Laissez Faire Links: Rational Production, Debt Hysteria, Economic Ignorance, and Obamacare

Where does wealth come from?  The answer is simpler than you ever thought.  Washington’s antics over the current debt crisis and people’s ignorance of Obamacare’s deceptive design.

  • Over at Objectivism for Intellectuals, the idea that wealth comes from action based on rational thought is not a new revelation, but simply a rebuttal to those who still maintain otherwise.  Wealth, according to the classical tradition in political and economic theory (i.e. Locke and Smith), is a product of one’s labor.  See my discussion here for elaboration on this point.  Wealth cannot be anything but a “product” of action, not wish or whim.
  • Dan Mitchell from the Cato Institute points out the current debt hysteria in Washington as nothing more than political posturing.  The issue of raising the debt ceiling, lest the government default on its obligations, overlooks many aspects of U.S. fiscal responsibilities that point to a much less severe predicament.  His comments on the Treasury Report are particularly insightful:

“The Obama Administration is deliberately trying to blur the difference between defaulting on the debt, which would have real consequences, and “defaulting on obligations,” which is a catch-all phrase that includes mundane and uneventful matters such as postponing a Medicare payment to a hospital or delaying a grant disbursement to a state government.”

“The White House wants people to believe genuine default is likely even though tax receipts this fiscal year are expected to be more than $3 trillion and interest on the debt is projected to be only $237 billion. In other words, the Treasury will collect more than 12 times as much revenue as needed to pay interest on the debt….I want to reiterate that a default only would happen if the White House wanted it to happen.”

  • The Objective Standard has an interesting, albeit bit depressing, piece on how many of the Americans who voted for Obama visualize how government, economics, and insurance markets actually function.  I highly recommend taking a minute or two to read this!
  • On a related note, Laissez Faire Today provides a piece with particular insight into why health insurance markets are so difficult to understand and so expensive.  For example, what makes them different from life insurance markets?

“When premiums reflect expected costs, people are essentially paying their own way. When that happens, it really doesn’t matter very much who chooses to buy insurance and who chooses to self-insure and bear the risk themselves….Why are things so different in the market for health insurance? Because in this market, premiums are regulated, and that regulation is completely dominated by the idea that it’s unfair to charge real premiums. In fact, the most common belief is that everybody should pay the same premium for health insurance, even if everyone’s expected health cost is different.”

See the whole article here.

Advertisements

Obama’s American Jobs Act Spends More for Economic Recovery, Perpetuates Keynesian Myth

President Obama delivered his jobs speech this evening, which focused on job creation via tax breaks for small businesses, cuts in payroll taxes, and more infrastructure projects.  This is the usual rhetoric coming out of Washington and many will liken it simply to a last-ditch effort of the White House to improve polling numbers going into the campaign season.  But we should not focus on such drivel.  Rather what should be noted is that only one month after averting a U.S. sovereign default and seeing our credit rating downgraded for the first time in nearly a century, stimulus spending in the name of economic recovery has not left Washington, as it is at the heart of this legislation.  President Obama stated:

The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services. You should pass this jobs plan right away.

via Google Images

Wow!  I am so glad we learned our lesson about unrestrained spending and fiscal prudence.  Oh wait, President Obama also stated that every piece of this legislation is paid for.  But this depends not on dollars we currently have saved in some bunker beneath the White House or the U.S. Treasury.  The money that will pay for the American Jobs Act is that which has yet to be saved.  Recall the Budget Control Act passed last month to avert a default on U.S. credit.  It called for nearly $1 trillion in immediate cuts, but the term “immediately” in Washington-speak actually means spread out over the next ten years.  So we are to pay for this legislation, much of it with immediate costs, with spending cuts that will be enacted under a different Congress and Executive? Really?  But wait, there is also the additional $1.5 trillion in spending cuts to be determined by our beloved “Super Congress” before the end of the year.  But the likelihood that such cuts will see the balance sheet within the Obama administration, or even the next, is not likely.

Here are some more reasons why Congress should pass yet another Keynesian policy, despite the utter failure of its predecessors.

  • Pass this jobs bill, and starting tomorrow, small businesses will get a tax cut if they hire new workers or raise workers’ wages.
  • Pass this jobs bill, and all small business owners will also see their payroll taxes cut in half next year.
  • Pass this jobs bill, and thousands of teachers in every state will go back to work.
  • Pass this jobs bill, and companies will get extra tax credits if they hire America’s veterans.
  • Pass this jobs bill, and companies will get a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job.
  • Pass this jobs bill, and the typical working family will get a fifteen hundred dollar tax cut next year.

The bottom line is this.  Our government continues to spend and propose additional spending in the name of economic recovery with little results and an empty wallet to boot.  The results at this point are certain.  Any recovery proposed by Washington policy hounds or the President will fail because two things must happen for a recovery: (1) decreased government spending, and (2) increased spending in the private sector to fuel consumption.  Yet, our government is stuck in the ideological misnomer of Keynesian stimulus spending.  Consequently, they seek to accomplish private sector growth by crowding our private sector markets.  It is an economical contradiction and illuminates the lunacy of Washington politics.

The best policy that could come out of Washington at this point is no policy at all.  But that is not the take of our beloved President.  He made his ideological stance on the government’s role in the free market quite clear.  “As I’ve argued since I ran for this office, we have to look beyond the immediate crisis and start building an economy that lasts into the future – an economy that creates good, middle-class jobs that pay well and offer security.”  By “we” he does not mean the American people, but Congress and the Executive.  Despite the rhetoric of Washington politics looking to and “representing” the people, their record demonstrates actions often to the contrary.  So one must conclude from this statement that the intent is not to let the markets recover on their own, but to continue crowding out any chance at a recovery now and in the near to mid future.  The only substantive impact of increased spending now is increased taxes later, but without an economy to raise wages enough to offset such tax increases we will all see a real decline in living standards.  Welcome to the new America!

Related Posts

“Super Congress” Destroys Constitutional Government

For me and many other Americans, the most Constitutionally flagrant aspect of the Budget Control Act (BCA) rests in the creation of a “Super Congress.”  Forget the fact that the BCA fails to cut spending while it ignores the basic underlying problem of fiscal insolvency.  The creation of a “Super Congress”  to find the additional $1.5 trillion in cuts isolates most of Congress from the ability to legislate budgetary policy and to set tax rates.  This is a gross violation of the Constitution.

There is much speculation throughout the media that this commission will implement stringent tax increases to pay for future budget shortfalls, foreign wars, and growing entitlements. The Huffington Post reported nearly two weeks ago that “A Super Congress would be less accountable than the system that exists today.”  Some see the “Super Congress” as a monumental win for the elite establishment.

  “The establishment of a “Super Congress” will completely demolish the credibility and the authority of the system of elected representatives. It represents another final nail in the coffin of the American Republic and its replacement with an executive dictatorship run by the political elite.” 

The danger lies in the committee’s structure, which affords it a degree of power unseen in American government.  The 13-member committee will be composed of six members from the House and six members from the Senate to be picked by top Congressional leadership, with the 13th tie-breaking vote belonging to the President.  In addition, the committee holds the authority to fast-track legislation through both chambers of Congress, allowing legislators only an up or down vote.  The implication becomes clear when one understands that any legislation coming from the “Super Congress” is tied directly to subsequent debt-ceiling increases.  Considering recent events and the spending addiction that characterizes Washington, the possibilities of Congress failing to raise the debt ceiling in the future are not worth mentioning.  In short, members of the House and Senate will likely be forced to accept anything coming out the group without the ability to propose amendments.  Congressman Ron Paul highlights the group’s effects on Congressional legitimacy.

“Perhaps the most disturbing aspect of this deal is the “Super Congress” provision. This is nothing more than a way to disenfranchise the majority of Congress by denying them the chance for meaningful participation in the crucial areas of entitlement and tax reform. It cedes power to draft legislation to a special commission, hand-picked by the House and Senate leadership. The legislation produced by this commission will be fast-tracked, and Members will not have the opportunity to offer amendments. Approval of the recommendations of the “Super Congress” is tied to yet another debt ceiling increase. This guarantees that Members will face tremendous pressure to vote for whatever comes out of this commission– even if it includes tax increases. This provision is an excellent way to keep spending decisions out of the reach of members who are not on board with the leadership’s agenda.” 

The BCA highlights an increasingly defined pattern in American government whereby Washington grows in power from its own neglect of prudent governance.  Over recent decades, Washington has gained an unprecedented amount of control over the economy.  Now it uses the financial crisis and subsequent debt crisis – which resulted from misaligned policies originating from Washington – to grant itself unprecedented powers that not only trample Constitutional government, but isolate many of its own members.  This amounts to nothing less than a death spiral of representative government.  I urge you to inform yourself and to stay informed of these matters, for despite the meaningless rhetoric of “our children’s future” emanating from Washington, such legislation effectively strips us from any power to control our own financial destinies.

Below is a video from Fox News.  While I normally stay away from Fox (I feel they are too much part of the mainstream media establishment), this video presents the meat of the issue well.


CATO Video on Short-Comings of Debt Deal

It is critical that the American people understand the lip-service paid by the debt deal both between Democrats and Republicans and from Washington to the taxpayer.  As this video points out, the deal actually fails to cut spending.  The claim that the deal cuts spending by almost $1 trillion is not a cut at all.  In Washington-speak, a slowing of the rate at which spending grows is in itself considered a spending reduction, and that is precisely what the debt deal says.  Moreover, the cuts are not immediate, occurring over the next ten years under a completely different Congress not beholden to the policies of the present Congress.

The second major point CATO makes is that the additional $1.5 trillion in cuts to be determined by a bipartisan committee later this year acts simply to defer the “tough decisions” that have come to characterize Washington rhetoric in recent years. Washington speaks of the need to come together, to compromise.  Well it seems that Washington has succeeded in compromising itself into fiscal oblivion.

Regardless of party affiliation, please share this video to all you know.  It affects the future of all Americans, Republican or Democrat.

Raising Debt Ceiling Overlooks Costs, Undermines Future

via Google Images

Chris Mayer of The Daily Reckoning explains why raising the debt ceiling fails to fix the underlying credit problem in Washington.  His key points:

  • The precise reason why raising the debt ceiling (a common practice in Washington) was so controversial is because the only way for the government to pay its obligations (debt) is for it to take on more debt.

“[R]aising the debt ceiling is not a magic cure-all for America’s debt problems. Raising the ceiling just gives the U.S. Treasury permission to borrow more money. It does that by issuing Treasury bonds and notes — in effect, they take out loans, promising to repay the bondholder the principle plus interest.

Here’s the thing, though — right now, the only way the government can repay its existing debt obligations is to take on more debt!…It’s sort of like using credit cards to pay your mortgage.” 

  • In August alone, the government will need to raise over $650 billion to avoid a shutdown – $500 billion to pay bond holders for matured U.S. Treasuries and another $159 billion to cover the expected monthly deficit.
  • Over the next four years, the government will need to pay bond holders over $3 trillion from additional matured securities.
  • The essential worry in Washington was that failing to raise the debt ceiling would impede the government’s ability to continue “rolling over” its debt (taking out debt to pay for debt).  The implication for the debt-ceiling issue is not cutting government spending in the future, but figuring out how to pay for programs already committed to such as entitlements.
  • A default would surely have resulted in a credit downgrade for the U.S., causing interest rates on U.S. Treasuries to increase.  This worry still persists among investors, so even in the absence of a credit downgrade, major holders of U.S. debt such as China and Japan may demand higher yields on their investment, which means higher borrowing costs for the U.S.

“[A]s more investors worry about America’s financial health, they will need more incentive to buy its notes and bonds. Convincing them to take on the risk will require a higher interest rate.”

  • Higher borrowing costs for the U.S. government will ripple out into the economy, making borrowing costs for everyone increase, impeding lending, job creation, and any chance at a recovery.

“Higher Treasury rates will create a ripple effect, forcing other interest rates up, too. Suddenly, the cost of borrowing money goes higher for everyone, which will encourage more saving than spending.”

The full article can be found here.

%d bloggers like this: