Could This Be the End of Democracy As We Know It?

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship."

I believe this quote is attributed to Thomas Jefferson, although I could be wrong about that. Regardless of who said it, the point remains frighteningly true. I'm not about to say this current series of spendulus packages and government spending increases will be the cause of the downfall of the US government as we know it. But we should all be on high alert for further signs of a move towards socialism and/or widespread government dependence.

The late Dr. Adrian Rogers is credited with the following quote:

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that, my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."

It's important to be aware of the steps the government is taking and prepare yourself for the worst. I certainly don't want to be working for the benefit of someone else. If that's the situation we find ourselves in, we better have a plan of action to absolve ourselves of the problem. Any suggestions about what could be done?

Questioning Politics.

If There Must Be a Tax Increase...

The other day, one of my favorite blogs, Independent Political Report, posted a letter from Ralph Nader regarding a financial transactions tax.

I have not paid attention to Nader or his views recently, but I appreciated some of the ideas put forth in this letter. For instance,

Let’s start with a fairness point. Why should you pay a 5 to 6 percent sales tax for buying the necessities of life, when tomorrow, some speculator on Wall Street can buy $100 million worth of Exxon derivatives and not pay one penny in sales tax?

The basis of my position on tax entails trying to find the most fair and equitable tax treatment for all people. I hate paying taxes, but I understand it is a necessary in order to provide for a safe and effective country. It doesn't seem fair to me that speculators are purchasing assets (stocks, bonds, etc.) without paying a sales tax, simply because of the type of asset it is. Nader goes on to say,

He adds that after the 1987 stock market crash, securities-trading taxes “or similar measures” were endorsed by then Senate Minority Leader Bob Dole and even the first President Bush. Professor Pollin estimates that a one-half of one percent tax would raise about $350 billion a year. That seems conservative. The Wall Street Journal once mentioned about $500 trillion in derivatives trades alone in 2008—the most speculative of transactions. A one tenth of one percent tax would raise $500 billion dollars a year, assuming that level of trading.
Economist Dean Baker says a “modest financial transactions tax would be enough to “finance a 10% across-the-board reduction in the income tax on labor.

I would love to see a decrease in my income tax bill. I don't believe a 0.1% tax added to my purchases of stocks would hurt me, nor would it affect most people.

There are conditions, however, to my support for a tax of this nature. I would only favor this tax if there is a reduction in income tax. This condition would be next to impossible to be included, with the economy in being in its current state.

Condition #2 is that there be a waiver of financial transaction taxes in 401(k) and other retirement accounts. Taxing retirement accounts would be counterproductive.

I don't anticipate ever seeing a proposal such as this being discussed seriously in Congress or the Senate. The big financial institutions who would end up paying a large chunk of the increased revenue just wouldn't allow it to happen. It's all just wishful thinking.

All About the Stimulus

I read a very interesting article on CNNMoney.com about the need for the economic stimulus and why other proposals, such as giving the money directly to taxpayers might not be the best idea.

A lot of the article made sense to me, and I don't feel quite as uptight about what is going on in Washington.

On the other hand, a lot of it sounded like it could be propaganda. If given enough time, you could write a persuasive article for just about anything.

For me, the real question is why would anyone actually interested in the long-term welfare of this country wish to add another $1,000,000,000,000 to our deficit to knock a few months off a recession that will correct itself within a couple years at most?

In the end, it boils down to my lack of trust in the government agenda. I feel that although something might need to be done, this "stimulus plan" is not based in an effort to revive the economy. If left alone, the economy will rebound on its own like it always has and always will. It might take two or three years of pain, but this pain is essential to creating a healthy economy in the future.

The "spendulus" might knock a couple months off the length of this recession. But is that really worth adding $1,000,000,000,000 to the national deficit? Worse yet, is it worth the guaranteed inflation that will haunt us on the other side of the recession?

Wasting Money

We learned in a Congressional Oversight Panel report, released Friday, that the initial $250 Billion in disbursements from the bailout was a smashing success for the banks. The report states that the initial disbursements amounted to overpayments to these companies in the amount of $78 billion. That's all equity (probably non-taxable) on the banks' books. They must be thrilled!!!

Financially ailing insurance giant American International Group, which the Treasury Department deemed to be too big to be allowed to fail, received $40 billion from the Treasury for assets valued at $14.8 billion, the oversight panel found.

This makes me want to establish my own bank and immediately begin requesting funds from the government. Do you think they'd fall for that one?

One of the following happened:

1) The government overpaid on purpose as a way of propping up the balance sheets of the banks. In other words, this was a massive government handout that the treasury knew would never be paid back, despite their insistence to the contrary;

or

2) The government didn't know that they were paying too much. I don't know if this is the scarier scenario or not. I do think this is the most likely case, as evidenced by this quote:

In December, in response to questions from the oversight panel, the department wrote that the value of preferred stock purchased by the government was "at or near par," meaning Treasury paid $1 for every $1 dollar of asset.
"The way the Treasury secretary described it does not fit with the numbers that were produced in our much more extensive valuation analysis," panel chairwoman Elizabeth Warren told reporters Friday. "The secretary of the Treasury described it in December that these were par transaction and that is not supported by the numbers."

The fact of the matter is, whether you agree with the stimulus or not, how can you trust the government to handle financial transactions of this magnitude based on their track record? Leaving aside the persistent threat of corruption, most politicians just don't have the education or experience to deal with financial matters of this sort.

Meanwhile, the Government continues to act just like a little kid, always pushing their limits to see how much they can get away with before we, the people, get angry enough to do something. Unfortunately, we apparently haven't gotten angry enough in a long long time.

This is just another reason why I am 100% opposed to any new stimulus plan being proposed.

Economic Stimulus Q&A

This year, taxpayers will receive an Economic Stimulus Payment. This is a
very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV
set, thus stimulating the economy.

Q. But isn't that stimulating the economy of China?
A. Shut up.

How will the stimulus package help?

The article What Are They Buying? by Thomas Sowell can be found on National Review.

Everyone is talking about how much money the government is spending, but very little attention is being paid to where they are spending it or what they are buying with it.
The government is putting money into banks, even when the banks don’t want it, in hopes that the banks will put it into circulation. But the latest statistics show that banks are lending even less money now than they were before the government dumped all that cash on them.
Even if it had worked, putting cash into banks, in hopes that they would put it into circulation, seems a rather roundabout way of doing things, especially when the staggering sums of money involved are being justified as an “emergency” measure.
Spending money for infrastructure is another time-consuming way of dealing with what is called an immediate crisis. Infrastructure takes forever to plan, debate, and go through all sorts of hearings and adjudications, before getting approval to build from all the regulatory agencies involved.
Out of $355 billion newly appropriated, the Congressional Budget Office estimates that only $26 billion will be spent this fiscal year and only $110 billion by the end of 2010.
Using long drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.
If you cut taxes tomorrow, people would have more money in their next paycheck, and it would probably be spent by the time they got that paycheck, through increased credit-card purchases beforehand.
If all this sound and fury in Washington was about getting an economic crisis behind us, tax cuts could do that a lot faster.
None of this is rocket science. And Washington politicians are not all crazy, even if it sometimes looks that way. Often, what they say makes no sense because what they claim to be doing is not what they are actually doing.
No matter how many times President Barack Obama tells us that these “extraordinary times” call for “swift action,” the kind of economic policies he is promoting take effect very slowly, no matter how quickly the legislation is rushed through Congress. It is the old Army game of hurry up and wait.
If the Beltway politicians aren’t really trying to solve this crisis as quickly as they could, what are they trying to do?
One important clue may be a recent statement by President Obama’s chief of staff, Rahm Emanuel, that “A crisis is a terrible thing to waste.”
This is the kind of cynical revelation that sometimes slips out, despite all the political pieties and spin. Crises have long been seen as great opportunities to expand the federal government’s power while the people are too scared to object and before any opposition can get organized.
That is why there is such haste to do things that will take effect slowly.
What are the Beltway politicians buying with all the hundreds of billions of dollars they are spending? They are buying what politicians are most interested in—power.
In the name of protecting the taxpayers’ investment, they are buying the power to tell General Motors how to make cars, banks how to bank, and, before it is all over with, all sorts of other people how to do the work they specialize in, and for which members of Congress have no competence, much less expertise.
This administration and Congress are now in a position to do what Franklin D. Roosevelt did during the Great Depression of the 1930s—use a crisis of the times to create new institutions that will last for generations.
To this day, we are still subsidizing millionaires in agriculture because farmers were having a tough time in the 1930s. We have the Federal National Mortgage Association (“Fannie Mae”) taking reckless chances in the housing market that have blown up in our faces today, because FDR decided to create a new federal housing agency in 1938.
Who knows what bright ideas this administration will turn into permanent institutions for our children and grandchildren to try to cope with?

I think the point that really needs to get across is that the politicians don't have an interest in solving the problem facing the country. They all know the economy would correct itself if left alone for a year or two. This feels more like a consolidation of power and a move towards a more socialist and centralized government than an actual attempt to rescue the economy.

Libertarian Party on Obama's Bailout

The following was a mass email I received from the Libertarian Party last month regarding Obama's proposed stimulus package. It's an interesting read.

Your Monday Message from the Libertarian Party:

Well, we didn't actually go to Harvard.

In doing some background research on Obama's plans for the biggest public works project since the 1950s, we talked to Harvard economist Dr. Jeffrey Miron about what this means for the economy. Here's what he said:

LP: Does it make much sense, in terms of stimulating the economy, for the government to invest in public works programs that, when built, produces nothing further?

Miron: Overall, no. The argument is that the beneficial effects of stimulus on overall activity are worthwhile, even if from a microeconomic consideration the projects to not make good cost/benefit sense. Thus, in the extreme form, the standard Keynesian position would say it makes sense to have the government hire people to dig ditches and fill them back up.
The theory that underlies this view is not stupid, but not compelling either.
At a minimum, any stimulus should be on things we would want even if they were not needed for a stimulus. I am personally not persuaded there are many things in that category given the levels of current spending.

LP: Is there a high chance of damage to the economy by implementing a public works program such as that proposed by Obama?

M: There is certainly the possibility of adverse effects. New programs tend to last and have bad effects on incentives and efficiency.

LP: What do you predict to happen should Obama's proposal be implemented?

M: I think the economy will recover in 6-12 months, with or without the stimulus.

LP: Is the best prescription for economic recovery keeping the government out of the economy?

M: In my view, yes.

Miron brings up a great point about the lasting effects of new government programs. In fact, it was program of the New Deal that was at the center of the latest economic troubles: Fannie Mae.

Additionally, the idea that government can, quite literally, dig itself out of this current economic trough is patently absurd. In doing so, the government often makes things much worse for the economy. You might say that the government pays to dig its own grave--or, at least one for the taxpayers.

There are several major problems with Obama's public works plan, aside form the fact that government is making a mistake by even trying to take a hands-on role in the market.

Cost/Benefit Ratio - It is not a guarantee that construction projects will continue to bring any economic benefit upon completion, and "building for the sake of building"--as is Obama's objective--is an invitation for wholesale government waste. This is like what Miron referred to as "government hir[ing] people to dig ditches and fill them back up." Public works projects that benefit the economy more than the cost of production may be pursued for this reason (at least by those that agree with government intervention, as clearly the Libertarian Party does not); however, no public works program should be undertaken for the sake of simply creating jobs. Some economists, like Economic historian Price Fishback, predict that "such public-works spending would crowd out a significant amount of private construction," on top of being a waste of taxpayer money.

Limited Scope - Public works programs benefit one specific industry, and even a smaller amount of those in that industry. Not every construction firm is able to handle the renovations of a bridge, or the construction of a new school. Most of those that would benefit from a large-scale public works program would be large and specialized firms. As such, a construction-based stimulus would have no demonstrative benefit outside of the construction industry. These types of plans "suffer from a common problem–they will end up generating employment for highly specialized businesses and workers, rather than stimulating economic activity more broadly," says economists Susan Woodward and Robert Hall. "Thus a program that funnels money to construction firms and their workers mainly raises their incomes and employment levels and has relatively little effect elsewhere."

Too Slow For Impact - One main element of any economic stimulus plan is rapid and immediate relief. Relief plans that take too long to implement often kick-in after they are needed. This is a major complaint with most stimulus packages that are proposed, and large-scale public works programs are one the best examples of this delay. Many of these projects will take too long to get from legislation, to planning, to approval, and finally to the actual construction phase in order to have their intended impact. What we will eventually have is massive construction spending during a time where an economic stimulus is not needed.

Magic Money - One of the oft cited objections with Bush's economic policies was his penchant for massive government spending without any plans to offset this spending with cuts in other areas. As a result, trillions have been added to an already exploding national debt. A huge problem with Obama's public works program is that it will add at least $700 billion (and most likely more, in the end) to our national debt, and Obama has stated no plans on how he hopes to address the deficit. Most Keynesians will overlook this fiscal imbalance, but when the spending appears to have no real economic benefit (should it fail the already-established cost/benefit test), then Keynesians must even wonder if there is a point to the spending.

Overall, the moral of the story is this: Obama's public works plans carry no attestable benefit, and much unknown risk. On top of this, there are several other better options for economic recovery...like keeping government out of the economy altogether, and letting it work itself out.
In this economic crisis, the best options for economic stimulus are ones of less government action--not more government action. If government wishes to do anything, we suggest it simply cut taxes. Tax cuts are always a good thing, and their economic impact much more proven.
This way, taxpayers benefit, the economy rebounds and government still gets that warm-fuzzy feeling inside like it did something good.

Live free,

Andrew Davis

Director of Communications
Libertarian Party

Obama Wins

From Politico: Obama to GOP: 'I Won'

“We expressed our concerns about some of the spending that’s being proposed in the House bill,” House Minority Leader John Boehner said after meeting with Obama.

“How can you spend hundreds of millions of dollars on contraceptives?” Boehner asked. “How does that stimulate the economy?”

It doesn't. This is a hint of what our new stimulus package is going to include: millions of dollars of worthless pet projects that will do nothing to turn the economy around. But that's the way politics operates. A nice spending package is put together, full of worthwhile projects. Then this is added, and that is added. The millions pile up. And suddenly contraceptives have become an important piece of the legislation.

How do these people get away with this? And how do they sleep at night? This is not how I want my tax money spent!!!

Pelosi suggested that the package, currently at $825 billion, could become even larger.

“It has grown,” Pelosi said, “and we’re still in the process.”

It's going to be funny to see what else these people can find to spend our money on.

But worst of all are the refundable tax credits that will be paid out to those who don't earn enough to pay taxes. In essence, the government will now be using my tax money to pay people for being poor!! How do I get in on that deal? Why would people want all these new jobs the government is creating if they are going to be paid by the government to sit around and do nothing?

Bailouts for Everyone!!! (Except You and Me)

We're in the midst of a $700 Billion bailout of the financial system. This is a scary large monetary figure. I was against the bailout, as I am very concerned with the lack of accountability for the bad decisions the large banks and mortgage companies made. They should be punished, and the natural punishment is to fail as an ongoing entity.



The car companies are now going to be bailed out to the tune of $17.4 Billion. In the past, this would have seemed like a gargantuan amount. People would have been outraged instead of accepting of the bailout. This bailout could not have happened without the preceding $700 Billion bailout of the banks to take the heat.



Neither of those bailouts scare me the way Obama's proposed stimulus plan scares me.



Both the $700 Billion and the $17.4 Billion bailouts are being spent on "investments". In other words, they consist of loans or capital infusions for which the government receives stock or warrants. The expectation is that some portion of this money will eventually be returned to the government either as interest, dividends, or capital repayment. In the end, the taxpayers will hopefully not be eating the entire price of the bailout.



Now we have the newest proposal, now estimated at $800 Billion, but potentially rising to more than $1 Trillion. The intent of this proposal is to spend money on infrastructure and job creation. There is no explicit means for providing a return on investment. The money will be gone...spent. This is costing every single person in the country close to $3,000. For my family of four, our share is $12,000. I, for one, can not afford that kind of price tag, no matter how beneficial the result will be to the overall health of the country. Luckily, I shouldn't have to pay it all in one lump sum. But I know that I will be paying it with a small tax increase here and a new tax there. It's likely most people won't even realize their money is being siphoned away from them. Ignorance is bliss.



People tell me I'm a glass half empty kind of person. Can you blame me?

New Stimulus Details

You can read more about Obama's new stimulus proposal here.



I know this plan will help a lot of people. A number of the large construction companies will see a great deal of increase to their bottom lines. This will be quite a windfall for a number of government contractors. Hooray for them!! I'm sure a large number of blue-collar jobs will be created as a result of the infrastructure work that will be taking place. And believe me, I am all for improving our country's infrastructure.



But does this plan help you and me? I don't see any relief coming for distressed homeowners. I don't see this solving the mortgage crisis. I don't see this stimulus unfreezing the credit markets (and I will be speaking more on this at a later date). In fact, on the surface of the plan, I see absolutely nothing in it for me except a tax increase.



I want our economy to succeed. I want people in general to succeed and find happiness. Will the stimulus plan help get us out of a recession? Maybe. Nobody really knows. There has never been a recession quite like this one. The recession will supposedly end at some point without any government intervention. The stimulus plan is being proposed to hurry the end of the recession. Is it worth $800 Billion to end the recession a few months early?