Government’s Magic Wand

If there is an economically viable, profitable alternative to oil, why hasn’t the evil, all-they-care-about-is-profit private sector discovered it and exploited it for gain?

If there isn’t any economic, viable alternative, what makes some people think the government has a magic wand that will create it if we just tax the rich a little bit more?

Our reliance on oil is not unlike our reliance on, say, oxygen.  It is a fact of life.  If we don’t create an alternative before we run out of oil (in say, 300 years) we’ll have to do without – same goes for coal and copper and iron ore.  To propose or pass laws that “demand” we end our addiction to oil before an alternative is developed is suicidal – or homicidal – since oil delivers many of the modern world’s life sustaining products and services.  Cutting back so the supply lasts another 5 or 50 years isn’t rational or useful – and it’s tyrannical if it’s forced upon us by government fiat.

It boils down to this question:  How many Chinese or Sudanese children have to starve while we wait for Al Gore to create a viable alternative to oil and coal?  How many vacations or meals should your children skip so that a child 15 generations from now can live 1 year longer?  (NOTE, the people who might say the trade is worth it are very likely to be the ones who say we should rob, er, borrow, that future generation’s money and spend it on Social Security or Medicare or Planned Parenthood.  That puzzles me.  If we’re so concerned about the welfare of future generations, why are we spending all their money today?)

Obsolescence – The first fruit of Innovation and Progress

Professor Boudreaux of Cafe Hayek (link here) criticizes a recent column by David Brooks in which Mr. Brooks laments that “manufacturing employment is cratering even as output rises.”  The professor suggests that, unless Mr. Brooks forgoes the benefits of word-processing and other modern technological devices to produce his product, he’s contributing to the harmful outcome he so sincerely wishes would cease.

Of Mr. Brooks, I ask:

Which of your dearest relatives or colleagues would you propose we trap for life in one of those lower middle class manufacturing jobs?  And, who’s money are you going to TAKE to pay that relative to do something for which there is no market and no demand?  OH, and which up-and-coming young niece or nephew will you support while she/he waits another couple of years for the job that the foregone progress would have made necessary and productive?  Which grandson are you going to suggest skip college altogether because he’s going to be over-trained for a manufacturing job?

Progress and innovation produce obsolescence, true? Labor either keeps up or atrophies. That’s called LIFE. Get on board – you’ll enjoy it, . . . or die.  Either way, the world isn’t going to bend to your demand that it stop; unless you have enough guns, that is.  Ask a Cuban or an exile from the USSR. They’ll tell you what no progress feels like.

I want as much obsolescence as we can produce – every day!

What a great company motto that will be – WE PRODUCE OBSOLESCENCE!

Mortgage Crisis – Who Dunnit?

In his column today (link here) George F. Will references the book of Gretchen Morgenson and Joshua Rosner (Reckless Endangerment) and summarizes the 2008 mortgage melt-down as a largely political phenomenon.  He makes the point (I paraphrase) that Fannie Mae’s business model was designed by politicians in a way that would inevitably lead to a bubble, with profits on the way up being distributed to well-connected businesses and, upon bursting of said bubble, losses socialized among unsuspecting tax-payers.

Having yet to read the book, based solely on Will’s review, I gather that Reckless Endangerment will be among the first such treatments to actually address the topic analytically.  In my view, neither of the two recent big-sellers on the topic, Too Big to Fail by Andrew Sorkin and On the Brink by Hank Paulson, come close.  They focus on the “crisis” and the inside government view of how the government was forced to intervene with emergency actions to fix the problems that prior government intervention had caused.  That approach leads to a circular analysis that answers none of the real questions, because it fails to recognize the role of government in the lead-up to the crisis.

Some months ago, I prepared this paper (Who Can We Blame? – 4 page PDF – give it a few seconds) for The Washington Business Journal which published an abbreviated version of the piece.  In it I make the case that all of us – voters, developers, politicians, investment bankers . . . all of us did it to ourselves.  Only one form of medicine will cure the problem – a dose of pain and loss, from which we learn the lesson that dividing risk assessment (credit rating agencies) from risk taking (investment principals and their advisers) ALWAYS leads to too much risk and the resulting pain of falling.  Adding a government subsidy (Fannie/Freddie) and a political agenda to the mix elevates the problem to a systemic level, and ‘socializes’ the pain, producing the false impression that the government needs to ‘fix’ the problem, when in fact the government IS the problem.

Reset Button – Break the Glass

We can only keep the promise by breaking it.

A good friend had a moment of brilliance a couple days ago. Terminate Medicare and Social Security.  No cuts.  No new formulae.  No delayed increases.  End them, PERIOD.

For a moment, forget the political feasibility. Think about it.

The country has incurred debts it can’t repay.  Our balance sheet, as it were, can’t be fixed short of a tectonic shift in our thinking. The estimated net worth of all of the households and businesses in America is estimated at between $60 and $75 trillion. Our total unfunded liabilities (i.e. the future cost of all promises made by the US Government under Medicare, Medicaid and Social Security) is approximated at $114 trillion.  TILT!

Now, go back now to political feasibility: what’s the likelihood that the men and women of this country will stand by and let our government TAKE all of our wealth and give it to itself to pay for those promises? Not bloody likely, eh?! But that’s what we’re letting them do, all day and every day.

Social Security and Meidcare are inaccurately described as an insurance program – funds we pay into in exchange for a promise of future payments to support us in retirement. They are more accurately described as a Ponzi Schemes. You pay retirees’ benefits now, future workers will pay for yours later. Only the math doesn’t work.

So, eliminate the programs and, drum roll . . . the resultant creation of wealth will fulfill the promises. The stock market will soar. Commodities’ prices will decline. The US Dollar will rise in value against all other currencies.  The wealth produced will dwarf the liability of the ‘broken promises’ because we will have freed ourselves to keep those promises.

See, we owe all that money to ourselves, right? Asked that way, the question sounds a little different. We made those promises to ourselves. This approach suggests that we let ourselves pay ourselves back instead of relying on the anti-productive government machine to do so. We’re the unsecured creditors in the US Government bankruptcy. But we’re also the shareholders (to stretch the metaphor) – we own the place (the country, not the government) AND we are the assets that have been pledged to fulfill the promises. Let’s foreclose and take the assets back.  Let’s let ourselves off the government hook so we can go back to producing wealth.

It will cause some dislocation and serious discontent, of course. But those are manageable and safety-nets raised by newly-freed men and women of America will care for the elderly and the sick who are temporarily displaced – we always have. On the other hand, the inevitable catastrophe we face  as a result of politicians’ constant tinkering with the cancer, repeatedly moving the tumor from one part of the corpus to the other, is not manageable. It’s deadly.

Let’s keep the promise. There is no choice.