The Brothers Austrian

On April 9, President Barack Obama requested an extra $83.4 billion for the wars in Iraq and Afghanistan.  The president does not use the term ‘war on terror’, but that is just another semantic ruse that he has perfected.  This misallocation of additional funds, while not surprising, marks another sad day for peace and liberty.

Along these lines, I am amazed still to hear people discuss war spending as some sort of economic perquisite.  As most Austrians know, Frederic Bastiat’s broken window parable in That Which Is Seen and That Which Is Unseen (popularized by Henry Hazlitt) demonstrates this fallacy.  War spending represents money that cannot be allocated to other resources (food, shelter, technology, whatever).  While certain sectors of the economy benefit (my friend at Lockheed Martin perhaps), those immediate benefits are scored at the expense of the rest of the economic agents down the line.

Teacherman Government Spending afghanistan, bastiat, Hazlitt, iraq, obama, president, war

The Obama administration took steps over the weekend to reassure the Chinese government that its investment in US treasuries was sound.  The Chinese primier Wen Jiabao had shared his trepidation over the potential decline in the US dollar.  A former Chinese central bank advisor complained the administration’s reckless policies are eroding China’s investment in US treasuries.

We really have to stop and note the irony here.  We have a communist country chiding what is supposedly the world’s great bastion of capitalism on government spending.  Even more indicative of the situation is the clear power the Chinese government over this country, as the administration rushed to reassure the Chinese that all is well.  I doubt that China will dump its US treasuries en masse, but I think that this does signal that the credit gravy train for the US government may be coming to an end, let’s hope so anyway.  Admittedly, all signs up until now have pointed to the contrary as China has continued to gobble up treasuries in recent months.  There perhaps is some false hope that China’s reluctance to purchase US debt will keep government spending in check.  Ok, fine, keyword false.

Teacherman Government Spending, Inflation, Politics capitalism, china, communist, obama, treasuries

Jobs, Jobs, jobs politicians say. We must put the people back to work, however this is only temporary they say. Merely to fill the “gap” left by the private sector, but I would put this question to President Obama, whats your exit strategy? What jobs will the government provide that can be seamlessly absorbed by the public sector when the crisis is over?

Does the government have the foresight to train employees in area’s of business that the private sector will deem to be viable and productive in the future? Once the government builds their bridges and railroads where do the employees go from there? If the government can figure this all out maybe they can give me some stock tips while they are at it. I mean we all know how the government is a viable, efficient, and profitable entity that can balance a budget, so we will be ok, right?

Again, I don’t think that the government has an exit strategy for this mess. Once they start putting people to work it will be awfully hard (politically) to lay them off and let the private sector try to absorb them. These former government employees will not be trained in the skills they need to be useful in the private sector and they will continue to demand unsustainable wages. The government will succumb because ultimately these employees vote. This in turn will in turn increase the velocity of our country’s downward productivity spiral.

If the government wants to stimulate, I say pour money into mathmatics, science and law enforcment. Perhaps upgrade our rail system but thats it. Let prices come down, let banks fail, and watch productivity go up.

MisesBeliever Government Spending, Interventionism, Politics employment, government, jobs, obama, private sector, stimulus

In case you missed this classic story in the news yesterday, Secretary of Education is encouraging local school districts to spends the stiumlus money fast (emphasis added).

The Department of Education’s ‘five-page guidance’ manual actually says, “Spend funds quickly to save and create jobs…”

I was thinking of some more appropriate endings to that statement, here’s my top 5:

1) Spend funds quickly to ensure there is nothing left when the dollar becomes worthless.

2) Spend funds quickly before Congress realizes cuts in education spending actually may improve school efficiency.

3) Spend funds quickly to let China know that we are putting its money to good use.

4) Spend funds quickly so we can hurry up and get some more!  This is way better than actual budget balancing!

5) Spend funds quickly before people realize that more money doesn’t actually mean better schools.

Teacherman Government Spending, Interventionism, Politics arne duncan, budget, china, education, stimulus

Farm subsidies are one of the grossest misallocations of resources perpetrated by the US government.  For all of the things the Obama budget gets totally wrong, this one he got right (sort of).  Obama’s recently submitted budget will eliminate farm subsidies to those farmers making over $500,000 per year (hence the sort of, not a total victory for free trade).  This is a huge step and one that no president dare take until now.  Already this action has stepped on the toes of Congress, as representatives have already come out to reassure their lobbyists constituents that the farm subsidies in place for this year will remain.

Most estimates place the value of subsidies at 22 percent of all US farm production.  That’s a staggering figure.  Over one-fifth of all value created by US farms is pure government subsidy.  Many believe that this money is going to poor and struggling yeoman farmers.  Not so.  First, farmers as a class are not poor.  The government itself puts the average farm income nearly 30 percent higher than the average American household.  Moreover, the average farmer has a net income nearly 8 times the average American (nearly $1 million).

According to the Organization for Economic Co-operation and Development, farm subsidies end up being a food tax on the average American household of $146 per year.  That’s a hefty tax whose buden falls heaviest on the working poor.  The worst offender is probably sugar.  Sugar subsidies, at times, have caused Americans to pay double the world market price.  Currently the average world spot price is around $.14/pound.  US subsidies guarantee American sugar producers a minimum of $.23/pound.

Will there be a hang over for the farmers coming off subsidies?  You bet.  When any good is subsidized that heavily, it incentivizes the overproduction of said good.  When these subsidies end, the will no longer be any floor holding the price up and will demonstrate just how poorly those resources were allocated.  Farmers need to immediate see the change coming and reallocate resources toward profitable ventures.  This may mean a variety of innovative changes or simply diversifying land use and cutting costs.

At the end of the day, though, this is a huge victory for liberty.  I understand that a good chunk of subsidies will still exist, but in this one small arena, we’ve achieved a victory for liberty in this country.

Teacherman Free trade, Government Spending, Interventionism budget, cotton, farm subsidies, misallocation, obama, resources, sugar

“Often the masses are plundered and do not know it.”

Ah, yes, nary a week should go by without hearing from our good friend Frederic Bastiat.  The French economist, who died too early and too soon after his emergence as a economist.  Bastiat died at the age of 49, only six years after truly finding economics, as a theoretical study, at the age of 44 (thanks Wikipedia!). In that time Bastiat published some real economic gems.  This from his Selected Essays on Political Economy:

“But what relief can the landless find in the proclamation of the right to employment? In what respect will this new right increase the amount of food or the number of jobs available to the masses? Is not all capital employed in giving them work? Will it increase by passing through the public treasury? By taking it away through taxation, does not the state close at least as many sources of employment on one side as it opens on another?”

Fast forward to today and we face a similar, but different problem for the masses.  In all of their zeal to get reelected save the economy, the government spending trillions of dollars.  Some of these ‘stimulus projects’ will help select portions of the masses, but in the end, the only real stimulus will be in the green ink industry.  What will the masses be left with?  At the very best significant inflation, at the very worst hyperinflation.  Inflation always falls upon the masses the hardest.  And thus, the masses are being plundered without even knowing about it.

Teacherman Government Spending, Inflation, Politics economist, employment, frederic bastiat, hyperinflation, Inflation, masses, political economy