Real Thought

The only two sure things in life unless you happen to be a high ranking Democrat.  Currently we have a President who promised to restore the people’s trust and have the highest ethical standards of any administration in history, yet it seems that several of President Obama’s early erstwhile appointments seem not to know who to hire to prepare their taxes nor do they seem to be able to understand the horrific United States tax code.  So, if a former employee of the International Monetary Fund and a sitting senator and a top executive with a consulting firm all can’t seem to figure out what is taxable and what isn’t; how is the average Joe supposed to figure it out?  Of course, if the Average Joe made a $146,000 error on his 1040, he would be in Federal Prison, not sitting in the US Senate or in the office of the Secretary of the Treasury.

Perhaps the leadership of the Democratic party should listen to the words of Vice-president Biden, it IS patriotic to pay taxes, especially if you are an elected or appointed servant feeding at the public trough.  The arrogance toward the “common classes” currently on display in Washington DC is exactly what doomed the ancien regime in France.  Perhaps it is time we had a little rebellion again.  After all it was the founder of the Democratic Party who famously said:

“God forbid we should ever be twenty years without such a rebellion. The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is lethargy, the forerunner of death to the public liberty. … What country before ever existed a century and half without a rebellion? And what country can preserve its liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to facts, pardon and pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure.”

Perhaps it is time we resisted and held those we elect to be accountable for their actions.  After all, it was years of government waste and mis-management that got the United States and several of the individual states into the current political, economic and fiscal messes that they are in, perhaps it is time for some real change.  We can start by not re-electing a single incumbent to local, state or federal office.  If that doesn’t provide enough change, then perhaps a little rebellion is called for.

With this Barack Obama becomes the 44th president of the United States.  I wish him all the luck, success and support that President Bush had, especially from the media, Hollywood and Congress.  Good Luck, Mr. President!  You  are going to need it.

Well, the President-elect has finished his prospective cabinet appointments and it looks like it is 1996 all over again.  We have Hillary as Secretary of State, Tom Daschle at HHS, Bill Richardson at Commerce and a host of other Clinton era retreads at various other posts.  Is this the “change” that the American people expected when they elected Senator Obama?  Somehow, I doubt it.

There are some interesting changes, however, like appointing Hilda Solis, a California congresswoman who is in bed with the AFL-CIO as Secretary of Labor and Tom Vilsack, the Iowa governor who never met a farm subsidy that he didn’t like, as Secretary of Agriculture.  Now there are a couple of appointments that signal “change”.  So we can see that government pay-offs to big labor and corporate agribusiness will continue and Americans will be forced to pay higher prices for food and consumer goods as well as higher taxes.

There has been a historic change in the American political landscape, one which I fear is not for the better.  But, for the short term at least, it appears that things will remain the same.

Once upon a time Zimbabwe was a success. Zimbabwe had the one of the highest GDP’s in Africa, had a stable government, a high literacy rate and an increasing life expectancy and a decreasing infant mortality rate.  Now, it is a moribund state.  Inflation is officially at 231 million percent and a recent article pegs the real inflation rate at 516 quintillion percent.  The infrastructure has collapsed and there is a raging cholera epidemic which has claimed more than 600 lives.  A meal can cost over one billion Zimbabwe dollars.  Doctors and nurses have not been paid and there is almost no medicine in the country.  Hospitals are deserted and Zimbabwe Defense Forces soldiers recently rioted in the capital, Harare, because they haven’t been paid.

The simple fact is that Zimbabwe’s president, Robert Mugabe, who has been in power since independence is responsible for this collapse.  His disregard for the rule of law, basic democratic processes and the needs of his people, all under the guise of ending the legacy of colonialism, have led to the total economic collapse of his country.  He needs to be replaced for the sake of his country.

On how President-elect Obama is going to govern as president?  He was one of the most liberal senators during his brief tenure and he is going to have an absolute majority in both the House and the Senate which are led by Nancy Pelosi and Harry Reid both of whom are neither “centrist” nor “moderate” Democrats.  I believe that President Obama will govern far to the left with only a few sops tossed to the centrists and moderates in the Democratic party to keep them in line.  The speculation about the direction of President-elect Obama’s governance style comes from the fact that during both the primary and general election campaigns he was able to convince people that it was time for “change” in America without having to be specific on what that “change” would be.

Perhaps his most telling moments were when he let slip that he believed that the government should “spread the wealth” from those who were well off to those who were not.  To those who are not afraid to name thing accurately this is a form of socialism bordering on communism.  The on ly difference is that Obama has not called for the outright state ownership of the means of production.  Yet.  Unfortunately, President Obama’s election occurred in conjunction with a world wide economic contraction and many feel that the government should buy shares in corporations and other institutions in order to “save the economy”.  While this is not exactly communism it comes close to the national and state socialist models put into place by such luminaries as Benito Mussolini, Adolf Hitler and Francisco Franco.  Make no mistake, Fascism is a philosophy of the Left, not of the Right.  The antithesis of Fascism is not Communism but Libertarianism.  When we ask the government to provide for us we have to surrender our liberty to the government.  Personally, I fear that the American public may have traded liberty for temporary safety and, if that is true we do not, as Benjamin Franklin famously said, deserve either.

Gott im Himmel!! The economy is going to crash!!!!  We need massive government bailouts and control of industry!  Capitalism is finished!  We are in the worst crisis since the Great Depression!

OK, here is the real truth.  We are not in the worst crisis since the Great Depression.  Period.  End of story.  You see, during the Great Depression real domestic output fell by something like thirty to forty percent and there was twenty five percent unemployment.  Today, domestic output has fallen one tenth of one percent and we have six percent unemployment. Even the worst case scenarios foresee a decline in domestic output of no more than five to ten percent and unemployment of no more than ten percent.  There you go, this crisis will, in reality, be no worse than the stagflation of the late 1970’s and so what if it is?  All government intervention did in the 1930’s was prolong the Depression.

Nobel prize winning economist and economic adviser to President-elect Obama, Paul Krugman, in an article published in the New York Review of Books says that we need to perform a “rescue operation” on the economy.  He points out that letters of credit are getting harder to obtain and that international trade is suffering.  His evidence?  The Baltic Dry Index has fallen eighty nine percent in the last year.  The BDI is a measure of world shipping rates.  Well, in reality, the BDI has lost over 90% of its value in the last year, partially to the loss of credit but also to the development of larger cargo ships, more efficient loading and routing of those ships, reduced manning of those ships and finally a fifty percent decrease in the cost of fuel for those ships.  Also, may I ask, when exactly are lower shipping costs bad for the economy?  I was always under the impression that the lower the shipping costs, the lower the price for the consumer and the greater profit margin for the producer.

Of course, Professor Krugman’s plan is for the government to buy stock in the failing institutions and become part owners of the banking system.  Look, this is simple, no.  The government has no business doing this.  It was Fannie Mae and Freddie Mac, the government mortgage and loan corporations which got us into this mess to begin with.  More than that,  from where is the money used to by bank stock going to come?  We already have a national debt that is unprecedented.  As a matter of fact, that was one of the main complaints against the current administration, that it had “mortgaged our future” by increasing the national debt.  But now it is OK to add billions or even trillions of dollars to the national debt under President Obama?  I guess so, as long as the corporate vested interests which support President Obama, Representative Pelosi and Senator Reid get their cut.  It is not OK to raid the Federal treasury if you are Republican but quite another thing if you are a Democrat.   I have a better plan, how about we cut Federal spending by, say $700 billion dollars and give each taxpayer a  $5000 check.  Better yet, how about we cut government spending by $700 billion and use the savings to pay off the current national debt.  That would do a great deal to stimulate the economy.  But what do I know?  I am not a Nobel prize winning Economist.

The election is over.  Barak Obama is the President elect.  Many in the country seem to have had an emotional catharsis.   I don’t get it.  This is only a Presidential election, people, get over it.  There will be plenty more elections in the next few years.  Here in the People’s Republic of California we have an election about every six months, they really are no big deal.  There is always a winner and a loser and some are happy and others are disappointed.  Soon after Senator Obama is inaugurated there will be a great disillusionment.  Neither he nor the Democratically controlled Congress will be able to do much about the economy as the economy operates independently from the political system.  Nor will the Democrats be able to deliver on all that they have promised, simply because in a contacting economy the money simply won’t be avaiable.  We are in for a long, rocky road and at the end we will all be better off but there will, in the meantime, a great deal of belt tightening no matter what the party which will take power in January promised.  Happy days will be here again, but it will not be because of Obama, Reid, Pelosi et al.

Paul Krugman, a professor of Economics at Princeton, had a column published today in the NY Times which suggests that the recovery from our economic woes may take longer than either Senator Obama or Senator McCain wants to admit.  Fine, I can agree with that.  However he goes on to make the point that certain short recessions of the past were “caused” by the Federal Reserve tightening up interest rates in order to control inflation while the current downturn has been caused primarily by the housing bubble.  In other words, the short recessions of 1990-91 and 2000 were caused by government intervention in the economy and were fixed by the Fed lowering interest rates while the current downturn is being caused by market forces and the Fed has been pretty much worthless in trying to soften the downturn or shorten it’s duration.  He uses the metaphor of “pushing on a string” to make his point.    OK, I can even agree with that to some degree.

Here is where I have to disagree with Professor Krugman; he then goes on to say that the way Senator Obama, should he become president,should move  to end this downturn  is to,  ”…move quickly and forcefully to address America’s economic discontent. That means another stimulus plan, bigger, better, and more sustained than the one Congress passed earlier this year. It also means passing longer-term measures to reduce economic anxiety — above all, universal health care. ”

So let me see if I understand Professor Krugman’s position.  This current economic downturn is driven by market forces beyond the federal government’s ability to ameliorate.  In fact, the efforts by the Federal Reserve to try to dampen the effects of the downturn have been the equivalent of someone “pushing on a string”, in other words, ineffectual.  The solution to this “economic crisis” is not less ineffectual government interference in the economy, which Professor Krugman admits has caused previous recessions, but more government intervention; including universal health care even though goverment intervention in this current downturn has been ineffectual.

So his position is that we have problem A and we tried solution B but solution B did not work and what we need is more solution B.  That is abusrdist reasoning.   As Albert Einstein said, “The definition of insanity is doing the same thing over and over again and expecting a different result.” If government intervention is ineffectual, more government intervention will still be ineffectual.  I have a different solution, that we stop government intervention in the current economic downturn, allow those who made poor investments to fail, allow our economy to readjust and move on from a new economic baseline.

I really cannot believe that some editor at the NY Times didn’t see Professor Krugman’s article for the absurdist piece that it is.

Simple, reduced consumption and increased supply.  Since oil topped $140 a barrel, United States consumption has dropped.  People are driving less and trying to sell their large, fuel inefficient automobiles for smaller, more efficient means of transport.  People are driving less.  I know that I am.  with the advent of almost free e-mail, fax and file sharing technology, people no longer have to physical transportation of information.  I just e-mailed my buddy Andy in Santa Cruz all of the routes my Sea Scout ship will be using for this year’s long cruise to Avalon on Santa Catalina Island.  Before, I would have burned the files to a disk or a CD and mailed them.  This is no longer necessary.  I suspect that many others are doing the same, using less fuel and reducing demand for petroleum.

Furthermore, with President Bush’s recission of the executive order banning offshore drilling in United States waters, I believe that there is the very real threat of greater oil supply on the market.  This has sent commodities traders into a bit of a panic and has shown that the mere threat of increased supply will cause the market to beging falling.  Couple this with increased supply of alternatives to oil and you have teh beginnings of a downturn.

Well, let’s see, first there were a bunch of banks who made mortgage loans to people who could not pay them for houses which were ridiculously overpriced.  Then, rather than let these banks either foreclose on these people, who were a bad risk to begin with, or go under as a result of their foolish decisions,  the government stepped in with a HUGE $2.8 billion dollar bail out of said banks.  As this was occurring, the Federal Reserve Bank was, in an effort to “stimulate the economy”, was lowering interest rates to 2.25% thus making investment in the United States less appealing to foreign investors.  Finally, many people are beginning to wake up and realize that many companies in the United States are simple worth less than their “stated value”.  What do I mean by this?  Simple, very little manufacturing is conducted here in the United States.  With the exception of a few companies most products which American buy, even with an “American” label, are made elsewhere.  The computer which I am composing this missive upon is from an American company (Dell) yet many of its components are manufactured and assembled elsewhere, primarily Malaysia.  As a result, Dell has no real assets in terms of manufacturing machinery, stockpiles of raw materials or even assembly plants in the United States.  As a result, the company’s real value is much less than its stated value.

How does all of this effect the economy?  Simple, people invest when the potential for gain outweighs the risk of loss.  Since interest rates are very low and most US companies are seen as the sales ventures they are, right now the risk of profit is low and the risk of loss is high.  The public has been taught a lesson with the collapse of the housing boom and are reluctant to take risks.  The government’s multi-billion dollar infusion has only forestalled the inevitable.  The simple fact is that if the economy is going to recover some banks are going to have to go bust and some people who probably shouldn’t have purchased homes will have to lose them.  Furthermore, the Fed needs to stabilize interest rates and tighten the money supply so that the dollar will regain some value.  Finally, a $600 per person “economic stimulus” tax rebate won’t do much.  All it does is show that we Americans are being overtaxed to the tune of $600 per person for the services we receive from the government.