Taking back

September 30, 2010

Ah, I hear that often nowadays.  Seems Republicans are clamoring to “take back” Congress, America, hell, possibly even the solar system.  Who knows?

Consider the source.  This is the same group that (yeah, I know, they’re different this time.  Yeah, sure…) took over congress and soon afterwards began a massive spending spree.  They are equally culpable for the housing bubble, not to mention the ballooning deficits, medicare prescription drug program, a federal takeover of education, and massive expansion of federal law enforcement powers in the name of fighting terror, just to name a few.

So perhaps “take” is the right word for this group of statists.  They take all the same, just different things from different people.  Government is all about taking property and liberty through force.  Don’t expect any curtailment of government from them.  Oh sure, they’ll talk a good game, but are any proposing dismantling any federal agencies, departments, or bureaus?  Didn’t think so.

There’s several hundred to pick from, it can’t be that hard.

Maybe they mean from “special interests”?  Perhaps.  But what exactly is a special interest?  Well, my guess is anyone whose life or livelihood is or is potentially impacted by government policy.  Of course, those who live off the government take, or at least do their criminal deed under the aegis of the state.  Those too who seek favors take.  Any policy beneficiary takes.

Maybe they simply mean from the democrats?  That is obviously correct.  But did the democrats take Congress?  No.  They were all lawfully and duly elected.  The democrats are actually better than republicans, not because they’re less statist, in fact it’s quite the opposite, it’s just that they’re up front and honest about it.  So, at least there’s no mystery, shock, or disappointment.

Maybe we should start by asking who exactly has control of America, who “took” it in the first place.  Well, hate to burst anyone’s bubble, but nobody took America.  What happened was “the people”, in tribute to the false god democratus universalus, gave.  We gave government the power to steal, to annoy, to harass, to redistribute.  It is simply one group voting to take the possessions of another.

You can’t take what does not belong to you, and in “taking back” anything, the republicans do show their true colors.  They are not lovers of liberty, believers in limited government, free markets, non-intervention, and peace.  Trading republicans for democrats is simply trading one group of thieves for another.  I find no comfort there.

I’d simply prefer their slogan be “give back”, as in give back to the individual his liberty to contract and trade mutually, voluntarily, as he see fit, according to the terms he decides are beneficial.  Give back to him the property rights he has lost, so that his property is his to do with as he pleases.  Give back the natural liberty all men are born with, so that he fears not the state, that his life is so removed from policy and legal contrivances.

Give at the government level implies take, meaning theft.  We know it presently asthe government taking from one and giving to another.  However, give is proper here as liberty has been taken.  The only difference is that in this instance, it will be given back, returned to its rightful owner.  A rare occurrence indeed.

So, as long as any politician’s or party’s motto has the word “take” in it, one thing is certain: they will never get my vote.

And come to think about it, maybe give isn’t so good either.  How about “return”?  How about return: to the gold standard and sound banking, limited government, and true constitutional principles;  to free markets and free trade; our property rights and liberty.

It’ll never happen for sure, as when take is all you know, it’s all you do.  One can dream though!!

All that’s wrong

September 26, 2010

Howard Kurtz writes about the “The Velma Moment“.

But, as usual, the statists just don’t get it.

She was “exhausted” at defending Obama. She voted for a man “who said he was going to change things in a meaningful way for the middle class. … And I’m waiting, sir, I’m waiting.” She and her husband thought they were “well beyond the hot dogs and beans era of our lives.” And then, the final blow, to which she demanded an honest answer: “Is this my new reality?”

Of course he wouldn’t get it.  He is of the mindset that the state ought to intervene, can create wealth by fiat, or fiat currency.  He is a believer in policy driven economy.

And neither would she.  She represents, though she is woefully unaware, the overtaxed, over-regulated, over-burdened, victims of government force and theft.  Of all those who’ve felt the oppressive hand of the state, surely none more than blacks (Mrs. Hart is African-America, though it matters not at all as far as economics is concerned) understand this.  Yet, here she stands, asking how the state is going to help her.

This is all that’s wrong with our country today – those who believe it is through policy alone that people’s lives can be improved.  She asks for more, instead of the obvious, which is less.  Much less.

She’s defended: takeovers of auto manufacturers, banks, financial institutions, health care; bailouts, trillion and a half dollar deficits, doubling of the debt; thuggish behavior from Justice; massive inflation of the money supply (Yes, I know, that’s redundant.  But for those less knowledgable in Austrian economic thought, inflation is an increase in the money supply.  Higher prices are the result. ), debasement of the currency, higher taxes;  greater intervention into the economy; and a level of uncertainty that scares businesses mightily.

Not to mention, an escalation of the war and continuation of policies (Guantanamo, rendition, et al.) that Obama decried as shredding of the constitution.

As long as people look to politicians and the state for their livelihood and for solutions to life’s problems, we will only head further, and faster, towards the road to serfdom.

People put their hopes and faith and dreams into a man whose resume could fit on a 3×5 index card, with room to spare.  A man whose clear objective, if one took even a moments notice, was to steal and redistribute.

“Quite frankly,” Hart later told CNN, “I thought my question would set the platform for a response that would almost be, oh I don’t know, whimsical, magical, very powerful.”

And there you have it.  What exactly were you expecting?

Keep waiting.  It’ll only get worse.

Policy driven economy #6

September 26, 2010

Mortgage Interest

Canada’s economy also benefits from the fact that homeowners, unlike their U.S. neighbors, can’t take mortgage interest as a tax deduction, Taleb said. That removes the incentive to take on too much debt, he said.

“The first thing to do if you want to solve the mortgage problem in the U.S. is to stop making these interest payments deductible,” he said. “Has someone dared to talk about this in Washington? No, because the U.S. homebuilders’ lobby is hyperactive and doesn’t want people to talk about this.”

And the results of this policy are obvious.

In fact, when you hear people describe housing as an “investment”, remember, that without the tax break, it wouldn’t be.  Even with it, it still isn’t, but that’s beside the point.

One thing Taleb failed to mention was that people used to be able to deduct credit card debt interest from taxes prior to 1986.  Following that, it was only mortgage interest.  Which in turn led to people refinancing and “taking cash out” of their homes.  It appeared to be free debt in so many ways.  Especially when one could actually lower their mortgage payment through artificially low interest rates AND get a tax deduction to boot.

Once again, the broken window and the unseen.  Nobody ever bothered to think what the long term consequences of this policy would be.

It further illustrates that when the state steals, it must find ways to make the theft more politically palatable.  Either way, it’s terribly destructive, as is all policy driven economy.

Channeling Hayek

September 26, 2010

It Is Not A Matter Of If With Hyperinflation, But When

Dr. Marc Faber gets it exactly right, except he misses one key point: he was channeling Hayek.

Booms and busts happen also under the gold standard like we had in the 19th century various railroad and canal booms, and we also had real estate booms, first on the east coast in Chicago, then, at end of the century, in California. What the Federal Reserve has really done is create a lot of economic volatility. If you look back at the various crisis starting with the S&L crisis in 1990, then the Tequila crisis [the Mexican Peso crisis] in 1994, then Long Term Capital Management (LTCM), the NASDAQ bubble and at the current crisis, each crisis actually became worse and worse and the bubbles became bigger and bigger. The Federal Reserve did not pay any attention to excessive credit growth. The reason I am so negative about the Federal Reserve’s policies is that they only target core inflation and argue that they can’t identify bubbles, but when each bubble bursts they flood the system with liquidity that bring about unintended consequences.

Basically, if you look at consumption as a percent of the economy and at housing activity, the excessive debt growth began essentially after LTCM and, I have to say, it was a huge mistake of the Treasury and Fed to bailout LTCM because it gave Market participants in the financial sector a signal that there is a Greenspan put, and later on a Bernanke put, with an even higher strike price and this resulted in excess leverage. So, if you have problems, the Federal Reserve will bail you out or the system will bail you out. That’s where I think the Federal Reserve acted irresponsibly—irresponsibly—that has to be said very clearly. They didn’t pay attention to credit growth. Every central banker in the world pays attention to credit growth, but not in the US.

The first action Mr. Bernanke should take is to resign

The solution is, basically, for the government to move out and not intervene in the economy. There are economists who will dispute that the Federal Reserve is partially responsible for the crisis and there are economists that will still tell you that debt doesn’t matter, that deficits don’t matter and they want to continue to intervene in the free market constantly. To these economists I respond: What about Fanny Mae and Freddy Mac? It was an intervention by the government into the housing market and into the mortgage market and the biggest bankruptcies—bigger than Citigroup and all the banks—are Fanny Mae and Freddy Mac— government-sponsored enterprises.

HRN: It seems the US is moving towards more government intervention into the free market rather than less.

Dr. Marc Faber: Yes. That’s why I’m very negative about economic growth in the US. It just won’t happen. Can the US economy grow at 2% per annum or, in the best case scenario, at 3% per annum with current policies? Yes, but it will create a lot of distortions. The best case for an economy that goes into a boom phase, in other words over consumption, is to bring it back into the trend line as quickly as possible. So when you have an excursion into a boom, what you need is a cleansing of the system and that may take a few years to happen in the US because the excesses were built up not just in the last 7 years between 2000 and 2007 but, over the last 25 years. So, to really bring the US back into sanity—into a healthy mode where the economy can grow—might take 5 to 10 years, but it won’t happen under the Obama administration.

HRN: Given the poor prospects for US economic growth, do you foresee a flight of capital from the United States?

Dr. Marc Faber: You would be out of your mind, with health care reforms and with the government interventions and the uncertainty about future taxes in the US, to even consider expanding in the US and this is a problem.

HRN: Is this an example of why central planning of the economy by the Federal Reserve isn’t effective?

Dr. Marc Faber: Yes. Exactly.

HRN: Do you think hyperinflation in the US is possible?

It’s more a question of when it will happen rather than if it will happen.

Sorry for the long quote.  But it’s exactly what the problem is: central banking, credit driven boom/bust cycles, central planning, and intervention.  Would have loved if he’d have mentioned Hayek, but maybe it’s better he didn’t in the sense that now Hayek’s views are becoming mainstream, so mainstream that he needn’t even be referenced.  Maybe one day economists will say “we’re all Austrians now”!!

Policy driven economy #5

September 23, 2010

Maybe not exactly a specific policy, but on a whim, I decided to google “list of federal regulatory agencies” and, well, let’s take a look here and here.

If I were to post the entire list, it would go on forever.  There are many hundreds of bureaus, agencies, departments, administrations, offices, services, councils, centers, etc.

The next time anyone, charlatan economists who moonlight for major metropolitan newspapers, political pundits, or politicians, tells you that we need more regulation, that free markets and lack of oversight caused this or that calamity, simply show them this.

There is nary an activity that is not over regulated and micro managed at the federal level.  There is no sector of the economy free from government intervention.  There is nothing too small for the government to meddle into.

We get stuck on the large – taxes, health care, banks, autos – but overlook the vast amount of the small.  The state truly is the enemy of freedom, and the above list only proves it.

What we ought to conclude is the power of the market, not to function because of, but in spite of, the massive interference.

How do we “solve” our current situation?  Simply by doing less.  Much less.  Or, in the words of John Galt, when asked about the all the government workers, “Fire them all”.

Policy driven economy #4

September 21, 2010

Health care, oh how I’ve already written much about it.   Pooling is theft.  That much ought to be obvious.  Government health care spending accounts for almost 50% of all health care spending, which gives in close to monopsonist power:

A market dominated by a single buyer. A monopsonist has the MARKET POWER to set the PRICE  of whatever it is buying (from raw materials to LABOUR). Under PERFECT COMPETITION, by contrast, no individual buyer is big enough to affect the market price of anything.

And, that percentage is only going to go one direction, up.  Medicare will, if isn’t already doing so, bust the budget.  ObamaCare (can we maybe call it ObamaCare-Less?) without total repeal, will within a few years render any private spending insignificant to non-existent.

One must understand the history of health insurance, especially employer provided health insurance.

It dates to WW2 when wage and price controls placed on a shortage of manpower (war!!)  made it impossible for the market to regulate.  Thus, new forms of compensation had to created and employer provided health insurance arrived.  Later, in the 1970’s, President Nixon imposed wage and price controls which again, distorted the markets.  Again, health insurance became a premium form of payment.  And thus, the market for health care became forever distorted and skewed.

What was once, and ought to be, is that health care is simply an exchange of money for goods and services, like everything else.  But what happened was the consumer and the purchaser no longer were one.  Worse, there grew a hostility between producers and consumers.

Austrians know that markets are peaceful, prosperous, and mutually beneficial and cooperative.  It is precisely why, as Jeffrey Tucker has written, that both customer and sales person say “thank you” after the transaction as both sides are made better off.  But health “insurance” pits doctors against customers against insurance companies.

So, policy was set to not tax health premiums, to allow tax deductions for premiums, etc.  This was to help direct people into insurance plans in a market driven manner.  And even ObamaCare was sold on the idea of more competition in markets.  Yeah, right.

Here’s the latest broken window:

Major health insurers to stop offering new child-only policies

Some of the country’s most prominent health insurance companies have decided to stop offering new child-only plans, rather than comply with rules in the new health-care law that will require such plans to start accepting children with preexisting medical conditions after Sept. 23.

Three insurers – WellPoint, Cigna and CoventryOne – all cited uncertainty in the health insurance market for their decisions. That incertitude and the resulting decision of other insurers to drop their child-only plans, according to WellPoint spokeswoman Kristin Binns, “has created an unlevel competitive environment.”

CoventryOne spokesman Matthew D. Eyles said that the insurer was facing “unique challenges that could undermine our ability to offer value and meet our continued obligations to existing policyholders.”

With no such mandate currently in place, however, the result over the next several years could be that the pool of children insured by child-only plans would rapidly skew toward those with expensive medical bills, either bankrupting the plans or forcing insurers to make up their losses by substantially increasing premiums for all customers. And Zirkelbach said the effect could be compounded if only a few plans remain in the market.

This is the direct result of government intervention, i.e. policy, in the health care market.  We know for a fact that Medicare underpays and more and more doctors are refusing to take Medicare patients.  To make for this, doctors must charge their private patients more via their insurance companies.  That is the power of monopsony.

We need only see this as again another abject failure of policy driven economy.  When policy distorts markets, drives them in directions other than their natural path, the results are destruction.

With health care, though, I often wonder if that wasn’t the plan all along.

Policy driven economy #3

September 19, 2010

This article says it all:

Americans struggle to regain their shrunken wealth

Americans’ long journey to regain the wealth they lost in the recession is stalled.

Households failed even to run in place during the April-June quarter as sinking stock prices eroded wealth. Stocks have since recovered about two-thirds of those losses. But based on last quarter’s data, household net worth would have to surge 23 percent to reach its pre-recession peak.

This is the result of policy driven economy.  How, you ask?  Simple.


That is the tax code line (along with 403b for public employees) that “forced” millions and millions of Americans to eschew real savings for false prosperity.  Of course, no real force was required, but the simple incentive of allowing people to take their “pre-tax”, or shall we say, pre-theft income, and “invest” it into stocks.

A little history of the 401k first.

The 401(k) plan–named for a section of the Internal Revenue Code–came about thanks to a 1978 congressional provision intended to offer taxpayers breaks on deferred income. In 1980, while trying to streamline a client’s profit-sharing plan, benefits consultant Ted Benna realized that the code could be used to create an easy, tax-friendly vehicle for employees to save for retirement. The client passed, but the idea took off: there are now more than 65 million 401(k) accounts, which allow participants to invest in stocks and bonds, often with matching funds from employers–all at a lower cost than the pension plans that 401(k)s replaced. The accounts helped spark a financial-industry boom, funneling billions from under retirement savers’ mattresses into mutual funds and the stock market.

The Fed played it’s part as well.  The “Greenspan put” made sure the markets would always have ample liquidity and a permanent safety net.  Later, he flooded the market with money and the market skyrocketed.  What was seen as wealth was simply a bubble of asset hyperinflation.

During the 1960’s through the early 1980’s, the stock market topped 1000 at times, but never really exceeded it.  When it did, it was not by much and not for very long.  Then, mirable dictu the market in the next decade and a half shoots to 14,000.  I’d call that hyperinflation.  Was any more real wealth created?  Hardly.  In fact, the opposite was true.  Notice that what happened – funneling billions savings to stocks and bonds – was mainvestment.

Worse still, not only did it encourage such massive diversion of funds, but it misled millions into the false belief they were wealthier than they really were.  They were led to believe, lied into believing, that they actually had something real when in fact the very opposite was true.  Their wealth was simply pieces of paper, and it’s the exact same as the Keynesian fallacy that printing money equals wealth.  It is such precisely because the stocks would never have risen in value had not the fed printed money which fueled the asset inflation.

By fooling people into thinking they were wealthier, they encouraged millions also to borrow against this “wealth”, to leverage and overleverage.  And it all seemed to work so well, until reality exploded in their faces.  The reality is simply that paper money is not paper wealth, and when the bubble burst, as it must, it becomes obvious.  It was all this fake wealth and debt induced borrowing that drove the economic “growth” of the past two decades.  It wasn’t real growth and real prosperity.

The sad fact is that even after all that, as the article makes clear, people still think somehow they have to rebuild their “wealth” by “investing”in stocks.  That somehow their stock portfolio is actual, real wealth.

There is some good news perhaps:

She and others are instead saving more. Americans saved 6.1 percent of their disposable income from April to June, the highest quarterly total in a year.

And they are slowly trimming their debt.

That is, more than ever, what the economy needs.  More real savings, less debt.  But never fear, Ben and the boys are going to destroy it, as we’re seeing with interest rates down near 0% and rapid monetary expansion.

This is policy driven economy at its worst.  It is policy designed to use market forces to direct people towards desired outcomes.

The fact remains that no real wealth was created, and when the market plunged, no real wealth was lost.  But the effects of the policy were to destroy real wealth and real prosperity through massive malinvestment.  Right now our capital structure is so terribly distorted, the solution being letting markets right themselves by redirecting those wasted resources into wealth creating activities aligned with market desires and time preferences.

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