really understand it. The copy I have been reading is over 400 pages of small print and it is completely lacking in filler material.

I could not even pretend to give a summary of the book (as Wikipedia does) but I would like to point out one crucial detail that few people seem to realize and which shreds virtually every economic move our government makes. Money is a representation of value. Value is a representation of work and the only accurate determiner of price. Price controls and subsidies cannot alter the actual value of goods and services – all they can do is distort the representation of value and confuse the consumer by manipulating the data. Anytime there is a manipulative force in an economy the economy will respond, it will conform to the manipulation, but it still operates on the same universal laws.

I can easily understand how people today would be confused about the laws of economics because we have pundits, professionals, and even many economists who talk about the forces of economics as if they were under the control of men. The fact is that men can operate in accordance with those laws or they can try to manipulate them, but regardless of what we may observe the laws of economics will be obeyed and we will receive the consequences of our actions even if we are not sophisticated enough or have long enough lives to recognize those consequences. No matter how hard or how high we throw a ball – even into (or out of) orbit, it still must obey the laws of gravity.

The laws of economics are exactly as universal as the laws of physics. You can stand around all day arguing with a physicist about how gravity operates but at the end of the argument gravity will be unchanged. In your argument you can propose many great new ideas about how gravity should work, but gravity will be unchanged. If you have a misunderstanding of how gravity does work and operate based on that misunderstanding it will not preclude the possibility that you could design an airplane that flies, but designing an airplane that has not crashed yet does not prove that your understanding of gravity is correct and odds are pretty good that if your understanding is flawed the plane will have a flaw in its design that will either cause a crash or make the plane less functional than a plane designed by someone who understands the laws of physics.

What we have today in Washington – among both political parties – are a bunch of people most of whom grossly misunderstand the laws of economics and who believe that the laws of economics are no less subject to revision than the speed limit on an interstate highway. They mistake the reference to an invisible hand and believe that it refers to sleight of hand. The do not recognize the fact that there is nothing tricky or supernatural about the laws that Smith explained centuries ago. He did not make them up, he simply wrote them down after decades of study and observation – like any good scientist. In fact, the name of the book is “An Inquiry into the Nature and Causes of the Wealth of Nations.”

Tags economics, free markets, government, history, laws, money

National

Big Government = Big Solutions

Post author By David
Post date August 25, 2009
11 Comments on Big Government = Big Solutions

photo credit: angel_shark

If you want to walk a thousand miles you do it one step at a time. If you want to eat an elephant you do it one bite at a time. The genius of big government is that Congress believes that since there are more than 500 of them they can swallow any elephant-sized problem in one bite time after time. They forget that putting two geniuses to work on one problem does not double their IQ nor guarantee that their solution will be twice as good. Not only do they forget that but they go further and assume that 100 Senators must produce legislation that is 100 times as good as what any one of them would propose, that 400 Representatives will produce a law 400 times as good as what one of them would come up with, and that the combined efforts of the House and the Senate will generate results better than what either chamber had passed in isolation.

Tags change congress, Elevated, government, legislation, money

National

Money Down the Drain

A little statement from an article titled “Cash For Clunkers”: Did It Work? got me wondering about the fate of three hundred million dollars.

When the $3 billion is exhausted, roughly 600,000 vehicles will have been swapped for more fuel-efficient models, based on statistics released from the government so far.

Do the math there and we find that if every single “Cash for Clinkers” deal returned the maximum $4500 to the person trading their car in there was still another $500 paid by the government for the deal. For 600,000 cars that makes $300,000,000 that went into someones pocket. (This does not count any other hidden costs of the system which may never be revealed in losses to other businesses or interest paid by people who already had a working vehicle that they owned outright.) I’d like to know how much of it went to dealers, how much went to paying for the destruction of the “clunkers” and how much was government setting up a website and processing paperwork.

One thing is for sure, we have a huge double standard operating when insurance companies are considered greedy when 2% of their gross income is profit while government is considered efficient when only 10% of their cost goes directly to program overhead.

Tags economics, government, money, taxes, waste

culture National

The Economic Bill of Rights

Post author By David
Post date August 21, 2009
6 Comments on The Economic Bill of Rights

During his final State of the Union address Franklin Delano Roosevelt spoke about what he said could be considered a second bill of rights which may be referred to as The Economic Bill of Rights. In his address he said some important things that ring true such as:

We cannot be content, no matter how high that general standard of living may be, if some fraction of our people — whether it be one-third or one-fifth or one-tenth — is ill-fed, ill-clothed, ill-housed, and insecure.

He described the original Bill of Rights as proving itself inadequate:

This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights — among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.

As our nation has grown in size and stature, however — as our industrial economy expanded — these political rights proved inadequate to assure us equality in the pursuit of happiness.

This is very likely the first and most blatant blurring of the nature of rights ever promoted by a president. It has set the tone for our widespread misunderstanding of what rights are as a majority (or at least a vast minority) have come to view the following as rights equal to the rights described and protected in the Bill of Rights.

The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;

The right to earn enough to provide adequate food and clothing and recreation;

The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

The right of every family to a decent home;

The right to adequate medical care and the opportunity to achieve and enjoy good health;

The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

The right to a good education.

As someone else has said – these are all goods, but only one of them is a “right.” The only real right is the right to trade goods and skills in an atmosphere free from unfair competition. The rest of this list are only protected as far as that one right extends – that every person has the right to not have others undercut their efforts as they labor to acquire a useful and remunerative job, enough money to provide adequate food, clothing, and recreation, a decent home, adequate medical care, protection from economic fears, and a good education.

Along with the first example I cited of things that ring true in his words is this:

People who are hungry and out of a job are the stuff of which dictatorships are made.

Both of those truisms however are incomplete. To the first I would add that no matter how low our standard of living we cannot afford to give up on true principles in exchange for popular sentiment. To the second I would alter it to say that people who are dependent on a central political authority for food and work are the true stuff of which dictatorships are made – being hungry and out of a job only make them ripe for recruitment.

It is interesting to note that as we have pursued policies to provide government funded education, economic security, and now health care in order to eliminate sickness and the economic distress of unemployment and underemployment the result is more widespread economic fears. Because of the ubiquitous belief in these so called rights many people wish to turn to government for security even where the government is the cause of the insecurity in our nation.

Tags Bill of Rights, documents, economics, government, health care, history

culture National

Government Can’t Do Charity

Post author By David
Post date July 30, 2009
12 Comments on Government Can’t Do Charity

Those pushing the need for health care reform spend a lot of time talking about the uninsured and the many unfortunate people who cannot or will not afford to pay for health care. (Mostly they talk about the “cannot pay” people except when they are proposing to have individual mandates, then they start talking about “freeloaders” who don’t get insurance even though they can afford it.) These people claim that health care is a right and (although they don’t use the word) they are proposing that the government can and should provide charity care for those in the “cannot pay” camp. The only problem is that government has been trying to do that for a long time through medicaid and medicare. The fact is that government cannot provide charity care – government can only take from those it chooses to burden and give to those it chooses to help. This warps the system even when it is meant to level the playing field.

Tags Elevated, government, health care, ideal, liberty, money, religion, thoughts

culture

All Things to All People

In a classic case of Federal-sightedness, President Obama is stepping in to mediate an altercation between a black professor and a white police officer. Normally I would be disappointed that the President had nothing better to do but lately I have had more of a mindset where this makes me happy – in fact, I almost wish that we would have more incidents like this to keep Obama too busy to keep prodding Congress to rush through an ill-conceived health care boondoggle (or “blob of legislative goo” if you prefer).

For the sake of variety we might throw in cases of black police officers having altercations with white professors, or inserting other “oppressed” minority groups into the formula so that the President can meet with people from a wide variety of backgrounds – especially those who don’t live in Washington D.C.

Tags discourse, government, media, sarcasm

culture National

An Affordable Health Care System

Post author By David
Post date July 8, 2009
7 Comments on An Affordable Health Care System

On Sunday, July 5, Paul Krugamn laid out his argument that affordable health care for everyone was an achievable goal.[quote] Many people would be surprised to learn that I agree with him on that. He correctly argues that we already cover the bulk of the most expensive health care patients by covering the elderly under Medicare. He also argues that the uninsured already receive much care that we are already paying for so we are already paying much of the costs for their care. Finally he argues (as a corollary to the first point) that many of the uninsured are generally young and healthy so that insuring them would cost less per person than our current per-person cost of public insurance (bringing down the average cost per person and increasing the overall cost only slightly).

His conclusion is that “extending coverage to most or all of the 45 million people in America without health insurance — should, in the end, add only a few percent to our overall national health bill.” He would be right at the beginning but eventually the nightmare spiral of skyrocketing costs would take over because the fundamental problem in our health care system would not be addressed – overuse and the disconnect between the source of payment and the subject of care.

Tags Elevated, government, health care, money, New York Times, Paul Krugman