Monday, June 01, 2009

I'm From The Government And I'm Here To Help - Part Deux. Washington Plans Of Profligacy To Save The Economy.

I figured it was time to chime in on the brilliance of our government given the California fiasco has reached new levels of ridiculousness. The really bad news for politicians in these times is that for the first time in decades the people are engaged in the political process. Now politicians used to doing their dirty laundry in private are under a microscope. And we see the utter incompentence that defines politicians regardless of ideology or party affiliation. In fact, I'm not sure many of our politicians have anything on the communists. Unfortunately, I find myself writing of political and government issues because governments have become the economy. And if there is one thing I truly despise, it is politicians. Or at least most of them. Generally I only like politicians who despise politicians. In fact, another reason to despise politicians is because what we see today is politicians trying to save the world from the prior profligacy and poor economic decision-making of politicians. Not generally altruistic decision-making either.

Remember we have already had about ten stimulus packages in the U.S. alone. Really substantially more if we look at the facts of government spending in the last decade. Most recently we have:

-The Bush stimulus plan
-The Obama stimulus plan
-The drop in oil prices
-The drop in natural gas prices
-The drop in industrial commodities
-The drop in agriculture commodities
-The drop in short term interest rates
-The drop in long term interest rates
-Quantitative easing
-The government buying Treasuries
-The Bush bank bailout program
-And....half a dozen other Federal Reserve programs

Regardless, most of the new political voices are very certain of what needs to be done regarding the economy. That includes half a dozen Nobel Prize winning economists. Yet none of them saw this coming. I have beat this drum a few times but root cause analysis is the only effective method of determining a go forward path to solve any economic crisis. Otherwise, it's like playing whack-a-mole by running from symptom to symptom putting out fires. The fires keep arising because the root cause continues to have a viral effect on the economy. Until the root causes are identified, the symptoms simply manifest themselves in different and continuous outcomes. That is exactly the policy we identified as a concern last year when the Federal Reserve seemingly started throwing money at everything without any rhyme, reason or strategy. And it should be clear to all by now, no one in Washington has a clue what they are doing. So, we get spaghetti economics - throw it against the wall and see if it sticks. A truly brilliant process as we see. It's apparent no one still knows specifically what caused this crisis. But, I'm going to show you soon enough. And, you are going to be very surprised because everyone is wrong. And I do mean everyone. That means the policy responses are simply adding to this crisis.

Government does play very substantial roles in the market. It is the referee and the rule maker. Ironically, there would be substantially less demand for government programs were its meddling not so consistent and pervasive. And were the rules of engagement set and left alone. Government meddling chokes off private investment and now has gone so far as to put many safety nets in the cross hairs of crisis, ie Social Security, educational programs, FDIC insurance, etc, by overspending on programs more important to the state than the people government should be serving. In other words, crony capitalism. This also includes military and government meddling in 150+ countries and well more than $1 trillion in direct and indirect annual military spending. Something that is bankrupting our society and jeopardizing our nation. Games of the state are trumping the democratic service of our government.

The government tells us more spending by government is necessary. A completely asinine statement. Let's take a look at that statement in some detail and actually see where more government spending has already gotten us. We don't need to go back to the Great Depression (hailed as a success of increased government spending) to benchmark it either. All we have to do is look at the last decade when Republican and Democratic dunces both spent our money like drunken sailors. And so remember most politicians are indeed dunces. It's one of the few jobs in the economy where mouthing is more important than actually accomplishing anything. In fact, I dare say most politicians are unqualified to do just about any job in the economy. How many of you get paid for hollow mouthing?

If you want to have some idea of how government spending will or will not "fix" the economy, simply look at what we have been witnessing over this economic cycle. First, we have $12 trillion in government bailout programs for banks. Then we have the multitude of stimulus programs for even more trillions cited in the list above. Then we have seen $500 billion dollar deficits to fund a war. And we have a military budget that is larger than the rest of the world combined. So, in the last five years, how much economic stimulus has that provided? The military budget alone is more than $5 trillion - The $500 billion budget shortfalls plus the $400 billion defense budget plus the $300 billion in other defense spending hidden in other department and government budgets multiplied by five plus years. In total, I would say the government has spent about twenty trillion dollars saving our economy over the last decade. And, this is simply bailouts and the war budget. Are you feeling richer from government stimulus yet? If not, wait till you get the bill. That's about $130,000 for every working person in this country. Some wild notion tells me we could have done better than this. That better idea would be to give the money back to the masses that have seen the great transfer of wealth leading courtesy of government policies leading up to this crisis and even more of their wealth given away since the inception of this crisis. All to support crony capitalism.

Since the state of California is in the spotlight let's take a look at the malfeasance of spending in state and local government. California will be our example. Although let's be clear. California is no more incompetent than most state and local governments. California's state government revenue was $88 billion in 2000-2001. Today, California is spending $141 billion in 2008-2009. That's a spending increase of over 60% in eight years. Don't blink. You read that right. Did you get a 60% pay increase over that period of time to offset this tyrannical bloat of California's irresponsibility? Bloat that is even now demanding higher taxes and even greater fiscal irresponsibility. California politicians now use what I would term terrorist politics of fear to threaten the people of California with passage of higher taxes. The alternative is they will throw children out school windows or the state will eventually fall into the ocean. Obviously metaphorically speaking.

There is a very simple answer to California's budget problem. Private sector price and wage structures for the masses have not changed significantly since 2000-2001, if at all. Use the baseline budget from 2000-2001 and determine all spending increases since 2000. Cut all of these spending increases including any pay increases. The problem goes away and a surplus appears. Then cut all of the tax increases enacted in that period of time and return the surplus to the people. You remember us. The ones who pay for this profligacy.

Government incompetence is magnitudes more ridiculous than any foibles at GM or Ford. It's hilarious to listen to Washington politicians chastise GM when Washington is surely the most incompetent bureaucracy in the American economy. Yet it is this very government that is going to save the economy? So, California residents, are you feeling richer after ten years of massive government stimulus? How else can California's out-of-control government spending be called anything other than stimulus? It's government-directed spending that has run amok in the last eight years. And, now more of this is going to save the economy? You have got to be kidding me. The reality is California and Washington politicians have exacted a greater and greater toll on society over the last eight years. Yet now this policy is what politicians seek to call stimulus? It's self-serving corruption and tyranny is what it is.

It seems to me our entire economy has really morphed into one that serves politicians. Primarily Washington politicians in one way or another. That includes private investment. Who was lined up to support the recent Obama stimulus package? None other than the largest business monopolies in America lining up for the government dole. What about new business creation or entrepreneurs? Where is their stimulus? There is none. Over the decades Washington has become the only economic game in town on many levels. What a surprise. There is more money to be made buying politicians than competing in the market place. That is why lobbyists ranks have swelled from about 10,000 a decade ago to a purported 40,000+ today. Hmm. Isn't fascism really just a corporatist economic ideology? How exactly is this capitalism?

Now let's look at reality as it pertains to the Great Depression. Keynesian economists and politicians love to cite the success of massive government spending during the Great Depression. In fact, it is the rationale for the bloat we now see in government. To be fair, I do believe many good things came out of the Great Depression. But they were in the form of market reforms and populist economic policies rather than greater government spending. And, these policies came not because of the altruism of politicians but a general fear that society would unravel and the political elite would lose control of society. And, some true morality that temporarily happened to gain some control in Washington.

In 1929 total government spending (state, local and federal) was 12% of GDP. When the government decided to massively increase spending during the Great Depression, government spending ballooned 70%. It peaked at 20% of GDP. I wouldn't get too bent out of shape were we to see government spending at 20% of GDP today. Mostly because it would involve at 50+% government spending cut. In 2009 government spending is anticipated to be 44% of GDP. You read that right. So, at 44% of GDP, where is the private capital that will invest in the economy of the future? Especially after all of the private capital needed to pay the incredible taxes for today's government absurdity.

Government believes it must provide stimulus to replace private spending. First of all, this is a complete mistruth. There is no demand for capital in the American economy - I have written this next sentence a dozen or more times in the last four years and it still holds true. That lack of demand is because of government policy. Policy that has been reinforced over the decades. So, of course there is no private spending.

So as the government crowds out private savings and investment, when does said government realize it has spent enough and it is now time to withdraw stimulus and let the private sector start expanding again? It doesn't. It can't. There is a limited amount of capital in the economy. If there is, say $10 available for investment, and the government is spending $7, how is private capital ever to gain enough critical mass to invest? Or why it should invest to compete against the government? But why should it? Major corporations will make billions off of the government dole. People want jobs not an economy based on never-ending government handouts which raises the economic tyranny on society to benefit the very few seeking to maintain control.

I knew the economy was in trouble when my city of residence decided it absolutely had to build a beautiful new community center a few years ago. There were cries from the Joneses that the neighboring community was one-upping us by building their own community center. Mind you, all of this government spending contributed to bankrupting many private individuals and companies that invested their hard earned capital into private enterprise running health clubs, fitness centers and gyms. I could extent this well beyond community centers to dozens of industries closing because of government meddling in economics over the decades. I bet those entrepreneurs and business owners could really vouch for how government spending has enriched their lives.

How about another perspective. Something to think about. Who was the greatest depression fighter in history? You would say Franklin Roosevelt. But, would you utter President Harding?

In closing, hasn't anyone ever wondered why government services to people and society have continued to deteriorate over the years yet government spending is through the roof? Government spending is at insane levels yet basic services such as food stamps and unemployment benefits are being rationed and Social Security is going bust. Where is all of that money going? Why it's funny you would ask. It's really quite simple. The services of government are shrinking yet the size of the state is exploding. And, what does the state spend money on? War. Welfare for corporations. Welfare for the very rich. Benefits, perks and riches for the state. Meddling in other country's business. Crowding out private investment in the economy. The facts are the facts. And they are self-evident if one peels back the rhetoric.

The United States has more than enough resources to have a government that provides basic social services for its people. That includes Social Security. What it can't do is serve its self-interests at the expense of the people. And, that is exactly what is happening. You matter less to your own government than does the activity of power and corruption.

The main reason why government has not done what needs to be done to restore economic vitality is quite simple. It's because what should be done will usurp power from the self-serving corrupt who have created this crisis. In the mean time, enjoy the positive political rhetoric in Washington and from the economics community. More government spending will surely make the world a better place. Sit back and enjoy as global politicians stimulate us to death. It should be quite a pleasurable experience.

But, if you want real change, don't bet on politicians. You will have to roll your sleeves up and make it happen yourself. And a nice first step is voting out all of the existing political structure and voting in people that will truly serve the people. Maybe then when the government shows up to help, it will truly benefit the people.
posted by TimingLogic at 7:55 AM