Archive for December, 2012

Republics fall because of this kind of corrupt fiscal posturing

December 31, 2012

When James Madison read his way through the histories of all the then-known republics, he realized that every single one had failed. He did his best to write a constitution for a republic that would not fail. He did well, providing the basis for a republic that has now seemingly lasted for 225 years. But Madison’s republic has not truly existed since FDRs New Deal, and certainly has decayed beyond belief during the first 12 years of the 21st century.

A republic that cannot balance its government books is destined to die, either through utter internal decay or through overthrow by ultimately concerned rebels. If Washington does not mend its fiscal extravaganza, my prediction is that this Republic of the United States will disintegrate or be removed by no later than 2050. By then the United States will confront the fiscal chaos of Greece. And no one will bail out the humungous mess that the government of this corrupted republic will have produced.

Today’s posturing by the cellophane man who occupies the White House, and by the self-serving congressional morons of both political parties who supposedly represent the people, should be evidence enough to any educated mind that the rot is deep and irretrievable. Any deal enacted into law, probably tomorrow to protect those fragile GOP egos from the wrath of the un-elected Grover Norquist, will piddle around the edges of the problem.

Wake up and smell the fiscal coffin, Americans. The US federal deficit runs at $1 trillion per annum, as far as the eye can see. The so-called deal that will ring in the New Year provides for a debt reduction almost in the error terms of the annual federal budget.

Do not send to ask for whom the New Year bell tolls. It tolls for all of thee.

US politicians benefit both ways: milk the taxpayer or milk the customer

December 31, 2012

Dairy products are an important element of US household consumption. Government health agencies stress the importance of such products for healthy growth from the cradle to the grave. This persuasion is entirely predictable. Cholesterol? What is cholesterol? Politicians elected from agricultural constituencies thrive off the opportunities for political support provided by interventionist agricultural support programs.

The underlying market for milk poses no issues of market failure. Milk can be produced efficiently without massive economies of scale by large numbers of competing farms. There is no natural monopoly problem in milk production. Demand is relatively stable and easily predictable. The quality of milk is easily identifiable. There are virtually no negative externalities associated with milk production or milk consumption.In a nutshell, there is no respectable justification for government intervention.

Yet, since the 1920s, the doctrine of ‘parity’ has been applied to milk marketing. The doctrine was concocted by Department of Agericulture economists as a means of providing dairy farmers with prices higher than those generated by market forces. By determining that that the market price for milk fell below nonfarm prices over the period 1910-1914, the Department of Agriculture intervened in various ways to provide a price floor to benefit dairy producers.

This mechanism has been in place for generations, gouging taxpayers and consumers long after farmers became far wealther than average Americans. Current farm programs – which consist of massive subsidies, price supports and marketing restrictions were signed into law by President Bush in 2008. They expire on December 31, 2012. That should be a cause for general rejoicing.

Instead, if and when the clock runs out on December 31, 2012, federal farm policy will automatically revert to the farm bill enacted into law in 1949. That will compel the Department of Agriculture roughly to double the price supports for dairy and other farm products, in line with the ‘parity’ doctrine.

Milk now sells for an average #3.53 per gallon nationwide. Once the parity doctrine kicks in, the price will quickly soar to $7 per gallon. Until households adjust downwards their consumption of these products, the price hike will burn through billions of dollars of household consumption, maintaining the excessive wealth of the farming community.

As public choice scholars expect, the dairy lobby has long been one of Washington’s most tenacious residents. Politicians from agricultural constituencies dominate the agricultural committees of the Senate and the House. A lucrative exchange between farmers and congressmen operates with high deadweight costs imposed either on taxpayers or on customers, or on both. In the meantime, farmers, lobbyists and politicians make ‘milk’ while the dairy sun shines.

2012 in review

December 30, 2012

The stats helper monkeys prepared a 2012 annual report for this blog.

Here’s an excerpt:

19,000 people fit into the new Barclays Center to see Jay-Z perform. This blog was viewed about 74,000 times in 2012. If it were a concert at the Barclays Center, it would take about 4 sold-out performances for that many people to see it.

Click here to see the complete report.

I’m from the government and I’m here to help you

December 30, 2012

Private charity, for the most part, is a good thing because the donors tend to be careful in deciding who is worthy of support. There is a big difference between the deserving and the undeserving poor, and private charities tend to be strict in directing aid only to the former

Government, in contrast, finds it difficult to make such important distinctions, especially when special interests fuel the campaign coffers of self-seeking politicians to put the money where they best can extract it for their own gain.

Let me illustrate the failure of the US government in this regard by reference to two examples.

First, is housing. For more than two decades, government policy attempted to make it easier for households with modest incomes to secure mortgages in order to purchase houses. Both the Clinton and the Bush administrations pushed hard on this button. The special interests in the realty market and in the construction industry just loved this charitable instinct, and supported it with campaign monies.

Unfortunately, those responsible for implementing the policy – FHA, Fannie Mae, Freddie Mac – forgot the distinction between deserving and undeserving applicants. Fueled by an indiscriminant love for minorities, mortgage monies were pumped into households that had no clue about how to control a budget. The collapse of the sub-prime market in 2007 brought about the worst recession in the United States since 1929.

Second is higher education. For more than three decades, government has subsidized college loans in a way that has pumped money into the nation’s colleges and universities. The justification was that higher education was the road to success for young people brought up in poverty. The special interests in the colleges and universities, together with all the contractor who fed off their expansion just loved this policy. It opened up a lucrative avenue to extract wealth from the nation’s taxpayers.

The result is little less than catastrophic. Lazy and incompetent students flood higher education, indulging themselves in degree courses devoid of market-value, partying off taxpayer dollars, loading themselves with debt, taking ever-longer to graduate, if indeed, they graduate at all. In the meantime, as I know from first- hand experience, university bureaucrats transfer the loan monies into their own fat pockets. Administrators now exceed faculty in numbers and administrative salaries are roughly double those of faculty at state universities across the country.

And guess what, folks, most administrators are failed academics, who cannot write publishable papers, and cannot teach effectively in the classroom. That is exactly how the worst tend to get on top.

The problem is not one that can be corrected by good governance. The problem is endemic in democratic politics. When government rushes to the aid of those in need, it surely does not do so through the impulse of Christian charity. It does so for the campaign funds, folks, and for the votes that surely follow.

And they come with very serious strings attached.

Hat Tip: Michael Barone, ‘When government offers help, it often makes a mess’, Sunday Examiner, December 30, 2012

It is boom time in Satan’s city

December 28, 2012

Much of the United States is still struggling its way out of  recession.  One major city is a huge exception. For Washington, DC, it is party-time in boom city.

Beltway homeowners are partying  like it is 2005.  In the midst of a red-hot real estate market, one D.C. townhouse listed at $337,000 sold for more than $760,000 after attracting some 168 offers. And why not?  The chance that the capital city will confront the kind of austerity visited by the Obama administration on Midwest manufacturing towns is essentially zero.

With annual federal deficits in excess of $1 trillion over the past four years and with annual federal expenditures running at $3.5 trillion there is a lot of taxpayer dough spilling into the District of Columbia and its ever-expanding suburbs. For the Beltway boom, there is no end in sight. Place your bets punters while the payout roulette wheel still spins.

Hat Tip: ‘America’s Boomtown’, The Wall Street Journal, December 28, 2012

Obama set on course for second term blues

December 27, 2012

Throughout his first term as President, Barack Obama demonstrated grave limitations in his ability to bargain with Congress. Throughout the first two years, with overwhelming majorities in both houses of Congress, the President largely abandoned his agenda to Harry Reid and Nancy Pelosi. The first two trillion -dollar budgets , the near-trillion -dollar stimulus package and the humungous Obamacare legislation all passed into law with the President sidelined, watching on as though he were a supportive spectator.

In 2010, the electoral guillotine removed Nancy Pelosi from the Speakership and stalemate followed. The President headed out into a two year campaign for re-election. In his natural habitat, shaking hands with admirers, while venting about Republicans, the President thrived, and won re-election, albeit with a slender 50.7 per cent majority of the popular vote.

Back in office, Barack Obama shows that he has learned nothing about the political game.  Confronted with the same potential stalemate in Congress, Obama simply does not possess the smarts to negotiate effectively with a chastened opposition.  Smash-face football is the only participation that he knows. Sometimes, when teams play smash-ball, their own players are carried off the field on stretchers.

‘What can you offer me in return for $800 billion in tax hikes?’ asks the Speaker of the House. ‘Nothing. I get that for free,’ responds Obama, and if you do not give me a lot more, I shall deride you and your entire Party personally in my State of the Union Address.’  Only dictators and Mafia mobster bosses talk that language with any expectation of negotiating success.

The fiscal cliff hangs as a major immediate impediment over Obama’s second term. If he forces a penal settlement,  in order to avoid the cliff, his second term will indeed be cold and unforgiving, as the Republican Party unites to thwart all his major policy initiatives. And there is no third strike for a United States President.

If Obama’s bargaining skills are so limited as to allow the fiscal cliff to intercede, the economy will take a hit, and most of his second term will be absorbed in cleaning up the resulting mess. The debt ceiling will be used against him by the opposition to limit the extent of his redistribion policies. And the credit rating agencies will make sure that the burden of the $16 trillion plus US debt rises steeply on all Americans.

Even for great presidents, second terms tend to be harder than first terms, not least because the President is a lame duck, and his own party increasingly must look to its own future electoral interests. President Eisehower won re-election in a landslide in 1956, as did President Reagan in 1984;  yet they both struggled in their second terms. President Obama won re-election by a much narrower margin, and he is far from rated as a great president. If he fails to wake up and smell the coffee, he will end up ranked right down at the bottom of the heap.  Surely that was not his initial goal.

All’s well that ends well

December 26, 2012

” ‘A merry Christmas, Bob!’ said Scrooge, with an earnestness that could not be mistaken, as he clapped him on the back. ‘A merrier Christmas, Bob, my good fellow, than I have given you for many a year! I’ll raise your salary, and endeavour to assist your struggling family, and we will discuss your affairs this very afternoon, over a Christmas bowl of smoking bishop, Bob!  Make up the fires and buy another coal-scuttle before you dot another i, Bob Cratchit!’

Scrooge was better than his word. He did it all, and infinitely more; and to Tiny tim, who did not die, he was a second father.  He became as good a friend, as good a master, and as good a man, as the good old city knew, or any other good old city, town or borough, in the good old world…And so, as Tiny tim observed, God bless Us, Every One!’ “

Charles Dickens, A Christmas Carol, December 1843

Celebrating Christmas in the valley of the shadow of death

December 25, 2012

“At last the dinner was all done, the cloth was cleared, the hearth swept, and the fire made up. The compound in the jug being tasted, was considered perfect, apples and oranges were put upon the table, and a shovel-full of chestnuts on the fire.  Then all the Cratchit family drew round the hearth, in what Bob Cratchit called a circle, meaning half a one; and at Bob Cratchit’s elbow stood the family display of glass. Two tumblers, and a custard-cup without a handle. 

These held the hot stuff from the jug, however, as well as golden goblets would have done; and Bob served it out with beaming looks, while the chestnuts on the fire sputtered and cracked noisily. Then Bob proposed:

‘A Merry Christmas to us all, my dears. God bless us!’  Which all the family re-echoed.

‘God bless us every one! said Tiny Tim, the last of all. He sat very close to his father’s side upon his little stool. Bob held his withered little hand in his, as if he loved the child and wished to keep him by his side, and dreaded that he might be taken from him.

‘Spirit,’ said Scrooge, with an interest he had never felt before, ‘tell me if  Tiny Tim will live.’

‘I see a vacant seat,’ replied the Ghost, ‘in the poor chimney-corner, and a crutch without an owner, carefully preserved.  If these shadows remain unaltered by the Future, the child will die.’

‘No, no,’ said Scrooge. ‘Oh, no kind Spirit! say he will be spared.’

‘If these shadows remain unaltered by the Future, none other of my race, ‘ returned the Ghost, ‘will find him here. What then?  If he be like to die, he had better do it, and decrease the surplus population.’

Scrooge hung his head to hear his own words quoted by the Spirit, and was overcome with penitence and grief.’

Charles Dickens, A Christmas Carol, December 1843.

God bless us, everyone!

The mounting excitement of Christmas

December 24, 2012

“The Grocers’! oh the Grocers’! nearly closed, with perhaps two shutters down, or one; but through those gaps such glimpses!  It was not alone that the scales descending on the counter made a merry sound, or that the twine and roller parted company so briskly, or that the canisters were rattled up and down like juggling tricks, or even that the scents of tea and coffee were so grateful to the nose, or even that the raisins were so plentiful and rare, the almonds so extremely white, the sticks of cinnamon so long and straight, the other spices so delicious, the candied fruits so caked and spotted with molten sugar as to make the coldest lookers-on feel faint and subsequently bilious. Nor was it that the figs were moist and pulpy, or that French plums blushed in modest tartness from their highly-decorated boxes, or that everything was good to eat and in its Christmas dress; but the customers were all so hurried and so eager in the hopeful promise of the day, that they tumbled against each other at the door, crashing their wicker baskets wildly, and left their purchases upon the counter, and came running back to fetch them, and committed hundreds of the like mistakes, in the best humour possible; while the Grocer and his people  were so frank and fresh that the polished hearts with which they fastened their aprons behind might have been their own, worn outside for general inspection, and for Christmas daws to peck at if they chose.” Charles Dickens,  A Christmas Carol, December 1843.

The cause of current disharmony in the United States

December 24, 2012

“The man of system…seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard.  He does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great chessboard of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.  If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably and the society must be at all times in the highest degree of disorder.” Adam Smith, The Theory of Moral Sentiments, 1759