A Word To The Monetary Inflation Skeptics

"Screwed."



Devaluing our money like it's going out of style.

Hey, remember when the value of money was objective? Sweet, sweet memories of a gold standard.

H/t Unambiguously Ambidextrous

"We Are All Socialists Now"

Gulp. This is going to be a long four years.

Bush brought the Age of Reagan to a close; now Obama has gone further, reversing Bill Clinton's end of big government. The story, as always, is complicated. Polls show that Americans don't trust government and still don't want big government. They do, however, want what government delivers, like health care and national defense and, now, protections from banking and housing failure. During the roughly three decades since Reagan made big government the enemy and "liberal" an epithet, government did not shrink. It grew. But the economy grew just as fast, so government as a percentage of GDP remained about the same. Much of that economic growth was real, but for the past five years or so, it has borne a suspicious resemblance to Bernie Madoff's stock fund. Americans have been living high on borrowed money (the savings rate dropped from 7.6 percent in 1992 to less than zero in 2005) while financiers built castles in the air.(*)

In other words, Americans want big government without big government. They want to have their cake and to eat it too.

Please wake up, friends to the south. You're being slipped the roofie of socialism and it's going to give you one hell of a hangover. Take it from a country that knows about expensive social programs and the damage that welfarism can do.

H/t Darcey

There Is Nothing To Fear But Fear Itself

One of the most dependable by-products of a recession is fear. You can count on it rearing its ugly head every time. But if the recession is serious enough, as is the case right now, that fear allows otherwise reasonable people to look at the economy with clouded judgment. One is tempted to seek out, and accept unthinkingly, the easiest and most comforting answers to the urgent questions we have about our finances. These are the circumstances that allow a person to consider the possibility of a massive federal deficit with a shrug of their shoulders. "Well," they rationalize, "we have to do something to stimulate the economy and I don't hear many people claiming that a stimulus package won't have that effect."

Please allow me to assure every Canadian citizen that Stephen Harper will unquestionably fail to heal our ailing economy no matter how much money he is willing to steal from Canadians. In fact, the actions that he is taking are fundamentally counterproductive to his explicitly stated goal of promoting economic health.

Unfortunately, those who are itching to defend the Prime Minister for his allegedly savvy political move in supporting deficit economics in the recent budget are the loudest members of the conservative movement at the moment. Although many of these individuals are otherwise quite reasonable, they have been so stentorian in their defence of the Conservative Party of Canada that they have nearly drowned out the voices that are patiently reminding Canadians that the government's plan is based on profoundly unsound and dangerous economics.

So forget whether the budget was a clever political move for a minute. The purpose of having a government is to secure the liberty of a people. It is not to watch competing parties exchange blows by using citizens and their money as they wish.

As Peter Schiff notes, "Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug." The 'slouching beast' to which Schiff is referring is, of course, the dramatic rise in support for government intervention in the economy and the perceived acceptability of incurring massive federal deficits.

Schiff continues:

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.

Basic economics isn't nearly as complicated as the statists on the left or on the right would have you believe. In fact, it is mostly common sense, like the idea that something cannot come from nothing. Wealth is produced by individuals and not by governments. Accordingly, when states inject 'stimulus' money into the economy, it is merely removing funds from the pockets of those who have earned it and preventing them from spending and, more importantly, saving. It is saving that this economy direly needs. We are in our current economic situation because of unreasonable borrowing and spending which has been facilitated and in large part perpetrated by our governments. Only a return to production and saving can correct our economy's fundamentals and restore us to a position of financial stability and strength.

Schiff puts it quite clearly:

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value of those already in circulation. Something cannot be effortlessly created from nothing.

We are currently heading down a dangerous road towards hyperinflation. If this inflation reaches the levels that some economists fear, we will be looking at the prodigious diminishment of our money's value and, as a corollary, a major upwards spiraling of prices.

By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

So what should the Harper government have done? The answer is obvious: absolutely nothing. Anything that the government does will only make matters worse. And considering that government intervention is largely to blame for the severity of our recession, don't you think that they've done enough already?

As Schiff reminds us, in a recession "belt tightening is required by all, including government." I may be inclined to put the point a little more strongly. In a recession, "belt tightening is required by all, especially government." You see, when it comes down to personal finances, individuals mostly possess the requisite sense to understand that borrowing and spending and then borrowing more and spending more is not an intelligent or healthy habit. Unfortunately for us, governments possess no similar common sense and so it is up to citizens to sound the alarm when the state oversteps its bounds. And, as of this moment, the Canadian state is miles and miles passed its bounds.

Harper's stimulus is not merely unconservative. It is unconscionable. So, yes. Be afraid. Be very afraid. But don't allow that fear to prevent you from thinking rationally. We must immediately stop sanctioning Stephen Harper's non-pragmatic pragmatism and begin condemning, as loudly as possible, the Canadian government's actions with regards to the question of 'stimulus'.

Obama: I Don't Understand This Economics Business But I'm Pretty Sure This Is Bush's Fault

US President Barack Obama descended from his well-heated White House today to give the misguided North American masses a shot of wisdom about the economy.

Straight from the horse's mouth:

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis — the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.

I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We've seen the tragic consequences when our bridges crumble and our levees fail.

But don't get him wrong: he loves the American constitution. Just not those nasty parts about property rights and the limited role of the state in the individual's life.

Of course, he's right about tax cuts alone doing little to correct the fundamentals of the economy. Tax cuts need to be accompanied by spending cuts and it is well-covered ground that the Bush administration had a rather difficult time rolling back the spending.

But that isn't the gist of Obama's opinion editorial. Rather, he's looking to throw out the baby with the bath water. He is rejecting capitalism because conservative socialism didn't work. Bush did not govern like a capitalist; he governed like a big government "compassionate conservative" type. Accordingly, the flaws in the Bush method are not the flaws of capitalism. In fact, the truth is quite the opposite. The only tonic to the current financial crisis is a return to capitalism.

The Obama plan will replace flawed economics with even more profoundly flawed economics. Boy, the next four years ought to be a hoot.

H/t Kathryn Jean Lopez

"With All Due Respect, Mr. President, That Is Not True"

Earlier this month, United States President Barack Obama began peddling his transparently Keynesian 'stimulus package' to the American people. Stimulus economics, he seemed to contend, has achieved universal endorsement among experts and so it would be grossly irresponsible to fail to allow the capable hands of the government to redirect funds from private pockets to public coffers.

Barack Obama on 9 January 2009:

There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy.

Unfortunately for the president, several hundred economists beg to differ.

Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

Damn right.

Full page advertisement courtesy of the Cato Institute.

Harper's 'Stimulus' Budget Will Not Stimulate The Canadian Economy

There is nothing even remotely pragmatic about a 'stimulus package' that will fail to stimulate the economy.

So, ask yourselves: which camp in the Canadian conservative movement is truly practical?

The Western Standard:

Whether or not we can agree that the disaster that is the 2009 Canadian budget is necessary politically is up for discussion. More to the point is whether or not the budget will be anywhere near successful in achieving its stated goal of cushioning Canadians in the face of recession and coaxing the economy into recovery.

Tasha Kheirridin, with whom I've disagreed often over the past few years, has a great article over at the National Post's Full Comment.

One line in particular, which appears at the top of the article, is important to understanding what a disaster this budget will be for Canada:

The government cannot put money into the economy without taking it out of the economy first. Thus activity does not increase overall - it is simply redirected.

I can never get over the fact that people don't seem to get this. The government does not create wealth. It can take wealth from Canadians and direct it towards goals that Canadians wouldn't have pursued otherwise (though doesn't that seem odd?) or it can borrow against the taxes of future Canadians (thanks, kids!) to do the same thing.

Essentially, what any "bailout"-themed budget or bill is going to do is take money from the parts of the Canadian economy that have been productive and will continue to grow, or at least recover quickly, in the face of this recession and move that money to parts of the Canadian economy that have been failing or will not recover quickly. Further, intelligent, persuasive, and productive people will become lobbyists as the pot of government handouts becomes larger and work at redirecting wealth and economic activity rather than creating it -- deepening the effects of this redistribution.

How will increasing the proportion of the economy that isn't self-sustaining help us recover from a recession quickly? You've got me. But at least some conservatives and libertarian Conservatives are shaken enough by the budget to start bringing these questions to Canadians' attention.

This article points to one of the most basic flaws in the Keynesian economic scheme. Wealth is produced by private citizens and not by the government. Accordingly, when the state confiscates money from these producers and distributes it to failing industries that couldn't have survived independently of government hand-outs, we are, in fact, doing a great deal of infrastructural damage to the economy in the long-term.

Practical? Try self-destructive and immoral.


ALSO:

Conservative Party Policy: 20 Minutes Fresh -- Always



I can't claim to like Rick Mercer but this video certainly rings true post-budget 2009.

Teh Fred Speaks: Common Sense Conservatism's Last American Defender Explains The Economic Crisis

Fred Thompson turns his acerbic wit against the spend-spend-spend liberals currently petitioning for stimulus packages in Washington.



Tip of the hat to WLMR (aka Willie the Lyon) at the Broom.

Reducing The Burden Of Government

The following is an excellent Center For Freedom & Prosperity video hosted by Dan Mitchell of the Cato Institute. Mitchell lucidly explains the theoretical and practical failures of the Keynesian economic model and helpfully delineates some of its greatest negative consequences in the American context, with special reference to the Great Depression and the results of the Hoover and Roosevelt administrations' commitment to statism.



As Mitchell says at the end of the video, your guess is as good as mine as to why Keynesian economics has remained so popular. What's worse, it's no longer merely the crusading socialists who embrace its assumptions and methods. Witness the massive growth in government size in recent years in the United States under an allegedly conservative administration.

Perhaps by continuing to expose the fallacies of Keynesian economics we will succeed in weaning North Americans off their diet of statism and help them develop an appetite for freedom.

H/t TSC