world of permitted greed and excess
Hmmm. Well, a damper needs to be put on that.
We can’t have humans pursuing self interest, can we?
Anonymous Comment From Cafe Hayek Regarding Obama Speech at GMU
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Tag Archives: Obama
The $8 trillion bailout
There was $29 billion for Bear Stearns, $345 billion for Citigroup. The Federal Reserve put up $600 billion to guarantee money market deposits. All told, the price tag so far: $7.2 trillion. Now comes President-elect Barack Obama’s economic stimulus plan. The bill is getting awfully close to $8 trillion.
Text and photo from cnn.com
That Darn Free Market
Kurt Bouwhuis, Mackinac Center Intern
“What we’re seeing — even before Obama is sworn in — is a changing of the guard, so the new folks are ready to take charge on Day One.
Some Republicans have predictably begun to grumble about the size of the stimulus package, but here’s a question: What would you in the GOP do differently? Would you continue the deregulation that got us into this mess? And didn’t you folks break the bank over the last couple of years? Aren’t even some of the most conservative economists now advising spending as a way to get ourselves out of this hole?” – Gloria Borger
Placing political labels to the side, I have two main issues with this short excerpt from an article titled Obama Takes Ownership of the Economy by Gloria Borger. First off, did deregulation cause this “crisis”? Second, you are not an economist at all if you believe more spending will get us out of this mess.
When blaming deregulation and the free market, it makes me think of a recent post from Cafe Hayek: “By “free market”, they must mean politically driven lending practices, price fixing in labor markets, price supports in agriculture, tariffs in steel trade, illegals relegated to permanent underclass, artificially low interest rates, government enforced monopolies, and fake money.” – Seanooski
Market regulation will never work effectively. Why? Because there is a relatively small number of regulators trying to control a relatively large group of individuals. This leaves a small body of knowledge trying to outsmart a large body of knowledge. Additionally, there are some individuals that understand the framework of regulation far better than the regulators. What is the result? Individuals will “break” the system.
Think of it this way: Suppose I have to design a security system to protect the world’s largest diamond. I hire the best security design team to constantly design and update the security system. Will I ever complete a system that is 100% safe? Absolutely not! Why? Because there are individuals (who are most likely smarter than my top notch design team) working on a way to break the system and obtain the diamond. Regulation in the market works in the same fashion.
“Economists” think spending will get us out of this mess… What got us into this mess? Among over regulation and a failing monetary policy, I would have to say borrowing money from foreigners and spending it all on consumption. In the past, the United States would borrow money to save and invest. We would then invest our savings in capital to increase our future production. Recently, the United States borrows money to consume things like buying a new car, remodeling the kitchen, etc… If we want the economy to be productive in the long run, we must allow the market to fall into a recession where we begin to save and invest rather than consume.
Additionally, CONSUMPTION DOES NOT CREATE ECONOMIC GROWTH. How do businesses expand? They borrow money from investors to build capital. INVESTMENT CREATES ECONOMIC GROWTH. The economy will not benefit from the government borrowing or printing money to offer consumers another stimulus package. All this does is encourages the same consumption that got us into this mess. We cannot expect foreigners to keep producing goods and services for free. Although it’s a tough job to consume all these wonderful goods, perhaps we should try producing them.
Don’t Feed the Animals
Kurt Bouwhuis, Mackinac Center Intern
“You actually have a consensus among conservative, Republican-leaning economists and liberal, left-leaning economists. And the consensus is this: that we have to do whatever it takes to get this economy moving again, that we’re going to have to spend money now to stimulate the economy,” Obama said on the program, which aired Sunday.
I hope “whatever it takes” does not include creating money out of thin air and distributing it to individuals and businesses at arbitrary quantities that bureaucrats sees fit. I also hope Obama and his board of economists understand that you do not grow an economy with spending, but rather, investment. You will see short run benefits from spending, but you will see stable long term growth with investment. This is assuming there are no entities messing around with the interest rates (Fed), sending inaccurate market signals to capitalists and entrepreneurs, causing an inefficient allocation of resources.
Sounds to me as though this “market crisis” will convey enough insecurity to pave the way for the unveiling of a new New Deal. Together, these two parties will lead us down a path where we will continue to live way beyond our means through the creation of numerous short run solutions. If we truly want to “fix” the economy, we may want to look at what makes an economy prosper. I would argue prosperity comes from allowing an economy to create goods and services that are demanded by consumers around the globe at a profitable price. If your economy is creating goods and services that people want, your economy will prosper. Aiding the economy has nothing to do with printing money, or stimulus checks, or public health care, or tampering with the interest rates, or subsidizing, or regulating… An economy will prosper when it is allowed to produce.
Bailout the “Big” Three?
Kurt Bouwhuis, Mackinac Center Intern
“In the United States alone, U.S. automakers directly employ about 355,000 workers, and another 4.5 million Americans work in sectors that are supported by the auto industry. Auto manufacturers are the largest purchasers of U.S. manufactured steel, aluminum, iron, copper, plastics, rubber, electronics and computer chips. Hundreds of automotive suppliers in all 50 states rely on U.S. automakers for their core business. Last year, the auto industry purchased $156 billion from U.S. auto parts suppliers. This industry is vital to millions of citizens in our states and across the country.”– Jennifer Granholm
Would all those jobs vanish off the face of the earth if the big three went under? Would consumers instantaneously demand less cars? Absolutely not! Another automotive manufacturer would need to fill in for the decrease in supply of automobiles. Foreign automotive manufacturers currently employ United States auto workers and would continue to do so if the big three went under. There would be an abundance of unemployed automotive labor in the United States, which one of the many foreign manufacturers would surely utilize.
Let’s suppose the worst happens and all these jobs vanish entirely. In the short run, the economic impact would be catastrophic. We would have a large spike in unemployment, as individuals reallocate resources in the economy. In the long run, however, would be much better off? We would be better off because we would be eliminating entities that do not create wealth. The big three currently combines raw materials, labor, and capital in such a way that the outcome is a good that is valued less then the sum of it parts. Growing such a business model hinders economic growth. I’ll illustrate this point with a simple example:
Suppose I directly employ 5 million people in the process of making encyclopedias. Before I know it, this new technology emerges called the Internet. This new technology delivers infinitely more information that is dynamically updates at a much lower costs. Over the next couple years, my sales begin to decline. I start laying people off, and cutting back on production. My company begins to show losses. But wait! I have numerous suppliers across the country, with business models that depend almost entirely on my encyclopedia production. Should the government bail me out?
Why not? The United States Government seems to have a fancy for investing in failing entities. In fact, Jennifer Granholm, has made a new friend who can save the American automotive industry. “The bottom line is (Obama) is committed to this industry surviving and thriving,” Granholm told the Free Press in Lansing, Mich. “It is a great statement of confidence in his belief in the industry and it’s importance, not just to Michigan but to the rest of the country.” — Jennifer Granholm
McCain and Obama Talk Science
–Lauren M. Ruhland, 2008 MCPP intern & editor, MichiganScience
Last year, a group of citizens interested in science decided to invite the major party candidates to an independent debate on science and technology policy and founded Sciencedebate 2008 in the process. Both Barack Obama and John McCain declined to debate the issues face-to-face, but each agreed to answer Sciencedebate’s 14-question survey on topics ranging from national defense and health care to innovation and the state of the world’s oceans. Among the highlights:
On innovation: Obama says he would increase science funding and funding to Science/Technology/Engineering/Mathematics (STEM) education, citing our technology trade deficit with China as a symptom of problems with the current system. McCain emphasizes the “well-established entrepreneurial spirit and creativity of America’s thinkers and tinkerers,” but also promises funding hikes for research in growing fields like nanotech. He would also create a White House Science and Technology Advisor to guide the nation’s science policy.
On climate change: Both candidates support a cap-and-trade system to manage carbon emissions. Obama says he would work with the United Nations and fellow G8 members to address the issue; McCain would institute big incentives for the development of zero-emission autos.
On education: Obama and McCain both want to spend more money educating America’s schoolchildren, who lag far behind their peers in math and science. Specifically, both hope to increase teacher pay in order to attract more qualified science teachers.
The whole thing is pretty long, but it provides a lot of insight into the policies that could come into effect under either of the likely next Presidents. Both McCain and Obama suggested spending increases or expansion of current programs in almost every question.
