Obama reminded America that “Labor Day” is really “BIG Labor Day” as he announced a new round of make-work-but-never-works stimulus spending for the AFL-CIO labor union:

The goals of the infrastructure plan include: rebuilding 150,000 miles of roads; constructing and maintaining 4,000 miles of railways, enough to go coast-to-coast; and rehabilitating or reconstructing 150 miles of airport runways, while also installing a new air navigation system designed to reduce travel times and delays.

Obama will also call for the creation of a permanent infrastructure bank that would focus on funding national and regional infrastructure projects.

Administration officials wouldn’t say what the total cost of the infrastructure investments would be, but did say the initial $50 billion represents a significant percentage. Officials said the White House would consider closing a number of special tax breaks for oil and gas companies to pay for the proposal.

Obama made infrastructure investments a central part of the $814 billion stimulus Congress passed last year, but with that spending winding down, the economy’s growth has slowed.

One could be forgiven if this grand vision doesn’t sound an awful lot like the pitch for the $800+ billion “stimulus” bill that launched the Obama administration. I seem to recall the sale of that bill being driven by talk of “Shovel-ready” infrastructure projects. In 2009,  Obama claimed:

“Throughout our history, there have been times when a generation of Americans seized the chance to remake the face of this nation… And that’s what we’re doing today: building a 21st-century infrastructure.”

That sales pitch was, as it turns out, a sham. Only a small fraction of the money went toward construction projects which could have, in theory, put those “slack” construction labor and resources to work at a discount. Instead, most of the money was pumped into already-overpaid unionized state government workers and areas with little “slack” like healthcare and education which are still experiencing fast price inflation. This is to be expected, since discovering profitable worthwhile projects is what de-centralized entrepreneurs do best and politically motivated central planners do worst. Veronica De Rugy has been carefully tracking the “stimulus” spending and has found the only employment roles it’s increased significantly are in the public sector:

I am about to release the third Stimulus Facts report based on Recovery.gov data, which show that four out of five jobs created were created in the public sector. Remember the promise made by Romer herself when the stimulus was passed, that the bill would create 3.5 million jobs in two years, mostly in the private sector? Almost two years later, 682,370 jobs were reported created, not 3 million, and over 510,000 of these were in the public sector. (My preliminary data is online here; my paper on whether government spending stimulates economic growth is here.)

Christina Romer, the architect of the stimulus which De Rugy references, is a truly tragic example of what happens to even brilliant minds when they enter the world of intellectually corrupt government:

A partisan Democrat, she was summoned to Washington soon after President Obama’s election to advise him. All of a sudden she endorsed the Bush-Obama views on stimulus. This is a 180 degree turn from her previous views. Romer’s own academic research shows that fiscal stimulus’ effects are too small to do measurable good.

Romer the economist believes that most business cycles have monetary causes. Not fiscal. Monetary. Romer the economist had been very consistent in expressing that view. But that view changed as soon as she arrived in Washington and became Romer the economist transformed into Romer the political advisor. Suspicious.

David Henderson has an excellent article over at Forbes from January 2009 which digs a bit deeper into the way Romer’s actual life’s work was spent undercutting the very policy she suddenly decided to employ once in the Obama administration.

The stimulus was and remains an intellectually bankrupt scam intended solely to grow the scope and influence of government. It was and remains political payola sold on slap dash, expedient variants of the doctrines of the mercurial and, I believe, largely defunct John Maynard Keynes. Worst of all, the scam failed. Unemployment is higher than the “if we do nothing” scare-tactic calculations made by the administration in their initial pitch. The “do nothing path” is looking better and better every day, even based on the administration’s own benchmark.

In light of the graph above, yet another round of deficit-financed “stimulus” spending has moved the Obama administration from mistaken policy, to utterly irresponsible tone-deaf meta-farce…

…but what the hell do I know?

US auto sales collapsed last month providing yet another example of how the greatest exercise in Keynesian economics, the Obama administration’s economic policy, has been an utter failure.

The embattled US auto sector recorded one of its worst months on record in August, as General Motors, Ford and Toyota all saw American sales tumble. The sector posted the worst August sales figures in 27 years, weighed down by the expiry of a popular government cash-back scheme designed to boost sales.

GM reported a nearly 25 percent slump in sales in what is normally a busy month for auto firms.

“Last year’s cash-for-clunkers program spiked industry sales in 2009, so results this August were not surprisingly a bit mixed,” Don Johnson, GM’s vice-president for US sales operations, said in a statement.

The “cash for clunkers” automaker bailout program was one of the particularly nasty stains in the history of this administration’s dubious, misguided policy responses to the Great Recession. I hated it. Truly. The reason is that the program was an evil, immoral travesty that destroyed valuable assets during a time when people are struggling. That it doubled down on the immorality with subsidies stolen from our children’s future in the form of borrowed money isn’t even the most damaging aspect of this catastrophe. The cost of future taxes was merely the first shoe to drop.

Now, the second shoe has fallen and the full scope of those injured by this scam is being revealed. As Jeff Jacoby reports, used car prices have skyrocketed due in large part to the lost supply from “clunkers”:

Why are used-car prices rocketing? Part of the answer is that demand is up: With unemployment high and the economy uncertain, some car buyers who might otherwise be looking for a new truck or SUV are instead shopping for a used vehicle as a way to save money.

But an even bigger part of the answer is that the supply of used cars is artificially low, because your Uncle Sam decided last year to destroy hundreds of thousands of perfectly good automobiles as part of its hare-brained Car Allowance Rebate System — or, as most of us called it, Cash for Clunkers. That was the program under which the government paid consumers up to $4,500 when they traded in an old car and bought a new one with better gas mileage. The traded-in cars — which had to be in drivable condition to qualify for the rebate — were then demolished: Dealers were required to chemically wreck each car’s engine, and send the car to be crushed or shredded.

Congress and the Obama administration trumpeted Cash for Clunkers as a triumph — the president pronounced it “successful beyond anybody’s imagination.’’ Which it was, if you define success as getting people to take “free’’ money to make a purchase most of them are going to make anyway, while simultaneously wiping out productive assets that could provide value to many other consumers for years to come. By any rational standard, however, this program was sheer folly.

At the time, the trade-in-to-be-destroyed program generated large sales during it’s availability, only to see sales utterly collapse well below the trend in the months ahead, much like housing sales have done with the recent end of numerous taxpayer-funded subsidies for home buyers. These dishonest quick-fix scams are little more than a ponzi scheme which pull sales from the future to make today’s numbers look better. But tomorrow has arrived and we’re poorer for it.

To be sure, Cash for Clunkers gave a powerful jolt to car sales in July and August of 2009. But it did so mostly by delaying sales that would otherwise have occurred in April, May, and June, or by accelerating those that would have taken place in September, October, or later. “Influencing the timing of consumers’ durable purchases is easy,’’ Edmunds CEO Jeremy Anwyl wrote a few days ago in a blog post looking back at the program. “Creating new purchases is not.’’ Of the 700,000 cars purchased during the clunkers frenzy, the estimated net increase in sales was only 125,000. Each incremental sale thus ended up costing the taxpayers a profligate $24,000.

What a deal. On top of doing nothing to stimulate addition auto sales, as if getting into debt buying even MORE stuff ever made sense in debt-driven crisis, this destructive Obama boondoggle stole from the poor to give to the rich.

No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. “All this program did for them,’’ I wrote last August, “was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.’’ Alec Gutierrez, a senior analyst for Kelley Blue Book, predicted that used-car prices would surge by up to 10 percent. “It’s going to drive prices up on some of the most affordable vehicles we have on the road,’’ he told USA Today. In short, Washington spent nearly $3 billion to raise the price of mobility for drivers on a budget.

This program was the absolute pinnacle of government fraud. The reasons why it came to be, though, are clear. It was an auto-industry bailout and voter payoff hatched by Dick Durbin of Illinois, as he makes quite clear in a quid-pro-quo bullying letter he sent to Chrylser CEO Sergio Marchionne this past June:

As you know, the Belvidere Assembly Plant has reinvented itself many times over the years. Initially, its employees produced the two-door Plymouth and Dodge vehicles that were popular in the 1960s and 1970s. Today, after hundreds of millions of dollars were spent on renovation, the 2,315 employees at Belvidere’s facility produce the popular Jeep Compass, Jeep Patriot, and Dodge Caliber. More than 850 of these employees were welcomed to Belvidere’s assembly lines after demand for the Compass, Patriot, and Caliber increased due to the Cash for Clunkers program that passed Congress last year.

…

Belvidere can play an important role in the company’s expansion plans.  I urge you to give the Belvidere facility every fair consideration as you move forward.

Behold the world of corrupt, politically-run industry. It’s delivered with some subtly, but the message in the letter couldn’t be clearer: it’s payback time. Durbin robbed the American taxpayer and the poor and working class in American in order to try and pad the pockets of auto-makers and now he expects his Illinois auto factory workers to get their payoff so they’ll vote for him and his economic ignorance in the next election. That he is deemed by some to be the “most eloquent” congressman just underscores a fact well established by President Obama: smooth talking doesn’t correlate to understanding about reality or economics.

Cash for Clunkers is just one of the many demonstrations that government, despite stated objectives to the contrary, routinely robs from the poor to give to the rich and well connected…

…but what the hell do I know?

Paul Allen, entrepreneur and cofounder of Microsoft, has filed a lawsuit against 11 companies for infringements on his Web search patents. Announced on Friday afternoon, the suit names Apple, Google, Facebook, Netflix, YouTube, and Microsoft partner Yahoo as defendants for violating four Interval Licensing LLC patents, though the court will likely have to weigh whether the patents in question are “obvious” or not.

The patents revolve around three main concepts: browser use for navigating through information, managing a user’s peripheral attention while using a device, and alerting users to items of current interest. They collectively address the general concept of presenting searched-for information to a user along with related news articles, media (such as music or videos), status updates from friends, or data (such as stock or weather info).

Needless to say, numerous Internet companies make use of such concepts, including, of course, Microsoft. However, Microsoft has managed to escape Allen’s ire for the time being, while the 11 other companies seem to share the oddly coincidental characteristic of being wildly popular with the public. In its announcement, Interval has declared itself a “ground-breaking contributor to the development of the internet economy” and says all it wants to do is “protect [its] investment in innovation.”

Nothing is being “protected here”. What Paul Allen is doing is an attempt at legal theft using a concept of “property” which only exists by virtue of government force. He’s a corporate pirate commissioning the cannons of the state to enable his marauding. Ideas are not a scarce good. You cannot “steal” my idea because when you learn my idea it still remains in my head as well. The only thing that can be stolen is executions. The idea of a digital music player is not property. A physical iPod and the revenue from selling it IS property. The idea of displaying the results of a search with data related to the results is not property. The income earned by Google for their particularly effective implementation of that idea is.

But what about incentives? As Michele Boldrin and David K. Levine reveal in extensive detail with their free book “Against Intellectual Monopoly”, patent and copyright “protection” is necessary neither for innovation nor the ability to profit from such innovation. Again, ideas, unlike physical goods, are not scarce. Throughout history, it was innovation and profits from that innovation that came first, usually in an atmosphere of rampant idea copying (also known as “inspiration”). Only AFTER certain firms gained a sufficient foothold and grew large on their success did they then suddenly turn toward the use of copyrights and patents to maintain their position and crush newcomers. “Intellectual property” is ANTI-innovation. But don’t take my word for it. Just ask Paul Allen’s uber-capitalist college roommate, one William Henry Gates III:

If people had understood how patents would be granted when most of today’s ideas were invented and had taken out patents, the industry would be at a complete standstill today…A future start-up with no patents of its own will be forced to pay whatever price the giants choose to impose.

- Bill Gates to Microsoft employees in 1991

There’s a reason the 1999 TV film about the rivalrous battle between Apple and Microsoft was called “Pirates of Silicon Valley”. Copying ideas and competing on implementing them for consumers with actual products is the absolute foundation of the entire industry (and all industry). Microsoft, the company which made Paul Allen his billions was founded on rampant copying of ideas.  Paul Allen is the real thief here and a shameless hypocrite. The only way he should be trying to “protect [his] investment in innovation” is to release actual products into the market and compete for voluntary customers. In so doing, he could make all of us better off.  “Competing” for use of the government’s monopoly of force and theft via the court system relegates him to the role of a destructive social parasite seeking a wealth transfer. The costs that emerge from this court battle are a dead weight loss on the companies involved and society at large.

Shame on you, Mr. Allen.
I say all of this as someone who makes their living in the world of creativity in TV network promotion. In this world there is plenty of parasitic “intellectual property” battles on all fronts. But there is also an inescapable reality that the creative process REQUIRES copying. We are inspired by the designs and innovations of other creative people. We look to the cultural trends of the day and find ways of tweaking and changing and (hopefully) improving on them such that people take notice.

Culture and trends are the river which “intellectual property” parasites seek to drain for their own personal well. Yet they do so at their peril. As Johanna Blakley points out in this amazing TED presentation, creative fields like fashion which have virtually no functional IP “protection” outside of trademark enforcement for the brand name and its use, are wildly more successful. The IP-free world utterly dwarfs the state-enabled fiefdoms of “intellectual property” in terms of profits and revenues.

Ideas are not scarce. Attempting to create false scarcity through state-backed “intellectual property” enforcement regimes makes our world a poorer place marked by less creativity and less innovation. What we need in this country is much more protection for real physical property rights and much less protection for fake, artificial, “intellectual” ones…

…but what the hell do I know?

Behold the sheer, unassailable brilliance of Milton Friedman. The man can call his debater a demagogue to his face and it doesn’t come across as anything but clear headed truth, in part because he’s not a demagogue himself. It is amazing to see that the EXACT same fairytale version of FDR’s alleged triumphs as enumerated by Michael Harrington still get thoughtlessly and ignorantly repeated today. He saved capitalism… by taking America closer to outright fascism than ever before or since.

Here’s one more clip that’s just too good…

Milton’s responses are glorious and truthful…

…but what the hell do I know?

The Bernanke-led Fed, while saying U.S. growth would be slower than anticipated, announced on Aug. 10 it will buy Treasuries to set a $2.05 trillion floor on its balance sheet and keep interest rates from rising. Trichet said Aug. 5 that the euro-area economy was surpassing forecasts, which may pave the way for the ECB to look at phasing out its emergency lending measures…

…Now the ECB is “actually looking to the timing of an exit policy, whereas the Fed has obviously put that on the back burner,” Mickey Levy, chief economist at Bank of America Corp. and a Jackson Hole regular, said in a Bloomberg Radio interview with Tom Keene. “The U.S. economy right now is in a soft patch and feels fragile, while in the aggregate the European economies have seemingly weathered the storm much better than people expected.”

So… um… Europe starts really slashing government spending and they are recovering faster than expected, America has the government debt machine running in over drive with a fresh $1.3 trillion in new debt and we’re in danger of a deeper downturn. The Keynesians have been screaming that Europe’s “austerity” was going to plunge the world into a deep depression. They, once again, were wrong. Debt is debt. The more you have, the less you can save and invest for the future and the less you’ll be able to spend tomorrow.

Why is there even still an argument about government spending as a “stimulus”? Pack it up, Obama, Krugman and the gang. Reality won. You (and America, sadly) lost…

…but what the hell do I know?

Denmark has long held the title of the best place on earth to be laid off. With an expensive, generous welfare state, and the world’s most lavish unemployment insurance scheme, virtually no one falls through the cracks upon losing a job.

But the government unveiled an unpleasant surprise in June, when it halved the country’s whopping four-year unemployment benefits period to help mend its finances after the financial crisis.

The reason: Danish studies show that the longer a person goes without a job, the harder it is to find work. Many people get a job within the first three months of entering the system, but many more wait until just before benefits expire to take anything available.

Opponents to extended unemployment payments have been painted as evil heartless devils who cast unjustified aspersions on people desperately searching for a job. This is nothing but political pandering. The job market is pretty terrible to be sure, but the reality that people respond to incentives hasn’t disappeared just because of the recession. If you NEED to find a job, you find a job. The trick is never “finding a job”. It’s “finding a job at your desired wage”. And that’s not the whole story either. People work for more than just wages, so there’s always going to be a host of non-monetary incentives involved. The key is to stay in the game and keep looking…

“So you need to have a period of unemployment that is as short as possible,” Claus Hjort Frederiksen, the finance minister, told me recently in Copenhagen.

Consider this 2009 chart from Denmark’s Labor Market Commission:

It shows that between 2005-7, the number of people who got jobs during their four years of benefits — the green line – rose at the beginning before dropping sharply, then spiked as benefits were about to run out, only to plummet after. The red line shows similar behavior in 1998, when Denmark’s benefit period was five years.

“It shows that people are not seeking all the jobs they could get, but just the jobs they would like to have,” said Steen Bocian, chief economist at Danske Bank.

Wants and needs are not the same thing. Those who claim that government should provide some minimal safety net for “needs” routinely attack anyone who claims such programs often serve to enable their wants.

Unemployment benefits set a floor on the wage people are willing to accept. Why take work for less than you’ll get for NOT working? The perverse result is that by not working at all, people slowly destroy their productivity and ability to earn that wage. We are creatures of momentum. A body at rest tends to stay at rest just as a body in motion tends to stay in motion.

People respond to incentives, even in a recession, even in Denmark.

BUT PEOPLE ARE HURTING!!! Yes, they are. There is real misery out there thanks to the boom and bust our Federal Reserve and Federal housing authorities have created. Being against government social safety nets like unemployment benefits and social security does NOT mean being against helping other people. Private, mutual aid societies used to be the peaceful, voluntary way that communities and tradesmen provided for time of need and old age. To learn more about the very real history of private solutions to the social safety net, check out this “Mutual Aid Societies” podcast by Sheldon Richman.

While I don’t expect the welfare state to go away any time soon, I think it’s interesting that we must now look to places like Denmark for politicians with a willingness to act on reality. Denmark is cutting unemployment insurance. Sweden has school vouchers and privatized roads. Most of Europe is cutting government spending and seeing economic recovery while the American government keeps spending us into oblivion. We’re fast approaching the point where advocates of peace and free enterprise will be the ones imploring us to adopt the European approach…

…but what the hell do I know?

The interview above is a follow up after Dr. Paul released a statement rightfully condemning the opposition to the downtown mosque as hate speech and demagoguery. Read the full release for a refreshing bit of real liberty in action. Here’s a sample:

Is the controversy over building a mosque near ground zero a grand distraction or a grand opportunity? Or is it, once again, grandiose demagoguery?

It has been said, “Nero fiddled while Rome burned.” Are we not overly preoccupied with this controversy, now being used in various ways by grandstanding politicians? It looks to me like the politicians are “fiddling while the economy burns.”

The debate should have provided the conservative defenders of property rights with a perfect example of how the right to own property also protects the 1st Amendment rights of assembly and religion by supporting the building of the mosque.

Instead, we hear lip service given to the property rights position while demanding that the need to be “sensitive” requires an all-out assault on the building of a mosque, several blocks from “ground zero.”

I believe that this “controversy” over the mosque being built in lower Manhattan, just a 2 minute cab ride from my office, is a complete and utter sham, fueled by ignorance and hate. Principled defenders of human freedom recognize the truth, which is why Ron Paul’s response in this video is as good a commentary on this subject as anything out there.

It’s unfortunate that Dr. Paul’s son Rand doesn’t (or feels he can’t) take a similarly principled libertarian stand. That says something about the conservative electorate which Rand is aiming to appease, and it isn’t pretty. Rand’s position is inexcusable even if it is politically “necessary” and Ron must be pained to see it unfold this way. I understand why he won’t answer the questions on behalf of his son directly in the video because, you know, blood is thicker. As a dad, I get that.

It is a genuine tragedy in American political life that so few can take a stand on economic freedom AND civil liberties without running afoul of the base in either party. I see this as just one more example of why politics and politicians are and always will be a problem, not a solution for social progress. Voluntary civil society is where we must make our advances as a people.

As for all the outrage over what the Imam who will head this Islamic center said about 9/11 and it’s causes, I don’t see the problem. Here’s what Imam Adul Rauf actually said:

ED BRADLEY, CBS: (Voiceover) And throughout the Muslim world, there is also strong opposition to America’s foreign policy, particularly in the Middle East because of its support of Israel and economic sanctions against Iraq.

Imam ABDUL RAUF: It is a reaction against the policies of the US government, politically, where we espouse principles of democracy and human rights and where we ally ourselves with oppressive regimes in many of these countries.

BRADLEY: Are–are–are you in any way suggesting that we in the United States deserved what happened?

Imam ABDUL RAUF: I wouldn’t say that the United States deserved what happened, but the United States policies were an accessory to the crime that happened.

BRADLEY: OK. You say that we’re an accessory?

Imam ABDUL RAUF: Yes.

BRADLEY: How?

Imam ABDUL RAUF: Because we have been an accessory to a lot of–of innocent lives dying in the world. In fact, it–in the most direct sense, Osama bin Laden is made in the USA.

I don’t see how, in light of history and reality, this interview should be controversial. The US government trained Osama Bin Laden and the Mujahideen in Afghanistan to fight the Soviets in a proxy war, then left them there, armed and empowered, to rule the land. Their religious extremism was actually deemed a benefit in the fight against that expressly atheist, murderous communist regime. But wait, there’s more. The US government provides billions in arms and subsidies to the brutal Saudi Arabian regime (as well as bowing before their oppressive dictators like serfs). Remember, 15 of the 19 hijackers were Saudi. And, going back a bit farther, but just as important, our CIA helped overthrow the secular, democratically elected prime minister of Iran, Mohammed Mossadegh, replacing him with the oppressive dictator Shah which our government continued to support, giving rise to Islamic fundementalism via the Ayatollah Khomeini. Did I mention that our CIA did that essentially at the behest of the “Anglo-Iranian Oil Company” aka BP of gulf oil fame. Oh, and later our government funded BOTH Iraq AND Iran in their murderous war with one another.

That’s our government’s history in the middle east, folks. It’s ugly. It’s shameful. It’s inexcusable. All of it was carried out without any feedback from the American people. So it’s not that “we” did this. Overthrowing Mossadegh was not an election issue. It’s just covert meddling that would make our founders weep with regret.

Abdul Rauf’s replies are totally consistent with history and with Dr. Paul’s longstanding and principled stand on our foreign policy:

To deny the role of US government policy in helping create the conditions for 9/11 and international Islamic terrorism is to deny obvious fact. It’s not the direct or singular cause, but it’s a significant and undeniable one. Standing for peace and constitutional foreign policy means standing against what the US government has done in the Middle East. That ISN’T the same thing as standing “with the terrorists” and don’t let anyone tell you otherwise.

There is only one reality-based, reasonable position on these issues and that is the ones which Dr. Paul has enunciated above…

…but what the hell do I know?

Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.

But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.

Ah yes, the “trust fund”. What an ironic term. Unfortunately for all of us and for Paul Krugman’s credibility, the so-called “trust fund” is actually empty. Gone. Every nickel of it has already been spent by the government with US Treasury bonds, debt IOUs, put in it’s place. I wrote about this when it became clear that Social Security would likely go into the red this year, 6 years earlier than projected:

The not-quite-a-“trust fund” earns interest! That’s good. But… wait a minute. Interest on treasury bonds is paid by the government. Social security is also run… by the government. How can the government lend itself money and pay itself interest? Indeed, this “fund” is actually “lent” to the treasury and spent on other stuff like bank bailouts, auto company bailouts, corn syrup subsidies and endless wars abroad. This “accounting device” is known as “intergovernmental debt” and it’s very much accounted for in our total national debt. Out of $12.7 Trillion dollars in outstanding federal debt, $4.5 trillion is “intergovernmental” debt.

So there’s no “earning” going on with that trust fund “interest”. The interest that the so-called “fund” earns is paid by we the taxpayer as part of the interest paid on the national debt. What this means is that the interest paid to the social security “trust” fund is nothing more than a sneaky added layer of taxation to fund the program from general income taxes in addition to the FICA tax.

Social Security is already broke, just as my great grandfather predicted when he received checks never having contributed a nickel to “his” so-called “account”. Krugman, a top-down statistics keynesian like no other, hopes that putting the program’s future cost increases in GDP terms will make it all seem silly:

Meanwhile, an aging population will eventually (over the course of the next 20 years) cause the cost of paying Social Security benefits to rise from its current 4.8 percent of G.D.P. to about 6 percent of G.D.P. To give you some perspective, that’s a significantly smaller increase than the rise in defense spending since 2001, which Washington certainly didn’t consider a crisis, or even a reason to rethink some of the Bush tax cuts.

1.2% of GDP. 1.2 is a small number, objectively, so that must not be a big deal at all, right? For some perspective, that’s almost $170 billion per year in additional taxes based on today’s roughly $14 trillion dollar economy. I agree that we need to cut back on the military tremendously, but two wrongs don’t make a right. We aren’t 5 year olds, Paul. “But Bush spent it too!” isn’t actually sound social science or responsible governance. And since when have long-run government cost projections ever been more than a euphoric fantasy? Medicare’s 1990 costs proved to be 10 times higher than it’s projections in 1965. These numbers are all lies.

That Paul Krugman misrepresents the reality of social security as an underfunded ponzi scheme should be a real problem for his credibility among those interested in honest commentary.

Maybe, just maybe, we’d all be better off keeping our incomes and investing them ourselves for our future retirement instead of leaving them to an organization openly running Bernie Madoff’s business model…

…but what the hell do I know?

The housing boom and bust was a classic asset bubble, such as occurred frequently in the 18th and 19th centuries. Easy money working through cheap credit made long-term investments appear more valuable than would otherwise have been the case.

In most cases, investment booms drive industries with sound fundamentals. When the cheap credit keeps flowing, however, fundamentals are forgotten and the process evolves into a mania (to use the old-fashioned term). What cannot be sustained will not be, so the boom ends in a crisis.

In these scenarios, the collapse of demand is a consequence—not the cause—of the bust. Policies to address crises must get cause and effect right.

Second, recovering from excessive debt and leverage REQUIRES reduced spending and de-leveraging, not even more deficit spending:

The declines in home values, investor portfolios and 401(k) plans, and the uncertainties surrounding retirement plans, have all had a big impact. The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.

Yet public policy has focused almost exclusively on stimulating spending without much regard to why spending, especially consumption, has flagged. Until balance sheets (corporate and household) are restored, increased spending cannot be sustained.

Third, increased “liquidity”, or availability of money and credit to those who demand it, cannot make up for insolvency forever. Credit is debt, remember. People need more savings and less debt, not more access to more debt:

What is in short supply is not liquidity, but savings. The Fed can supply the former but not the latter. Both fiscal and monetary polices need to shift their focus. The Fed has done the heavy lifting and responded more than adequately to liquidity issues. Now there is little further it can do that is beneficial.

Its move toward Japan-style quantitative easing is a misstep. And historically low interest rates—about which the Bank of International Settlements, the bank for central banks, sounded a warning in its 2009/2010 annual report—will inevitably distort economic activity, as they did during the housing boom. Low interest rates slow the process of restoring balance sheets by keeping asset prices artificially inflated. They also penalize saving, thus prolonging the process of rebuilding balance sheets.

The warnings from the Bank of International Settlements should not be taken lightly. William White of the BIS was one of very few to warn that the 2000s were looking an awful lot like the 1920s, complete with asset booms and stable inflation masked countered deflationary (in a good way) productivity and fueled the excess credit growth.

Read William White’s prescient analysis, which drew heavily on F. A. Hayek’s “Austrian” perspective in his paper “Is Price Stability Enough?”.

It very well could be that right now, the demand for money in the face of so much uncertainty both here and abroad is soaking up much of the Fed’s new liquidity. The big banks are continuing to sit on a trillion dollars worth of reserves in excess of their legal lending limits, so ultra-low interest rates may indeed be the natural rate right now. But we must be on guard for reinflating a new bubble and repeating our last mistake, only next time from a position of even more indebtedness and fragility. That’s why other prominent voices, including the president of the Federal Reserve bank of Kansas City, Thomas Hoenig, is warning about keeping rates too low for too long.

The truth of the matter is that no one person or small group of central planners can know about all of the unique demands of an enormous economy for money or any other good. That’s why I believe central planning and central banking are fundamentally, fatally flawed institutions that should ultimately be eliminated in favor of decentralized private organizations that can employ local knowledge of people’s activity to address the needs of a decentralized economy while competing for business without special privileges or protections from their own mistakes…

…but what the hell do I know?

Everyone in America needs to read “Feds rethink policies that encourage home ownership” by Paul Wiseman at USA Today. The article is a truly amazing, surprisingly thorough overview of the massive amount of government distortion and manipulation in the US housing finance market (and at the root of our economic meltdown). Here’s a little gem which most people probably don’t appreciate:

Freddie and Fannie, with their government backing, allowed the proliferation of 30-year, fixed-rate mortgages — a product that lenders would otherwise shun. Reason: Long-term, fixed-rate loans struggle in any interest rate scenario. If rates rise, banks are squeezed, because their revenue remains fixed even though they have to pay more for deposits and other funding. If rates fall, homeowners refinance. “No rational market participant is going to bear that risk,” Date says.

Long-term fixed-rate mortgages make sense only if the government is absorbing some of the risk. Reforming housing finance, Date says, could jeopardize the future of long-term, fixed-rate mortgages or raise interest rates on them, perhaps a quarter to half a percentage point.

I don’t think most Americans realize that the 30 year mortgage is a US government sham. We are one of the only countries that have 30 year fixed mortgages as an option. It barely exists outside of the US for the very reasons above: it’s not a viable stand-alone business model. In fact, the artificial 30 year mortgage proved to be a crucial contributor to the S&L crisis. As mentioned in general terms above, during the S&L crisis, high short term interest rates in the early 1980s, which came about as the Fed contracted the money supply to fight inflation, rendered the Savings and Loan business, which was principally invested in fixed 30 year mortgages, insolvent. You can’t earn less on your investments than you pay depositors for their short term loans (that’s what deposits actually are) and remain in business.

When my great grandparents came to this country before the Great Depression, they were able to work hard at low working class wages and save enough money to buy a home in cash, yes cash, for WAY less than one year’s salary. The natural, sustainable balance of housing supply and demand in a freer market produced less demand for housing, much lower prices, lower home ownership rates and dramatically less personal indebtedness. What changed between those pre-depression days and now that destroyed affordable housing and socked America with insane debt? Government got involved.

Before World War II, would-be home buyers faced huge obstacles. Banks demanded 50% down payments for mortgages that would last just five or six years; then, the homeowners would have to cough up the balance in a balloon payment. Homeownership remained mired around 40%.

“Mired”? Compared to WHAT exactly? Utopia? What’s wrong with renting?

40% just happens to be the current rate of home ownership in Germany, one of the biggest and most prosperous economies in western Europe and the world. Germany’s economy has also performed dramatically better during this downturn, and recovered fairly rapidly thanks in part to their export driven economy and refusal to burden themselves with even more debt in the form of “stimulus” boondoggles.

And what’s so great about owning a house, especially when you owe 4 to 6 years of gross salary to pay it off? Houses are COSTS. They are a headache. And they lock you in to your location.

High homeownership rates also impose economic costs. They lock workers into houses that can be tough to sell, especially in recessions, so it’s harder for them to move to find new jobs. The percentage of Americans changing addresses hit a record low 11.9% in 2008 before bouncing up a bit last year; the so-called moving rate exceeded 20% as recently as 1985.

Florida has found that U.S. cities with high homeownership rates tend to lag behind other cities in job creation and earnings. He argues that the government should nudge the homeownership rate lower, perhaps to around 55%, by cutting the subsidies that prop it up.

Just ask anyone recently unemployed in Pontiac Michigan if they’re happy to be stuck in a 30 year mortgage on a house that’s now underwater for more than their former salary.

US government housing policy is a sham.

Virtually every government intervention in housing has created inflation by a combination of outright demand-increasing subsidies or the more sinister socialization of private risk taking through parasites like Fannie and Freddie. If you are able to artificially borrow at lower-than market rates, you can “afford” higher prices and thus your demand drives the prices up. This is nothing more than inflation, which the government has sought to mask by altering the real housing prices in our “CPI” inflation data.

Government has never produced affordability on balance for everyone in anything. They merely transfer wealth, and not in altruistic ways. In the case of housing, the inflation in housing prices was a transfer of wealth from new home buyers to current home owners. In other words, it was a transfer from the relatively worse off to the relatively better off. Think about that. The same is true of college subsidies, which steal from everyone, including many working class families who may not send their kids to college, in order to subsidize rich kids going to schools who spend that fresh new tuition on football stadiums and rec centers.

My dad was telling me a story that should help to define the way to filter policies coming from our government being sold as “encouraging” this or “protecting” that.

My great grandfather, having received his first Social Security check, said “this is never going to last”. Why “Grandpop?” asked my young father. “Well, I never contributed a nickel to social security, so how am I getting this check now? This money isn’t mine, it’s yours. It’s a ponzi scheme.”

Great Grandpop Papola was dead right. Even the most “cherished” government program, social security, is a dishonest, fraudulent ponzi scheme that’s now insolvent (for the second time). Given that, why should anyone trust the moralizing that comes from Washington about the need to “encourage” home ownership or “promote” affordable housing? I see no evidence to trust a single thing these people say about their motives or the alleged outcomes of their policies.

Our fundamentally broken and now largely socialized housing sector is just one of many examples why government intervention in private decisions generally leads to social loss and painful disaster…

…but what the hell do I know?