Since the infamous bailouts government has continued to rely on statistics that show improvements in GDP and seek to shoe that the CPI has shown to fall slightly. These statements seek to undercut opposition to the government intervention in the markets from fiscal conservative advocates. In reality these statistics don’t mean much and simply further demonstrate the failure of neo-classical economics to explain the crises and issues of today.
GDP would of course be inflated at this point. The government has injected over $7 trillion into the economy through various bailouts and the TARP. That 7$ trillion is thus included in the GDP numbers although it does not contribute to the productive capacity of the economy. If anything it contributes to the unproductive nature of the U.S. economy it finds itself in at the moment. The government has engaged in one of the worst examples of crony capitalism this nation has seen. The investment banks on Wall Street and other connected businesses, AIG, are the privileged few that were able to receive the funds through their man on the inside Hank Pauslon. Not only did it keep mismanaged companies afloat but removed to date $7 trillion from the market of loanable funds that productive businesses would normally utilise to fund their profitable operations. Not anymore though. Now scarce funds are being freely given to banks and businesses that are unable to make a profit otherwise. Some would argue but they paid it back! That does not justify socialism or in this case fascism. They may have paid it back but instead of changing their practices these institutions are engaging in the same practices as before. Banks are subject to a lot of criticism recently due to their unwillingness to lend. This is also not true banks are lending but only to business and individuals who are meeting their now more strict guidelines. However, banks continue to lend to subprime buyers and engage in highly risky CDOS and options trades. I do not fault financial institutions for this for they are merely trying to engage in trading relationships that the government is not constantly tinkering with. So where is all that money the government has been printing? Currently it is all on reserve at the banks around the country. Currently this is containing inflation and allowing certain prices to drop by a miniscule amount which the government trumpets as great for the economy. Once the economy improves to a point the flood gates will open and these enormous reserves will pour out and hyperinflation will set in. Then a CPI measurement won’t be necessary at all because we will see it on the shelves immediately. We will be living in Weimar era Germany. Some think this is crazy but it has been demonstrated throughout history and I have no reason to doubt it would not happen again.
The government is further hampering economic recovery through interest rate manipulation encouraging consumers as well as business to engage in short-term projects and “nudging” us to consume more in the typical Keynesian fashion. The government and its staff of petty economists want us to believe savings is bad and want us all to spend like crazy and buy things. Economies are built on savings and upon prudent business decisions. Yet the uncertainty created by not only the Obama administration but many of those who preceded him have destroyed the ability of the American economy to remain dynamic and innovative. We will not see real recovery until the market is allowed to liquidate and the amount of domestic savings allowed to rise. Obama is being called upon to be our next FDR and this should scare us all. FDR caused the great depression to be great and if Obama continues to pursue the financing of a depression through monetary inflation and government intervention sooner or later it will crack and the pent up currents of past interventions will be much worse than the lowest of the great depression.
First I want to say that what has happened in Haiti is terrible and will most likely go down as one of the worst disasters of this decade but we shouldn’t let our emotions get in the way of addressing the problems this disaster is leading to. President Obama has recently sent $100 million in aid to Haiti and other governments around the world have also sent millions to the Haitian government. The US currently has a large military presence in the country with thousands of troops slated to be deployed there not too mention Naval ships, aircraft, and various Army vehicles. This has resulted in massive spending with little to no results. The military is not qualified to run a large supply chain off the cuff. The American military while doing an amazing job logistically in the Middle east is the result of careful planning and well thought out infrastructure and hierarchy. To deploy so quickly to Haiti and to attempt to manage the supply chain is poor strategy on behalf of the US government. Why the military was employed in the first place is still beyond me. Humanitarian agencies and the UN were already poised to swoop in and begin the recovery effort but the US military has closed that off and now the humanitarian supplies while making it in to the country are just piling up in storage with no means of getting them to the people. Doctors are also unable to get to the country because the US military has control of it and is giving preference to US inbound deliveries and transport versus those that actually need to be there. Haiti does not need men and women with guns telling them what to they need doctors and humanitarian workers that can crank out supplies and health care and who are trained to do so.
Furthermore, the government aid being sent to Haiti is asking for trouble. Do you honestly believe that the corrupt government of Haiti that has caused their people so much pain and suffering will pas this to them? Take Africa as your example in which international government aid merely lines the pockets of the political class and encourages the creation of more government positions to steal it at the expense of the people who still live in poverty. If you want to help Haiti engage in direct aid through qualified charities or through microfinance organisations. This way you can be certain that what you give to Haiti will indeed help the people and not the government.
Such a large military presence is very worrisome to me. How long will they be there? So far we don’t much about how the decision was made or what the exact plans are. We the people certainly had no say (I say it to be sarcastic). If we didn’t decide who did and why is there no public discourse on this issue? Haiti is quite close to Cuba and is in a strategic area in relation to Venezuela. These are two nations the US does not particularly get along with and I wouldn’t be surprised to see tensions begin to flare as the US overstays their welcome in Haiti.
On January 16th the White House posted a video in which Obama addressed the American public in order to push his recent bank fee creation as well as justify the TARP. He also made sure to drive home the point that our financial crisis was caused by greed and irresponsible action by banks. He said that the government has received some of the bank bailout money but for banks that hold more debt will be levied a fee to compensate the taxpayer for giving them money to stay afloat. I take issue with the picture he is painting in this video as well as the view that has been propagated by the media. The view that the banks caused this crisis and the continued attacks on these institutions is unwarranted and outright false.
The current economic malaise that has swept the world is largely the fault of sub prime mortgages that were packaged into securities. These mortgages were given to individuals and families who were high risk to begin with and as such were given mortgages with little verification of income, no down payment, and adjustable rates to entice them to obtain the loan. Seemingly this would implicate the financial institutions for not following good risk management techniques or not properly gauging the ability of consumers to pay. However, this is not the case. The housing market, like Enron and the energy/telecom sector, is one of the most highly regulated. Meaning it has the most government hands and minds interfering with it. There are 14 different government agencies/departments whose goal is to get people in homes. Such is the danger of pragmatism. The government and the minds within it believe the only path to prosperity is through home ownership and craft policies and rules that accomplish the goal of getting people in homes. But such a practice does not take into account the factors listed above such as the ability to pay. Banks were forced into making these terrible loans through government programs. The American Dream Down Payment Act, Community Reinvestment Act, quotas assigned to banks forcing them to give loans to minorities and low income people (regardless of how it was to be achieved), not too mention the thousands of pages of regulation in the Federal Register from 2000 to present day http://www.thefederalregister.com/b.p/agency/Housing_and_Urban_Development_Department/2009. To say this was a free market failure or simply the fault of greedy banks is a shallow analysis of the root cause of this problem. If anything the banks were being generous in finding some way to cooperate with the government quotas and regulations, all in the name of affordable housing, in packaging these sub prime loans into a security in which they could somehow make money on them. To make money off ones portfolio is not greed but simple business sense. Greed is what led to the regulations being passed in the first place and greed is what is driving the current attacks on the banks and their pay and bonuses.
But what was discussed above is just the tip of the iceberg. So far I have only spoken of what regulations and government programs led to such a distortion in the market which as an aside has its beginnings in the Great Society promoted by Johnson. But what was causing housing prices to skyrocket? Partly it was the government programs ushering thousands into homes that shouldn’t have been there in the first place but the Federal Reserve (Fed) is largely at fault in the bidding up of real estate. Greenspan in response to the burst of the dotcom bubble simply created another one. You can also look back at Paul Krugman’s archives and see that he too advocated such an approach. Here are some quotes from the Nobel Prize winning economist that reflect what actions the Fed did indeed take:
“That is, I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.”
“However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.”
“In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package.”
These factors bid up housing prices and real estate prices because in a capitalist system investors will seek out the field in which they can earn the maximum amount of return. This was at the expense of industries important to the American economy like manufacturing, agriculture, chemicals, etc. This process is not new but has occurred throughout history and each time it robs funds and access to credit from the sectors which need it most and creates malinvestment in areas that do not add to the productive capacity of the nation. Thus nations such as China and India are outpacing the US in industrial capacity because we haven’t kept up our rate of savings with them. The monetary schemes followed by the Fed created a rush into housing and real estate which sent these prices into orbit, see Popular Delusions and the Madness of Crowds and you will see this is not new. Thus banks continued to create securities they were not comfortable with and continued to encourage lending in the housing and real estate market because at the time that was how you made money. If these banks did not seize upon the opportunity the investors and management would have been clamoring for the CEO’s removal because he was under performing versus his industry competitors.
Given the massive amounts of distortion in the housing market and real estate market and the current level of monetary destruction the Fed is perpetuating this problem will only get worse. Currently the monetary base is approaching $10 trillion up from roughly $4.5 trillion in 2000. Normally this would result in massive inflation but we have yet to see it because so far the banks are not lending the money. But once the economy recovers and this money begins to pour into the economy it will be a disaster. The same agencies and programs that existed before the crisis are still operable and still forcing banks into making loans to low income and minority consumers who are not able to afford their homes thus resulting in the same practices as before, the Fed is once again creating a bubble by holding down interest rates and pumping money into the economy, and the government continues to use the Fed to buy up securities and keep institutions afloat not allowing the market to correct itself by liquidating these assets and bringing prices down to a level that is in line with the actual value of these assets. What is worse is that many institutions are bailed out by the Fed by the buying up of “toxic assets” off their books and government loans via the Fed to other institutions. Thus the prices of these assets as well as homes and real estate are still artificially inflated and will continue to dupe investors into investing in them. Nothing is too big to fail. The models used by the government and their mathematical economists are trash. If such models really did work whoever had such knowledge would be a billionaire and modern day fortune teller. Of course we know that the future cannot be predicted and these economists are not sought after for their super mental abilities because the models are not reliable now and they were not reliable in the past.
Instead of correcting these many problems we are attacking the banks and financial institutions who are merely a symptom of the problems listed above. But this is what pragmatism is. The government is looking for ways to gain money through taxes and fees upon the big players in the system in order to pay for this administrations commitments in health care and foreign wars. The real solution is to get out of the way and allow the market to work and rid us of these toxic assets and malinvestments that continue to take place even after the collapse.
Surrounding the conference held in Copenhagen were many protests and media hype decrying the use of fossil fuels and the emissions of green houses gasses (GHGs) into the atmosphere thus warming the planet to a point which will extinguish mankind. The worlds political leaders came together in order to hash out a political agreement that would supposedly halt the destruction of the planet. The language and presentation utilised by these elites was quite amazing. There were emotional and powerful speeches delivered alongside the strident rhetoric we should by now have grown accustomed to in these times of terrorism, global destruction, and general malaise. Environmentalists were out in force marching and protesting of nations to stop emitting GHGs and in general reduce the world to the primitive in which we used to rely on biomass and human power to produce energy and products. Much of what the environmentalists advocate can be put simply as a return to the primitive as Ayn Rand would say and to bring us back to the lowly existence of the cave man. I will address some interesting facts about global warming in general as well as the reality behind what the Copenhagen conference is really about and you will see why my attitude is so negative toward these sorts of actions by political leaders and environmentalists.
Copenhagen is not about climate change or saving mankind. Much of what is being discussed in these meetings with the IPCC preceding the conference should strike you as odd considering this is the Intergovernmental Panel on Climate Change. Keep in mind throughout this discussion we are dealing with a panel of governments researching and disseminating evidence and information on a potentially lucrative business of a carbon economy. The governments of the world recruit scientists that share their views and assign them to study the effects of what carbon is doing to the planet. These scientists then approach our current warming trend from the perspective that it is carbon emissions and human activity causing this problem and nothing else whatsoever. Considering nature is and never has been static I find this hard to believe on principle. I also find it funny the EPA when shown evidence that their methods were faulty and that the models then used and currently being used were deemed unfit silenced the report which was obtained by the Competitive Enterprise Institute (CEI) using the freedom of information act and published. You can read the report here: http://cei.org/cei_files/fm/active/0/DOC062509-004.pdf. This report was an internal audit by the EPA to judge the effectiveness of its research and it was concluded, among many things, that the causes that could be causing our current warming trend cannot be solely attributed to CO2 emissions or man made activities. There are also many scientists that also disagree with the current consensus and mainstream opinion that is pushed down our throats day in day out by the various heads of the IPCC and the media along with the politically connected environmentalist groups. To become acquainted with these men and women you can start from Wikipedia which lists the scientists works and links. Despite popular opinion there is indeed a large body of evidence which refutes the current climate change models and science supported by the governments of the world. It is merely the fact that is conducted by government which causes us to believe in its authority.
Given the fact that global warming caused by man’s activities and CO2 emissions is not definitive why is this this the major issue in the climate change talks? The reason is international political economy. Poor nations are seeking to limit the emissions of the large industrialised nations and large nations are seeking to limit the emissions of indutrialising nations while appeasing the masses through small cuts of their own. The spectacle is disgusting. The ability to limit another nations emissions translates into the limiting of their productive potential. All parties arguing over these matters should be ashamed. The African nations and poor countries in the Middle East cannot possibly handle the burden of of strict emissions standards. Imagine if during the development of America or during the industrial revolution there had been limits on green houses gasses or a complex carbon trading system. These measures would have raised the price of energy and limited the potential of what factories and power generation could and did achieve. The industrialised nations wish to use the cudgel of climate change to beat developing nations into a never-ending spiral of poverty while the developing nations wish to limit what industrialised can achieve and in the meantime collect the large subsidies being thrown their way. Targeted aid to developing nations will cause more problems. One would think this would be well known by now considering the damage it has done to what was left of a civil service in Afghanistan and Pakistan and to the political climate of many African nations.
Nations are doing what they can in order to help their economic systems. Using climate change and the limiting of greenhouse gasses is just another tool. In order to make it seem like a more feasible goal we are presented with the ridiculous creation of a carbon economy in which carbon credits are traded and bought on a market. I will leave it to you to study the particulars but I would like to point out what this contraptions serves in the overall scheme of Limiting the emissions of greenhouse gasses as designed by the IPCC and environmentalists groups. What such system is designed to do is not to limit greenhouse gasses but to make cheap and efficient fuels notably coal grossly expensive. Companies would in effect be forced to using much more expensive and inefficient fuels such as wind, solar, biomass, etc. To environmentalists this may sound great but as the example of Spain suggests an increase in energy price of over 30% does not help the average citizen. The report I speak can be viewed here: http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf. Of course we wouldn’t feel the full effects of this increase because it would be subsidised by the government through deficit spending. This increase in energy costs as seen in the Spain example would result in large scale business that require energy intensive operation to leave the country in search of cheaper energy markets. There would be a two-fold effect on industrialised nations. The cap and trade system would render the already inefficient western economy more inefficient causing a loss to the economy as well as large payments to developing nations to help them cope with these very same problems. These dollars we would be losing and sending to other nations have to come from somewhere and that will either be from the printing press or from foreign creditors.
In closing I would like to say that while I am obviously against the environmentalist movement and their want to return us to the primitive I do sympathise with the overall green movement. The only way for us to move forward in order to protect the environment and make use of our scarce resources in a sustainable manner is if we as citizens become smarter about our energy consumption. The governments we have put our trust in do not have our interests at heart in this debate. What have seen in the past and will continue to see in the future will be political agreements seeking either to enhance or hinder the economic performance of various actors and all of it will be at our expense as citizens both in our economic and social spheres of life. Currently this debate is ruled by political elites and a science establishment dependent on the money they receive from the IPCC to do research to prove the IPCC right. This is the use of fear to bully us into submission. We as citizens need to come together as a rational community and solve this problem and the individual level and as the work of Elinor Ostrom suggests this could indeed be accomplished by us and not our political leaders. The current solutions being promoted and implemented in nations around the world will only lead to the destruction of jobs, increased energy costs, and the impoverishment of many.
In light of the Christmas day bomber attempt the government is stepping up security at the nation’s airports. This increased security will employ full body scanners and other rules for in flight behaviors. Too many these may seem like good measures that protect us from the harms the terrorists may inflict upon us however, it is my goal to show that these measures and the media coverage surrounding this recent incident are well beyond reason. There are tens of millions of Americans that fly each year, 49.8 million in February 2009 and this was after a steady decrease throughout 2008, and yet we have had only one incident since 9/11. The problem of terrorists getting onto planes and blowing them up is not much of a concern. To put it into perspective 37313 people died in car accidents in 2008 (data for 2009 is not yet available). Deaths resulting from airline terrorist attacks is only 2819 all of which were a result of 9/11. Obviously the roads are much more dangerous than any airline flight could be and yet the government is increasingly funding TSA to violate your body in the airport and cause unneeded delays to our travel times. This phenomenon is psychological. The terrorists pose no real threat to Americans. Most of their organization is largely decentralized living in squalor in various parts of the world relying on those who are disadvantaged or disillusioned with the world as it is. Seeing that the number of those who have died as a result of airborne terrorist attacks is so low there must be a reason for all of this national security theater. I can think of several reasons. The Constitution is quite vague on what our rights are and since it is not explicitly stated that the freedom to engage in airline travel is a right the government has extended its fingers into an area in which it can claim to have done something for us, American Science and Engineering (the guys who make the full body scanners) are also contractors in the Middle East in providing scanning equipment for the facilities in Iraq to protect their political leaders (to provide scanners for all the nations airports is yet another sweet deal), finally (the most positive) the government honestly believes that what it is doing is good.
First, our Constitution has an overall goal and that is to limit government. However, you will notice it is quite vague in what exactly is to be done to keep government at bay. We have the bill of rights and a set of checks and balances but as we have noticed with programs like TARP, Health care reform, central banking, regulation of business, etc. the government has gone far beyond what the constitution permits it to do. This the result of what has become a buzzword of late, pragmatism. Pragmatism results in seeing a problem and fixing it as such. The philosophy of pragmatism is not concerned with seeking the truth or examining history but fixing what is wrong. Thus the current developments in airport security will not end the threat, albeit small, of terrorist attacks on airlines but will simply dump hundreds of millions into the pockets of the manufacturers of airport scanners who already get large checks from the government in the Middle East but also to the employees and administrators of TSA who produce nothing productive for society. I find it funny that immediately the strategy to get the most attention was to switch to full body scanners. Just last semester in school I had discussed with a couple other students that these scanners would be the next encroachment to be forced upon us and they called me a conspiracy theorist but it has come true. These things are a progression and unfortunately only few of us can see it coming. I read in the Santa Barbara Independent that a company called SpectraFluids has developed a technology, tested and proven, to detect PETN in any amount on both persons and their luggage. This would result in American Science and Engineering losing these big contracts not to mention a reduction in the political power these organizations have in the Military Industrial Complex (MIC), this is another term many accuse me of being a conspiracy theorist but the evidence is well documented it in fact is real and a threat to our liberty. The chemical SpectraFluids has developed is used on the hand-held metal detectors common in airports and police stations. This would grant these devices the ability to scan for both metal objects and weapons as well as the highly explosive compound PETN. Yet we never hear about these sorts of things?
Second. While we may not have a right to travel we do have a right to contract upheld by the Supreme Court years ago. This isn’t explicit in the Constitution but the Court wisely incorporated this protection into the Constitution as illustrated in Lochner v. New York. The government by subjecting us to these scans and delays at our airports is infringing on our contract to engage in flight. This contract consists of the purchase of an airline ticket and the presumed ability to go to the airport and execute that contract and board a flight to our destination. But now we face the real possibility of being detained for something so silly as arguing with the TSA agents, I should say here that while this is possible you are most likely only to be fined. NPR has aired a story on this exact topic when a man was taken into TSA custody for transporting a large sum of money for his political party in the US. He recorded the whole ordeal on his iPhone and is now seeking to sue the TSA for violation of his rights.
Third. There is theory called benevolent government which seeks to say that the government believes it is indeed a positive force in the world and does all it can to help our fellow man. Frederic Bastiat was great in his analysis of what is seen and what is unseen which addresses this issue. While the government may fund airport security for every dollar they contribute is the destruction of a dollar that would have been used in the private sector to create value adding jobs. In a later post this will be addressed in more detail in relation to the green jobs rhetoric but for now just know that currently our government is spending money it does not have by incurring deficits. Not only has the government destroyed our wealth expropriated through taxes but is destroying the wealth of future Americans by weakening the dollar.
I seek to show that the government is not concerned with we the people but with themselves and the continuation of their power. Currently the American people are ruled by the fear of an ever present terrorist attack which has occurred only once, on an airline, and killed less than 3000 people. Measures given by our political class will only lead to more of the same down the road. Politicians are beholden to their constituencies and seek only to bring home money to them and not to solve our nation’s problems. These same politicians are also largely beholden to powerful interest groups and lobbyist that have much more resources than we do. In competition for political favor and hearing we come last the industrial leaders and interest groups come first. While the government will dump millions into its politically favored company American Science and Engineering to build body scanners, that I can assure will only become more and more sophisticated at producing clearer images of our naked bodies, the honest scientists and entrepreneurs with SpectraFluids will sit back and miss out on an opportunity to employ a much cheaper alternative to such a ridiculous technology. This fear we live with is exacerbated by the government by its constant reminder that we are at war and under attack and the media merely plays along. These threats of immanent danger are not real. The Christmas day attack if successful would still not justify the current actions. Our response to terrorist attacks are emotional and irrational when the deaths on our nations highways alone by far outnumber the deaths of Americans as a result of terrorist attacks and yet we aren’t responding with nearly as much fervor?
Notes From the Underground 