Thursday, November 29, 2012

Seeing the Unseen

I don't think I am completely insane.  Sometimes it seems I am surrounded by neurotics and others who have lost touch with the real world.  Or, you could say that I am the one who has lost touch. 

Bastiat talked about government jobs and services.  This argument has been going on a long time.  From That Which Is Seen, and That Which Is Not Seen: 

There is one thing very certain, that when James B. counts out a hundred sous for the tax-gatherer, he receives nothing in return. Afterwards, when an official spends these hundred sous, and returns them to James B., it is for an equal value in corn or labour. The final result is a loss to James B. of five francs. [that's because there were 20 sous to the franc -- mush]

It is very true that often, perhaps very often, the official performs for James B. an equivalent service. In this case there is no loss on either side; there is merely an exchange. Therefore, my arguments do not at all apply to useful functionaries. All I say is,--if you wish to create an office, prove its utility. Show that its value to James B., by the services which it performs for him, is equal to what it costs him. But, apart from this intrinsic utility, do not bring forward as an argument the benefit which it confers upon the official, his family, and his providers; do not assert that it encourages labour.

When James B. gives a hundred sous to a Government officer for a really useful service, it is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes.

But when James B. gives a hundred sous to a Government officer, and receives nothing for them unless it be annoyances, he might as well give them to a thief. It is nonsense to say that the Government officer will spend these hundred sous to the great profit of national labour; the thief would do the same; and so would James B., if he had not been stopped on the road by the extra-legal parasite, nor by the lawful sponger.

But our condition in the present world goes beyond this.  Government has for decades been operating out of deficits.  I am a great admirer of Ronald Reagan for using American economic power to bring down the old Soviet Union and, along with his allies, Thatcher and John Paul II, free Eastern Europe from that evil empire’s grasp.  Still, I think we would be better off today as Americans if Reagan would have compromised less with the free-spending Democrat Congress of the 1980s.  As it was, the federal government continued to spend extravagantly more than revenues increased.  Reagan wished to channel money into the military and improve our technological advantage.  We saw the results of this during the First Gulf War with smart bombs and the Patriot missile defense systems.  One could argue that it was money well-spent. 

At the same time, though, Congress clung to its vote-buying and pork-barrel spending on projects and programs, not merely useless and wasteful, but actually detrimental – more so because the spending continued to increase the debt and deficit.  During the 1990s, despite the so-called “peace dividend” from reduction in military spending, the “balanced budgets” and “surpluses” were not in general revenues but largely in accounting changes that included payroll taxes on the books. 

Meanwhile deficits have continued and monstrous debt has accumulated.  To balance the budget requires a 40% reduction in spending, increase in revenue or a combination of the two.  Unlike Bastiat’s scenario, though, this will not return the money to the pockets of taxpayers.  All of it is borrowed, not raised from existing money in the nation’s Gross Domestic Product.  Not only that, but the GDP includes this deficit spending.  Therefore to cut the deficit means to drastically and dramatically cut GDP. 

The current “fiscal cliff” debate does not address this glaring dilemma.  It is only about whether or not to raise taxes across the board or only on the “rich”.  But deficit spending is the real cliff, and we have gone over it.  I seriously doubt that electing Romney instead of Obama would have changed the situation.  Bush certainly made it worse as did the Democrat-controlled Congress between 2007 and 2011.  Congress and the President have shown no restraint whatsoever and have no intention of doing so.  To rein in spending would absolutely throw the American economy into a clear and massive deflationary depression.  It would also require the shutting down of a wide swath of government bureaucracies, the elimination of thousands of government jobs at all levels, not to mention radically reducing or removing benefits for the Free $h1t Army – the primary Democrat voting bloc. 

In other words, it is not going to happen.  Even a rational Keynesian would understand that our current path will eventually result in a collapse of the entire economy if not the government itself.  Of course, there may not be any rational Keynesians if people like the idiot Krugman are representative.  Perhaps these professorial types do not care so long as they get their tenure and perks.  They have their ideal models of macro-level economic behavior and feel justified in dismissing the “simplistic” views of the Austrians and others. 

The fact is that people are always going to operate for their own self-interest on an individual basis.  Even the “tribal” mind-set of certain groups is a function of self-interest.  I do not dismiss altruism completely as someone like Rand might, but maximizing the benefits to one’s self, family, and immediate circle is of primary importance in making decisions.  This view changes only when an individual’s freedom of choice is removed and one is forced to accept the “greater good” alternative.  It is for this reason that socialist/fascist governments trend inevitably toward totalitarianism.  We have to be coerced into doing “the right thing”, from the elite’s point of view.     

Statism is necessary to support a centrally-controlled economic system – whether communist, socialist or fascist.  It doesn’t matter.  It is impossible for these systems to function and present even the appearance of success apart from the coercive power of the State.  Thus, as a nation moves toward socialism, it will seek to force its citizens to accept certain limitations on their economic activity, the rightful ownership of private property, and the uses of property and means of production.  Frankly, this statist path, along with the research money that it generates, is the reason for the ridiculous embrace and promotion of an obvious falsehood like anthropogenic climate change. 

War, terror, climate change – fear is a great motivator, making people easier to control and manipulate.  The promise of security will sway the emotional types, of which there are apparently a majority in the United States these days and as has long been the case in Europe.  It is sad and stupid, but it is understandable.  The barely educated, heavily indoctrinated masses are, as my father – a one-time sheepherder– used to say, dumber than sheep.   


  1. Nope, you are quite sane.

    Great summary of what is happening.

    This was a bit of an eye opener.

    "Unlike Bastiat’s scenario, though, this will not return the money to the pockets of taxpayers. All of it is borrowed, not raised from existing money in the nation’s Gross Domestic Product. Not only that, but the GDP includes this deficit spending. Therefore to cut the deficit means to drastically and dramatically cut GDP."

    And this was good too.

    "To rein in spending would absolutely throw the American economy into a clear and massive deflationary depression."

    So, there is no stopping the collapse.

    And what I find fascinating is that the collapse doesn't happen on the physical plane. I mean, eventually it manifests itelf physically but it starts with individuals realizing that their virtual wealth is stolen. That isn't all of it but I'm saying no meteor hits us or drought or hurricane is required to collapse the system.

    I'm trying to put my finger on it. Is it is too few producers producing too efficiently? Most people are not needed in the economy to provide basic needs and so much of the economy is the production and consumption of unnecessary goods and services. I don't want to sound like a Hermit/Luddite and I don't want to tell people how to run their lives but I don't think this can be sustained. The continuous growth model really has been been bothering me for decades.

  2. You've hit it, I think. Technology has changed things a lot. I started working on mainframes back in the mid-70s. I wrote my first SAS program on a mainframe using ROSCOE terminals around 1980. We would submit a job and get the output the next day. PCs and high-speed connections, cheap memory and storage have made me much more efficient over the years. I can produce many times the work that I could thirty years ago.

    Moore's Law and all may have helped to give us more time, and efficiency is great. But you still have to produce stuff. It can't just be marketing and accounting, lawsuits and medical procedures. Those are secondary services that, generally, make use of capital, but do not produce capital. Consumer goods aren't capital either. As you say, it is just not sustainable.