Kohtz.org

I saw a tweet from someone I follow today that surprised me. Usually, he points to all kinds of interesting articles and has great perspective on things. Today, he posted the following:

"Will be harder to claw way out of current economic morass, vs recovery from Great Depression, because we no longer have an industrial base."

Until recently, I believed pretty much the same thing. But it's just not true if you look at output (how much we produce). Here was my response:

I think you are confusing "jobs in manufacturing" with "industrial base." You have to look at our productivity - we manufacture far more now then we did 30 years ago.

Read: http://cafehayek.com/2010/07/applaud-productivity.html

Our manufacturing/industrial base is still the largest in the world, still larger then China's. The problem isn't more or less of this job or that industry, the problem is the government trying to direct the economy. If left to itself, people would create and find all kinds of jobs. But too much regulation, to many laws, and too many false incentives have screwed everything up. Who can say if our industrial base is too small? But evidence certainly suggests it is far from non-existent.

Sincerely,

Craig

Reading the article, "G-20 leaders facing worries about rising deficits," I came across the following...

Treasury Secretary Timothy Geithner and Lawrence Summers, head of the president's National Economic Council, emphasized Wednesday that "without growth now, deficits will rise further and undermine future growth."

What our economic experts in Washington fail to understand is that spending is not growth. Economic stimulus may boost demand, but it mostly just causes inflation.

So what is growth? Growth is when we are able to produce the same product faster, cheaper, or better, thus increasing the standard of living for everyone. For instance, if a farmer finds a way to produce more vegetables on the same amount of land using better agricultural techniques, there will be more vegetables available and the price will go down. This will allow everyone to eat healthier for less money, thus increasing the standard of living. Simply giving farmers or consumers more money, does not create more vegetables, it simply increases prices because there are more dollars chasing the same amount of goods. This does not benefit anyone except the farmer or the consumer who receives said money - and it only benefits them in the short term. The rest of us pay for it in the long term.

The more money we take from people through taxes now and taxes later (deficit spending), the less money farmers and businesses will have to produce goods that benefit society. The government does not produce anything. High debt and deficit spending by the government is what will actually undermine growth.

And to those who argue that deficit spending makes more money available to farmers to come up with better methods of production, this is also untrue. First, the government doesn't know which future methods will work better then others, so "investing" our tax dollars this way simply distorts the market. If the government guesses wrong (which it probably will as they are not farmers), private money will follow government money, thus taking money from potentially good ideas and delaying or even eliminating true innovation. There is also the fact that in order to redistribute our money, the government must pay the bureaucracy who does the redistribution. So if private industry could spend a dollar on a new idea before taxes, there may only be 50 cents or less left after taxes as the bureaucracy collects, processes, and redistributes that dollar.

It seems like "progressives" tend to point to France and other European countries as examples of how wonderful a capitalist/socialist mix can be. This of course ignores their high levels of unemployment and other chronic economic problems caused by socialism, but maybe Frances latest commitment to reducing their deficit spending can be a guide for our politicians as well.

France expects its budget deficit to grow to 8 per cent of GDP this year and it intends to reduce that to 3 per cent within three years. The Government has frozen public spending and intends to increase the retirement age and reform the pension system to reduce its debt.

I doubt similar measures will be taken in the United States as our leaders would see such measures as "shortsighted."

This relates to my thoughts the other day about the belief that it was government that stopped racism, but with a slightly different take.

"Slavery was common throughout history until the age of industrial capitalism. Only then did this heinous institution disappear."
Read more: Capitalism, Slavery, and the State

A great blog post by John Stossel on Rand and Ron Paul's stance against part of the Civil Rights Act that forces private business owners to serve everyone. It's a complicated subject, so it's pretty easy for people to shout "racist" at the top of their lungs. But when it comes to freedom of speech and freedom of association, we have to support the good AND the bad.

Racism and Rand Paul

I've been thinking about the Civil Rights movement for a few days now, since I first heard Rand Paul talking about it on NPR. People who support a powerful Federal Government would most likely say that without the Federal Government, racism and segregation in the South would still exist. I disagree. It wasn't the government that started the Civil Rights movement, it was individuals. Individuals fighting against state and local laws that forced segregation. Many politicians in Washington didn't want to rock the boat for fear of losing an election, which is why it took individual action. It wasn't until PEOPLE made such noise that the Federal Government had to act.

Power to the people.

A friend of mine asked me to decipher Paul Krugman's latest article in the New York times entitled, "We're Not Greece." I don't think we're Greece either, but we're on our way. Regardless, one paragraph in Krugman's piece turned my stomach more then any others. That's what I focused on. This is what I wrote.

First, Paul Krugman is an economic hack. He's a Keynesian which means he believes spending is what drives an economy, not production. This is wrong. It's a very convenient theory for most politicians and academics - people who benefit significantly from government spending - but it's not reality.

I'm just going to go through some of his B.S., there is too much for one email. I'd be happy to discuss it some other time though. :)

"Greece, on the other hand, is caught in a trap. During the good years, when capital was flooding in, Greek costs and prices got far out of line with the rest of Europe."

First, the flood obviously came through lending. Expanding credit can indeed cause inflation. That is what happened in the 1920's and what cause the Great Depression. But what is really out of line for Greece are their entitlements. In Greece, It's possible to retire and live off the state starting in your early 50's. So many people work for the Greek government, the government doesn't know how many people actually work for them. It's probably close to 25-30% of the population. In the Greek constitution it says that once you get a job for the government, you are guaranteed that job for life - you can't be fired. The cost of government and entitlements are what's far out of line with the rest of Europe.

"If Greece still had its own currency, it could restore competitiveness through devaluation. But since it doesn't, and since leaving the euro is still considered unthinkable, Greece faces years of grinding deflation and low or zero economic growth."

This almost makes me sick to here. Inflation (devaluing your currency) is the worst cure possible. It's like bleeding a sick person. The theory is that devaluing a currency (printing more money) makes your exports cheaper. You can sell more goods, so it must be beneficial. While you may be able to sell more goods, it's only benefiting those who buy the exports - provided they have a stable currency. For the citizens of Greece, the goods they produce for themselves will cost far more, and goods they try and buy from overseas will cost far more as well. Who would want a Greek drachma in exchange for a good, if you knew that you would only be able to purchase half as much with it in a month? If you could find someone willing to take drachma's in exchange, they would demand a higher price due to the risk of accepting currency that is being actively devalued. Likewise, any Greek would take an Australian Dollar over a drachma, they might even give you a deal on the good they are selling. They could actually save it for a rainy day. As for "grinding deflation," if a currency is stable, prices will naturally move lower. As productivity increases, there is more available to society. The greater the supply, the lower the price and the higher the standard of living. Deflation is and always will be a good thing. Finally, the reason they will have low or zero economic growth isn't because of a lack of inflation, it's because they have to pay back their debt. Instead of using the things they produce to benefit themselves, they have to use it to pay off the people they owe. The key is to avoid debt in the first place.

"So the only way to reduce deficits is through savage budget cuts."

Uhg. This is the only moral way to get out of debt. To do so through inflation or default is immoral. It is theft, pure and simple. Let's say you lend me 2 pure gold coins which I will use to purchase a new stereo. Instead of working hard and saving up two gold coins for repayment, maybe three if you're charging me interest, let's say I take the coins you gave me and melt them down. I then find a cheap metal like zink and create 5 smaller round disks. I take the melted gold and cover the disks, and press them into the same shape and size as the original coins. I now have 5 "gold" coins. I give you three, and use the other two to buy my stereo. I have stolen your gold. Heck, maybe if I created 6, I would even have savings. If the price of gold is $1200/oz, anyone who knows what I did is going to want twice as many coins from me in exchange for a good. For a government to do this on purpose to it's people is reprehensible - as is Krugman.

There is so much more I could say. But if I argued every stupid point by this crackpot, I'd be here all day - I'd enjoy myself, but I'd be here all day. :)

Craig

Articles like this give me hope. This is from the end of the article.

The goal is not just to crawl out of crisis but ultimately to lead, said Christie in his budget address. "If we make the tough decisions now, we will be one year ahead of 80 percent of the states in the race to economic growth. If we fail to act, we will fall even further behind ... by going first, we can become first."

Can Christie succeed? We will find out on June 30, when the Legislature must pass a budget . But no matter the political price, Christie is determined. "You just have to stand and grit your teeth and know your poll numbers are going to go down - and mine have - but you gotta grit through it because the alternative is unacceptable," he told The Wall Street Journal.

The alternative is unacceptable - words a growing majority of Americans desperately want to hear from their elected officials.

N.J. gov. sets tone for US (via CafeHayek.com)

Yesterday I heard that the new government in the UK agreed on some key goals for the next 5 years. First on the list - reign in deficit spending. The UK has a deficit of around £178bn ($260 billion). They plan on cutting about £6bn this year, and want to cut it in half in 3 years.

Today I read a piece by John Stossel where he quoted Traian Basescu, president of Romania:

The state sector is like a fat man of 200kg sitting on the back of a 50kg little man who is the real economy.

Stossel's article goes on to say about Romania...

...to reduce the pay of state employees by 25 per cent from next month and pensions and unemployment benefits by 15 per cent this year. ...He said the cutbacks would also help reinvigorate an economy that is being crushed by a bloated and inefficient state sector.

And in the U.S.? Projected trillion dollar deficits for the next 10 years with no talk of real reductions by the vast majority of politicians.

If the UK realizes the importance of cutting deficit spending and have the political will to do something about it, why can't we? And why is it that the president of Romania knows more about capitalism and how economies work the our own politicians?

Lincoln voted FOR the new Haymarket Arena last night, which will most likely take over $750 million out of our local economy over the next 30 years if you include interest. This was a very bad idea.

The U.S. economy - believe it or not - is not on the verge of recovery. It is on the verge of becoming the next Greece. Our debt situation is not sustainable. By the end of 2010, our public debt will reach 60% of GDP, the point at which economists say a nation is in financial peril. If we actually want to pay people the entitlements we've promised them (social security, health care, etc), we will continue to borrow money and by 2020 our debt will reach 85% of GDP.

The federal government will dramatically raise our taxes instead of decreasing spending. This will result in less money for people to spend on things like travel, concerts, events, hotels and restaurants. Government receipts will fall, and taxes (nationally and in Lincoln) will be raised again and again.

Unless there is a fundamental change in entitlements and in government, the Lincoln Arena will ultimately fail. Not because the arena itself is a bad idea, but because our national economy and our country is on such shaky ground. I see no hope of this changing any time soon.

I know I sound like a grumpy old man with nothing good to say, but until we face the facts that things need to change, it's going to be hard for me to be an optimist.

BTW, gold is at an all time high right now at about $1,240. It's still a good buy.

I just read an article where Obama "dissed" the iPad, iPod, etc.

"And meanwhile, you're coming of age in a 24/7 media environment that bombards us with all kinds of content and exposes us to all kinds of arguments, some of which don't always rank that high on the truth meter. And with iPods and iPads and Xboxes and PlayStations - none of which I know how to work - information becomes a distraction, a diversion, a form of entertainment, rather than a tool of empowerment, rather than the means of emancipation. So all of this is not only putting pressure on you; it's putting new pressure on our country and on our democracy."

- "Wait - did Obama just diss the iPad?"

Obama thinks that anyone who disagrees with him must be getting their information from a poor source - a source he can't control. Evil technology is what enables dissenters (read "people low on Obama's truth meter") a way to express their opinion outside the media he has more control over. Media that he has been trying to control since day one, like any other politician.

It's very obvious that Obama can't stand disagreement with his version of the "truth." Therefore, the means that allow disagreement to be disseminated must be a problem, even though he admits he has no idea how to use said means.

Obama has no clue. He might as well have replaced "iPods and iPads and Xboxes and PlayStations" with "the internet."

So much for hope and change.