The New Era of Statism

I have a question that I believe is on the minds of a lot of people. Since when did statism become so attractive? I bring this up in light of of the recent economic policy of the Obama administration. The bailouts under the Bush administration were folly. The extended bailouts with pet projects that are entirely unrelated to boosting growth and employment signed into law by the Obama administration were folly. The mortgage plan to cover the collective buttocks of millions of Americans who can't afford their mortgages rewards bad behavior. The continued bailout mentality for the financial, auto, and mortgage industries is not just misplaced, but incredibly counter-productive and yes, statist. The government is very good at creating new dependents, and that is exactly what it is doing with the bailouts, attaching the money it lends to preferred stocks and huge chunks of the company. That kind of behavior frightens current stock holders and future investors. With the flight of new and old investment those companies continue to hemorrhage, forcing the government to bailout their bailouts. And, in the big picture, government becomes the de facto controller of a massive part of the private sector (ie: the banks).

Here is the definition of statism as defined by oh so reliable wikipedia (I corrected some spelling mistakes):

Statism (or Etatism) is a term that may refer to any of the following:

1. Government having a major role in the the direction of the economy, both through state-owned enterprises and indirectly through the central planning of overall economy.

2. The "concentration of economic controls and planning in the hands of a highly centralized government."

3. The Fascist concept of statism which holds that "basic concept that sovereignty is vested not in the people but in the national state, and that all individuals and associations exist only to enhance the power, the prestige, and the well-being of the state. The fascist concept of statism repudiates individualism and exalts the nation as an organic body headed by the Supreme Leader and nurtured by unity, force, and discipline."
However, if all of the statist-leaning policies were not enough for you, charitable tax deductions will be significantly reduced or disallowed and the President and his administration aim to raise taxes during a recession, creating more unbalance by putting the most burden on the wealthy. You might think, "Well that doesn't affect me." Yes it does. First off, the tax increases on the wealthy are not going to cover the administration's new drive to overhaul the entire healthcare system and foster green energy with a cap and trade systems, so you can count on tax hikes hitting people who make anywhere upwards of $75,000 a year. In fact, there will be tax hikes all around, but Geithner and the Obama administration seem to think that the economy will be out of its "funk" by the time they actually take effect, which will be 2010 and 2011. However, they seem to forget that people react to these events prior to them happening. So, the announcement alone of tax hikes during this economic malaise is only exacerbating the crisis, as is evidenced by the continued downturn of all markets. Oh, and lest I forget, we will soon enter an age where more people do not pay taxes than those who do. That means that more people will feel entitled to government services without paying a single dime. Under the current Obama tax plan, there are a lot of breaks and rebates for people who do not pay taxes, and the lower income tax brackets will become smaller.

Just had to get that off my chest. Some of Obama's projects might even be good, or at the very least well-intentioned, but he needs to wake up and realize that now is not the time to overhaul the health care system or put a cap and trade policy into effect. Just like any family or individual, the government should not spend money it does not have. We got into this economic predicament by spending more than was in our means and taking on bigger loans than we should have. Explain to me Tim Geithner, Ben Bernanke, and President Obama how we are going to get out of this problem by doing the same thing that got us into it. All of these trillion dollar pump-priming initiatives and this $3.6 trillion budget are going to do is increase debt and the size of government, cause rampant inflation, and prolong the recession, perhaps turning it into a depression. It is also important to remember that the money that is being spent now does not yet exist. The government is spending money on expected revenue. But, how is it going to have this money to spend if it negates the incentives to earn it with higher taxes and cutting deductions? If you have a problem with it, raise your hand.

But this stupidity really is not surprising. I mean, since when did the government do a good job of managing anything? Why do we seem to think that having the government take over the financial sector and the health care system is going to make things better? Just look at the SEC, FDA, SSA, TSA and the Department of Homeland Security. Are those good examples of administration? Do we truly want the government to take over our lives even more, with it's track record? I think not.

For Real Stimulus

Sometimes when you read this blog you chuckle. Other times I hope you think. Other times I hope you get confused. But today the blog is going to touch on some important stuff that most people should know. I got this article from Investment Business Daily. I think it was published either the fifth or the ninth (sorry, I cannot make out my grandmother's handwriting on the copy she sent me). I am in no way claiming this as my own work, but I am taking the time to re-write it on this blog verbatim for all of your benefit. Read on.

"Economy: Congress is ready to ram through a half-baked stimulus package costing as much as $1 trillion. But if it's stimulus we need, why not make it effective stimulus - tax cuts, say, instead of wasteful spending?

The massive new spending program that is being pushed by the congressional Democrats emboldened by their newly enhanced majorities may come up as soon as Tuesday, when they return from their holiday breaks.

Unfortunately, they've picked the least effective way to give the economy a boost. Those who argue for hundreds of billions of dollars for infrastructure projects and "green jobs" have it all wrong. We've tried those remedies before and found them wanting.

In the 1930s, for instance, we went on an infrastructure binge, building new roads, dams and schools; electrifying the rural south and enlarging our ports, among other major tasks.

Granted, some infrastructure improvement was called for. But all the activity didn't pull the country out of depression - not by a long shot. Unemployment averaged 17% in the '30s, and it wasn't until 1941 - the start of World War II - that GDP returned to its 1929 level.

Japan followed the same Keynesian game after its real estate bust of 1989. To the applause of many American liberals, hundreds of trillions of yen were spent on infrastructure, raising outlays on big projects from 6.5% of GDP in 1990 to 8.3% in 1996 - even more than contemplated under Obama's plan.

That didn't work either. The 1990s were a "lost decade" for Japan's economy, and the country is still stagnating. Its infrastructure boom did have one lasting legacy however: Japan is now the most heavily indebted nation in the OECD.

If President Obama and his fellow Democrats get their way, the U.S. may soon be trudging down the same path. Next year, reckons budget expert Stan Collender, the defecit may hit $1.3 trillion, or 8% of GDP, as Congress tries to spend its way out of recession. That's roughly $13,000 for every taxpayer.

Shouldn't we at least expect some big bang for our bucks? If so, and although it's not popular with his party, Obama might want to re-think his aversion to tax cuts. They'll actually work.

How do we know? Because they have in the past. In the '20s, '60s, '80s and again this decade, new presidents also faced grim economic conditions. Each time, the president - be it Coolidge, Kennedy, Reagan or Bush - cut taxes. And each time the economy boomed.

McKinsey & Co. estimates total losses of $1.4 trillion to $2.2 trillion due to the credit collapse. But this can be reversed by making the underlying assets profitable again. The fastest way to do this is to cut taxes on businesses and entrepreneurs, which will immediately lift the rate of return on assets and thus their value.

This in turn will bring more investment, more hiring and more income - all things that Obama has said he wants.

We're not making this stuff up. According to research cited by former White House economist Greg Mankiw, the economy expands by $1 to $1.40 for every $1 spent by government. But if you cut taxes instead, you really get results.

Mankiw cites a major study of tax cut changes dating back to 1947 showing that each $1 of tax cuts brings $3 in added GDP. This study is particularly significant because one of its authors, Christiana Romer, is Obama's chief economic advisor.

Simply handing blank checks to Congress and the White House, and letting them pass an ill-considered stimulus plan with little transparency and no checks on spending is a very bad idea. 

No stimulus would be better than a bad stimulus. And the only stimulus that's been shown to really work is cutting taxes.

Meet Joe the plumber

Move over Joe Six Pack, now there's Joe the Plumber. 

Last night he was referred to by John McCain in the Presidential debate after a video circulated of him asking Barack Obama about how his tax plan would affect him. His real name is Joe Wurzelbacher, and he hails from Ohio. 

A plumber by trade, he has worked for one company now for his entire career and has been able to work his way up into a position where he can now buy the company he works for. The problem he now sees is that he might be unable to buy that company now given the new tax bracket it would be put in under Obama's tax plan. While he says that 95% of all people will get a tax break, those who make more than $250,000 a year will not. Unfortunately, the small plumbing company makes more than that. Now, it doesn't matter so much that most of that money goes to paying salaries and reinvestment into the companies capital development, it just matters that it makes more than that arbitrary prescribed amount. When asked why he had to work so hard for so long just to get taxed more for his efforts, Obama told Joe that spreading the wealth around will help others achieve what Joe has been able to. 

Here's the video.

The cat is out of the bag. Obama's real policies aren't any different than the tax and spend democrats before him. It's a Robin Hood mentality. 

I'm tired of this liberal conception that tax cuts have to be 'paid for.' Obama's explanation is that if the middle class gets a tax cut, the difference has to be made up somewhere, and so those who have more should pay more. Why does it have to be that way? Why can our government not do with less money and more efficiency? How about instead of cutting taxes for some and raising them for the rest, we cut taxes for all, or leave them at the same rate and cut useless programs from the budget and make the programs that work work better? 

Since when did the idea of taxing your small business owners, managers, and CEOs more make sense? How can you get a sputtering economy going again by inhibiting American businesses from making more jobs available, having more money to invest in workers, infrastructure, and R&D? The truth is, you can't. This is a time when the private sector needs to be encouraged, not discouraged. 

And another note, I love how Obama keeps mentioning how Exxon-Mobile is going to get a $4 billion dollar windfall under John McCain's tax policies, and how greedy it is for having made a record $12 billion in profits this year. First off, since when was being profitable a punishable offense? Do we despise companies that make money? Have we considered the fact that very little of that profit went directly to bosses and employees pocket books? Where did it all go you ask? It went back into the company. Oil exploration is extremely costly nowadays. Most of the "profit" therefore gets put back into ways of sustainable drilling, government leases, Research and Development, capital improvements, etc. 

And, our own government doesn't help the oil industry any by not allowing our own reserves off the coast to be tapped. The claim has been made by Obama that the US consumes 25% of the world's oil yet only has 4% of its reserves. Why is that? Because oil companies are not allowed to drill and discover new reserves. The 4% figure does not have to be a fixed one. 

I am not saying drilling is the only prescription, but it is an important one. There are more reserves that have not been explored, and we should use our own people, ingenuity, and resources to become energy independent. While we have it, we should use it. That does not mean "raping" our land and oceans as so many eco-crusaders would say; it means doing it in a pragmatic and sustainable way. Furthermore, I know full well that even with discoveries of vast new reserves it will take several years for that oil to get to market. However, that makes the need to drill even more pressing. And, the discovery alone, along with the willingness of the companies to use it, and lack of government interference will make the cost of fuel go down. That is because economic theory is based on expectations. If people expect there to be more oil, the price will go down, even if there isn't any.

If we can create a more stable fossil fuel environment, we can have a much smoother transition to alternative fuels and other sources of energy including wind, solar, tide, and geothermic. It can't be just one way or the other. We need all methods on the table.