Team Obama has entered White House and brought with them a massive economic stimulus plan (some estimate a plan including up to $800 billion). As young voters who will eventually be handed the bills for what politicians do today, instead of robotically jumping head over heels for a stimulus plan, asking the same question we are hearing today, “how much money should the stimulus package include?”, they should backup and discuss whether or not stimulus package is the right action to take in the first place.

Much of the media, and many politicians and Americans seem to be in complete agreement with Team Obama’s stimulus plan ideas. They argue we need a stimulus plan that will pump a large amount of dollars in the economy so that spending will increase; more jobs will become available and therefore will enable the economy to get out of the rut it is in and back on track to economic prosperity. But not everyone agrees.

They are not well known amidst all the ‘stimulus salvation’ hype, but a growing number of economists and financial experts believe that any economic stimulus package will only worsen our economic situation. These select few stand squarely against the group-think mentality of the media, and jaded Obama supporters. Some students are taking notice.

Richard W. Rahn from the Cato Institute is one of those leaders who firsts looks at the necessary question, “‘where would the government get the stimulus money from?”

“It must either tax someone else now or borrow more money, which diverts productive saving to current consumption,” Rhan says. “Either way, it is less than a zero-sum game.”

Rhan looks to history as evidence to why direct government payments (i.e. a stimulus package) will face.

“During the Great Depression, government spending soared as a percentage of gross domestic products, but full employment did not return until World War II. During the last eight years, U.S. government spending has greatly increased in both absolute terms and as a percentage of GDP, yet the economy now performs worse than it did a decade ago.”

And he’s right. The productive American tax-payer (a future student in the work force) is the one who will pay for any sort of government stimulus package. Similar to the infrastructure overhaul that came with the New Deal by FDR during the Great Depression, every dollar spent by the federal government (such as Obama’s huge infrastructure project) is a dollar taken away from the tax-payer.

The infrastructure project President-elect Obama is proposing will only take jobs away from the productive private sector and give it to a usually unproductive public-sector job (recent data by the Bureau of Economic Analysis shows the average federal public-sector employee gets nearly paid double what a productive private employee earns).

This could potentially be good for small amount of students planning to work for the federal government, but not for the majority of us.

While an obvious way for the government to get stimulus money is by increasing taxes, that isn’t easy during hard economic times (even for a liberal Democrat like Obama). However, this will hardly prevent the government from spending lavishly. Thanks to our Fiat money supply, the government can use another trick called money creation to receive more spending money. By printing new money it can spend more.

But even the most unschooled economic student knows that printing excessive money, which the stimulus would require, creates massive inflation. This again punishes the tax-payer when he comes to find out the dollars he has earned and saved is worth a lot less now than before. The U.S is currently $10.7 trillion in debt and plans on printing more money and creating more inflation to combat a recession? Too bad dollars are not as soft as toilet paper.

Peter Schiff, President of the Euro Pacific Capital (which many students may remember as Ron Paul’s economic adviser), predicted the housing bubble back in 2006-2007 and is another minority financial expert who says a stimulus package will be bad news for the U.S economy.

In a recent editorial in the Wall Street Journal, Schiff argued a recession is actually the cure to the current economic crisis and isn’t supposed to be pain-free times. The transition from borrowing and spending to saving and producing cannot be accomplished without a severe recession, given the current imbalances of the US economy, he argued. Biting the bullet and dealing with these issues should be a priority.

Schiff must have students in mind. Introducing a stimulus package instead of allowing for a natural recession to occur would be equivalent to attempting to heal a broken leg by taking massive amounts of painkillers and continuing to walk on the broken leg. Just because we can’t feel the pain doesn’t mean it’s fixed. Instead, we should allow the painful recession to occur by staying off the broken leg until it heals properly. If not students will be in hot water by graduation time.

It is understandable that young voters feel a great urgency for the government to take some action in hopes of repairing the economy before we enter in the job market. But this urgency is no doubt a reason we are forgetting to discuss vital issues such as if a stimulus plan is the right thing to do in the first place for our future.

In the end, any stimulus plan will negatively affect young Americans and ultimately the future tax-payers—the very entity we are trying to help. The best plan of action is this: Obama should take a step back. He should allow a healthy, yet painful recession to occur that will eventually heal the market from the economic crisis in time for graduation job hunting season. Otherwise we as students will be left paying the bill and likely without employment.

At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”

Read the Full NYT article

Team Obama will soon enter the White House and bring with him a massive economic stimulus plan (some estimate a plan including up to $700 billion). We should first backup and discuss whether or not stimulus package is the right action to take during these difficult economic times.

They are not well known amidst all the ‘stimulus salvation’ hype, but a growing number of economists and financial experts believe that any economic stimulus package will only worsen our economic situation. These select few stand squarely against the group-think mentality of the media, politicians, and many Americans who support a stimulus package.

Richard W. Rahn from the Cato Institute is one of those leaders who answer the unpopular question, “‘where does the government get the stimulus money from?”

“It must either tax someone else now or borrow more money, which diverts productive saving to current consumption,” Rhan says. “Either way, it is less than a zero-sum game.”

Rhan looks to history as evidence to why direct government payments (i.e. a stimulus package) will face.

“During the Great Depression, government spending soared as a percentage of gross domestic products, but full employment did not return until World War II. During the last eight years, U.S. government spending has greatly increased in both absolute terms and as a percentage of GDP, yet the economy now performs worse than it did a decade ago.”

And he’s right. The productive American tax-payer is the one who will pay for any sort of government stimulus package. Similar to the infrastructure overhaul that came with the New Deal by FDR during the Great Depression, every dollar spent by the federal government (such as Obama’s huge infrastructure project) is a dollar taken away from the tax-payer.

The infrastructure project President-elect Obama is proposing will only take jobs away from the productive private sector and give it to a usually unproductive public-sector job (recent data by the Bureau of Economic Analysis shows the average federal public-sector employee gets nearly paid double what a productive private employee earns).

While an obvious way for the government to get stimulus money is by increasing taxes, that isn’t easy during hard economic times (even for a liberal Democrat like Obama). However, this will hardly prevent the government from spending lavishly. Thanks to our Fiat money supply, the government can use another trick called money creation to receive more spending money. By printing new money, it can spend more.

But even the most unschooled economic student knows that printing money creates inflation. This again punishes the tax-payer when he comes to find out the dollars he has earned and saved is worth a lot less now than before. The U.S is currently $10.7 trillion in debt and plans on printing more money and creating more inflation to combat a recession?

Peter Schiff, President of the Euro Pacific Capital, predicted the housing bubble back in 2006-2007 and is also a minority financial expert who says a stimulus package will be bad news for the U.S economy.

In a recent editorial in the Wall Street Journal, Schiff argued a recession is actually the cure to the current economic crisis and isn’t supposed to be pain-free times. The transition from borrowing and spending to saving and producing cannot be accomplished without a severe recession, given the current imbalances of the US economy, he argued. Biting the bullet and dealing with these issues should be a priority.

Schiff is right as well. Introducing a stimulus package instead of allowing for a natural recession to occur would be equivalent to attempting to heal a broken leg by taking massive amounts of painkillers and continuing to walk on the broken leg. Just because we can’t feel the pain doesn’t mean it’s fixed. Instead, we should allow the painful recession to occur by staying off the broken leg until it heals properly.

 It is understandable that people feel a great urgency for the government to do something. And this urgency is no doubt a reason we are forgetting to discuss vital issues such as if a stimulus plan is the right thing to do in the first place. In the end, any stimulus plan will negatively affect tax-payers—the very entity we are trying to help. The best plan of action is this: the government should step back. We should allow a healthy, yet painful recession to occur that will eventually heal the market from the economic crisis.

Photo credit: mrknightblog.blogspot.com

“It might be a big year (2008), a year of big losses,” Schiff said. “We will see the sub-prime mortgage type scenario fold out in other asset classes such as bonds back by auto-loans, credit card debt and more…because the people who own all this debt are going to lose a lot of money.”

Schiff, who is now gaining popularity in the media due to his predictions coming true, ties most of the current financial crisis to an inflated dollar (caused by artificially raised interest rates by the Fed) and the government regulated financial system. He argues the United States needs to stop borrowing money, cut back on consumer spending and instead save and invest the money.

Schiff fears the government bailouts of major banking institutions will sink the US further into financial oblivian. This comes at a time when the US government recently loaned GM and Chrysler billions fearing further economic collapse.

A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the synonymous with inflexible and anti-competitive work rules.

Perhaps most important, though, is that a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations.

These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust.

Another problem with bailouts, Mitchell argues, is once one gets it, they all want it. This encourages more risky business behavior from industries if they know there is a good chance they will get saved by tax-payer’s money. First Wall Street, now auto-makers, who’s next?

The bailout would also be the most “perverse transfer from poor taxpayers to rich taxpayers.” It would essentially reward among the very richest Americans. United Auto Workers bosses make huge salaries and even the standard employees earn “an average total compensation including benefits of approximately $70 per hour.” Why should we take money from average income workers in American and give it to the highest earning Americans?

The government should not be in the business of giving unearned wealth to any group of citizens, but surely liberals and conservatives both can agree that politicians should not be taking money from middle class taxpayers and giving it to upper-middle class and rich taxpayers.

But what effects would of a large group of workers being laid off have on the economy? Would this negatively effect the current economic crisis and drive us further into a recession? In the short run this may be true, but we must also consider the long term and creating a strong economic foundation solid instead of creating unrepairable cracks as a bailout could easily do.

Mitchell ends with this:

America is on a dangerous path. The Wall Street bailout was a mistake. It transferred a huge amount of money from the productive sector of the economy to the government, and also exacerbated “moral hazard” by rewarding companies and executives who made dumb decisions. But this may be the tip of the iceberg. A bailout of U.S.-headquartered auto companies also would be a mistake, as would bailouts of homeowners or any other constituency. If politicians genuinely want to help the economy, they should focus on reducing the burden of government, not increasing it

Read the full column.

Andrew J. Bacevich, a professor of international relations at Boston University and former director of its Center for International Relations (from 1998 to 2005) believes consumerism, along with unrestrained militariams is tearing this country apart.

I do not normally follow the Bill Moyer’s Journal. Yet, Mr. Moyer recently had an interview with, Andrew J. Bacevich. It seems to be extremely easy for politicians to point to problems if they lay outside of the United States and don’t require change for US citizens. But extremely difficult to point to problems that exists inside the United States, which may lay blame on politicians and the citizens who support them (by voting). After all, who would vote for a politician who says the major problems facing the US is “American” way of life, i.e out-of-control consumerism, consumer debt, unfunded entitlements, oil and credit?

Andrew J. Bacevich makes the claim “If you want to preserve that which you value most in the American way of life, then we need to change the American way of life.” We shoud listen. We need to connect the dots between the economy, the governemnt and military: they are in a crisis and the solution (like the problem) lay within our own nation, not outside–the problem lays with us

I’m going to make a bet. As president, Barack Obama will not draw criticism to America herself, wherein lie the source of America’s problems. He will not show us the truth of our fundamental problems such as massive personal and national debt; over-streched, imperalistic military abroad; and billions of dollars of entitlements promised that we cannot pay. It would make us too uncomfortable. It may require us to change our lifestyle. Who has a right to make us change our comfortable lifestyle

The fundamental problem will not going away with Barack Obama in the White House

Is it possible for the United States to change course?

Below is a small part of an Bill Moyer’s interview with Bacevich that attempts to answer that question and more. I encourage you to read it or watch the full interview

ANDREW BACEVICH: One of the great lies about American politics is that Democrats genuinely subscribe to a set of core convictions that make Democrats different from Republicans. And the same thing, of course, applies to the other party. It’s not true. I happen to define myself as a conservative

Well, when you look back over the past 30 or so years, since the rise of Ronald Reagan, which we, in many respects, has been a conservative era in American politics, well, did we get small government?

Do we get balanced budgets? Do we get serious as opposed to simply rhetorical attention to traditional social values? The answer’s no. Because all of that really has simply been part of a package of tactics that Republicans have employed to get elected and to – and then to stay in office.

BILL MOYERS: And, yet, you say that the prime example of political dysfunction today is the Democratic Party in relation to Iraq.

ANDREW BACEVICH: Well, I may be a conservative, but I can assure you that, in November of 2006, I voted for every Democrat I could possibly come close to. And I did because the Democratic Party, speaking with one voice, at that time, said that, “Elect us. Give us power in the Congress, and we will end the Iraq War.”

And the American people, at that point, adamantly tired of this war, gave power to the Democrats in Congress. And they absolutely, totally, completely failed to follow through on their commitment. Now, there was a lot of posturing. But, really, the record of the Democratic Congress over the past two years has been – one in which, substantively, all they have done is to appropriate the additional money that enables President Bush to continue that war.

BILL MOYERS: And you write that “What will not go away, is a yawning disparity between what Americans expect, and what they’re willing or able to pay.” Explore that a little bit.

ANDREW BACEVICH: Well, I think one of the ways we avoid confronting our refusal to balance the books is to rely increasingly on the projection of American military power around the world to try to maintain this dysfunctional system, or set of arrangements that have evolved over the last 30 or 40 year

If you want to preserve that which you value most in the American way of life, then we need to change the American way of life.

Photo: Bill Moyers Interviews Andrew J. Bacevich (August 15, 2008) PBS.org.

Yet, during Medvedev’s first visit to the U.S. capital, he showed a change in attitude, desiring to start talks with President-elect Obama, saying the missile defense system is a good starting point. This could be the first taste we get of Obama’s skills as a diplomat with firepower. Shortly after Russia’s bully war on Georgia, will Obama be able to implement the missile defense system in hopes of “protecting” Europe?

Obama has never indicated he puts hope in the defense system in the first place, so he may give it up to keep Russia’s missiles away from our allies. But the whole world is watching Obama and has high expectations. Is Obama willing to take the risk of appearing to be bullied around if he drops the missile defense system? Or if he decides against the missile defense program, can he prove to the American people and the Europeans that the program is bogus?

A lot is riding on this man’s shoulders—including a lot of hope.

The AP story:

Medvedev said there is a lack of trust between Russia and the United States, but it is “in our power” to create a partnership.

He called for talks with Obama as soon as possible after he becomes president Jan. 20 and suggested that missile defense would be a good place to start.

“I hope that the new president, the new administration will have a desire to discuss this,” Medvedev told members of the Council on Foreign Relations. “At least the first signals that we have received indicate that our new partners are thinking about the problems and do not simply plan to rubber stamp the plans.”

The full AP story via Google News

Photo credit: Flickr/World Economic Forum

As a student during election season it is very hard to escape the constant message—and sometimes command—to Vote. ‘Rock the Vote’ further stuffs it in students face along with all it’s young and enthusiastic activists who feel it is a moral obligation to vote and if you break that obligation, you are no longer a patriotic American.

HeadCount is an organization that encourages rock concert attendees to register and vote. John Stossel recently investigated this organization and the people whom they are registering to vote. He found many of the people are absolutely clueless as to the U.S. system of democracy, with some unable to name how many states are in the Union, and unable to name the number senators in office in the U.S. Nearly all of them recognized a John McCain and Barak Obamas photo, but only half recognized the vice presidential candidate, Joe Biden.

“Maybe 75 percent of people can name the vice president. … The public’s knowledge of politics is shockingly low,” economist Bryan Caplan said during an interview with John Stoessel for his voting for dummies report.

In his book “The Myth of the Rational Voter,” Caplan argues that people who know little about our government ought to stay home on Election Day.

But aren’t Americans always told it’s their civic duty to vote?

“This is very much like saying, ‘It’s our civic duty to give surgery advice,’” Caplan said. “Now, we like to think that political issues are much less complicated than brain surgery, but many of them are pretty hard. If someone doesn’t know what he’s talking about, it really is better if they say, ‘Look, I’m just gonna leave this in wiser hands.’”

But isn’t it elitist to say only some people should vote?

“Is it elitist to say only some people should do brain surgery?” Caplan said. “The bottom line is, if you don’t know what you’re doing, you are not doing the country a favor by voting.”

What happens when you are encourage people to vote who normally wouldn’t? Often they vote based on their limited knowledge of the candidates and of how US democracy works. Where do they get this knowledge? The best source of accurate news and information invented, the TV. Watching TV for a primary and sometimes only source about the candidates is not a good thing. Would it take too much work to research a little apart from the TV? But we are American; we don’t need to work to be “patriotic”. All we have to do is fill out a ballot (usually voting straight ticket Republican or Democrat) on Election Day.

What’s more they only receive information that the media wants them to hear. Since when can we put our trust in the media? The media mostly only tell what the politicians tell them. Since when can we put our trust in politicians?

Is it right or even healthy to put so much hope, trust and faith in a politician–even if it is Obama or McCain? Obama is not going to be the savior of our American democracy. He could be a better change than Bush but far from our “savior.” We should end our fanaticism in one man, or we will soon be set for much disappointment. (see post of Oct. 17th)

Stossel ends his report with this: “Voting is serious business. Democracy works best when people educate themselves. So maybe instead of telling people things like “Rock the Vote,” these groups should say “Rock or Vote.”

Photo credit: April Sikorski

Barak Obama and Joe Biden have formed their Transition Economic Advisory Board including leaders of business, government and academia and met Friday to discuss steps required to heal the economy with all its current problems, which they will soon inherit.

The big names in big business included Warren Buffet, one of the richest men in the world, via speakerphone, Eric Schmidt (Chairman and CEO, Google), William Daley (Chairman of the Midwest, JP Morgan Chase), Anne Mulcahy (Chairman and CEO, Xerox), Richard Parsons (Chairman of the Board, Time Warner), Penny Pritzker (CEO, Classic Residence by Hyatt).

Why are so many capitalist heads present? Obama could be taking President Clinton’s approach and surrounding himself with intellectual men with varying perspectives in order to come up with the best solution (unlike President Bush who surrounds himself only with a select group of men i.e. Cheney, Rumsfeld, etc.).

In fact, many of Clinton’s men were present at the meeting including William Daley, Robert Rubin, Robert Reich, Lawrence Summers and Laura Tyson.

Perhaps the big heads of business will attempt to talk since into this big-government president-elect. “Let the markets correct themselves naturally. Letting the housing prices run their natural course (in this case lowered prices) will allow the supply and demand to equalize and find the new equilibrium. ,” the business men may argue.

And they could be right. Better this than a long drawn out affair akin the the Great Depression caused by heavy government intervention that prevented the markets to self-correct and end the crisis in a quick manner. Sadly, some in the housing industry will get burned, but thats better than the whole economy burning to pieces like we are seeing.

We should not not forget all the people Obama needs to ‘return the favor’, apart from the big names listed above. Obama’s top 10 Corporate PAC contributors for his campaign are all major banking institutions. According to The Center for Responsive Politics, aided by Matt Collins Obama’s major contributers include:

Goldman Sachs $739,521, UBS AG $419,550, Lehman Brothers $391,774, Citigroup Inc $492,548, Morgan Stanley $341,380, Latham & Watkins $328,879, Google Inc $487,355, JPMorgan Chase & Co $475,112, Sidley Austin LLP $370,916, Skadden, Arps et al $360,409.

More bailouts anyone?

Nearly every politician in office have people they need to please and debts they have to pay. Let’s not forget Barak Obama is a politician as well. He scratched a lot of backs to get to the most powerful position in the world, when will he begin to return those favors?