IT'S A WONDERFUL LIFE

To an economist, a movie isn't just a movie:

https://www.youtube.com/watch?v=vZqEfnlGjCc

Have a Merry Christmas!

DWD

ANOTHER GOVERNMENT SHUTDOWN COMING? LET'S HOPE SO.

Many were dismayed by the last government shutdown, but what harm really came of it? Such moves are a political necessary to achieve even tiny headway in slowing the RATE OF INCREASE in government spending. Just look at how government spending has been "reduced" due the Sequester.



For Republicans to achieve any additional spending restraint it will almost certainly require another government shutdown. To oppose a shutdown is to support never ending spending increases.

Have a nice day.

DWD

(Sequester graph courtesy of International Liberty blog)

ECONOMIC REALITIES TO PONDER

• Reality #1 -- The federal government has no money, none at all. 

Although most understand this reality, I'm not sure we have incorporated the concept into how we view government spending. Every dollar spent by government must be taken from some private citizen. When you receive your Social Security check (now or in the future) that money did not come from "government"--it was taken by government from someone else and given to you. (By now we should all know that there is no money in the Social Security "fund".) The same is true for any government subsidy or benefit (like Medicare), the benefit is not paid for by "the government," it is paid with your neighbor's money.

If we want more spending for defense or maybe we'd like to see a renewed space program or whatever, since it has no money, government cannot pay for it without increasing the amount of money it is already taking from private citizens (i.e., by raising taxes) or by borrowing (and adding to the federal debt). So we ought to be very mindful before we suggest more government spending for any program. All government spending must come from your bank account or that of your neighbor (the popular alternative).

• Reality #2 -- The federal government has absolutely no intention whatsoever of ever reducing it debt by even a singe dollar.

Our government borrows over $500 billion every year. It must do so just to pay for its promised benefits and programs already in place. Does the government honor its debts? Yes. How? When debts come due it simply borrows whatever more money is necessary to pay those debts. So when government repays any portion of debt, it replaces it with yet more debt. With a backlog of $18 trillion in debt which is growing by over $500 billion per year, there is absolutely no way, no how that government could possibly even consider decreasing its total debt by any amount. It is a political--and financial--impossibility. Even the notion of balancing the federal budget is laughable. And government is very, very aware of this (even if most citizens are not). So when I say that "government has absolutely no intention whatsoever of ever reducing its debt", I am only stating a reality that we should all ponder judiciously.

Have a nice day.

DWD

HOW TO FIX HEALTH CARE

The only way to lower heath care costs and improve efficiency is to reduce government subsidies and go back to fully private health care insurance. This video explains the source of our problems and outlines the solution.

http://www.youtube.com/watch?feature=player_embedded&v=DLybfQyrkdc

The main problem with health care costs is the third-party payer system. If someone else is funding people's health care then they won't pay attention to costs and they will abuse the system by going to the doctor, buying drugs, etc. unnecessarily. That's what drives up prices and insurance premiums. We all end up paying for these abuses--the money doesn't come from "government." Remember government has no resources whatsoever except what it takes from taxes.

Have a nice day.

DWD

THERE IS ONLY ONE SOLUTION

Government it not the solution, it is the single biggest problem. Massive government takes our income and diverts it from productive uses (savings and investments) that create jobs, and wastes it on unnecessary administrative paper pushing and corruption (and so destroys jobs). Administrative waste and corruption are proportional to the size of government spending. These things cannot be controlled by more laws or rules designed to eliminate waste and increase efficiency--those new rules only complicate and add to the problem. When bureaucracies become as massive as they have become they are far too big to fix and they take on a life of their own that no one--not even a Republican--can fix.

So what to do? The only solution is to decrease the amount of our nation's resources that the government controls and spends. That can only be done when we stop asking government for benefits--personal, business, or whatever--and actually demand that they stop, or at least reduce, the "benefits" that we are receiving. This means less Social Security, medical subsidies, unemployment insurance, affordable housing subsidies, and on-and-on--everything that we "deserve" because we paid our taxes. Demanding compensation for the taxes that we paid only makes the problem worse!!! Government is already borrowing billions every year to pay for those things. And most all those benefits paid by government are unconstitutional.

The following is an old video (2009), but the message is timeless (and understated).

https://www.youtube.com/watch?v=SovALlOhSg8

Have a nice day.

DWD

AMERICANS AREN'T SERIOUS ABOUT THE DEBT

This from Steve Chapman of the CATO Institute:

In the abstract, voters endorse tough fiscal decisions. A 2011 Gallup poll found that 73 percent blame the deficit on "spending too much money on federal programs that are either not needed or wasteful." But they have enormous difficulty identifying the programs that are too big.

A survey last year by the Pew Research Center asked Americans whether they favored spending cuts in 19 specific areas. The sole category for which a plurality of citizens was willing to reduce outlays is "aid to world's needy." On average, people estimate foreign aid eats up 28 percent of the federal budget. In fact, it accounts for 1 percent, which means that even abolishing it entirely would have a tiny effect on the red ink.

Even when they get the chance to make small trims across a range of programs, voters get cold feet. After automatic cuts in discretionary outlays took effect in March 2013, Gallup asked citizens whether these were "a good thing or a bad thing for the country." Just 17 percent said "good thing."

Liberals may take this response to mean Americans would rather pay more in taxes than get less in benefits. In fact, Gallup has found that only 11 percent want to close the budget gap mostly or entirely by raising taxes.

Americans, in short, are willing to do anything to cut the deficit and restrain the debt except what needs to be done. They overwhelmingly prefer bogus remedies to real ones and magical thinking to reality.

Every politician knows when it comes to the budget, people can accept being lied to. It's the truth they can't abide.

DWD: I've seen the enemy--it is us. Until voters are willing to accept cuts to Social Security (for persons under age 50), Medicare/Medicaid, and Defense (and a host of other smaller programs), the budget cannot, will not ever be balanced and the deficit will continue to grow. 

Have a nice day.

OBAMA COMMENTARY

I couldn't resist posting these images courtesy of the International Liberty blog:

And ....

Have a nice day.

DWD

THE "RULE OF LAW" AND WHY IT IS IMPORTANT

The "Rule of Law" concept can be traced back to the 16th Century. The basic idea is that society works best when organized by a set of well defined rules that apply to everyone. The importance of this seemingly simple concept is that no one is above the law--including government officials--and that the law limits the powers of persons and of the government. The U.S. is a Rule of Law nation and the powers of the US government are supposedly limited by the Constitution. However, by misusing the "general welfare" clause and otherwise misinterpreting the Constitution our government (aided by the Supreme Court) has adopted an attitude that it can do virtually anything it wants and that it has the authority to do so--in essence, that it is above the law. In a Rule of Law nation this is simply false. Our government has greatly distorted the Rule of Law and continues to expand its powers almost arbitrarily.
Citizens need to understand the nature and value of the Rule of Law concept so that our nation will not only remain a civil, well organized society, but also to keep the government from expanding its powers without limit.
We citizens need to restore the Rule of Law in America with regard to our government and in order to do so we first need to understand what it is and why it is important.

Have a nice day.

DWD

ECONOMIC MISCONCEPTIONS #6: GOVERNMENT SHOULD TRY TO SAVE JOBS

Every attempt by government to save jobs is misguided.

While on the surface it may appear to be a bad thing when companies go out of business and workers are laid off, it happens for a reason, moreover it is beneficial. The worst thing our government can do is take measures to keep failing companies in operation. While it may save jobs temporarily, in the long run, this leads to fewer jobs in perpetuity.
How many companies that have employees go out of business each year? A thousand? Ten thousand? A hundred thousand? Would you believe 600,000. Yes, 600,000 businesses with employees go out of business every year. Oh, but wait, they are replaced by 600,000 new businesses. So scarce economic resources are transferred from bad businesses to fresh new ones who will employ more workers.
Have you heard that 300 million cells die in your body EACH DAY? Why don't we whither away in a few weeks? Because they are replaced by 300 million new, fresh cells that keep us going strong. Economists call this process "Creative Destruction" (but you'll never of it from a liberal economist). If we want a vibrant economy we must allow bad cells to be replaced by new, good cells daily.
So conservatives, please don't dismay when you hear about companies going out of business or laying off workers--this is a necessary thing that helps the economy and ultimately leads to more jobs--not less. Please educate your family and friends when they moan about this or that company going out of business because indirectly (and often directly) those moans suggest that government should step in and "fix" the "problem."
As usual, this fix is just another impediment to the economy and obstruction of personal freedom.

Here is a brief video that communicates this message in a much more entertaining way than I am able.

https://www.youtube.com/watch?v=fEbdgpIQ7n4

Have a nice day.

DWD

WE HAVE MUCH WORK TO DO

Most conservatives desire to reduce the size of the annual federal deficit and--maybe someday--even the size of the national debt (although if you look at the numbers that I have posted in this blog you will see that the national debt will surely continue to grow and so burden future generations).
I have repeatedly tried to demonstrate the economic reality that any meaningful progress toward reducing the annual deficit must include a reduction in Social Security benefits--at least for future generations if not for boomers.
Eliminating all foreign aid, plus drastically reducing welfare payments, plus slashing Congressional salaries and benefits would do very little--still leaving a massive annual deficit (don't even think about "eliminating government waste"). It is simple arithmatic. No real progress can be made until we reduce Social Security and Medicare benefits (even if we're willing to reduce Defense expenditures somewhat, which we also resist).
To date, the common response from my conservative friends has amounted to one of the following:

1. "Retirees deserve to be paid back for their Social Security and Medicare tax payments," or
2. "I don't agree with what you're telling me."

One way or the other, our children's Social Security and Medicare benefits will be less than what the government now "promises." Even our liberal government's own Social Security Administration has concluded that future generations won't be--can't be--fully repaid for what they are now contributing in Social Security taxes, and it gets worse every year. It is simple arithmatic. The longer a reduction in benefit payouts is delayed and our government's debt expands, the fewer benefits our children will recieve. There simply won't be any money (already there is only massive bebt). In the mean time the federal debt continues to pile up and so its deficiency to pay promised future benefits grows.
Maybe it is counterintuitive--reducing Social Security and Medicare benefits to future generations now will ultimately enable them to enjoy greater such benefits in the future. But adults should understand that when one is amassing debt, eventually one will have to pay the piper--with interest. The longer it goes on the more will have to be repaid.
So why haven't we heard more about this? Because, like me, when one tries to explain....

Have a nice day.

DWD

ALL JOBS ARE NOT CREATED EQUAL

When it comes to the health of the economy, the value of most government jobs pales in comparison to the value of private sector jobs.

From the standpoint of the employee, statistics show that government jobs pay better and provide more benefits than do comparable jobs in the private sector. But as for contributing to the economy and to the overall job market, government jobs are a net burden to the economy and to total national employment.
Let me explain (in 2 parts with a final, crucial qualification):

PART ONE
Private sector workers produce products or services that generate the very financial resources needed to pay their own wages.
All private sector jobs must produce something of value, a product that people value so highly they are willing to part with their hard-earned cash to obtain. Private companies can afford to employ only those persons for which the end product of their labor is at least as valuable as their wages. Hence, all private sector jobs are productive--they produce a product that people value at least as much as the cost of the labor and materials required to produce that product. Consequently, all private sector jobs are self-sustaining: they pay for themselves with the value produced by their labor. Carpenters make furniture or other items that consumers value. The sale proceeds of their products finance their continued employment. Everyone wins. Consumers get something that they value and carpenters continue to ply their trade and receive wages. Nobody is giving anything to anyone without receiving equal value in return. Moverover, from the value created by private workers they accrue income which they spend to support the wages of other workers. This is how the economy grows, by workers creating things of value.

PART TWO
Most public sector workers don't produce any product or service that adds economic value, i.e., that consumers would be willing to repay full cost to acquire. Thus, the wages of those workers are unsustainable and must be continually subsidized by the wages of private sector workers.
With some very important exceptions described below, government workers don't produce products or services that citizens would be willing to purchase at or above cost. Hence, unlike in the private sector, the labor of many government workers creates little of economic value to support their wages. Nor do their actions add any new value to the economy (with the exceptions cited below). Therefore the wages of most government workers must be continually subsidized by the value created by private sector workers. If government workers were employed in the private sector they too would be creating something of value, thus, adding to the economy and supporting their own wages.

QUALIFICATIONS
Some government activities are highly desirable and of great benefit to all.
As understood by our nation's founders, there are some functions of government that are of great value to all citizens and states. As enumerated in the Constitution these include, and are essentially limited to: national defence, national laws and their enforcement, printing money, collecting taxes, regulating international and interstate commerce, weights & measures standards, postal services, patents & copyrights, and maintaining vital records. All other responsibilities are left to the states.

With respect to the states, there are also some government activities that can contribute real value to the economy. These include law enforcement, fire protection, basic education, and infrastructure components like roads and clean water that facilitate private commerce and healthy living. The wages of the government workers that do such jobs are subsidized by private workers, however, for these subsidy payments private citizens receive benefits of real economic value.

If we desire to maximize the opportunities for sustainable employment for all citizens, those jobs that are delegated to government ought to be limited to those that contribute value to the economy and so are economically sustainable rather than government activities that create no value and so must be subsidized by the productive, private sector workforce without receiving compensating economic value in return.

A final note--Nearly all economists, both left and right, support some level of government assistance for the truely needy citizens in our society.

Have a nice day.

DWD

RONALD REAGAN'S FEMALE COUNTERPART

Unfortunately, both Ronald Reagan and this great stateswoman are no longer with us. And, based upon the ideas and actions of the Obama administration, their political wisdom is also nothing but a quaint historical memory.

http://www.youtube.com/watch?v=rv5t6rC6yvg&feature=player_embedded

and this also,

http://www.youtube.com/watch?v=xvz8tg4MVpA&feature=player_embedded

Have a nice day.

DWD

ECONOMIC MISCONCEPTION #5 -- GOVERNMENT AND CONSUMER SPENDING CREATE JOBS

Jobs are created when resources (capital) are applied to productive activity (i.e., making stuff of value and providing services that help people make stuff of value). Productive activity is like the engine in this motorcycle, government and consumer spending, on the other hand, are like the wheels. The engine makes the economy go and creates jobs and the wheels sustain momentum (and jobs) but only to the degree that the engine powers them.

 

The number of jobs created depends on the strength of the engine, not the size of the wheels. When scarce resources are directed away from the engine to the wheels (mainly through taxes), the engine necessarily gets smaller (like the motorbike below). Large wheels (consumption) don't make for a strong economy and plentiful jobs--its all about the engine (productive activity).

  

 

It is the engine that powers the wheels--productive activity powers spending--not the other way around. Without the engine creating jobs and income there would be NO government NOR any consumer spending. When capital is diverted from the engine to the wheels (through taxes) the economy slows. Only a return of capital resources from the wheels back to the engine can get the economy racing once again. And this can be accomplished ONLY by downsizing government and reducing taxes.

 

Conclusion: We need another sequester--no, we need a sequester times 10--no, times 100. The most productive single move toward downsizing government could be accomplished by reforming social security via creating private savings accounts. These funds would go directly to the economic engine rather than to the wheels (which is where social security payments go under the present system). Any downsizing of government will ultimately lead to more jobs, even if that means fewer government jobs. (In a future blog post I will explain why government jobs are not nearly as beneficial as are private sector jobs.)

 

Have a nice day.

 

DWD

 

 

 

WHY AREN'T THERE ENOUGH JOBS?

My favorite definition of economics is: "The study of the allocation of scarce resources"

Sounds simple enough but it identifies two critical issues:
1) Resources are scarce
2) How resources are allocated (and utilized) is important -- critically important

Jobs are created when resources (capital) are applied to productive activity (including both making stuff of value and providing services that help people make stuff of value). Presently, economic activity in the US totals about $16 trillion annually. Of this activity, government at all levels accounts for about $6 trillion. The great majority of this government activity consists of non-productive, administrative-type stuff and massive amounts of transfer payments taken form some citizens and given to others.

The 6$ trillion spent by government was removed (reallocated) from the productive, job-creating sector of the economy. If we want more jobs, we must elect candidates that will fight to radically decrease the size of government and return (reallocate) a large portion of the scarce resources confiscated by government back to the productive sector--back to those who earned it in the first place--so they can invest it in additional productive, job-creating activity (which they will do if given the chance).

In my next post I'll talk about why government and consumer spending can't get us where we all want to go.

God Bless,

DWD

ECONOMIC MISCONCEPTIONS #4 -- WHERE TO CUT SPENDING

Most conservatives express the opinion that government should cut spending. But what should be cut and how big do the cuts need to be? The most common opinion is to cut foreign aid. The areas in which cuts are least preferred include education, social security and medicare.

The chart below shows the annual federal spending by category in comparison with the federal deficit (i.e., *the projected average annual deficit over the next five years). What I conclude from this chart is that the complete elimination of foreign aid will do little to help trim the deficit. In order to eliminate the annual deficit we must address the major spending categories of social security and medicare/medicaid--none of which, unlike defense, are legitimate government activities as enumerated in the Constitution.

As for calls for cutting welfare payments I say, "Amen." However, even an unlikely 50% cut in welfare payments would still leave a huge deficit. And what about cutting Congressional salaries and benefits? Their complete elimination would be like trimming the hog's toenails. And as for eliminating government waste, government and waste are as inseparable as hogs and mud. Discussions of eliminating such waste are themselves a waste (of time and energy).

If we are serious about elimiating the deficit we must call for major reforms to social security and medicare/medicaid. Until we do, no meaningful progress on reducing the deficit (and lowering taxes) can be achieved. As for the contention that we deserve our social security because we paid for it--well, yes and no. While social security taxes are one of the few tax payments that were supposed to be set aside for a specific purpose, in reality Congress has confiscated all such receipts and flushed them into the general tax pot to be spent in any way Congress deemed fit (and all such receipts have been so spent). Deserving or not, there are no, none, nada funds for social security payments. We were duped by Congress and now we must acknowledge and accept this reality and move forward in a way that is best for our children and grandchildren.

Regarding social security, the primary remedy proposed by conservative economists is for social security taxes to be channeled into private savings accounts that the government cannot confiscate and spend (the transition would occur gradually). All funds in these private accounts would be inaccessable to government and so would be virtually guaranteed to be there when the workers who contributed to them finally retire. Systems of private social security accounts have been successfully instituted in Australia and Chile (and many other places).

As for Medicare/Medicaid, the possible solutions are too complicated to be addressed in this space. But make no mistake, meaningful reforms are possible and are currently being proposed in Congress by Paul Ryan and others. However, they need widespread support among conservatives to become reality. We must not oppose these reform proposals because we fear our own benefits may be cut--they must be reduced to some degree in order to salvage our childrens futures while there is still time or we will indeed become known as "the most selfish generation."

As for education, I believe that this responsibility ought to be left to the states primarily because federal education programs discourage school choice and competition and so breed mediocracy.

Have a nice day.

DWD