The Brothers Austrian

With talk of a second stimulus package already in the works, many are wondering who is going to pay for all of this?  Well, as William Graham Sumner famously said, it will be the “Forgotten Man.”  Well, certainly we will all have to pay for stimbailtarpitis, in some way or another, but it is the Forgotten Man who will pay the most.  This will likely come in the form of inflation.

As any good Austrian knows, inflation will hit the Forgotten Man (especially the poor Forgotten Man), first and hardest.  Many will counter and say, what about all of those people who got jobs from the stimulus package?  Well, yes, but they are not the forgotten ones.  If one were to take a cynical view they are merely the ones closest to those wielding influence over policymakers.  Nevertheless, they will benefit from the stimulus, but only at the cost of the rest of society.  As Henry Hazlitt eloquently explains, those who receive additional money (from the stimulus) will be willing to pay more for goods and services.  Anyone who understands basic supply and demand will agree with this.  Stimulus receivers now have more of something (dollars) and therefore each will inherently mean less to them.  This will lead to price inflation.

The Forgotten Man, however, is now stuck in an even worse situation.  Now, not only does he feel worthless for not getting stimulated, he also has a lower standard of living than before.  Why?  He did not receive an immediate impact from the stimulus, but higher prices stared him in the face shortly after the dole was passed out to his neighbor.  His standard of living will go down.

I will leave with a parting shot from Mr. Sumner.  Keep in mind how relevant this is and remember, he is writing in 1883, not 1983.

In all jobbery the case is the same. There is a victim somewhere who is paying for it all. The doors of waste and extravagance stand open, and there seems to be a general agreement to squander and spend. It all belongs to somebody. There is somebody who had to contribute it, and who will have to find more. Nothing is ever said about him. Attention is all absorbed by the clamorous interests, the importunate petitioners, the plausible schemers, the pitiless bores. Now, who is the victim? He is the Forgotten Man. If we go to find him, we shall find him hard at work tilling the soil to get out of it the fund for all the jobbery, the object of all the plunder, the cost of all the economic quackery, and the pay of all the politicians and statesmen who have sacrificed his interests to his enemies. We shall find him an honest, sober, industrious citizen, unknown outside his little circle, paying his debts and his taxes, supporting the church and the school, reading his party newspaper, and cheering for his pet politician.

Teacherman Inflation, Interventionism austrian, forgotten man, Hazlitt, stimbailtarpitis, stimulus, william graham sumner

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.

Wendall Wilkie 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

Say you want to buy a house, town home, or condo right now, should you?  For all the ‘benefits’ of purchasing real estate right now, buyers are walking into a virtual unknown.

The problem is that our federal government, in trying to ’save’, the housing industry, has actually perpetuated its decline: the new stimulus package is offering an $8,000 tax credit for home purchases this year; the Federal Reserve is artificially keeping interest rates low; Obama’s housing plan wants to help homeowners drowning in bad mortgages.  You get the point.

The problem is that for someone relatively young without any real ‘roots’ purchasing a home right now is incredibly risky.  I may decide to get up and move in the next three to five years.  So each of these so called government ’saving graces’ is injecting a big dose of the unknown into my plans.  Let’s say government sells me on buying a new home.  Then, a year after I purchase, the government removes the floor and my property value instantly drops to the corrective market price.  All the government has done is punish me, the good American, who is doing his best to save the economy.

Get out there and spend, right?

Better idea: Government, give us a chance to buy, let the market correct, flush out the misallocated resources, and move on.

Teacherman Real Estate condo, Federal Reserve, misallocated resources, mortgages, property, Real Estate, stimulus, tax credit

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