Effor.com

I was reading a Reuters story about the proposed budget in California tonight when I saw this:

Wheelchair-bound Christina Mills, 32, of Sacramento, California said disabled workers could not afford to have subsidies for assistants cut as the governor proposed.

“If they didn’t have home-care workers to help them get dressed in the morning, they wouldn’t be able to go to work.”

Hey Christina – that sucks doesn’t it?  It’s sad, but true – if you need someone else to pay for you to get to work, you’re not earning enough to make your job worth the investment in you!  It would be cheaper for everyone if you stayed home and we payed to take care of you there.  Plus, you wouldn’t be in denial about how much your work is actually worth.

Yes, it’s harsh.  But it’s also true.

gk

Share on Facebook

Cash for clunkers seems to be all the rage this week.  Hundreds of news stories and blog posts are telling everyone how successful it is, how it RAN OUT OF MONEY IN ONE WEEK when it was supposed to last until November, and how this will boost the economy.

Bullshit.

Here’s an excerpt from the Daily Reckoning.com explaining why it’s bullshit.

And as Bill has been pointing out, this is just another example of the government promoting the idea that the future doesn’t matter – just spend for today. He wrote in Friday’s essay: “Instead of letting the consumer buy a new car when he is ready, the feds give them money to buy now. So, he buys in 2009 and not in 2010. What good is accomplished? It is as if they didn’t expect 2010 to ever arrive…”

The Wall Street Journal backs us up here: “The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.”

This is what’s known as the “broken window fallacy” that I posted about in February 2008.  It’s a classic story and you can read all about it on the link, but here’s the main part as told by Henry Hazlitt’s classic “Economics in One Lesson” (Which I urge you to read.) It’s copied from my earlier post -which was copied from Lew Rockwell’s post on Mises.org.

A kid throws a rock at a window and breaks it, and everyone standing around regrets the unfortunate state of affairs. But then up walks a man who purports to be wise and all knowing. He points out that this is not a bad thing after all. The man fixing the window will get money for doing so. This will then be spent on a new suit, and the tailor too will get money. The tailor will spend money on other items, and the circle of rising prosperity will expand without end.

What’s wrong with this scenario? As Bastiat put it, “It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.”

You can see the absurdity of the position of the wise commentator when you take it to absurd extremes. If the broken window really produces wealth, why not break all windows up and down the whole city block? Indeed, why not break doors and walls? Why not tear down all houses so that they can be rebuilt? Why not bomb whole cities so construction firms can get busy rebuilding?

It is not a good thing to destroy wealth. Bastiat puts it this way: “Society loses the value of things which are uselessly destroyed.”

It sounds like an unexceptional claim. But herein rests the core case against everything the government does. Perhaps, then, we can see why the allegory is not better known. If we took it seriously, we would dismantle the whole apparatus of American economic intervention.

If you are with me to this point, perhaps you have a hard time believing that anyone really believes that wealth destruction is actually a good thing. Let me try to show that the fallacy is as pervasive as ever.

After every natural disaster, we at the Mises Institute start what we call the “Broken Window Watch.”

After hurricane Katrina, the Labor Secretary said, “[W]hat will happen — and I have seen this in previous catastrophes and hurricanes — there is a bright spot in that new jobs do get created.”

And The Economist said, “While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins.”

And the New York Times said, “Economists point out that although Katrina has destroyed a lot of accumulated wealth, it ultimately will probably have a positive effect on growth data over the next few months as resources are channeled into rebuilding.”

That’s what we’re doing with Cash for Clunkers.  We’re diverting capital from where it would naturally go into a program to destroy valuable assets and replace them.

Why not apply the concept elsewhere? How about cash for houses? Cash for liquor? Cash for newspapers? Cash for trips to Europe?

Yes, there will be a temporary boost to the economy, but it comes at the expense of next year, and the next year, and the next year.  WHO IS PAYING FOR IT?  We all are, and all we’re actually doing is postponing the day of reckoning.  You cannot borrow your way out of debt, and that’s what this program is trying to do.

gk

Share on Facebook

I don’t know why this hasn’t been brought up in any of the California budget news that I’ve seen.  The state of California is issuing IOU’s instead of paying people and companies.  I’m no lawyer, but that practice obviously (it’s obvious to me anyway) violates the US Constitution.  Article I, Section 10, titled “Powers prohibited of States”, states:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Let me summarize it this way – No State is allowed to use anything except US Dollars as payment for anything.  They cannot print their own money, they cannot “emit bills of credit” which are IOU’s.  Here’s the definition of “bills of credit“: a paper issued by a State, on the mere faith and credit of the State, and designed to circulate as money.

That’s why California can’t require banks and others to accept them – IOU’s aren’t money and the state is specifically prohibited from using IOU’s as money.  I’m guessing that the only reason they’re allowed to do it is that no one has filed a suit to challenge it.  Californians want their bread and circuses.  Who cares if they are being paid with worthless pieces of paper?

Dumb-asses.

gk

Share on Facebook

Just scanning the headlines on Google News tonight and happened across this in the NY Times.

The highly complex tactic has become a cause of growing concern within the Internal Revenue Service in recent years because it deprives the Treasury of billions of dollars a year, according to private-sector estimates.

It “deprives the Treasury of billions of dollars a year”?  Really?  How about phrasing it something like “it doesn’t take billions of dollars a year from the companies who earned it”?

BTW – The “highly complex tactic” simply says that a company isn’t taxed on money it earns outside of the country as long as it re-invests the money in the country where it was earned.  As in building a better, more efficient factory, or buying the materials it needs to keep producing the product

The NY Times (and Obama) seem to think that they are being “deprived” of billions of dollars per year.  How?  Did they earn it?

That’s what I thought.  Now shut up and quit spending so much of our money.

gk

Share on Facebook

It’s probably the understatement of the decade to say that I’m no fan of bailouts, but the proposal to tax 100% of the bonuses at AIG because they’re using our money is ridiculous.

Even though Bush trampled all over it, we have this document called the Constitution which limits what the government is allowed to do.  The Constitution allows amendments, and one of them is the 14th Amendment.  In part it says:

No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

In other words, what’s good for the goose is good for the gander.  Laws need to apply equally to everyone or they’re invalid.  At least that’s the theory….

We’ve seen hundreds of examples where that’s been ignored – farm bills, auto regulations, welfare, tax breaks etc. – but that doesn’t make it right.  Passing a law that applies to AIG (or any other subset of citizens) to tax certain wages at 100% is blatantly unconstitutional.

That won’t stop it from passing, but it should.  That should tell you just how much our elected Representatives, Senators, and the President know about the constitution.  And it should show you why we need to vote them out.  All of them.

Go back to a citizen legislature and we’d all be better off.

gk

Share on Facebook

Capitalism is almost dead in the US.  What follows is a copy and paste of part of yesterday’s Daily Reckoning.  You need to read it – both what follows and the Daily Reckoning site.  Enjoy!

gk

Obama’s new budget is the biggest bag of leeches to come along since the Roosevelt Administration. We have not seen it in detail. But from what we’ve gathered from the press reports, it has something in it for almost every bloodsucker.

The raw numbers are breathtaking. Whereas the feds have taken about 21% of the nation’s income in recent years, now they’re going to take 28%. The deficit alone will equal more than 12% of total GDP.

Put the feds together with state and local hacks, altogether they will consume 40% of the nation’s total output. Whoa…that’s put it close to the levels of such free-market bastions as Zimbabwe and Algeria, both with 43% of spending done by government…and Hugo Chavez’s Venezuela, where the government spends 41% of GDP.

By contrast, in France, that socialistic, bureaucrat-saturated country with the croissants, 53% of GDP is spent by the government. But wait…in France healthcare is a government industry and so is the passenger train system. In America, 17% of GDP is spent on healthcare. As for the passenger trains…forget it…in America, we scarcely have any. So, if you add the 17% spent on private healthcare to the 40% you actually get a total higher than that of France. Ooh la la…the age of big government is back!

Who pays?

Ah…that’s an interesting subject in itself. Obama says he’s going to soak the rich. But the rich are already pretty well marinated. Reagan’s tax cuts freed them to earn more money – and pay more taxes. Now, the top 5% pays 60% of the costs of government. The bottom 40% pay no taxes at all. They get all government ’services’…which is to say their boondoggles…for free.

Share on Facebook

I’m not a Republican (or a Democrat), but I like this.

Honk if you're paying my mortgage

The only thing that might be better is if it said “Honk if I’m paying your mortgage”

Or maybe a few others:

Honk if you’re bailing out my bank.

Honk if I’m bailing out your bank.

Honk if you’re tired of bailouts.

Honk if bailouts suck.

Honk if you got stimulated.

Honk if I’m stimulating you.

Honk if you want to stimulate me.

Honk if you have a massive stimulus package.

Honk if you got off on Obama’s package.

Honk if you got stimulated by Obama.

Honk if you’re tired of stimulation.

And finally – Stimulate this!

gk

Share on Facebook

There’s a proposal to institute a new income tax in Tennessee, and you can read the full text of the proposed bill here.

It’s called the “Tennessee Modernization and Economic Stimulus Act”, as if by calling a tax an “economic stimulus” suddenly makes it different than simply calling it a new tax.

One of the reasons I moved to Tennessee was that there wasn’t a state income tax.  Revenues to the state are mainly via a sales tax, which is the fairest method.  Think about it. Here are a few points as to why I think the sales tax is good, and the income tax is bad.

• If you make $200,000 per year, you’re probably buying more expensive clothes, food, cars, boats, etc. than someone making $40,000, so you’re paying a lot more in taxes.
• With a sales tax, the more you spend on items, the more you pay in taxes.  The state currently receives 7% of a $200 restaurant bill, and 7% of a $5 McDonald’s meal.  Which one brings in more revenue?  Who is paying more?  (Hint – It ain’t the poor!)
• A sales tax doesn’t penalize you for working more, getting a raise, or getting a better job.
• A sales tax encourages savings/investment and paying down debt to avoid taxes – both of which are extremely good things for long term financial health.
• An income tax forces employers to spend more more for bookkeeping and accounting.

To sum it up, I think this is a Bad Idea.  An income tax is simply a way for politicians to say they’re making “the rich” pay their fair share and to get their hands into another cookie jar.  Just say no.

gk

Share on Facebook

Ransom note?  Robbery note?  Hold-up note?  I’ve heard it refrred to by all those terms, but according to a one page “research note” by Joseph LaVorgna of Deutsche Bank, the US taxpayer is hosed no matter what the government does.

I heard about it on NPR – of all places – on Friday this week, and bookmarked it so I could comment on it when I had time.  NPR actually had a very good discussion about it on Friday morning, and the text of the discussion is here.  You can listen to the discussion here.   It’s pretty good.  But back to the ransom note.

In the note, Mr. LaVorgna says We have consistently argued the financial plumbing will remain broken and the economy will grossly under-perform as long as troubled assets reside on bank balance sheets. Moreover, the longer authorities wait to fix the problem, the bigger it will become because collapsing activity will turn good assets into bad ones.

Hey, I’ve got no problem with that.  I’ve been saying basically the same thing for the past year.  My disagreement comes in when Mr. LaVorgna goes on to give his prescription to fix the problem.  He wants the government (me and you) to pay up.  He basically says that you can pay me now or pay me later – but you’re gonna pay me no matter what.

In regards to the government buying up toxic assets, he says:  One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook.  However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base.

As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives.

I agree that taxpayers will pay something no matter what (I don’t have to like it, but it’s true) but I think he over-estimates the damage that letting these mismanaged banks fail would do to the economy. Yes, the current recession would be worse – but I think we’d already be rebounding if the government wouldn’t have intervened.  And the institutions that we’re dumping trillions of dollars into would be gone.

Others would have purchased the assets of these badly managed companies – like Bank of America, CitiGroup, and GM.  Investors in those companies would have taken massive losses, and the insurers of their bonds such as AMBAC and MBIA would also be wiped out.  So what?  A fool and his money should be soon parted.

Other institutions would have bought up the good assets at fire sale prices, and investors in those companies would be richly rewarded.  Which is how a free market economy works.

My biggest issue with the note is his suggested remedy to the problem:  We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

In other words, he wants the bailouts to continue, no matter what the cost.  I added no matter what the cost because the US government is also broke.  We don’t have the money to buy “toxic assets”.  We’re borrowing money right now to pay for the normal (grossly bloated) budget.  And you can’t pay down debt – which is what needs to happen – by borrowing more money.

Robbing Peter to pay Paul doesn’t work – no matter who does the robbing.  The last line of the NPR story I referenced above is something I can agree with: While they might disagree on who will bear the brunt of that pain, all the experts interviewed for this report say the longer the U.S. waits, the worse it will be for everyone.

Stop the bailouts now.  Quit trying to pretend there’s an easy way out.  Take your medicine and pay down the debt.  That will fix this problem.

gk

Share on Facebook

I’m continuing to read the stimulus bill, I’ll add stuff here that I think is stupid.  Stupid as in it doesn’t do a damn thing to stimulate the economy and doesn’t actually help people who are out of work.  Keep in mind that is you simply gave each taxpayer an equal portion of the $787 billion stimulus bill, each person would get $5702.90 to blow to stimulate the economy.

Of course, each taxpayer actually owes $5702.90 simply to pay for their portion of the bill, so if we gave each of them that much money, we’d all be even.  Therein lies the flaw in the stimulus bill.  Governemnt doesn’t create anything – it simply takes money from one group and gives it to another group.  Minus their cut of course.

In other words, they’d actually acheive a higher stimulus rate by simply letting each of us taxpayers keep our own damn money – but then they wouldn’t be seen as “doing something” and they wouldn’t get re-elected.

Back to the bill.  As before, comment in [these brackets] are mine.  An ellipsis (…) means I cut out some text to make it readable, and text in italics is a 100% accurate quote.

Picking up where I left off yesterday on page 17 of the PDF version of the actual bill:

• $2.5 billion to the National Science Foundation for ‘‘Research and Related Activities’’
• $1,474,525,000 to improve, repair and modernize Department of Defense facilities, restore and modernize real property to include barracks, and invest in the energy efficiency of Department of Defense facilities. [WTF does installing CFL's have to do with getting the economy moving?]
• $657,051,000 [to the Navy, for the same crap as the Army got just above.]
• $113,865,000 [Gotta get some CFL's for the Marines too - even though they're on Navy ships...]
• $1,095,959,000 [Crap! we forgot to give money to the Air Force for CFL's!]
• $98,269,000 [Army Reserve needs lights too.]
• $55,083,000 [Don't forget the Navy Reserve!]
• $39,909,000 [Or the Marine Reserve - can you guess what's coming next?]
• $13,187,000 [Yup, gotta give the Air Force Reserve CFL's too.]
• $266,304,000 [Crap, are we done yet?  This is for the Army National Guard "energy efficiencies"]
• $25,848,000 [Guess not - Air National Guard gets new lights too.]
• $75,000,000 [Times 4, each branch gets this for Research, Development, Test and Evaluation. Of what?]
• $400,000,000 to improve, repair and modernize military medical facilities, and invest in the energy efficiency of military medical facilities. [Didn't we just do this above?]
• $25 million for the Corps of Engineers for ‘‘Investigations’’ [Quotes are original.  No I don't know what it means either, but they get $25 million to do it with.]
• $375 million For an additional amount for ‘‘Mississippi River and Tributaries’’
• $2.075 billion For an additional amount for ‘‘Operation and Maintenance’’ [Of what?  Why?  how's this gonna create jobs? They don't say.]
• $100 million For an additional amount for ‘‘Formerly Utilized Sites Remedial Action Program’’ [$100 million to pay for crap we aren't using anymore?]
• $1 billion (say it like Austin Powers) For an additional amount for ‘‘Water and Related Resources’’
• $16.8 billion For an additional amount for ‘‘Energy Efficiency and Renewable Energy’’ [I thought we covered this with the defense department CFL crap above, but it looks like the DOE got their hand in the cookie jar too.]
• $2 billion in grants to manufacturers of advanced battery systems and vehicle batteries [Don't forget, italics are 1005 quoted text, no changes.]
• $4.5 billion for expenses necessary for electricity delivery and energy reliability activities to modernize the electric grid [Aren't expenses for utility companies part of our electric bills?  Who cares?  Here's $4.5 billion to utility companies!]
• $3.4 billion For an additional amount for ‘‘Fossil Energy Research and Development’’ [ WTF?  I thought we we trying to get rid of fossil fuels, here we're giving out billions to do more research on them!]

I swear I’m not making any of this up.  And I’m skipping lots of stuff that either bores me or might – and I mean MIGHT actually makes sense.  Here’s one that just kills me:  $1.6 billion For an additional amount for ‘‘Science’’.  That’s it.  No explanation.  Just “Science”.  And the quotes are original.  It could be going for political science.  No one knows because it isn’t defined in the bill.

Back to the fun….

• $5.127 billion For an additional amount for ‘‘Defense Environmental Cleanup,’’
• $3.25 billion For the purposes of providing funds to assist in financing the construction, acquisition, and replacement of the transmission system of the Bonneville Power Administration [Doesn't the Bonneville Power Administration have paying customers?  Why are we giving them tax dollars?]

I’m hoping everyone reading this realizes what a pain it is to scroll through page after page of deliberate obfuscation in order to find the actual spending appropriations.  I’m talking about crap like this: ‘‘(F) OPEN PROTOCOLS AND STANDARDS.—The Secretary shall require as a condition of receiving funding under this subsection that demonstration projects utilize open protocols and standards (including Internet-based protocols and standards) if available and appropriate.’’.
(4) By amending paragraph (2) of section 1304(c) to read as follows:
‘‘(2) to carry out subsection (b), such sums as may be necessary.’’.
(5) By amending subsection (a) of section 1306 by striking ‘‘reimbursement of one-fifth (20 percent)’’ and inserting ‘‘grants of up to one-half (50 percent)’’.
(6) By striking the last sentence of subsection (b)(9) of section 1306.
(7) By striking ‘‘are eligible for’’ in subsection (c)(1) of section 1306 and inserting ‘‘utilize’’.

That’s a direct quote.  Damn, someone should pay me to read through this.  I don’t know why, cause I’m doing it anyway, but it should be worth something. 

• $8 million for financial assistance, technical assistance, training and outreach programs designed to benefit Native American, Native Hawaiian, and Alaskan Native communities
• $5.55 billion For an additional amount to be deposited in the Federal Buildings Fund
• $300 million For capital expenditures and necessary expenses of acquiring motor vehicles with higher fuel economy, including: hybrid vehicles; electric vehicles; and commercially-available, plug-in hybrid vehicles [Didn't we already have an auto industry bailout?]

That’s it for tonight  I’ve been up too late too many nights in a row.  Gotta get some sleep.  Let me know if you see anything on here that looks like it could possible be stimulating. 

gk

Share on Facebook