A Trillion Monopoly Dollars

It was no joke when I said incidents for activism would continue to be handed on a golden platter. In less than a month, Obama worries about "too much" government spending, changes his mind, and will now have the opportunity to sign into law yet another trillion dollar spending bill. I said before that his previous spending projects were historical expenses; now it just seems as if though he is trying to make his record unbreakable. The answer is too obvious in whether or not he will sign it.

And, last I have heard, a significant portion of the first spending bill has not even been spent. -- and yet they want to put another trillion on top of that.

It can be quite frustrating to imagine how many years of intense work it took to create the value that backs that money -- and it is all being destroyed within months. While my optimism for long-term cultural change is unaffected, the economic prospects are not good.

Burning the Casino Down

One particular difficulty I run into when discussing economics is that so many people seem to be ignorant of the fact the economy has principles and causal factors by which it runs; instead they think of the economy as some sort of big casino that the government needs to regulate after a bad deal, especially so in this recession. Luckily, however, we have people like Doug Reich to provide excellent commentary. Today I would like to point your attention to his post titled Obama: Please Try This at Home, which examines the underlying reasons as to why economic stimuluses do not work and why the ones recently passed will actually do harm. What is so great about the post is that it is written in a language specifically for those who have no knowledge of formal economics, so it is perfect for forwarding in e-mails. I cannot quote any notable excerpts since the whole essay is worth reading.

I would also like to direct your attention to his philosophical/psychological analysis titled Rational Animal Spirits, which is a dissection of the mentalities of our current central planners (i.e. politicians) and an explanation as to why forgoing principles is very harmful, if not fatal. A noteworthy excerpt:

If you are trying to eliminate the effects of a particular problem, do you think it would ever help to understand the causes that give rise to the effects? For example, if a building were on fire, do you think it would help that the firemen in charge understood what tends to fuel a fire and what tends to extinguish it? If they did not understand the causes, wouldn't they be as likely to throw a ham sandwich on the fire as to pour water upon it? ...Obviously, if one does not understand the causes, the solution may actually be worse than the problem itself. At best, the supposed solution can only mitigate or eliminate effects through random chance.

Both of these analyses give further clarity into our current times and show us what must be done about the economic crisis: the government must stop throwing gasoline on the fire.

Bulldozing the Economy?

This is probably one of the most strangest proposals I have ever read in my life, and cannot grasp the "logic" justifying it. Apparently it is being seriously considered that some U.S. cities should be bulldozed in order to improve the economy. What?

At this point it seems like it would be best to consult the article for clarification, but all the given justifications are useless since they provide no technical explanation whatsoever as to why this should work. All we are given are either analogies or unsupported statements as to what should be done:

"The real question is not whether these cities shrink – we're all shrinking – but whether we let it happen in a destructive or sustainable way," said Mr Kildee. "Decline is a fact of life in Flint. Resisting it is like resisting gravity."

[...]"Places like Flint have hit rock bottom. They're at the point where it's better to start knocking a lot of buildings down," [Karina Pallagst] said.

[...]If the city didn't downsize it will eventually go bankrupt, [Mr. Kildee] added.

[...]Mr Kildee acknowledged that some fellow Americans considered his solution "defeatist" but he insisted it was "no more defeatist than pruning an overgrown tree so it can bear fruit again".

These particular excerpts constitute the bulk of the most important quotes regarding the plan, but, as you can see, none of them explain in any way whatsoever just how shrinking the confines of some cities is supposedly going to help the economy.

In times when the government, local and national, faces a budget crisis, the best thing to do is incur massive expenses? In times of wealth destruction, the best thing to do is intentionally destroy wealth? (Remember, property, not just money, counts as wealth.) In times when the threat of bankruptcy is at its highest, the best thing to do is to support actions that will accelerate the decline?

As to why this proposal will fail if enacted, the most important thing to remember in this case is that the government is funded by taxpayer money. Anything it does that costs money is costing your money.

This proposal is not free of cost. In order to carry this out, the government is going to have to fund the companies that will provide the equipment, workers, and resources; it will have to pay for the use of the equipment and the cost of labor.

The end result? *Perhaps* some savings on fuel, for maybe at the end of this tearing-down people will be within walking distance of their place of employment. But the petty savings on fuel is not enough to justify the costs of such a big deconstruction project. Are there any other benefits? No.

With a straight face, the government officials are stating "We know that your personal wealth has been threatened during this economic crisis, so we propose to help you prosper by taking some of your wealth and using it to destroy potential wealth."

Ultimately, all this project will achieve is the destruction of potential wealth. People are leaving Flint for a reason: economic decline. Contrary to what Mr. Kildee asserts, the economic decline of Flint is not just a fact of reality in the same sense gravity is, it has human causes. Only by examining those causes can anyone properly construct a plan of action as to how to solve these problems. By refusing to acknowledge the actual problem Mr. Kildee is but preparing to only perpetuate it.

I can think of no better time to recommend the reading of Economics in One Lesson, by Henry Hazlitt.

Wesley Mouch with your Paycheck?

Another disturbing proposal is upon us. Legislators are actually entertaining the notion of dictating the pay of all employees of companies that have received government funding.

But now, in a little-noticed move, the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in some key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the "Pay for Performance Act of 2009," would impose government controls on the pay of all employees -- not just top executives -- of companies that have received a capital investment from the U.S. government. It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies.

Of course, this is but only a logical development, as would be known by anyone familiar with the nature of government intervention and money in general. When we spend money, we want to know where it is going and, if we are smart, will not finance activities we do not approve of. When the government starts paying for the operation of a business or industry the politicians involved will sooner or later act as if it were their money that had been spent, and will be suggesting, or forcing, courses of action.

What is their standard of how people should be paid?

In addition, the bill gives Geithner the authority to decide what pay is "unreasonable" or "excessive." And it directs the Treasury Department to come up with a method to evaluate "the performance of the individual executive or employee to whom the payment relates."

And how will he decide what is "unreasonable" or "excessive"? And by what process will the Treasury Department come up with method to evaluation performance? Will it be based on sound economic principles of how employers keep their employees, or by the popular opinion of voters?

This will be particularly harmful to our economy, especially at a time like this, since the government does not work from the motivation of profit as a business does. I predict that, if Geithner is granted these powers, he will take a look at some sheets and decide that everyone is being overpaid. In a free economy, the proper amount of payment is according to the economic worth of the work or the abilities of the person; in the government, the arbitrary ideas of politicians as influenced by the smiles and approval of potential voters.

Worst yet, what is to stop this from expanding even further beyond businesses that received government funds? As I argued in The Sisyphean Judgment of Politicians, any attempt by politicians to run the economy is doomed to failure as Sisyphus is doomed to have the boulder roll down the mountain, so we have a vicious circle of government creating crises and trying to cure those crises with more government.

If this continues unabated by principled thinking or cultural change, Timothy Geithner may soon be cutting your own paycheck.