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
Wednesday, January 29, 2014
Thursday, January 16, 2014
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
Friday, January 10, 2014
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
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
Monday, January 6, 2014
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
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
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