Sunday, August 21, 2011

Government Intervention Is Not A Solution

Election time is approaching (next year). People running for office are pointing out that Obama has not produced enough new jobs for the unemployed. Voting for President is kind of like buying a washer and dryer and expecting the salesman to show up every Saturday to do your laundry.

This whole mess started with a housing boom. I remember back in 1998 selling real estate. We would prequalify buyers before we even showed them a house. If you didn’t have a down payment, your quest for a home went no further. Later, the phrase “fog a mirror “ became popular. When it all collapsed, government stepped in to keep the banks solvent.

As the housing boom took off, there was plenty of employment for everyone and the pay was good. The country was producing more homes than they could consume in 10 years. Everyone that wanted a home had one (or two), with the thought of buying another. Government gleefully raked in the additional taxes created by the economic boom.

Then the party stopped. How was government suppose to pick up the slack? There are no new additional taxes coming in. Tax payments into the government are decreasing and payments out are increasing.

The economic issues we face today stem from the previous mis-allocation of resources. We blindly built and financed too many homes in the name of greed. On top of that, Congress has turned a blind eye to the fiscal bubble created over time with entitlements. Common sense suggests that the debt crisis needs fixing now, but it always gets put off, until after the next election.

We have two real problems, unemployment which is the result of the housing crash. And we have an entitlement bubble that has lead to a crisis over the national debt. In order to stimulate job creation, we need to cut taxes. In order to cover entitlements, we need to raise taxes. If you can’t do either, then it’s time to print more money. Are we rich yet? As the gold bugs have pointed out, you can’t print gold. If you are retired living on a fixed income, you’ll come to find out that the government can’t print food or medicine either.

So when you hear a politician say vote for me, I can create more jobs, he’s not lying; if he wins, he gets a job. Ask yourself one question: Do we really need more government employees? Maybe if we cut government paychecks in half, the problem would solve itself. We could tolerate an inefficient bureaucracy better if we had to pay a lot less for it.

19 comments:

Sackerson said...

Your style is getting really crisp!

"Voting for President is kind of like buying a washer and dryer and expecting the salesman to show up every Saturday to do your laundry." - Love that.

I think the issues are productive employment, the over-concentration of wealth, and the parking of the latter in established (global and foreign) businesses instead of new (domestic) ones.

The wealthy need to start spending - investing in new factories and technologies and getting people back into decently-paid work.

Anonymous said...

Sackerson, with due respect-
New factories? Really? I am a wealthy person, who ran a successful business, before retiring. No wealthy person, or anyone else, is going to invest in a new factory in the U.S. Wages are too high.
The new Bay Bridge in San Francisco (cost- several Billion dollars) was built in China, and floated over here.
Obama's heavily armored new buses (Two, at $1,200,000. each) were built in Canada.
If the government won't even buy stuff made in the U.S. A., no one else will.

Sackerson said...

That's why I say new technologies - you need to make stuff that others can't. Bump up R&D, which has been withering on the vine for decades.

Read James Kunstler's piece today. Adjustments are inevitable, it's just a question of whether we manage them or have them forced on us. The globalization that got us here is not sustainable.

AIM said...

Jim,
Nothing will change until there is a crisis of massive proportion. It is the only thing that will shake up the political status quo and get "we the people" involved and demanding reform and a realistic course of action. Just plan on more theatre and "do-less" motion until the crisis comes. The FR and Congress are impotent and can not change where we are headed economically. No way Obama will be a 2 termer. Witness Carter, Bush #1 and about 10 others... when the economy is failing, the standing president is toast.

Drewbert said...

"We have two real problems, unemployment which is the result of the housing crash."

Uh, no. Unemployment is due to mass layoffs from work of all kinds being shipped out of country. The housing crash is bad, but it is simply reverting to the mean, aligning with wages.

Where mortgage processes in 2005 shady? Abso-f@king-lutly! But they weren't the cause for unemployment.

"In order to stimulate job creation, we need to cut taxes."

This doesn't pass the laugh test. Companies are posting record profits and sitting on huge stockpiles of cash. Google is already paying only 2% on its income in taxes... how much more do you want to lower their taxes to spur a hiring boom? Exxon paid -$156 million in corporate taxes on $30.46b in profits. Read that again... they paid negative $156 million in federal tax.

The super wealthy are still getting super wealthier. The income disparity is increasing.

The reason there are no jobs is that aggregate demand is not there. With $30.4b in profits and negative $156 million in taxes, do you really think Exxon is going to say "Well we'd make a ton of money constructing this new pipeline, but we can only do it if we get negative $200 million in taxes!"

Other than a few out of touch big box retailers, there aren't a lot of struggling large companies out there. They ones that were weak were culled off already. The ones that are left have lots of cash, but no customer demand to start spending it. Cutting government spending is the only thing proping us up right now. Cut the spending unwisely and you'll cut the demand further pushing us further into recession.

Government needs to build things and fix things that are broken. There is a lot of need for infrastructure changes and improvements in the U.S. Keeping that going is an important lynch pin to holding the economy together.

Anonymous said...

Government needs to fix things.
Santa Clara,CA just bought hundreds of thousands of dollars of solar panels. All made in China.
Justifacation by government dweeb:
"They were cheaper than the ones made in the U.S."

AIM said...

Jim,
Government needs to get out of the way of small business (that's where jobs come from). That is the key area where taxes, bureaucratic red tape and all inhibitions need to be removed. The Fed and Government need to give businesses prediction too... no one will make a move unless they know what is coming down the road. Government needs to give corporations bigger tax advantages if they bring their work back into the country, and tax them more heavily for overseas production. Government needs to downsize. All redundant and poorly reforming agencies need to go. We need to bring our military back home gradiently. The government should be dumping money into things that give value like infrastructure (national railroad system, energy R&D, rebuilding and retrofitting, etc.) So we don't crash and burn, government needs to do all of these things... BUT, once we are moving toward solvency, we then need to get government out of our private lives and business and the economy if we ever hope to have stability. We need to abolish the Federal Reserve too. Congress and the Federal Reserve and misguided regulatory, fiscal and monetary policies over the last 50 years are the cause of all of this. It actually started with FDR.

AIM said...

reforming was supposed to be performing.

Jim in San Marcos said...

Hi Sack

Glad you liked it, thank you for the compliment. I didn't vote for the guy, but I hate to see someone tarred and feathered for all the wrong reasons.

I see things a little bit different about spending. I think that the wealthy are spending on new toys and represent the major share of spending in the economy. They are not getting any interest on their savings and inflation is eating them alive,so why save it, go out and spend it and have a good time.

The question comes up, what business do you start up to generate jobs? I see the opportunities to buy businesses going bankrupt for pennies on the dollar, but in that case, you might just be preserving jobs that were about to be lost.

On of the reasons we have been caught so flat footed is because of computer technology. One person with the right software can replace 20 people. It is reminiscent of the 1920's where we went from an agrarian economy to the industrial age.

The real limiting factor here is the age group from 40 to 60 years of age. How do you retrain them effectively with new job skills at lower wages? I don't see them as "Happy Campers."

Jim in San Marcos said...

Hi AIM

I totally agree. But I have one question. How can we get rid of all of the Democrats without accidentally killing any Republicans?

Seriously though, profit is the reason for investment. Just look at the real estate bubble. As you suggest, get government out of the loop and this problem will fix itself (given time).

AIM said...

Jim,
I wouldn't mind the Republicans being collateral damage as well. Get rid of them all, from one end of their spectrum to the other end (progressives, liberals, conservatives, centrists, etc. etc. is just a lot of hooey). Both of their platforms are obsolete, their performance is piss poor and their allegiance to our country and its future is... well, questionable. I want a new party with realistic, well-oriented and responsible leaders. It may seem like a dream now but maybe some day it will come true. One thing we know... the broom needs to sweep clean and we need fresh, untainted, uncorrupted blood.

Anonymous said...

Some of the people in Congress measure their net worth in the tens of millions of dollars.
Most people in Congress are at least garden variety multi-millionairs.
Their perspective on the economy is skewed, to say the least.
Do you think that John McCain or Barbara Boxer fills up their own cars, do their own grocery shopping, of wash their own clothes?
Dream on.

Jim in San Marcos said...

Hi AIM

Here is some food for thought. How about giving a person or corporation 1 extra vote for every $5,000 worth of taxes paid? So if you paid a lot of taxes, you get more votes to cast. That way, those footing the bills have a say so on how its spent.

Its a "Pipe dream." But everything else seems to be going up in smoke.

Sackerson said...

Jim: re "The real limiting factor here is the age group from 40 to 60 years of age. How do you retrain them effectively with new job skills at lower wages? I don't see them as "Happy Campers."":

I think the way forward is in allowing people to take their retirement income (however little it may be) and continue working, probably on reduced hours/days. I think there are considerable health/happiness benefits to being allowed to carry on, so long as you're not overstressed. And the older generation may have something to teach the younger ones in the workplace. Retraining is rejuvenating. Retirement in the old-fashioned sense is a killer.

Jim in San Marcos said...

Hi Sack
I'm in total agreement with you.

What I was trying to point out was that to 40 to 60 year old group is close to retirement. Employers look at them as dead meat; too old to be considered career people, but old enough to be a liability on their health insurance.

It is not a good group to be in if you are looking for a job.

frakrak said...

I don’t want to be insensitive to business in the U.S., I do get (at least in part) the hardship your countrymen are facing (we are there nearly, with our own industry leaders saying every measure in our output is trending towards a depression!), so with that said, the imagery of Anonymous Monday, August 22, 2011 6:23:00 AM, with a (part) kilometre size bridge floating across the mid Pacific conjures the caption:
“did we do the measuring or did they?”:)

It says sooo much about the U.S. and China in sooo many ways!!

Here’s a thought Jim, perhaps in the hindsight of history we will be calling the past few years as “The Great Compression,” (of wealth that is),
Cheers…

AIM said...

All these people in the USA between age 18 to 80 want to work... and they will work for low wages. They'll do anything for a steady job. This is the largest spanning employable age cohort in the history of this country. What an opportunity. What a huge potential of man power.

But The Fed, Congress, White House and Wall St. have set things up so that these people have no work. Productive capacity just isn't needed these days.

Idleness, dropping standards of living, default, rising prices, low morale and despair will breed terrible circumstances. Terrible sentiment.

Uncle Sam, what have you done?

Over the last 100+ years... the Federal Reserve, income tax, FDR's social welfare system, Keynesian Economic Theory, Nixon's axing of the gold standard, de-regulation, public unions,lobbyists, campaign funding, foreign oil dependence, expanding government, and so on, have all come together to kill the goose that laid the golden eggs.

Sad.

Anonymous said...

Some say its a double dip recession. Some say maybe the 08 09 recession never ended.

Amazing what government spin, media and public denial can do.

They still don't get it...

a depression started in 2008.

Jim in San Marcos said...

Hi Anon 1:17

Sssshhh its a secret. No depression until after the next election.

We don't want to panic anyone with reality.