Friday, August 6, 2010

A Government-Run Depression

First, some excerpts from An Avoidable Depression by Mike Whitney, dated August 5, 2010:

The economy has gone from bad to worse. On Friday the Commerce Department reported that GDP had slipped from 3.7% to 2.4% in one quarter. Now that depleted stockpiles have been rebuilt and fiscal stimulus is running out, activity will continue to sputter increasing the likelihood of a double dip recession. Consumer credit and spending have taken a sharp downturn and data released on Tuesday show that the personal savings rate has soared to 6.4%. Mushrooming savings indicate that household deleveraging is ongoing which will reduce spending and further exacerbate the second-half slowdown. The jobs situation is equally grim; 8 million jobs have been lost since the beginning of the recession, but policymakers on Capital Hill and at the Fed refuse to initiate government programs or provide funding that will put the country back to work. Long-term "structural" unemployment is here to stay.


No one believes that the U.S. is the land of opportunity anymore or that their children will have a better life than they did. As the slump deepens, pessimism will turn to desperation, higher crime and social unrest. Everyone pays for long-term unemployment.

Factory orders, household purchases and personal consumption expenditures (PCE) are all in the dumps. New mortgage applications and home sales have plummeted to historic lows. Housing prices are expected to follow the downward trend in sales. Still, the stock market lunges upward in fits-and-starts utterly disconnected from the underlying "real" economy where personal balance sheets are in a shambles and where 6 applicants battle for every new job opening.


Washington has sold out its small businesses to Wall Street and the multinationals. America's jobs-generating engine is kaput. Expect more outsourcing, more offshoring, more tax-dodging, and more middle class bloodletting for the foreseeable future. The New World Order continues apace.

Unlike stocks, the bond market reflects the true condition of the economy. 2-year Treasuries are at historic lows, while the 10-year has dipped below 3%. The flight-to-safety is pushing bond yields down even while equities continue to surge. Deflationary pressures are building. Bondholders are not taken-in by the cheery news of green shoots. They know how to read the data--spending is down, credit is tight, unemployment is headed higher, the banks are hiding their red ink, Europe's in trouble, manufacturing is about to slide, housing is in freefall, the money supply is shrinking, and the Fed is sitting on its hands doing nothing. When industry-leader Proctor & Gamble missed analysts estimates on Tuesday, it became clear that product prices would be slashed in an effort to retain market share. When prices fall, inventories are reduced and workers are laid-off. That's how the downward spiral begins.


The economy is slipping fast into deflation, but there's still time to act. The bond market is telling us that the economy needs more fiscal stimulus. The labor market is telling us that the economy needs more fiscal stimulus. The housing market s telling us that the economy needs more fiscal stimulus. Manufacturing, consumer spending, consumer credit and bank lending are all telling us that the economy needs more fiscal stimulus. Every sector and data-point is telling us the economy needs more fiscal stimulus. But congress, the White House, and the myriad far-right think tanks and foundations won't budge. They want debt consolidation, austerity measures, structural adjustment and belt-tightening.

The prescription is alluded to at the end of the first paragraph: government (tax-and-spend) "funding that will put the country back to work."

Government programs run by government bureaucrats serve one purpose well: giving voters the illusion that something is being done by government politicians so government politicians can get re-elected.

We now consider excerpts from Private Enterprise Does It Better, by John Stossel, August 5, 2010:

In Myths, Lies and Downright Stupidity, I bet my readers $1,000 that they couldn't name one thing that government does better than the private sector.

I am yet to pay.

Free enterprise does everything better.

A little overstated, but more on that in a moment.

Why? Because if private companies don't do things efficiently, they lose money and die. Unlike government, they cannot compel payment through the power to tax.

Even when a private company operates a public facility under contract to government, it must perform. If it doesn't, it will be "fired"—its contract won't be renewed. Government is never fired.

Contracting out to private enterprise isn't the same thing as letting fully competitive free markets operate, but it still works better than government.

Roads are one example. Politicians call road management a "public good" that "government must control." Nonsense.

In 1995, a private road company added two lanes in the middle of California Highway 91, right where the median strip used to be. It then used "congestion pricing" to let some drivers pay to speed past rush-hour traffic. Using the principles of supply and demand, road operators charge higher tolls at times of day when demand is high. That encourages those who are most in a hurry to pay for what they need. It was the first time anywhere in the world that congestion pricing was used. Bureaucrats were skeptical. Now congestion pricing is a hot idea for both private and public road management systems.

Likewise, for years there was a gap in the ring road surrounding Paris that created huge traffic problems. Then private developers made an unsolicited proposal to build a $2 billion toll tunnel in exchange for a 70-year lease to run it. They built a double-decker tunnel that fits six lanes of traffic in the space usually required for just two. The tunnel's profit-seeking owners have an incentive to keep traffic moving. They collect tolls based on congestion pricing, and tolls are collected electronically, so cars don't have to stop. The tunnel operators clear accidents quickly. Most are detected within 10 seconds -- thanks to 350 cameras inside the tunnel. The private road has cut a 45-minute trip to 10 minutes.

The private sector does not do everything better.

For example, mercenaries do not do a better job at national security and warfighting than the military. A glaring example was when our human resources intelligence capabilities were cut, and as prisoners from the War on Terror came in for interrogation, this process was outsourced. The "private sector" apparently did not have enough adequately-trained employees to do the interrogations, so they consulted US military documents on how the former Soviet Union could have been expected to handle prisoners (a degree of what I might call "sophisticated mental brutality" aimed not at gaining useful information, but at coercing the person to conform to communist domination).

The result of this should have been predictable: the treatment violated norms for handling of prisoners of war, damaging America's reputation tremendously and depriving us of much of our moral authority; the treatment also violated legal standards, making it very difficult to process criminal cases in the US court system. One benefit, though, is that those in power now have a precedent set; all they have to do is accuse someone of being a terrorist, and they can violate that person's human rights and, if the person is a US citizen, they can violate that person's Constitutionally-guaranteed civil rights, and too many on the "right" will applaud and cheer.

This function should be done by appropriately-trained and supervised government agencies.

But, that's another story.

The private sector - non-profit charitable organizations, such as churches - do charitable work better than government programs. Some states are experimenting with outsourcing charitable programs to for-profit organizations. This leads to another predictable disaster.

But, beyond these points and perhaps a couple of more, Stossel's point is essentially correct: the private sector does things far better than the government.

However, the crowd that runs Washington believes the opposite, all evidence to the contrary.

So, instead of allowing freedom to work its magic, the Washington crowd will want to tax-and-spend us out of this mess which will, of course, only make things worse: the programs they will try to implement will be everything that ran the Soviet Union, Cuba and North Korea into the ground.

But, do these Obamanistas and Neo-libs really believe they can do it better, or do they just want you to think they are the only ones who can do it, so they can take your money and decide how to spend it - thus generating a need for "them" to make your decisions for you, perpetuating their political power?

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