Something I’ve learned from my time as a father and a teacher is that children learn by example. We model the behaviors we desire to see in our kids, whether that is honesty, hard-work, courage, or caring, but the pendulum swings both ways, we also will see bad behavior when our children pick up on our bad examples, whatever they may be. So what have we learned from our government’s bad example? Is it really so hard to believe why Americans don’t mind borrowing more than they can afford?

The newest lesson our government is teaching Americans; borrow more to save yourself from financial disaster. That is the example Obama’s stimulus plan is making for us and most especially our children, who will learn about it in U.S. history class someday. Now, I’m not saying that all borrowing is bad, sometimes a calculated investment can provide high returns, but it sounds to me like our government is trying to pay off their school loans with a credit card. This is a big “no-no” when it comes to debt because school loans usually have a lower fixed interest rate, while credit cards tend to have extremely high and unpredictable rates. This is a situation no caring parent would ever want their child to be in, but we see these bad money management decisions growing in popularity and why not? The U.S. government is doing it. If something as big and powerful as the United States government can do it and be “ok”, then why can’t I?

The solution requires our government to be a positive financial role model. As Obama has said and not yet done, we need to balance our budget and only pay for things we can afford. How he can say that with a straight face while promoting an over indulging stimulus bill is beyond me, but at least he recognizes the problem, it’s more than can be said for other presidents. My prediction: when our top governments officials can work together to facilitate a sound money system we will then see a generation where proper money management is the norm.

Photo: President Obama signs the American Recovery and Reinvenstment Act of 2009.

I have recently had several opportunities on various news programs to discuss the economy and what is wrong with the so-called economic stimulus package. I have said over and over what we shouldn’t be doing, and now I’d like to explain what we should be doing.

But to improve the situation, you must first have a solid grasp of how we got here. Government policies and central planning created the housing bubble, now going bust. About a decade ago the government made expanded homeownership and affordable housing a public goal. Through Fannie Mae, Freddie Mac and the secondary mortgage market the government incentivized creative, low down-payment, more widely available mortgage products, and discouraged the market-proven lending standards of the past. The Federal Reserve kept interest rates artificially low, which added more fuel to this fire. Many related sectors temporarily flourished because of this, and many people got into homes they otherwise could not have afforded. The increased demand for housing sent prices soaring until in many markets housing became even more unaffordable, necessitating even more creative mortgages, and impossibly leveraging homeowners. Many risky investment vehicles such as mortgage-backed securities, derivatives, credit default swaps grew out of this unsustainable situation. As the foreclosures began, the house of cards started to tumble. Too many people have confused the symptoms and the pain of the bust with the problematic policies that caused the bubble, which is really what needs to be treated.

First of all, just as the best cure for a hangover is not to drink so much, the best cure for a recession is a recession. It is time to sober up and return to free market sanity, risk and reward, supply and demand, without political intervention. Politicians are good at catering to the needs of special interests, but very bad at determining what needs to take place in the market. Government should stick to punishing fraud and enforcing contracts. When they use the tax code, bureaucratic departments and their manipulative rules and regulations to dictate social and economic behavior, we end up with distortions and malinvestments. Bailing out banks, continuing failed Fed policies and strapping the taxpayer with toxic debt will worsen the pain, and punish the innocent.

If Congress really wanted to do something helpful, it would cut taxes. Ideally, we would repeal the income tax altogether and get the IRS off the economy’s back, which would be a huge boon. We should also cut spending. Cut every unconstitutional department and program, every wasteful governmental encroachment on the people’s liberty and money, starting with our massive overseas empire. The cost of our empire is bringing us to our knees, just as the Soviets’ empire did to them. Congress should also abolish the Federal Reserve and take back its responsibilities to ensure sound money, safe from the manipulations of powerful banking interests.

These things would constitute real change, real economic stimulus. The plans being bandied about Washington are just more of the same. As long as no one seriously considers the cure, we are unfortunately destined to prolong the disease.

]]> http://independentadvocate.com/2009/02/02/cures-for-our-economic-disease/feed/ 0 http://independentadvocate.com/2009/01/20/obama-is-hurting-young-americans-by-pushing-for-economic-%e2%80%9cstimulus%e2%80%9d-plan/ http://independentadvocate.com/2009/01/20/obama-is-hurting-young-americans-by-pushing-for-economic-%e2%80%9cstimulus%e2%80%9d-plan/#comments Wed, 21 Jan 2009 04:09:17 +0000 Wes Kimbell http://independentadvocate.com/?p=521 President Obama’s economic “stimulus” plan is one of the first chances young Obama supporters get the opportunity to prove they are not just jaded with the romance of his rhetoric and personality, but instead are able to stand up and question critical, long-term policies that we think he might not have right.

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.

But what procedures does he plan to set up? On January 12, the Associated Press reported that Obama plans to issue an executive order during his first week in office to close the base. This is a smart move but doesn’t signify a change in position from the current Administration.

Guantanamo Bay has been called a symbol of mismanagement in the war on terror and its closing should not be considered a sign of things to come. Many in Washington and the world organizations abroad (the EU, the UN) have already stated that they would like the prison closed. President Bush himself has said he would have liked to shut it down but there have been too many complications. Even John McCain made a campaign push to shut down the prison by executive order.

The closing of the base is inevitable and the public should be conscious of this instead of thinking that Obama alone would pursue its closing. Yet we must keep in mind Obama has become less direct about the speed of withdrawal of combat troops from Iraq the closer we get to inauguration and this could roll-over to the closure of the base as well.

A great opportunity could be missed if the Guantanamo closing isn’t handled quickly, smoothly and correctly. The new administration has a chance to break from the former administration with a swift transition to a new plan. But it appears Obama has been prepping the public for a drawn out closure of the base, saying that the situation is a difficult one. This echoes what the Bush administration has been saying since 2006.

Obama’s team sites complications with the closure, such as how to deal with the remaining detainees, how to try the charged, and how to deal with those released. Some contest the idea of bringing these “enemy combatants” to American soil, claiming them to be a danger and opening opportunity for complications in the court system.

Concern has also been raised that by bringing the prisoners stateside it might they might be left indefinitely as it has been difficult to find them asylum in any other country including their origin. If the President-elect wanted to make a strong stance he would implement strict, easy to follow standards and regulations about the imprisonment, trials and releases of these, instead of the confusing and varying ways the Bush Administration dealt with it.

A standard on how to deal with the Guantanamo bay prisoners must be made that will be taken seriously by the rest of the world. A reasonable and approved system for dealing with the prison, and the subsequent challenges that the closure would produce, could go a long way in presenting the new President’s strength.

It has been proposed that a new legal system should be set up in order to try the remaining detainees. The idea is not new, in fact, it brings to mind the military tribunals and commissions that have failed for the Bush administration. A new court system would need to be unveiled at the time of the executive order. If not, the new administration may appear to have no direction, especially if the specifics take time to come out. It would need to look clean cut, direct and strong if it will be rushed. Otherwise criticism will rise and will continue into whatever plan is eventually adopted.

Another option would be holding criminal trials in the U.S. Out of the 250 detainees being held at the base, 30 are considered “high value,” meaning their cases are steeped in military intelligence and other sensitive material. This becomes difficult when brought into open court where military intel and other government information could be thrown out or suppressed to keep classified information quiet. This also concerns many Americans who fear bringing these suspects to U.S. soil would be considerably dangerous.

The clearest option would be trials in the military court-martial system. This would require a higher standard of evidence, the kind gathered by military intel, than the current military tribunals. This system would help establish credibility for this new administration and garner some faith from the global community.

The real difficulty comes when deciding how to rehabilitate detainees not convicted but also not able to return to their native countries nor other countries that are reticent to allow asylum. These decisions can be made over time, gradually, and on a one-by-one basis.

Everyone agrees that the treatment of prisoners has been questionable. Some claim methods used do not hold up under the protections of the Geneva Convention. The definition of whom and what these prisoners should be classified as have added to the confusion. But there is little argument that the alleged acts of torture, including sleep deprivation and beatings, cannot be considered anything but demoralizing—for both the prisoner and the reputation of the United States.

“The President-Elect has repeatedly said the legal framework at Gitmo has failed to successfully and swiftly prosecute terrorists,” said one unnamed official. But Obama’s most recent comments have suggested that it may take time to shut down the prison due to difficulties that it could cause. This could be a detrimental start to what was billed as a “hopeful” era.

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.

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