Here is a link to the film I.O.U.S.A. If you want a quick understanding to why the country is insolvent, this is a good view. A similar source is Chris [...]
Re-Reads
Posts Kept for Review. These posts are labeled as Critical: They are especially comprehensive and worth rereading, perhaps several times.
Dec 132009
Frederic Bastiat has been referenced before on this site. His understanding of political economy was unsurpassed. Here is an excerpt from his essay “Property and Plunder” that is almost a perfect description of the conditions in the US. I suppose any of us could have written such a description, but Bastiat wrote this in July 1848. Emphasis below, mine.
“Next comes taxation. It has become a much sought-after means of livelihood. We know that the number of government jobs has been increasing steadily, and that the number of applicants is increasing still more rapidly than the number of jobs. Now, does any one of these applicants ever ask himself whether he will render to the public services equivalent to those which he expects to receive? Is this scourge about to come to an end? How can we believe it, when we see that public opinion itself wants to have everything done by that fictitious being, the state, which signifies a collection of salaried bureaucrats? After having judged all men without exception as capable of governing the country, we declare them incapable of governing themselves. Very soon there will be two or three of these bureaucrats around every Frenchman, one to prevent him from working too much, another to give him an education, a third to furnish him credit, a fourth to interfere with his business transactions, etc., etc. Where will we be led by the illusion that impels us to believe that the state is a person who has an inexhaustible fortune independent of ours?”
“People are beginning to realize that the apparatus of government is costly. But what they do not know is that the burden falls inevitably on them. They have been led to believe that if their share has been heavy until now, the Republic has a means, while increasing the general burden, of shifting at least the larger part of it onto the shoulders of the rich. Fatal illusion! No doubt the tax collector may happen to solicit one person rather than another and may receive the actual cash from the hands of the rich. But once the tax has been paid, all is not over. It has a further action on society. There are reactions on the respective values of services, and it is impossible to prevent the burden from being borne ultimately by everyone, including the poor. Their true interest, then, is not that one class be hard hit, but that all classes be treated with respect, because of the community of interest that binds them all together.”
Dec 042009
Milton Friedman was one of the strongest defenders of liberty and free-market capitalism. His insights, retrospectively, seem more important in light of what has happened and our current situation. This interview is was done in 1975, almost 35 years ago. Viewed today, it is especially relevant for its prescience and cautions. It presents an excellent case for limited government.
[googlevideo]http://video.google.com/videoplay?docid=6813529239937418232[/googlevideo]
Nov 302009
This post is older, but classical in its approach to the housing crisis. It sheds light on how the crisis started and grew, and why government intervention will hurt rather than help. It is a good, elementary exercise in understanding economics.
Government Intervention Is Needed to Solve the Housing Crisis? It Just Ain’t So!
By Steven Horwitz • May 2008
In his March 18, 2008, column in the New York Times, David Brooks addresses the ongoing problems in the housing industry and concludes that “In normal times, the free market works well. But in a crisis like this one, few are willing to sit back and let the market find its own equilibrium.”
Instead, Brooks calls for a variety of government interventions to address the problems he sees, even as he recognizes that government contributed to those problems. Consistently throughout the column he fails to be as skeptical about regulators as he is about market participants, although the regulators are the cause of the problem and the key to his proposed solution. It simply “just ain’t so” that additional regulations are necessary to deal with these problems; in fact, they are likely to exacerbate them.
Brooks begins with a typical litany of potential problems arising from the fall in housing prices. Millions of people are expected to default on mortgages in the next few years, with millions of others owing more than their houses are worth. Furthermore, he worries that uncertainties about mortgage-backed securities will create ongoing problems for the banking system for the foreseeable future. And as for who’s to blame for the situation, Brooks points to “out of control” mortgage brokers, regulators who were “asleep,” and homebuyers who thought themselves entitled to huge houses as well as ever-rising property values.
Brooks then asks, rhetorically, “Shouldn’t people be held responsible for their stupidity and greed?” His answer, unfortunately, is “not really.”
Nov 282009
If the Government confiscated everything, the social programs would still be $50 trillion short and the Government would still be bankrupt. Furthermore, no company or individual would be left with anything.
The economy is in bad shape. Some say it is worse than any time since the Great Depression. I believe it is actually worse than the Great Depression because of the level of debt. At the time of the Depression, neither governments nor individuals were deeply in debt. We were a nation of savers. Now we are a nation of spenders, living beyond our means. Individuals and governments at all levels are over their heads in debt, some literally drowning.
The debt problem is intractable. This conclusion is not economic but mathematical. It literally is mathematically impossible to get out from under the level of existing debt. To demonstrate, only the Federal Government will be dealt with. Such a focus greatly understates the actual problem, because it ignores personal debt and lower-level government debt. States and municipalities have grown well beyond sustainable levels and are running large deficits. Some defaults have already occurred. Individual bankruptcy filings are soaring as are foreclosures.
Promises Beyond Reality: The Federal Government admits to over $12 Trillion dollars in debt. In reality, its obligations are multiples of that figure. The unfunded promises from Social Security and Medicare total around $100 trillion. That is, to properly fund the forecasted future deficits in Social Security and Medicare, $100 trillion would have to be put in the fund today. This liability is growing at the rate of about $5 trillion per year! The Government has promised benefits that they cannot honor. These programs are Ponzi schemes that make Bernie Madoff look like Mother Teresa. As evidence, the total net worth of the country (the country’s total assets less liabilities) is slightly above $50 trillion. If the Government confiscated everything, the programs would still be $50 trillion short and the Government would still be bankrupt. Furthermore, no company or individual would be left with anything.
Send in an Additional $1,525,000 With Your Tax Return : To further put the problem into perspective, the Federal Government owes about $112 TRILLION in actual debt and social promises. Assuming a total population of 315 million people, the portion of Federal Government debt that is owed by every man, woman and child in this country is about $381,000! Or, a family of four owes $1,525,000 of which they are unaware. This amount is in addition to whatever mortgages, credit card debt, car loans or other loans a family might have.
Would You Give This Man a Mortgage? The magnitude of the numbers is so large that they are incomprehensible to the average person. Another way to understand the absurdity of the Federal Government’s condition is to reduce it to family terms. The Federal Government collects about $2.5 Trillion in total revenues a year. That is from all sources of taxes and fees. Think of that as an individual’s annual gross salary. The debt owed by the Government can be looked at as a great big mortgage. Thus, we have a family that has a mortgage 44.8 times greater than gross salary. That would be the equivalent of a man earning $50,000 gross salary having a mortgage of $2,240,000! An interest-only mortgage at 6% would require the family to pay annual interest of $134,000 per year. A conventional mortgage would be much higher. The example becomes even more ludicrous when one recognizes that taxes, food, clothing, savings, etc. all have to be subtracted from gross pay to determine what is left for debt service.
When we shift back to the Federal Government, the family analogy becomes even more absurd. The Federal Government has nothing left from their “gross pay.” Their “living expenses” actually exceeded their gross pay by $1.2 trillion last fiscal year. That is, they spent almost 50% more than they made. Comparable behavior is budgeted for the next ten years.
Debt Death Spiral: The Federal Government is in what is known as a Debt Death Spiral. They are unable to pay the actual and implied interest on their debt. Hence, the unpaid balance is added back to the amount owed, making the problem worse next year. This debt spiral is growing exponentially. There is no way to escape a certain mathematical end — BANKRUPTCY.
Do not count on collecting Social Security if you are less than 55 years old. Do not count on Medicare in anything approaching its present form. On top of utterly bankrupt programs they want to impose Obamacare. The Cato Institute estimates the cost of what has been proposed at over $6 trillion for a ten year period. They do not adjust for the fact that no major new government program is lucky to come within 5 times its initial estimate.
Mathematics vs. Politics: Are the politicians nuts? Yes. Is the country heading for bankruptcy? Yes. Is there anyway to avoid this end? No! Not unless you repeal the laws of mathematics! That cannot be done, despite legislators’ inflated opinions of themselves.
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