Posts Tagged ‘stimulus’

Why Has the Stimulus Failed Us?

Sunday, August 22nd, 2010

Dear Friends,

It seems to me that anything that quenches the natural dynamism in the market system, results in lower economic growth, to the point of recession if the anti stimulus is sufficient. I contend that is exactly what is holding back the US economy now.

As Schumpeter said, everyone hates the entrepreneur. His innovations result in the destruction of whole industries and ways of living. But that dynamism, the “creative destruction” is what continually builds up the economic standard of living of society. Nations unwittingly quench the dynamism that drives economic growth. With regulation aimed at stifling the negative externalities that result in free entrepreneurial enterprise.

Much must be controlled else the markets would seize up. There must be accountability when dealing with people’s money. Especially money someone has saved over many years to have for retirement. Such funds are the most precious that a banker, broker, etc…. will ever handle. Someone went without, to put those funds in the hands of a person, so the capital can be invested effectively. That capital should be invested in the means of production resulting in a short and long term capital gain for the saver. Anything that misappropriates the money of investors must not, under any circumstances, be tolerated.

But regulation too often benefit’s the people regulated at cost to potential competitors. Existing companies get deferrals to upgrade to the new regulation. New businesses don’t. This keeps entrepreneurs from competing with established firms. The established firms then grow larger, taking up more market share and monopolizing their business sector.

Japan is an example of this type of corporatist regulation and banking. We see that when The Japanese corporations were growing entrepreneurially the Japanese economy grew at a fast pace. But for the past few decades the corporatist economy has shown it’s weakness. Once the corporation grows too large it becomes inefficient. In part due to the ever burgeoning bureaucracy. In this way the lack of entrepreneurial competition slows economic growth.

Japan’s embrace of Keynesian economic theory… Japan’s corporatist economic system is the most effectively stimulated by Keynesian economics. Large corporations have the in house legal ability to navigate government bureaucracy. Entrepreneurial companies do not. Even though the Japanese model is best suited for Keynesian intrusion Japan has stagnated, despite huge amounts of government spending, for decades. To the point of turning Japan’s huge government surplus into huge government deficits. I have heard that Japan pours more concrete than the US. That is a lot of government spending… Having produced economic stagnation.

The US economic system is far less responsive to Keynesian style stimulus for exactly the reason Japan is better suited for it. The US model is more entrepreneurial based. Except for some highly regulated sectors the US economy in which corporations are encouraged to grow too big to fail the US model is more free wheeling. Entrepreneurs are heroes in America. (To most people except romantic anti capitalists). But entrepreneurs are far less able to tap into government stimulus.

Entrepreneurs have some specialty. They obsess over something the rest of us overlook. In doing so they come up with a new way of organizing business, manufacturing a product or process for the delivery of goods. They are not good at changing their focus on governmental minutia. Rules to keep fraudsters from bilking the system.

So that is why the Keynesian economic stimulus that the Obama administration has been implementing has not worked. The US economic model is far too entrepreneurial in it’s nature. That nature will have to be changed for Keynesian stimulus to have any effect. But as we see with the Japanese model even under nearly ideal conditions Keynesian economics are no panacea. They still lead to stagnation. So why keep ignoring the obvious.

Take the brakes off the entrepreneurs.

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What Government Can “Do For” The American People.

Sunday, February 21st, 2010

Dear Friends,

It seems to me, the absolute best thing the US government could do “for” the American people, would be to all go on an extended luxury vacation. Spending the rest of their term on it at the American tax payer’s expense. Maybe at Herod’s or Hedonism II. As soon as they announced their plans to do so the markets would rebound like we haven’t seen in our lifetimes. The economy would start generating jobs… in the private sector.

All government seems to do lately is to undermine any economic rebound. As we said in our last blog, their energy policies are a poison pill for any recovery. Moreover government’s policies on healthcare is another source of economic destruction.

The argument that other countries provide “corporate welfare” in the form of “free” healthcare is simple sophistry. To believe this one has to also believe that the money that provides the “free” healthcare is generated out of thin air. We all know this is not true. The money to provide free healthcare is taken from some producer to provide that producer healthcare. In the process efficiency is lost or quality goes down.

The “Stimulus’s” elephant in the room is that, as soon as the stimulus money runs out, the jobs will evaporate. Like the ether they are made of. All the jobs saved or created are government jobs. Jobs that will require tax increases to keep. Tax increases that will, again, undermine any economic recovery. Tax increases that will necessarily require the layoffs of these new or saved government workers.

Now government wants to have “targeted” tax cuts. The problem with targeted tax cuts is that they are less efficient than general tax cuts. Part of the reason is that no one knows where an economic rebound will take place. It may be in some overlooked sector of the economy. Or it may be in a sector of the economy that was thought to be dead. Government’s track record of picking winners is very poor. When government target’s a sector or action, that they feel is good for the economy, other sectors or actions that may have greater benefits are undermined. Simply because money and resources are diverted to the sector or action that has been chosen by government. The market is warped by this type of tax cuts.

Constantly threatening greater and greater regulation and interference with the markets forces business to focus on government instead of profit and job creation. When government is in the mood to gore some oxen… everyone wants to be on the side of government. (To protect their ox from being gored).

Simply threatening regulation has a negative effect on job creation. The threat means business must also horde money and resources as well as focus on government instead of their markets. Both to have in case of a new opportunity opening from the new regulation. Also to protect from opening a new branch, product or service, being regulated out of business by the regulatory innovation. Business necessarily slows when regulation is in the works. When it is perpetually in the works…

Politicians always want to tout that they got “something Done for the American people.” Every time they get something done however they make things worse. Most of what they need to get done are problems of government’s making. Unintended consequences of poorly thought out regulation. Government official’s know, the unintended consequences of their new, poorly thought out regulation to mitigate the consequences of their last, poorly thought out regulation, will be the side of the bread the butter will be on… next legislative season.

So… Send the president and his staff, the congress and their staffs all on a luxury vacation. After a few years they will be more rested and relaxed. The economy will have recovered. And they will be able to swoop in and do something for the American people… Break it again.

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We Spent the Money But They Didn’t Come…

Sunday, January 10th, 2010

Dear friends,

It seems to me that One reason the stimulus is working so poorly is that it was hastily crafted and inadequately thought out.

The stories about the abuses, fraud, and outright idiocy about the $787 billion dollar stimulus package are everywhere… except the big four unbiased outlets, i.e., CNN, CBS, NBC incarnates, and ABC.

Fictitious zip codes are turning up with that have received billions of dollars. One here for example;

There is a more fundamental reason the stimulus didn’t and will not work and that is, that government didn’t earn the money it gave away. Government will take the money, and the interest, at gun point, from us our children and our grand children. Even if the money had all been spent, as it supposedly should have, it would have a negative effect on the overall economy. Government is pulling future economic growth to the present and trying to have it today. But the interest is never factored in. No matter what if the money is not invested properly it will be exhausted by cost of the loan. But the point of a stimulus is to keep demand up until the private sector steps in to pick up the slack.

But if the private sector is denuded of capital it can never step back in. A sufficiently high stimulus will necessarily demand a very high tax burden from the people and business. Because government never earns money it can only takes it from the people and business. So as the private sector is deprived of capital by ever more punitive taxation it must lower it’s payroll and investment in infrastructure. This necessarily lowers demand for labor and wages. Making it ever more difficult for the private sector to step back in.

As demand is driven more and more by government supply will align itself to the demand. Suppliers will gear their business to government demands and requirements. Further diminishing the private sector’s ability to react to market opportunities. Demand shapes supply.

So now we have, if not outright corruption, incompetence in the writing and execution of the stimulus. Costing us and future taxpayers tens of billions of dollars… with interest. A stimulus that is fundamentally flawed in it’s very concept. Making the whole exercise a theater of the absurd. In an honest and sane world spot lights would be shining on government’s folly.

The biggest thing the administration has going for it is the slavish media. There are reports that some in the media are taking orders directly from the White House… while on the air. In fact NPR has editorialists calling for the unbiased media to toss out all semblance of fairness. The administration has at least that ace in it’s back pocket, to redirect anger about the results of it‘s policies, away from itself.

Empirically however… The economy is still shedding jobs. (But at a reduced rate…) economic figures are all over the board. The brains behind the curtains are trying to make people think they know what is going on but they are as clueless to it… as a coal miner to the weather. Otherwise, they know we are sliding into a depression, and want to hide the fact from the people. The currency markets are a good sign that no one knows what is happening to the economy. The dollar will slide to a decade low then back to a high. The Yen / Australian dollar ratio is diminishing in value and brainiacs are struggling to find something efficient to replace it. What about us?

We are still in the lurch. The government has thrown almost three trillion dollars down a rabbit hole. Money that we people have yet to earn. Government’s spending has indebted the citizens of the US to the world for generations. Government policies have dried up loans for small business. They ordered banks to channele to ACORN instead of SBA loans. All this proving… elections matter. Hopefully the American people will be a little more wise about who they put into office in the future.

Unfortunately it’s too late. WE are in a depression… of the government’s making.

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Tax, Spend and Regulate

Wednesday, October 7th, 2009

Dear Friends,

It seems to me that we are on a slow slide to oblivion. People immediately look to government if anything goes wrong in their lives. When government is spending the people into the poor house and bankrupting businesses with the tax burden the need for social services is greatest. But tax revenue is always going down. Because government taxing, regulating and spending drives business away.

Firms have to leave the people. Even firms that wholeheartedly want to stay are forced out. As business leaves an area the tax base necessarily goes down. But the need for government spending goes up. Government then always raises taxes. Forcing more business out of the state or municipality. Raising the need for government spending. The cycle is like fire… self sustaining.

Apparently the rulers of Michigan and Illinois don’t realize this simple fact. So they have run those two states into the ground. Jobs are evaporating out of the states. Driving a greater need for social services funded by taxation. (People are trained to look to the state). Taxes are already very high in those states. Now budgets are breaking.

The example of these two states should give one pause. But the Elite are determined that we not see it. They redirect our gaze to dancing with the stars. This vicious cycle has manifested itself over and over in history but we doggedly refuse to learn the lesson.

That is government cannot support the people. That is like a roof of a house supporting the foundation. No matter what, some foundation must touch the ground, else the laws of physics are broken (house floats). The more government tries to support the people the more stress is put on the whole structure of the state.

To argue that the rich have too much and the poor have too little and so it is just to take from the one and give to the other is no different than arguing the learned have too much knowledge and the ignorant have too little. Let us take from the one and give to the other. (Supposing it was possible).

The basic premise is that the human being is not sovereign upon himself. Once the door is opened a little it can be easily thrust open all the way. Because if you and I are not sovereign then we can be compelled to do any number of things that are not in our personal best interest.

A gruesome example would be; A scientist discovers that if a certain type of person is tortured to death over a two month period. After the two months his or her body would produce enough of a substance to save ten million cancer patients. Would that be morally acceptable? The logic is the same. The one person has too much health and the ten millions of people have too little. Let us take from the one and distribute it to the many. As long as the person that produces the substance is not sovereign he has no say. Some would argue it morally good. In the name of distributive justice it would be duty and therefore is an imperative and thus moral… A priori. Ergo it must be done.

When theory bumps up against reality theory gives way. That is the scientific method. But not in political governance. The political animal has no measure for his actions. Unlike the tradesman the modern legislator acts a spectator and feigns outrage at the injustices he has visited on the people.

Who knows what will become of Michigan and Illinois. The federal government may bail them out for a while but the federal government is on the Eurostar to the same place. They will be running out of money soon. Raising social spending much faster than revenues could ever keep up. As jobs are driven out of the country the tax base will necessarily go down. Taxes will be raised. The need is too much for government to curb it‘s profligacy. And voila! we are all on the treadmill.

Maybe… the Elite think that houses can float?

Well if it’s comanded by the Supreme Court they will!

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Economy, Up or Down?

Friday, July 31st, 2009

Dear Friends,

It seems to me that the economy should have at least started to recover. Even had the government done nothing, and the Elite’s friends had crashed and burned, the economy should have shown signs of life. Yet it stubbornly refuses to get better. Despite the almost three trillion dollars spent on TARP and stimulus.

I have even noticed a sea change in the way the unbiased media couches economic news. For eight years the unbiased media steadfastly denounced every indicator as a bad one. The unemployment rate hits four percent and it will be out of control inflation. Productivity gains were a sign the economy may slacken. Increase in overtime payments were a sign the workforce was overtaxed. Every indicator was taken as bad news.

Now they have switched gears and call every economic indicator a good one. The unemployment rate hits nine point five percent and the loss of jobs was only five hundred thousand. Both taken as signs the economic drop may be slowing. Every indicator is taken as good news yet despite the propaganda the economy continues to slow and fall into the abyss. Commercial real estate will be next edge. When sticky prices run up against fluid demand.

Even were the economy to hit a bottom it would have another edge. The governments of the world have collectively spent too much of the people’s money on pork. Had the governments of the world lowered the marginal tax rate for the people of the world the money would have been used productively.

When tax cuts were being debated economists were arguing that people would “just” save the money or pay down debt. That people wouldn’t spend the money so the government should do the spending. Keynesian in nature demand generates supply. But the problem with John Menard Keynes theory is that if the demand is government generated, government must keep demanding, else the economy goes into recession. The economic incentives become skewed to meet the new demand.

To put it another way. Demand shapes supply. In that, if there is a demand for A, then suppliers of A will shape their outputs to meet the needs and demands of the customer. The longer the customer is the same the better the suppliers of A will meet their needs and demands. But, government cannot keep demanding a quarter of national GDP every year, on top of the other obligations past Elite have thought fit to saddle the government with. Government debt will go nuclear and irradiate the currency. So government generated demand must end… Eventually.

So when government demand inevitably goes down the economy must go into a recession. To retool to meet the demands of it’s new customers. Customers that have been denuded of their money by government’s avarice. The inevitable recession will be long, due to the lack of largess in the hands of the people.

It’s also a valid fear that the people will learn to do with less. Become too thrifty. People who fear the future save for it. People who relish the future spend like a drunk. The best path, of course, is the mean. To save for the future but not so much as to deny today. But if government create’s such a long recession that people become used to saving, and not ever spending, it is hard to start the people spending again. Inertia and all that…

By the time this economic downturn has played out we will have far less money to invest in anything. Government regulation will stifle new companies, as will onerous taxation, to pay the interest on the debt. So startup money will be scarce. Delaying or forestalling new businesses startups. Elongating the recession into the recovery.

The longer the government (roof) holds up the economy (foundation) the worse the consequences… I predict the government will double down on it’s bet.

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