America Swings like a Pendulum do...

The concept of rational expectations is not an oxymoron. Rational expectations would lead workers and firms to make predictions about the effects of monetary policy and there would be no effect on unemployment. You wouldn't have to worry about losing your job (except for the peripheral effects of other people not using rational expectations as a basis of their negotiations).

This concept helps me make a point about cause and effect. If you help Peter, you hurt Paul. Monetary and fiscal policies cannot effect long-run economic changes. Therefore, these policies are bandaid policies that cover up the injury and postpone its natural return to equilibrium. If you use iodine on a cut instead of a bandaid, your cut will heal faster but the initial pain will be greater.

In order to achieve equilibrium and have a stable economy, we need to abolish the Fed and get the government out of economic policy. Economic data has shown time and again that equilibrium will be achieved despite what the Fed or the government does. Their actions change the short-run dynamics and exacerbate the problems; extending the length of economic downturns.

Think of a swinging pendulum. If you leave it alone, it will eventually come to rest pointing straight down; its point of equilibrium. If, instead, you give it a push toward the center when it has almost reached the left or right end of its swing, thinking that this will help it reach its equilibrium point faster (because you are pushing it toward the center), the actual effect will be to increase its swing. It will then move farther the other direction than it would otherwise have traveled. The more you try to help it, the wilder its swing will become.

It may be true that you can help achieve equilibrium faster if you push the pendulum to the left just after it has started moving to the right, but in economics, that point is hard to predict. Or impossible. The reason is that the data used to determine the swing of the economic pendulum is not available until the pendulum has moved to a far different position.

Keynesian economics is bandaid economics. Hayek economics is iodine economics. Unfortunately, almost all politicians follow Keynesian economics because the bandaid feels better and has colorful cartoon illustrations on it.

Jim

Simple is the Solution... now what's the question?

Capitalism is not the problem. The problem is corruption and lack of law enforcement. DC and Wall Street are so intertwined it's like they are two divisions of one entity, each helping the other to do their job in a manner that is mutually beneficial. Who was helped by the bailouts? Wall Street executives. Who conducted the bailouts? Ex Wall Street executives. Who was complicit? Blatantly, two congresses and two administrations, but there has been less blatant collusion for a century. Due to their corruption, Government is the problem.

Capitalism is the methods used to capitalize on situations available in the environment that has been created in which to operate. However, though the environment is technically the same for all, some are allowed to operate outside that environment and operate in a manner that would be illegal for you and me. It is illegal for them too, but they know they won't be brought to justice, and if they are, the justice will cost less than their profit. Government is the problem.

Capitalism is not the problem. Government's original role was to protect individuals' rights. To intervene when other individuals or entities violate those rights through fraud, theft, physical harm, or whatever. Transactions can be freely undertaken by and between individuals and other entities. Each party can know the details of the transaction and decide to enter into it or not. When one party does not uphold its end of the bargain, the government must intervene, otherwise the government has no business in the transaction. Instead, the government tries to legislate transactions and alter the environment under which these transactions can take place. Government is the problem.

Take, for instance, health insurance. The government and the insurance industry, along with the AMA and the pharmaceuticals industry, set up a system that would dictate how people would get medical treatment. The AMA said, "No chiropractic, no Eastern medicine, no homeopathy". The pharmaceuticals said, "Vitamins are bad, drugs are dangerous and need to be prescribed". The insurance industry said, "We need to create an environment that causes all insurance purchases to go through employment so we can sell big policies to large groups instead of small policies to little people. It must be tied to employment since that is where most of the healthy people are". The government said, "Ok. We'll regulate drugs to increase the cost, we'll disallow treatments not approved of by the AMA in order to create a monopoly, and we'll give tax breaks to people who buy their insurance through work". Government is the problem.

A different kind of example, the Department of Education. "We think all children should be vaccinated; if you don't get all your students vaccinated, we can't line the pockets of the pharmaceuticals and we won't send you any of that money your state sent us in taxes, so DO IT!". "We want all kids to be in school, regardless of their ability, their desire, or their demeanor. Therefore, we will pay you for each child you can get to say 'present' each day. The more you get, the more we pay. If you expel Big Bad Billy Bob, we will pay you less. Go ahead and let him disrupt class and terrorize other students, just MAKE SURE HE GETS TO CLASS!". "We decided that we want no child left behind. The way we will accomplish that is to ensure that you allow no child to forge ahead, thus leaving others behind. We will implement this plan with certain tests. Your job is to teach the kids how to pass these tests; if they learn something along the way, great. If you don't do what we tell you, we will close your school, so DO IT!". Question. Once we achieve 'No Child Left Behind', and everyone gets a college degree, who will pluck chickens? Government is the problem.

The more laws our government passes, the more corruption we can (and do) have. These laws that are written to guard against these capitalists are aimed toward the little capitalists to keep them from competing with the big capitalists. The big capitalists are nice people; they volunteer their time to help government by actually drafting these laws against themselves! They even help congress to create the loopholes they need in order to operate unencumbered. How nice is that! The more laws our government passes, the less freedom we have to make our own choices. They help us by telling us we can't buy Penicillin without their permission. They help us by giving us a tax break on insurance, as long as we buy what they allow, from whom they allow, with the terms they deem appropriate. Politicians allow this to happen. Government is the problem.

If government had little power to control people or economics, she would not have any currency to bargain with when the lobbyists come knockin'. Corruption must have a currency or it can not be transacted. If we lessen government's power, we lessen corruption by the same degree.

Using one of the examples above, what if the federal (and state) government did not collect or distribute tax money for, or make rules for schools? The county would have to collect money for school funding and it would directly affect those who are paying for it. It would be much more efficient, right now we send $100 to DC and get $60 back. If this were all done at the county level, it would be $99. Then, if Johnny is a bad kid, we could kick him out of school and send him to chicken-plucker school, or carpentry school, or whatever would work best for him. Simple is the solution.

Jim

Deficits are illeagal, immoral, and unethical

I read this question (the actual question is the last sentence):

"History is unfolding right in front of our eyes, in excruciating slow motion. Economic and financial records are being broken every day, it seems. Consumer prices plummeting. An unprecedented housing market collapse. Huge companies going out of business overnight. Dizzying price movements in the stock markets. The old saying "Who'da thunk it"

In case the previous question was not hypothetical:
Two answers are Ron Paul - as far back as 2002, and Peter Schiff - as far back as 2006 (find the videos on YouTube). Paul was laughed off the Presidential debate stages and Peter Schiff was laughed off the Financial shows (before the tanking economy).
I appreciate this person's discussion of the causes of economic calamity and the result of money printing (not shown), but this is not an 'iced tea on the porch' conversation; in the words of Joe, "This is a big f*$^@ing deal"! Think of it like this. For all intents and purposes, this started in earnest with Reagan, enabled by Nixon:
* Nixon removed the last vestiges of the gold standard from our currency ("We are all Keynesians now"). He installed the air pump on the giant jumping balloon for the kids to play in, but he did not turn it on.
* Reagan turned on the air pump by borrowing gobs of money (by '80s standards)
* Bush Sr. cranked up the voltage
* Clinton left it alone (He had a negative deficit, but not from spending cuts. That was the dot.com boom)
* Bush Jr. cranked up the air some more. That helped for years, but then we started running out of source air, so he added another pump then said Bye Bye
* Obama said Hi Hi and added another pump, two capacitors and a turbo-charger. The atmospheric pressure on the outside of the tent/balloon went to 0.1; which is not a vaccuum. So if matter exists in the source, it can be extracted but it takes a lot of pumping to extract that last bit of air out of the fed.

So now the balloon is aired up, even if precariously so, and the economy is functional for most. But what happens when the tent starts to deflate again and there aren't enough pumps to keep it pumped up? That's when the inflation will really kick in because their solution is to print money (pump air). A teaspoon of sugar in a cup of coffee makes the coffee taste sweet. A teaspoon of sugar in Lake Superior makes an empty teaspoon. Dilution will happen for dollars, and when that happens, the tent is coming down on the heads of the cute little children and they won't be nuthin nobody cin do bout it. (What to do about it on request...)

Will it happen this year? Not before December at least. Turns out, President Obama has an extra pump hidden in his trunk! Come September, he's going to pull it out and hook it to the tent, then it's pedal-to-the-metal! The extra pump I speak of is the rest of the $787B stimulus. Elections hinge a lot on the economy, so I expect the economy to get one last boost in September. Then our source air will be completely extracted and the dollar will fail next year.

Deficits are illeagal, immoral, and unethical, and those who don't understand that are deficient in basic arithmetic. Or corrupt. Someday I may break down a transaction to its simplest terms and explain it; but not today.

Jim

From Uncle Monte...

For your consideration:

Once upon a time, on an acreage far, far away lived a kind and benevolent man named Morgue.

Sharing the acreage (laughingly called Lee's Last Resort (LLR)) with Morgue were his beautiful wife, Lee, and a large population of birds. LLR was covered in oak trees, which made good nesting grounds for the birds. There were 30 or 40 quail and about the same number of other birds of maybe 10 different species.

Being benevolent, Morgue began feeding the birds by spreading seed on the ground for them. Every morning the birds would come down from the trees and grass and feed on the seed Morgue had spread for them.

The birds no longer had a need to forage and the population grew. After a few generations (a generation is one year in the bird kingdom) the birds started to lose the ability to forage, they became dependent on Morgue's largesse.

Morgue noticed that the birds had developed a sense of entitlement; they were entitled to the seed provided by Morgue. If he were a little late in spreading seed in the morning, some would scold him. One particular species, which Morgue called rusty birds because of their rust colored cap, became so bold that they would eat out of his hand. If they found he had no seed in his hand, they would become very insistent, virtually yelling at him.

The bird population stabilized and they all lived happily ever after.

The moral of this story:

Whose fault was it that the birds became dependent on Morgue for their livelihood and that they lost their ability to support themselves by foraging?

Was it the birds themselves who had merely discovered a new way to support themselves? I don't think so. They had been conditioned over several generations to accept this new livelihood as their right.

Was it Morgue whose benevolence had caused the whole thing? I think so. Although Morgue probably didn't set out to make the birds his dependents, the result was predictable if he had only thought about consequences.

The analog of this story in human society is easy enough to see; LLR is a microcosm of America's society today. Starting with the New Deal and continuing through the Great Society to this date, the federal government has been providing the livelihood for a large segment of our population. Is it surprising that, after several generations, those receiving this largesse have become dependent on the government? Is it surprising that those people have come to feel entitled to the largesse? I think not.

Should we blame the third generation resident in subsidized housing in Chicago or the third generation welfare recipient in Washington for their dependency? I think not.

The blame rests on the statists who have owned this country since the Great Depression. I think most of them are motivated by feelings of charity much like Morgue was initially. I suspect, though, that some of them are motivated by a desire for power, for control over others. It's those power seekers who have been in control of the government for decades.

It shouldn't be surprising, then, that the dependent population has grown to the point where they can swing elections to those who promise to continue and even increase the largesse of the federal government. Let's not make the mistake of blaming the dependent population, though. The blame rests with the power seekers and their allies.

First: Stop the Train!

We have very important elections coming up in November and we need all the help we can get to make sure we support the right candidates. We want to find and support fiscally conservative, constitutional candidates so that the houses are split with 2 major minorities (establishment Democrats and establishment Republicans) with the remainder of the houses filled with 'We the People' officials. Think for a minute about this split in the Senate:

45 Democrat
45 Republican
10 We the People

If those ten were true, honest to goodness, red-blooded American patriots, how much bad legislation do you think would pass Congress? Theoretically, none! I don't know about you, but my heart would not be broken if no legislation was passed in the next session of Congress. This ratio would stop 'progress'. If we had even more 'We the People', we might be able to get this train in reverse and start peeling back some of this stifling legislation that has been growing on, and smothering, our Constitution. But even if we can only stop the train, we will be able to build our power. We have to stop the train before we can put it in reverse.

Jim

Why can't people comprehend these numbers?

The U.S. Economy is Unsustainable

Why can't people comprehend these numbers?