Tag Archives | Economy

Government Efficiency

By Tad DeHaven on September 15, 2010 in Big Government, Economics

I recently criticized the idea that policymakers should focus their attention on making government more “efficient.” Instead, I argued that policymakers should focus their reform efforts on reducing government’s size.

Government efficiency proponents make the mistake of viewing the cost of government in the same light as the cost of operating a private business. However, government cannot operate like a business because it isn’t a business.

Private businesses obtain their revenue through voluntary exchange: consumers willingly give a business their money in return for a product. Businesses must control the cost of providing a product in order to maximize profits. A business that does not adequately control its costs can find itself undercut by a competitor offering a like product at a lower price. In the private sector, the market sets the price of a product through the interaction of supply and demand.

Government is unconcerned with “profit.” The “cost” of government is equal to the taxes extracted from the private sector to pay for government activities, plus the economic damage caused by extracting resources from the private sector. Taxes are involuntarily obtained through compulsion and force. Regardless of the value a citizen assigns to the services provided by government, a citizen must pay for those services, and at a price set by government. The price one pays for government is primarily a function of political factors, which are only indirectly influenced by economic considerations. Continue Reading →

A Government-Made Recession

By Harold Pease on September 10, 2010 in Big Government, Economics

By mid 2008 almost everybody knew that we were in deep financial trouble. But the forces that brought it about actually began decades ago with The Community Reinvestment Act in 1977. This legislation “forced lending institutions to grant mortgages to people whose income, credit histories, and net worth would previously have disqualified them from getting such loans.”

An old adage suggests that in getting a loan from a bank the recipient must first prove that he does not need one by listing his assets. The bank uses this list to retrieve all or a portion of what is owed should the recipient default on the loan. The less invested or potentially lost the easier it is for the recipient to walk or default. Such is long standing wisdom and favors the more industrious individuals, as it should. What this means in real life is that high crime or impoverished areas of town do not attract investors as readily.

Socialists (share the wealth advocates) saw a race connection, thus injustice, when it was realized that “only 72 percent of minority applicants were approved for mortgages, versus 89 percent of white applicants.” Moral outrage followed which was resolved by legislation ”forcing lending institutions to loan money to people they would otherwise not lend to and in places where they would otherwise not put their money” (“Government Bailout,” The New American, Sept. 29, 2008, pp.11-15). Continue Reading →

The Fed Appoints Three New Drones. Hooray

By Thomas Woods on July 20, 2010 in Economics, Federal Reserve

On Bloomberg, Jim Grant is asked how he feels about the three yes-men about to be appointed to the Fed. Most guests would offer a few empty statements about the great qualifications of our new overlords. Grant, on the other hand, gives a reply that only a few people in the world would give — namely, what the heck does it matter? What will change with the addition of these people? Absolutely nothing, as usual. So why pretend to care, or that any of it makes any difference? (Thanks to Bob Murphy.)

cross-posted from TomWoods.com

They Will Never Pay Off This Government Debt

By Michael Boldin on June 8, 2010 in Big Brother, Economics

From an article by Vin Suprynowicz:

If I invoke the phrase “Greek debt crisis,” do your eyelids start to grow heavy?

Do you somehow find it difficult to summon up a fresh wave of outrage if someone mentions that when Barack Obama’s National Commission on Fiscal Responsibility and Reform (better known as the Democratic Tax-Hike Justification Front) convened for its second monthly meeting last week, Congress was already 41 days past its April 15 deadline for passing a budget resolution – scared to death to admit, in an election year and the third year of the Second Great Depression, just how much new debt and spending they intend to crank up?

If these topics fired the American imagination, the most popular prime-time television shows would feature teams of CPAs wiping sweat from their brows as they raced to figure out a tricky tax return on their desktop calculators. “Go, PriceWaterhouseCoopers, go!”

So let’s try to avoid a page full of decimals and percent signs. Pardon my ballpark figures.

Go watch the federal debt clock. It shows the federal government – your congresscritter and mine – have promised to pay the folks who bought U.S. bonds $13 trillion which they don’t have. Your personal share – the amount your congresscritter and mine promised to squeeze out of you to pay off those IOUs, if you’re a taxpayer – is about $117,000. Make that $180,000 when all government debt is included.

Total United States unfunded liabilities? I believe that says $108 trillion.

With average family income at about $62,000, can you ever pay that off?

CLICK HERE TO READ THE FULL ARTICLE

Should the Government Promote Fishing?

By Tad DeHaven on May 17, 2010 in Big Government, Uncategorized

A Cato essay on special-interest spending explains how many federal programs deliver subsidies to particular groups of individuals and businesses while harming taxpayers and damaging the overall economy. A major reason why spending has spun out of control in Washington is that thousands of special interest groups have secured a slice of the spending pie, and they fight tooth and nail to make sure policymakers keep baking.

As the essay explains, taxpaying citizens are almost powerless to stop these subsidies:

At the same time, average citizens do not have a strong incentive to battle against particular subsidies because each program costs just a small part of their total tax bill. Besides, when average citizens do speak out against particular programs, they are outgunned by the paid professionals who defend each program. These professionals are experts at the complex features of programs, and they are skilled at generating media support for their causes. One technique they use is to cloak the private interests of subsidy recipients in public interest clothing—for example, they often proclaim that increased funding is essentially to the nation’s well-being.

As a fisherman, I became aware of a federal program targeted at one of my recreational pastimes. Buried in the Interior Department’s budget is a program funded with federal taxes collected on the sale of motorboat fuel and excise taxes paid by manufacturers of fishing tackle. A non-profit organization called the Recreational Boating & Fishing Foundation is then granted the money to use in promoting fishing.

The RBFF receives around $14 million a year, 13 percent of which is spent on staff salaries and benefits. The latest annual report claims that its activities have generated $25 million in sales for the boating and fishing industries since 2007.

The idea for this program was hatched in the 1990s because recreational boating and fishing participation wasn’t keep up with general population growth in the United States. Federal, state, and industry officials got together and decided that a “national theme” was necessary to increase participation. And surprise, another government program was born.

But as a trade publication points out, the promise of increased participation hasn’t materialized:

The Foundation has received funding of almost $80 million in that time, courtesy of federal excise taxes paid on fishing and boating by manufacturers and importers, while the number of adult anglers fell by over a million.

I’ve been fishing all of my life, so I support the sport’s growth (as long as newcomers stay away from my favorite spots!). However, if the fishing and boating industry wants to promote its activities, it should pay for it itself. The excise tax is paid by manufacturers of fishing tackle, but then they simply pass the burden on to consumers. Besides, it makes little sense to set up a costly bureaucratic tax and spending scheme to benefit a private industry.

Maybe kids should be playing more board games instead of video games since board games are more family-friendly. Should the board game industry lobby Congress to create a program promoting board games? Maybe kids should get more involved with outdoor activities like hiking or mountain biking. Should the outdoor equipment industry get a federal program encouraging kids to take up those activities?

Unfortunately, our nation is increasingly becoming a nanny state. Government officials want to control what food we eat, what cars we drive, and now what hobbies we pursue. What made this country great was individuals freely pursuing happiness in their own unique ways, not the ways decided on by politicians in Washington.

cross-posted from DownsizingGovernment.org

Bubble Mentality: Rinse and Repeat

By Karen De Coster on April 28, 2010 in Economics

I read both of these stories back-to-back in recent editions of The Detroit News. Story #1 on the theft of electricity:

On a recent sunny morning, Mark Johnson, head of DTE’s (Detroit Energy) revenue protection unit, drove through east-side Detroit neighborhoods pointing out illegal electric hookups.

At a complex of 12 apartments on Whittier in Detroit, all of the meter boxes had been opened and rigged with wires that span the bare connectors and allow power to flow into the units without being measured.

“That’s 240 volts going through wires that are barely heavy enough to power a light switch,” says Johnson, whose 61-man crew dismantles up to 500 illegal hookups a day. “If someone brushes up against that box, they’re gone.”

Recently, two fatal fires in Detroit are blamed on illegal (and dangerous) electrical hookups. A quote from the same article:

“These deaths are traced directly to your door,” Maureen Taylor, chairwoman of the Michigan Welfare Rights Organization, wrote to DTE in February, in demanding that utility shutoffs end. “DTE has been abusing low income people, seniors and disabled persons.”

The message? If one can’t pay for the services, they should get them free. According to this story, utility theft has become rampant, and this has brought on a necessity for a 61-person crew to cruise Detroit neighborhoods, daily, looking for theft. This crew may tear down up to 500 illegal hookups per day. In an area where there is 15% unemployment and over 30% unemployment in the city, rising electricity theft is not surprising.

But what is surprising is this story that posted the same week: “Greektown Casino Posts Record Revenues.”

March’s $33.48 million boost was a 9 percent improvement over the same period a year ago and capped the casino’s best-ever quarter. Greektown posted a record $91.9 million in revenues for the first quarter of this year, compared with $81.7 million for the same period in 2009.

What are the reasons for the big upswing in throwing money away gambling? An “improving economy” and “more urban customers.” It seems that these numerous unemployment extensions are good for somebody … somewhere. I think perhaps I have observed that revenues are indeed going up. I work right across from the Greektown casino, and on weekday mornings there are often lines of cars wrapping around the block — at 7:30 or 8am — as people are trying to get into the casino garage to spend their last unemployment pennies. Plenty of folks, it seems, still have their MasterCards turned on and their limits intact. The Greektown casino is in bankruptcy by the way, and has been in bankruptcy for two years.

In an anecdotal sense, after about a year or two of spending apprehension, semi-frugality, and all-around belt tightening, I am seeing people return to their former habits — borrow, spend, blow, accumulate. Rinse and repeat. A year ago, the malls were emptying out, the Starbucks that were left open were sporting empty parking lots most of the time, and the local Best Buy parking lot was actually yielding some available spaces. I had noted that our local Whole Foods became more easily navigable, and hordes of bubble businesses were closing up. Things were tightening up all over.

Now, all of that is changing. Crowds are surging again, and at places where you’d least expect it. A year ago I walked right into my nail salon and got taken care of without a wait. Now they have a waiting list you sign when you walk in, and there are a half-dozen ladies (and men) ahead of me, so I have to leave and come back. The malls and specialty stores are crowded again. Inventory is piling up on new car lots. I see new Mom-and-Pop business establishments opening up — taverns, restaurants, and lots of ’specialty’ businesses. This week I went to the mall and saw, lo and behold, there was a brand new bubble business in the mall — designer cupcakes! I blogged about this hilarious fad a few months ago. This was a cupcake kiosk called Happy Belly’s Bakery. There were $3 and $4 and $5 cupcakes — just the right kind of business for a state with 15%+ unemployment that keeps extending benefits to the perpetual leeches. The Detroit News recently reported that the cupcake craze is “prepared for a long stay.” The same was once said about Cold Stone Creamery, the adult pajama/cereal parlor, and the adult peanut butter-and-jelly restaurant chain.

All of this means that while the government has been artificially propping up the economy and “stimulating” it through artificial means, peoples’ perceptions of economic life have been transformed into that which was intended by the central planners: the economic crush is over, our government cured all the problems, things are great again, go back to your old ways. Rinse and repeat.

Centralizers vs Tenthers on the Economy

By Patrick Krey on February 23, 2010 in Economics, Tenthers, The Opposition

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“If only D.C. were more like Bejing!”

In an article that could have easily been entitled “Abolish the States,” Harold Meyerson of The American Prospect, laments the ways the states have prevented the bureaucrats in D.C. from centralizing even more power. Why? Because the states aren’t draining wealth from their citizens fast enough as the feds! Read along as he enviously writes about the centralized structure of the Chinese!

But other major nations don’t have federal systems … They have states and municipalities, to be sure, but either the responsibility for funding most functions of government resides with the national government, or, as in Japan, state and local governments are not required to run annual balanced budgets. In China, which probably has had the most robust recovery of any major nation, taxes and spending for everything are set in Beijing (including the lower tax rates for provinces in which manufacturing for export is the main economic activity).

A brief review of this man’s article shows the contradictory viewpoints between centralizers and tenthers when it comes to the economy. Centralizers believe wealth is created only from government force while tenthers have faith that individuals and mutually beneficial transactions can create more wealth than a bureaucrat could ever dream up. One thing Meyerson is right about is that if you give the feds a monopoly on spending power, they’ll spend like no one else in the world.

No Liberty with Negative Equity

By Scott Guenthner on December 5, 2009 in Big Government, Economics, Liberty

Individual liberty cannot exist in a country where un-funded obligations, plus its current debt, surpass the total value of all private assets. This is an immutable law of nature and is the condition that exists today in our country.

Approximately 12 trillion debt (source U.S treasury), 14 trillion Social Security obligation, 18 trillion (Rx Drugs) and 73 trillion Medicare Liability (source Federal reserve) = 118 trillion. All current U.S. private assets combined = 74 trillion. Simply stated, “Debt Kills Liberty”.

This sobering choice is clear, we must stop the federal governments extra constitutional spending, borrowing and printing of money or forfeit the American Revolution and individual liberty.

If that statement seems an exaggeration, consider the possibility of California’s state government failing. Decades of abusive taxes, spending and regulation could make California the General Motors of States. Is it possible for the Federal Government to take a state into receivership? Can you hear the argument now “California is too big to fail”? How safe is Maryland? Can we tell the Federal Government to cease and desist commandeering our legislative and regulatory processes if we are “on the take” (9% current budget subsidized by stimulus Source U.S. treasury).

If state tax revenue drops 10% in 2010, due to our current economic slowdown, we have an approximate 20% structural deficit in 2010-2011. Fellow Patriots insist now, State government spending must be cut and substantially. This will free us from dependence on Federal subsidies and give us solid footing for nullification legislation to stop future extra-constitutional spending. Our state can reestablish solvency and has precedent to nullify current and proposed extra constitutional Federal legislation.

More insidious than state governments failing is willful devaluation of our currency. The treasury has printed 3-4 times the dollars in circulation in the last handful of years. This gives the federal government unprecedented leverage to buy liberty from citizens in exchange for promised security. It is our duty to rebuild the levy between centralized tyranny and individual liberty.

I urge fellow patriots to commit to personal responsibility/ self-reliance and end our dependency on the failure of centralized authority.