June 7, 1999

Osama bin Laden makes FBI’s “10 Most Wanted List.”

Andrew Breitbart Hacks Anthony Weiner’s…Press Conference

I want this as my screensaver. This is the best press conference you’ll ever see. If you haven’t watched it, please do. If you have, watch it again. For those of you who don’t know, Congressman Anthony Weiner (D-NY-09) scheduled a press conference today to discuss the latest news regarding his lewd pictures scandal. The story was originally reported on one of Andrew Breitbart’s sites, BigGovernment.Com, and Breitbart happened to be in the area of the press conference. He stopped by, and Weiner was late, so the press asked Breitbart to step to the microphone for a few questions. He obliged.

My favorite part is when he excoriates the press for not doing their job, while they’re still not doing their job and instead are attacking him.

There are a few amazing exchanges worth watching and listening to. The first is at about 5:05 seconds when a reporter asks Breitbart:

“Mr. Breitbart, why did you put this on the web in the first place? What were you trying to achieve?”

A: “It’s clearly a news story. Why are you trying to challenge a news story?”

Breitbart is clearly amazed at the inanity of the question. He runs a journalism site. This is news. How about a better question, why didn’t anyone else want to touch this story? If you were ever in doubt about how much the MSM is in the tank for the Dems, this question itself should clear it up for you. I can’t think of a more eye opening example.

Well, except for this one at about 9:40.

“Why should we believe you?”

A: “Ok, everything that I’ve said so far has come to be true. I’d like to hear one--The media says Breitbart lies, Breitbart lies, Breitbart lies, Breitbart lies. Give me one example of a provable lie. One. One. Journalists? One. Put your reputation on the line here. One provable lie.”

Again, Breitbart gets a little fiery here, deservedly so. I could give the MSM a pass on this one, if they had ever bothered to ask Congressman Weiner the same question. Weiner’s story clearly had problems with it from the beginning, and he clearly was acting like someone trying to hide something. And the MSM was just as clearly not interested in finding out what he was trying to hide.

Now, I’m not suggesting that Weiner should be treated as guilty until proven innocent—wait, maybe I am after all. This is supposed to be an adversarial press, right? Anyway, the press should be interested in a scandal and in getting to the bottom of it. They never went after Weiner, instead they were willing accomplices in his story and laughed with him at his silly jokes. Today, not only did Congressman Weiner end up looking ridiculous, but so did the entire mainstream media. One guy monitoring Twitter from his basement and another guy with a relatively fledgling media site did the job that the MSM is unwilling to do. We used to call this job “investigative journalism”. I don’t know what the folks that used to do that call their jobs now, because there’s clearly nothing investigative or journalistic about it.

So, for 15 minutes they got to listen to Andrew Breitbart lecture them all on how they should do their jobs. I’d hope that some of it sunk in, but I’ve given up hope on such things. Maybe we’ll get lucky and it will sink in to the next generation of aspiring journalists.

The Obligatory ‘Santorum Is In’ Post

Today, former Senator Rick Santorum (R-PA) officially announced his candidacy for the GOP nomination for the Presidency.

Here’s the vid:

 

I had him on my list of candidates, but somehow left him off my “The GOP Candidates-The Good” post. And therefore also the Bad post. Obviously I need an editor.

In brief, I think that Santorum has pretty decent conservative credentials, but seems a bit too thin skinned for a Presidential candidate. On the other hand, the current occupant of the White House is the most thin skinned politician I can recall ever seeing, so maybe he’ll be fine.

He is solidly socially conservative. In fact, his stances here would definitely cause him problems with independents (homosexuality, intelligent design). He’s opposed to amnesty for illegals and has long been an advocate of welfare reform. He also lost his last Senate race by 27 points, making it unclear whether he’d win his own state in a Presidential race.

So, that’s good and bad all mixed together, proving once more that I need an editor. I still see him as a second or third tier candidate at this point, and unlikely to still be in the race after South Carolina, but he’s capable of a surprise.

June 6, 1944

D-Day. The storming of the beaches at Normandy. The first part of the Allied invasion of German controlled Europe in WWII. Four sentences without verbs.

You know, we Americans like to think that when it comes to the big things, that we always do the right thing. It might take us a while, but we get there, and when we do, we make up for our slowness with the kind of fierce pride and determination shown at Normandy.

But, I have to wonder, would our current President give the approval for such an invasion? I honestly don’t know that he would. Does that say more about me than him? Is it because I’ve totally lost confidence in his ability to do anything right, or because it’s actually true?

Hopefully we’ll never have to learn the answer to such a question.

UPDATE: General Eisenhower’s D-Day speech:

June 5, 2004

Eep. How could I have missed this?

On this day in 2004, the Gipper passed away. A friend of mine says often “God, I miss voting for that man.” I never got a chance to do so, being 3 days too young to vote in the 1984 Presidential election.

The GOP Candidates-The Bad

As promised, now the bad.

(No, I’m not going to do an Ugly, but if you look at this list, I’m sure you can find some ugly)

• Mitt Romney – Wow, where to begin. He’s the left most person in the field. He’s got RomneyCare hanging around his neck, supports ethanol subsidies and believes in anthropogenic global warming (AGW).
• Newt Gingrich – I think he learned too much from President Bill Clinton (D-USA). He’s too much into this whole “national conversation” thing, and seems like he’s always triangulating lately. He also believes in AGW, and to be blunt, his campaign so far has been a disaster. As I have said previously, he’s a 20th century politician. I really don’t feel that he understands the Tea Party and the angst there.
• Tim Pawlenty – Definitely has some green roots and supported cap & trade while governor. He says he’s learned from that, but there are some other things he needs to have learned from as well. He hasn’t always been a small government politician. Right now he appears to be saying the right things, but is he just saying them to get elected, or because that’s what he feels? Call me cynical, but I worry.
• Herman Cain – His outsider status is going to be a problem in the general election. He clearly has issues with foreign policy as well. Also, I fear that the MSM will use his race in a subtle fashion to attack him and the GOP. I can just imagine someone saying, “Look, the GOP is trying to show they have a black man too. But there are so few in the GOP they couldn’t find one with actual political experience to run.” If you don’t think Chris Matthews is capable of saying something like this, you haven’t been paying attention. I really hope I’m wrong on that, but I fear I’m not.
• Michelle Bachman – I don’t believe in legislators as Presidents. I never have, and our current President sure hasn’t changed my mind. Also, she’s a firebrand. I think that works for her in the House, but not sure it’s a winning feature in the White House. Let her run for Governor of MN, learn to be a Chief Executive, and then I’m solidly behind her in 2016 or 2020, depending on 2012 outcome.
• Ron Paul – Well, he’s Ron Paul. He’s an isolationist, and he’s out there on a lot of things.
• Rick Perry – As I said on the good page, I just don’t know that much about him. I do remember in those articles over the last few years that I scanned, that I wasn’t always happy. I can’t name any specifics though. I’m not the best even keeping up with local politics even in my own state, much less someone else’s. Yes, I realize that sounds odd for someone who is so much for Federalism. I’d love to pay more attention to local politics, but our top heavy federal government doesn’t allow me to do so.
• Gary Johnson – His performance in the first debate was absolutely dismal. He didn’t give a single answer that I liked. So, I’m pretty much down on him on every single issue.
• Sarah Palin – As a candidate she has a lot to overcome. Also, while I admire her desire to run an unconventional campaign, I doubt the ability of such a campaign to succeed on a national level. She has an image that has been created by the MSM, and it is the image that most people see in their minds when they think of her. And, fair or unfair, the “quitter” label is going to be stuck with her for the rest of her life. Also, I think her adamant stand on the debt ceiling issue would come back to haunt her as a President. It has all the makings of a “Read my lips” moment.
• Jon Huntsman – I missed him on the Good, so I’ll have to go back and add something. But he’s well liked by the MSM, which is all conservatives should need to know about him. He’s a big government politician and pro choice.

That’s the bad. And, sadly, there’s a lot of it. I can probably support any of these people should they win the nomination, but it will be extremely difficult for me to pull the lever for Romney, Johnson, or Huntsman. I’ve previously said I’ll never do it for Romney, but our current President is slowly making me reconsider that position. I’m pretty worried about the future of our country should President Barack Obama (D-USA) be re-elected, so despite my significant misgivings about Romney, and what he means to the future of the USA and the GOP, I’ll probably have to support him.

The GOP Candidates-The Good

My Twitter timeline is full of statements good and bad about various GOPers these days, and I keep finding myself wanting to retweet with comment. Unfortunately, most of my comments would be 1) negative, and 2) comparative to former Governor Sarah Palin (R-AK). I’m really trying not to be an “all Palin, all the time” sort of person, so I’ve been mostly resistant to tweeting.

However, my fingers are still twitchy, so I’m going to write a couple blog posts about what I like and dislike about the various mainstream candidates and speculative candidates.

All comments are based upon what I know of these people right now, and are my opinion only. Remember, this post is only about the good things. The bad things are coming later.

• Mitt Romney – He’s probably more capable of winning the independent vote than any other candidate. And he understands economics better than just about anyone else in the field
• Newt Gingrich – An absolutely brilliant individual, capable of thinking outside the box, and a genuine font of knowledge when it concerns U.S. history, and the implications of the future. Also understands the need for getting the public on your side, having learned this the hard way from President Bill Clinton (D-USA)
• Tim Pawlenty – Showing some real strength so far in the campaign season, definitely trying to court the Tea Party movement.
• Herman Cain – Smart outsider who understands businesses and what makes them grow. He supports the FairTax and also is not afraid of calling out the President where he’s wrong.
• Michelle Bachmann – Definitely has staked out the Tea Party movement as her core constituency. Taking a principled stand where taxes and the size of government is concerned.
• Ron Paul – I like some of his libertarian views, particularly where he stands on marriage. I’m in total agreement with him. We need to get government out of the marriage business. Yes, I realize that’s not as easy as it sounds, but it’s the right solution. Oh, and I’m with him on the Federal Reserve. That would be the best thing about a Paul presidency, seeing him demanding the Fed turn over their books.
• Rick Perry – To be honest, I don’t know the Texas governor all that well. I remember glancing through several stories over the last few years with his name on them and being mostly pleased with what I saw, but I don’t remember any specifics. Will have to do more research if his candidacy appears more likely.
• Gary Johnson – Give me a minute. I’ll think of something. Oh yeah, I read that he supports the FairTax.
• Sarah Palin – Since her emergence in 2008, she has been on the right side of every issue, and she has an opinion on all of them and has voiced them loudly and clearly to anyone who’s bothered to listen. What I like most about Sarah Palin is that she recognizes the MSM as the enemy and treats them as such, going around them to get her message out, rather than through them. She also has been willing to attack President Barack Obama (D-USA) on his stances much more than any other political figure.
• Jon Huntsman – He has some nice foreign policy credentials as Ambassador to China, and he’s a strong proponent of real tax reform, something that’s a big issue to me personally, in case you haven’t noticed.

There are other candidates and speculated candidates listed here, but I honestly don’t believe Congressman Paul Ryan (R-WI-01) or Governor Chris Christie (R-NJ) are running. As for the others, I think only John Bolton has a chance of making any noise at all, and even his noisemaking potential appears minimal.

UPDATED: Added the bit about Ron Paul and the Fed.

UPDATE 2: Forgot Jon Huntsman. Added.

Is QE3 In Our Future? You Better Hope Not

As I’ve mentioned many times previously on this blog, quantitative easing is the Keynesian admission “we’ve run out of arrows in our quiver”. If you try to control the economy through a central bank (as we unfortunately do, in the United States), your best control is through the raising and lowering of interest rates. However, when rates begin to approach zero, that option is taken off the table. In a rare instance of economic policy accuracy, Wikipedia gets this one right:

Ordinarily, a central bank conducts monetary policy by raising or lowering its interest rate target for the inter-bank interest rate. The central bank achieves its interest rate target through open market operations – where the central bank buys or sells short-term government bonds in exchange for cash.^[5][7] When the central bank disburses or collects payment for these bonds, it alters the amount of money in the economy, while simultaneously affecting the price (and thereby the yield) for short-term government bonds. This in turn affects the interbank interest rates.^[33][34]

In some situations, such as with very low inflation, or in the presence of deflation, the central bank can no longer lower the target interest rate, as the interbank interest rates are either at, or close to, zero.^[8][9] In such a situation, referred to as a liquidity trap, quantitative easing may be employed to further boost the amount of money in the financial system.^[10] This is often considered a "last resort" to stimulate the economy.

Yes, it’s a last resort. It increases inflation risk, especially in an economy that isn’t growing, and the way we’re using it, it increases our credit risk as well. During this last round of quantitative easing, QE2, the Fed was the largest purchaser of U.S. debt, acquiring nearly 70% of it. QE2 ends at the end of this month, and the Fed has said repeatedly that there will not be a QE3.

However, I’ve read several articles in the last week saying that such an event is not just likely, but inevitable. At the risk of being redundant, I will point out again that former Governor Sarah Palin (R-AK) predicted this quite some time ago. And as she said then:

Do we have any guarantees that QE2 won’t be followed by QE3, 4, and 5, until eventually – inevitably – no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?

I discussed this problem before as well, here.

Like so many problems we face today, the big part of the problem here is admitting to ourselves what the problem is. By having a QE3, we’re admitting that QE2 has failed. So, why should we think QE3 would succeed? In fact, the inflationary effects of successive QEs make their ongoing failure more likely, rather than less. Unless we admit the failure and put that arrow back in the quiver, we end up with a failed economy and a $100 cheeseburger at McDonald’s.

Some are already predicting a bear market, should a QE3 occur, and a bear market combined with a devalued dollar is indescribably bad.

“We become excessively bearish if the Fed goes to QE3,” Belski said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “We do not want to see QE3,” the New York-based chief investment strategist said. “We think that only prolongs the inevitable when the Fed has to eventually sell these securities that they have been buying.”

But who’s going to buy these securities? Anyone? Let’s review what the Fed is holding.

But beginning in late 2008, as financial institutions careened towards insolvency, the alphabet soup of Fed lending facilities (TAF, TSLF, PDCF and the CPFF just to name a few) bought all kinds of assets that the Fed never before held. Through quantitative easing efforts alone, Ben Bernanke has added $1.8 trillion of longer term GSE debt and Mortgage Backed Securities (MBS). (In fact, the Fed now holds more of these mortgage instruments than their entire balance sheet before the crash.) This has drastically changed the complexion of the assets it must now sell.

But as the size of the Fed's balance sheet ballooned, the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet. While the size of the portfolio expanded three fold (and the quality of its assets diminished), the Fed's equity ratio plunged from 6% to just 2%. Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30 to 1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51 to 1! If the value of their portfolio were to fall by just 2% the Fed itself would be wiped out.

Anybody got a spare $3 trillion lying around that they’re willing to invest in toxic assets? No? Hmm. What a surprise.

June 5, 1968

Senator Robert F. Kennedy (D-NY) was assassinated in the kitchen of the Ambassador Hotel in Los Angeles, CA.

He has a very modest gravestone at Arlington National Cemetery.

June 5, 1967

The Six-Day War begins, leading to Israel taking control of the Gaza Strip, the Sinai Peninsula, the West Bank, East Jerusalem, and the Golan Heights.

Yes, I know I usually provide links. I can’t find any that seem to be neutral in their point of view.  You’ll usually read that this war was started by Israel launching surprise attacks against Egypt and Syria. Yes, that’s true, but it’s a tiny fraction of the story. Israel was merely defending itself and had decided that the “best defense is a good offense”. Arab forces from various countries had been planning this war for months, and likely would have begun their attacks later that day. In fact, the Jordan commander is famously quoted as having said on June 2, “in 3 days we’ll be in Tel-Aviv”. Anyone who tell you that the Israel attack was unjustified is either ignorant of history or lying. Or both.

Anyway, there’s a decent write up in Wikipedia, but I suggest you read it with a high degree of skepticism.

The BBC might be a bit better.

The attack follows a build-up of Arab military forces along the Israeli border.

The Arab states had been preparing to go to war against Israel with Egypt, Jordan and Syria being aided by Iraq, Kuwait, Saudi Arabia, Sudan and Algeria.

On 27 May the President of Egypt, Abdel Nasser, declared: "Our basic objective will be the destruction of Israel. The Arab people want to fight."

The BBC article further points out that this event was a direct result of Palestinian attacks on Israel starting in 1965. Israel’s assault here is not akin to the Japanese attack on Pearl Harbor. A better comparison would be if America had recognized the impending attack sooner and launched a preemptive counterattack on the Japanese Navy on December 6, 1941.

June 4, 1942

I know it’s June 5 now. I meant to blog on this yesterday, but didn’t get around to any blogging as I was too busy with the in-laws.

June 4, 1942, a mere 6 months after Pearl Harbor, marked the turning point in the Pacific theater in WWII.

Midway.

What was supposed to be another Pearl Harbor like sneak attack by the Japanese Navy turned into a route by the United States of America. Admiral Nimitz risked pretty much everything that was left in his fleet on this battle and his gamble paid off. As Oliver North said in his recent article, this is what a courageous decision looks like.

Notably, neither President Franklin Roosevelt nor Chester Nimitz, the tall admiral from Fredericksburg, Texas, took credit for the victory. They gave it instead to those who fought the battle. And unlike what would happen today, a "leak" about how our code breakers provided the decisive "edge" in the Battle of Midway -- first carried in an article in the Chicago Tribune and later carried in Time magazine -- did not get picked up in Tokyo. Now we have WikiLeaks -- and small-minded officials who want all the credit.

There are some problems with the script, but Midway is a great watch if you’re looking for old war movies. I recommend Tora! Tora! Tora! and then Midway. You’ll learn quite a bit about the war in the Pacific from both.

An Inconvenient Tax-Review

I mentioned this movie just a few days ago. Since then, I discovered that it’s available on iTunes so I downloaded it and watched it yesterday.

I will say that it’s the best documentary on the U.S. tax code that you’re likely to see. It’s enjoyable and informative. However, it’s still a documentary on the U.S. tax code. It’s not Harry Potter and the Deathly Hallows Part 2, Thor, or even Atlas Shrugged. You need to want to know about the tax code to watch it.

Participants in the movie include notable personalities from the left and the right, which is nice. You don’t feel like you’re being indoctrinated to a single point of view. Instead, the movie matter-of-factly lays out the history of the U.S. tax code, and what it means for today. They start actually with the Boston Tea Party, and go all the way up to President Barack Obama’s (D-USA) administration.

As an aside, if you have the time, you really should do some research into what the Boston Tea Party was really all about. We put up today with far more than what they considered intolerable. Those patriots would have long since stormed the Capitol and demanded change. The modern day Tea Party movement is called extreme, but our requests are incredibly tame compared to 1773.

Anyway, as usual for me of late, I digress. That’s not covered in much detail in the film, so you’ll have to do your own research. What is covered in the film is the origin of the income tax during the Civil War, its resurgence just before WWI, and the expansion to affect the middle class during WWII.

After WWII, most changes to the tax code were done as a way to curry political favor rather than to affect revenue. This is the primary reason for the explosive growth in the size of the tax code, which is what the movie is truly about. I know I’ve shown this chart multiple times in the past, but it’s worth seeing again.

There are several very important points that are made in pretty rapid succession at about this point in the film, and they’re all worth noting.

1. Since President Ronald Reagan (R-USA) signed the Tax Reform Act of 1986, the size of the tax code has exploded. There have been over 14,000 changes to the tax code. That’s about 1.5 changes per day since then.
2. Politicians like how complex the tax code is. It enables them to hide things in it or to buy votes or buy corporate support.
3. Politicians use the tax code to encourage or discourage behavior (home ownership, for example).

There’s a great quote here too:

“The tax code should raise revenue and then try to do as little else as possible, because almost everything else that it does is harmful.”

Another:

“The federal government forgoes about $1 trillion dollars a year because of deductions, credits, and exclusions in the tax code.”

Yes, you probably take advantage of several of these credits and deductions. I do, too. But if they weren’t there, your marginal rate would be much lower. And you’d be more confident when you turned in your tax forms every year, that it was actually right and that you’re not going to be audited. And you’d know that you didn’t miss some obvious deduction that could’ve saved you thousands of dollars.

The whole point of the film is that our tax code is a monster and that we’re in desperate need of real tax reform. Not just the limited tax reform that we had in 1986, but a complete overhaul of our tax system. The film is aimed more at making you understand the problem rather than present solutions, but it does spend a little time on the three most likely solutions at the end, with proponents of each speaking a bit on it.

The first solution is a flat tax. Over the last 20 years or so, this has probably been the favorite choice of your average taxpayer and many politicians. It’s the infamous 3 line tax form. What’s not to like? Well, progressives hate it. They don’t feel that it’s fair to low income earners. There’s a way to work around that of course (assuming you feel it’s necessary), by moving away from a completely flat tax rate to a sliding one so that even your rate is dependent upon your income.

My problem with the flat tax is that I don’t trust politicians. I don’t expect it to remain flat. I think if we completely flattened the tax code, after 20 years, or the first major funding crisis, we’d end up with 50,000+ pages of tax code again. I like the flat tax. I just think the idea is naïve.

The second solution is some sort of broad based consumption tax. The FairTax is shown as the prime choice in this regard. If you’ve read this blog for any length of time, you know that this is the one that I support. It’s much harder to game. There are no exceptions to the FairTax. Any exception makes it unfair. Any change is immediately obvious because your tax amount is right there on the receipt of anything you buy. Politics are experts at gaming things, and I’m sure they’d get around to gaming the FairTax eventually, but they’d have to work harder at it. I see no reason to make it easy for them.

The third choice is a different type of consumption tax that’s popular in Europe. It’s a VAT tax (actually, tax in that phrase is redundant, since VAT means Value Added Tax). The VAT has become increasingly popular among politicians in America the last few years. Sadly, you hear most often about adding a VAT to our existing tax code, rather than as a replacement. We should have a Boston Tea Party over that, because it’s insane and amounts to thievery. Anyway, a VAT adds a little tax in at every step of a production process. The problem with a VAT is that it’s not nearly as transparent as a flat tax or the FairTax, and in fact is subject to just as much gamesmanship and lobbying as our existing tax code. A VAT isn’t likely to reduce the complexity of the tax code to any significant degree over the long term. All it does it make it so you don’t have to write a check to the IRS once a year or once a quarter.

The film makes a good point that we desperately need this real tax reform. We probably need it right now more than at any time in our country’s history, as the tax code is incredibly burdensome on business, and we need the economy to start growing and growing fast. However, it also makes the point that there’s not a lot of political will in Washington to really reform the tax code and it’s hard to get people excited about it. “You mean we’re going to reform the tax code, but I’m not going to save any money? Uhhh…”.

Sadly, as much as I believe in tax reform, I don’t see it happening any time soon. The current administration has no interest in it, and one of the people in the film points out that it would likely have to happen in a second term Presidency to happen at all. So that means it’s not going to happen until after 2016. Even if I didn’t agree with that part, the simple fact is that we’re facing an economic crisis and an entitlement crisis at the moment (not unrelated to each other) as well as this tax code crisis (also not unrelated). It’s going to take an enormous amount of political will to solve the economic and entitlement crises. It’s hard to believe that politicians would be willing to stick out their necks even further to take on the tax code.

So, my opinion is that while this may be the most important time in American history to have tax reform, it’s probably the least likely time in American history for it to actually happen.

But I’ll keep banging the drum for it, and especially for the FairTax anyway. I’m stubborn that way.

Regardless of all of this, I enjoyed the film, and I think that if you want to spend an hour and a half understanding our income tax, that you’ll likely learn quite a bit in a fairly enjoyable fashion.

June 3, 2001

See here.

Ziad Jarrah, the alleged hijacker pilot of Flight 93 on 9/11, has two sessions of training at a flight school in Philadelphia, Pennsylvania, but is denied a request to rent a plane from there due to his inadequate piloting skills.

The Obligatory ‘Mitt Is In’ Post

Dashing my last hope that he’d change his mind, former Governor Mitt Romney (R-MA) officially announced his candidacy for the Presidency of the United States today.

Read the speech here.

Apparently this is his first official campaign vid.

June 2, 1774

The Quartering Act went into effect in the American colonies. This was one of the Intolerable Acts leading to the American Revolution.

This act was directly mentioned in the Declaration of Independence, and is the reason behind the 3rd Amendment to the United States Constitution.

He has combined with people others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation:
For quartering large bodies of armed troops among us.

No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.

Government Doesn’t Create Demand

I mentioned this in a recent post, but I feel that this deserves more attention than a simple one liner.

First, a true recovery from a recession requires lower unemployment. Lower unemployment means that more people have more money to consume more goods and services which enables more producers to hire more people. Lather, rinse, repeat.

So, while all the media will constantly remind you (during a Democrat Presidency anyway) that unemployment is a lagging indicator on recovery, it’s the most important indicator. Especially for the unemployed or for those fearing unemployment.

Therefore, you’ll notice that almost all government interventions in recessions involve trying to encourage hiring. The few that don’t tend to encourage spending, which hopefully also encourages hiring.

Now, the best way to do this, and arguably the only successful way to do this is to reduce restrictions on businesses. You can do this by lowering taxes, removing burdensome regulations, or doing similar things for investors, allowing them to invest in businesses, giving them a funding shot in the arm.

If you reduce the cost of doing business, businesses can lower their prices to the appropriate demand point, and increase sales. They can also hire more people, enabling them to produce up to the demand level (assuming they are behind), and also increase sales.

So, doing this increases demand for employment, and demand for goods and services, and the economy marches forward. Success.

This only works if there’s no inventory glut, which does often happen with big ticket items in a recession. However, the first part helps even with an inventory glut. Reducing cost of doing business enables businesses to better handle the lower profit margins of an inventory glut, and stay in business. You can also make adjustments to taxation to lower the taxes on companies with high inventory.

This may or may not allow the businesses with glut to lower their price points to the appropriate demand point, and yet still make enough money to stay in business. This is not necessarily a bad thing. Often inventory gluts are caused by being unresponsive to a changing marketplace. If the business goes out of business due to their inventory glut, then the business was not needed anyway. If the good or service produced by that business is needed, someone else will produce it, or buy out the inventory and resell it. So, the end result is that in this case, demand is not increased, but that production is lowered to match demand. The remaining producers now get a bigger piece of the overall pie, and can once again grow their business. Again, success. Probably at a slower rate than the businesses that didn’t have a glut, but still success.

It’s also worthwhile pointing out that these big ticket items with an inventory glut are often dealing with the glut because people have delayed purchases due to employment concerns. If their employment situation stabilizes due to their business being able to save money, there will be increased demand for the big ticket items. No more glut. Success.

So, no matter how you slice it, getting out of the way of business succeeds when trying to get out of a recession. And it does it by increasing demand for employees and for goods and services.

And that’s what we’ve generally done in previous recessions.

Now, let’s look at the current recession.

First, we sent a lot of funding to public sector projects, rather than private sector ones. For example, in some states, school systems and first responders got a ton of money from the Federal government, but were required to use a large portion of that money to hire people. Note that the government didn’t do anything to create demand. They just gave out money to hire people. And they paid the salaries for two years. Guess what? The two years is up, and the states are discovering that they can’t afford to pay those people anymore. A lot of them are going to get the axe. Oops. Projects like these only succeed in lowering unemployment as long as the government dollars are paying for them. At taxpayers expense.

Second, the government handed out tens (hundreds?) of billions of dollars to companies suffering from inventory glut. They didn’t originally do anything to deal with the glut itself (more on that later), they just gave them money so they could keep their employees around and produce more goods in a market that was already saturated. In other words, companies were rewarded for not being able to respond to a changing marketplace. It’s not hard to see that this can’t turn out well. Also it sets a precedent that if you’re a large enough company and you’re too big to fail, then you don’t have to worry about failure. Go ahead and make whatever bad decisions you want. The government will always be there to rescue you. At taxpayers expense. No need to worry about demand. You’ve got the government. And still no demand.

Third, the government interfered in the free market, and instead of reducing expenses for business across the board, they created rules allowing greener industries to create green products and services at less costs. Or they gave one time tax breaks to consumers of these green products and services. This creates demand, but it’s artificial demand and is unsustainable. If a product or service can’t succeed in the free market without government intrusion, then it won’t continue to succeed once that intrusion is taken away. Thus, either the government has to keep on funding these green industries at taxpayer expense, or watch them die. The demand created here is temporary at best.

Fourth, the government finally realized that it needed to do something about demand for the inventory glut on these big ticket items, particularly houses and cars. So, we got some big short term tax breaks for new home buyers and the Cash for Clunkers program.

The tax breaks for home buyers was nice, but it didn’t do anything to create a bigger market of buyers, it just enabled people on the fence for buying to buy a bit sooner. And since there was already a glut, it didn’t put home builders back to work, because the tax incentives went away before the glut had been consumed. In fact, there’s still a glut. And no demand for new homes, or new home builders.

The Cash for Clunkers program was a disaster. It enabled people to get some nice incentives to trade in their old fuel inefficient car for a brand new more efficient car. Again though, this is a case of the government picking winners and losers. You couldn’t trade in your clunker on a nice new full-sized SUV. You had to get a fuel efficient vehicle. So, didn’t help that SUV glut at all. Furthermore, the clunkers were destroyed rather than join the used car market, so a big chunk of the used car market was destroyed. So here, not only did we not create demand, but we decreased supply. Low income earners could no longer afford to buy used cars. Brilliant. And not only that, just like with the home buyer tax credits, once the program was over, new car sales declined again. Because demand wasn’t created, just pushed forward. Once again, these programs create either no growth or unsustainable growth. The growth can only be maintained as long as the program is maintained. At taxpayer expense.

Fifth, and finally, not only did the government not get out of the way of business, it did just the opposite. It created a huge new healthcare program with lots of regulations and compliance expenses for every business. President Barack Obama’s (D-USA) administration wanted to increase taxes on all small business as well, but this was eventually defeated by the GOP, by forcing the President to sign the extension of the Bush tax cuts. The uncertainty over this caused many businesses to delay hiring. Also, this uncertainty caused investors to delay their investments or put their money elsewhere. They may finally start hiring and investing now, but they still have to deal with burdensome regulations and ObamaCare.

Speaking of which, we also get the EPA imposing higher CAFE standards, the FCC imposing Net Neutrality rules, the NLRB interfering with business rights to expand where they want, and literally hundreds of other agencies doing everything they can to restrict business. All of these increase the cost of doing business, and therefore make it harder for business to hire new people. In other words, the exact opposite of what is necessary to create demand for employment.

And without demand for employment there is no recovery.

The government can’t create demand. All it can do is fake it for a while, or destroy it altogether.

Happy Birthday, Norma Jean

An incredibly beautiful and tragic figure.

And I can’t say happy birthday to this woman without including this:

What, you thought it was going to be something else?

 

Oh yeah, happy birthday wishes to CNN, too.