The Brothers Austrian

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

Dear Mr. Obama

I truly believe that in terms of intelligence you are the smartest president we have had in very long time. HOWEVER, that does not mean your policies will work. Your policies are merely a continuation of what the establishment has taught you, after all, history is written by the victors and in this case the victors were Kenysians.

Have you read Henry Hazlitt’s Economics in One Lesson? If you haven’t I will summarize chapter 5 for you and the rest of your associates. Chapter Five: Taxes Discourage Production. Where taxation hampers growth and discourages investment. It is an astounding, 2.5 pages.

You seem to think that your stimulus package will “create investment and jobs” however Hazlitt would contend it does the exact opposite.

First and foremost, Hazlitt points out that many fail to think of taxes, when they are levied, as taxing (A) to pay (B), but that is in fact exactly what you are doing. In fact, you’re taxing those in the upper middle class (the entrepreneur) that provide the “jobs”. Now in this case you are taxing A (the entrepreneur making, let’s say, $300k) to pay B (Citigroup, AIG, Bear Stearns, and, soon to included, will be executives of our nation’s insurance companies). In this case, (B) took excessive risks and made excessive money by making loans with money they didn’t have (which is the nature of factional reserve banking) and paid themselves salaries that were up to 500 times what the masses (A) make.

Now when I read Chapter Five, I thought, well maybe (B) needs a helpful hand in certain situations. I mean, I am grateful for the Subsidized Stafford Loan that allowed me to attend Syracuse University. But my assumption assumes that you taxing (A) the rich to pay be (B) the kid trying pursue the American Dream. In my case that would be a young old from the middle nowhere trying to make my own version of the American dream. Mr. Obama’s version goes something like this: Tax(A) which is the so called rich (small business owner), to pay  bailout (B) the mega rich. Am I missing something here?

Next, Hazlitt comes with assumption that capital investment is needed for entrepreneurial growth. When someone invests they take a 100% downside risk with their cash receive a (assume 28% capital gains tax) 72% possible upside return. Hazlitt states:

If they (the investor) lose, they lose a whole dollar, and if they win, they win only a fraction of a whole dollar, they decide that is foolish to take risks with their capital. In additional capital available for risk taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the other part that does come into existence is discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

From my perspective I am seeing smart money move into muni’s/corporate debt market and out of equities. Isn’t equity investment where the jobs come from? Should I not worry? Will you Mr. Obama provide the jobs so we then will be able to resume being a productive country? What about my American Dream? I am not sure being a government employee was part of that Dream? We all know that government is very efficient and productive so I hope you get this stimulus rolling. Now I understand why you  are not worried about the re emergence of a bull market in US equities, it’s because you plan on making a full blown bull market in Government employment.

God Bless Change, God Bless America, God Bless Mr. Obama.

Signed From the Grave

H.L Mecken

MisesBeliever Interventionism, Taxes entrepreneur, Hazlitt, Mecken, muni market, obama, Taxes

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

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. “Thomas Jefferson: 3rd president of US (1743 – 1826)

MisesBeliever History, Interventionism, Uncategorized banking, danger, Thomas Jefferson

Rick Santelli’s recent tirade on CNBC has blown up the blogosphere.

Rick understands that we have to bite the bullet here. Price fixing does not work and it has been proven over and over again throughout history. Unfortunately our Harvard/Yale educated leaders are not listening. They merely following the Keynsian plan of attack that they were taught to use as mean to smooth out recessions, a school of thought that has been ingrained into their heads via their high priced ivy league educations.

I believe Rick a is very disturbed by the way he came off in this legendary interview. Rick does not believe that the people in houses, that they can’t afford, are actually “losers”. Rick’s impassioned comments are rooted in his love of love laissez faire economics, and his rejection socialism. Rick is guy on CNBC that is constantly under attack on CNBC because economic view point seems to hail more from the Austrian School than the Keynsian School, which dominates the media and our government.

Good luck at the White House Rick.

MisesBeliever Interventionism obama, Rick Santelli

A recent Time article quoted an Iranian as saying the difference between the Republicans and the Democrats is like the difference between Pepsi and Coke. When it comes to economic policy I could not agree more.

CHANGE is here right? Wrong! Since 1896 the Keynesian viewpoints began to overwhelm capitalism.

(I know some of you are chomping at the bits to say that such an assumption cannot possibly be true being that Keynes would have been 13 in 1896. What I am referring to is the emergence of interventionist policy that started to take hold in during the banking crisis in the late 19th century.  To me Keynes merely gets credit for the wave interventionist monetary policy which came to a perverse apex during the great depression).

FDR, Obama and Kennedy all attended Harvard. H.W Bush, Clinton, G.W Bush all attended Yale. The same schools produce the MBA students that litter the ranks of Goldman Sachs. Under Bush the there was Paulson (Goldman Sachs). Under Obama there was/is Rubin (Citi), and Larry Summers who head Obama’s economic council. Current Treasury Secretary Geithner (Dartmouth) worked under Rubin and Summers from 1999 to 2000. Change?

Whats my point? All of these people come from the Keynesian school of thought. We can spend you way out of this thing.  We can do it if we try, we can do it. Hey, it worked in Great Depression…right? It worked for the Japanese, right?

Former Treasury Secretary O’Neill made the following comments to the LA Times.

“Doesn’t this seem like lunacy to you?” said O’Neill, who was President Bush’s first Treasury chief, from 2001 to 2002, in a telephone interview today. “The consequences of it are unbelievably bad in terms of public intrusion into the private sector.”

… “Is anybody thinking there?” asked O’Neill, who also served as deputy budget director in the Ford administration. “It’s too late, it’s not going to make any difference and it’s aggravating as hell when there’s a better idea and you can’t even get it in play,” he said, recognizing little success so far in pitching his own proposal.

I suppose it come down to what was repeatedly preached by Mises. Governments pick the winners and the losers. In the modern era the history books were written by FDR’s Keynsians that graduated from Ivy league schools. They are the ones picking the winners. They are a best and our brightest, right? My gripe is that they all tend to come from the same school of the thought. They leave no room for the entrepreneur to pave his own way.

Obama Pepsi, Bush Coke…when can we have a little Sprite?

MisesBeliever Interventionism, Politics Change, dartmouth, Economics, government, harvard, Keynes, keynesian, mises, obama, yale

I have a message for President Obama: If you want to save the economy, make the entrepreneur eager to invest.  If you want to create your two million three million (wait wait, we have hope, let’s make it…) four million jobs, stop wasting money investing in ‘public works’ and start reassuring the entrepreneur.

The problem is that everything this country has done in response to this economic crisis should scare the entrepreneur, not encourage him to assume risk.  It does not take an Austrian to realize the power and potential of the entrepreneur in the American economy.  First of all, what can the entrepreneur do?  According to Israel Kirzner the entrepreneur plays a critical role in the economy thanks to his or her ability to be alert to new and shifting opportunities.  After all, it is the entrepreneur who will create (and alter) what goods are produced as well as where and how they are produced.  Entrepreneurs, through their keen alertness to profit and trepidation of losses, will adjust production activities to best respond to market demands.  In other words, if you let the entrepreneurs among us go freely, we will sort out the bad assets from the good naturally.

There in lies the problem.  What entrepreneur can act freely at this juncture?  The stimulus bill hinders economic activity in many ways, not the least of which is its massive borrowing.  This capital could have been used by entrepreneurs for economic endeavors not based on the ruling class’s whims, but based on those insane ideas of profit and loss.  Let’s not forget the rhetoric of Washington these days: blame capitalism, blame greed, and regulate, regulate, regulate … and soon … nationalize!  With that coming from the statists in Washington, what entrepreneur is feeling confident in assuming risk in this country?  Let’s not blame Obama entirely, the Bush crew, also deserves some blame.  It was Paulson and Co. that bullied the largest banks in the country to take Federal money.  In the case of Bank of America, taking that money also meant taking all of Merrill Lynch’s assets at a price that the market had entirely rejected.  This is not an environment fostering entrepreneurship, it is one downright hostile to it!

There are a ton of ways in which the government foster entrepreneurship, I don’t think I could recommend them all here.  But I do have one idea.  One idea that is entirely not remotely a possibility, but one that would provide instant ‘stimulus’ is an immediate 25% cut of the minimum wage.  True, an abolishment would be better, but that wouldn’t have the same air of practicality now would it, let’s be reasonable.  There is obviously a surplus of labor in the country right now and given that surplus there is obviously a large number of unemployed Americans who would be willing to work for less, but are currently being priced out of the market.

Teacherman Entrepreneurship, Interventionism, Politics banks, bush, entrepreneurs, Entrepreneurship, miniumum wage, obama, stimulus