More Bailouts Are The Answer!

The New York Times has an editorial piece out blasting Germany for not bailing out the rest of Europe.  The Times says that Germany has the resources to shore up the PIIGS that are on the brink of bankruptcy and that they should do so in order to buy time for those weaker states to shore up their own systems.  Also, the European Central Bank should be allowed to print off money to buy bonds from those broke nations in order to reduce the interest paid on national debt. 

I'm puzzled by this and can't help but wonder if the Time's only goal in the world is to destroy those that are prosperous and successful.  Does anyone in this world believe that if Germany bailed out the PIIGS in the short term that these bankrupt nations would seriously reform their own systems?  These countries are bankrupt because their politicians do not want to increase taxes or decrease spending; if they don't have to, they won't.  Bailing them out now puts off making the responsible choices.  This is fact; Greece has already been bailed out and still hasn't fixed their situation.  Austerity measures nearly brought down their government.  A short term bailout buys a year, maybe, at a massive expense for Germany, but doesn't fix the problem at all.  

Similarly, printing off money, an option that should be considered a joke anyway, won't help.  Yes, interest rates may go down for a short period of time, but the more of that bad debt you buy and monetize, the higher inflation is going to go throughout Europe.  Once again, those bailed out nations have no incentive to act responsibly if someone else is paying the bill.  And interest rates are, in fact, reasonable.  Greece, Italy, and Spain are bankrupt.  It is a high risk proposition to lend to those nations.  Screwing over responsible nations to lower interest rates for irresponsible ones isn't going to give incentive for governments to act responsibly. 

Read that entire Times piece.  Does it anywhere say how reform will be brought to the poorer nations with this extremely risky bet they urge Germany to take?  No, it doesn't.  Germany has no responsibility to pay for the foolishness of other nations and gains nothing by doing so. Without a solid plan putting forward how the PIIGS will sure up their own fiscal situations without bailouts in the future, a German bailout only buys a year or so of extra time before the crunch hits, this time with Germany lacking the resources to survive as well. 

Hard times are in store for Europe.  I'm thoroughly tired of people borrowing themselves into a boom and then wanting others to save them during the bust. 

This Isn't Helping

For those not living in the upstate New York region, we've been hit with a major flood, arguably the worst this area has ever seen in some three hundred years of being inhabited by Westerners.  Entire towns such as Owego were under water, have no utilities, and after six days, no real access to groceries.  Enter New York's attorney general:

"As hurricane and flood victims work to get their lives and property back in order, my office stands ready to enforce price-gouging laws so that no one is taken advantage of in this difficult time. New Yorkers are strong and resilient, and our state will recover stronger than before, but consumers must be protected throughout this process."

This is not helpful.  Yes, to one who doesn't think about it for more than two seconds, a very sudden rise in prices during an emergency might seem like a horrible thing to do.  If you're buying up canned goods, you're going to complain about how all of a sudden you have to pay so much more because something bad happened to you.  Clearly unfair, right?

That is, until the guy who can't get to the store until four hours later shows up.  If prices remain low, all of the scarce goods will be gone by whomever gets into the store first, as these people are stocking up for the long haul.  Those who show up later get nothing.  Not they have to pay so much more, but rather they get no food at all.  Higher prices means people buy less; people buying less means other people can have a shot at buying scarce products. 

The market is not broken, even during times of emergency.  Ironically, the laws to prevent "greedy capitalists from exploiting people during tragedies" really puts the screws to those who need resources the most. 

Sometimes, you have to think about morality for more than the nanosecond it takes to form a gut reaction to something in order to find out the truth of the matter. 

I work in the only grocery store that will be open as of tomorrow at 9 AM.  We're not raising prices.  Try as we will to get shipments in, we could very well run out of a lot of products pretty quickly. 

The Daily Snark 8/23

I like Tyler Cowen's blog, Marginal Revolution. He's a pretty bright guy, very well read, and of a very calm demeanor online. Based on the comments, I think his attempt at snark went over people's heads on this post, though.

Anyway, I recommend reading Matt Yglesias's original post that Cowen is responding to. If you spend any time in the real world, or if in particular you work in a grocery store (like myself), it shouldn't take you long to spot the problems. For starters, the grocery store being robbed isn't as likely to hire new people and may be more likely to let people go. A lot of money is moving through these stores, sure, but not a lot of it is profit. You would have to steal a lot of product from a particular manufacturer in order to be noticeable (no company producing goods is going to go out and hire new people over a five dollar spike) and long term (no company producing goods is going to go out and hire new people over a two week spike). Random theft at a store isn't going to meet those conditions. Even prolonged shoplifting won't meet those conditions if different goods are taken, but repeatedly stealing noticeable amounts of a single product tends to be, well, noticeable. Which is a bad plan for shoplifting.

If you read Chapter III of The Theory and Practice of Oligarchical Collectivism and think you now possess a great theory for stimulating our economy, go drink yourself stupid and start all over.

By this reasoning, those riots in London were a godsend. I don't think Yglesias is dumb enough to actually be proposing people go out and steal, but saying moving closer towards an abandonment of the rule of law by the people doesn't strike me as a good thing, no matter how it comes about.

Why Our Credit Rating Was Downgraded

Simply put, this is why credit agencies are beginning to distrust the American government's ability and willingness to pay back its debt in the long term. Robert Reich is not some random leftist political blogger; he is a former Secretary of Labor. When people who have been entrusted with high power in this nation are saying we ought not deal with the massive amount of debt we are under until it crushes us, credit agencies have good reason to be fearful of our financial sanity.

Consider Reich's analogy in the first two paragraphs. Basically, it's all wrong. One faction, the Tea Party, is refusing to turn on the hoses because the faction in power (the Left) refuses to deal with the long term water shortage problem, but they did manage to find water to fill an Olympic sized swimming pool which they named the Stimulus.

Reich's entire position is, we'll deal with that massive debt crisis when it hits. It is almost unbelievable that anyone would take that position. Let me use a different analogy to explain why: imagine the country is a canoe on the Niagara River. One of the paddlers, the Tea Party, is saying we need to go on shore now rather than move closer to the Falls. The other paddler, the Reich leftists, says that's a "long term problem" that can be dealt with later and isn't worth putting off fun now for.

Here's the problem: at some point, the current will become so strong that even if the paddlers turn around and go full steam, the current will still carry them over the Falls. We don't know where this point is, other than that it exists at some point before we actually go over the Falls.

The Tea Party risked a short term but large cut in government spending with the debt ceiling debate. The Left, on the other hand, is risking catastrophic economic collapse within the next decade. If you look at the deal reached, no significant cuts are made. We're staying in the canoe and moving to the point of no return.

S&P is the lifeguardish figure in the analogy. Their sole goal is to warn when people are acting irresponsibly. I think it is justified that they would be blowing their whistle right about now.

Reich goes on to mention that European nations are actually past that point of no return and are going to go over the Falls. Amazingly, he then goes on to say that America has plenty of money and won't ever find a point of no return. Our debt is now over 100% of the GDP, but we have plenty of money, apparently! Yes, we could pay off our debt, but it would bankrupt our nation. The same could be said of those European nations if they were willing to bankrupt their citizens. They're not, and neither will we be.

Probably the biggest concern I have here is that Reich honestly seems to think more government spending will somehow improve the economy. The United States has increased its spending by 30% in three years, jobs have disappeared, economic growth has been anemic at best, but Reich thinks yet more spending (and more debt) will solve our problem, all of this in light of Europe's debt implosion.

The American Left is out of bullets. They tried spending incredible amounts of money to stimulate the economy, but in fact it actually backfired and made things worse. Rather than admitting that they were wrong, this faction has opted to scream at the Tea Party for trying to deal with a very serious and very real debt problem that will overtake us in the next decade if we do not change course immediately. Since the day dreamers have the Senate and the White House, no long term solution (which, admittedly, will be painful) is possible. We have a party that believes tomorrow's apocalyptic problems should be put off until the day after tomorrow. That is why S&P downgraded our credit rating.

The Daily Snark 7/8

From economics21.org

To those of us who are dying to find decent work and strongly questioned the value of the Stimulus, this is enraging. And that's not hyperbole; I'm freaking seeing red over this.

The same government, in fact, the same people who brought us this chart also told us ObamaCare would pay for itself. Do you still believe those people? The evidence, provided by the Obama Administration itself, shows that we would have lower unemployment had the Stimulus never been passed. Nearly $800,000,000,000.00 that we don't have was spent to make things worse.

The difference between where we are and where it was predicted we would be is nearly roughly 2.5% of the workforce. That's approximately 3,825,000 people who would have jobs. Mind you, that doesn't include the millions who have just flat out given up hope and dropped out of the workforce.

Clearly, this "Stimulus" is an unmitigated failure. Unbelievably, the Administration is still trying to sell it as a success. We may be unemployed, Mr. President, but we're not stupid. The numbers don't lie.

The Daily Snark 7/5

From Reuters:

In talks led by Vice President Joe Biden, negotiators had tentatively agreed to reduce discretionary spending, which covers everything from space exploration to pollution control, by between $900 billion and $1.3 trillion over 10 years, according to aides from both parties.

I think this debt limit deadlock is a bigger problem than the media has let on. As I've pointed out, no, if a deal if not reached by August 2nd the United States will not go into default as we have enough money coming in from taxes to cover all incoming debt obligations. What we don't have is money to cover much else. That kind of shock could be catastrophic on our weak economy (no, not on the "recovery" that doesn't exist).

But here's the problem. Biden's deal offers Republicans and libertarians a $90-130 billion cut per year. That would be a 2.5-3.6% cut of all Federal spending. Now, this same Administration has raised Federal spending by over 30% over the last two years, not including the upcoming spending on ObamaCare. That's not even remotely good enough. We have a $1.5 trillion deficit for this year alone; those proposed cuts would equal about 1/15th of that deficit. Also, most of those cuts come in the future, which is assuming future Congresses will be more likely to take political damage for cutting spending programs for specific constituents than our current Congress is. This agreement cannot actually bind Congress in 2019 from not following it.

In effect, Democrats are offering us cuts "in the future" without any assurance that those cuts will in fact be made. And those cuts are not enough. Republicans should continue to press for more cuts in the immediate future; Democrats can either accept that or deal with the very sudden 44% cut in spending come August. I'm not certain a deal is going to be forthcoming; I actually have to hope not if this is the best defenders of liberty and property rights can get out of the statists.

The Daily Snark 6/17

Greece's two year bonds are now issued at 30% interest.

30 freaking percent on debt. My credit card is significantly lower than that. There is no situation that does not involve a Greek default save for the rest of Europe to take on nearly a half trillion dollars of debt into their own not so pretty balance sheets. And if they did that, they would have to do the same for Portugal (another half trillion dollars), Ireland, and likely Spain. That's not possible. Greece will go under, it will take the Euro with it, it will devastate the credit markets again, and it will happen soon, as in within the next two years but more likely the next six months.

It will be fun to see how this is spun to attack capitalism like the housing market was.

The Daily Snark 6/15

You know an economy is in bad shape when the best thing the President can do to ease financial hardships is sign autographs in his own handwriting.

Other signs include "reshuffling" your government to somehow help an economic crisis. Apparently the Greeks don't realize this isn't an game of actual cards. That's too bad, since their strategy up until this point seems to have been bluff everyone into believing Greece won't go bankrupt in the very short future.

The Daily Snark 6/9

Does anything else need to be said? Pretty clearly, those "wonderkids" in the Obama Administration had no actual idea as to what they were doing when they spent nearly $800 billion on the Stimulus. In fact, by their own numbers, we would have been better off not spending a dime of that and keeping the debt lower. A 6.5% unemployment rate right now is a laughable notion, but there's the prediction. The multiplier effect government spending was magically supposed to have surprisingly didn't happen. Of course, no reason was ever put forward for why it would occur, but who can blame the top economic officials in the nation for not having a plausible reason for their wildly optimistic projections?

Now apply this same level of accuracy to the Left's forecast of ObamaCare and entitlement spending and you will see why I am concerned.

(chart from economics21.org)

The Daily Snark 6/8

Someone in this nation seriously believes instantly jacking up gas prices by a $1/gallon overnight is a good idea? Yeah, that won't increase the prices of everything on people who can already not afford things. What wonders that will do for the economy! People like me can't afford to go and buy a new GM eco saver tomorrow, so this screws anyone not thinking about buying a car in the next six months, which is just about everyone.

You know who would make money? The guy proposing the tax, who just happens to be the CEO of GM. This is called corporatism, and it is a bad idea. As any libertarian worth his salt can tell you, government interference in the free market is a bad thing outside of protecting rights. Equal tax rates is as important as low tax rates.

Raising taxes to benefit a company that just happens to be partially owned by the federal government couldn't possibly be corrupt, right? This is the same organization that currently has $62 trillion in unfunded liabilities. That article is a must read. If any private company had such unreported liabilities, their CEO would be in jail for a very long time. For some reason, Uncle Sam gets to play by a different rule. Maybe, just maybe, that's because Uncle Sam is the rule maker rather than because of any legitimate reason.

A Good Book Can Be Dangerous

John Steinbeck's The Grapes of Wrath is one of those rare books that can captivate any reader with a gripping story that compels one to the author's philosophy, which is always whispered just audibly into the mind's ear so subtly that we believe the thoughts to be our own. There is no need to scream, like Ayn Rand, about the hardships and injustices faced by the Joads and the millions of real farmers they represent; the reader's conscience is already aflame long before the book ends or a single mention is made of economic systems, businesses, or the government. Steinbeck's ability to move his reader's passion is created by his undeniable talent as a novelist, the truly difficult position technological advancement can put people into, and mankind's innate desire to side with the underdog, in particular when that underdog has no serious moral failings. What he does not do, however, is tell the whole story. Justice does not always reside with the popular champion, and hard as it may be to challenge the unthinking sensibilities of the masses, we must defend those who are our just benefactors. The Joads may be unjustly treated by Chance or God, but they have not been mistreated by men in the form of corporations and employers.

While set in the same time period as the Great Depression, The Grapes of Wrath is not actually a book about that phenomena. Rather, this book and the story it tells is brought about by the sheer economic fact that those who cannot keep up with the times are left behind. Mechanization, not tumbling stock prices, is the prime mover behind the Joad's discomfiture. The 1920's and 30's witnessed the introduction of petroleum based machines overtaking hand and horse drawn equipment. As with every new technology, supply always begins off low for these revolutionary machines, and with their ability to create higher profits, demand is high, creating high prices the average person cannot afford. This situation is hardly the result of some conspiracy. It is impossible to create high supply of a new technology overnight; this is just a basic fact. Demand must be high in order to give the producer an incentive to create more. These high prices at first may seem unfair to the layman, but in fact is the catalyst that improves all of our lives.

This, of course, does not alleviate the situation of the Joads. Change, no matter how beneficial it is to many people, is still hard on the old guard that benefited from the old order. Those who produced sails were ruined by the advent of the steam engine; producers of the steam engine were likewise taken over by the internal combustion engine. it is easy to hate the companies that buy up the land the Joads can no longer profitably operate, until we ask what it is the company did that is so evil. Producing cheap and abundant food can only be seen as an evil to one who has never had to deal with an acute shortage of food. Rather than hate the man on the tractor, we should applaud his productivity, of which we benefit. The Joads may have put their blood and sweat into that patch of land for generations, but that does not absolve them from the laws of economic reality. No amount of sentimentality ever can.

Von Mises' book, Human Action, is far less entertaining but far more accurate in describing reality and justice. There is no "right" to never go backwards or to maintain one's place in the world; it must always be earned anew. Steinbeck makes this family particularly sympathetic by showing they have no serious moral flaws and are nice folks. What is not mentioned is that they do not offer much to society, to their fellow men and women, in terms of usefulness. Their farming techniques could not feed as many children as the company's tractors could. Picking fruit is not a rare skill that is in high demand. While it may seem unjust to the Joads and to the reader that these folks should endure such hard times, the simple truth is that the Joads failed to keep up with society's needs and effectively made themselves useless in a most literal sense.

Ironically, John Mellencamp's "Rain on the Scarecrow" unintentionally drives this point home. The protagonist in the song laments the loss of his land that "once fed this nation." Problem is, 300,000,000 Americans cannot be fed on nostalgia. Who fed us is not important; who feeds us today and in the future is. Mellencamp errs in being blunt with his message and accidentally reveals a truth so craftily hidden by Steinbeck.

Steinbeck's book is a must read for multiple reasons. His account is entertaining and masterful, and therein lies the danger we must all guard against. The heart wrenching story is not always the best carrier of the truth and justice. We must beware lest we forget to think for ourselves and abandon our moral judgment to the best poet to woo our hearts.

The Daily Snark 5/31

I have been out of contact with the civilized world since Friday as Internet and cable have been off line due to a storm. During that time, I half wondered if the world was coming to an end, in particular coming from Europe's debt ridden nations. Greece isn't there yet, but it is awfully close.

Derek Thompson at the Atlantic sums up the situation pretty well. The only thing that really needs to be pointed out is that while option "a" is most likely to happen, it is also the least likely to resolve the problem. Give it another six months, and Greece will be looking for a third bailout. As every good poker player knows, once money is in the pot, do not treat it like it is yours. Europe's past bailout money is in the pot; it can't let that fact make it irrational and continue pouring more money into a losing hand to get that first bailout cash back.

I don't see how the Euro survives this mess.

The Daily Snark 5/17

I recommend everyone play around with this interactive concerning the national debt. Since we have hit the debt limit and are considering raising it, Republicans are using this opportunity to force a debate on the debt and cutting spending. During the previous spat, spending was reduced by $67 billion. Assume that this current debate will lead to a similar cut and reduce the "other spending" by that amount. That hardly impacts the chart at all.

Ok, so lets increase spending, as the average leftist demands. Increase taxes by 10% at all levels (including all income brackets) along with those $67 billion in cuts.

Hmm, that didn't do much, either. After 2019, we have a trillion dollar deficit minimum into perpetuity. You don't have to be a professional economist to know that isn't sustainable. So let us get out of our current conflicts (magically, I guess). Cut military spending by $100 billion. That should do it.

Oh, wait, it doesn't. That trillion dollar mark into perpetuity has been moved back all of three years. We are still looking at nearly $6 trillion in debt by the time I reach 65. Not sustainable. I hate to even think of it being necessary, but lets raise taxes by 25% across the board. Perhaps that will solve our insolvency.

Well, we balanced the budget for a few years, but after 2030 we're still one trillion in the hole every year forever. Not to mention, this doesn't nothing for our current debt. Also, that's a pretty stiff tax hike, and the result on businesses will not be pretty. Perhaps we should consider cutting Medicare or Social Security...

Ok, never mind, no politician would ever commit political suicide like that. Our current Democrats fought tooth and nail for cowboy poetry festivals being federally funded, so further cuts in the "other" category seem unlikely without a massive Republican majority. Of course, those tax increases are highly unlikely politically, but I put them in to show you one of the best case scenarios from the leftist perspective.

Our debt is structural. Unless you deal with entitlements, we are doomed. I'm playing around with wildly unrealistic numbers (10% military cuts, 15% cuts to all entitlements, 30% cuts to other spending, 10% tax increases across the board). Even then, we do not completely balance the budget in the short term and that trillion dollar mark is met again by 2033.

Now, some caveats need to be made. Most charts dealing with time frames beyond ten minutes from now have to be taken with many grains of salt. The fact is, we do not know exactly or even really generally how the economy will behave in the future. However, we do know that the United States will owe a great deal to pay for entitlement spending. We do know that government spending tends not to be cut, ever. And while we do not know how the economy will behave, it could be better or worse than the expected outcomes on this chart. The economy would have to be on fire to really bring down these deficit numbers without significant changes.

Government spending is extremely dangerous. Those advocating more spending (in particular for education and health care) either ignore the true threat of this structural debt or are ignorant of it. Either way, they ought not be listened to.

The Daily Snark 5/7

25% of the job growth so praised by the President last month came from McDonalds. When Bush was President, the media came up with a term to describe such low paying job "recoveries": McJobs.

The Euro bailout of Greece has failed. Greece is now paying higher interest (26%) on its two year debt than I do on my credit card.

Oil speculators lost money hand over fist this last week. Oddly, that didn't make the news; it only seems to be newsworthy if they are making money, which for some unknown reason is "evil."

The Daily Snark 4/20

The Washington Post reports that the Obama administration asked S&P not to give a "negative" outlook report on federal debt. Kind of sucks when other people won't go along with your rosy predictions, huh?

What frustrates me is that people will not do a thing about it until the crisis hits hard, at which point it will be too late to do anything about it. Not that they would do much but complain about it anyway, usually with faulty economics and politics (fields that they never studied in the first place). I would like to say it isn't a systemic problem in democracies, but the overwhelming evidence seems to be otherwise.

Oh well, pass the dutchie on the right hand side.

The Daily Snark 4/18

The Wall Street Journal reports that the top 10% richest Americans do not make enough income to pay the Federal budget. That means, if you took every dime they made, you would still have to run up debt or tax the middle class. This does not include state, local, school budgets, or pensions.

And, on what is certainly a completely unrelated note, the S&P is threatening to cut the credit rating of the United States.


As I see it, this leaves us with three options:

1. Cut spending. No Democrat or liberal who believes government spending is in and of itself a morally good thing will allow this. Neither will constituents of whatever programs actually face cuts.
   
2. Increase taxes on the middle class. Again, politically impossible.
   
3. Increase debt, risking a credit cut and possible instability in the world economy. Hard to tie this to any vote a Congressman might make; politically, it is the safest bet, even if it risks the greatest possible damage.

Guess which one we will be going with?

The Daily Snark 4/13

The President's deficit reduction plan consists of two important elements:

1. Punish successful people.
2. Push any unpopular cuts past the 2012 election, when it won't hurt Obama.
   

In the short term, spend even more! It's almost like the President isn't serious or something.

An Extreme Proposal Concerning the Budget

It is no secret that I do not trust the government with spending our money. My reasons are many and can be found throughout this blog (though many others have done a better job than myself). Redistribution of wealth is immoral, impractical, and most importantly, dangerous to a nation's financial stability, in particular in democracies. We are witnessing that clearly in the United States. Our deficit has been over a trillion dollars per year for a few years now and will be so again in the future; indeed, it may be the new "normal." Politicians will not, under any circumstances, remove "free" perks from the people, meaning spending almost cannot be reduced and that there is always an incentive to spend more, not for economic reasons but for political considerations.

As I said in the very first blog post nearly two years ago:

The programs like "Utopia"[hypothetical government program] still exist; they are still insanely expensive; and no politician in the world is going to even hint at reducing them, much less removing them entirely. Massive debt is only a stopgap as the programs never become less expensive and those bearing the load continue to be whittled away by taxes and emigration. Eventually, the government will be forced into drastic measures, either issuing fiat currency or defaulting on its loans; in either case the result is catastrophic failure.

Our deficit spending has increased eight fold in the last five years. This does not include the cost of quantitative easing, which has pumped even more money into our system. Interest rates set by the government are near zero percent. With all of this additional money being pumped into the system, inflation or even hyperinflation becomes a threat. Incredibly, the government denies that inflation is going on. To admit otherwise would be to admit that continuing to fund spending programs is disastrous for the average citizen. The government does not want to remove spending or pay for it or admit the damage done via inflation as all of those options are politically damaging.

But inflation is most certainly occurring. If you buy food, you know that. If you buy gas, you know that. Mony Perelin at American Thinker has made the case pretty well. Those numbers from the Financial Times are disconcerting. They track the price of 27 commodities over the last year. Only three have seen prices drop despite the economic recession reducing demand. In fact, 24 of the 27 commodities are up by double digits and five of those (silver, palladium, corn, coffee, and cotton) have risen by 90% or more. Money is like any other commodity. Its value is largely determined by supply and demand. If supply jumps up, the overall value of the monetary unit drops.

This situation will never improve until government spending (in particular its debt) is brought under control. Massive increases in spending and debt did not work for Japan over the last 20 years and there is no reason to believe it will help us, either. But as I mentioned, politicians will never risk their careers. Cuts in general may be popular, but opposition to specific cuts by those losing benefits will always be louder than support from those who do not immediately gain by such cuts. So what can we do?

I have a proposal in mind that is by my own standard extreme. It may not be worth it, but if hyperinflation is a real threat, we have to deal with it before it manifests itself; once that ball starts rolling, it will be too late to stop it. Given the role of the United States in the world economy, the instability of the Euro, and China's reserves being based in the American Dollar, a serious threat to the dollar, however remote, is in effect a threat to the entire global system. With our current debt, inflation, and the upcoming threat from failed entitlement programs like Social Security and Medicare, the time has come for us to reduce our debt.

The measure I am proposing is, as I said, extreme. It will mean putting fiscal decisions into the hands of officials who will not be reelected, severing the tie between the will of the people and the officials in control. Via an amendment to the Constitution (we need to preserve the rule of law), I propose creating a 14 man commission not too dissimilar from the President's debt reduction commission of last year. The Republicans and the Democrats will select seven representatives by some method (popular vote, appointed by the respective party structure, etc.). "Independents" are rarely actually independent and there is more than enough research to show that such people tend to be the least well informed citizens. As there is no way of confirming whether an independent is not, in fact, a partisan in sheep's clothing, they will not be assigned a role in this commission.

This commission will be given a one year mandate over the spending policies of the United States. Every cent of spending will be subject to their review. A total of 10 votes will be required to pass their plan and make it law. A 2/3rds vote from both Houses of Congress plus the President's signature would be required to override the commission's decision. Spending may not increase by more than the rate of inflation unless a state of war is declared, in which case only military spending may increase. This situation will last for ten years, after which the Amendment will no longer be operative and the Constitution as we know it will come back into effect.

As I said, it is a proposal far outside of the norm. Proposing such short time changes to the Constitution is inherently dangerous. This proposal is analogous to the Roman concept of a dictator, who temporarily suspended the normal rules to deal with an existential threat to the Republic. Like the Roman Dictator, this extraordinary commission has incredible powers but is short lived; unlike the Dictator, political power (especially the power of the sword) will reside with others. Again, unlike the Roman's, this position is designed to check an inherent and dangerous flaw within the government rather than a threat from abroad.

If we are ever to put our debt in check, some such commission will probably be required. Career politicians will never sacrifice their careers. Ideological commitments will keep others from supporting necessary changes. I would fully expect such a commission to raise taxes quite a bit, much to my own displeasure, but ultimately I believe it would be necessary. A liberal and I both used this interactive from the New York Times to balance the budget. Here are his results and mine. Both of us were willing to make sacrifices we otherwise would prefer not to. The tax to spending cuts ratio is fairly similar in both proposals.

But if you need a reason to worry, check off every available cut and tax increase on that interactive. The total savings for 2015 equal a little more than $1 trillion. That would leave us with a $700 billion shortfall in the upcoming year; a $1.7 trillion deficit wasn't even predicted for the year 2030 and this interactive was created four months ago!

If we will not have an educated and virtuous society that respects the property rights of others and forgo redistribution of wealth, extreme measures like this will be necessary in order to prevent hyperinflation.

The 2011-2 Budgets Are Trainwrecks

Every educated citizen that I mentioned in the last post should look at the President's proposed budget and shudder in fear. $1.6 trillion of debt is just unsustainable. It has become systematic; the deficit over the last three years have all been over the trillion dollar mark.

The deficit this year equals nearly 11% of our entire GDP. Once this year is over, our entire GDP for the year would not be enough to pay off the debt we have amassed.

Supposedly, the deficit for the following year will "only" be $1.1 trillion, or roughly 7% of the GDP. But to be honest, the government shouldn't even be making predictions about the economy that far into the future. The Congressional Budget Office's numbers from January 2009 predicted a reduction in debt for the following year (2010). The predicted debt was $700 billion; the actual deficit for that fiscal year was nearly twice as much, at $1.3 trillion. Hell, the predicted deficit for the current year of that estimate (2009) was off by $200 billion. How much was this year supposed to put us in the hole? $500 billion, less than a third of the projected deficit for this year now.

The budget numbers are atrocious. And horribly enough, they are probably wildly optimistic. If the numbers on Social Security, Medicare, and ObamaCare are equally off, this "recession" might be remembered as the last of the good ol' days.

The Conundrum

I'm about halfway through reading Ludwig von Mises' Human Action. So far, I am highly impressed. He does an excellent job showing how physical reality combined with human desires is the only way to understand economics (Mises takes a very wide view of what constitutes economic action, which I believe is appropriate). His book has also done a magnificent job of destroying falsehoods concerning the nature of value (it is subjective and transient, not objective and measurable contra Marx) and the nature of the free market, in particular that state intervention on behalf of businesses is still a form of statism incompatible with the free market.

There is a problem, however, with the free market. Mises points this out but does not spend a great deal of time on it. Here's the situation:

The free market is predicated on the idea that the use of force, whether by individuals or the government, will not be used. People are free to buy from the best sellers to their individual needs and to sell likewise.

This means that some businesses will fail. Those that, for whatever reason, cannot compete to meet consumer demand best will not survive, which is a good thing seeing that resources are scarce and need to be employed to fit consumer's values. Those not doing so are wasting those goods. Even for those winning, they have to sell their goods at a lower price than they would if competition did not exist.

Here is the problem: those businessmen do not want to compete with others. It lowers their profits. If at all possible, they will wish to use force either to improve their own resources, increase their own clientele, or to damage competitors. The best means to achieve this power is via the government, which has a tendency to be seen as legitimate.

In democracies, the government is elected by the people. Like anyone else, they wish for more power, or at the very least to maintain their current level of power.

The anti competition businessman and the company see an opportunity for mutual cooperation. The government can claim powers to regulate businesses (introducing the use of force to compel people to act contrary to their own desires) in order to help either consumers or weaker businesses. These people, in turn, come out to support those politicians.

The more powerful the protected business, the more influence they can have in bribing politicians with votes and public support; the more power the politicians get, the more they can offer to protect those businesses, which in turn empowers those businesses further. It becomes a nasty cycle of increasing use of force and power for the government at the expense of competition and a free market.

Consumers are screwed in this deal, as more competitive businesses that could provide goods for lower prices are forced out via regulation (if not outlawed outright). However, most consumers do not understand what is going on in terms of economics and will not trace back the problem to government interference into the free market in the first place. Many will naively believe that more regulation will somehow be helpful, further limiting the ability of businesses to compete. If the best businesses at a particular time are protected, potentially better newcomers are kept out; if a bad business is protected, good businesses are damaged. In both situations, the consumer losses. Those who gain (the only ones who gain) are the protected business and the government which gains more power.

Very simply:

1. Competition is good for consumers, bad for businesses.
2. Businesses will seek protection from government officials in return for electoral support.
3. Competition is reduced; consumers pay more, protected businesses make more, government can grab more power to protect more privileged businesses or "protect the consumers."
4. Cycle continues.

This is not an optimal situation for anyone but the protected business and the government; the more it occurs, the more we get screwed. How do we stop it from occurring, though?

One proposed solution is to quit on the free market and establish a full blown socialist system. This idea is ridiculous on multiple fronts. For starters, resources are still limited and have to be distributed somehow. As von Mises points out, giving all power and resources to the government is to create the mother of all monopolies; the bureaucrats running the show will have no incentive to do anything efficiently save use those resources as a bribe for their own individual good. This isn't a solution to the above problem; it is that problem in its absolute worst form. The other problems need not even be stated, as this solution fails completely to mitigate to problem at hand.

The other proposed solution is...non existent.

I'm concerned that the drift towards more powerful governments and hence less efficient economies is a likely (if not inevitable) result of the very conditions that make the free market work. Politicians will always want more power; in a democracy, that usually means bribing people, in particular voters, to support those particular politicians. Those politicians, in order to pay off those bribes, have to take the resources from otherwise innocent people; productive taxpayers are screwed, productive businesses are "regulated" and made less productive.

But so long as voters think they gain, they will continue to allow such abuses of power. The situation will get worse (competition is ruined, goods are not sold at optimum prices for consumers), the government claims that yet more regulation will help, and the mess is repeated.

An educated, virtuous citizenry would be able to stop this madness by understanding how the free market works. But such a citizenry does not, and probably never will, exist. It is on par with hoping for socialist denizens that love shoveling horse manure for the collective good; such people do not exist.

It is like finding a solution to the prisoner's dilemma.

I do not believe in a sentient being willing us towards this conclusion (Marx, his historical materialism, and his entire critique of capitalism and crisis theory are hogwash). None the less, as technology makes more power available for people to use over one another, this centralization of power into the hands of a few and away from personal liberty seems likely. It is a horrifying thought for anyone dedicated towards human happiness.

Machiavelli may have been on to something with his idea of virtu. Rather than being a willingness to fight and increase the power of one's country, though, we should view it as the willingness to uphold the rights of others. How this particular trait is created is beyond my understanding. I do know that it is easier to destroy than to create; it is our nature to want more, even if at the expense of others, and reversing this trend is extremely difficult. Places like Russia did not make a nice transition to the protection of rights.

I wonder if stable democracies with free markets are like Plato's philosopher king, a fluke that just kind of happens by accident? If so, and if they are destroyed more easily than created, our future will not be nearly as bright as it could have been.