Saturday, March 28, 2009

An economic highway to hell?

Will big government snuff out the recovery?

There have been small signs that the economy is ready to turn the corner on the downward part of the current economic cycle. Banks are talking about repaying TARP funds, the growth in unemployment has at least leveled off. Home sales, while still dismal, actually rose last month. One would expect the next leg to be increased lending by the banks as they come out of defensive mode and get back to competing for profits.

However, in the name of saving the economy the government is installing some huge circuit breakers on any up cycle in the economy. The deficit is nearly $2 trillion dollars. The stimulus package contained massive amounts of new, permanent spending. Much of the aid that was given to states and municipalities is covered by the federal government in the first years, but requires them to continue the spending in later years on their own. Increasing taxes can be politically tough. Expect to see higher fees, surcharges, licensing requirements and other forms of revenue collection by governments on all levels. Businesses could be forced to lay off workers or even go out of business due to their requirement to subsidize the unemployed.

Even as more and more scientists around the world warm up to the notion that the Earth's climate is far more dependent on the activity or lack of it, on the Sun than on man-made carbon emissions, and that we are far more likely to experience the ravages of global cooling in the coming decades than global warming it's full steam ahead for global warming advocates. The government is proposing a "cap and trade" system to regulate carbon emissions. Going over your carbon limit will necessitate that you buy "carbon credits" perhaps from companies that come in under their limit. Whether companies pay through the nose for the credits, spend more on technology to reduce their emissions, move overseas, or just close their doors, the cost of producing just about everything in this country is going to go up if this is enacted. There is nothing stimulating about it. Even if it worked exactly as intended and we go to a completely carbon free energy environment, the government will have received countless billions of dollars from carbon credits which may become obsolete. Do you think they're just going to shrug off all that revenue? They will tax the sun if that what it takes to keep the cash flow going.

Some kind of nationalized health care system may soon be coming our way, as well as increased government control over large businesses, the risks they take, the salaries the pay out, the investments they make. I've worked with civil servants. They're fine human beings. But among the rank and file, the bragging that goes on around the water cooler is about who gets paid the most to do the least. Those are the heros. Those are the one's the others look up to. That's what you shoot for. It's a bit different for celebrity civil servants of course, but they come and go. Most of the work is done by career folks with zero profit incentive. The path to advancement is based mainly on how many people you supervise and how big a budget you oversee. The incentives are to get more people in your department spending as much as possible. It doesn't really matter what they spend it on or how they spend their day, so long as it looks good on paper.

Even government leaders in Switzerland, France and England are now publicly voicing concern over runaway government spending in the U.S. Why do they care? Because if we go down, they go down. They know that big government is not the answer, it's a poison. We have been subsidizing big governments in Europe for decades. They don't want to see that cash cow disappear. The Czech premier got it right when he said that trying to spend our way out of recession puts us on the Highway to Hell, which, as you know is paved with good intentions. He actually said "way to hell" but later stated his comments were inspired by an AC/DC concert he had recently attended.

We all want a better country, a better world, but we're going the wrong way.

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