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View 683 Wednesday, July 13, 2011

Friday the 13th falls on Wednesday this month.

The Budget Deficit Dance continues. The problem is summarized nicely here:

Budget woes

Long time subscriber and truly enjoy reading your thoughts on these issues.

I understand that we have enough money to pay for the debt service. However, we can’t truly argue that cutting off social security checks to seniors, for many their only source of income, with no warning or notice would be a healthy thing for the country. That is how revolutions begin.

While I do pay a lot of money in taxes, we also have to understand that we have the lowest individual tax rate in the industrialized world. I certainly don’t support federal bunny inspectors, and we have to root those out, but this type of expense is minuscule compared to the overall federal budget — in fact getting rid of all discretionary spending wouldn’t come close to alleviating our deficit problem.

I think the president’s idea of cutting back some corporate loopholes and cutting spending at the same time makes sense as a first approach. We then have to get the voters to continue to pressure all of our politicians (federal and state) to continue to make progress.

Alex

In other words, there is no choice but to raise revenues. The command economy must continue.

Note that no one is advocating cutting Social Security, although President Obama has used this a a threat to scare Social Security recipients in the hopes that the nation will demand higher taxes rather than cuts in government. Note also that the argument here is that we are undertaxed. We are simply not raising enough revenue. After all. “getting rid of all discretionary spending wouldn’t come close to alleviating our deficit problem.” No, the only solution is to raise taxes, preferably on someone else.

But what is this about “discretionary spending?” While servicing the national debt – of which Social Security is a part, by the way, since the Social Security Trust Fund monies have been spent for years, leaving nothing but IOU’s in the lock box – is not discretionary, what does it mean non-discretionary? Apparently all the entitlements are no longer discretionary. If you have told your children you will give them an allowance, then you lose your job, has the allowance now become a non-discretionary entitlement, something that must be paid no matter that you have to shoplift to get the money? How did all these programs become fixed in stone?

If something cannot go on forever it will stop. If we continue to consider transfer payments like negative income tax, Americans with Disabilities Act enforcement, Head Start, Free School Lunches, Medicare, Medicaid, Free Liver Transplants, Food Stamps, etc., etc., as non-discretionary, as items that cannot be reduced or eliminated, then we will continue to have rising deficits. That can’t go on forever. The more deficit financing, the more the costs of debt servicing – which truly is non-discretionary – rises in proportion to the income, and the more money has to be borrowed. It’s a spiral that has long been out of control.

So the command economy continues. But as I said in my previous essay, command economies distort realities and so badly misallocate resources that the economy dwindles. Recessions become permanent. Recession becomes depression. Economic miracles never happen with command economies. Some economists like to prove they can’t, using information theory; but prove it or not. we don’t see instances of economic miracles under command economies. Yes, there are economic miracles under authoritarian regimes. Franco’s Spain at one time had the highest economic growth in the world. Pinochet’s Chile came back from near economic death under socialism to become a roaring tiger. Both had economic freedom and stability of property. They were politically authoritarian governments, but they were not dedicated to ever-rising state budgets.

Command economies never work. That includes ideologies that transfer ever larger amounts from the productive to the needy. As Margaret Thatcher observed, eventually you run out of other people’s money to give away. And the gods of the copybook headings limp up to explain it again.

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The Republicans would do better to look at what items can become “discretionary” and thus subject to trimming or cutting, than to continue to perform in the Kabuki play being directed from the White House.  They need to tell President Obama that, when it comes to living within our means, Yes We Can!

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Lost Boy in Brooklyn

Horror in Brooklyn: an 8 year old boy walking home from the park was taken and killed. The cry goes up, what was this boy doing walking alone? Which says a great deal about the world. When I was young we most of us played in Davis Park, across the street from my house iin Memphis before we moved to Capleville. I was no more than seven. We ran around the block. We played hide and go seek. It was not unusual. But it was a different world.

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View 683 Tuesday July 12, 2011

The July Computing at Chaos Manor is posted. Go have a look. And BYTE is back.

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The President of the United States has spoken. It is time to compromise by giving in to what he wants. To the various Republican suggestions regarding the debt limit, he says:

"That is not an acceptable approach," he said at a press conference before talks resumed. "So we might as well do it now. Pull off the bandaid. Eat our peas. Now is the time to do it. If not now, when?" He added: "This is the United States of America. We don’t manage our affairs in three month increments."

He made it pretty clear that the only thing he will accept is an increase in government revenue. More taxes. Close Loopholes like deductions for mortgages and state taxes. Pay more to Washington. Eat your peas.

Otherwise, he says, the government may not have enough money to pay Veterans pensions, or make Social Security payments. We can now all join in chorus. Can we eat our peas? Yes we can! Raise the debt limit. Borrow more money so that we can pay Social Security and Veterans pensions, service the national debt – and, by the way, hire even more Bunny Inspectors and Department of Education SWAT teams, and more TSA agents to teach us how to be pliant subjects. Incidentally, al Qaeda is thinking about trying to recruit someone to smuggle explosives onto an airplane in a body implant, and therefore TSA needs more money and will soon have more exhaustive searches. It’ s the only way to insure safety. Yes we can!

There’s a famous story about a time when, back in the days of the Soviet planned economy, someone got to Stalin at a social function, and when Stalin asked how things were going, he told the Great Father that all was well except that it was hard to get copper tubing. Stalin told an underling “Let there be copper tubing!” And Lo! There was copper tubing. There were shortages of other forms of copper, but there was copper tubing in plenty.

That’s a fairly extreme example, but it’s a common enough story with command economies. A planned economy misallocates resources. If your society is wealthy enough you may not notice because there’s enough surplus to cater to the whims of the powerful and influential, but when resources are scarce the choices are more difficult.

A random example: when Los Angeles had lots of money, it had a big program to bash down the curbs at every street corner and replace them with wheelchair friendly ramps. As a result, about half the curbs in Studio City were given ramps – then the money ran out, and all that work stopped. Now I have in twenty years of walking in Studio City seen perhaps three people in wheelchairs using any of the ramps. Before Phillip Rhodes died his wife used to wheel him around the neighborhood, but they used driveways as often as those ramps to cross the street, and in fact they mostly stayed on their block which is quite large. Mostly, though, those ramps are used by nannies pushing kids in strollers. Now this is very nice for the nannies, but the fact remains that most people around here would rather that money had gone into funding pensions, or perhaps had been saved for times like these when revenues are down.

I suspect that’s pretty universal: there are a lot of things we did in those days that seem very like luxuries. The problem is that we’re still doing a lot of them. Few of those will be eliminated in the coming crunch, of course. Politicians always cut the budgets for the roads and the police before touching entitlements or the bureaucracy. In good times or in bad, das Buros steht immer, as Metternich observed.

Command economies distort the allocation of resources. Sometimes the effects are dire. An example: Senators Dodd and Kennedy (they of waitress sandwich fame), and Barney Frank decided that it would be a very good thing for more people in the United States to own their homes. They saw to it that there would be plenty of money for sub-prime mortgages. Fannie Mae would buy sub prime loans from the banks. Fannie Mae could then use those sub prime mortgages as security to borrow more money so they could buy more sub prime mortgages. The result was a frenzy of increasingly bad loans, to the point that no banker in his right mind would have made such a loan, only why not? The loan was guaranteed, wasn’t it? The result of all this was a housing boom – when there is more money chasing a particular good, the price of the good goes up, attracting people to make more of that good – and the boom became a bubble, the bubble inflated, and we now have official 9% unemployment. The command economy at work. No one willed the collapse, but the misallocation of all those resources made it likely.

My point is that a command economy solution is impossible. We have spent nearly a trillion dollars in bailouts and “stimulus” packages. The “stimulus” funds were supposed to go for “shovel ready” projects. They didn’t. The President even made a joke about it. The truth is that even when we’re supposed to be investing in national infrastructure and spreading money about as a recovery tool, it doesn’t work very well. See the New York Times for more.

Command economies don’t work, even when heavily financed from the outside. The German Economic Miracle wasn’t brought about by the Marshal Plan. It happened when General Lucius Clay, our proconsul in occupied Germany, allowed the suspension of the myriad rules and regulations and mechanism of the command economy that we had been preserving.

Freedom produces prosperity. It takes more than just freedom, of course. It takes rule of law. But freedom and rule of law tend to work: note what happened to the barren rocks of Hong Kong as opposed to the far greater resources of nearby Canton Province. In China they had disorder, then Communism, a Great Leap Forward and a Cultural Revolution, and a stifled economy. In Hong Kong they had British Colonial Rule, few physical resources, but stability, rule of law, and economic freedom. When Red China took over Hong Kong they wisely kept much of the economic freedom; they learned from that; and now China has a growing economy. Not political freedom, and there is still a great deal of misallocation through the command economy, but there is also a great relaxation of regulation, and even something like property rights.

In the United States we move in the opposite direction. More regulations, and less stability: anyone who makes money must fear, because the pressure is always to tax the rich, punish the successful; to take money wherever it can be found on the grounds that it must have been got by unfair means. But fairly obtained or not, if you have money, and the government needs money, the temptation is for the government to find ways to take it. The notion of property right is weakened. That destroys the free economy. If you can be certain that you will reap the fruits of investment, you don’t want to invest, you want to hide your money. Hidden money creates few jobs. And the beat goes on. That spiral is well known, and the US is on it. The government needs money. There are people who have money. We need to raise revenues because, well, because the alternative is to cut spending, and we can’t do that. Maintaining spending is far more important than economic freedom. The Rich don’t have any right to make us balance the budget on the backs of the poor. This is rule of law! We make the law that the rich must pay. And there goes the notion of property which is essential to economic freedom.

Economic freedom and rule of law produce prosperity. If the government wants to help, let it get out of the way. Economic freedom would result in lower cost energy – unless regulation strangles that. If we want strict regulation of energy production, then government will have to be involved. This is a very difficult thing to do: government usually mucks things up. It can provide energy at prices that are not ruinous – TVA is evidence of that – but it is never easy. Government is subject to the Iron Law, far more than competitive enterprises, and that always misallocates resources. But if you add low cost energy to economic freedom you have a sure fire formula for economic miracles.

Alas, in this era of hope and change, all the government energy investments go to “green” energy, which isn’t efficient and produces no jobs not subsidized. We burn food – and still subsidize the gasohol projects. And it will continue. When a nation gets wealthy it turns against property rights. What right have you to that property when there are so many who have none? What right have you to a house when so many are homeless? We command that something be done. Let there be houses owned by those who don’t have great credit. Let there be Affordable Housing. And so it was.

Through economic freedom Germany eventually became wealthy enough that they could adopt many of the trappings of a command economy, some of which they inherited in the absorption of East Germany. They cut back on economic freedom. Now they are expected to bail out Greece. Perhaps we can persuade Europe to bail us out with a reverse Marshal Plan?

Probably not. Instead, the Deficit Dance continues. The Department of Education keeps its SWAT team. The Department of Agriculture continues to hire and pay inspectors to be sure that stage magicians have federal licenses to use pet rabbits. But if we don’t borrow more money we won’t be able to pay Social Security.

And they never catch wise.

Or do they? Apparently McConnell has a glimmer. Eat your own darn peas.

http://www.washingtonpost.com/blogs/
right-turn/post/exclusive-
mcconnell-to-obama-eat-your-own-darn-peas/
2011/03/29/gIQAqastAI_blog.html

View 683 Monday, July 11, 2011

The Debt Limit Dance continues. As ObamaCare kicks in so will massive increases in entitlement spending: any reduction in those will be termed ‘massive cuts’ ‘on the backs of the poor’ and will be used as justification for tax increases labeled ‘elimination of loopholes’ or ‘tax breaks for the rich.’

The Republicans must ‘compromise’ by raising new taxes. What must not happen is actual cuts in the size of government, elimination of needless jobs like Federal Pet Rabbit Permit inspectors and Department of Education SWAT teams, or layoffs of workers doing things which may be nice but are luxuries in harsh economic times. There will be no discussion of drastic reduction in regulatory budgets. The Americans with Disabilities Act charades will continue to insist that being drunk on the job is due to the disability of alcoholism and it’s the responsibility of the employer to burden the other workers or go through a raft of procedures to justify firing a drunk. Note that the procedures will involve a lot of highly paid government workers including administrative judges, counsels, clerks, and the like. I doubt that any discussion of what parts of the Federal government could be turned over to the states and eliminated from the national government will take place. That’s the way Washington thinks.

This budget debate Kabuki continues. Now there is a round of dancing on whether the 14th Amendment allows the President to borrow money without bothering to go through the ritual of a Congressional debt ceiling limit. This trial balloon radiated out from the White House, got picked up by bloggers, became national news, and for a brief period was seriously argued by government spokespersons. It’s constitutional nonsense, but it does show the imperial mindset of the White House staffers who originated and defended it. No one will now admit originating this imperial notion. I don’t know, but I do recall that the President was once a lecturer on constitutional law. There’s a reasonable discussion of this in The Atlantic on line.

Buried in all this is a rather simple solution to many of the US problems. Leave the debt limit in place. When the crunch comes, the government is obligated to pay the real debts – bonds, and such – from monies in the Treasury and from current income. Current income is more than enough to service the national debt. Pay it. Now allocate what’s left by priority. That would automatically require some thought about what we really need as opposed to what we would like to have. A salutary happening.

Meanwhile the Republicans can get back to what the new Congress was created to do: dismantle ObamaCare. If that is repealed a great deal of the budget pressure goes away. But don’t do it too early. Let the crunch force the real debate: in these economic times, of all those things we want, what can we do without? That’s the debate we need. Maybe the Debt Limit Dance can have that as the finale? Because at the moment, everyone is still acting as if cutting future growth of entitlements is called a cruel and horrid cut. Such are the times.

The President has just announced that he won’t budge: the Republicans must raise taxes. The Republicans are saying they won’t do it. The President insists that the only way is to continue to take money from those who have it and give it to those who want and probably need it. Precisely what will be left for investment is not entirely clear. And the new taxes in the ObamaCare laws loom closer.

Can we let them all go home now? The deficit crunch will force choices.  I am beginning to look forward to a discussion of what parts of government are needless, what parts are luxuries, and what are our real needs.

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I remind you that there’s a new Kindle edition of Fallen Angels by Larry Niven, Jerry Pournelle, and Michael Flynn. It’s beautifully edited and contains a new Afterword by the authors. And if you want a picture of the future as it might have been, and might still be if America once again becomes a space-faring nation, there’s A Step Farther Out.  Amazon lists Niven as a co-author of that; actually he wrote a foreword for it. Correcting Amazon is tedious enough that I haven’t got around to it.

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BYTE is Back. Go have a look. http://www.informationweek.com/byte/ 

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View 682 Sunday July 10, 2011

I did a new column over the weekend. It will appear at Chaos Manor Reviews after the formal launch of BYTE Tuesday. CMR and BYTE will coexist and support each other, and I will have additional materials in BYTE itself. We’ll see where this goes. Gina is a ball of fire, and if anyone can restore the glory, she can.

The Washington Kabuki continues. Does anyone suspect that there will be actual cuts in expenditures? To Washington, the failure to give an institution more money is a “cut”. When all this is over, there will still be SWAT teams in the Department of Education, and inspectors whose job is to be sure that stage magicians who use bunny rabbits in their acts have federal licenses. There will still be 16 layers of management between the Secretary of Agriculture and the forest ranger, and between the Secretary of the Interior and the oil rig inspector. There will still be a bloated Department of Education which does more harm than good. The SEIU will still be paid and receive pensions.

And the manned space program will end when Atlantis lands.

It will be a long road back.