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In Which I Abandon Many of My Previously Held Beliefs and Attempt to Steer My Liberal Brothers and Sisters Towards The Harsh But Comforting Glow of Reality (and the conservatives can come along for the ride too, but frankly I think most of them are weird, and if you are socially conservative, I wonder why you even read my blog unless you just like getting angry)

September 14, 2011 Leave a comment

I’ve come to the conclusion that most self-styled liberals have confused or combined two distinct questions in economics: how do we best divide the pie? how do we best make the pie bigger? The answers to these questions are distinct. Any piece of policy can have effects on both, but to use a single policy to address both issues is to ignore the fundamental difference between the two questions. I think that the problem many liberal leaning economist have gotten themselves into lately is that they have let their desire for social justice overshadow their understanding of market fundamentals.

As a progressive and a social Marxist, I understand and sympathize with their passion. The equitable distribution of society’s resources is a noble cause, and one that shouldn’t be abandoned. Unfortunately for us, the current ruinous state of the economy cannot be fixed by redividing the pie. It also can’t be fixed by government directed intervention.

They may be able to prop up employment temporarily with additional spending, but any of the jobs the government can create in this way are not sustainable. All of the contractors repairing schools and bridges are out of work again when the job is done. The liberal thesis is that the economy will somehow self-correct in the interim, but this correction will not take place because the strategy of financing these stimulus projects with deficit spending and tax hikes exacerbates the root cause of the countries structural economic problems: we are broke. Our country’s balance sheet is sagging to the right, which is the side that all of the debt is on if you are not familiar with accounting.

I am going to do a 180° on what I have written before and say that the government can’t afford to do more spending. I’ve called for it in the past, because of the low interest rates and excess capacity of our economy, but my outlook has fundamentally changed based the economic happenings around the world and the political ineptitude right here at home. The specific ineptitude I am referring to is the Republican Party’s debt-ceiling hostage fiasco and Obama’s latest Job Program theatrics. I think the damage done by the debt ceiling debate is self-evident. As for Obama’s latest policy objective, it is a half-assed jobs program that is more than a day late and trillions of dollars short. It might have been an okay idea if we hadn’t bailed out the banks, and if he had gotten it passed when he first came into office instead of pursuing his disastrous health care overhaul, and if it were about 3 or 4 times as big. But now, the window of time where it would have been effective has closed, we can’t afford it, and in it’s current incarnation, it’s not designed to actually pass anyway. It is a political ploy for him to blame the Republicans for his failed economic policy. The truth is that neither party is doing anything of substance. Everything has been reduced to a zero-sum game because of political squabbling. S&P knows this, the markets know this, and you and I should know it as well.

My interest rate argument, which essential went “we should borrow money now at 2% and spend it on projects that have a return of greater than 2%”, I think it is a pipe dream in this political environment that the money would get to where it needs to be. Furthermore, doing more research about the economy outside of the United States has led me to believe that interest rates are artificially low. The relative weakness of other currencies and the lack of safe assets has created a scenario where interest rates in the US are being held low because treasury bills have come to be viewed as a financial safe haven due to the overall shittiness of the developed world’s macroeconomic conditions. Current rates are not a reflection of the fundamental strength of the US economy or the dollar, but of our relative perceived strength in comparison to the Eurozone and equity markets. In addition to foreign capital flowing into treasury bills, we also have the Federal Reserve injecting trillions of dollars into the treasury market to maintain these artificially low rates. The continued injection of trillions of dollars into the economy will create inflation as soon as demand picks up. The reason it hasn’t created inflation yet is because banks, and the few corporations that have some, are parking their cash on their balance sheets or giving it back to the government by buying treasuries. The government is using this cash to pay off the interest on the treasuries that are already outstanding and to prop up the economy with its weak and ineffective “stimulus” policies.

(Even my “brilliant” “a trillion dollars for fusion energy plan” would probably end up destroying more jobs than it creates, as the entire energy sector would probably shed more than half of its work force after widespread fusion energy became available. It is not what the economy needs right now; when we are back standing on our own two feet, instead of being propped up by the Fed and China, it would be an excellent idea, but for now we need a fundamental change in the government’s balance sheet.)

Capital needs to be in private hands where it can flow freely to the enterprises that can put it to the best use. This is the only way the economy can be restored. Hatred of bank bailouts is not a reason to keep capital out of private hands… if anything, it is a reason to keep capital out of the government’s hands, because the government is the one who bailed out the banks! If the banks that made bad mortgages were allowed to fail three years ago, it would have caused a larger recession, but it also would have given us a solid foundation to recover from. We currently have no such foundation, and we are now headed towards an even more monumental collapse because of our failure to address these issues in 2008.

I know I have called for additional infrastructure spending and a Manhattan Project for renewable energy on these pages, but I am now forced to temper these beliefs with my conviction that the government is not capable of efficiently allocating resources. The projects created by government spending have all been designed to boost consumption rather than investment, and they have done a poor job even at that. This past couple of weeks , I’ve been reading Keynes for the first time since college (actually I never read him in college, I just got the encapsulated version presented to me in textbooks). This reading has given me the insight that the biggest problem in the economy right now is a lack of investment. The easiest way for the government to incentivize investment is to lower taxes and reduce spending. We need lower taxes to generate private industry investment, and we need reduced spending to keep the deficit under control and send signals to the markets that we are finally getting serious about getting our economic house in order.

This means that social safety nets will get cut. It means that real wages will fall. But there is no way around it at this point. The facts on the ground stay the facts no matter how deep we have our head stuck in the sand, or how much we hate the other party. The United States is essentially insolvent and the only thing keeping us afloat right now is our collective lack of desire to acknowledge it. We can shellac more layers of debt onto the problem, but it’s only going to give us a sharper hangover when we finally have to wake up to the next morning in America.

I know that lower taxes, especially on the rich, is a hard pill for progressives to swallow. The entire narrative of evil bankers and corporations require that we punish them, that they be made to contribute towards the maintenance of our social capital, social capital that has been eroded by our elected officials because of corporate malfeasance. The problem with this narrative is that it is wrong. It is not the corporations that are evil, it is the elected officials who let them be bailed out, who stuffed the regulatory agencies full of corporate cronies, who choose to cut the social safety net instead of let their corporate sponsors go bankrupt. The “leaders” on both sides of the aisle are guilty of these same transgressions. It is not a case of the Democrats being for the working joe union member, and the Republicans being for responsible governance. They are both the parties of corporate America. That is why an independent, outside candidates like Ron Paul or Jon Huntsman or Ralph Nader or Dennis Kucinich don’t get a fair shake in the media. That is why the big banks and corporations donate to both parties instead of just the Republicans or just the Democrats. That is why senators and representatives from both parties voted for the bailouts. The only reason the Republicans have flipped over to being against the bailouts and against more band-aid style stimulus spending is because there energized base is standing up and demanding it (believe me, the Republicans would love to bring home the bacon, especially the ones who were there for the Bush administration).

The Democrats could learn a lot from the Tea Party bozos that they love to deride. They may be stupid and bigoted, but at least they are loud and make things happen.

The Democrats masquerade behind the moral, populist high road, but it is all a charade. The Democrats have used this story of evil bankers to distract us from dealing with the fundamental realities of our country’s political economy. Obama hasn’t delivered anything to us, except a disastrous health care plan that makes huge concessions to the drug companies and medical equipment manufacturers (guaranteeing them outsized profits and artificial monopolies), and a stimulus bill that has rescued politically favored corporations at the expense of the tax payer, all the while tacking on another trillion dollars of the fundamental problem (debt) and doing nothing to create sustainable jobs, jobs that will still be here when the stimulus money runs out (if you think he has, or if you are the type of person who likes to quote how many people have health insurance now, or you’ve ever linked anyone to this site, please read this post that I wrote especially for you).

The Republicans are no better than the Democrats. They do a good job of speaking as if they understand the fundamentals of market capitalism, and pretending that they are for smaller government, but then when they are elected they shift their policy agenda to social issues and give favors and breaks to their corporate benefactors. They spend just as irresponsibly as the Democrats, and they do it in ways that are to the benefit of a selected few rather than the majority of this country’s people. I’m not going in as hard on them because I am really wanting to focus this piece on my friends and readers who are liberal democrats, because I feel like I have a greater chance of saving you than I do of turning a Tea Partier into a born again liberal. So yes, Republicans are very bad.

The bad news is that things are going to have to get a lot worse before they can get better. The good news is that things can get better, we just have to stop lying to ourselves, and stop believing the lies being told to us by the charlatans that we keep putting into office.

Of all the deficits we have, I think the biggest one is a deficit of leadership. The problems in both our economy and our government are structural, and they are related to each other. It is an addiction to spending and abuse of the power of appropriation that has given us these structural defects; the toxic mortgages were just the termites. Neither party wants to address the real issues because they know they are part of the problem; the biggest part.

They are going to trick you into voting for one of them next year by making the other party into a boogieman, and it is going to scare you, and you are going to vote for a candidate who you think will do a less worse job than the other one… and your candidate may win, and you will look at his or her future policy accomplishments and say: “that’s not too bad… imagine what would have happened if the other guy got into office!” and you will feel good about yourself and your vote, or about as good as you can feel about such a thing, but deep down inside you will know that something is wrong, that the system is rotten. You will justify your candidates inefficacy by blaming democracy (“its the worst system, besides all the other ones! hahaha Churchill”), the two-party system (“well I can’t let that other bozo get into office”), the corporate interests (“it’s the greedy corporations that mess everything up”), the lobbyists (“it’s not really the corporations that are bad, but all the money they put into politics”), the banks (“they screwed us over by giving me a mortgage I can’t afford… why did they let me do that?”). It will be anybody but your candidate’s fault. Mainly it will be your fault, because you’ve read this piece, and now you know that the two major parties aren’t going to do jack shit for you (or maybe you don’t believe me… if so, leave me a comment or send me an email heftionezip(at)yahoo.com and tell me why not).

Vote for anyone but an establishment candidate.

If you want to vote for a liberal politician, vote for Ralph Nader.

If you are sick of politicians, vote for yourself, or your mom, or your best friend.

I’m going to be voting for Dr. Ron Paul. I don’t agree with the man on everything he has to say, but I believe his conviction in what he says, and I can’t say the same thing about Obama… I’m sure you remember from the last election cycle all the empty sloganeering and smooth rhetoric that whetted the media’s collective pussy and probably yours too. How many of those promises has Obama delivered on? How many has he even tried to deliver on? I’ll give him health care (for now… I’ll crack that coconut on another day), but Guantanamo? The Wars? Gay Marriage? The Economy? Wall Street/Banker Bonuses? Ron Paul has a 30+ year record of sticking to his principles that you can see in his voting record in congress. Get the man elected, and you know he is going to do what he says he will. And if you are still scared that he is going to criminalize abortion, or that disbanding the DoED will somehow hurt America, or that he is going to let corporations run amok and pollute all over the place… if those are the only things holding you back, keep coming back here and listening to what Dr. Paul has to say, because I think that 14 months might be enough time to assuage those fears and change your mind.

Democrats: vote for Ron Paul in the GOP Primary

September 14, 2011 Leave a comment

If you know me personally, you will know I have had kind of a love/hate relationship with Ron Paul over the past several years. Part of the reason is my own shifting attitudes. Another part is some of the things I’ve heard him say this campaign cycle that sound like pandering to the Tea Party.

He’s really impressed me in the last two debates. I am glad he is getting the national television exposure, and I am even more excited that some of my liberal friends are starting to change their own attitudes about him.

There are still a couple of stumbling blocks a lot of liberals have with him. I think a lot of the “omg he can’t really want to do that?” vibe that people have is because they haven’t really gotten familiar with libertarianism outside of the caricatures of the Tea Party and Ayn Rand crowd. As someone who was raised in a libertarian household, and who has held libertarian beliefs long before I gave up reading Atlas Shrugged because of its cliched prose and one dimensional characters, I am hoping that I might be able to dispel some of the fears that sensible people might have about Dr. Paul.

Abortion: the government shouldn’t legislate abortion. Ron Paul thinks it should be up to every state, not the Federal government, to say whether it is illegal or not. This is inherently more democratic than categorically making it legal or illegal at the Federal level. So people who want abortions can get them in California. People who live in Kansas… another reason to gtfo of Kansas.

Civil Rights Amendment/Affirmative Action: Ron Paul’s objection to it isn’t based on racism, its based on his belief that the government should not have the power to step in and tell private business owners what they can or can’t do. I am sure he abhors racism, as any sensible person does. Legislating against racism doesn’t make it disappear. I belong to pretty much the most privileged demographic imaginable: heterosexual white American male. I think there is a tendency for people who are not directly effected by racism to want to “do something” to make it better, to clear their conscious of a perceived advantage that they have done nothing to invite upon themselves. The problem is that legislating corrective privileges for minorities makes us feel like we are doing something, that racism has been “solved” or “fixed”, and we go on with our lives. Racism hasn’t been fixed, and our failure to address it on a personal and cultural level is probably one of the greatest domestic issues facing our country (and the whole world). When the debate shifts towards “is Affirmative Action fair?” and away from “how do we treat people and why are these minority groups struggling socially and economically?”, we are doing a great disservice to society.

Department of Education: it sounds really bad to want to “eliminate the Department of Education”, but do you even know what the DoED does? Not a heck of a lot. t doesn’t establish schools. Most school funding comes from state and local governments. Curriculum standards are in the jurisdiction of the states. The DoED does “coordinate and administer” certain funds that go to schools; it has a 70 billion dollar budget, most of which goes towards administering and enforcing the No Child Left Behind act, which hasn’t done anything but frustrate teachers and students, and it pays government salaries for 5,000 federal employees. If the department were eliminated, the savings would pass along to tax payers or could go straight to the states.

Environmental Protection Agency/ Food and Drug Administration: the libertarian argument is that these agencies are unneeded and ineffective. The main problem is regulatory capture. The people who end up running these agencies are former chemical and drug company CEOs. They get watered down regulations passed, so it looks like they are doing something productive, when in actuality they justify the terrible practices of polluters and misleading food labels by giving them the government seal of approval. Certainly, libertarians argue for more person responsibility, but the real mechanism for fighting evil corporations is the tort system. Companies that mess up should be sued. The current problem is that when they are sued, they are not held liable because they were following the regulations. Ron Paul doesn’t want corporations to run amok in America, putting poison into the land and our food supply: he wants them to be held accountable, and he doesn’t want the Federal government to be a covert conspirator in their malfeasance.

Keep in mind that (despite what you may think at this point), I am not a Ron Paul maniac. I may be speaking more from the standard libertarian position than from what Ron Paul himself has said… so if you have an article or video contradicting anything I have to say, I would welcome adding it to the discussion. The real point I want to make, to liberals especially, is that he is not a maniac or hack like the other people running for president. If some of his ideas “sound crazy” at first, it’s just because the society and paradigms we have grown accustomed to are crazy, and his ideas stand in bold opposition to them.

If you are a democrat, you should register as a republican and vote for Ron Paul in the GOP primary. At the very least, he will divide and disrupt the party you hate, and if he wins, he will force Obama to debate the issues that really matter: the wars, the economy (Mitt Romney and Obama are 95% the same on economic issues… the media will play up that 5% difference, but don’t let them fool you into thinking it’s a real choice between two distinct solutions), and personal liberty (which he is all for despite his personal views against abortion and for Jesus… he is the only candidate who believes in personal freedom over his own personal ideology, or maybe a better way of saying it is that freedom is his primary ideology, Christianity is his secondary ideology. None of the establishment GOP candidates can say that, and Obama won’t even let you know where he really stands).

FDR on Social Security

September 12, 2011 Leave a comment

Franklin Delano Roosevelt:  (thanks to commenter Preston Madison for the link)

“This law represents a cornerstone in a structure which is being built but is by no means completed–a structure intended to lessen the force of possible future depressions, to act as a protection to future administrations of the Government against the necessity of going deeply into debt to furnish relief to the needy–a law to flatten out the peaks and valleys of deflation and of inflation–in other words, a law that will take care of human needs and at the same time provide for the United States an economic structure of vastly greater soundness.” -August 14, 1935

Beautiful example of our country covering the asses of the rich and pandering to the poor with cardboard castles. Let me translate this from Politician to The People’s English:

“a structure intended to lessen the force of possible future depressions, to act as a protection to future administrations of the Government against the necessity of going deeply into debt to furnish relief to the needy”

really means: “We designed this program so that the government won’t go bankrupt taking care of all you poor people, which I guess we have to do, otherwise you’d all probably riot and cause a commotion that would further depress the prices of our joint-stock shares.”

“a law to flatten out the peaks and valleys of deflation and of inflation”

*the Fed’s inflation mandate didn’t come until 1946, so it is less weird than it sounds that he said this.

in other words, a law that will take care of human needs and at the same time provide for the United States an economic structure of vastly greater soundness.” 

“I want you to believe this program will take care of your human needs, that it is a pension for you miserable throngs of dust bowl refugees and soup line inhabitants. In reality, we are just taking your money now and giving you some back later, because none of you are very good at saving or investing, and frankly the economy has been so volatile over the last 50 years that even if you were shrewd, it is very likely you’d still be in the poor house. This will make the entire financial system much more secure because us richie riches will be able to sleep easier at night, knowing that we’ve contained the kind of widespread poverty that leads to social unrest and revolutions, and as an added bonus, it won’t really cost us anything since you all are paying for it. Now that JP Morgan and Andrew Carnegie are dead, and John Rockefeller is 96, practically the oldest man in America, there aren’t any rich people left who are willing to come to the national economy’s rescue, so we have to force you poor people to take care of yourselves.”

I am struck by the straightforwardness of FDR’s words. I might have the benefit of hindsight and historical context to assist me in interpreting them, but politics today seems so much more theatrical, so much more like a magic show with all the misdirection, or a professional wrestling match.

I was born in 1984, have memories from childhood of Reagan and Bush I on TV. They were relatively straight talkers who seemed to have no problem being frank about helping out rich “job creators”, but I guess it was a different time back then, the go-go 80’s.

After Lewinsky, 8 years of Bush II, and now 3 years of Obama, my generation could very well be the most politically cynical. Bush II was such an obvious bullshiter, but it worked to his benefit because you never could really read directly between the lines and get any meaning from it (maybe because he didn’t even know what he was supposed to be obfuscating, since it was Cheney’s master plan). When he was trying to privatize social security, he seemed just as confused as the public was, as if he didn’t understand that the goal was to “get this piece of shit off the government’s balance sheet!”

Obama is a good orator (sometimes I think that is about all he is good at); his deceit doesn’t come across readily in his words (I know some will disagree with me on that, perhaps I am too used to Bush II’s obvious chicanery), but his actions speak volumes for what he is up to: look at his appointments, the compromises he has made, the end result of the policies he gets behind.

Categories: Politics

The Feta is About to Hit the Fan

September 12, 2011 Leave a comment

I’ve been pretty busy on the internet today. To my intellectual detriment, I haven’t really been paying attention to the EU this year, so I caught up on things today. My worry meter is at about a 9/10. European politicians aren’t all that different from the ones here in the USA. The conservatives are essentially holding the economy hostage by not bailing out the troubled sovereign economies. I am not sure if they don’t understand what is at stake, or if they do and just don’t care because it is all part of some diabolical plot. In either case, things are not boding well for any type of political solution.

Spain, Italy, France, and then the entire EU are at risk, in that order. I would wager that if any country’s beside Greece default, we will be in for another sharp recession, and if they all go down (I have to believe the ECB or even the Fed would step in before this happened) we will be witnessing the final curtain for the Western finance, The Greater Depression. I don’t like sounding so melodramatic, but its warranted given the circumstances. How many politicians are willing to double down on another bailout? How many people would take to the street if such a thing came to pass? I know I would…

We’ve been hearing this possible chain of events for almost three years now, but the chickens have come to roost finally. The time frame for this happening is before the end of year; Greece may default as early as this week.

Social Security is NOT a Ponzi Scheme, It’s Just A Socially Regressive Tax Used To Fund A Mandatory Insurance Scheme

September 11, 2011 2 comments

Lots of talk in the blogosphere about Social Security: is it a Ponzi scheme? Yes, no, maybe so…

I started writing this article thinking “of course its a Ponzi scheme”, then I went to thinking it wasn’t, then back to it was, and finally, I have settled on the conclusion that it is not a Ponzi scheme, “definitely not”, and I’m actually kicking myself for not realizing it sooner.

The short reason why Social Security is not a Ponzi scheme is because Social Security is not an investment scheme; instead it is a mandatory insurance scheme (akin to Obamacare).

Read more…

Didn’t some of these guys go to Wharton and HBS?

September 11, 2011 Leave a comment

Something they teach you in business school: When a project’s returns are in excess of its financing costs, invest in that project.

The republicans think they are the party with business sense… how the heck does it make sense to turn down 2% financing? That’s exactly what the country has access to right now, and we could be doing what any business would do if it had access to funds at 2%: investing in anything with returns over the hurdle rate. 2% is a low hurdle. Off the top of my head, additional spending in physical infrastructure and education both would easily return more than 2%, and that return is not currently constrained by low consumer demand: regardless of how sour the economy becomes, people still need to get educated and use our roads, bridges, and ports, and these are the types of public investments that are the most likely to facilitate additional private investment.

Instead we are having a silly debate about the national debt in the context of the century’s worst economic conditions. Primarily, the problem right now is a lack of investment that stems from low confidence and a high perception of risk. There is strong evidence that investment is being hampered by market uncertainty, and a strong case to be made for government directed investment to bolster consumer confidence and kick start the economy.

Our physical infrastructure is aged and our education system and immigration policies (our human capital infrastructure) are not world leading or cutting edge (stagnant is perhaps the best description). We don’t necessarily need to be leading the world, but soon both types of our infrastructure will no longer even be considered “world class”.

Categories: Business, Economics, Politics

“Americans have been historically less inclined than Europeans to explosions of social rage, despite suffering more poverty than most other wealthy democracies.”

September 11, 2011 Leave a comment

This article makes an important point about the burning luxury cars in Berlin and the American proletariat’s general inaction against its bourgeoisie. It could be America’s strong anti-communist cultural values, but I think an even more likely cause is the large number of lower income, fiscally conservative Republicans. Whether they are fiscally conservative because they are Republican or Republican because they are fiscally conservative is of little consequence: the strange assortment of characters under the GOP’s formerly big tent is united by their unyielding belief in ideology, whatever that ideology may be. You have a mixture of people who don’t understand what tax bracket they are in, or how progressive taxation works.  or else they have noneconomic reasons for voting the way they do: morality (include both Christians and Minarchists here), racism, last place aversion, etc.

If the Democrats were the gun nuts, rather than the Republicans, we might be seeing protests here that are more riotous and violent in character, similar to what tends to happen in Europe as of late (France 2005, UK 2010/11, Germany 2011). For now, perhaps the banker’s sleep better at night knowing that the party of our nation’s proletariat is also the party of its peaceniks.