Town Rubbish

Reading over blogs, especially blogs on the state of our economy, there is a fare amount of reference to the "Broken Window Fallacy", by Frédéric Bastiat. It is a good example of what our government is doing. (ie Breaking windows to create jobs to fix them.)

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when
his careless son happened to break a pane of glass? If you have been present
at such a scene, you will most assuredly bear witness to the fact, that every
one of the spectators, were there even thirty of them, by common consent
apparently, offered the unfortunate owner this invariable consolation—"It is an
ill wind that blows nobody good. Everybody must live, and what would become of
the glaziers if panes of glass were never broken?" Now, this form of condolence
contains an entire theory, which it will be well to show up in this simple case,
seeing that it is precisely the same as that which, unhappily, regulates the
greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the
accident brings six francs to the glazier's trade—that it encourages that trade
to the amount of six francs—I grant it; I have not a word to say against it; you
reason justly. The glazier comes, performs his task, receives his six francs,
rubs his hands, and, in his heart, blesses the careless child. All this is that
which is seen.
But if, on the other hand, you come to the conclusion, as is
too often the case, that it is a good thing to break windows, that it causes
money to circulate, and that the encouragement of industry in general will be
the result of it, you will oblige me to call out, "Stop there! Your theory
is confined to that which is seen; it takes no account of that which is not
seen."
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.

In Contrast:
A quote from John Maynard Keynes. (Of Keynesian Economics fame, main contributor to the "New Deal")

"If the Treasury were to fill old bottles with banknotes, bury them at suitable
depths in disused coalmines which are then filled up to the surface with town
rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up
again (the right to do so being obtained, of course, by tendering for leases of
the note-bearing territory), there need be no more unemployment and, with the
help of the repercussions, the real income of the community, and its capital
wealth also, would probably become a good deal greater than it actually is. It
would, indeed, be more sensible to build houses and the like; but if there are
political and practical difficulties in the way of this, the above would be
better than nothing. (p. 129)"

Note the "it would be better to do A, but B is better than nothing". Personally I would rather hold my money until A is available and not do B (dig through town rubbish to find banknotes) at all. The main point of Bastiat is for people to consider not only what is seen, but what is not seen. Rather than looking at just the window people, what about the grocery business, the home business, the entertainment business.

That is a real problem with government. Barrack Obama wants to create 5 million green jobs, working on climate change. All you hear is 5 million jobs created, never a word about jobs lost or other ramifications on other industries.

For more about Obama's green job creation (as if government can create jobs) read here

To The Highest Bidder . . . .ie The Government

ABC (local channel 4) has a nice story about a bank auction on foreclosed properties and homes. Apparently the banks involved rejected the auctioned prices in hopes of more $$ from the "Bailout".

Eric Nelson, founder of Eric Nelson Auctioneering, said buyers' bids totaling
about $7.5 million were rejected because of indecision among nervous lenders,
the pending bailout and last week's stock market plunge.

This is the reason the bailout wont work as expected. If you know that you will sell something to the government, no matter what it is, then there is no market. Because a) who would sale for less money than the gov. is going to pay, and b) who would buy something that is in direct competition with the gov. The Price is going to be artificially high.

This is why free markets are so important. They keep things level, at "market value". For example if the price of houses were too high for the value, then people will stop buying them, or will over extend themselves to buy them and struggle to make the payments, often losing it to foreclosed. The housing market then decides that the price of homes is too high an they are lowered in order to sell. The other option is have gov take over and infuse a ton of $$ to try and keep the house price at the high level. This does nobody any good.

"I think the sellers were surprised that the lot prices came in so low. One
of the sellers walked out in the middle of the auction on his lots. He paid
about $231,000 for each of his lots, but they were getting $100,000-plus
bids," Nelson said.
Nelson said many lenders are anticipating better deals in the wake of a
federal bailout."They're thinking, 'Why sell the properties for 50 cents on the
dollar' when they may get 75 cents or 80 cents through the bailout?" Nelson
said.

I bet they wont get their bailout, and end up selling for less on another auction.

On a side note, the reason the stock market went up the other day is because "Financial Hank" announced that the gov would be buying bank shares. So what do you do when you hear that? Go buy shares in those banks. Or is it really consumer confidence that the gov fiscal plans are right on track??

Food and Guns (Sorry Weapons)

I was watching Glenn Beck yesterday and he had on Peter Schiff. Talking about the bailout and the state of our economic concerns, they reasoned that in order to pay our debt to other countries, and to buy up all the "bad" debt from these banks (which now we are on the verge of nationalizing) the U.S. is going to need to print more money (700 billion). Peter describes a likely out come:

SCHIFF: And the government, instead of encouraging us to start
saving now
so we can pay back the debt, they`re trying to encourage us to
borrow even more
money and spend that.
You know, what`s going to happen,
of course, is as inflation starts running
out of control and prices start
going through the roof, the government again is
going to focus on the
symptoms and not the disease.
And they`re going to impose price controls on
energy, on food, on a lot of
other things that are vital, which means
shortages, which means long lines,
black markets, civil unrest.
All this
stuff is coming if we don`t stop.

This to me is a clear and plausible path, that will require food storage and most likely some way to defend your house. Maybe I'm reading more into this than is there, after all most opinion shows exaggerate for effect. They would have fewer viewers if the sky is not falling. However I generally like what Glenn Beck has on his show and don't seem to think it too alarmist.

Thus I will be working on my food storage a lot more and will fit a few weapons into the budget. In the military you will be sharply corrected if you call it a gun.

President Bush
said Tuesday his administration will spend $250 billion this year to
purchase stock in banks and take a number of other bold steps in an effort to
combat a global credit crisis that is threatening to push the U.S. into a deep
recession.
Bush said the government's role will be limited and temporary and "these
measures are not intended to take over the free market, but to preserve
it."

If you think I am crazy or going overboard, ask your self (or perhaps a history buff) when the government ever took something over that A)turned out better than a private business approach, or B)when has the government ever "downsized" and gave back organizations to the privates sector.

Enabelers

This video from Reason TV illustrates why government in its current state is too far out of touch with reality that, we in reality are made to suffer. Politicians should not be telling us what we need, we should be telling them. Not everybody wants health insurance (at least not everybody wants to pay for health insurance). Everybody has to make choices in life, and all decisions have consequences, even indecision has consequences. People who live responsibly are getting hosed, and it wont be too long before responsible living loses appeal and incentive, thus spawning more people to get what they want and plead to the government for what they need.

Wooden Arrows!! You Know, For The Kids

My religious beliefs are such that at some point our government and country will be on the brink of collapse, and the only thing that will save it is the direct intervention from Christ, via the second coming. Thus I can't suppose to be too optimistic regarding government function, especially with this bailout thing. No matter the choice given to government I would think it to choose the one that will lead us into peril. Perhaps that is a good thing, but who knows?

This all came more clear upon reading this on Hit and Run (too good not to pass on to everyone I know):


Andrew Leonard goes digging in the Senate’s bailout package and finds a bunch of “sweeteners” added to lure in votes. Among them:

* Sec. 105. Energy credit for geothermal heat pump systems.
*Sec. 111. Expansion and modification of advanced coal project investment credit.
* Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund.
* Sec. 115. Tax credit for carbon dioxide sequestration.
* Sec. 205. Credit for new qualified plug-in electric drive motor vehicles.
* Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax.
* Sec. 309. Extension of economic development credit for American Samoa.
* Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
* Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
* Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children.

There are also tax credits for solar and wind power, and a very expensive requirement that health insurance companies cover mental health the same way they cover physical health.
But remember, this is only about preventing an economic cataclysm.

Unbelievable!!! Too much crap for the House to pass, why not add some senate issuses to pork it up some more! Shouldn't energy credits for geothermal heat pumps be drawn up into an "energy bill"? And for that matter shouldn't excise exemptions for wooden arrows be drawn into a "who the hell cares" type of bill? Am I just not smart enough to understand the way government works, or are these guys actually morons??

The Bailout

I have thought a lot about this "economic crisis" and have wavered on whether or not I support, rather think we need, the federal bailout. I will be the first to admit I don't know jack about economics, which limits my ability to objectively understand the subtleties of this situation. With all that said, I am against any sort of bailout from the government (at least so far as it has been presented).

My reasons for my stance are thus:

1. Any entity taken over or controlled by the government is inefficient and burdensome to tax payers.
2. All government programs (as far as I can tell) are government programs for the simple reason that they lose money and private companies wont/ can't run failing programs.
3. Budget 101, if you live over your means, and get over extended, you have to then live below your means in order to pay all outstanding debts (true, sad, but true). Thus our country needs to reset our spending based on GDP or whatever it is that the USofA counts as"income"
4. I have not heard one single person say that this bailout, or whatever comes out of congress, will actually work and that no more $$ will be required. Bear Stern, Fannie and Freddie, AIG!!! At what point do we say enough is enough???
5. If the ultimate goal is to have liquidity, so that the markets don't freeze, isn't there a better way than giving $$ to the large investment banks that got into trouble.

Coyote blog has a good post on his alternative HERE.

Robert P. Murphy also has a good post titled "The Great Bank Robbery of 2008.

In very simple terms, the Paulson Plan is a straight-up transfer of $700
billion — and counting! — from the taxpayers to a few big financial
institutions. (Some smaller banks are complaining that they don't own the exotic
mortgage-backed derivatives, but rather simple mortgages. They do not believe
they will see a dime of the Paulson money.) It's easy to get all twisted around,
but just remind yourself of this: the Paulson Plan has the federal government
borrow $700 billion (through issuing Treasury debt) in order to buy assets from
Wall Street banks. (We are neglecting the time delay in the program; the entire
$700 billion wouldn't be spent all at once.)

some people want to say that if the government pays $700 billion for a
portfolio of assets that is really only worth $400 billion, then the taxpayers
really only lost $300 billion, not the full $700 billion.
Yet this thinking
is naïve. The taxpayers are not going to be treated as equivalent to
shareholders of a firm that just acquired $400 billion in assets. The taxpayers
are not going to get a cut of the monthly mortgage payments (less the servicing
costs on the $700 billion in new debt) tied to the government's massive
portfolio. Instead, the government will simply bump up its annual spending by a
few billion dollars.

And then at some point — during a future Republican administration, no
doubt — there will be a push to "privatize" the secondary mortgage market, and
the government's portfolio at that time will be auctioned off at very generous
prices to politically connected institutions. For example, maybe the $400
billion portfolio is auctioned off for $250 billion. (Perhaps the big banks have
to set up subsidiaries owned by minorities and women who get preferential
treatment in the bidding process. But whatever the ruse, they will find a way to
justify the low prices.) When all is said and done, the government will have
played hot potato with the MBS, and the national debt — borne by taxpayers —
would be $450 (=$700-$250) billion higher.

He concludes with this insight:

Far from providing stability and confidence, the Fed, Treasury, and SEC's recent
moves have ensured that US capital markets will now function with the same
efficiency as public education in this country. The Paulson Plan is one more
step in the socialization of America, but it is also a great bank robbery.

Can you imagine a new government program entitled "No Tax Payer Left Behind"?

Henry David Thoreau: “This government never furthered any enterprise but by the alacrity with which it got out of the way.”

How It All Works (aka The High Grade Structured Credit Enhanced Leaverage Fund)

This via Jeffrey Tucker