January 30, 2009

Obama, Keynes and Bailout II

by John Young

For better or for worse, all wealth originates from the application of human effort and ingenuity to natural resources in order to make them more useful. Certainly, at the levels of “high finance” and big-time law you see more money — but that money floats to the top after having originated in the blood, sweat and toil of many millions of hardworking people. If you have nothing at the bottom of that pyramid and all you have is “services” such as paper-shuffling, stock trading and ambulance chasing — then you don’t have an economy. That’s the core of the issue; and Bailout II doesn’t do anything to address it.

The thoughts I have on Barack Obama are extensive. I could write books on the various aspects of this topic, but won’t. Instead, each aspect will be explored individually over time as the new president’s actions illustrate the necessary points. In the meantime, I’d like to share a bit of my stream of consciousness regarding his new bailout package.

Nobody in America outside of academia admits to being a socialist. Yet politicians put forth proposals, policies and legislation that are textbook examples of socialism constantly. The new bail-out package is socialism and has therefore been proposed by socialists — whether they dare to name themselves honestly or not. All of these proposals for national health care are nothing but socialism as well. The ridiculous controlled media paints the picture of an amazing world in which effects (socialist programs) come into being without their causes (socialists).

The media can certainly mediate people’s perceptions; especially given the large number of voters in this country who can’t find the United States on a map and are therefore easily manipulated by the barrage of non-facts and simplistic logic they receive via their 5-hour daily dose of brainwash-tube.

But media can only manipulate perception, it cannot change reality. A person’s perception of reality can be changed through the ingestion of LSD. But no matter what that person perceives or believes while under the influence, if he jumps off the Empire State Building believing in his ability to fly, he will wind up just as dead. Perceptual manipulation has its limits — both for hallucinogenic substances and for our controlled media.

And this is where the proverbial rubber hits the road for President-elect Obama. The earlier so-called “stimulus” package under George Bush failed to stimulate the economy and mainly managed to bail out well-connected people who were already multi-billionaires at the cost of impoverishing the children and grandchildren of ordinary Americans. It was a classic example of Keynesian economic principles — AND an illustration that they are nearing the end of their usefulness.

Keynesian economic principles are the inevitable result of massive disparities of wealth. The essence of the problem can be explained thusly:

The people who own the widget company seek to sell their widgets for the highest price possible while paying their workers the lowest wage possible. As long as there is ample opportunity for other people to start their own widget companies, this tends to equalize.

But if wealth is allowed to concentrate and startup capital becomes limited mainly to cronies and the well-connected so that new widget companies can’t be created; enterprises tend to endlessly consolidate into ever-larger entities. In other words, finance capitalism destroys the free market. When this happens, we eventually end up with a situation in which the people employed making widgets can’t afford to buy them. That’s when you have a recession or even a depression.

Keynesianism — which is just a form of socialism under another name — seeks to correct the imbalance so that workers at the widget factory can afford to buy the widgets. It does this by government spending in various forms; and this spending is funded through deficits that are paid back in the form of taxes by the folks who own the widget factory. In other words, wealth is re-distributed to correct the imbalance.

Technically speaking, this sort of game could go on forever: a huge wealth disparity occurs which creates a recession and then government comes along and takes money from the “haves” and gives it to the “have nots” until the “have nots” can finally afford to buy widgets again.

But there are a lot of issues with this. I think that any person concerned about ethics should have some reservations about using the government as a mechanism to do something that — if it were done by regular citizens — would be felonious. That is, using the government to take one person’s wealth by force and then give it to someone else.

Remember, as the Declaration of Independence noted, governments derive their JUST powers from the consent of the governed. Obviously, I cannot give someone else “consent” to do something that is highly illegal for me to do as well. That’s why people who hire assassins go to jail just as if they had conducted the assassination personally. Well, then … as I have no right to go taking away other people’s stuff, I can’t give government “consent” to do so on my behalf, either. Thus, the entire Keynesian premise flies in the face of the underlying tenets of our system of government and is ipso facto UNJUST.

But, even if it were just — Keynesianism has reached the end of its rope. You can see this in the form of the details of President Obama’s mis-named “stimulus” plan as he has now decided that tax rebates will not be issued to anyone making over $75,000/year; and will also be issued to people who paid no taxes at all because they didn’t work.

You see, the very same problems with so-called “democratic capitalism” (which is really crony capitalism) that cause the enormous disparities in wealth also hamstring Keynesianism.

In any free market, there will always be natural disparities in wealth. Some people are smarter than others, some people are more industrious than others, and some people are just plain lucky. Sometimes very bright people find themselves following a calling or cause that doesn’t pay well. Some people just don’t care about money. Others are incredibly acquisitive. This is just the way the world works, and government shouldn’t be interfering to make things work any differently.

But in spite of these relatively minor disparities, as long as the market is truly free, you will not end up with such enormous disparities of wealth that recessions become inevitable. That’s because, in a free market, as soon as the widget manufacturer raises prices high enough; someone else starts making widgets to force the price down. As soon as the first widget maker effectively lowers the wage of workers, someone else steps in who is willing to pay those worker more and steals them away.

But we don’t have a free market in the United States. What we have is democratic capitalism with a huge dose of crippled socialism thrown in.

That’s because finance capitalists figured out long ago how to buy influence in the halls of Congress. As Congress makes its own rules regarding ethics, 99% of this outright corruption is entirely legal; but it should suffice to say that many people who entered public service near penniless leave their “service” as multi-millionaires.

So what happens is once a corporation reaches a large enough size that it can easily cope with new regulations, new regulations are passed that effectively prevent the entry of new competition. Without all of these regulations, it would be entirely feasible to start (for example) a car company with less than $1M; but with these regulations it’s almost impossible to do for less than $1B. The same situation occurs in thousands of industries. Thus we are faced with corporate behemoths that grow ever larger by gobbling up other companies and no effective competition entering the mix. Without effective competition, those who control the corporations have free reign to charge as much as possible while paying as little as possible — and stratospheric wealth disparities result, with workers ultimately finding themselves unable to buy the widgets they make.

So it isn’t the free market that causes the problem; but rather interference in that market prompted by the unique form of corruption engendered by so-called democratic capitalism.

But the $75,000 income limit in the stimulus package truly tells the tale.

Remember, Keynesianism takes from the “haves” and gives to the “have nots” so that the “have nots” can afford to buy widgets. The trouble is that the very very small group of true “haves” in this country has bought itself immunity from that system. In practice, this means that all re-distribution takes place by taking from the “have a little somethings” to the “have a little less somethings.” Or from the “Have enough to get by” to the “Can’t quite make it.” Because the vast wealth at the top of the pyramid is off-limits, Keynesianism can only work with re-shuffling the lower layers of that pyramid. Because there just isn’t enough money in those layers, our government is then forced to borrow the money. Let’s face it: the government already takes fully HALF of my income, and there comes a point of diminishing returns where if they take any more I won’t be able to afford gas to go to work so they lose everything. There comes a point, as it has in Sweden, where people refuse promotions and “aim low” to avoid being taxed to death. In order to avoid this, the government turns to deficits rather than taxes to fund their Keynesian scheme.

When government borrows the money, it takes up investments that would otherwise be available to fund new companies, transitory payrolls or purchases of homes and cars. This makes less money available to prime the real economy.
Even worse, as most of that money is simply printed out of thin air, there is an inflationary response that makes the value of dollars that people already own worth less. So this creates a hidden tax upon the people who save their money and transfers it to the people who don’t.

Bailout II simply won’t work any more than Bailout I did.

Bailout I stole our money through diminishing its value in order to disproportionately enrich a bunch of privileged cronies whose only merit was in their personal and family connections. Greenburg’s AIG was bailed out for billions of dollars — and what did they do? They turned around and gave the personnel in the division responsible for putting them in a bad fix bonuses coming out to over $1,000,000 per person. This is just the tip of the iceberg of the abuse of taxpayer money — BILLIONS of which has already gone missing and nobody can figure out where it went. Isn’t it amazing how the IRS and SSA can both tell me, to the penny, exactly how much money I make and from where, but billions of dollars can just go missing and hardly anyone notices?

Bailout II is more of the same, but even worse. What makes it to the final bill is still a matter of conjecture, but so far it has included $150 million for birth control, $4.6 billion for community organizers to ensure Obama’s re-election and other garbage. What it can’t do is fix our broken economy.

If you wish to fix a problem, then you identify and repair the underlying causative factor. The only thing the bailout bills accomplish is deficit spending, inflation and perks for the well-connected. What the bailout bill DOESN’T do is much more informative than what it contains. It doesn’t do anything to bring back the true industries of this country that form the backbone of the economy. For better or for worse, all wealth originates from the application of human effort and ingenuity to natural resources in order to make them more useful. Certainly, at the levels of “high finance” and big-time law you see more money — but that money floats to the top after having originated in the blood, sweat and toil of many millions of hardworking people. If you have nothing at the bottom of that pyramid and all you have is “services” such as paper-shuffling, stock trading and ambulance chasing — then you don’t have an economy. That’s the core of the issue; and Bailout II doesn’t do anything to address it.

I can already see that even the Obama administration is dubious about the likelihood of success of Bailout II. This can be discerned by noting that the Democrats now have enough votes to pass whatever they want without any Republican participation. Yet, they keep trying to get Republicans to sign on. Why? Because if this plan were a sure success — they would want teh credit, accolades and VOTES it would bring. But if it fails, they don’t want Republicans out there two years from now saying “I told you so.”

Bailout II is only possible in this country because people are so woefully educated about economics.

Read, and share the following book: Economics for Helen.

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