The Good Old Days
January 9, 2009 | Filed Under 00Publius Contributor, Barack Obama, Congress, Dan Scott, Democrats/Leftists, Economy/Finances, Government, Corruption, Jobs, Media Bias, News, President, Society/Culture, Taxes | Comments Off
-By Dan Scott
The more we hear Obama and Pelosi talk of government stimulus projects to jump start the economy, it seems they are attempting to recreate the conditions of the Great Depression for their own political gain. It should be noted that the outcome of the Great Depression in political terms was the Democrat Party holding control of the House and Senate for nearly 50 years until 1994 when the Contract With America brought on end to their hegemony. The public was finally fed up with the never ending spend thrift ways of a Democrat controlled Congress. Actually, it’s uncanny how the Democrats are playing their cards to faithfully reproduce FDR’s policies. History tells us that FDR was popular for the very fact that he by the public view seemed to be doing something constructive upholding the line “we must doing something”, even if what he was doing was in reality self defeating by robbing the economy of investment capital through taxes and borrowing. For appearances sake, digging ditches and the like were visible to all and thus gave the false impression people were working. A recession is in the Democrat’s political best interest, it doesn’t matter who gets hurt in the process.
Socialism when viewed in the context of history always it seems focuses upon keeping people working. The Chinese, the Russians and others always kept people busy with some task as though going through the motions was an all important end in itself. Unemployment was abolished under the Communist system since everyone worked for the state as they defined success in terms of full employment and factory production output, not GDP, profit, efficiency or the quality of the goods and services. In other words, their system was focused on maintaining the status quo, not increasing the standard of living or wealth creation. John Maynard Keyes was heard to say, we can employ one group of people to dig holes and another group to fill them up to give them spending money in their pockets. (sound vaguely familiar?) While few rational people will disagree that work in and of itself is good for character and a person’s self worth, work must have tangible results to have any meaningful effect in this regard. Which brings us to the fatal flaw of the Democrat’s stimulus plan, it’s definition of success. Modern day Democrats are only a little more sophisticated than those of the 1930s in that their proposed make work jobs program will build something overpriced that may be useful like road improvement (repair) projects, mass transit, school modernization, etc. Their definition of success like the Communists and Socialists is the appearance of full employment and maintaining the status quo to keep up with the cost of living, not increasing the standard of living via wealth creation as reflected in rising GDP, profit, efficiency or the quality of goods and services. Every job in the private sector exists for one primary purpose, wealth creation – profit. Every job in the government sector goes to one primary purpose, consumption – a zero net gain, if it were not so then Cuba, where virtually everyone works for the government, would be the richest country on earth, it’s not even close.
So what’s the harm in that? Doesn’t it sound familiar to the Global Warming question of going to alternative energy? What’s the harm even if Global Warming turns out not to be true? Just like with alternative energy’s case, government stimulus projects require the confiscation of private capital (misallocation) to achieve their outcome. This confiscation comes in the form of both taxes and borrowing (competition for investment dollars driving up Baa Corporate Bond rates to 9%+). In order to pay for the project, the money has to come from somewhere and this is the point Democrats don’t want the public to dwell upon. The primary claim “we must do something” is the false dichotomy that doing nothing will allow things to get worse. This logic employs the sophistry of the Extrapolation Fallacy. The fallacy requires the observer to suspend their understanding of economics and use the projection of a trend line as the predictor of the future as though there are no balancing forces at play. You are required to willingly suspend your disbelief that all things are equal or unchanging. All things are not equal, the Laws of Supply and Demand can not be repealed and will ultimately work to right the economy. What the Democrats are playing at is an attempt to paper over the painful process of bringing things back into balance and then take credit for any improvement no matter how much they hindered it by their meddling.
A recession occurs when the economy gets out of balance, in this recession like most of them of them since the 1970s, the price of oil spiked over a short period of time causing a ripple effect of unemployment and bankruptcies. Neither condition is one to be desired, however they are necessary to occur to restore economic balance. It should be noted this time around the imbalances were the high price of oil and mortgage meltdown as a result of government incompetence, namely the domestic drilling ban causing an artificial shortage and the Community Reinvestment Act (CRA) creating a housing bubble. It is undeniable that Democrats advocated both policies, they resisted all attempts to change their policies even to this very day and therefore are responsible for both imbalances causing the current recession. Market forces have corrected the price of oil (and gasoline) and put an effective end to the CRA’s unsound lending practices since large banks are in no position to make such loans on CRA’s terms. You hear the Democrats complaining that their pet cause, alternative energy has been stalled and that they must for the good of the country (actually their campaign contributors) tax gasoline back up to $3 or $4/gallon. Raising the price of gasoline via a tax back up to high levels of 2008 will have the exact same effect on the economy as oil at $140/barrel, a recession. This is also why you hear the consternation of the Democrats that banks aren’t making loans, a half truth, they are only making loans to those who make a 20% down payment, thus sharing the risk. Smaller community banks, S&Ls and Credit Unions are also making loans, however they are not subject to the CRA and so weren’t harmed by the current mortgage debacle. Maintaining the CRA will essentially keep big banks out of the home mortgage industry thus limiting the buyers of homes. This means excess housing inventory will hang around for years until it is absorbed by a growing population.
The end results of the Democrat’s plans will look very similar to FDR’s, an extended multi-year recession or depression until a significant world event occurs. Like FDR, Democrats believe there are no limits to spending by the US government since they are under the impression they can borrow an unlimited amount of money even if they can’t literally confiscate it via taxation. Most will think that since the government will essentially employ all the unemployed via government jobs or make work projects, unemployment doesn’t exist and life is secure. They will be wrong of course because everyone who works for the government or receives a government paycheck isn’t contributing to wealth creation, they are instead participating in a wealth redistribution scheme. Insidiously, on a personal level, it makes no difference to them when receiving a paycheck. Every dollar the government spends or borrows is money not at work creating wealth, the misallocation of some four trillion dollars (government spending) annually only hamstrings the economy and thus hinders the standard of living for the rest of society. Obama and today’s Democrats will out do FDR, they plan to run trillion dollar deficits under the guise of economic stimulus. Why not? So far many people have bought into the idea of “we must do something” and therefore if they can run a trillion dollar deficit, why not slip in all those goodies like universal health care, mass transit and a whole host of other multi-billion dollar boondoggles (which handsomely profit their campaign contributors). The country is in for a wild ride, I hope you have lots of Dramamine ®.
Democrats at this point have rationalized they can spend unrestrained under the guise of economic stimulus whereas in years past they would have be laughed out of Congress and voted out the next election cycle. For them this is the perfect excuse to fund all kinds of liberal programs by claiming it’s good for the economy, it’s not. They have become so addicted to spending that the idea of deliberately running a budget deficit of $1 trillion is rationalized as good for the country but they have also trivialized it by using the false logic of proportionality. One trillion dollars is only 10% of the current outstanding national debt, so what’s the harm in just a little more? This is like a person (shopaholic) who has run up a $100,000 credit card bill and then doesn’t see the problem with piling on another $10,000. Democrats like all shopaholics can rationalize spending money, they can not however rationalize saving it or face the end results – bankruptcy. Democrats literally do not believe the US government can go bankrupt and thus can spend an infinite amount of money with zero consequences. It does dovetail quite well with their philosophy, any problem can be solved IF you spend enough money and it might in many cases be literally true, just look at the space station. The track record of Democrats reflect this idea that if a program doesn’t get the intended results, spend more money to make it so. All this will come to an end, and I believe quite spectacularly.
On a personal level there are certain things an individual should do to avoid financial ruin. What will happen to those who rushed to buy US bonds to preserve their equity? When interest rates do eventually rise, they will lose their shirts!
Notice also if you hold those bonds to maturity you have paid a stealth tax, i.e. lost income and the economy likewise has been deprived of needed working capital for real investments, not those faux boondoggles the Democrats euphemistically use to promise the moon.
How do we blunt this unstrained Congress and a president who has no executive experience to lead them? We give fair warning to all members of the GOP, any Senator or Representative who votes in favor of any bailout proposed by Pelosi, Obama and Reid will face an angry GOP rank and file. The GOP lost it’s leadership of Congress in 2006 by breaking faith with the rank and file for failing to live up to the Contract With America. The GOP lost the presidential elections of 2008 because of John McCain’s lackluster campaign and his failure to fully embrace the GOP rank and file. We expect our representatives to act responsibly and to take all actions necessary to prevent an out of control majority party from harming the country. I advocate to every business person and investor, avoid US bonds of any kind for three sound reasons. As mentioned above, anyone who buys bonds in this financial climate (artificially low interest rates) will loose a significant amount of money when rates inevitably go up. Secondly, the point of investing is for future gain otherwise why not spend it now? The absurdly low interest rate will not cover inflation. The best investments are those with sound tangible results, in other words a sustainable business model, the US government is not using a sustainable model. And finally, the power is in the hands of the ordinary citizen to be a check upon the unrestrained power of profligate government spending, exercise it. Refusing to buy bonds from an irresponsible Congress has the same effect as taking the credit card away from an indebted shopaholic. They will be angry, threatening and self-righteous, but all shopaholics are when forced to reckon with their behavior.
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Dan Scott calls himself a “Member of the Global Capitalist Cabal preaching Capitalism and personal responsibility as the economic solution to world poverty.” He is also a member of the 14th Amendment Society — victimhood is a liberal code word for denying the civil rights of others. He is also a proud member of the Global Warming Denier Cabal, insisting that facts not agendas determine the truth.
Dan can be seen on the web at http://www.geocities.com/fightbigotry2002/ as well as http://www.geocities.com/dscott8186/saidwebpage.htm, And can be reached for comments at dscott8186@yahoo.com.
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