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Sunday, July 31, 2011

America and Europe - no real difference.

Bankruptcy has different patterns but the same result.

by StFerdIII

Government, regulations, unending bureaucratic corridors of unionized pensioned elitist workers, profound concern from politicians, the children's future – there really is no end to the madness. It stretches ad-infinitum joined at the hip with ClimateChangebaloney, and the cabal of Internationalists at the UNO. It will all end up in bankruptcy. Bankruptcy manifests itself through a fiscal-economic collapse [the coming demise of the Zeuro]; inflation [the US' future]; or declared insolvency and repudiation [18th century France]. At least the Americans are having a screaming match about some aspects of their parlous fiscal and monetary situation. No other states are engaging in any debate about the reform of Statism and the Welfare-Capitalist model to use the term by Prof. Robert Gilpin.

Government's already 'stimulate' the economy through the erection of massive socialism and wealth redistribution. Half the population in any state pays no income tax but feeds itself on various public welfare programs. The so-named rich pay about 2/3 of all taxes and create jobs as well. If you stole all of their property the state would barely make a dent in their real debt levels. Bill Gates' entire fortune would run the US government for 3 whole days. Wow.

Stimulus on top of the welfare state has a negative long-term multiplier. It increases deficits which can only be solutioned through higher future taxes or inflation from the printing of money. Both distort and degrade your economy. William Watson in the NP notes;

That's where a second study comes in, this one by Thorsten Drautsburg and Harald Uhlig of the University of Chicago. They simulated the U.S. recovery package using a model that, despite their academic affiliation, wasn't overly hostile to a Keynesian view of the world. They also looked at the effects of government transfers, which don't involve the government actually buying things but may take money from people with a lower propensity to spend and give it to cash constrained people with a higher propensity to spend. But, finally, they also considered the implications of raising taxes to pay the interest on larger government debts. Their conclusion? There might well be positive but modest multiplier effects in the short term, perhaps a little over 50¢ per dollar of stimulus, but there were negative multiplier effects in the long term as the distortionary effects of taxation reduce future growth rates.

This is just economic common sense. The more government the more distortions. The US housing finance market is a case in point. Over 60 years it was corrupted by politicians and bureaucrats to the point where a functioning market based on real prices, real equity, proper regulations and appropriate supply and demand interaction simply ceased to exist. Governments created this current recession [or past depending on your viewpoint] and they have made it worse. A few years ago the WSJ said the obvious:

It's clear that U.S. history does not support the theory that Big Government means shorter and milder recessions. In reality, recessions always ended without government prodding, long before anyone heard of Keynes and long before the Fed existed. What's more, recessions ended more quickly before the New Deal's push for Big Government than they have in the past three decades. The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers.” 

Governments only have one goal and that is to expand the state to fill all the most important requirements of the political-economy. It is absurd that anyone views 'Government' as a moral-Keynesian actor which is noble and static. They are more like the Friedman depiction of flourishing, dynamic, and often times immoral enterprises quite interested and focused on money, power and regulation. The power of the state-Leviathan is premised on three facts:

1. Control the money supply and interest rates or monetary policy through a supposedly independent central bank [the US Fed Reserve long ago lost its political virginity and independence].

2. Issue endless propaganda and 'science' supporting economic demand or consumer side management as evinced by the works of Keynes and Samuelson, even though any serious study of economic reality renders both Keynes and Samuelson completely and utterly irrelevant and dangerous.

3. Always spend more money, and always call for more regulation. Any 'crisis' even if caused by government, such as the current US housing finance criminality, is blamed on external actors or the convenient 'market'.

Governments are lurid in their depictions of disasters. It is always 'act now'. Save Mother Earth by acting now and demolishing the modern world. Save the US from debt default by acting now and raising the debt limit to spend yet more money. Save the children's and old people's future by acting now and increasing welfare transfers thither and yon. Moral duty. Compassion. Human rights. The same tired refrains since the days of Bismarck who cynically created the welfare state to shut the middle class up, so the Junkers could rule in peace.