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

Thomas Sowell on the fallacy of liberal ideas

“Who’s Thomas Sowell?” my daughter asked.

“He’s a genius,” I replied.

“Why?”

“Because he has the rare gift of simplifying very complex ideas without dumbing them down.”

See for yourself:

After listening to Sowell, my blog’s motto seems appropriate:  “Conservatives deal with facts and reach conclusions; liberals have conclusions and sell them as facts.”

Hat tip: American Thinker

I’m shocked! Shocked! The Obama administration has been lying again.

Conservatives of all religious stripes have been attacking the ObamaCare mandate regarding birth control and abortifacients on religious grounds.  The Obama administration’s response was to introduce an “accommodation” under which the insurance companies will henceforth offer these medicines and services for “free.”

Anybody past the age of five understands that, in this life, nothing is free.  The same opponents immediately pointed out that religious institutions and people of conscience will still be funding an insurance package that includes morally reprehensible products.  After all, someone has to pay, right?

Wrong! says the administration.  No one has to pay because all “health care” products have a negative cost effect on the insurance companies.  By forcing the companies to provide preventive services for free, the Obama administration is actually saving the company’s money.  Never mind the fact that, in the real world, if there really was a cost savings, the insurance companies would already be offering these products and services for free — and then, in order to compete in the insurance market, they would be passing these savings along to their customers.

Aside from ignoring marketplace realities, the Obama administration is apparently lying as well:

[T]here is no evidence that a mandate on insurance companies to provide contraception is cost-neutral. A search of PubMedturns up nothing.

Tory Bunce, policy director at the conservative Council for Affordable Health Insurance, told IBD, “In our research, we’ve looked at the cost of mandates on the state level. We’ve asked our members to price these mandates in their actual policies. What we’ve been told from the actuaries is that the contraceptive mandate costs 1%-3% of premiums.”

Read more here about yet another administration lie, one that a complicit MSM cheerfully passes along to a credulous public.

The Dark World of Krugman

We have an odd family friend. Fundamentally, she is a nice person and sports a very unconventional view of the world that occasionally emotes great insights into the human condition. She has a major flaw, however, one that she admits as a character flaw: she is an unabashed hater. Despite her husband, kids and friends being conservative, she targets her venom at conservatives. We who love her nonetheless, understand: “conservatives” remind her of her father, a redneck sort of fellow who was a very bad father. She blames him for her mother’s suicide, which occurred when she was very young.

 

If you dig deep into people’s psyches, you can often find the reason for visceral hatreds and, usually but not always, they have to do with childhood experiences. As Oprah (an abused child) famously remarked, some people seem incapable of shedding their childhood baggage.

 

So, what is it with Paul Krugman, once a brilliant economist and now a dark troll fulminating ugly thoughts under stone bridges in Liberal-land? This article, contributed by Peter Foster in Canada’s Financial Post, does a brilliant dissection of Krugman’s visceral hatreds and the warped views he espouses on economics, conservatives and climate change (some of which have been repeated rote on this blog by certain participants).

http://opinion.financialpost.com/2011/06/28/peter-foster-the-demons-in-krugmanomics/

 

What the article doesn’t do is explain from whence do Paul Krugman’s demons arise. What happened to cause his descent into madness?

 

 

The Business of China and U.S.

Given this blog’s recent flogging of the China versus U.S. (“us”) question, here is  a primary example of how China may surpass the U.S. by becoming more business friendly as it decentralizes while the U.S. risks having to learn the lessons of socialist history all over again as our over-regulated economy grinds down to a slow crawl.

In this linked article at the American Spectator, an entrepreneur compares and contrasts the difficulties of and disincentives for creating new businesses in our country, under our increasingly socialist, statist form of governance.

http://spectator.org/archives/2011/05/10/killing-manufacturing

Money quote: “Now, this is China so the government and the state share 30% of your business, but considering the ease of entry, increased in-country sales and helpful attitude, this is a small price to pay, especially considering America’s 35% plus corporate tax rates.”

Here, the author makes an excellent point: when the State demands 35% of a company’s earnings (I believe that Mafia shake-down artists usually demand a smaller percentage in protection money, but I may be wrong), the State de facto owns a 35% equity interest in the company…with only one major difference: it shares 0% of the risk borne by shareholders.

Is America on the road to becoming a socialist paradise like, say, Europe’s former Soviet Block during the 1960s? Naaah…don’t think so! Our future will not be one of mythical straight-line Progessive projections.

I predict instead that, given American individual initiative and creativity, our trajectory will be more like that of an Argentina – once a leading economic jewel, now a pathetic, tired, broke 3rd-world backwater. In such economic environs, two groups will prosper: the government-sanctioned nomenklatura and those clever and adept enough to profit from the inevitable underground economy.

Sad story!

When even Liberals wake up

Here is a financial report on USA, Inc., presented as a slide show, as developed by financial analysts.

Most of us Bookworm Room aficionados know that the economic state of health of our country is not good and getting worse. It is critical, actually. Unfortunately, there are many still wedded to Keynesian mythologies of the Hoover and FDR era who insist on bleeding the patient with leeches when major surgeries are warranted.

Where I see hope is that this devastating report, authored by Morgan Stanley analyst and Silicon Valley venture capitalist Mary Meeker, was supported by famous Liberal Democrat heavyweights such as Laura Tyson, Al Gore and Peter Orzag. Small rays of sunshine are beginning to enlighten the clinicians’ gloom. One can quibble with details (that General Motors has turned the corner, for example), but the core facts presented are solid and irrefutable. Scroll toward the end and visualize how this is not just the United States but the entire western world as we know it that is affected.

To solve a problem, one must first define the problem. Read it, skim it (just the graphs are explanatory enough) bookmark it, and use it to educate as many  people as you can. Because the real battles will begin when all of us must decide between surrendering our entitlements to the scalpel and turning off artificial life support altogether.

Our era is ending and we are seeing the first birth pangs of the new. Birth is a painful, bloody process.

H/T Richard Fernandez and Ace of Spades HQ.

***Update***

Some people have had trouble with the link above, so here is another link to the article.

Pyramid schemes — so simple even a child can understand them

Today, I told my children, who are 11 and 12, about pyramid schemes.  Since it’s always easiest for me to focus on people, I started my story with the first famous American pyramid schemer:  Charles Ponzi, who gave his name to the whole racket.

I explained the Ponzi scheme to the kids in the simplest of terms, using very easy math:  I told them that Ponzi promised his first investors that, if they gave him their money, he would give them double that amount back.  (I actually don’t know if he promised to double the money, but it was an easy concept for the kids to grasp.)  Excited by the prospective of money for nothing, these people readily handed their money to Ponzi.  They were the first tier of investors.

Ponzi then went out and found a larger number of investors, who also gave him their money.  These were the second tier of investors.  He took the money he received from the second tier, and gave it to the first tier.  The first tier was very happy.  Having done nothing, they nevertheless doubled their investment.  Many of them came back for more, reinvesting their money, and joining the third tier of investors.  With the money from that third tier, Ponzi paid off, big time, to the second tier.

This went on quite happily for a while, I told the kids, but then something inevitable happened:  Ponzi stopped finding a sufficient number of new investors whose fresh funds could pay off his old investors.  Since Ponzi was just moving money around — he was not providing a service or creating goods — the only thing that kept the money flowing was fresh blood.

So, I asked my attentive little audience, what happened then?  My 12 year old was quick with a reply:  “The whole system collapsed.”  Smart child.

Before I was even able to go on from them, my 11 year old, eyes suddenly widening, announced, “That’s like what the government does.  It takes money from people who work, and gives it to people who don’t work.”   Really smart child.

(By the way, I am absolutely not making this up.  That’s the story I told, and that is verbatim how my children responded, no editing, no augmenting.)

I leave you with a replay of Chris Christie, who speaks about the Day of Reckoning that will be inevitable unless we sharply turn away from the Progressive government’s giant Ponzi scheme:

Oh, I have one more “by the way,” apropos Gov. Chris Christie.  As you know, I believe lots of uninformed Americans voted for Obama, not because of his qualifications, but because they were swept away by the rapture of voting for the first black president.  I also read somewhere that a candidate in Texas is running, not on her actual qualifications for the job, but on her promise to the voters that, if they vote for her, she’ll be the first transgendered whatever it is she’s running for.

I mean, honestly, the way the media frames elections lately, the most important thing is to push the identity politics side of someone’s candidacy as the primary consideration, trumping all other matters.  So how about all of us starting a campaign for Chris Christie, promising Americans that, if he wins, he’ll be the first rotund president in the 21st Century, and the first since William Howard Taft?

After all, considering how badly people of weight are treated in America, it seems to me that Christie is already well on his way to wearing the victim moniker so beloved of the press.  The only problem, of course, is that Christie might, just might, be offended by victim/identity politics status, and might actually want to run on issues and competency.

The illogical behavior and beliefs of the American Statist

“Logic! Why don’t they teach logic at these schools?” — C.S. Lewis, The Lion, the Witch and the Wardrobe

Neither Data nor Mr. Spock, two relentlessly logical creations, could ever be liberals or Democrats or Progressives, or whatever the Hell else they’re calling themselves nowadays.  (For convenience, I’ll just lump them all together under the “Statist” title).  As I realized over the 20 plus years of my political journey from knee-jerk Statist to thinking Individualist, the single greatest difference between the two ideologies is that the former lives in a logic-free world.

Sure, as Statists will always shrilly point out, more Individualists than Statists subscribe to traditional religion — and the belief in God definitely requires a leap of faith — but that’s just about the only leap of faith in their lives.  Their political positions are almost always driven by a solid understanding, not only of human nature, but also of the realities of cause and effect.  Liberals, on the other hand, even as they pride themselves on the logic of their abandoning God (never mind that they cannot satisfactorily prove God’s nonexistence), apply magical thinking to just about everything else.

Here, in no particular order, is a laundry list of illogical policies espoused by Statists (with the understanding that modern statism is driven by identity politics and self-loathing):

Statists believe that America’s out-of-control illegal immigration has nothing to do with the fact that, when illegal immigrants sneak across the border, we provide them with education, health care, welfare, food stamps, and the promise that they will be allowed to remain in the country regardless of their unlawful status.  These same Statists, blind to the laws of cause and effect, are always shocked when temporary crackdowns result in a corollary (and, equally temporary) diminution in the number of illegal aliens.

Statists are wedded to the idea that government creates wealth.  To this end, they are bound and determined to use taxes to consolidate as much money as possible in government hands so that the government can go about its magical wealth creation business.  The fact that those countries that have all or most of their wealth concentrated in government hands have collapsed economically (Eastern Europe, Cuba) or are in the process of collapsing (Western Europe) doesn’t impinge on this belief.  As even my 10 year old and 12 year old understand, the government’s ability to print money is not the same as an ability to create wealth.  The best way for a government to create wealth is to ensure a level playing field with honestly enforced rules — and then to get out of the way.

Statists believe that no-strings-attached welfare has nothing to do with the creation of a welfare culture.  My father, the ex-Communist, figured this one out:  “If you’re going to pay women to have babies (meaning constantly increasing welfare benefits), they’re going to have babies.”  In 1994, a Republican Congress forced Clinton to change “welfare as we know it.”  To the Statists’ chagrin, all their dire predictions about weening Americans off the government teat proved false.  Poor people are not stupid people.  If they’re getting paid to do nothing, they’ll do nothing.  If that money vanishes, they’ll work.  By the way, I’m not arguing here against charity for those who cannot care for themselves.  I’m only railing against a political system that encourages whole classes of people to abandon employment.  This subject is relevant now, in 2010, because there is no doubt but that, Rahm-like, Democrats are using the current economic situation as a backdoor to increase welfare benefits to pre-1994 standards.

During the run-up to the ObamaCare vote, Statists adamantly contended that, even if employers would find it far cheaper to pay fines than to provide insurance coverage for their employees, they would still provide coverage.  Likewise, they refused to acknowledge that, if insurers could no longer refuse coverage for preexisting conditions, and if individual fines were cheaper than insurance, savvy consumers would jettison insurance and wait until they were actively ill before knocking on the insurer’s door.  In both cases, the Statists’ illogical beliefs about human nature and economics were proven absolutely and conclusively wrong.  (Info and examples are here, here and here.)

For decades, Statists have contended that if we can just get guns out of citizens’ hands crime will go away.  To the Statists, the problem isn’t one of culture and policing, it’s that the guns themselves cause crime.  What’s fascinating is that they continue in this belief despite manifest evidence that it is untrue.  The NRA was right all along:  If guns are outlawed, only outlaws will have guns.

Statists firmly believe that Individualists (a group that includes Republicans, conservatives, libertarians, and other “bitter” Americans), are an angry mob, primed and ready to explode against all non-white, non-straight, non-Christians.  They do so despite hard evidence that angry mobs, as opposed to scattered angry individuals, reside solely on the Left, anti-American side of the political spectrum.

Statist gays, who feel obligated to be Leftists because of identity politics, throw their wholehearted support behind Palestinians, whom they see as the beleaguered victims of evil Israeli imperialism.  They hold to this view despite the fact that Palestinians kills gays, and Palestinian gays regularly try to immigrate to the safe haven of Israel.  In the same way, Statist gays, hewing to their solid Leftist credentials, side with Iran against America, despite the fact that Iran is able to boast about the absence of homosexuals only because it routinely kills them.

Statist blacks, who feel obligated to be Leftists  because of identity politics, are deeply hostile to the police.  While there is absolutely no doubt that, in the past, police routinely harassed, arrested, and killed black people just for being black, we’re not living in the past anymore.  In modern America, the person most likely to kill a black person is another black person.  Blacks need police more than I do, sitting in my comfortable safe, suburbia — yet it’s here, in white suburbia, that our police force, which is largely decorative, is appreciated and admired.

American Statists believe that, if you placate a bully, he will see the error of his ways and become nice.  It didn’t work for Chamberlain in 1938, and I’m pretty damned sure it won’t work for us, whether the bully is Iran, Venezuela, China, Russia or any other totalitarian government intent upon expanding its power beyond its own borders.  I’m not advocating unbridled aggression our part.  That would mean we’re no better than the bullies arrayed against us.  I’m more of a Teddy Roosevelt, in that I’ll allow us to speak softly, as long as we carry a big stick.  Self-defense is not aggression — and sometimes you have to fight to defend a principle, a person, or a nation.

Statist women are silent, absolutely silent, about the condition of women across most of the Muslim world.  I think I’ll rename them “sadist” women, not “statist” women.

Statists tout as a quality Supreme Court justice Elena Kagan, who violated American law to bar the military from her campus because of Clinton’s don’t ask/don’t tell policy, but who cheerfully accepted millions of dollars and a chair from the same Saudis who murder homosexuals and treat women like 32nd class citizens.  There’s logic for you.

I opened this post with a quotation from C.S. Lewis regarding the absence of logic in education.  We can see the profoundly dangerous effect that lack of logic has on real world policies.  I’ll end with Tweedledee and Tweedledum opining on logic in a way that only a Statist could appreciate and understand:

“I know what you’re thinking about,” said Tweedledum: “but it isn’t so, nohow.”

“Contrariwise,” continued Tweedledee, “if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”

The politics of City budgets in liberal cities *UPDATED*

I’ve noted before that San Francisco (consistent with Democratic-run cities and states everywhere) is terribly cash-strapped.  But politics will always trump practicality.  Exactly one month ago, despite the fact that the school district is pretty much broke, the Board of Education voted, not just to cut education programs quite drastically, but also to put into place a brand-new, expensive gay rights program.

Now, despite trembling on the verge of fiscal bankruptcy (I think it’s already crossed the verge into moral bankruptcy), the city is planning on sending good money after bad by keeping afloat a LGBT community center that has been a money loser since the day it opened:

Eight years after opening with great fanfare, San Francisco’s city-subsidized, $12.3 million Lesbian, Gay, Bisexual and Transgender Community Center is on the verge of foreclosure – and is asking the cash-strapped city for a $1 million line of credit to help bail it out.

And from the looks of things, the center will probably get it.

The thinking: The city has already spent about $5.7 million on the building at Market and Octavia streets and needs to “make sure it doesn’t go under,” said Supervisor David Campos, who along with fellow gay Supervisor Bevan Dufty is seeking approval of a $1 million “mortgage relief” fund.

Even that, however, might not be enough to save the center.

According to a new report by the Board of Supervisors budget analyst, the center could need even more public funds to cover the nearly $3 million that it still owes on its mortgage.

“Clearly, it’s unprecedented,” Campos said of the bailout proposal. “But I do believe there is something unique about the role the LGBT Center plays – not only in the life of the community, but the entire city.”

Located at the gateway to the Castro district, the LGBT Center and its staff of 24 offers everything from counseling and job training to HIV prevention and arts programs. Of its $1.8 million budget, $777,000 consists of city contracts.

But the center has never made the money it expected from renting out rooms to community groups, and with the recession there has been a drop-off in contracts and in contributions from foundations and individuals.

This is the difference, of course, between the real world and the tax payer supported political world.  In the real world, if something doesn’t work, even something beloved and symbolic, the person in charge of finances (whether household or business) bids that something, whatever that “something” is, a reluctant farewell.  In the world of politics — or, at least, the world of liberal politics, which sees every taxpayer as an endless money spigot — finance-draining programs just keep going on going.

We see the same thing in the protests regarding cuts at the University of California.  Unlike the protests in the 1960s, which were at least draped in vaguely altruistic colors (never mind that the college boys were mostly trying to avoid the draft as they opposed the “imperialist” Vietnam War), the current round of protests has simply seen a lot of spoiled kids whining that less government money will flow to them.  They seem unperturbed that there is, simply, less government money to flow anywhere.  These kids have been raised with their mouths firmly latched on to the government teat, and they’re going to be damned before they stop demanding an unending flow.  That the animal attached to the teat is dying from being over-milked is a petty inconvenience.

UPDATE:  Per the Wall Street Journal, we learn that those college kids would have done better to picket union headquarters.

Obama’s Great Leap Forward *UPDATED*

If you were wondering what Obama and the maniacal Democrats were doing, James Lewis finally puts a name to it.  It’s the Great Leap Forward:

Even the Europeans are resisting hyper-deficits, because Europe always has that memory of the 1920s and 30s: hyperinflation, unemployment, crushing poverty and despair, followed by Hitler and Stalin. They are refusing to follow Obama down that road. If the dollar crashes, they don’t want the euro to go down with it.

Super-deficits are bad for the country and for the world, but the Obamanites are sleep-walking, hypnotized by an idée fixe, and it’s unvarnished socialism. They expect the US to get to socialism in one great leap, guided by the Great One. If it takes even more of a crisis, with real suffering spreading nationwide, so be it. They are ready to see other people go down.

It took Western Europe five decades to get that far down the road to decadence, and they had the US military to protect them while they were doing it. As a result, even today they may not be able to produce a heavy lift military transport aircraft; that’s how much they have diverted their resources from self-defense to vote buying.

But Obama wants to do it, oh, about ten times as fast as Europe did, and steal the money from the Veterans Administration to boot. What Obama contemplates doing to the VA tells us everything we need to know about his plans for socialized medicine. He will take the money wherever he can steal it, whether the US government has made solemn commitments to care for wounded vets or not.

UPDATE: Showing the ability to hold two thoughts at the same time, Obama is not only a Maoist visionary, he’s an ordinary corrupt capitalist too.  (H/T:  Dr. Melissa Clouthier.)

Democrats in a nutshell

Mary Katharine Ham caught John Kerry finally admitting what Democrats fear most of all:  that people will take control over their own destinies, without the elite in government dictating how their hard earned money should be spent.  Perhaps if Kerry had ever held a real job and earned the money himself, he might have had a different attitude than the one she exposes:

Sen. John Kerry took to the Senate floor today to pace, rant, and raise his voice in a monotone simulation of human passion as he spoke up for the massive spending bill the Democrats want to pass today under the guise of “stimulus.”

During his speech, he addressed the argument made by fellow senators and many economists that tax cuts might be more helpful to stimulating the economy than long-term government spending. The American people are also coming around to that view, according to a recent CBS poll, which found only 22 percent of them favor more government spending over tax cuts as stimulus.

His argument against tax cuts for Americans during these hard economic times was illuminating:

I’ve supported many tax cuts over the years, and there are tax cuts in this proposal. But a tax cut is non-targeted.

If you put a tax cut into the hands of a business or family, there’s no guarantee that they’re going to invest that or invest it in America.

They’re free to go invest anywhere that they want if they choose to invest.

Indeed, people with their own hard-earned money in their own pockets are free to spend, save, invest, or not wherever they please. Kerry betrays the fear that haunts every good liberal— that the American people won’t spend their money on exactly what good liberals would spend it on. Good liberals must, therefore, advocate for forcibly relieving the American people of the better part of a trillion dollars of their own money to fund things like STD education, welfare programs, and water parks.

Senators like Kerry have placed their own ideological desires over the right of the American people to a clean stimulus bill without the long-term spending even Obama himself admits is in it.

You can read the rest of Ham’s scarily accurate post about Kerry and liberal elitism here.

Economic incest

I’m not an economist and I don’t even play one on TV.  I am a one-time history major, though, and someone with the kind of knowledge-base that’s built up over years of being an autodidact, an employee and a small business owner.  While I don’t understand economics at a complex level (I’m a lousy investor), I have a very good understanding of how currency developed, how credit developed, what purpose taxes serve, etc.  I’m also good at explaining complex ideas in fairly simple terms.

So, in simple terms, I’m going to explain government’s role regarding money, spending and taxes.  This is precisely the same lecture I gave my 6th and 4th graders, both of whom understood what I was saying.

In the old days — the really old days — there was no money.  Instead, there were goods.  You had wheat and wanted a cow.  I had a cow and wanted wheat.  We were a match made in heaven, trading our goods to fulfill our desires.

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 an entire cow.

There was also 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.

Gold’s a great substance.  It’s beautiful, infinitely malleable; it blends well with other metals; it doesn’t degrade; it can be replenished, although the effort needed to replenish it ensures the rarity that’s necessary to its value as a trade-able commodity.  The only downside to gold is that it’s heavy.  Very, very heavy.  Get enough gold together, and you’ve got the weight of that cow — and, once again, your purse isn’t big enough, which is a subject I’ll revisit in a moment.

In all societies, some people, whether through trade or warfare, 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 those subordinate to them pay them protection money, which amounted to protection both from harassment by that same leader and from attacks launched by enemies outside of the kingdom.  Eventually, this protection racket got formalized as taxes.  The leadership also discovered that, in addition to protection services, there was a virtue in providing basic services within the kingdom, such as roads, minimal care for the very poor, etc.

But back to those grand clumps of heavy, heavy gold.  Someone eventually got the idea that, rather than have gold, it would be a good idea to have paper and coins of lightweight medal that stood in for the gold.  Credit was also a useful substitute for dragging around that cold, gold metal.  Of course, you couldn’t have just random sheets of paper or chunks of copper roaming around, because 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 this paper was to delegate to a single entity the task of guarding the real gold and issuing the substitute paper.  That entity was the government.

There are two important things to remember at this point:  First, this paper’s worth is always relative to the gold.  If the gold is finite, but you print more paper, the paper devalues.  In that latter scenario, where one piece of paper once represented enough gold to buy a gallon of milk, it now would take five pieces of paper to by the same gallon.

Second, and this is the really important thing, one must remember that, nowadays, unlike the feudal lord of old who went and out raped another country for its gold, today’s government doesn’t generate the gold; it just generates the paper.  Government doesn’t make wealth.  To the extent the government has wealth, it’s because it uses its police power to demand that we give it our 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.

I’m sure you’re all with me at this point, and you’re still bewildered by my post title:  “economic incest.”  That concept arises from the fact that, when government “creates” jobs and programs, the most it can do is to rob Peter to pay Paul.  Thus, if I, the government, give you a government job I, the government, in turn tax you to raise money to pay for that job.  The net result is that the money travels out of one government pocket and right back into the other.

For a brief while, when you first start shoveling this money into government funded programs, there’s a little pop into the economy as you, my little government employee, pay money for food, clothes, and shelter, etc.  However, your government job, because this is the nature of government jobs, doesn’t create new wealth.  It’s kind of busy work.  And having too many busy-work jobs means that the economy contracts.  There’s no innovation.  There’s no energy.  And the population, because it’s been sedated by the constant low flow of government funds, becomes passive, lazy and uncreative.

Aside from a torpid population, this cycle of paying people to do busy work so that they’ll have money to pay taxes back into the government creates the incest I mentioned earlier.  Keep in mind that, in terms of a biological population, incest occurs when there is no new genetic material.  If the same gene pool keeps recycling itself, it replicates errors, useful genes vanish, bad genes multiply, and you rather quickly end up with the Hapsburgs:  ugly and insane.

The same thing occurs within the closed circle of a completely government run economy.  It’s the same money cycling endlessly around.  No new money, no new ideas.  Instead, everyone constantly siphons off a little, government bureaucrats make mistakes that result in gold vanishing permanently, and corruption becomes the only way for those in the power seat to generate a little private wealth.  Incest in the economy results in the economic equivalent of the Hapsburgs — a North Korean style economy, where the only people not starving are the elite.

If you’re still with me at this point, you understand why socialism is so dangerous.  It weakens national wealth by endlessly cycling a constantly contracting money supply through the same government pockets, without the energetic infusions of true capitalism.

This actually isn’t a very complicated concept.  And yet our esteemed, Ivy League educated president, the one who has never really held down a job or fully entered the economy, doesn’t get it.  In his angry, uncontrolled speech to the House Democrats, Obama, after the school yard insults were over, had this to say:

So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That’s the whole point. No, seriously. (Laughter.) That’s the point.

At Power Line, Paul eviscerates the ignorant inanity behind that statement:

Under this “logic,” any bill that contains spending should be enacted because, by definition, it provides “stimulus.” It doesn’t matter how much stimulus is provided or when the stimulus will occur. This is quite possibly the most irresponsible position ever taken by a president on an economic issue.

Just a few weeks ago, in his inauguration speech, Obama said that his touchstone for governmental action is how well it will work. Now the touchstone is whether it constitutes spending.

A highway project will “work” better, i.e., provide more stimulus, than a Pell grant. A program that spends money in six months (or one that provides tax relief even more quickly) will work better as a response to the recession than a program that will result in a government expenditure years down the road when the recession likely will be over.

Obama is correct that, given enough time, every spending program in the Democratic plan will result in putting money into the economy, and thus produce some degree of economic stimulus. The problem is that given enough time, every spending program in that plan will have to be paid for by taking money out of the economy. The result of taking money out of the economy is the opposite of stimulus.

When Obama got elected, all of us worried about the fact that a Marxist economist had entered the White House.  It may be worse than that.  With his statements about the necessity for spending just to spend, Obama may have gone one step beyond the foolishness of Marxist economics, and entered the realm of out and out stupidity.  Perhaps the next time he escapes the White House to spend time with elementary school children, he needs to sit down for a good elementary school level lecture about the nature of money, government, and initiative.

Cross-posted at Right Wing News