Leviathan’s hungry

June 30, 2009
We’ll Need to Raise Taxes Soon

We’ll Need to Raise Taxes Soon

Of course we will.

Today, the U.S. ranks next to last among the 28 Organization for Economic Cooperation and Development nations in total federal revenue as a share of GDP. Our federal revenues represent 18% of national output, down from 20% just 10 years ago. That makes the mismatch between our spending and our revenue very large, producing the huge deficits we face.

We all know the recent and bitter history of tax struggles in Washington, let alone Mr. Obama’s pledge to exempt those earning less than $250,000 from higher income taxes. This suggests that, possibly next year, Congress will seriously consider a value-added tax (VAT). A bipartisan deficit reduction commission, structured like the one on Social Security headed by Alan Greenspan in 1982, may be necessary to create sufficient support for a VAT or other new taxes.

This challenge may be the toughest one Mr. Obama faces in his first term. Fortunately, the new president is enormously gifted. That’s important, because it is no longer a matter of whether tax revenues must increase, but how.

“Revenue” has been declining.  Funny, I thought revenue was something businesses earned from selling products.  It is not revenue when money (earned from wealth creation) is forcibly stolen from those who produce it.

The solution is always more theft.  It is never considered is that the wealth producers will stop creating.

Just keep breaking those windows, you will be amazed at the wealth that generates.


Understatement of the century

June 29, 2009
Under current law, the federal budget is on an unsustainable path—meaning that federal debt will continue to grow much faster than the economy over
the long.

Under current law, the federal budget is on an unsustainable path—meaning that federal debt will continue to grow much faster than the economy over the long run.

And to think, this is the government saying this.

Really don’t need to comment any further.


More unseen…

June 26, 2009

More unseen destruction

An 8-acre landmark site on Ventura Boulevard that was both an entertainment venue and worship site for a half-century has been foreclosed on, a victim of the recession.
Bank of America seized the property on April 21, after a development company that planned to build a 340-unit condominium and retail project there defaulted on the loan, according to Los Angeles County Assessor’s Office records.

An 8-acre landmark site on Ventura Boulevard that was both an entertainment venue and worship site for a half-century has been foreclosed on, a victim of the recession.

Bank of America seized the property on April 21, after a development company that planned to build a 340-unit condominium and retail project there defaulted on the loan, according to Los Angeles County Assessor’s Office records.

Yes, this is what recessions do.  They clear out the malinvestment.  But what is unseen is what could have been instead.
That building was razed shortly after JPI bought the property in April 2007. However, construction of the condo project never got under way.
“They (JPI) put a very large loan on (the site), graded it and ran out of money,” said a Valley real estate executive familiar with the project who did not want to be identified.
“Ran out of money”.  That I find hard to believe!!!  I thought Uncle Ben was printing like crazy.
But a sales brochure said that the land is shovel ready and that construction can start after minor administrative matters are taken care of.
Condos might not be the only option, either.
“If investors don’t deem this plan as the highest and best use in the current market, there are a number of variations that conform to the current entitlements,” it said.
Well, that’s good news.  It’s “shovel ready”, perfect for “stimulus” funds.  I guess that’s what the “administrative matters” would deal with.
Maybe investors see the value, or lack thereof, in this piece of property and don’t want to sink any more capital into non-productive assets.
Again, what is missing from this article, as well it must, is what was not built, what wealth was not created, by the diversion of capital to projects such as this.  We’ll never know.  Just another sign of the credit riven boom/bust cycle courtesy of our wise overlords at the Fed.  Just another sign of the destruction of policy driven consumerism and over-leveraging.  It’s going to be along time and a painful one too, for the economy to recover.

The unseen destruction

June 26, 2009

The true measure of unemployment IS NOT the paltry unemployment number which does show 9.4% unemployment.  Yes, this is awful and proof that we’re in very deep recession.  We’re going to be in for a very painful readjustment period.  The real unemployment number we ought to be examining is U6.

This is the measure of:

Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

Currently the U6 is 16.4% and it has almost doubled since a year ago.  This is the unseen destruction.  Years of misallocated resources, malinvestment, and policy driven consumption created a huge bubble, the boom time, when instead of actually creating wealth, we were in the process of destroying it.  Now comes the very rough but very necessary readjustment period when malinvestment is liquidated and capital and labor can be allocated to more desirable ventures.

But don’t expect that anytime soon.  The administration is going full steam ahead on its Keynesian agenda while the fed plays right along.  Massive deficits, artificially low interest rates and monetary expansion are going to only prolong this pain.  And to top it off, Congress is voting on cap and trade and soon will be working on nationalization of health care.  In the works is “consumer protection” legislation and massive new regulation of the financial markets.

The U6 numbers say it all.  Fully 1/6 of the labor force is being underutilized.  As for capacity utilization, this graph is staggering.

tcu

Will it end soon?

This is by far the sharpest downturn in investment in the post WW2 era.  The longer we have interventionist policies, the longer it will last.  So, the answer I guess is quite simple: it’s going to last a very long time.

gdpi


Who’s running the show here

June 25, 2009

Los Angeles close to agreement with city unions on budget gap

The City Council also approved plans Wednesday to borrow $1.1 billion against future tax revenue – the largest it has ever borrowed in this way – to cover short-term costs.

Does anything more clearly demonstrate the problems California has then this.  The public employee unions are running the show.

Ronald Reagan once said we are a people with a government, not the other way around.  What has happened is that the public employee unions and that state they serve (no they do not serve the people) have become a state with a people.

“The Coalition leadership is recommending this agreement, because it will keep services like libraries and park programs functioning, especially at this time when summer school has been cut and we’re seeing more children than ever,” said Roy Stone, president of the Librarians’ Guild.

“It will mean that libraries can stay open on their regular days to provide summer reading clubs, story time, and other youth programs.”

This is a perfect example of the crowding out effect of the expanding leviathan state.  The more the state does, the less the private sector will do, the more “necessary” are those public services.

The long term impact to liberty is profound.  Young children are being indoctrinated with the idea that so much of their needs are to met by the state.  And any state cuts are a “sacrifice”.  The only sacrifice is made by the taxpayer who is forced to fund this and forgo the enjoyment of their product to the benefit of others.

The public unions are basically holding the public hostage.  Were this was done by a business imagine the outrage.


How about 100 percent?

June 19, 2009

Paul Krugman opines today

True, the proposed new Consumer Financial Protection Agency would help control abusive lending. And the proposal that lenders be required to hold on to 5 percent of their loans, rather than selling everything off to be repackaged, would provide some incentive to lend responsibly.

But 5 percent isn’t enough to deter much risky lending, given the huge rewards to financial executives who book short-term profits. So what should be done about those rewards?

Here’s a better solution Professor.  How about 100 percent reserves.  If banks actually had to hold on to 100 percent of their loans, then wouldn’t that make all those ridiculously risky loans and such impossible?

Of course, the good Professor overlooks the most important bank, in fact the only one, that needs regulation.  Sadly he puts his trust in the Fed, the one bank that has complete monopolistic control over the money supply.  And like any monopoly…yes, another graph.

fed_our_moneyLook at what the fed has done to our money.

And while we’re at it, why not just go the full monty and return to the gold standard.  Really simple solution now isn’t it?  But that’s the problem, it is THAT easy.  All that wild banking was the RESULT OF, not the cause of, worthless paper money printed with reckless abandon.

Eliminate the source of the problem.  But that would require less government.  And we know where he stands on that one…


Killing health care

June 19, 2009

A while back, I wrote about how to kill health care.  In reality, the government has been killing health care for a long time.  According to a report from the AARP the government already accounts for 46 percent of all health care spending in the country.

That number will only increase.

In 2018, healthcare spending will make up more than one-fifth of the American economy and the government will pay more than 50 percent of those costs, according to projections issued at midnight Tuesday by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS).

This is exactly the problem with health care “costs”.  The more government spends on health care, the more and it will, and need to spend, on health care.

Here’s a perfect example.

Since its inception, Medicare spending has grown more than 14 times the rate of inflation to about $300 billion. It spends more than $800 million a day. In a decade, analysts estimate, spending will top half a trillion dollars and account for nearly a fourth of the federal budget.

Government is the single largest “consumer” of health care already.  It matters not who receives the care, it mattes only who is paying.  The government has no incentive to price ration, and neither does the patient.  In addition, there is no incentive or need for the provider to compete on price.

Government expenditures on health care displace private dollars spent on health care.  Worse than that, price is never a consideration.  We have ipso fact socialized medicine, as the government has such large market share.  As Mises so accurately described, without price calculation, the socialist system fails.  Is it any wonder why our health care system is in such need of “reform”?

So, according to the AARP report, which cited the CBO’s 2008 report on Growth in Health Care Costs, what is driving much of the increases in health care costs?

Much of what is driving the cost of health care is the widespread use of new medical technologies. Advances have introduced treatments for conditions previously untreatable and new categories of spending.

You don’t say?  So, if they are correct, and it is technological advances, you know, the life saving kind, the types that were unavailable just a few years ago, that is driving the increases in spending, then there is an easy solution.  All we need to do is curtail medical advancements.  Of course, that might cause a few lives to be cut short, but hey, it’s all about the greater good.

And you needn’t even pass a law that prohibits new medical technologies, all you have to do is impose price/cost controls.  Problem solved.

I’ve often said to people (and my classes by the way) that the rising prices of health care are a good thing.  Now, I do get many funny stares and sometimes worse, but once again, Austrian economics to the rescue.

Prices are the signal that producers and consumers use to communicate with each other.  Rising prices indicate that more resources ought to be directed into that sector, and alas, they were.  The resources delivered newer and better medical technologies and countless lives were saved that otherwise would have been lost.

The rules of scarcity still apply (even when you’re a Nobel laureate from Princeton) and shortages do occur.  They are alleviated with higher prices.  Over time markets adjust.  In fact, there is no reason at all why good health care shouldn’t be more expensive.  If consumers value good health care more, than they ought to, and I imagine they are willing to, pay more.

Government intervention into the market only causes distortions.  As there is no reason to make pricing calculations, consumers and producers have no way to determine the proper allocation of resources to and within the health care sector.  Already, as previously covered here, doctors are leaving the profession and even those with insurance are sometimes unable to receive care.

The more the government spends, and the more they impose controls, the worse it will be.  The solution to our health care problem is actually quite simple: get government completely out of the health care market.  When government expenditures on health care are zero, when the market is truly competitive, then the most people will get the best care at the lowest price.


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