The People's Republic of America? 37 comments
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I consider the greatest economist of the last century to be Joseph Schumpeter, whose theory of creative destruction has implicitly underpinned the dynamism of US capitalism, at least until now. Suddenly, politicians are intervening to decide which companies are too big to fail, and stifling a necessary reallocation of capital and clearing of economic deadwood.
It is essential and healthy that dysfunctional and undercapitalized investment banks go bust, or that a dinosaur like GM (GM) faces Chapter 11, painful though those events would prove for many ordinary investors and employees. The system as a whole benefits from the reallocation of capital and people from sunset to sunrise industries, and the swifter the process, the more productive the economy at large.
The pain suffered by California as the post Cold War peace dividend slashed defense spending in the early 1990s is a case in point, and set the scene for the subsequent tech boom later in the decade. Government certainly has a role in softening the economic blow to those regions and groups worst affected, but definitely not in picking the winners. What if the government had blocked GM when it decided to develop diesel train engines in the 1930s, in order to preserve employment in railways driven by labor intensive steam? The wartime economy would have been severely constrained as a result.
The market is best left to its own devices when it comes to winnowing out the winners and losers in any given industry; taxpayers' money is utterly wasted in delaying the inevitable and distorting private capital flows. Having tossed hundreds of billions at the financial sector via the Fed, the US government is now under intense pressure to bail out Detroit, by extending no-interest loans of maybe $50bn dressed up as an alternative energy strategy (start with no interest and you end with no repayment).
It all sounds suspiciously like French state dirigisme to me, not so much freedom fries as freedom finance. Not that the appalling financial mess GM, Ford (F) and Chrysler are in should be any great surprise after decades of relentless decline and mismanagement. Who would you guess to be the single biggest category of supplier to the Big Three US automakers? Steelmakers? Component manufacturers?
Actually, it's health care providers like Blue Cross, and therein lies the problem. There is a highly competitive US auto industry but it's based in Tennessee and Georgia, and owned by Japanese companies who don't have the crushing retiree pensions and healthcare burden that hobbles Detroit, and which both politicians and management have been too terrified to tackle; bankruptcy would do the job for them. The interventionist mood in Congress is near term unstoppable and to some extent inevitable given the implosion of financial capitalism as practiced by Wall Street, and both Presidential candidates have plans that call for bigger government activity in the economy in areas from healthcare to infrastructure investment.
In fact, spending has been trending steadily higher since 2001 as seen in the chart (courtesy PerotCharts.com), after a steep decline in the Clinton years (partly driven by the peace dividend).
Recent events in Georgia (see Russian Roulette) and the ongoing wars in Afghanistan and Iraq mean defense spending is heading up (much of the rise is non-discretionary, relating simply to accelerating veterans healthcare and pensions costs), while economic reflation spending will soar in the context of a declining tax base and both Federal and State levels.
I would expect to see the levels of over 23% of GDP last seen in the 1980s recession hit again within 3-5 years, squeezing out private consumption (which as I've said before will fall back to trend at about 65% of GDP, from a recent credit boom inflated 71%). Investors are going to get hit with an avalanche of Treasury issuance, which I suspect the traditional foreign buyers in trade surplus countries like China simply won't be willing or able to absorb; yields must head considerably higher.
This is a major and inevitable trend reversal that should inform long term investment decisions for any wise investor; exposure to US consumer exposed equities and US Treasuries should be minimized.
Disclosure: Author holds SPY 10500 and 1000 put options
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This article has 37 comments:
like them apples, republicans? Doesn't really match your party's rhetoric, does it?
it seems that there is a clash going on between the elite capitalists and the working people, whereby the elitist are trying to create a serfdom here in America where we fought the Brits to get our freedom but the elitists are trying to finish what they couldn't do before, starting with squashing our fundamental freedom with disguises.
The Republicans of today are not for freedom but elitists and the Democrats are commies/socialists who look to restrict our growth; its time for a new group to form and it sounds perfect: "PEOPLE'S REPUBLIC"
However, good ideas which benefit the whole national population and particularly the poor in the population are always washed away in all countries as one or two power groups turn governments into massive shakedown operations and use them for person profit by constructing cartels and monopolies which feed money to what we now call political party operatives.
Like Egypt, Greece, Rome, England, and etc, the end is always the same. It involves a collapse in wealth and power in the state. The remnants become subservient to other states or drift endlessly on there own and become of no consequence like Rome, Egypt, Greece, England, and etc..
The group put Question 1, to abolish the income tax in Massachusetts, on the ballot. If passed, it would cut on-budget spending by 40% and total spending (due to off-budget accounting) by 17%. In my opinion, it is the most important vote on November 4 because it is the one vote that can actually change the direction of this country. And they could use help, since the people who are the controllers and recipients of all those tax dollars are spending $20 million plus and resorting to insane scare tactics to defeat it.
residual traces of good sense and integrity.
Doesn't anyone remember the fundamental idea of capitalism? That is worker productivity is a function of capital investment?
The Laffer curve hypothesis promoted by Republicans is destroying this country - it is patently false; it results in huge deficits that reduce the amount of capital that can be profitably invested. Taxation of consumers to balance government spending frees capital for use by business to increase productivity. Clinton had it right. Keep government spending under control. Keep taxes in line in spending. The result was one of the greatest economic expansions in history.
This is the true path to growth. Borrowing to stimulate consumption is like drinking a can of Red Bull. It's a very short term fix and then a crash.
Taxation has little to do with what the government spends, b/c they can float as much debt as they want and because they budget in anticipation of revenues. For taxes to affect spending, they should be permitted ONLY to spend what has been collected.
And Lastly, it is congress that authorizes spending, not the White House. It is the main reason you want a Republican Congress and a Dem in the White house - less spending b/c the opposition won't let the president spend.
The Republicans controlled Congress under both Clinton and Bush, so why a balanced budget only under Clinton? Why such a disaster under Bush if the Republican congress was so fiscally responsible?
Face it, the Republican party is broken and needs a timeout to get it's act together.
Don't let your party affiliation cloud your knowledge of history. Clinton was cutting budgets regardless of who was in Congress. Here is a NYT article from 1993 when the Democrats controlled both houses.
query.nytimes.com/gst/...
buyitcheap:
Pointing me to the home page of the IRS statistics site doesn't demonstrate anything. You are going to need a more specific location.
You also may want to take a look at:
Office of Tax Analysis (2003, rev. Sept 2006). "Revenue Effects of Major Tax Bills". United States Department of the Treasury. Working Paper 81, Table 2. Retrieved on 2007-11-28.
This non-partisan study shows how the tax reduction act of 1981 led to a major loss in government revenues of almost 3% of GDP
You may also want to examine the Wikipedia article on the Laffer Curve. It is a pretty thorough writeup. They have a link to a PDF of the above citation.
Contract for America
Newt is a ninnie.
Twice traitor is he,
both to the South
and to liberty.
If I had the money
and it weren't no sin
I'd buy a contract FOR America
and his name append.
Thank you for being honest and spewing your gutteral hatred for Obama. Let me take a wild guess... you're an overweight, middle-aged white guy, right? People like you give the republican party the reputation that it enjoys today- yesterday's news.
We need some of the Ron Pauls of the world in our government. But in the end I would not want him as chief executive. I'd like to see him as a governor though. Bring on the new ideas and see if they work.
Obama - I don't think is a lightweight but he is not ready. He needs a big dose of humility to start with. I am also scared that if he is elected that he will be a walking bullseye for all the nutcases out there.
Maybe the constitution needs to be amended to raise the age requirement for President. JFK wasn't ready either. We almost had a nuclear war because of his inexperience.
The office of President of the United States has way too much power. Only a humble man is qualified. Ron Paul is humble and he knows what he is talking about. Whoever wins will wish he did not because the next four years will probably eat him alive.
I doubt the nutcases can get to any President unless it is an inside job. Our politicians protect themselves well.
Here is a thought for you. Arms race destroyed USSR, now it is destroying the US. We were able to cut defense spending drastically during Clinton times because we used diplomacy to resolve conflicts. Come the latest administration, and everything must be solved by force. Well, diplomacy is much cheaper, military is very expensive.
I give a pass on the Afganistan war, even though we should've kown it cannot be won ( Britain and Russia already tried). We should've invested in their development somehow, through Pakistan or whatever and unseated Taliban that way.
Then come Iraq. Everybody said it was going to be a disaster. Now we are stroking flames with Russia.
We need to stop building an empire and fix our poblems at home.
Yes, it feels good to froce everyone to submission. Especially, those pesky russians ( I was born in Russia by the way, so this unti-russian sentiment seems completely irrational to me) and iranians. But it is not good for our economy. We should be smarter than this. If our economy crashes, who is going to be the looser?
Without the wars we would've been so much better off.
From your post, Ron Paul is your man. He would agree with everything you say and so do I.
Liberal, large-government spending policies (Obama) should be avoided. Neo-conservative, large-government spending policies (McCain) should be avoided even more. Looking forward I can only see that fiscal restraint will take either a miracle or a crisis.
I just think handing over a huge pile of money to the overpaid executives who haven't done much of anything right for decades is foolish. Maybe I'm a creative destructionist.
(Probably an easier way to prop up Detroit until it has the chance to electrify would be to initiate single-payer health insurance promptly. Worldwide no other carmaker has to shoulder the Big 3's bennie burden.)
I'll check out the paper you cited - thanks! (I can't believe I'm interested in this stuff, but hey...
wikipedia is not considered a resource for reliable data since it is able to be edited on the fly by virtually anyone.
soliloquy is exactly right - the lower rates were channeled into houses instead of capital expenditures the tax incentives perverted the proper flow of capital into income producing assets and instead channeled them into McMansions.
I'm beginning to buy Ron Paul as the only viable alternative too.
the Federal Reserve System,
income taxes,
poverty,
war,
and most crime within our lifetimes.
(comments and critique appreciated on the whole shebang or any part thereof. Note - certain puctuation keys on my laptop are suffering from `sodapopitis`. please excuse the workarounds.)
Two axioms
1. Everyone owns whatever property that they claim and that they are willing and able to defend.
2. Whoever claims and is willing and able to defend that property is the sole and only government of that property.
Thus, Crusoe Island belonged to Crusoe only as long as no one came along and took it from him.
Thus, North America wound up belonging to the more numerous and more lethal Europeans.
On this planet at this time, a few governments own everything within their stated boundaries and divide up the rest of the property of the world as they wish, choosing when and where they wish to defend their claims.
Humans banded together in order to be able to claim and defend larger amounts of property, giving up actual ownership of all of the property they had previously claimed (including ownership of their own labor and bodies, as well as that of their children) in exchange for the protection and OTHER BENEFITS that a larger, more lethal government afforded. Those that were slower to band together were attacked by larger, more lethal governments and were either killed or became the larger government`s property involuntarily.
Therefore, all governments are comprised of all the people (or descendants of those people) who have (willingly or unwillingly) given their lives and their property to the government, regardless of whether or not the form of government gives them any voice concerning how that government operates. If the people (or some part thereof) who comprise the current government become dissatisfied enough with how their government operates, then they will change it (and not until). In other words, you are going to have trouble getting a revolution started as long as the trash gets picked up on time.
As seen from the above, we need to (legally) realize that the U.S. federal government owns ALL of the nation`s real estate. This fact is quite obvious when you think about it - try not paying the government its `rent` - aka property taxes - for a while and see how long it stays `your` property`. Your `title` gives you only exclusive `right of use` until the government decides that it needs the property back. A `right` that must be enshrined in a constitution is a legal right, not a `natural` right. A `natural right` is one that requires no defense or revolution or constitution or law for its enforcement. For example, `gravity` is the `natural law` that gives you the `natural right` to not float off into space and thus to have a chance to live. Any right not supported by `natural law` is merely a legal right and depends for its continuance (in `Magna Carta terms`) on `keeping the government`s head on the chopping block`.
It then follows that the U.S. government has (by privatizing all the land), denied everyone free access to all of its land and all other property that it claims. and, upon further inspection, we find that the government has not compensated anyone (much less everyone) for that `taking`. The government is not naturally required to make such compensation, and I am aware of none who have paid such compensation (the equi-dollar distribution of a percentage of oil royalties in some countries can be considered as `partial compensation`), but, as `We, the People` ARE the government in these United States, we can have Congress legally pay to ourselves `Adequate and Equal Just Compensation`, compensation which can fuctionally replace ALL forms of personal and corporate welfare and subsidies and boondoggles, including Federal Minimum Wage laws and a phase-out of Social Security.
As a starting point, $1000 per month (of new, non-Federal-Reserve, non-Debt-Money, see below for description and argument concerning) could be paid to every legal adult resident (compensation of minors should, of course, be held in trust to avoid incentivizing `baby factories`).
Since everyone gets the same amount, the plan is not wealth redistributive, but will (in a ``Rawlsian Justice`` manner) give the poorest the biggest advantage (in terms of monthly increase of wealth, percentage-wise) and a better chance to `catch up` than the current totally regressive system that keeps the rich getting relatively richer, through good times and bad. Someone right out of school should not be paying a greater percentage of their wealth in taxes than, say, a `Bill Gates`, but that is exactly the case under the current tax laws.
Regarding the currency we use, Federal Reserve money is privately-owned, which is why we have to borrow to get more of it to give to the bankrupt banks (the ones that have lost all or most of the Fed-borrowed money that we had entrusted to their fine care), the same banks that own the Fed in the first place. In other words, we are creating public debt in order to give the banks a greater percentage of what they already own. We`re like ``a growing kid that has to take out a loan in order to buy more blood every time we have a little growth spurt``.
We need to get rid of the Fed`s debt-money and replace it with our own debt-free fiat currency, backed by the value of all of the real estate in the country (real estate which is, as demonstrated above, factually owned by the U.S. government).
(Note - There should be no problem with the simultaneous use of other currencies, Fed money or gold included, but the ``even distribution`` of our own, debt-free fiat currency (having the least actual value and the greatest actual utility) will probably drive out the use of any other form of money before too long. Even today, anyone can use gold for transactions if they so desire. The good thing about having our own currency is that we will always know how much of it is extant, know that there won`t ever be a `shortage` (caused by hoarding) that leads to deflation, know that banks can`t print up billions of extra dollars to give to themselves (as the Fed has recently been doing), and know that we are not creating any public or private debt as we require more currency to facilitate trade.)
We also need the government to end its legal support of the Fed`s fractional-reserve Ponzi scheme. If people want to risk their money in banks that gamble with less than 100% reserves, then they should be willing to take their losses without any hope of government bailout.
Regarding taxes, non-comsumptive taxes should be transparent and avoidable (and thus arguably voluntarily-paid). The only unavoidable tax should be the one which we can`t avoid, the natural tax of purchasing power caused by the printing of more fiat money (which taxes everyone transparently and equally according to their respective wealth, in terms of currency holdings). Since everyone is taxed by the same percentage on however much of the currency they possess, there is no wealth redistribution inherent in such a tax.
In place of ALL income taxes, we should have a small and avoidable (by the use of cash) debit tax on all electronic debit transactions (1/2 percent or less will be sufficient) in order to begin paying off the national debt and to fund government programs (programs which will be pared down substantially under any Congress that puts this plan into effect). As this debit tax is imposed on everyone equally (as all taxes and benefits and laws should be) there is no wealth redistribution inherent in such a tax. Let the market do its thing. Get rid of all income taxes. No more IRS, no more tax filing at all, no more chasing businesses offshore with tax craziness.
Regarding Healthcare, we need to get the AMA and FDA to quit restraining supply and get thousands more doctors and other healthcare professionals trained up and get access to WHATEVER drugs adults want (from whatever source those adults decide thay want to obtain them) so that the market can get the price of normal medical help and pharmacology back into an affordable range paid out-of-pocket. (Cuba has 4 times as many doctors as we do per capita and medical treatment down there is DIRT cheap.) If there is going to be any `universal` insurance it should only be for major medical after, say, $2000 has been spent out-of-pocket. (``But, what about the poor?`` Remember, every `poor` adult is getting $1000 a month and they can work as much as they want on top of that with no penalty...there will no longer be any `poor`. A heck of a lot less crime, also, and, once we take this global, by annexing foreign states as we did The Republic of Texas, no more wars, because everybody will have a vested interest in everyone else - including the US government - doing well.)
(Also, if we had 3 or 4 times as many dentists as well, dental offices could stay open around the clock and dental care would also become affordable for all, out-of-pocket.)
If we want to get the US to kick its `crude (oil) habit`, we could have Congress add on a 10% surcharge at the gas pump (bumping it up another 10% every six months) and rebate it in monthly equi-dollar amounts to every registered car OWNER, regardless of how much or little they drive. That causes the biggest oil consumers to subsidize everyone else with no BOTTOMLINE cost to taxpayers. Cheaper alternatives will become apparent and people will use them with no direction from the government needed.
A system that rewards intransigience, gambling and stupidity seems to me to be the main problem. As Emerson (not Jefferson) said,``The government is best which governs least``. How great would it be to have a government that governs hardly at all except for the parts we set up to work `autonomically`?
The American Republic
A Letter to The United States Congress and to The American People
Americans have lost their way by choice and coercion propagated by those that wish to have it all. Americans that have plenty are not bothered by the confusion and rape of the land and its people. The Americans that outnumber the wealthy are the ones that suffer in America. The idea of a Republic of America was an original perfect form of government. The ones that made the choice to write on paper their ideas for a perfect form of government were themselves imperfect. The document called the Constitution is a promise on paper and in spirit to Americans to protect and to serve Americans, our Nation with truth. That has not happened, thus the discord and confusion within our nation to Americans.
Our Nation, our Homeland has been sold, raped, and ravaged by many outsiders and insider traitors, which have allowed our eagle our National symbol to be locked in a cage with little sustenance. Our Star our symbol of truth has been buried in the sand with the trash of other nations.
This is not acceptable, and will be resolved.
Our current Congress has forsaken our nation by giving little and taking so much for themselves and their financial supporters. Congress has allowed Capitalist Businesses from within and out to take over our Nation and rule by the power of selfish money and lies.
Our Great and once powerful Military are ruled by those that give false and deceptive orders coupled by untruthful commands. They, the soldiers of our fortunes are engaged in ambiguous battle campaigns fighting under and for False Flag counter intelligence fueled by deceptive propaganda rhetoric. Human lives on all sides are dying for the few that have lost their way thru choice.
Our President, our leader of our Nation has with his advisors and financial empire brokers reinforced the ultimate crime to humanity by lying to himself, his family and his country. Our business leaders have lied to our Nation and prostituted our ingenuity to others for unnatural profit.
There are too many Americans that have some or little or none, and that Ladies and Gentlemen is not acceptable. Congress and others have failed to provide even the basics for our Nation to thrive. Too many selfish secrets, many which are known amongst a few, are tearing our Nation and Planet apart. By allowing those that know what lies behind the looking glass, to control the masses at will is an affront to GOD.
There is too much advertised hatred and racial prejudice fed by ignorance and choice. Religions have taken front seat to freedom and truth, thus confusing those that wish to know the truth, by self-choice.
On September 11, 2008, in Los Angeles, California, United States of America, we Americans can and will make a choice to free our Eagle from its cage of captors, allowing it to be stronger and fly higher than ever before, and unearth and restore our Star to its rightful brilliance from the sand of trash of other Nations, and take back our country from those that have stolen it from us all. Annuit Copetis.
We have learned from the past, and we have learned from the present, now we will make a choice to either continue with America as is, or Change America to a True Republic that truly represents the sincere interests of its people and other Nations. It is not an impossible task to overcome; all it takes is an honest choice and the will to sacrifice.
We are a Legion of many, who will live a life of peace, and have respect for all living things, while having considerations for those who are different, and look for ways to truly accommodate those who are slow in understanding.
We support the poor, helpless, and defenseless people. We support the freedom of Women, we support the sane treatment of animals and the environment, and we support the freedom of religion and expression. We do not support ignorance, period.
We are a growing nation of people that encourage all Americans to become part of the New American Republic!
CHANGE FOR AMERICA FOR AMERICANS!
NOVUS ORDO SECLORUM
Judah Ben-Hur, Sui Juris
Ambassador
The American Republic
Diplomatic Mission: North America
A Sovereign Republic