Psychology of a Market Cycle

James Buchanan on the Minimum Wage

"The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that "water runs uphill," no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores."

~James M. Buchanan, 1986 Nobel laureate in economics, writing in the Wall Street Journal on April 25, 1996

National Debt

source

New Home Sales

source

1st Quarter 2010 GDP: Revised Down to 2.7%

source

RUMINATIONS AND OBSERVATIONS

RUMINATIONS AND OBSERVATIONS
A Periodic Overview

The inherent vice of capitalism is the unequal sharing of blessings: the inherent virtue of socialism is the equal sharing of miseries.—Sir Winston Churchill

There has been much discussion in recent months as to whether or not the United States is moving toward becoming a socialist state. News flash: The U.S. is a socialist state, and it has been since at least the Great Depression. No, we do not have the type of central economic planning based on government ownership of the means of production and allocation of resources, but there are many other institutions and programs in the U.S. that comprise public ownership and social and economic intervention by the state far beyond that which existed before the New Deal.

Socialism of a broad, encompassing nature would entail complete nationalization of the means of production, distribution, and commercial exchange, the avowed purpose of which is to benefit the citizenry though the allocation of resources. A lesser form of socialism would call for the control of capital within the framework of a “market economy.” Modern, democratic socialism calls for selective nationalization of key industries, with private ownership and regulated, “free” markets, buttressed with tax-funded welfare programs and transfer payments.

Socialism which emerged as communism in the Soviet Union and China in the twentieth century called for state ownership of the means of production combined with central planning for the production of goods, providing services, and the establishment of prices. The human and economic results of both nations were abysmal, and operated only under an umbrella of totalitarianism.

A more benign history of socialism evolved in Western Europe following World War II. Post-war social democratic governments introduced broad measures of social reform and wealth redistribution through state welfare and taxation. Many key industries became state owned. Toward the end of the century, Europe embraced more market-oriented policies that included privatization, deregulation, and the lessening of class warfare. Yet the funding of state controlled services and taxation aimed at redistributing wealth not only remained, but also continued to grow.

At the root of all socialism is the objective of equal results as opposed to equal opportunity. British author, Cecil Palmer, pinpointed a truism of socialism in its most utopian form, “Socialism is workable only in heaven where it isn’t needed, and in hell where they’ve got it.” The end result of socialism is a culture of dependence that has both economic and moral costs. Alexis de Tocqueville opined that, “Democracy and socialism have nothing in common but one word, equality. But notice the difference; while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” The gradual erosion of economic liberty by the granting to or usurpation by the state of individual liberty and property for the “greater good” will lead to a condition of state subjugation.

. . .

The history of the modern welfare state in the U.S. in the wake of the Great Society is one of increased government promises and benefits, and thus greater government spending and ever higher taxes, interrupted only in brief periods by tax reductions and temporary “reform.” As government has grown, interest groups dependent on government largesse have become increasingly powerful, and in turn have loaned their support to politicians who cater to their interests. The process has led to a culture of corruption as well as dependence. It is exceedingly difficult for a career politician to say no. With each new “crisis,” demand for more services and powers leads to an expansion of the state at the expense of the liberty and resources of the individual, especially through taxation.

As admirable as many of the objectives of liberalism and socialism may be, they have met with the realities of economics. Most economists would acknowledge that businesses do not in the final analysis pay the true cost of taxes. Businesses serve as conduits to collect taxes from the end consumer who ultimately pays the cost of taxes embedded in the cost of a service or good. If businesses did not pass on their cost of taxes, they would cease to earn a rate of return that would be considered acceptable to profitably survive. To believe otherwise is naïve.

Thus, the true cost of government is borne by the individual. As long as individuals are able and willing to pay the cost, the economy can continue to function, and the government can continue meeting the obligations that it has promised. But governments are hurtling toward an economic brick wall. The culture of dependence and government extravagance has reached dangerous levels.

The number of people dependent on the state in most of Europe exceeded 50% long ago. In the “land of the free, and the home of the brave,” 47% of wage earners will pay no federal income tax for 2009. Today, 20% of Americans receive 75% of their income from the federal government, and another 20% get 45% from Uncle Sam. More frightening is the fact that 60% receive more benefits in dollar value from the federal government than they pay in taxes. Projected increases in the current federal budget may move that figure to 70%. U.S. Representative Paul Ryan points out the risks to the United States: “Once that budget is fully put in place, three out of ten families in America are either supplying or supplementing the incomes of seven other families in this country. That is economically destructive. It’s politically inequitable, and unsustainable.” Ryan maintains that the President’s budget calls for $2 trillion in higher taxes, doubles the debt in five years, triples the debt in ten years.”

One can argue about the nuts and bolts of a budget and the intricacies of government accounting, but there is no refuting the fact that the U.S. government for years has been spending far more than it collects in the form of tax revenues. According to Fiscal 2011 federal budget documents, taxes paid to federal, state, and local governments totaled 25% of GDP in 2009. Total government spending equaled 36% of GDP. The political class would just say tax the rich, they can afford it. Yet the top 10% of taxpayers already pay 73% of federal taxes. And the tax burden of the top 1% of taxpayers exceeds that paid by the bottom 95%! As former British Prime Minister Margaret Thatcher observed, “Socialist governments traditionally do make a financial mess. They always run out of other people’s money.”

No doubt, taxes will be going higher, and not just exclusively for the “rich.” All wage earners will be hit with higher taxes for Social Security and Medicare. Projected taxes on “unearned” income from dividends, interest, and rents will be headed higher as well. (As an aside, the term “unearned income” is a government canard. A retiree receiving pitifully low interest on a CD or someone collecting rent on a small home would not consider the income as “unearned.”) More deductions and exemptions will be phased out as well. In states like California, New York, New Jersey, and others, when taking into account property taxes, sales taxes, state income taxes, and federal income taxes, the marginal tax rate will reach or exceed 70%.

. . .

At the heart of socialist ideology is the underlying premise that socialism is morally superior to capitalism; all men are equal and thus should fare equally as well. In reality, the pure socialist solution for the state to own the means of production and to decide the rewards and distribution of labor is a utopian illusion. Most individuals engage in economic activity in order to obtain benefit from the fruits of their labor and property. Individuals are not equal in terms of ability, skills, or intellect. The fruits of their labor will be uneven. If individuals are compelled to devote their economic gain to the state there is a point beyond which they will produce less in inverse proportion to the demands made on their production and income.

Since modern day, liberal socialists in Europe and the U.S. cannot yet install their vision of moral superiority through nationalization and the state ownership of property, they have appropriated property through taxation. The stepchild of socialism, the liberal welfare state, has extended its tentacles through other means, namely regulation and taxation. The state thus takes the fruits of capitalism from the producing, tax-paying class and distributes them legislatively through entitlements. The citizenry becomes ever more dependent on being entitled to many economic “rights” and obligated for very few. Unfortunately, the goals of state welfarism are incompatible with the preservation of a free society. When there are more people who have no “skin in the game” except to take from the producers, the result is a state that will descend into an organ for the punitive enforcement of the collection of wealth by any means considered “just.” In the extreme, it will give rise to totalitarianism.

There are no lines of would-be immigrants rushing to enter Venezuela or Cuba. Both countries are abject, socialist states. The U.S. is at the other end of the spectrum in terms of the existence of economic and political liberty, but it is far from the bastion of economic liberty it was in previous decades. The damage inflicted upon individual liberty and the private economy by attacks on capitalism and the growth of socialism become evident only in degrees and over time.

Chief Justice John Marshall, in McCulloch v. Maryland, 1819, warned, “An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation.” The U.S. tax code is a mind-boggling 17,000 pages. It is, without question, an encyclopedia replete with methods of legal confiscation and the awarding of entitlements to special interests. It seems that every two or three generations, the benefits of a market economy (as opposed to a completely laissez-faire one) have to be relearned. The past several quarters, and indeed the past several years, have brought the U.S. and other sovereign states closer to a day of reckoning with the folly of tax and spend, spend and tax.

In the land beyond the Beltway, Americans are awakening to the dangers of the seemingly well intentioned, but ultimately enslaving nature of the tax and spend welfare state. In New Jersey, a state long known for a culture of government corruption, voters elected Chris Christie as their Governor last fall. In his budget address, he voiced a call for action that resonates far beyond the state capital of Trenton:

The day of reckoning has arrived. The attitude has always been the same—continue to spend, continue to borrow, and drop the catastrophic sum of all these poor choices into the lap of the next guy. Well, time has run out. The bill has come due . . . . I was not sent here to approve tax increases. I was sent here to veto them . . . . It is time for the tax madness to end.

Christie called raising taxes, “insane.” “If you are unemployed and support tax increases, be ready to stay unemployed . . . . We have the worst unemployment in the region and the highest taxes in America, and that’s no coincidence.”

In Virgil’s Aeneid, Laocoön warns his fellow citizens of Troy, “Do not trust the horse, Trojans. Whatever it is, I fear the Greeks even bearing gifts.” Today, we should be grateful to Greece for the message she is sending to the U.S. and the world. Greece is the quintessential socialist state. In 2009, its budget deficit was 13.6 % of its GDP, and its debt, the accumulation of past deficits, was 115% of GDP. The riots in Greece have unmasked the riddled structure of socialism and the modern welfare state. The ideological bankruptcy of socialism and its concrete failure is becoming increasingly apparent as its standard bearers in Europe flag under the weight of sovereign debt and government insolvency. Over 150 years ago, French economist, Frederic Bastiat, captured the essence of the socialist state, “The State is that great fiction by which everyone tries to live at the expense of everyone else.”

In the U.S., tensions are rising. Washington and state capitals across the nation cannot help but note the travails of Greece and much of Europe. Too, a growing number of Americans are taking heed of the threat posed by the growth of socialism with its accompanying demands on the economy and property and its threats to individual liberty. The seeds of resistance are taking root. There is growing evidence that the country appears ready to order a shift in the direction of national and state government.

If the U.S. is to regain its economic vitality and resurrect an environment of greater economic opportunity and individual liberty, the growth of government spending and taxation must be restrained and eventually reduced. The pendulum must swing away from the march toward socialism. Fiscal discipline is being imposed on governments through the markets. A citizenry that is girding for the battle of the nation’s economic future will fortify it. We believe there are signs that, while the struggle will be difficult, the road ahead will lead to a shift away from the culture of dependence. In recent months, there has been a growing groundswell of support for a market economy and a rising level of concern about the growth of taxes and national debt. A recent Rasmussen poll found that 60% of U.S. adults say that capitalism is better than socialism. A Pew Research Center survey finds that Americans’ distrust of government has grown significantly.

The conflict over the socialist inroads made through the arms of government over the last several decades are not properly framed as a case of Republicans versus Democrats. This is a struggle between those who hold individual liberty, economic freedom, and property rights as paramount in a free society, versus socialist statists who seek to impose their idealized but flawed vision of equal results upon the citizenry they feel they must oversee.

We have confidence in the unique nature of American constitutional government to right itself and avoid a robotic march down The Road to Serfdom, as Friedrich A. Hayek’s classic called the inevitable path of collectivism and especially socialism. Prophetically, he warned of the dangers of the collectivists’ vilifying attacks on the negative aspects of capitalism. “It is essential that we should re-learn frankly to face the fact that freedom can be had only at a price and that as individuals we must be prepared to make severe material sacrifices to preserve our liberty.” As the issue of taxes and individual liberty rise in the hearts of Americans, the flame of revolutionary fervor is growing brighter. It is a healthy sign indeed for the Republic.

source

Cartoon: Gulf Oil Spill

Robert Higgs: We Need Less Government Spending

Though our current economic troubles are complex, many mainstream economists have endorsed the simplistic Keynesian theory that massive government spending will produce jobs and prosperity...

Politicians, who are always looking for plausible rationales for their insatiable spending, borrowing, and power-grabbing, had never abandoned Keynesianism, so they have been elated to find economic “experts” again confirming their self-interested inclinations. Indeed, several prominent economists, such as New York Times columnist Paul Krugman, are urging Washington to spend even more, lest the economy slow.

But what does history teach?

History teaches that temporary surges in government spending give people money that, for the most part, they save or use to reduce debt, rather than setting in motion an upward spiral of income, expenditure, real output, and employment, as envisioned by John Maynard Keynes, the British economist whose theory spurred massive government interventions in the economy from the 1930s onward.

History also teaches that government “emergency” spending tends to fatten the coffers of the politically connected. Thus, much of the so-called stimulus spending has served only to increase the pay and benefits of government employees, transferring income from the private sector to the government sector, and reward groups, such as the United Auto Workers and low-income home buyers, for their support of the Obama administration...

Since the early 20th century, periods of national emergency – real and imagined – have triggered sharp increases in government power, scope, and cost.

The first five episodes were World War I, the Great Depression, World War II, the upheavals associated with the civil-rights revolution and the Vietnam War, and the post-9/11 events associated with the war on terror and US engagements in Afghanistan and Iraq.

We are now in another such critical period, springing from the housing bust, financial debacle, and recession.

In their embrace of Keynesianism, many economists have concluded that even though the New Deal’s hodgepodge of policies never brought about full recovery, World War II did, as the economy expanded to produce munitions and enlarge the armed forces. Huge, deficit-financed government spending, they argue, finally wiped out the lingering mass unemployment.

The truth, however, is really quite simple. In 1940, after eight years of New Deal pump priming, the unemployment rate remained about 10 percent even if, unlike the Bureau of Labor Statistics, we count people enrolled in federal emergency work-relief programs as employed. The gigantic buildup of the armed forces, primarily by conscription, then pulled the equivalent of 22 percent of the prewar labor force into the military. Voilà, unemployment disappeared, as it was bound to do regardless of any wartime Keynesian fiscal policies.

Looking to the World War II model of how to deal with today’s economic crisis is nonsense. Whatever else the war might have accomplished, it did not produce conditions that we may properly describe as genuine prosperity.

Government spending – whether on our current armed forces and their more than 800 foreign bases or on “green” energy and other government-favored projects – does not produce prosperity. It only diverts resources, as it always has in the past, from the genuinely productive private economy and bulks up an already bloated government.

source

Bill Bonner: The Great Correction

The latest from the G20 meeting in Toronto. As you recall, the meeting was billed as a showdown between the Germans and the Americans…that is, between the deficit cutters and the big spenders…

That is, between the people without a hope and the people without a clue...

As near as we can tell, the recovery has been on the wrong road since it started its motor. And the folks in Toronto couldn’t put it “back on track,” even if they knew what they were doing. All they can do is get out of the way.

The system has too much debt. It needs to get rid of some of that debt – by write offs, defaults, and pay downs. Things that must happen, must happen sooner or later. Better sooner than later.

But what IS happening now?

World trade is breaking down – the Baltic Dry index, a measure of world trade, recently fell 17 days in a row.

Consumer spending is breaking down – the “consumer discretionary” sector has turned ominously negative.

Stocks are breaking down – the Dow fell 9 points on Friday…145 points the day before….

Employment is breaking down – you know the story.

Housing is breaking down – not since 1963 have people bought so few new houses.

Does this sound like a recovery? Of course not.

What it sounds like is a defeat. A failure for the recovery team.

But don’t worry, boys, sometimes failure is the best you can hope for. And come to think of it…defeat is not so bad. Think how much better off the Chinese would have been if Mao’s long march had ended in the total collapse of his army. And suppose George W. Bush hadn’t been such a total failure? People might not have elected Barack Obama. And what if the invention of the television had never caught on? Americans might still have some dignity and brains….

Not only do collapse and failure help prevent bigger mistakes, they also correct mistakes after you’ve made them. Running up debt equal to 362% of global GDP was probably not the smartest thing the human race ever did. Trying to ‘recover’ the economy and reproduce the system that produced those debts is even dumber.

Instead, let’s have a good old fashioned correction…a collapse…a failure of the Geithner, Bernanke, Obama team. We’re going to have it anyways. Bring it on. Get it over with!

source

Cartoon: BP

UPS, FedEx and Government Regulations

Russ Roberts on F.A. Hayek

Why Friedrich Hayek Is Making a Comeback

With the failure of Keynesian stimulus, the late Austrian economist's ideas on state power and crony capitalism are getting a new hearing.

He was born in the 19th century, wrote his most influential book more than 65 years ago, and he's not quite as well known or beloved as the sexy Mexican actress who shares his last name. Yet somehow, Friedrich Hayek is on the rise.

When Glenn Beck recently explored Hayek's classic, "The Road to Serfdom," on his TV show, the book went to No. 1 on Amazon and remains in the top 10. Hayek's persona co-starred with his old sparring partner John Maynard Keynes in a rap video "Fear the Boom and Bust" that has been viewed over 1.4 million times on YouTube and subtitled in 10 languages.

Why the sudden interest in the ideas of a Vienna-born, Nobel Prize-winning economist largely forgotten by mainstream economists?

Hayek is not the only dead economist to have garnered new attention. Most of the living ones lost credibility when the Great Recession ended the much-hyped Great Moderation. And fears of another Great Depression caused a natural look to the past. When Federal Reserve Chairman Ben Bernanke zealously expanded the Fed's balance sheet, he was surely remembering Milton Friedman's indictment of the Fed's inaction in the 1930s. On the fiscal side, Keynes was also suddenly in vogue again. The stimulus package was passed with much talk of Keynesian multipliers and boosting aggregate demand.

But now that the stimulus has barely dented the unemployment rate, and with government spending and deficits soaring, it's natural to turn to Hayek. He championed four important ideas worth thinking about in these troubled times.

First, he and fellow Austrian School economists such as Ludwig Von Mises argued that the economy is more complicated than the simple Keynesian story. Boosting aggregate demand by keeping school teachers employed will do little to help the construction workers and manufacturing workers who have borne the brunt of the current downturn. If those school teachers aren't buying more houses, construction workers are still going to take a while to find work. Keynesians like to claim that even digging holes and filling them is better than doing nothing because it gets money into the economy. But the main effect can be to raise the wages of ditch-diggers with limited effects outside that sector.

Second, Hayek highlighted the Fed's role in the business cycle. Former Fed Chairman Alan Greenspan's artificially low rates of 2002-2004 played a crucial role in inflating the housing bubble and distorting other investment decisions. Current monetary policy postpones the adjustments needed to heal the housing market.

Third, as Hayek contended in "The Road to Serfdom," political freedom and economic freedom are inextricably intertwined. In a centrally planned economy, the state inevitably infringes on what we do, what we enjoy, and where we live. When the state has the final say on the economy, the political opposition needs the permission of the state to act, speak and write. Economic control becomes political control.

Even when the state tries to steer only part of the economy in the name of the "public good," the power of the state corrupts those who wield that power. Hayek pointed out that powerful bureaucracies don't attract angels—they attract people who enjoy running the lives of others. They tend to take care of their friends before taking care of others. And they find increasing that power attractive. Crony capitalism shouldn't be confused with the real thing.

The fourth timely idea of Hayek's is that order can emerge not just from the top down but from the bottom up. The American people are suffering from top-down fatigue. President Obama has expanded federal control of health care. He'd like to do the same with the energy market. Through Fannie and Freddie, the government is running the mortgage market. It now also owns shares in flagship American companies. The president flouts the rule of law by extracting promises from BP rather than letting the courts do their job. By increasing the size of government, he has left fewer resources for the rest of us to direct through our own decisions.

Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful—when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit—in our work and in our play—is the road to true and lasting prosperity. Hayek gave us that map.

Despite the caricatures of his critics, Hayek never said that totalitarianism was the inevitable result of expanding government's role in the economy. He simply warned us of the possibility and the costs of heading in that direction. We should heed his warning. I don't know if we're on the road to serfdom, but wherever we're headed, Hayek would certainly counsel us to turn around.

from the WSJ

Karen DeCoster responds:

My only complaint about the article is that Roberts refuses to acknowledge that, yes, centralizing power within the federal government does lead to totalitarianism. Roberts also states, “I don’t know if we’re on the road to serfdom…”, and my response is that we are already well down that road, and it’s ludicrous to say otherwise.

Gulf Oil Spill Diaster: The Result of Government Regulations?

BP PLC and other big oil companies based their plans for responding to a big oil spill in the Gulf of Mexico on U.S. government projections that gave very low odds of oil hitting shore, even in the case of a spill much larger than the current one. The government models, which oil companies are required to use but have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models, prepared by the Interior Department’s Mineral Management Service, wrong…. The government’s optimistic forecasts reinforced the oil industry’s confidence in its spill-prevention technology, leading to decisions that left both oil companies and the government ill-prepared for the disaster that has unfolded in the Gulf since April 20.

source

BP and the Rule of Law

Cartoon: BP

Jacob Hornberger: Obama, BP, and the Rule of Law

I pointed out that President Obama exercised brute dictatorial powers in dictating to BP to hand over $20 billion of corporate money to federal officials, who plan on distributing the loot to victims of the BP oil spill.

Most everyone is familiar with the term “the rule of law.” Many people, however, don’t understand what it really means. They think that it means that people should obey the law.

But that’s not what the rule of law means. What it means is this: In a free society, people should never have to answer to the arbitrary dictates of government officials. That type of society is described as one based on the “rule of men.” It is what dictatorship is all about. In a society based on the rule of law, people have to answer only to well-defined and pre-existing laws that have been duly enacted by the legislature.

As the Nobel Prize winning libertarian economist Friedrich Hayek pointed out in his book The Constitution of Liberty, the rule of law is a necessary prerequisite for a free society.

At the time of the BP oil spill, the law provided that BP would be required to pay for all clean-up costs but was liable for a maximum of $75 million to private parties who suffered losses because of an oil spill.

Now, obviously that liability cap violated fundamental principles of responsibility. People should be fully responsible for all the damages they cause. The $75 million cap was likely enacted as part of the cozy corporatist relationship that has long existed between big corporations and federal politicians.

One thing is for sure: The liability cap almost certainly played an important role in BP’s safety precautions. After all, when a company thinks that its maximum liability for an oil spill will be only $75 million, as compared to the possibility of facing unlimited liability for an oil spill, that is going to cause the company to act differently when it comes to deciding how many precautions to take and how much money to spend on safety precautions.

In any event, the reasons the $75 million cap were enacted are irrelevant when it comes to BP’s liability. The rule of law entitles BP to the full protection of the law, no matter how distasteful the results.

The $75 liability cap did provide exceptions to the cap in cases where the company could be shown to be guilty of gross negligence or willful misconduct.

But a system based on the rule of law requires such issues to be litigated in a court of law. Victims of the disaster must go into court and convince a jury (or judge) by a preponderance of the evidence that BP was guilty of gross negligence or willful misconduct. They must also document with sworn testimony their financial losses.

That’s what the rule of law requires.

Instead, what Obama did was effectively declare: “Well, I don’t like the law and I wish it had never been enacted because it is a bad law. I’m going to decree that the law will not apply in this case. I am summoning BP executives to my office and dictating what BP must do, beginning with the delivery of a down payment of $20 billion dollars in corporate money to a political commission that I am appointing. That commission will dole out money to victims of the oil spill based on criteria that I deem appropriate.”

Notice that there is no judicial process concerning how the loot is going to be distributed. That is how things are handled in a society based on the rule of men, a society based on dictatorship. The dictator simply dictates and the person being dictated to is expected to submit and obey.

source

Federal Budget: Where to Cut?

• Immediately before the current recession, Washington spent $24,800 per household. Simply returning to that level (adjusted for inflation) would likely balance the budget by 2019 without any tax hikes.
• The federal government made at least $98 billion in improper payments in 2009.
• Washington spends $92 billion on corporate welfare (excluding TARP) versus $71 billion on homeland security.
• Washington spends $25 billion annually maintaining unused or vacant federal properties.
• Government auditors spent the past five years examining all federal programs and found that 22 percent of them—costing taxpayers a total of $123 billion annually—fail to show any positive impact on the populations they serve.
• The Congressional Budget Office published a “Budget Options” series identifying more than $100 billion in potential spending cuts.
• Because of overstaffing, the U.S. Postal Service selects 1,125 employees per day to sit in empty rooms. They are not allowed to work, read, play cards, watch television, or do anything. This costs $50 million annually.
• Washington will spend $2.6 million training Chinese prostitutes to drink more responsibly on the job.
• Stimulus dollars have been spent on mascot costumes, electric golf carts, and a university study examining how much alcohol college freshmen women require before agreeing to casual sex.
• Examples from multiple Government Accountability Office (GAO) reports of wasteful duplication include 342 economic development programs; 130 programs serving the disabled; 130 programs serving at-risk youth; 90 early childhood development programs; 75 programs funding international education, cultural, and training exchange activities; and 72 safe water programs.
• A GAO audit classified nearly half of all purchases on government credit cards as improper, fraudulent, or embezzled. Examples include gambling, mortgage payments, liquor, lingerie, iPods, Xboxes, jewelry, Internet dating services, and Hawaiian vacations. In one extraordinary example, the Postal Service spent $13,500 on one dinner at a Ruth’s Chris Steakhouse, including “over 200 appetizers and over $3,000 of alcohol, including more than 40 bottles of wine costing more than $50 each and brand-name liquor such as Courvoisier, Belvedere and Johnny Walker Gold.” The 81 guests consumed an average of $167 worth of food and drink apiece.
• Improper or fraudulent Medicare spending now totals $47 billion annually—12.4 percent of its budget.
• New York distributed $140 million in stimulus money into the individual accounts of families on welfare, yet neglected to mention it was intended for school supplies. Local ATMs were depleted, and much of the money was reportedly spent on “flat screen TV’s, iPods and video gaming systems” as well as “cigarettes and beer.”
• Washington will spend $615,175 on an archive honoring the Grateful Dead.
• Federal employees owe more than $3 billion in income taxes they failed to pay in 2008.
• Each month, taxpayers provide $40,000 worth of office space, cell phones, staff, and an SUV for former House Speaker Dennis Hastert, who currently works as a lobbyist for private corporations and foreign governments.
• House Speaker Nancy Pelosi and her staff have charged taxpayers $101,000 for “in-flight services”—including food and liquor—during trips on Air Force jets over the last two years. Charges reportedly include “Maker’s Mark whiskey, Courvoisier cognac, Johnny Walker Red scotch, Grey Goose vodka, E&J brandy, Bailey’s Irish Crème, Bacardi Light rum, Jim Beam whiskey, Beefeater gin, Dewars scotch, Bombay Sapphire gin, Jack Daniels whiskey, and Corona beer.”
• The Legal Services Corporation, which is supposed to provide legal services to the poor, has repeatedly ignored warnings to stop spending its money on alcohol. It also funds limousines, first-class airfare, and “death by Chocolate” pastries for its executives.
• The Department of Energy spent nine years and $153 million on an obsolete cyber-security project that was supposed to safeguard America’s nuclear weapons information.
• The stimulus set aside $350 million for a national broadband coverage map—even though one private firm stated it could create one for $3.5 million.
• Fannie Mae—now backed up by taxpayers—paid $6.3 million in legal defense costs for ousted executives such as Franklin Raines. An additional $16.8 million was spent defending Fannie Mae’s regulators in litigation against the former executives.
• The Census Bureau spent $2.5 million on Super Bowl ads, and on-air mentions by sportscasters.
• New documents reveal that the Department of Homeland Security (DHS) lost 1,000 computers in 2008. Not to be outdone, Homeland Security officers lost nearly 200 guns in places like restaurant restrooms, convenience stores, and bowling alleys. Several of the guns ended up in the hands of criminals.
• The State Department will spend $450,000 on art shows in Venice, Italy.
• During a recent three-day conference, NASA spent $62,611 on “light refreshments” for its 317 attendees—$66 per day per person. NASA officials said such expensive snacks were needed to keep its officials from wandering away from the conference.
• NASA spent $500 million constructing a 355-foot steel tower to launch a rocket that is now unlikely to ever be built.
• The Congressional Research Service has confirmed that the new health care law may subsidize Viagra and other sexual performance drugs for convicted rapists and sex offenders.
• Federal agencies are delinquent on nearly 20 percent of employee travel charge cards, costing taxpayers hundreds of millions of dollars annually.
• The Securities and Exchange Commission spent $3.9 million rearranging desks and offices at its Washington, D.C., headquarters.
• Over half of all farm subsidies go to commercial farms, which report average household incomes of $200,000.
• A GAO audit found that 95 Pentagon weapons systems suffered from a combined $295 billion in cost overruns.
• The refusal of many federal employees to fly coach costs taxpayers $146 million annually in flight upgrades.
• Washington spent $126 million in 2009 on projects associated with the Kennedy family legacy in Massachusetts. Additionally, Senator John Kerry (D–MA) diverted $20 million from the 2010 defense budget to subsidize a new Edward M. Kennedy Institute.
• The federal government owns more than 50,000 vacant homes.
• The Federal Communications Commission spent $350,000 to sponsor NASCAR driver David Gilliland.
• Members of Congress have spent hundreds of thousands of taxpayer dollars supplying their offices with popcorn machines, plasma televisions, DVD equipment, ionic air fresheners, camcorders, and signature machines—plus $24,730 leasing a Lexus, $1,434 on a digital camera, and $84,000 on personalized calendars.
• More than $13 billion in Iraq aid has been classified as wasted or stolen. Another $7.8 billion cannot be accounted for.
• Congress recently gave Alaska Airlines $500,000 to paint a Chinook salmon on a Boeing 737.
• The Transportation Department will subsidize up to $2,000 per flight for direct flights between Washington, D.C., and the small hometown of Congressman Hal Rogers (R–KY)—but only on Monday mornings and Friday evenings, when lawmakers, staff, and lobbyists usually fly. Rogers is a member of the Appropriations Committee, which writes the Transportation Department’s budget.
• Washington has spent $3 billion re-sanding beaches—even as this new sand washes back into the ocean.
• The Defense Department wasted $100 million on unused flight tickets and never bothered to collect refunds even though the tickets were refundable.
• Washington spends $60,000 per hour shooting Air Force One photo-ops in front of national landmarks.
• Congress has ignored efficiency recommendations from the Department of Health and Human Services that would save $9 billion annually.
• Taxpayers are funding paintings of high-ranking government officials at a cost of up to $50,000 apiece.
• The state of Washington sent $1 food stamp checks to 250,000 households in order to raise state caseload figures and trigger $43 million in additional federal funds.
• Suburban families are receiving large farm subsidies for the grass in their backyards—subsidies that many of these families never requested and do not want.
• Homeland Security employee purchases include 63-inch plasma TVs, iPods, and $230 for a beer brewing kit.
• The National Institutes of Health spends $1.3 million per month to rent a lab that it cannot use.
• Congress recently spent $2.4 billion on 10 new jets that the Pentagon insists it does not need and will not use.
• Lawmakers diverted $13 million from Hurricane Katrina relief spending to build a museum celebrating the Army Corps of Engineers—the agency partially responsible for the failed levees that flooded New Orleans.
• Medicare officials recently mailed $50 million in erroneous refunds to 230,000 Medicare recipients.
• Audits showed $34 billion worth of Department of Homeland Security contracts contained significant waste, fraud, and abuse.
• The Advanced Technology Program spends $150 million annually subsidizing private businesses; 40 percent of this funding goes to Fortune 500 companies.
• The Conservation Reserve program pays farmers $2 billion annually not to farm their land.

source

Federal Budget: Spending is the Problem

• Rising spending—not low revenues—is driving the long-term budget deficits. By 2020, spending is projected to be 6.2 percent of GDP above the historical average, while projected 2020 revenues are 0.2 percent of GDP above the historical average. Thus, the entire expanded budget deficit will be caused by rising spending, rather than by falling revenues—even if the 2001 and 2003 tax cuts are extended.
• Between 2008 and 2020, the cost of Social Security, Medicare, Medicaid, and net interest is projected to rise from 10.2 percent of GDP to 15.6 percent of GDP—making them responsible for nearly the entire rising budget deficit.

source

Federal Budget: Record Deficits and Debt

• From 1989 through 2008, annual budget deficits averaged $210 billion (adjusted for inflation).
• President Bush handed President Obama a $1.2 trillion deficit for 2009. Obama added more than $200 billion to it.
• President Bush’s budget deficits averaged $447 billion. President Obama’s budget shows average deficits of $851 billion over the eight years he would serve if he wins a second term.
• President Obama’s budget would double the publicly held national debt by 2020.

• Despite increased borrowing, record-low interest rates have kept net interest costs down.
• Under the President’s budget, the combination of rising interest rates and a doubling of the national debt would nearly quadruple inflation-adjusted net interest costs over the next decade.
• By 2020, net interest costs would account for a record 16.1 percent of the federal budget and 4.1 percent of GDP. Net interests costs would be nearly three-quarters the size of the entire $1,041 billion deficit.

source

Federal Budget: Pork Projects

• Earmarks distribute government grants by political favoritism rather than merit. Rather than allow agencies to distribute grants based on merit, or let state and local governments decide how to distribute federal grant dollars within their own communities, lawmakers earmark government grants to recipients of their choosing.
• Consequently, the distribution of government grants now typically depends on politics, campaign contributions, and the committee assignments of local lawmakers.
• President Obama pledged to reduce earmark spending down to the 1994 level of $7.8 billion (in nominal dollars). Instead, he signed $16.5 billion of appropriations earmarks into law last year.
• House Republicans have announced a one-year moratorium on all earmarks. House Democrats have announced a one-year moratorium on earmarks to for-profit companies. The Senate continues to earmark as usual.
• In addition to regular annual appropriations earmarks, the 2005 highway authorization bill contained approximately 6,371 earmarks worth $25 billion in total.

source

Federal Budget: Entitlement Spending

* Entitlement spending is on autopilot, with annual spending determined by benefit formulas and caseloads.
* Entitlements (excluding net interest) account for 56 percent of all federal spending and 14 percent of GDP—up from 10 percent of GDP three years ago.
* The three largest entitlements are Social Security, Medicare, and Medicaid. Their total cost is projected to leap from 8.4 percent of GDP in 2007 to 18.4 percent by 2050.
* Unless those three programs are reformed, policymakers will eventually have to choose from among:

* $12,636 per household by 2050, and further thereafter;
* Eliminating every federal program except Social Security, Medicare, and Medicaid; or
* Increasing the national debt to unprecedented levels that could cause an economic collapse.



* Anti-poverty spending has surged 89 percent faster than inflation since 2000. Nearly half of this increase occurred in the past two years. President Bush became the first President to spend 3 percent of GDP on anti-poverty programs, and President Obama has already pushed it above 4 percent of GDP. State and local governments spend an additional 2 percent of GDP on these programs.
* Since 2000, Medicaid and Food Stamp rolls have expanded by nearly 20 million. Average benefit levels have grown faster than the inflation rate.
* Program success should be measured by reduced government dependency, not increased spending.

source

The Federal Budget: Where is the Money Going?

• Federal spending has grown 62 percent faster than inflation since 2000.
• Defense spending has grown 91 percent over its pre-9/11 trough, yet still remains well below the historical average as a percentage of the economy.
• The expensive Medicare drug benefit played a large role in Medicare’s sharp cost increase.
• Anti-poverty spending rose rapidly under President George W. Bush, and has risen again during the recession.
• Unemployment spending is also up due to the recession.
• Energy costs fluctuate yearly, so the rapid growth rate over 2000 is not indicative of a long-term trend.
• Mortgage credit and deposit insurance costs were high in 2009 due to the financial and mortgage bailouts. The low (and occasionally negative) 2010 totals result from recipients repaying a portion of that spending.
• Despite the new spending and deficits, record-low interest rates caused net interest costs to decline. Net interest spending will jump when interest rates rise back to normal levels.

• Discretionary spending is the portion of the annual budget that Congress actually determines.
• Since 2000, discretionary outlays surged 79 percent faster than inflation, to $1,408 billion. The “stimulus” is responsible for $111 billion of 2010 discretionary spending.
• Between 1990 and 2000, $80 billion annually in new domestic spending was more than fully offset by a $100 billion cut in annual defense and homeland security spending, leaving (inflation-adjusted) discretionary spending slightly lower.
• Since 2000, all types of discretionary spending have grown rapidly.
• Overall, since 1990, domestic discretionary spending has risen 104 percent faster than inflation and defense/security discretionary spending has risen 51 percent.

source

The Federal Budget: Overall Trends

• Under President Obama’s budget, Washington is projected to spend $3,618 billion, raise $2,118 billion, and run a $1,500 billion deficit in 2010.
• Tax revenues strongly correlate with economic growth. The recession is chiefly responsible for collapsing revenues.
• Spending has increased 19 percent faster than inflation since 2008.
• The projected $1,500 billion budget deficit represents a post–World War II record 10.3 percent of GDP. More than 41 cents of every dollar Washington spends in 2010 will be borrowed.

• From 2000 to 2010, real federal spending will have increased from $21,875 per household to $30,543 per household.
• In 2010, the federal government will spend $30,543 per household, collect taxes of $17,879 per household, and run a budget deficit of $12,664 per household.
• Under President Obama’s budget, deficits from 2010 through 2020 would total $82,219 per household.
• Surging Social Security, Medicare, and net interest costs are set to crowd out spending on other programs.

source

Jobs Adjustment by Industry

source

In the Great Recession on 35 percent of employment was in industries that faced cyclical employment trends in the recession. The majority of industries lost or gained jobs permanently (or at least have lost or gained jobs on a continued basis for the past 11 months).

The one outlier in the top right corner, if you can't make it out, is the "federal government" industry. It gained jobs during the recession and has gained jobs far faster than any other industry during the recovery.

source

BP Saga: Tony Hayward Before Congress

Poor Tony Hayward.

The man was devoured by zombies last week.

Now that we’ve figured out how history works, we’re begging to see the forces of history at work all around us – an eternal fight between the zombies and the producers. We’re surrounded by zombies. They are all around us. Tort lawyers. Bureaucrats. Politicians. Welfare slaves. Chiselers. Layabouts. Whiners.

On the way to work, on the Washington beltway, there are so many lobbyists, we have to put up the windows and lock the doors...

Mr. Hayward was confronted by a panel of zombies in Congress. They chained him to a rock so the members of the energy committee could take turns feeding on his internal organs...

But the zombies didn’t really care about getting to the bottom of things. They were going for the jugular. And the right arm. And the liver.

From the reports we’ve read, Mr. Hayward held up pretty well. He played his part. He did not wander from the script. He remained calm as he was dismembered. His voice did not quake or complain as his liver was removed...

What disturbed us was the crowd reaction. There was a time when Americans had a sense of fair play. At least, we’d like to think so. In a fight between a group of zombies and a real producer, their sympathies should be with the oil man. After all, when they drive into the filling station, it’s not the Congressional Record that they pump into their fuel tanks. And when they heat their homes, it’s not tort lawyers whom they look to for fuel. Gasoline is valuable. They know it. And they know that someone has to get it. In fact, so keen is their demand for octane, and so high is the price, that the producers are lured farther and farther away from dry land. No one would drill a mile below the water for oil unless a lot of people wanted it badly. Sooner or later, one of the rigs was bound to spring a big leak.

You’d think the public would have more sympathy for the people who risk their lives and their money bringing oil to market.

read the entire essay

The Slow Decay of a Healthy Economy

Bill Bonner writes:

Today, we boldly announce a NEW THEORY about the way the world works....

Something is wrong...

We just had the biggest financial crack-up of all time. Even under ideal conditions, it will take people a long time to rebuild lost savings…to get rid of houses they can’t afford…and to restructure debt they can’t pay. While this restructuring and adjustment is going on, you’d expect the markets to be a little punky.

But instead of letting people get on with it, the zombies have moved in. At first, you hardly notice. An arm here. A leg there. Pretty soon, you’re dead!

The percentage of the economy controlled, guaranteed, or paid for by the government is increasing. Since the feds were already deeply in debt themselves, the only way they could spend more money was by borrowing more. You can’t cure a debt problem by borrowing more money. Net debt is going up. So, there’s something wrong. The economy isn’t recovering… It’s just not possible.

Which brings us back to our new theory…

Here we offer a new and improved theory with a dynamic of its own: the producers vs. the parasites...

A bigger illustration can be found on the front page of yesterday’s paper.

BP has agreed to provide the zombies with $20 billion dollars of raw meat:

“BP backs $20 billion spill fund,” says The Financial Times.

BP is a producer. It makes something valuable. In fact, it makes the thing that is the pentagon’s most valuable and most important resource – liquid energy. It does so at a profit, also rewarding all the little old ladies, lonely orphans and rich sons-of-a-gun who own its shares. BP normally pays dividends; those dividends are currently suspended, as BP diverts cash to the spill fund.

Yes, it also makes mistakes, for which it must pay.

But circling BP today is an army of parasites. Zombies who toil not. Neither do they spin. Instead, they file lawsuits and try to get something from the producers without paying for it. BP’s Gulf disaster is a godsend for them...

Remember the giant tobacco settlement? In 1998, the tobacco companies lay down and opened their veins. A quarter of a trillion dollars was paid out in a huge class action settlement. The money was supposed to go to redress the damage done by smoking. But $19 out of every $20 found its way, instead, into the pockets of the lawyers, the activists, and the bureaucrats. That is to say – the zombies got it.

Will the oil settlement be any different? Not likely. The zombies will take most of it. Much of the rest will be used to turn honest working people into zombies. Instead of finding new work in new areas, for example, Gulf-area residents will be encouraged to stay put and collect checks. If they take up new work, the measure of their ‘damages’ will go down!...

The zombies win. And then…there is collapse, war, revolution, bankruptcy… The zombies are killed off…new life begins.

read the entire essay

Cartoon: Substiute Goods

Cartoon: Specialization

John Stossel: End the Drug War

I understand that people on drugs can do terrible harm — wreck lives and hurt people. But that's true for alcohol, too. But alcohol prohibition didn't work. It created Al Capone and organized crime. Now drug prohibition funds nasty Mexican gangs and the Taliban. Is it worth it? I don't think so.

Everything can be abused, but that doesn't mean government can stop it, or should try to stop it. Government goes astray when it tries to protect us from ourselves.

Many people fear that if drugs were legal, there would be much more use and abuse. That's possible, but there is little evidence to support that assumption.

In the Netherlands, marijuana has been legal for years. Yet the Dutch are actually less likely to smoke than Americans. Thirty-eight percent of American adolescents have smoked pot, while only 20 percent of Dutch teens have. One Dutch official told me that "we've succeeded in making pot boring."

By contrast, what good has the drug war done? It's been 40 years since Richard Nixon declared war on drugs. Since then, government has spent billions and officials keep announcing their "successes." They are always holding press conferences showing off big drug busts. So it's not like authorities aren't trying.

We've locked up 2.3 million people, a higher percentage than any other country. That allows China to criticize America's human-rights record because our prisons are "packed with inmates."

Yet drugs are still everywhere. The war on drugs wrecks far more lives than drugs do!

Need more proof? Fox News runs stories about Mexican cocaine cartels and marijuana gangs that smuggle drugs into Arizona. Few stop to think that legalization would end the violence. There are no Corona beer smugglers. Beer sellers don't smuggle. They simply ship their product. Drug laws cause drug crime...

Economist Ludwig von Mises wrote:
"(O)nce the principle is admitted that it is the duty of the government to protect the individual against his own foolishness ... (w)hy not prevent him from reading bad books and bad plays ... ? The mischief done by bad ideologies is more pernicious ... than that done by narcotic drugs."

source

A Long Slow Recovery

Leamer said that significant reductions in the unemployment rate require real Gross Domestic Product (GDP) growth in the 5 percent to 6 percent range. Normal GDP growth is 3 percent, enough to sustain unemployment levels, but not strong enough to put Americans back to work. As a consequence, consumers concerned about their employment status are reluctant to spend and businesses concerned about growth are reluctant to hire.

UCLA Anderson’s forecast for GDP growth this year is 3.4 percent, followed by 2.4 percent in 2011 and 2.8 percent in 2012, well below the 5 percent growth of previous recoveries and even a bit below the 3 percent long-term normal growth.

With this weak economic growth comes a weak labor market and unemployment slowly declines to 8.6 percent by 2012, the report predicts.

source

Cartoon: Road Workers

Personal Consumption Expenditures

source

Cartoon: Too Big to Fail

BP

BP PLC said it was canceling dividend payments this year, a move investors hoped would help ease the political pressure the company has come under since its well began spilling oil into the Gulf of Mexico.

BP also said it was creating a $20 billion fund over the next 3½ years to cover compensation claims arising from the massive spill.

from the WSJ

about a month before they declare Chapter 11. They’re going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn’t enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they’ll panic and go into Chapter 11.

source

Red Tape

source

Bank Failures

source

Inflation Adjusted Gold Prices

source and story

Cartoon: Investment Banking

Cartoon: Cell Phones

Unemployment: FDR v. Obama

In March 1933, when the Great Depression had driven the U.S. economy to rock bottom, the unemployment rate stood at 25 percent. One out of every four Americans who had had a job in 1929 was queuing in a bread line rather than working on an assembly line.

The unemployment rate remained at historically high levels throughout the following decade. Despite massive increases in federal spending under President Franklin D. Roosevelt's New Deal, 14 percent of the labor force still was unemployed in 1941...

Didn't the alphabet soup of work-relief programs the president subsequently launched - the Civilian Conservation Corps, the National Youth Administration, the Federal Emergency Relief Administration and especially the Works Progress Administration, to name just a few - create jobs for hundreds of thousands of unemployed Americans, providing them with sorely needed incomes without forcing them to suffer the stigmas of the dole?

The answer: The United States in the 1930s recognized that government-funded make-work jobs were not the same as real jobs...

The employment and unemployment statistics of the 1930s excluded people who would not be employed in the absence of public largesse.

People at that time recognized that someone who holds a job only because Congress has appropriated money for the position is not creating wealth but is merely the recipient of an income transfer. Those who at the time derided the WPA as "We Piddle Around" recognized the wasteful consequences of public profligacy.

source

Free Trade

Cartoon: Casino Buffets

April 2010 Trade Balance

source

Free Enterprise

BP and Big Government

The [John] Kerry-BP alliance for an energy bill that included a cap-and-trade scheme for greenhouse gases pokes a hole in a favorite claim of President Obama and his allies in the media — that BP's lobbyists have fought fiercely to be left alone. Lobbying records show that BP is no free-market crusader, but instead a close friend of big government whenever it serves the company's bottom line.

While BP has resisted some government interventions, it has lobbied for tax hikes, greenhouse gas restraints, the stimulus bill, the Wall Street bailout, and subsidies for oil pipelines, solar panels, natural gas and biofuels.

Now that BP's oil rig has caused the biggest environmental disaster in American history, the Left is pulling the same bogus trick it did with Enron and AIG: Whenever a company earns universal ire, declare it the poster boy for the free market.

source

Glenn Beck Show on F. A. Hayek

Part I



6/8/10 episode

watch the entire episode

Bankruptcy

source

Benanke on the Economy

“My best guess is that we’ll have a continued recovery, but it won’t feel terrific,”...“Even though technically we’ll be in recovery and the economy will be growing, unemployment will still be high for a while and that means that a lot of people will be under financial stress,” he said.

source

Current Bear Market

source

Cartoon: Goldman Sachs

National Debt: 13 Trillion Dollars

May 2010 Unemployment: 9.7%

For the current recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).

This is a very weak report. The decrease in the unemployment rate was because of a decline in the participation rate - and that is not good news.

source

Cartoon: Refills

Capitalism and Public Service

from Thomas Sowell:

"It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader.

Those who have helped the poor the most have not been those who have gone around loudly expressing "compassion" for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about."

source