Tuesday, November 18, 2008

Whistling past the graveyard

The economy continues to slow even as the Fed cuts interest rates and injects capital into the banking system. Other industries are likely to get low interest loans and other forms of capital infusion as well. Why isn't all this "economic stimulus" causing optimism and rising prices on the stock exchanges? Because none of it addresses the real problems, which are only getting worse.

You stimulate economic activity not by manipulating data and artificially inflating the numbers, but by making it easier and more rewarding to take risks in the market place. That is not happening. Business is continually being curtailed by more and more regulation and mandates. Next on the agenda is some kind of universal health care, which will be the responsibility of employers. Man made global warming is no longer permitted to be questioned and more regulation, mandates and subsidies will be coming our way from the priests and priestesses of that cult. Minimum wage will be increased, this time probably with some kind of automated increase for inflation. The new administration has said that more funding for education "can't wait", although they've yet to connect throwing piles of money into the system with smarter students. There will be infrastructure spending as well as more subsidies for alternative energy. The federal deficit is completely out of control, so anyone who does manage to achieve some measure of success will be immediately targeted as a revenue source for the government. Those who keep their income low enough, will get a check.

As government doles out cash to struggling industries, it also gains more control. The cash comes with strings. Professional campaigners and attorneys will be making human resource and production decisions on behalf of some of the largest corporations in the country. The people who brought you Amtrak, the DMV and the Postal Service will soon be calling the shots for the major banks, insurance companies and auto makers. The Postal Service, has a federally protected monopoly on first class mail delivery, yet consistently cites cash flow shortages as an excuse for every rising prices, and now will be conducting the first layoffs in its history. That's the level of competence we're empowering.

The small business community is being zoned, taxed and regulated out of existence while large box stores gain multi-year exemptions from the taxes everyone else must make up. This, in spite of the fact that small business accounts for the vast majority of new job creation. Politicians pay lip service to small business, even as they are strangling it.

If you wonder how this mingling of government and big business, along with near zero interest rates and frequent cash infusions might play out, look at Japan. They've been following the same program for over a decade, with no success. Entrepreneurship is out. Bureaucracy is in. We're well on our way to becoming a fascist nation, but nobody's calling it that, probably because most don't really know what it means. Fascism is when producers still get to own their businesses, on paper, but the government dictates what will be produced, how it will be produced, where and when it will be distributed and at what cost. This is being done through subsidy, regulation and the tax code, rather than outright proclamation, but the nature is the same.


datadave said...

hmmm, I like to read the blogs on the Right esp. about Main Street. I am concerned too even though I don't agree that Govt. is the problem. You have heard of the expression: "Socialize Risk, Privatize Profits". That is what Reaganomics has been advocating for a long time and now we're seeing it happen. The huge bailouts of Wall Street now occuring is just that and leaders on the Right are advocating it as much as on the Left if not more so on the Right. Your President pushed it if you recall. Examine the Conservatives who led us here (and President Clinton is mostly a 'conservative' btw.)

Read "The Great Crash" by Galbraith and come back about what caused this Depression and 'that one'"(?)

Extreme income inequality was one. Extreme Leverage was another.
Hubris by the economic elites was another....
Corruption and avoidance of responsibility.
...except now add this time CDO's and derivatives....'spreading the risk'....(the analogy is putting a cheap life insurance policy on a lot of strangers and 'shorting' it esp. if they are smokers or are stressed.

I bet a lot of Wall Streeters are betting on shorter life spans on Middle Class and working class america! They'll make millions on the people dying early.

Ed Duffy said...

You make the erroneous assumption that I'm a defender of this administration and its allies.

This is a bi-partisan travesty, concocted by politicians and their pals, who use the fear of economic hardship to take more and more control over the economy.

We're creating an ant farm. Trading individuality for the promise of stability.

datadave said...

yes, it is bipartisan. I submit though that conservative ideology that said that govt. (and regulation) is bad and that the titans of finance are good just might have had a preponderance of cause for the 'melt-down' of responsibility.

But instead of 'responsibility' we hear a loud chorus of blaming the victims: working people shouldn't have borrowed so much, subprime borrowers were the fault...but Big Business being the guilty. And still little acknowledgement that the driving down of wages isn't a factor. If most people hadn't have lose so much income in the last decade...we'd been able to pay off those loans. Now, like the Coolidge-Hoover era we are in a state of 'blaming the victims'...'liquidation' of the most vulnerable and other rationales for greater income inequality.

now, tell us how govt. is the problem. We let the rating agencies, the hedgefund guys run amok with our pensions, income, and now we, the people, are supposed to pay the bankers for their own crimes. ? First of all, a more Progressive tax system might be in order. Instead of the regressive one we have now (social security is the highest tax many Americans pay now and it's only paid by the first 90k of earnings...meaning that 'captain's' of Capitalism pay very little of that tax.) Also, the reason the top one percent pays so much income tax even at a low rate (historically) is that they have dominated the present decade's income. They have made all the increase of income to the exclusion of working people's incomes..

Still as Larry Summer's reluctantly admits income inequality is at the root of our problems. Even David Frum admits that. So I am awaiting a conservative response to that problem. (?)

Ed Duffy said...

I'm not a Conservative, so I wont speak for them. I'm a Capitalist.

Government and many big business lobbyists have worked together to create barriers to entry and innovation in the guise of ensuring safety and fairness in the marketplace.

Government handed industry huge cash infusions which they promptly used to pay themselves with.

If you're waiting for me to defend Shearson, Citi, CapOne, AIG, GM, Chrysler and the like, I'm afraid you're going to be disappointed.

In this case involving Tweedle Dee and Tweedle Dum, chastizing Tweedle Dee and giving far greater power to Tweedle Dum is not the solution.