Friday, February 27, 2009
Reproduced from LewRockwell.com
In his first televised speech before Congress, President Obama asserted that prosperity will return once the government restores the flow of credit in the economy. It may come as a surprise to him, but an economy cannot run on consumer loans. Furthermore, credit stopped flowing in the U.S. for a very good reason: there was no more savings left to loan. Government efforts to simply make credit available, without rebuilding productive capacity or increasing savings, are doomed to destroy what’s left of our economy.
The central tenets of Obamanomics appear to be that access to credit will enable people to borrow money to buy stuff, the spending will spur production and employment, and thus the economy will grow. It’s a neat and simple picture, but it has nothing whatsoever to do with how an economy works. The President does not understand that consumption is made possible by production and that credit is made possible by savings. The size and complexity of modern economies has obscured these simple concepts, but reducing the picture to a small scale can help clear away the fog.
Suppose there is a very small barter-based economy consisting of only three individuals, a butcher, a baker, and a candlestick maker. If the candlestick maker wants bread or steak, he makes candles and trades. The candlestick maker always wants food, but his demand can only be satisfied if he makes candles, without which he goes hungry. The mere fact that he desires bread and steak is meaningless.
Enter the magic wand of credit, which many now assume can take the place of production. Suppose the butcher has managed to produce an excess amount of steak and has more than he needs on a daily basis. Knowing this, the candlestick maker asks to borrow a steak from the butcher to trade to the baker for bread. For this transaction to take place the butcher must first have produced steaks which he did not consume (savings). He then loans his savings to the candlestick maker, who issues the butcher a note promising to repay his debt in candlesticks.
In this instance, it was the butcher’s production of steak that enabled the candlestick maker to buy bread, which also had to be produced. The fact that the candlestick maker had access to credit did not increase demand or bolster the economy. In fact, by using credit to buy instead of candles, the economy now has fewer candles, and the butcher now has fewer steaks with which to buy bread himself. What has happened is that through savings, the butcher has loaned his purchasing power, created by his production, to the candlestick maker, who used it to buy bread.
Similarly, the candlestick maker could have offered “IOU candlesticks” directly to the baker. Again, the transaction could only be successful if the baker actually baked bread that he did not consume himself and was therefore able to loan his savings to the candlestick maker. Since he loaned his bread to the candlestick maker, he no longer has that bread himself to trade for steak.
The existence of credit in no way increases aggregate consumption within this community, it merely temporarily alters the way consumption is distributed. The only way for aggregate consumption to increase is for the production of candlesticks, steak, and bread to increase.
One way credit could be used to grow this economy would be for the candlestick maker to borrow bread and steak for sustenance while he improves the productive capacity of his candlestick-making equipment. If successful, he could repay his loans with interest out of his increased production, and all would benefit from greater productivity. In this case the under-consumption of the butcher and baker led to the accumulation of savings, which were then loaned to the candlestick maker to finance capital investments. Had the butcher and baker consumed all their production, no savings would have been accumulated, and no credit would have been available to the candlestick maker, depriving society of the increased productivity that would have followed.
On the other hand, had the candlestick maker merely borrowed bread and steak to sustain himself while taking a vacation from candlestick making, society would gain nothing, and there would be a good chance the candlestick maker would default on the loan. In this case, the extension of consumer credit squanders savings which are now no longer available to finance other capital investments.
What would happen if a natural disaster destroyed all the equipment used to make candlesticks, bread and steak? Confronted with dangerous shortages of food and lighting, Barack Obama would offer to stimulate the economy by handing out pieces of paper called money and guaranteeing loans to whomever wants to consume. What good would the money do? Would these pieces of paper or loans make goods magically appear?
The mere introduction of paper money into this economy only increases the ability of the butcher, baker, and candlestick maker to bid up prices (measured in money, not trade goods) once goods are actually produced again. The only way to restore actual prosperity is to repair the destroyed equipment and start producing again.
The sad truth is that the productive capacity of the American economy is now largely in tatters. Our industrial economy has been replaced by a reliance on health care, financial services and government spending. Introducing freer-flowing credit and more printed money into such a system will do nothing except spark inflation. We need to get back to the basics of production. It won’t be easy, but it will work.
President Obama would have us believe that we can all spend the day relaxing in a tub while his printing press does all the work for us. The problem comes when you get out of the tub to go to dinner and the only thing on your plate is an IOU for steak.
Wednesday, February 25, 2009
Tuesday, February 17, 2009
Please keep us in your thoughts and prayers. They'll be much appreciated.
-- Post From My iPhone
Sunday, February 15, 2009
Ron Paul: “Madam Speaker, I have a few questions for my colleagues.
What if our foreign policy of the past century is deeply flawed and has not served our national security interest?
What if we wake up one day and realize that the terrorist threat is the predictable consequence of our meddling in the affairs of others, and has nothing to do with us being free and prosperous?
What if propping up repressive regimes in the Middle East endangers both the United States and Israel?
What if occupying countries like Iraq and Afghanistan and bombing Pakistan is directly related to the hatred directed toward us?
What if someday it dawns on us that losing over 5,000 American military personnel in the Middle East since 9/11 is not a fair tradeoff with the loss of nearly 3,000 American citizens no matter how many Iraqi, Pakistanian, Afghan people are killed or displaced?
What if we finally decide that torture, even if called “enhanced interrogation technique”, is self-destructive and produces no useful information and that contracting it out to a third world nation is just as evil?
What if it is finally realized that war and military spending is always destructive to the economy?
What if all war-time spending is paid for through the deceitful and evil process of inflating and borrowing?
What if we finally see that war-time conditions always undermine personal liberty?
What if Conservatives who preach small government wake up and realize that our interventionist foreign policy provides the greatest incentive to expand the government?
What if Conservatives understood once again that their only logical position is to reject military intervention and managing an empire throughout the world?
What if the American people woke up and understood that the official reasons for going to war are almost always based on lies and promoted by war propaganda in order to serve special interests?
What if we as a nation came to realize that the quest for empire eventually destroys all great nations?
What if Obama has no intention of leaving Iraq?
What if a military draft is being planned for for the wars that would spread if our foreign policy is not changed?
What if the American people learned the truth, that our foreign policy has nothing to do with national security, that it never changes from one administration to the next?
What if war in preparation for war is a racket serving the special interests?
What if President Obama is completely wrong about Afghanistan and it turns out worse than Iraq and Vietnam put together?
What if Christianity actually teaches peace and not preventive wars of aggression?
What if diplomacy is found to be superior to bombs and bribes in protecting America?
What happens if my concerns are completely unfounded?
But what happens if my concerns are justified and ignored?
And I yield back the balance of my time.”
Friday, February 13, 2009
See this article regarding the impracticalities of financing a college education. Here's a quote regarding a couple sunk by the debt load from their student loans:
"The two disillusioned attorneys were victims of an unfolding education hoax on the middle class that's just as insidious, and nearly as sweeping, as the housing debacle. The ingredients are strikingly similar, too: Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks."
The article doesn't address an even more tragic result: students who sink deep into debt yet never graduate. They're then faced with huge loans, without an increased earning capacity to repay them.
Monday, February 09, 2009
This is an old story, but a number of people have alleged that they were kidnapped by the US government and then brutally tortured in overseas prisons. This is a fairly well documented policy called rendition. Hollywood even made a crappy movie about it. Some of these people are trying to sue the companies that went along with this unconstitutional, immoral, counterproductive, and generally all-around bad idea. Despite the fact that there's a 15,000+ word Wikipedia article on it, the Bush administration claimed that talking about it in court would lead to disaster.
Despite demonizing him for it while running for office, guess who apparently agrees?
Even the ACLU is furious:
“This is not change,” [the executive director of the ACLU] said in a statement. “This is definitely more of the same. Candidate Obama ran on a platform that would reform the abuse of state secrets, but President Obama’s Justice Department has disappointingly reneged on that important civil liberties issue. If this is a harbinger of things to come, it will be a long and arduous road to give us back an America we can be proud of again.”
But don't worry. A Justice Department spokesman promises that Obama will be more careful with it:
“It is the policy of this administration to invoke the state secrets privilege only when necessary and in the most appropriate cases..."
Necessary and appropriate? According to who? Apparently not the courts.
When Obama backed down on FISA, I began to suspect that he was playing games. It looks like others are beginning to smell the coffee. It's one thing for Obama to equate McCain with Bush. It's entirely different for the ACLU to do so with Obama.
From Obama's news conference tonight:
Question: Won't the government need far more than the $350 billion that's remaining in the financial rescue funds to really solve the credit crisis?
Obama: Well, the credit crisis is real, and it's not over. We averted catastrophe by passing the TARP legislation. But, as I said before, because of a lack of clarity and consistency in how it was applied, a lack of oversight in -- in how the money went out, we didn't get as big of a bang for the buck as we should have.
Is he saying that the plan wasn't very well thought out? Didn't he vote for it? Didn't Congress pass it? Didn't people warn that this was exactly what would happen, when you ram through legislation committing $700 billion, with no time to think it through? I know I did.
But hey, they'll get it right this time. Promise. Just give them another $800 billion. They'll do better. But we don't have time to argue! Or debate! Or think!
Despite the problems with these programs, at least they were put to a vote, and people realize they are happening. Compare that with the Treasury, which has spent nearly ten times this amount in the last couple years with no oversight or approval from Congress.
For the record, I didn't approve it either.
I was also struck by this quote, regarding US military incursions into Pakistan:
"It's not acceptable for Pakistan or for us to have folks who, with impunity, will kill innocent men, women and children."How ironic. We're killing civilians in Afghanistan faster than the insurgents.
Friday, February 06, 2009
Why do people think the government is any different? Japan tried to spend it's way out of a recession, and it took trillions of dollars, and ten years, largely resulting in failure. Many economists, including the current treasury secretary, think it failed because there wasn't enough spending.
If $2 trillion isn't enough for Japan, how much do these people think the US needs? And where will the money come from? Someone's going to pay for it, one way or another. These are things that Congress should find out before being bullied into rushed legislation.
-- Post From My iPhone