My favorite comment on Democrat spin celebrating the new joblessness under Obamacare

Unemployment LineOver at JustOneMinute, Tom Maguire explains just how weak the Democrat spin is when it comes to celebrating the end of “job lock.”  It’s a great post, but as quite often happens over at my blog, the real brilliance appears in the reader comments.  From Ignatz:

I believe the Republican idea was to decouple insurance from employment not decouple the employee from employment.

Why do I like that?  Because it sums up in one sentence what it took me an entire post to write.

Hat tip:  American Thinker

Democrats gloating about the end of “job lock,” hide the reality of “poverty lock” and “job loss”

Unemployment LineWhen the CBO announced that Obamacare was going to have a deleterious impact on jobs over the next few years (as in 2.5 million fewer people in the work force), those opposed to Obamacare not unnaturally glommed on to those numbers as proof that Obamacare is an economic disaster.  After a moment of stunned silence, however, Democrats came roaring back with celebratory paeans to the end of “job lock.” James Taranto helpfully rounded up some good examples, beginning with Paul Krugman:

In his New York Times column today, former Enron adviser Paul Krugman cheers the news that ObamaCare subsidies are expected to have a greater-than-expected disincentive effect on work:

On Wednesday, Douglas Elmendorf, the director of the nonpartisan Congressional Budget Office, said the obvious: losing your job and choosing to work less aren’t the same thing. If you lose your job, you suffer immense personal and financial hardship. If, on the other hand, you choose to work less and spend more time with your family, “we don’t sympathize. We say congratulations.”

And now you know everything you need to know about the latest falsehood in the ever-mendacious campaign against health reform.

Although it was charitable of Krugman to warn readers off the rest of his column, those who heeded his admonition not to read on missed his amusingly worded nod in the general direction of reality: “More subtly, the incentive to work will be somewhat reduced by health insurance subsidies that fall as your income rises.”

Krugman, of course, was not alone.  He was just the most obnoxious voice in the rising Leftist chorus chanting “Hallelujah!  Job lock is over!”  James Taranto again:

E.J. Dionne, Washington Post: “Oh my God, say opponents of the ACA, here is the government encouraging sloth! That’s true only if you wish to take away the choices the law gives that 64-year-old or to those moms and dads looking for more time to care for their children. Many on the right love family values until they are taken seriously enough to involve giving parents/workers more control over their lives.”

Ron Fournier, National Journal: “The GOP has seized on CBO’s conclusion that the equivalent of more than 2 million Americans would use Obamacare subsidies to leave the workforce. No longer tied to jobs merely to cling to health insurance, some people will retire early, work part time, start a business, or spend more time with their families.”

Eric Boehlert, MediaMutters (on Twitter): “CBO: Obamacare will give workers more choices; some workers might chose [sic] to work less to spend more time w/ families….RW condemns as awful?” (Beats us what radiological warfare has to do with anything.)

Salon’s Alex Pareene is so excited, he wants to expand the welfare state even more: “Universal income and healthcare won’t create a Marxist (or even Keynesian) utopia of leisure. . . . But it’d give people the ability to spend more time with their families, to enrich themselves, to get educated, and even to just [futz] around a little more.”

Taranto goes on to note that, before the above spinning began, “leaving to spend more time with the family” was almost invariably a Washington, D.C., euphemism for “been fired” or “about to be arrested/indicted.”

Behind the puff and spin, though, as is often the case with Democrat pronouncements, lurk the lies and misinformation.  Two examples struck me.

First, regarding “job block,” this is a concept that’s been floating around for quite a while now.  Back in 2012, when Nancy Pelosi enthused about becoming a “whatever,” “job lock” referred to situations in which people with preexisting conditions were trapped in terrible jobs because they couldn’t risk leaving their employer-provided insurance policy behind.  Many people, of all political stripes, recognized that this was a problem.  (Republicans suggested fixes such as high risk pools or the ability to buy cheaper coverage across state lines.)

What the Democrats are so excitedly celebrating here is a new type of job lock, one that applies, not to people with preexisting health conditions but, instead, one that applies to people with preexisting low-paying jobs.  Why?  Because thanks to Obamacare, a large cadre of people suddenly cannot afford to move up professionally.  They cannot afford to look for a better paying job.  Heck!  They can’t even afford to get a pay raise.  After all, if they’re one of the unlucky ones, moving up by the wrong dollar will cost them $20,000.00.

Thinking about it, rather than saying that people are “job locked” under Obamacare, it’s more accurate to say that they’re “poverty locked.”  While they can’t move up economically that’s to the $20,000 penalty for doing so, they can move down:  they can take a series of low-paying jobs or, if they really want to, just leave the work force entirely.  After all, that’s already what several million people have done in the Age of Obama.

The other Democrat lie is the implication that this thrilling “no job-lock status quo” can last indefinitely.  In fact, the subsidies that people to have health insurance while holding low-paying jobs or being unemployed come about because other people are generating wealth that the government can take and redistribute.  However, as more and more people find that creating taxable wealth for themselves is a counterproductive proposition (earn a dollar more in pay, pay $20,000 more for insurance), fewer people will be earning the kind of salaries that will fund all the subsidies.  This is the perfect illustration of the Thatcher dictum — i.e., that socialism is wonderful until you run out of other people’s money.

The Democrats can spin the CBO’s prediction as much as they like, but the sorry fact is that it creates poverty-lock or job-loss, and that’s both personally demoralizing and economically unsustainable.  In the end, people will find that they’ve gotten more than they bargained for.  Not only will they be poverty-locked and job-lost, they’ll also be uninsured.

Why Americans aren’t buying into Obama’s economic inequality shtick

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For Barack Obama, Nelson Mandela’s death came like manna from heaven.  After all, until Mandela’s passing sucked all the oxygen out of any other news stories, the headlines, even from Obama’s staunchest cheerleaders, were about Obamacare.  The cheerleaders printed stories bravely admitting that the exchange is still bedeviled with problems, but assuring Americans that it’s way much, super-de-dooper, extraordinarily, wonderfully better and will soon be functioning perfectly.  The naysayers not only pointed out flaws in the system, and told heartrending stories about on the people consigned to death because of those flaws, but also warned that the worst is yet to come.  Newspapers and TV news stories were no longer happy places for our president.

Before Mandela’s timely passing, Obama attempted to change the subject by pivoting, yet again, to “economic inequality.”  (Or as Ed Driscoll nicely said, “It’s Deja Pivot All Over Again.“)  Boiled down to its essence, this Progressive (read: communist) world view says that there are poor people in America and there are rich people in America, and that’s simply not fair.  All people should be poor!!  Okay, the Progressives don’t actually say that last sentence, but one only has to look at every communist experiment in the history of the world to know that this is the reality behind heavy-handed government “correction” of “economic inequality.”

The Occupy movement, which nobody remembers now, was supposed to be the protest to end all protests when it came to economic inequality.  Americans were expected to rise up against the evil one-percent.  Only that didn’t happen.  Too many Americans were unimpressed when they saw computer-toting Ivy League students making common cause with drug addicts, felons, rapists, all of them complaining that a tiny percentage of Americans are very, very rich.  This cavalier response worsened when Americans realized that the Progressive/Democrat party is rife with one-percenters (Obama, Kerry, the Clintons, Pelosi, Reid, etc.), and reached a peak of disgust when the Occupy camps become rat-ridden cesspools that cost cities tens of thousands of dollars to clean up.

While a certain percentage of Americans, when polled, will reliably say they hate that the rich are so rich while their incomes are stagnating (although too few realize that Obama’s statist economic policies cause this stagnation), the reality is that, to Progressives’ (and Obama’s) despair, Americans just can’t get all that worked up about “economic inequality.”  This reality lies in the fact that Americans know something Obama, Democrats, Progressives, and other Leftists refuse to recognize:  America does not have a roach motel economy and that’s despite the Left’s best efforts to turn it into one.

What’s a “roach motel economy,” you ask?  It’s one in which people are frozen in place, with minimal economic or social movement.  That is, they check into an economic stratum, but they don’t check out.  Or, as a spoiled prince says to Aladdin in the eponymous movie, “You are a worthless street rat. You were born a street rat, you’ll die a street rat, and only your fleas will mourn you!”

One doesn’t have to look to Disney to see what a roach motel economy looks like.  In all non-free market societies, whether we’re talking ancient Mesopotamia, medieval Europe, or Castro’s Cuba, it’s not just that, as the Bible says, “the poor you always have with you.”  What’s common to all these societies is that the same people are always poor.  Check into Mesopotamia, 16th century France, or Cuba, and you’ll see that if the father was poor, then his father was poor, and his father was poor . . . going back to time immemorial (or the Cuban revolution).  In each of these stagnant, stratified societies, there were always a few who managed to claw their way up the hierarchy, and another few who carelessly squandered their way down the hierarchy, but class and economic status were fixed.  Likewise, in communist countries, everybody’s poor together, world without end, amen.

Just like Black Flag’s famous “Roach Motel,” poor people check in, but they don’t check out, nor do their children or grandchildren.  Economic status (and class status) are fixed:

Leftist view of socio-economic mobility

Up until Obama and his cohorts came along, the American view was very different. Class was mostly determined by economic status, and economic status was open to anyone who had the discipline and wits (and sometimes the gambler’s instinct) to make it happen. As the wonderful Tenement Museum in New York shows through census studies, immigrants lived in poverty, their children became working class, and their grandchildren were middle class or beyond.  If you’re born into poverty in America, neither you nor your descendents are likely to become Bill Gates, but in a generation or so, unless you’ve become hooked on Welfare-crack, you’ll have left the slums behind.  In a free-market society, with maximum individual freedom, social and economic mobility are a reality:

The American reality of socio-economics

America hasn’t had a revolution because, Leftist propaganda to the contrary, the socio-economic boxes are not roach motels from which no one escapes. Instead, they’re stops along the road of one person’s life, or a family’s generations. People can check in and they can leave. Sometimes they move up and sometimes they move down, but movement is constant.

Of course, Obama and his crew are doing their damndest to halt this free flow of socio-economic movement. With true leftist instincts, through economic leveling, they want to consign this entire nation to the poverty box, subject to a few overlords who get to enjoy the nation’s vast resources. What these leftists don’t realize, though, is that America’s greatest resource has always been her people. Imprison them in poverty, and the overlords’ wealth will quickly vanish.

Obamacare versus arithmetic, with a side trip into the nature of disengaged consumers

Charlie Martin, who has a real knack for simplifying fairly complex mathematical concepts, has a post today about the fact that, when it comes to Obamacare versus math, math wins every time.  I’d like to add my mite to that, which is that, when you have no dog in the fight, you don’t care how expensive the fight is.  As you’ve gotten used to, I’m going to make the journey from the specific (that would be me and my experiences) to the general (a wholesale condemnation of big government, which is the same as bad economics.)

I go to a different dentist from the rest of my family, because I started going to him 15 years ago, and never saw any need to change when they jumped ship to a different guy.  I like the man, I like his office staff, and I like the care I’ve been getting there.

Because we have dental insurance, I’ve never once written a check to my dentist’s office.  I get my teeth cleaned twice a year, like clockwork, and I have no idea how much it costs.

I went recently for a cleaning (you’d be dazzled by my smile) and, as always, didn’t pay.  My husband also went recently and, as always, didn’t pay.  The insurance statements for both our treatments came in on the same day.  These statements revealed that both dentists charge more than our coverage allows for a cleaning, and that both dentists accepted as payment in full the coverage maximum, even though it was less than their “official” charge.  One could say that this proves that insurance works, since the dentists’ willingness to cut their price to the insurance maximum shows that dental insurance controls costs.  Maybe….

What was just as interesting, though, was the fact that my dentist charges $36 more for a cleaning than my husband’s dentist does.  (If that dollar amounts sounds interesting to you, that’s also the recent decrease in food stamp money for a family of four over the course of a month.)  My husband was upset that my guy charges more.  I wasn’t:  (a) I’m not paying it and (b) the insurance company “stiffed” both guys, so it’s the dentists who should care.

The really important point, and the one that completely eluded my husband was that — and I’m repeating myself here — I didn’t care.  I get the services, but I don’t pay.  I have no incentive whatsoever to shop around for a cheaper, yet still good, dentist, and my dentist has no incentive to change his prices.  Either the insurance pays him his rate or it doesn’t.  If it does pay his rate, his high charging gamble paid off; if it doesn’t . . . well, he tried, so no harm no foul.

This is a marketplace distortion, where there is no connection between services rendered and money paid.  The problem isn’t greedy insurance companies; it’s disinterested consumers.  As for the insurance companies, they don’t negotiate either.  They just set caps and that’s the end of it.

I had the same situation years ago, when Kaiser paid for a jaw guard for me because I was grinding my teeth to dust.  I made two visits to the dentist, the first to get a mold for the jaw guard, and the second to get the jaw guard fitted.  The total time I spent there was about 40 minutes.  I saw the dentist for less than ten minutes, total.  I paid for the guard myself ($250 in lab costs).  Kaiser just paid for the dentist’s time and services.  I should add that this took place in the early 1990s, when money had more meaning.  The dentist charged Kaiser $800 for his time and service — and Kaiser paid every cent. I actually called Kaiser to complain.  I was pleased with my jaw guard, but this was still highway robbery. Kaiser was unmoved.  The dentist’s charge fitted into its chart, and that was the end of that.

That event, incidentally, was when I figured out that the problem with America’s healthcare market wasn’t rising medical costs or greedy insurance companies (although both are factors).  It was that the customer doesn’t pay, so the customer has no incentive to shop around or strike bargains.  Because the person getting the services couldn’t care less about the price (it’s other people’s money), there is no competition and there are no cost controls.

My realization about medical costs twenty years also started my turn towards conservativism.  That’s because I figured out that the more things that the government pays for, the worse the market distortion.  The government is not using its own money, it’s using your and my money.  We care about our money, but the government doesn’t.  If it overspends, it just uses its police power to demand more money from us.  That’s its nature, just like the scorpion’s nature.  The only way to control this is to make sure that government is responsible for paying for the smallest number of things possible.

What frustrates me is that people in my neck of the woods don’t get it.  I suspect we have one of the highest concentrations of MBAs in the world right here in Marin, and that we’ve probably got a fair percentage of American’s with STEM backgrounds too.  But try to explain market realities (engaged consumers, competition, and distortion) to them, and you can see the moment that logic flees and faith takes over.  Their eyes start whirling in their heads and they say “No, government is big enough to force price cuts.”  Worse than this economic lunacy is the fact that they don’t recognize that they are advocating tyranny by applauding government’s coercive power to force free citizens to offer services to the government for lower than market prices.  (In this regard, please note that Democrats now want to force doctors who, last I checked, weren’t slaves, to accept patients who will bankrupt them.)

If you want more information about government’s deleterious role in the marketplace, check out Wolf Howling, who calls Obamacare the “mother of all market distortions.”

What happens to the American economy when, as is inevitable, the health insurance industry collapses? *UPDATED*

AJ Strata, who knows complex computer systems, has a few choice words about the administration’s recent statements regarding its plans to fix the exchange.

Also, here’s something I’m not seeing discussed anywhere:

As you’ll recall, the anti-corporate Left concluded that GM was too big to fail and that banks are too big to fail (although not to big to shake down).  However, the same Leftists seem perfectly good with the collapse of the insurance industry.  When I say “collapse of the insurance industry,” I’m not just talking about the fact that Americans will be uninsured.  For the Left, that’s an outcome devoutly to be wished, since they can then socialize medicine.  I’m speaking, instead, about the actual collapse of companies that employ tens of thousands of people and have billions of dollars in pension plans.

Because insurance companies are no longer providing insurance (i.e., pricing their services using actuarial risk tables) but instead are simply being forced to pay for products by taking from the rich and giving to the poor (which makes them sound like Robin Hood, except they’re a Robin Hood who’s acting only because the Sheriff of Washington has a bow and arrow pointed at his back), they will go broke eventually.  And if the young and healthy refuse to buy insurance, the companies won’t just go broke eventually, they’ll go broke immediately.

Then what?

What happens to the American economy when Blue Cross and Blue Shield and AETNA and Kaiser and all the other insurance companies collapse in a distempered heap and, at the same time, hand their tens of thousands of employees pink slips, along with the assurance that all their retirement benefits are gone with the wind?

I’m thinking that, when that day comes around, 2008 will look like a trial run for total and complete economic collapse in America.  I have no contingency plans for that eventuality.  I can only hope that my family can salvage something from the wreckage, so that my last days aren’t spent at a level of poverty rivaling that of the average Calcutta street dweller.

UPDATEYuval Levin is on the same page as AJ Strata when it comes to the problems associated with the “best and the brightest” swooping in to help out.

Crowd-sourcing question: Why is the stock market still going up?

I understand that the Dow Jones average consists of a very cherried-up bunch of stocks.  Nevertheless, it usually is at least somewhat tied to what’s going on in the real world.  That doesn’t seem to be true lately.

In the face of Middle Eastern instability; Iran being months away from having a nuclear bomb; a stagflation economy; a potential shutdown and, if Obama ignores the 14th Amendment, a default; and the Obamacare exchange’s disastrous, with all the future trouble that portends, the stock market keeps going up.  That seems very counterintuitive.

I have to believe that what’s going on with the stock market now is a bubble.  After all, because a stagnant job market, a weak economy, and unstable national security are all inconsistent with a strong, healthy market.  Add in the fact that the constantly-changing Obamacare rules, regulations, and crony exemptions keep employers and investors befuddled and cautious, there should be no reason for the market to rise.  And yet it’s rising. . . .

My question is twofold, I guess:  Am I right that this is a bubble?  And if I’m right, what the heck is causing it?  Nothing I look at today signals to me that investors should be cheerful and optimistic.

It looks like someone in the MSM needs a review of the “Parable of the Broken Window”

It looks as if someone at Mayor Michael “the friendly fascist” Bloomberg’s eponymous report needs some education in basic economic principles.  Bloomberg Views’ Matthew Klein took it upon himself to comment upon a New York Post story about several burglaries in a high-end New York building.  Klein suggests that there’s no reason to be upset because — hey! — the targets are wealthy:

When the thief fences $10,000 or $100,000 in jewelry from an heir who barely knows what he owns, the thief will feel much richer and spend most of that money. Maybe he will buy a new car, or go on a bender at strip clubs, or rent a villa in a beleaguered European country. The heir might be somewhat upset, but it’s hard to believe that he will suddenly cut back on his spending because he needs to recoup a relatively small loss. In fact, the heir might end up spending more money as he tries to make his apartment safer from future robberies.

You can understand a lot about America’s dire economic straits if you realize that this kind of idiocy shows up in one of the country’s premier financial publications.  What Klein says is a variation of the “broken window fallacy,” which Frédéric Bastiat’s wrote about in 1850, albeit with a soupcon of Marxism thrown in for good measure:

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

I understand that Klein would say that he’s not describing the “broken window” fallacy because there’s no preliminary destruction involved here.  There’s just the transfer of wealth from the undeserving rich to the somewhat deserving, albeit criminal, poor, with a substantial decrease in value along the way.  But what Klein does is to assume that the rich contribute nothing to the economy, while the poor — even the poor burglars – do.

Klein’s error lies in his belief that only feelings matter:  the rich don’t feel the pain of deprivation, while the poor do.  That’s true, but it has nothing to do with economics.  Lost in that emotionalism is Klein’s fallacious economic point:  redistribution (from rich to poor at the point of a gun) will spur the economy.  It’s more likely that the diminution in value of the goods as they travel (forcibly) from rich to poor will hamper the economy.  The rich man who spends $1 million on a diamond is certainly conspicuous in his consumption, but he’s undoubtedly sending more money into the economy than the poor man who reduces that diamond to $1,000 in cash, much of which we can assume will be spent on drugs and prostitutes.  (And even there, assuming the target is decadent, the poor man pours less in the economy buying pot and a $50 a night girl, than would the target who spends on designer drugs and high-end call girls.)

The above ruminations, of course, involve private wealth.  Government expenditures (such as Obama’s lavish vacations, all of which require millions in travel and security expenses that the taxpayers bear) simply rob Peter the taxpayer, while paying only a small cut back to Paul the taxpayer.

Hat tip:  Best of the Web

The Obama generation is beginning to understand that it’s being cheated out of the American dream

We have Sirius satellite radio in our cars.  I often have mine tuned to current hits channels, both because I ferry kids and because I too like a lot of the music.  This morning, my daughter was running late, so I gave her a quick ride to the bus stop, so I wouldn’t have to give her a long ride to school.

On the way back, I flipped on the radio — and heard the three early morning talk show hosts on the “Hits 1″ channel saying that they and their listeners were the first American generation since the Depression that had it harder than their parents.  The three lightweight talking heads said that their parents got out of college, got jobs, and could have a life where dad worked and mom stayed home with the children, and that this was impossible to imagine for the current crop of young people leaving high school and college.

The bit about stay-at-homes isn’t exactly true, because even in my generation, a stay-at-home mom was a luxury.  Nevertheless, their perception — and the one that they wanted their radio audience to have — is that this young generation is well and truly shafted.  And even if the bit about stay-at-home moms is wrong, everything else is correct.  These young people don’t leave college for a job, especially a job reflecting their degrees.  If they get a job at all, it has nothing to do with their studies, and that’s true even if their major wasn’t Womyn’s Studies or Puppetry.

Sirius 1 never gets into political attacks, so I didn’t hear any “and it’s all Obama’s fault” during the two or three minutes I listened to the talking heads exclaim over the fact that they and their generation face a dismal economy with equally dismal prospects.  One does wonder, though, if they or anyone in their audience is thinking “Obama promised us the moon and the stars, and all I get when I sent him to the White House was this lousy unemployment check.”

This generation will be the next Yorkshiremen:

How the sequester works — an easy to understand analogy

Weird family n kitchen

Dad works hard at a job that pays reasonably well and Mom runs the house.  She’s an okay manager, but somewhat careless.  On Dad’s salary, which includes a 4% raise every year, she provides all the basics, such as feeding, clothing, and educating their two children.  Every year, without fail, the family heads to Disneyland, and has some great memories and a nice photo album to show for these annual jaunts.  But she’s also a bit careless.  She periodically pays the mortgage and credit card bills late, incurring penalties and interest.  She leaves unnecessary lights burning whenever she leaves the room.  She’s an excellent cook, but she occasionally buys some expensive food and then forgets to use it, so she has to throw it out when it spoils.  She’s an impulse shopper, so her closet has clothes that she wore once and then never again.  She always forgets to put money in the meter, so she has a backlog of parking tickets.  That kind of thing.  None of them are a big deal, but taken together, they definitely drain away a small, but solid percent of the family’s money.

One day, Dad comes home and says, “Mom, the boss told me that, because of the recession, instead of getting my 4% annual raise, I’ll only get a 3% annual raise.  We’ll still be bringing in more money than last year, but not quite as much more as we had expected.  We may have to retrench a little.”

Mom is livid.  “How dare your boss do that!  You’ve been a great employee.  Well, if we have to retrench, I’ll show him!  And I’ll make you suffer too for working for such a cheapskate.”

Here’s what Mom does not do:  Mom does not pay her mortgage or credit bills on time; she does not pay attention to turning out the lights; she does not make sure to buy food she wants and then use that food; she does not curb her occasional impulse clothes spending; and she makes no effort to pay attention to parking meters.

Here’s what Mom does:  she tells the kids they’re never going to Disneyland again; she starts serving only Mac ‘n Cheese from a box; she only buys the family clothes from goodwill; and she constantly tells them that it’s not her fault that their lives have become so miserable.  She’s just responding to Dad and his mean boss.

Keep that parable in mind the next time you don’t get to see the Blue Angels fly, or you don’t get a tour of the White House.  And keep it in mind as the government continues to spend money on studies about condom use and monkey poop and whatever else stupid thing it keeps funding with your dollars.

And that ends today’s lesson….

(And for those of you who think it’s sexist that Dad works and Mom is the vicious, greedy harpy who keeps the house please feel free to make up whatever gender roles you like:  working Mom and housekeeping Dad; working Mom and housekeeping Mom; or working Dad and housekeeping Dad.  Gender isn’t the point.)

A good way of putting the sequester in perspective

Scale

Caped Crusader sent me a wonderful squiblet that puts the sequester in perspective:

If the Federal budget weighed 200 pounds and went to see Dr. Michelle Obama (world renown weight expert and fat butt reduction subspecialist) would she say losing 3 pounds is so severe it would cause death or permanent impairment? Think about it!

That is what all the caterwauling is about! A government so necessary and efficient they cannot find 1 1/2 % that is not necessary!

The fact that the sequester has actually been in effect for two weeks without the world coming to an end reveals how accurate this little story is and how reprehensible the Democrat Chicken Littles were (and are).

Trying to understand the sequester

Obama is demagoguing the sequester like mad.  David Angelo provides a pleasant breath of common sense:

Incidentally, to the extent Obama says that the sequester will result in federal prosecutors having to abandon cases, that may be a very good thing. The news lately has too many stories about federal prosecutors run amok. Here are just a handful of links:

US attorney Carmen Ortiz strikes yet another sleazy deal.

Prosecutor aids DEA as it tries to seize a $1.5 million building over a $37 pot deal.

Oh!  Carmen Ortiz is in the headlines again for prosecutorial overreach.

And then there’s the corruption….

(Thanks to Earl for all these links.  He has been appropriately concerned for years about prosecutorial abuse.)

Why the market roars as the economy whimpers and sighs

A couple of weeks ago, I asked you all to explain to me why the stock market is so excited, even as the dollar is weak, unemployment is high, and national debt soars.  Naturally, I got many interesting answers back, with inflation being cited as the chief culprit.  Robert Arvanitis, who already provided an information-packed response, hasn’t forgotten that post, and he sent me an interesting update:

To follow-up prior discussions, here’s an excellent exposition at WSJ on inflation. [Note from BW: This article might be behind a paywall. Both Robert and I have accounts, so we can't tell if it is.]

In short, the Fed is fabricating a trillion dollars a year. Direct inflation is already deadly, but for now is buried at the banks.

Even before we suffer the direct inflation, the monetary failure is already having bad effects.

· The markets no longer give us the right price signals, so vast capital is being misallocated.

· Borrowers, most notably Obama himself, are getting a destructive free ride from low rates. More accurately, I should say Obama is “borrowing 1,000 billion a year.” Too many people don’t realize it’s meaningless for Obama to say “We borrow just one trillion but have cut 10 billion….”

· Meanwhile, any thrift is punished harshly by those low rates. Here the elderly suffer most.

As Glenn Reynolds would say, “But watch the whole thing…”

Bookworm here, with my summary:  Big bubbles, big explosions. Or to shift metaphors, the smart ones should be looking to hop off this merry-go-round. It’s about to break down and there’s not going to be anything romantic about it:

In answer to my question about economic issues…. by guestblogger Robert Arvanitis

In an earlier post, I asked several questions about economic issues that confuse me.  Robert Arvanitis wrote a comprehensive reply, but then couldn’t get the Word Press comment system to accept it.  Because it is so comprehensive and informative, I’m putting it up here as an independent post.  All that I ask of the rest of you is that you don’t let its length and depth dissuade you from chiming in with your own two cents (or, with inflation, four cents) on the subject.  There’s a lot to be said here.

And now . . . Robert Arvanitis:

Why, if the economy is contracting and the labor market is flat-lined, has the stock market gone up?

Will the stock market stay up (long-term and short-term predictions, please)?

In normal times, the stock market is a reflection of true economic activity; stocks typically trade at multiples of earnings from 10 to 14 times. So the yield is the inverse of that — if you pay $10 for $1 yield, that’s a 10% return. Likewise if you invest $14 to get $1 then that’s like a 7% return. That’s the norm, 7-10% for “risky” equities in contrast to the “safe” bond yields of 3-4% or “really safe” bank accounts at 2-3%.

Alas, we are not in a yield-trading market. Rather, we are seeing the impact of inflation caused by printing of money at the Fed. Our GDP, the value of everything we produce, is like $16 trillion. But if we suddenly doubled our money supply, then the GDP would be, nominally, $32 trillion. Same loaves of bread and haircuts, but now “worth” twice as many dollars. Kinda like the story of the boy who sold his dog for a million dollars. Dad asks how he got so much money. Boy replies “No, I got two, $500,000 cats…”

Same with our stock market. Right now up to 14,000 on the Dow, but that’s not any more loaves of bread that the 10,000 Dow of just a few years ago.

Bad news — wealth effect makes people falsely confident, so they go spend and do other stupid things. Good news — at least it’s something of a hedge against inflation. You can still get the same number of (now more expensive) loaves of bread when you’re hungry.

The IRS says that families will be paying $20,000 for health insurance. It also says that the top penalty for failing to buy insurance is less than $3,000. Medical insurance companies can no longer turn away people with pre-existing conditions. This means that people can avoid the $20,000 fee, pay the small penalty, and buy “insurance” only at the time they need it. (Or, more accurately, buy “cost shifting” when they need it.) Can the insurance companies stay solvent under these circumstances?

If insurance companies cannot stay in business with this non-insurance fee structure imposed upon them from above, how will they change? Most are diversified. Will they simply abandon health insurance? They cannot refuse to pay onerous fees, because payments are forced upon them by law.

Will the death of insurance companies create a medical black market, where people pay cash for services? In a way, this wouldn’t be so bad, because it would do away with the moral hazard that comes from both huge insurance companies and government interference. With those huge systems, people have no incentive to shop around for better or more affordable treatment.

Take a step back. We must separate the various functions. First is health care provision. Doctors, nurses, drugs, hospitals, equipment… That is a service sector that will rise with demand and shrink with price-controls. Obamacare = less service, fewer doctors, worse outcomes.

Second is true insurance. You have a one in a hundred risk of losing 100,000 (car crash, home fire, serious illness). Being rationally risk averse you’ll gladly pay $1,000 (expected value of 1% times 100,000) as a premium. Heck, you’ll even pay like $1,500, just to be safe. That extra $500 pays for agents, and underwriters, and insurers’ capital, and all the rest.

Third is what we have today — redistribution masquerading as insurance. Young/healthy should pay a fair premium of like $4,000. Old/ill should properly pay $20,000. But Obamacare, to hide redistribution, says everyone will pay $12,000 each, the average of the high and the low. Insurers wouldn’t care how they get paid, EXCEPT the young/healthy aren’t stupid. They won’t pay $12,000 for insurance worth (to them!) a mere $4,000. Hence the unconstitutional (shut up Roberts!) mandate.

(Side note — this use of phony insurance to hide redistribution is just the latest iteration of the continuing fraud. It starts with “tax Peter to pay Paul.” Steps then include high rates with unfair deductions, borrowing to tax the unborn, inflation to rob lenders and the poor, unfunded mandates, and finally scams like Social Security and Obamacare. Details on request.)

Ok, that’s the real economics. Now the politics. Even with all the arm-twisting, and bribing, and parliamentary cheats, and brief supermajority, Obamacare could NOT pass with anything close to the necessary punitive taxes needed to get the young/healthy. That’s why the penalty is so foolishly low.

But to the left, that’s a feature, not a bug. It’s OK if insurers get squeezed out of health insurance. They’re just capitalist parasites anyway, and we’re one day closer to single-payer, that is, a government-monopoly on when you die.

Obama’s Consumer Financial Protection Bureau is forcing banks to give unsecured, low-interest home loans again. These loans, and the machinations into which the financial industry entered in order to protect itself from the downside risk of such loans, triggered the 2008 recession. What will happen this time around? Will banks go out of business? Will they come up with some grand new scheme? I assume that, if they do the latter, it will implode. The last time, it took around two decades before the Ponzi scheme collapsed. How long will it take this time?

We have a problem that banks got “too big to fail” because of government distortions of the credit markets. The Fed taught markets that serious losses get “socialized” (fall on taxpayers, not the true failures).

We also have a problem that government misallocated credit via the “Community Reinvestment Act.”

So what does government do? Makes an utterly irrelevant move into more controls. Plus an additional misdirection of credit.

We do not learn from our mistakes. We simply make new and more subtle errors.

It’s like this. A hippo gets into the bathtub. Water overflows everywhere. Hippos declares an emergency and nationalizes all the towels…v

I seek answers from those more economically sophisticated than I am

Begging

I have a few questions to ask, all of which involve economic trends.

Why, if the economy is contracting and the labor market is flat-lined, has the stock market gone up?

Will the stock market stay up (long-term and short-term predictions, please)?

The IRS says that families will be paying $20,000 for health insurance.  It also says that the top penalty for failing to buy insurance is less than $3,000.  Medical insurance companies can no longer turn away people with pre-existing conditions.  This means that people can avoid the $20,000 fee, pay the small penalty, and buy “insurance” only at the time they need it.  (Or, more accurately, buy “cost shifting” when they need it.)  Can the insurance companies stay solvent under these circumstances?

If insurance companies cannot stay in business with this non-insurance fee structure imposed upon them from above, how will they change?  Most are diversified.  Will they simply abandon health insurance?  They cannot refuse to pay onerous fees, because payments are forced upon them by law.

Will the death of insurance companies create a medical black market, where people pay cash for services?  In a way, this wouldn’t be so bad, because it would do away with the moral hazard that comes from both huge insurance companies and government interference.  With those huge systems, people have no incentive to shop around for better or more affordable treatment.

Obama’s Consumer Financial Protection Bureau is forcing banks to give unsecured, low-interest home loans again.  These loans, and the machinations into which the financial industry entered in order to protect itself from the downside risk of such loans, triggered the 2008 recession.  What will happen this time around?  Will banks go out of business?  Will they come up with some grand new scheme?  I assume that, if they do the latter, it will implode.  The last time, it took around two decades before the Ponzi scheme collapsed.  How long will it take this time?

I will appreciate any and all answers to these questions.  I truly don’t understand what’s going on in today’s economic world.  Incentives are flipsy-wopsy and trends make no sense.

Money

More thoughts on robots and the future

Robot

I wrote last week about the fact that the lapdog media is finally catching up with Obama’s claim that the problem with America’s economy is that ATMs are job destroyers, and that’s why our economy is a mess.  Many of you commented that, in your own industries, you’ve seen automation chip away at jobs so that a handful of people are doing what it once took dozens or even hundreds of people to do.  I agree completely.  Technology definitely destroys jobs.

What I was trying to say, though, is something different.  What’s unique about this ongoing recession/depression, is that the government has been working overtime to depress the new jobs that usually arise as a result of technology.  Absent government intervention, our transitions in the wake of a major technological change have usually been beneficial to the majority, even though there’s no doubt that a minority saw itself lost to history’s backwash.  For the first time, though, we’ve got a government so busy grieving for the minority who are becoming obsolete, that it’s enacted policies to ensure that the majority will suffer too.

I speak quite personally about this, because I’m a perfect example of someone who took modern technologies and spun off a new career.  My new career has been less profitable than my old one, but infinitely more enjoyable, not to mention a better match with parenting.

My graduating year from law school was one of the last years that saw new associates arrive at law firms that didn’t have desktop computers.  We had Word Processing departments, which would use primitive word processing machines (who else remembers old Wang systems?) to finalize briefs or, if they were particularly sophisticated, they had primitive software to do the same task.  To get a brief done, the attorney would hand write or dictate a brief, and then walk it over to a secretary, who would transcribe it.  It was a very time-consuming process.

Law books

Legal research was also done the old-fashioned way, which meant surrounding oneself with heavy books.  To research a legal question, you’d go to the Westlaw Digests.  You’d start by perusing the Decennial Digests (massive volumes that broke the law down into categories).  These were good, because you could do ten years worth of research in a single category.  If it had been nine years since the last Decennial Digest, though, you’d then have to go through nine years worth of annual digests, including the pocket updates stuffed in the back.  Once you had hand written a long list of potential cases, you’d head for the stacks and pull out volume after volume of case reporter.  You’d page through to your cases, and hope that at least some of them were on point.  Once you found them, you’d either write notes by hand, or you’d spend hours (and dollars) photocopying.

Both Westlaw and Nexis did have computer research available, but it had to be done on dedicated machines and it cost a small fortune.  It was much cheaper to pay an associate to do fifty or even one hundred hours of research, than to go onto Westlaw and spend a couple of hours writing and printing.  (Keep in mind that, back in those days, all connections were dial-up and were incredibly slow.)

Old desktop computers

Within a few years of my starting to practice law, the world turned upside down.  Lawyers got desktops and dedicated word processors became obsolete.  That’s when I fell in love with Word Perfect, which is still my favorite word processing software because you have the best control over the look of the final product.

In the beginning, those desktop computers were stand-alones, so you still had to walk to your secretary’s desk, only this time you’d hand over a floppy, rather than a sheaf of yellow paper or a little tape recording.  Just a year or so later, with the firm’s four walls, those floppies were obsolete, as the firms had become networked.  Suddenly, you didn’t even need to stand up to send your secretary that pleading that needed to be finalized.  Instead, you just pushed a button.

Online legal research continued to be expensive, but Lexis and Westlaw now had software that enabled you to use your laptop to connect directly to those services.  This was another technological advance that meant you didn’t need to get up from your chair.  (Right now, I’m seeing, not only a technological trend, but a trend in lawyers getting flabby and gaining weight!)

Woman at computer

One day, I sat at my desk and realized that I was totally self-sufficient. I didn’t need a secretary, since I’ve always been a better typist and word processor than any secretary I ever had, and I didn’t need access to a law library, since my desktop had become a law library.  I also realized that home computer prices were dropping and that the case-reporting services were dropping their prices in response to the increased competition that accompanied increased demand.  Since I hated going to court, and loved doing research and writing, I quit my job and set up a home practice.

Floppies

As the years went by, having a home office became easier and easier.  In the old days, I still had to put my documents on floppies, or print them up, and then hand-deliver them to my clients.  Within a short time, however, either my clients got email, so I could just send an attachment, or they upgraded their network services so that I could connect from home and simply upload my work onto their systems.

The new systems made hoards of young lawyers unnecessary.  While it had once been cheaper to give a second or third year associate a fifty hour research job, it was now much cheaper to contract the work out to me.  With my on-line research, home computer and printer, and network or email connections, I was not only faster and better than a young associate, I didn’t force the firm to carry me during the dead times, nor did it have to pay any benefits to me.  Technology would have destroyed my old job, but instead it created a new job for me, and one that I liked much better.

In the Obama economy, though, I have no work.  If I were a young lawyer done out of a job by new research and writing technology, it would be impossible for me to set up my own thriving business (and it did thrive for many years), because there is no work to be had for anyone, whether in a firm or outside of it.  The old jobs are dying, but the economy is too regulated, taxed, and constrained to create new niches.

And that’s what I meant when I said only Progressives believe that robots are job killers.  Their belief is true only to the extent they’ve made it so.  I fervently believe that, in the normal, non-Obama world, even as technology kills many jobs, a free market, coupled with human initiative, can create many more (better ones too).

Only Progressives could believe that robots will destroy the economy

ATM

The newest Ivy Tower Leftist explanation for the economy’s disastrous jobless recovery riffs off of Obama’s remark a couple of years ago about the disastrous effect of ATMs.  You remember that, don’t you?

President Obama explained to NBC News that the reason companies aren’t hiring is not because of his policies, it’s because the economy is so automated. … “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

Robot

It took a little while for Obama’s minions to catch up with his genius, but catch up they have.  First, 60 Minutes ran a segment in which two MIT thinkers earnestly explain that Americans are going to be increasingly jobless as robots take on more and more of the jobs laborers used to do.  (I didn’t despair when I watched this.  Instead, I was absolutely fascinated by the way warehouse robots save human backs and feet.) AP then got in on the act, explaining with equal earnestness that technology is killing jobs and therefore keeping the economy stagnant.  Typically for the Left, these great thinkers are conflating two actually unrelated things:  the first thing is jobs that are replaced by technology; the second thing is a weak economy that stubbornly refuses to grow.

1912 Model T Ford

In times past, the innovation and a stagnant economy were not related.  Yes, the wheelwrights vanished when cars came along, but cars were part of America’s stunning early 20th-century leap into the modern era.  The economy went crazy, not just because the car industry itself created new jobs, but because the ability to travel speedily and with almost no limits on distance created other opportunities.  People could now travel to jobs that would have been unavailable to them before.  Factories previously powered by steam or water (or humans), suddenly had the internal combustion engine.

1920s tractor

Cars also brought about mechanized farm work and agricultural transport.  These not only made it possible for American farmers to feed a growing, mobile, vastly dispersed nation, but they also improved the nation’s overall health.

Keypunching computer data in the 1950s

In our own lifetimes, computers didn’t do away with jobs.  Instead, they changed old jobs and created new ones.  Between 1960 and 2008, computers also helped supercharge the economy, especially when it came to the advent of personal computers and, later, the internet.  It’s absolutely true that people got left by the wayside; that economic bubbles grew and burst; and that start-ups broke down — but overall, these amazing technological advancements created a bigger economic pie, not just at home, but abroad too.

The carpet beater

Another way of thinking about this is to look at changes in the domestic sphere.  Women used to boil water to do their laundry, wring it out by hand, and then hang it on lines.  To clean their carpets, they’d have to roll them up, drag them out, hang them on a line, and beat them.  Every dish needed to be hand washed and, if there was no counter space, hand dried.  Before flush toilets, someone had to empty those chamber pots and before modern plumbing, servants drew baths by hand.

Victorian house servants

In a pre-modern age, these tasks required massive human labor.  It wasn’t that middle class Victorians didn’t do laundry, clean carpets, wash dishes, or carry water.  They did those tasks; or more accurately, a phalanx of servants did those laborious tasks.  Even a young middle-class couple, just starting out, would have a cook and a housemaid.  And then on laundry day, a laundry woman would come in to help out too.

The world economy did not collapse when labor-saving appliances destroyed the necessity for these domestic jobs.  Instead, the same economy that produced labor-saving devices required people to make, deliver, and market these devices.  The economy shifted and opened ever further.  That’s why I’m writing on a computer, rather than sitting in a darkened room dipping a quill pen in ink.

Bankrupt Solyndra

Why is this changing economy different?  Simple:  in other times, when the jobs shifted, the government didn’t put into place policies that deliberately destroyed economic alternatives that would create employment for those whose jobs become obsolete.  In today’s America, though, the avenues for new forms of commerce and employment are closing, thanks to ever-increasing taxes, regulations, hostility to corporations and industry, and an obsessive government focus on a green energy sector that does not have the chops to grow on its own.

In other words, the Left is only able to conflate obsolete jobs and permanent unemployment because it’s looking at a particular moment in time, one in which the remnants of our once-thriving private sector are still introducing labor-saving devices, even as the Progressive government’s heavy hand is simultaneously suppressing that start-ups that would have piggy-backed on this new technology and provided different (and often better) employment opportunities.

Segregated drinking fountain sign

Ultimately, Progressives, despite their forward-looking label and their “Forward” slogans, are relentlessly reactionary and regressive.  They live in a finite economic world, blind to history’s ever-repeating lesson that, when there is individual freedom, the economy always expands.  Still fighting the battles of the 1960s, they believe Jim Crow is America’s default racial setting, that Muslims are picturesque people on Cook’s tours, and that unwed mothers’ only choices are using coat hangers or becoming social outcasts.

Oh!  I almost forgot.  They also think that, when it comes to aging and medicine, Americans die young, after the hoary old doctor with his stethoscope has done what he could.  As to this last delusion about our modern world, Charles Krauthammer, in summarizing Barack Obama’s historically polarizing, blatantly statist inaugural address, says it best:

At its heart was Obama’s pledge to (1) defend unyieldingly the 20th-century welfare state and (2) expand it unrelentingly for the 21st.

The first part of that agenda — clinging zealously to the increasingly obsolete structures of Social Security, Medicare, and Medicaid — is the very definition of reactionary liberalism. Social Security was created when life expectancy was 62. Medicare was created when modern medical technology was in its infancy. Today’s radically different demographics and technology have rendered these programs, as structured, unsustainable. Everyone knows that, unless reformed, they will swallow up the rest of the budget.

(Credit for some of the ideas in this post has to go to a delightful book I’m reading: Lucy Worsley’s If Walls Could Talk: An Intimate History of the Home. It is a charmingly written reminder that the world is not static, and that fighting yesterday’s battles without an eye to today’s knowledge is a fool’s game. The Left is certainly masterful at the fight, but its ultimate aims are hopelessly and dangerously retrograde.)

Too tired to work

Had an interesting conversation at Church today. One of my friends, a Polish immigrant and self-made millionaire was discussing the immigration issue with a upper-middle class, white-bread soccer mom (let’s call her “Nice Liberal Lady”. My entrepreneur friend and I both agreed that some form of legalized immigration was needed for people with low educational skills because, sadly, too many Americans are unwilling to do jobs that demand physical labor.

But, hold on, said Nice Liberal Lady. Her son, it seemed, lived at home with his unused college degree because working in a fast-food restaurant or other similar menial job would only distract him from his career path. Not so, responded my entrepreneurial friend – “when my father died when I was young, I worked any job that I could get – even two or three jobs at a time, just to get money on the table. We Polish people know that when times are bad, you work extra hard instead of preoccupying yourself with feeling sorry for yourself (I am paraphrasing, but that was pretty much the gist).

Whoa, said Nice Liberal Lady: “I have a problem with that, especially having grown up with a workaholic father. The fact is, I am too exhausted to be constantly looking for a job or working more-than one job.” She let it be known that she really resented the implication that she should be expected to go out and work hard to earn her own financial support. The proper solution, it appeared, was that is was therefore OK to let other people exhaust themselves to pay benefits to the members of our perpetually exhausted non-working classes.

I pointed out to my friend, afterwards, “the reason that you were able to rise up and take on all these jobs is because you did not begin with the assumption that you were owed a certain standard of living.”

We really do live in two very different and irreconcilable worlds.

Ironically, a headline article in today’s Chicago Tribune focused on Polish people in Chicago returning to Poland in search of better opportunities. ’nuff said.

Progressives truly don’t understand the difference between wealth and money

Paul Krugman, looking smug

Paul Krugman is a Nobel Prize winning economist.  He’s also remarkably ignorant (or stupid or, maybe, both).  Only someone lacking in brains and understanding would think that the U.S. could get out of its debt problem, not by printing paper money, but by minting a platinum coin and then denominating it a “$1 trillion coin.”  Nevertheless, that’s exactly what Krugman proposes.  He thinks (probably wrongly, as it turns out) that there’s a Constitutional loophole that allows the president to “print” a trillion-dollar coin:

Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all.

Did you get that last little bit?  Magically creating a trillion dollars will do “no economic harm at all.”  It’s worth exploring Krugman’s reasoning, to which he helpfully links (since he is, after all, judge, jury, and executioner when it comes to all thinks economic).  I’ll quote him at length, because only then can one fully appreciate his reasoning:

In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. So this is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand.

But leaving the debt ceiling on one side, isn’t it true that since spending can currently be financed by Fed money printing, we shouldn’t care at all about the notional debt owed to the Fed? Alas, no.

It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.

What those three paragraphs circle around is the magic word: inflation. Krugman believes that magically pulling a trillion dollars out of the air won’t produce inflation but that, at some magical point in the future, President Obama will have borrowed so much money that he will be able to pay back the trillion dollars before inflation occurs.  One suspects that Krugman is envisioning a scheme along the lines of check kiting, with Obama borrowing a trillion from the feds, so he can borrow a trillion from someone else, and then use that second trillion to pay back the first.

Dunce cap

The fundamental flaw with Krugman’s whole theory, of course (which even he acknowledges is a “gimmick”), is that it ignores the difference between money, which merely a symbol of varying value, and wealth, which is the real measure of a healthy, rich economy.  Apparently I need to give Krugman my “Economics 101″ lecture, the same I used when my kids were nine to help explain to them the difference between money and wealth, and the concept of inflation.  Here goes:

In the old days  – the really old days  – there was no money. Instead, there were goods. For example, you might have had wheat to spare, but you needed a cow. I, on the other hand, had a cow and but was short of wheat. The two of us were a match made in heaven, trading our goods to fulfill our desires.

Cow

Problems arose, of course, when I wanted the wheat, which you had, but you wanted a chicken, not a cow. Or perhaps you had wheat, but only a little, and certainly not worth enough to trade for an entire cow.

This old system also had a problem with mobility. It’s simply not feasible to carry bushels of wheat with you wherever you go, unless you have a really big purse. And cows are hard to lead into the pub in exchange for a nice pint o’ beer. Not to mention the fact that you’d need a lot of pints to equal one cow.

Something better needed to come along. And it did: Gold.

Very heavy gold

Gold’s a great substance. It’s beautiful; infinitely malleable; it blends well with other metals; it doesn’t degrade; and it can be replenished, although the effort needed to replenish it ensures the rarity that’s necessary to its value as a commodity.

The only downside to gold is that it’s heavy. Very, very heavy. Get enough gold together, and you’ve suddenly got the weight of that cow to carry around  – and, once again, your purse isn’t big enough.

In all societies, some people, whether through trade, warfare, or outright theft, proved more adept at amassing wealth (whether wheat, cows, or gold) than others did, and they assumed leadership positions. Once in those positions, they tended to demand that their subordinates pay them protection money. These funds protected the hapless payor both from harassment by that same leader and from attacks launched by enemies outside the kingdom.

Bully

Eventually, this protection racket got formalized as taxes. Leaders also discovered that, in addition to providing protection for their subjects, there was a virtue in paying for basic services within the kingdom, such as roads, minimal care for the very poor, etc. A well-run kingdom increased everyone’s wealth.

But back to those grand clumps of heavy, heavy gold. Someone eventually got the idea that, rather than schlepping around gold, it would be a good idea to have currency made from lighter weight metals or even paper. These could be used to purchase myriad things that were worth less than a single gold coin and were easier to transport.

Money

Because you couldn’t have random sheets of paper or chunks of silver or copper roaming around in the guise of currency, these money substitutes were useful only to the extent people believed them to be backed by the genuine gold article — and the only way to ensure that people could trust these substitutes was to delegate to a single entity the task of guarding the real gold and issuing the substitute coinage or paper. The entity that ended up responsible for holding the gold and backing the substitutes is government.

There are two important things to remember at this point: First, the substitute money’s worth is always relative to the gold. If the gold is finite, but you mint more coins or print more paper, each coin or note is worth less as it becomes a smaller fraction of the available gold. Put another way, imagine that over a six month period the government keeps printing notes until it has six times as many notes as it has gold. Milk that cost one piece of paper in January will cost six pieces of paper in June. The milk’s value in gold is the same; it’s the paper that became less valuable. (This, I helpfully explained to my kids, is inflation.)

Second, and this is the really important thing, one must remember that, nowadays, unlike the feudal lord of old who went and out ravaged another country to get gold, today’s governments doesn’t go out and amass gold; they just generate the coins and paper. To the extent the government has wealth, it’s because it uses its police power to demand that its citizens give it their wealth in the form of taxes. The government hasn’t created anything. In today’s America, as in all modern economies, only the people create wealth.

Platinum coin

For Obama to mint a platinum coin does nothing to increase the country’s wealth.  It’s just generating a piece of metal to which the Leftist government assigns an arbitrary value to justify taking on more debt that America cannot afford and cannot repay.  For Paul Krugman to advocate this course of action isn’t just ignorant and stupid, it’s reckless to the point of national economic homicide.  Too bad Krugman is incapable of feeling ashamed of himself.

Barack Obama’a America: Keynesian economics on steroids

When I was in junior high school, high school, and college, my American history classes always preached the same message:  Franklin Roosevelt saved America by “priming the pump.”  That is, he took money away from the rich, filtered it through the government, and then used the brain-power built into government to decide upon the infrastructure projects we know and love today, everything from Hoover Dam, to the Tennessee Valley Authority, to the cool art deco post offices dotted around the nation.  It was only when I was in college that the teachers put a name to this wondrous system:  Keynesian economics.

Keynes wasn’t a communist.  He just wasn’t a believer in marketplace efficiency.  He advocated a privately-owned economy, with the government making the important decisions.  (The Nazis, incidentally, used this economic approach, which they called “National Socialism.”)  More than that, Keynes and his acolytes believed that, when times were tough, the only entity that could respond rationally and effectively to market chaos was the government.  Keynesians therefore believed that economic downturns should be met with higher taxes from the rich and more government spending directed at the poor.  The theory was that the poor would take this money and pour it back into the economy, thereby priming the pump.

Apparently Keynes and his friends had never read Frédéric Bastiat’s “broken window parable” or, if they had, they dismissed it as a foolishly simplistic parable that wouldn’t meet the demands of the Ivory Tower and elite governance:

A broken window is not an economic upswing

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

But back to history as I learned it.

Factory girls during world war ii

After their almost rote teaching about Roosevelt’s brilliant Keynesian save of the economy, my instructors would always add, sort of as an addendum that wasn’t really important, that WWII finally broke the Depression’s back.

War does represent the perfect Keynesian paradigm, with the government directing the whole private-sector economy towards a single martial goal.  Putting aside the twenty million dead, war was good for the Soviets too.  And right up until D-Day, the Germans weren’t doing so badly with a war economy either.

British rationing coupon from 1950

As the British discovered, though, once war is over, continuing a war-time economy (complete with government rationing) doesn’t work.  The government may be good when everyone’s efforts are directed to national survival, but it’s a lousy wealth creator during peace time.  Only when rationing ended in the 1960s did the British economy start to recover, and its real boom happened after Maggie Thatcher de-nationalized major industries.

In America, the post-War period was the anti-Keynesian period, and that — not Roosevelt’s taxing and spending — is what really broke the Depression’s back.  The late 40s and the 1950s celebrated American individualism, innovation, capitalism, and freedom.  With Communism as a foil, America was almost aggressively free.  And when it periodically tried to put the brakes on that freedom by raising taxes, the market foundered.  John F. Kennedy got it:

John F. Kennedy

“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.” — John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”

Although Kennedy did get his lower taxes, pressure from the Left resulted in another Keynesian experiment in the 1970s.  The economy cratered.  Reagan released the economy from tax pressure and it was revitalized.  Bush Sr. (“Read my lips:  no new taxes”) raised taxes again, and down the economy went.  Clinton, under pressure from Republicans, decreased spending, which helped the economy grow again.  Bush Jr. went one step further and lowered taxes, and the economy roared again — and that was true despite 9/11 and a long war.

Meanwhile, though, the Democrat controlled Congress that Bush got in 2006, while it didn’t address taxes, starting putting the government thumb on the scale again.  Rather than backing off of banks (as McCain and Bush suggested), it increasingly limited what they could and couldn’t do.  This government pressure resulted in banks being forced to give loans to people with no equity.  The banks got creative to avoid risk, packaged, and resold these loans.  It looked good for a while, and then, in 2008, the bubble burst.

Bankrupt Solyndra

Enter Barack Obama.  Obama spent the first half of his presidency doing classic Keynesian pump priming by pouring massive amounts of government money into his pal’s pet projects.  Many of those projects went bankrupt, others ran over cost, others never got off the ground.  Obama also laid the foundation for an ostensibly private, but still government-controlled medical sector (1/6 of the American economy).  The economy alternately stagnated or sagged.  Romney fully understood the problem, but was never able to articulate the solution.  Since he couldn’t sell the public on the free market (not to mention that he was trying to push back against the appalling character attacks leveled against him), the public in 2012 chose the devil it knew:  Obama.

Obama has now begun the second half of his presidency by doing Keynes on steroids:  on New Year’s Day, he got significant tax increases on producers, without in any way stopping his spending.  Obama, though, has done something Keynes never imagined.   Obama has not used the pump priming money to put shovels (or even spoons) in the hands of those who are supposed to reinvigorate the economy.  Doing that at least gives those receiving government money a job (which is good for the resume and a sense of self-worth) and it gives them an ownership interest by allowing them to create a lasting benefit to society.  What Obama is doing is just handing out money in the form of pure welfare.  He’s not creating a working class; he’s creating a parasite class.

Food shortages Great Depression

Classic Keynesian economics has never worked.  Obama is now trying the un-classic version.  If I were a betting woman, I’d say that, not only will Obama’s experiment fail, it will fail on a much vaster level even than Roosevelt’s Keynesian debacle.  (And if you want to know just how bad Roosevelt’s failure was — and how grossly misleading my public school history education was — you must read Amity Shlaes’ The Forgotten Man: A New History of the Great Depression. Roosevelt’s economic experiments were a disaster, and it was only through the aggressive propaganda flowing out of Hollywood, media, and educational institutions, propaganda that escalated after WWII, that we remember his presidency as an economic success.)

Was the tax increase a major Republican loss?

Today’s big story the new tax bill that Obama jetted off to Hawaii before signing, but that will soon (and inevitably) become the law of the land.  I don’t see any surprises.  I knew that we’d get hit hard and so we have.

I gather that sequestration has now been averted, so that Obama gets to continue spending.  As the headlines say, $1 in spending cuts for every $41 in tax increases.

Obama laughing

The media and the blogs are playing this as a major Republican loss.  Although I’m not sure it is, I actually rejoice in these headlines.  They sting, but they may have a benefit in the long term.

In my simplistic financial view of the world, there is one given that transcends any fancy economic talk from Ivory Towers and Leftist back rooms:  you cannot indefinitely spend more than you take in.  This is true whether you’re a person or a nation.  You can certainly spend more than you have for a while.  Indeed, if you’re rich (as America once was) you can keep spending money you don’t have for a long time.  You can borrow from friends who haven’t quite figured out yet that you’re broke.  And you can check kite — that is, you can use one empty account to pay off another empty account.  Essentially, you keep the same money floating around between accounts for a while until one of the banks or creditors figures out that you’re simply juggling a few dollars around and hoping that no one catches on that your accounts are usually empty.  And that’s all you can do.

Obama ran for, and won, re-election on a promise that he could fix our problems by taxing “rich” people more, while continuing to spend as before.  The voters bought it.

Another way to think of Obama’s promise, and the voter’s credulity, is to imagine that America is a corporation, with shareholders and various officers.  Obama is the CEO.  Because the CEO and his fellow officers have been spending corporate money like crazy without realizing a profit, the corporation is broke.  It’s worth noting that some of that spending involved distributions to select shareholders — those holding the fewest corporate stocks.

When the shareholders were considering making a push to fire the CEO, the CEO kept his job by telling the shareholders that he’d hire some armed robbers (i.e., the IRS) to force some of the richest shareholders to buy more shares in this essentially bankrupt company.  He made no promises about reducing corporate spending or trying different approaches to dealing with corporate debt.  The shareholders, none of whom could imagine himself (or herself) as being “the richest,” thought it was a great idea to have the “other shareholders” forced to subsidize the corporate spending binge. Those most enthusiastic were the ones who, despite holding the fewest shares, had been getting stock distributions on a regular basis.

Robber

Once his job was assured, the CEO used his renewed power to do exactly what he promised:  he brought in armed robbers to forcibly remove money from the “rich” shareholders without changing his management style, including his spending habits.  The only thing that surprised some of the shareholders was to discover that the CEO numbered them amongst the rich.

In other words, Americans — the shareholders in this nation — just got exactly what Obama promised and they voted for:  more taxing, more spending.

The question, then, is whether yesterday’s vote to increase taxes is a major Republican loss.  Certainly, the Republican party is in chaos — but it was anyway.  After the election, the Republican party was a demoralized, writhing, screaming, finger-pointing mass of loser-dom.

Pathetic loser

Given the Republicans’ already pathetic posture, is what happened yesterday even worse for the Republicans?  I don’t think so.  I think that, with the mid-term elections coming, this clarifies things for voters.  It doesn’t just clarify Republican and/or conservative principles, it also clarifies just who holds those principles.

White House Money Machine

More than that, the new taxes and spending clarify responsibility for America’s economy.  Obama got exactly what he wanted and he thinks that he’s laughing all the way to the bank.  Except when he gets to the bank, he’ll discover it’s still empty.  Within a few months, he’ll be thinking of that adage “be careful what you wish for; you might get it.”

Things are certainly going to be bad, very bad, for America in the short term.  But with a true compromise, of the type Boehner was trying to craft (proving either his good faith or his stupidity), things would have been very bad for America in the slightly longer term.  Short of a revolutionary change to America’s spending habits, which wasn’t going to happen with a compromise, America was always screwed.  Now, at least the Republicans can say “we tried to stop this, but Obama had a stronger political hand in the wake of the elections, so we were forced to give him what he wanted.  This is now, for real and for true, the Obama economy.”

Obama frowning

The one thing to remember is that Republicans had better start selling this Obama-economy message hard and fast now, while Obama and his media minions are still gloating about his victory over the GOP.  Once things go sour, as they inevitably will, Obama and the media will start blaming the Republicans.  We know that, where the media leads, the masses follow.  The only way to stop the sheeple is to drill home now the message that this is Obama’s victory, that Obama got what he’d promised and what he wanted, and that Obama joyfully accepts the responsibility for whatever flows from his glorious battle defeating the Republicans.

Remember:  Nothing, absolutely nothing, that came out of Congress today could have been good for America.  However, if Republicans willingly hand Obama this victory, the greatest likelihood is that it proves to be a Pyrrhic victory for Obama, with long-term benefits for conservative thinking and, therefore, for America.

(Alternatively, Obama could have been right all along, which will be good for America, and I’ll have to revert to my original Democrat allegiance.  Possible, but not probable.  Facts are stubborn things and so are numbers, and I’m betting that Leftist political ideology will not trump either facts or numbers.)

Republicans: the Charlie Browns of politics

NRO has little daily polls.  Today’s asked if House Republicans are blowing in on the fiscal cliff.  The voting divide as of now is pretty close:

National Review Online - Mozilla Firefox 12212012 82322 AM.bmpI voted yes, but not because I was thinking about the substantive issues (taxes increases, spending cuts, etc.).  Instead, my “yes” vote resulted because I think the House Republicans blew it on a much more fundamental level:  Budget talks should have been done in public.

Having John Boehner sneak into smoke-filled rooms with Obama (both, after all, do smoke), had two terrible consequences.  First, it made Republicans look weak because, every time Obama made a ridiculous offer, Boehner came back with a counter offer.  Second, and this is the important one, Boehner utterly deprived Republicans of the chance to make their fiscal arguments out loud, directly to the American public.  Worse, by giving Obama the shelter of closed doors, Boehner protected him and his fellow Demos from having to defend a demand for more money without any significant spending cuts.

As it is, Republicans are now stuck with headlines that make it look as if they’re unwilling to tax bazillionaires, even though the principle driving their refusal to vote for Plan B revolves around Obama’s unwillingness to cut spending.

When will Republicans ever learn that Democrats don’t play fair, whether in back-room negotiations or on the front pages of the American media?  Honestly, if Democrats are bad because they’re dishonest and manipulative, Republicans are proving that they’re worse, because they’re too dumb to live.

Peanuts-Lucy-holds-football-for-Charlie-Brown