Monday, May 31, 2010

How to Fix the Great Divide

Watch the video you will find here, then reflect a bit.

What if instead of 50 states, all of which are beholden to the most powerful central government that ever existed on earth, what if we had just a few states.  What if those states were "natural" communities, as suggested by the data explained in the video.

What if we then returned to the Constitution and its very clear establishment of a federation of states with a very weak central government whose primary duty and responsibility was defense of the United States against foreign enemies (should we happen to have any).

What if instead of electing representatives based on Gerrymandered districts within the 50 states, the citizens of the small number of "natural" communities elected their representatives.  Evidently, the folks living within a "natural" community would have much more in common in values and beliefs than in the present Gerrymandered districts.

All seem too fanciful?  If it does, then we the people will just have to live with what we've got.  How sad.

Tuesday, May 18, 2010

What A Surprise

And we the people were heard mumbling softly in the background.
President Obama guaranteed Americans that after health reform became law they could keep their insurance plans and their doctors. It's clear that this promise cannot be kept. Insurers and physicians are already reshaping their businesses as a result of Mr. Obama's plan.
Politicians always ignore the adjustments that real people always make to the politicians' social engineering laws.  Economics tells us that the unintended consequences are often the most important consequences.  Why can't politicians understand this simple truth?

Monday, May 17, 2010

Just Who Is Elena Kagan?

Greg Mankiw gives us an assist in understanding the answer to this important question here.

Move Over, Greece

Here, Robert Samuelson writes about the folly that passes for fiscal policy in the United State. He notes that
The virtue of balancing the budget is that it forces people to weigh the benefits of government against the costs. It's a common-sense standard that people intuitively grasp. If the Deficit Commission is serious, it will set a balanced budget in 2020 as a goal, allowing time to phase in benefit cuts and tax increases.
And Here, David Ranson explains a very inconvenient truth about tax rates and tax revenue collected. BHO and his crew will do well to learn a bit more about Hauser's Law, even if they are too arrogant to learn anything about reality.

In a fundamental way, the budget is always in balance.  That's just double entry bookkeeping.  The fundamental equation of accounting is Assets = Liabilities + Owners' Equity.  This equation cannot fail to be true, since it is a mathematical identity.  But it can be made to appear to be false through the magic of fiat money, a central bank, and government borrowing.

But still, in a fundamental way, the budget must always be in balance because you cannot borrow what has not already been produced, as I have explained on several occasions in this blog.  Here, for example. In other words, Aggregate Borrowing = Aggregate Saving within any economic system.

So, what gives when the U.S. Treasury (with the help of the Fed) seemingly borrows more than has been produced?  Look at the fundamental equation of accounting for the answer.  If Assets (the value of stuff that has been produced) is any particular number, and if Liabilities (i.e., U.S. Treasury borrowing) rises, then owners' equity must fall.

Whether it's Greece or the United States of America, when governments attempt to borrow what has not yet been produced, owners' equity must fall.  Guess what, folks; it is we who are the owners!  What we think we own is simply stolen.

How, you ask, is it stolen?  Two ways; inflation and falling asset prices.  So far, the Fed has managed to keep inflation slow enough over the past 20 years or so that no one is howling about it.  But inflation has been persistent and serious over that 20-year period.   And people were certainly howling when their 401(k) stock portfolios plummeted in value and when they went upside down on their home mortgage.

Move over, Greece; we are on the way, and we are the big dog in town.

Monday, May 3, 2010

Who Will Regulate the Regulators?

John Taylor explains here why more power for federal financial regulators and the Fed is no answer at all for keeping financial markets healthy.  Just as I've been saying in this blog for months, the Fed is the problem, not the solution.
Some say that the government did not have enough power to intervene with certain firms during the financial crisis. But it had plenty of power and it used it, beginning with Bear Stearns. This highly discretionary power—to bail out some creditors and not others, to take over some businesses and not others, to let some firms go through bankruptcy and not others—was a major cause of the financial panic in the fall of 2008. The broad justification used for the bailout of Bear Stearns creditors led many to believe the government would again intervene if another similar institution, such as Lehman Brothers, failed.

But when the Federal Reserve and the Treasury Department could not persuade private firms to provide funds to Lehman to pay its creditors in September 2008, the Fed surprisingly cut off access to its funds. The examiner's report on Lehman makes it very clear there was no preparation for bankruptcy proceedings before the day the government suddenly cut off the funds. No wonder there was a disruption. Then, the next day, the Fed reopened its balance sheet to make loans to rescue the creditors of AIG, including billions for Goldman Sachs. The funding spigot was then turned off again, and a new program, the Troubled Asset Relief Program (TARP), was proposed. This on-again off-again policy was part of a series of unpredictable and confusing government interventions which led to panic.

Once again, we have a case-in-point illustration of why rule of men fails where rule of law could succeed. But the facts will not persuade; we the people will continue to look to Washington for our salvation, instead of looking to ourselves.