Quote of the Day

As a follow up to Bastiat’s quote about the nature of government, I also find the reflections of early 20th century American journalists, H.L. Mencken to be particularly insightful.  Mencken has a mastery of the English language that gave him success as a social critic and a satirist of American society.

In observance of the true nature of our political system, Mencken stated (my emphasis)

The state, or, to make matters more concrete, the government, consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting “A” to satisfy “B”. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods. 

Let’s be sure to remind people of this fact, especially those of whom argue that voting for “the lesser of two evils” is somehow a moral obligation on our part.


Romney Advocates for Redistribution


In an interview with 60 Minutes earlier this week Mitt Romney really let his true big government colors shine. In a discussion about taxes, Romney made it clear that while he supports lowering income tax rates, he has no intention of actually lowering the actual tax burden for most individuals. By “closing loopholes” and “eliminating deductions” for the wealthy Romney says his plan will more or less be revenue neutral, which means there is no plan to actually reign in the excessive levels of government spending. For those who have not seen through Romney’s limited government rhetoric for what it really is, this interview should be enlightening.
In the video posted here, Peter Schiff exposes Romney’s views for what they really are. Cutting through the rhetoric, Romney’s claim seeks to raise taxes on the rich and cut taxes for the middle class. Haven’t we heard that plan before? This is the same wealth redistribution policies of Obama, just framed in a different way. Add to this the fact that Romney has made preserving Medicare benefits from the “cuts” enacted by Obama as a central tenet of his campaign and his commitment of redistributing money from one demographic to another is confirmed.
The distinction between Romney and Obama on economic issues is much smaller than most Republicans will lead you to believe. As long as these are the economic values of the Republican leadership I don’t see much value to the party at all.

Poor Economic Indicators Signal Economic Slowdown

Today several economic indicators were released today that show worrisome signs that the economy is slowing down.  The Commerce Department reported that orders for durable goods decreased over 13% in the month of August.  That is the largest single-month decrease since the U.S. was in the middle of the recession in January 2009.  What this number indicates is that the already anemic manufacturing sector of the U.S. economy is sputtering.  Savings and production are things most necessary for a true economic recovery, so this news should not be viewed lightly.

Secondly, second quarter measurements of GDP growth were revised downward from 1.7% to 1.25%.  This is the third estimate of Q2 GDP, and it is the lowest estimate yet.  These numbers are measuring the successes from the last quarter of the Fed’s QE2 and Operation Twist plans.  Since the economy is relying upon monetary stimulus to stay afloat any gains that may be felt in the economy are always short-lived, and that is what we are witnessing here.  Much like QE1 and QE2 before, the economy will most likely see a short term bump in economic indicators over the next few months (just in time for the election) as result of QE3, but the plan will ultimately meet the same fate as its predecessors: a short-lived solution that prevents the economy from re-balancing all the malinvestments while making the overall situation worse by creating massive monetary inflation that will ultimately lead to rising prices, further destabilizing the economy.

An interesting point to note here about each of these negative announcements is the fact that the “experts” were “surprised” about the findings.  Economists have a terrible track-record when it comes to predicting  not only the magnitude, but also the direction, of economic indicators.  

Government numbers are routinely over-stated in their initial reports in which they are announced to tremendous fanfare and celebration, only to be negatively revised months with little to no mainstream press attention (the same goes for unemployment numbers, new jobless claims, etc.).  As I write this at 4:00 pm, there are ZERO stories of these negative reports on any of the mainstream news websites’ home pages (FoxNews, MSNBC, or CNN), as well as on the leading financial news websites (CNBC and Bloomberg).

Note: There are a few reports of lowered jobless claims….look for that number to be revised upward over the next month or so as well. 

Unrest in the EU

Over the past few days Greece and Spain have experienced increased levels of protests and rioting over continued “austerity” in government spending.  The Associated Press is reporting that thousands have taken to the streets in anger over their government’s attempted solutions to the budgetary crisis. 

But what is it exactly that these people are angry about?  We are told that through the use of eloquent propaganda sensationalism that there have been severe cuts in government spending.  But as in any society that has been constructed to rely on the government at every turn, cuts of this magnitude are nearly impossible to achieve politically or socially.  Veronique de Rugy of the Mercatus Center showed several months ago, that such cuts were non-existent. (Note:  the chart does not show numbers adjusted for inflation, but still the cuts have been minimal at best).  This is the obvious danger of a socialist society.  Once the spending is there and people plan their lives around that fact, it is impossible to pull back without stirring up widespread angst.

 Further angering these protesters are the proposed stringent measures of the European Central Bank’s (ECB’s) bailout.  Protesters hope that their actions will help to cut the strings attached, and that a new bailout of the Greek government will essentially come free of charge as other members of the Eurozone attempt to save the integrity of the monetary coalition.  

However, as the saying goes, “there is no such thing as a free lunch.”  Someone is going to have to pay for this spending.  Those lucky people are the Germans, who lived much more within their means and acted prudently to avert a crisis.  As these bailouts continue, the burden of excessive debt and government spending is continuing to fall on those least responsible for the crisis.

Lastly, it is believed that these measures will help to “save the euro”.  That it will somehow resolve the issues that the currency is facing.  In fact, the opposite is the case.  As the ECB creates more and more money to pay for these deals, the currency is systematically being destroyed though inflation.  Rather, these measures are merely trying to “save the Eurozone”– run by central banksters and benefited by the politically well-connected.    

Successful central banking and fiat currency is an economic myth that became prevalent no more than 100 years ago.  The two biggest currencies in the world are on the brink of disaster.  Might it be time to examine the history of and question the credibility of central banking?

To learn more about the Euro crisis, I suggest reading Philipp Bagus’ book Tragedy of the Euro. Its quick, entertaining, educational, and (best of all) free!

False Hope as Consumer Confidence Rises

The Consumer Confidence Index rose nine points in September to 70.3, an increase from the previous month.  While many in the media will report this as positive news for the sputtering economy, as always, the devil is in the details.

The fact that consumers feel more confident means that they will be more likely to go out and spend money:  a Keynesian dream come true.  However, applauding increased consumer spending ignores the more important points. First, what money are they spending?  We have already noted that median household incomes actually fell more during the recovery than they did during the recession.  Thus, the increased consumer confidence amounts to little more than the consumers’ confidence to go further back into debt.  This is not a good fundamental for the economy.  Secondly, increased spending on what?  Since there is continually anemic growth in U.S. manufacturing, most of this money will be spent on imported goods, further exacerbating the trade deficit as the U.S. trades paper dollars for tangible goods.

Furthermore, spurring the rise in consumer confidence is a slight improvement of the housing market.  The improving housing sector, however, is not based in real fundamental growth.  Instead, it is the result of the Fed’s QE3 policy intended to re-inflate the housing bubble.  In the near short term, it appears to be having minor success.  However since interest rates are already at record low levels and the economy is starting from a position of much greater weakness, any successes will be short-lived, as it will be impossible to fully re-inflate the already-popped asset bubble.

Increased consumer confidence leading to more personal debt should not be applauded.  Blowing more and more air into the housing bubble is a vain attempt in preventing home prices from falling to make up for the excess supply of vacant homes on the market.  The economy is not going to truly be healed until these very imbalances are addressed and the fundamentals are allowed to correct.  Please put away the heroine.  It’s time to get clean.