Calling It Reform Doesn’t Make It Work

“Government is a health hazard.”

-P.J. O’Rourke, The Liberty Manifesto

    Any attempt to create a national health care system is certain to backfire unless some basic reforms are undertaken first.

    The problem with health care is a problem of supply. There is not enough to meet demand, so the market rations it. Giving more people money for health care will only raise the price to absorb the extra dollars, without increasing the amount supplied by one iota. In fact this is exactly what has happened over the last several decades as health insurance coverage has broadened. (Insurance also creates huge amounts of paperwork which eats up the doctor’s valuable time, without contributing anything at all).

    We have an artificial bottleneck on the health care supply, created at the instigation of the AMA. The educational requirements for physicians (and even nurses) are absurd. In the US, to obtain a prescription for a common antibiotic you need the permission of someone with five to ten years of expensive university education, much of it unrelated to medical practice – the permission to buy a medicine will often cost you many times more than the medicine itself. Yet you can easily look up the side effects and interactions of any medication for yourself, and then you will know more about it than the doctor probably does. The only experts on medications are pharmacists – who aren’t allowed to prescribe.

    If you thought the ten-year training makes our doctors better, think again. A good third of the curriculum has nothing to do with medicine at all, and hardly any of it gets to the business of actually diagnosing illness and knowing the right treatment (and you could look the latter up easily enough for yourself). When a new American physician goes into practice, her useful training is just a couple of years. Can your doctor solve integrals, read French, and debate the merits of Confucianism? Do you care? Well, that’s a good deal of what you’re paying for (see “Education is Class Warfare” for more ranting on this topic). We spend more per capita on health care than any other country, but we have a second-world life expectancy.

    In fact nurses could do the great majority of what doctors do, and increasingly in most states the highest rank of nurses (PA/NP) are doing so – which has led to whining among doctors that the PAs should have seven years of education, which of course would cut down on the competition and preserve the ability of doctors to bleed you dry.

    The claims that high health care prices are caused by liability issues or by the uninsured are lies. Rather, it works the other way around; people sue doctors because they can’t afford the bills, and health care was relatively much cheaper when few people had insurance. It’s the insured people who drive up the cost, because people consume health care more readily when they don’t pay for what they use. Malpractice suits only result in the indigents’ costs being passed on to the insured which they would be anyway. Making health care affordable would eliminate the lawsuits and the need for insurance for ordinary medical expenses, not the other way around.

    Lack of insurance is NOT the problem. Less than a fifth of the population is uninsured. Furthermore, many of these people choose not to carry insurance because they don’t feel that it’s worth the price – they are mainly younger people without health problems, who are indeed cheated by group health plans. If they do have a health problem, the uninsured do not receive full medical care – their only option is to go to the emergency room, which they usually avoid, and even then hospitals will deny them care to the greatest extent possible. Of the care they do receive, a large portion is paid for by themselves or public assistance. Uncompensated care for uninsured individuals contributes only a small fraction of the total demand for health care – less than 5% even at the outrageously inflated prices which the uninsured are billed.

    Giving more people insurance, however it is paid for, can only increase the demand for health care, and it will do nothing to increase the supply. More insurance = just as many people go without care, but the price goes up.

    The market will not help with this problem – rising incomes in the health care industry cannot draw enough people into it. The incomes of doctors have gotten so ridiculously high that further increases actually cause a drop in the supply, as doctors work fewer hours, take more vacations, and retire earlier. (The price supply curve for the time of physicians has a negative slope, for those who know what that means). Can anyone remember when doctors worked all week like normal people and didn’t retire until old age?

    Even if more people want to go into medicine, they can’t. The supply of trained medical personnel is strictly limited by the capacity of the medical schools. The tuition goes up, of course, to meet the rising demand, and graduates have incredible mountains of debt, but their number is not much increased. Even if it was, million-dollar incomes don’t necessarily attract the kind of people into medicine who ought to be there. Who would you want for a doctor, the person who cares at least a little about your health or the one who only wants a new Rolls Royce every year?

    The only way to bring down the cost of health care is to increase the supply. We have to stop squandering our limited education resources on superfluous crap, build more medical schools and hospitals, and train more doctors, nurses, therapists, lab technicians, radiologists, etc. etc. That won’t happen unless it’s done directly and with public funding. Anything else will just result in money being drained into the existing system, which is a proven and effective way of screwing you (literally) to death. If the market were capable of correcting itself or even reaching equilibrium, it would have done so long ago.

    We need to eliminate the absurd barriers to entry into the medical professions. If you’re willing to pay extra for a doctor who can discuss Nietzsche vs. Stirner with you, go look for one. We need shorter, more focused education. We need increased roles for the under-utilized and less over-educated RNs and LPNs, and for pharmacists.

    We need to make medical training accessible to any young person with suitable ability and inclination, not just the wealthy. That means not only building more medical schools, it means 100% public funding for the students. Sounds like it would cost a lot of money? Wouldn’t it be a bargain compared to the blood money we’re putting up now for shitty insurance and three-minute doctor visits?

    We need to eliminate the prescription requirement for anything that’s not genuinely dangerous, including lab procedures. If you want birth control or a blood test or an X-ray, you should be able to get them at the provider’s cost without having to bribe a millionaire doctor as well.

    We need to curb the pharmacy giants. If they can’t make a profit selling medicines at less than 60000% markup, I’m sure the government could manage to produce and distribute patent-expired medicines for a lot less. Newer medicines are usually only a marginal improvement anyway, if at all.

    We need to put a ceiling on what doctors can charge for services, not just to bring the prices down but to make doctors take on a few more patients to pay off their Rolls Royces.

    We need to stop providing insurance for routine health care. Will some people do without? Yes, at least until supply increases. Some people are doing without already. It’s the supply that determines how many people get health care – insurance only determines which people. The federal government can lead the way by changing the insurance it provides – Medicare, Medicaid, employee benefits, etc. – to eliminate coverage for minor medical expenses. To make up for it, they can provide complete coverage for catastrophic medical expenses.

    Arguably, we need a national health care plan that would insure everyone against catastrophic health care costs, so no one would face bankruptcy – or death – simply because they are unable to afford insurance (or are cheated by an insurance company). This would also reduce employment overhead and make it much easier for businesses to hire new employees. For minor problems or elective surgery, no insurance should be provided or allowed – that would discourage people from wasting the doctors’ time with their hangnails, and eliminate the need to fill hospital beds with patients who only need them because they are too heavily insured (hence profitable) not to be admitted. Vaccinations and preventive screenings should be covered only if that is cost effective in reducing major care costs.

    With prices under control and individuals bearing the cost of their own routine doctor visits, everyone should be able to pay for their own catastrophic health insurance without drawing on public funds – but if not, so be it. Maybe public insurance wouldn’t be needed – but given the reputation of insurance companies for cheating people, I think it’s just as well that they be replaced with a public policy that cannot raise your rates or cancel your coverage when you get sick.

    What we do NOT need is increased health care coverage without first addressing the problem of supply. This will accomplish nothing but driving the prices up even faster.

    We also do not need a government-operated health service. Government bureaucrats are certainly not going to do a better job of managing hospitals than is already being done, and instead of rationing health care based on ability to pay it would be distributed by political preference – a nightmare for anyone not living in a major city, given the nature of the administration likely to implement such a plan.

    What we do need, first and foremost, is to abolish the AMA, one of this country’s best funded political lobbies. They are the ones responsible for the health care crisis, and nothing can be done about it as long as they have power. To be on the safe side, we should probably also abolish every Congressvermin that has taken their money. That should eliminate about 535 of the bastards. At the very least we should force them to use any public health care that they foist on the rest of us.

Offenders of the Faith

“Or how can you say to your brother, ‘Let me take the speck out of your eye,’ and behold, the log is in your own eye?”

-Matthew 7:4

    After an excessive number of political rants, I’m going to take a break and tackle a less sensitive topic: religion. I promise to be just as insulting, if not more so.

    I’m not going to try to argue whether God exists: if you have enough brain matter to fill a pudding cup (and I am talking about the ridiculous little kiddie-size ones that only serve to remind you how good pudding tastes) you can tell that God is either dead or asleep at the wheel. “Intelligent Design” is the dumbest theory ever invented to support God’s existence; a better one would be “Malicious Idiot Design”. If you’re one of those who believes that an obscure nomadic tribal deity created the entire universe in a week six thousand years ago, deliberately designed it to look much older than it is, created trillions of galaxies for the sake of one tiny planet, peopled it with creatures who can’t help sinning and tormented them for being sinners, and then murdered His only child because it was the best excuse He could think of not to burn every single human being in Hell for eternity – and, furthermore, that this is a good thing – then you might as well not read any further. You’re not the kind of person I’m trying to piss off right now.

    If on the other hand you are one of those who believes that you have the right to not only believe whatever you want, but to rub your superiority in the faces of the majority you despise, demonize them, and not be subjected to recriminations and the odd death threat, you are right in my crosshairs. (My political rants don’t count because I don’t mind being hated by greentards, randroids, and other trash, and besides, I’m always right.)

    Of course I am (like all intelligent people) an atheist. I think that people should have the right to believe whatever they want without being penalized for it, and not be forced to participate in or subsidize any religion at all. People should not demand tolerance from those whose beliefs they mock and despise, when they are unwilling to grant the same tolerance themselves. They should not have the right to demand that every visible trace of conflicting belief – even atavistic Yahweh-worship – be expunged from public life. If the right of the majority to hold and express its beliefs is not protected, can we expect that the right of the minority will be?

    Lawsuits over a Nativity scene at a county courthouse, over the Boy Scout’s use of the Pledge of Allegiance (even after the brats in question were excused from saying the words, “Under God”!), over public postings of the Ten Commandments; controversy over a period of silence in schools – these are reflections of an obscene petty narcissism, not any concern for liberty. Even if the people who instigate such things truly have no better problems of their own to address (which I heartily doubt), they should be reviled for causing pointless disruption to others.

    The separation of Church and State (which does not actually exist in the Constitution) is no justification. In our modern world, where government is directly or indirectly involved in every aspect of our lives, there is no possibility of practicing religion without impinging in some way on the public sphere. Churches are going to be zoned differently than whorehouses, people are going to drive to them on taxpayer-subsidized roads, and our Great Annual Shopping Holiday is always going to be called Christmas. We don’t really need protection from this kind of persecution. We need protection from mandatory tithing, enforced church attendance, imprisonment, and burning at the stake. Yes, atheists have suffered such things in the past for their beliefs. So have Christians, and in far greater numbers.

    There are some people who like to get all in your face with their religion, but 99.9% are content to leave you alone if you leave them alone. If you get all offended because some well-meaning person says, “God bless you”, you are an asshole. Why should everyone have to tip-toe around the atheist to avoid pricking his fragile ego? If you want to have beliefs that are your own, and not parroted from the herd, you have to be willing to be different; you can’t expect everyone else to change to accommodate you. If you can’t handle being reminded that you are different, you do not deserve to have your own beliefs. You can’t escape the herd while remaining a herd beast. If you call yourself an atheist because you want to make some kind of statement against religion, you are not an atheist, you are a twit.

    I am an atheist because the idea of God is absurd – even the remote, passive God of Deists or Pantheists, let alone the anachronistic mythological chimera of Christianity. I am not an atheist because I think that religion itself, or religious people, are a curse on society (as some loud persons would have us believe). It’s easy to list numerous evils perpetrated in the name of God; some of them, perhaps, were even sincerely motivated by religion. But what about all the good and selfless things that people have done to please the imaginary Man in the sky? They may not be as spectacular, but they are undeniably numerous, and anyone who pretends otherwise is just being stupid. For every Jerry Falwell, there are millions of Christians who give to help out complete strangers – even atheist strangers. If they want anything in return, it’s a chance to save your soul. Condescending? Sure, but so is telling a Christian to move out of the Dark Ages, and I’ve never heard of anyone offering them a free meal in exchange for listening to it.

    Some people claim to believe that religion is not a real motive for generosity – that religionists are simply doing what they would do anyway. Well, if religion is the cause of all the crimes ostensibly motivated by it, then surely it can motivate good deeds as well? Either religion has the power to influence behavior, or it does not, and it’s ridiculous and self-serving to pretend, in the absence of any evidence, that it can work only for evil and not for good. I think it is clear that religion can do both, and I’m far from certain that it does more harm than good (excepting Islam, of course).

    It’s impossible to say whether Christians are more generous or less prone to crime than atheists, partly because the great majority of Christians are quite insincere in their beliefs – in fact, I suspect the majority of them are just directionless agnostics with a purely social attachment to a church. Atheists are more likely to have a moral character simply by virtue of the fact that one almost has to have some measure of character to be an atheist at all – the herd beasts stay in the herd, but it’s debatable whether they should be counted as Christians.

    Clearly, atheists, like Christians, can have good moral character (or very bad moral character), and religion is not a necessary motivator for morality. But I have to wonder whether religion has some utility in transmitting ethical standards from one generation to the next. Sure, there are atheist parents who do this quite effectively. But the average atheist is much more intelligent and better educated than the average person. Without the simplifying framework of religion and the reinforcement of its aura of authority, would the average parent – overworked, unaware, and barely literate – do as well? I have my doubts. Better that children learn their values from Sunday school than from television.

    People who are obnoxiously proud of being non-Christian usually style themselves atheists (unless they are into Wicca or some other form of pseudo-occult pseudo-pagan “religion” that exists solely for the purpose of giving dipshits an excuse to conflate their D&D characters with real life). Often such people are really agnostics, especially if they are pressed on the issue, because they don’t have the the personal integrity to maintain atheism or the intellectual capacity to defend it. An atheist believes something, an agnostic does not. Pretending that atheism is “lack of belief in God” is a dodge – the etymology of the name notwithstanding, a real atheist has a definite belief that God does not exist, and this is what the name has always meant. Those who claim otherwise are doing real atheists a grave disservice by pretending that we do not exist, and implying – by refusing to defend it and denying the value of doing so – that the belief of atheism cannot be defended. Someone who doesn’t claim to know whether God exists is an agnostic, or even a theist struggling with a crisis of faith, not an atheist at all.

    In the end, a genuine Christian and a genuine atheist probably have more in common than either does with an agnostic. The latter avoids the consequences of knowledge by denying its existence. He may not believe in a life after death, but he is not absolutely certain that death is oblivion. He may not be absolutely certain that God has no will for his life, but he can disregard the possibility. But someone with a real belief must accept the consequences that it has in his life – he has to live with what he knows. This demands an integrity that agnosticism or phony-Christianity does not.

    There is not much integrity displayed in the behavior of those loud atheists and pseudo-atheists who are so proud to have made so many enemies, who pretend that frivolous lawsuits represent the desires of all non-believers, who snivel hypocritically about intolerance while raining down wholesale defamy on billions of people who are, for the most part, no worse than they. Let them look to the log in their own eye…

Hippies Cause Global Warming

“Against stupidity the very gods Themselves contend in vain.”

-Johann von Schiller, The Maid of Orleans

    Virtually everyone now agrees that global warming is a real phenomenon; even the oil companies grudgingly acknowledge that much. It’s also undeniable that the atmospheric content of carbon dioxide and other greenhouse gasses has been rising due to human activity. Conceivably the warming isn’t the result of greenhouse gasses, but it’s certainly a very plausible theory – and we should consider the alternative: if global warming is due to non-anthropogenic causes, like the Sun getting hotter, there’s probably nothing we can do about it and we’re doomed anyway. So we might as well take a shot at getting rid of greenhouse gasses – the worst that can happen is that we die a little poorer.

    While there may be some hope of actively removing greenhouse gasses from the atmosphere, the most obvious thing to do is to stop putting them there. The single worst culprit is carbon dioxide, most of which (the human contribution, at least) comes from burning fossil fuels. We use a great deal of these, having dumped so much fossil carbon into the biosphere that the original amount has been substantially diluted. (This is why carbon dating on living organisms sometimes shows them to be thousands of years old; it isn’t because science is a Satanic ploy to deceive the Faithful, it’s because everything now living is made up partly of the aeons-old coal and oil we’ve been burning.)

    The largest uses for fossil fuels are electricity and transportation; heating takes a fair chunk as well. Right now there are no alternatives to fossil fuels for transportation, and using anything else for heating is very expensive, but electricity, which is the single biggest energy use and could at least theoretically replace fossil fuels for transportation and heating as well, can be produced with negligible carbon dioxide output at a competitive cost, and we’ve had the ability to do this for forty years.

    So why haven’t we? Mainly because of a psychotic paranoia inflamed in the Seventies by radical environmentalists (some of whom were funded by the coal industry, which was feeling threatened by the new, superior energy source). By a decades-long campaign of disinformation, irrational panic-mongering, fraudulent conflation of nuclear energy with nuclear weapons, and brazen lies, the largest (and least informed) part of the American population was persuaded that nuclear power is uniquely dangerous, that nuclear waste is an insurmountable environmental problem, that uranium is running out, and of even more outrageous falsehoods. I don’t intend to deal with all of them in detail right now, but one thing should be blindingly obvious: since the advent of nuclear power, nuclear waste has never been a problem. Coal, on the other hand, has added vast amounts of carbon dioxide to the atmosphere, and we have every reason to believe that we will suffer major adverse climatic changes that will last for centuries as a result.

    Coal isn’t the only offender, of course, but it’s the worst and it’s the one we could have eliminated if we’d wanted to. Since the Industrial Revolution, something less than a trillion tons of net carbon dioxide have been added to the atmosphere. About half of that could have been avoided by phasing out coal in favor of nuclear electricity as soon as the technology was available, and by now carbon dioxide levels would be coming back down. In other words, if we’d gone nuclear, we would not have global warming. We have to deal with it now only because so many people were taken in thirty years ago by corrupt activists and delusional fanatics – some of whom are still around, still doing their best to accelerate global warming.

    In general, the self-proclaimed “environmentalists” are the worst enemies the environment has. Global warming is just the most glaring way in which they harm the environment through their ignorant fanaticism. Most people know by now that the obsession some idiots have with preventing all logging, anywhere, has resulted in many huge forest fires. Not many people are yet aware that the recycling of waste by industry is being jeopardized by the equally absurd obsession many “environmentalists” have with recycling glass.

    Forty years ago glass was a large part of the waste stream and a major industrial material. Soda pop, milk, peanut butter, salad dressing, and dozens of other things that are now packaged in plastic were then packaged in glass. Glass was worth recycling. These days, it’s totally different. Only a few percent of the waste stream is glass and there’s so little demand for it that it’s cheaper to put it in landfill than to pay someone to haul it off. Furthermore, many large cities are now switching to “single stream” recycling methods where people dump all their recyclables in one bin to be sorted out later at a central plant, partly by machinery. This works well enough for most things, but glass ruins the whole system because it gets broken and winds up contaminating the valuable paper. So the glass, which is worthless and doesn’t use significant landfill volume, winds up reducing the value of important recyclables – and landfill space is wasted on sorted paper and plastic that have to be trashed because they’ve been impacted with crushed glass. Trying to recycle glass is a net loss not just economically, but environmentally.

    So why do many recycling programs (including single stream) continue to take glass? Because “environmentalists” go into hysterics if they don’t. The average “green” has no clue about the realities of recycling (or anything else) – and doesn’t see her total ignorance as being in any way limiting. Glass recycling is an utterly retarded policy based on nothing other than nostalgia. Like every other idea that self-styled “environmentalists” keep in their tiny brains, it’s the result of obsession combined with astounding ignorance and, worst of all, a self-righteous arrogance so intense that they consider having any actual knowledge at all, or even giving a moment’s thought to their opinions, to be irrelevant or even immoral. Environmentalism isn’t so much a movement as it is a cult of brainwashed zombies.

    In “Big Oil, Big Lies,” I described the environmental holocaust we are approaching as a result of overpopulation, unsustainable farming methods and bio-fuel production. You will seldom hear any “environmentalist” talk about that! You’ve heard them sniveling about how we’re running out of landfill space, no doubt. We’re not, and won’t for hundreds of years – there’s plenty of room for landfills, in this country at least. The reason landfill costs are going up is because we now have high standards for building them (as opposed to no standards at all). We now have landfills that won’t contaminate the groundwater, thanks to listening to engineers who know how to do things instead of “environmentalists” who just scream about how we should all learn to live off of moonbeams and turkey shit so we don’t create any waste.

    The number one snivel of your average “environmentalist” greentard is nuclear power. Here are some facts about nuclear power, which could have prevented global warming:

  • More people die in coal mining accidents every year than were killed by the Chernobyl accident.
  • More land is ruined by farming every year than was contaminated by Chernobyl.
  • No civilian nuclear reactor in the West is capable of a Chernobyl type event.
  • A nuclear power reactor cannot be used to make bomb-grade material without shutting down every few weeks – it could not be done secretly.
  • The environmental impact of a half century of nuclear power generation in the U.S. is zero. Not even the Three Mile Island accident released significant radiation compared to background radiation.
  • About 95% of the mass of nuclear “waste” is reusable as fuel. Most of the rest is non-radioactive within a few years.
  • We have had the technology for decades to separate the dangerous parts of the spent fuel and store them in an inert form (glass) that will last for millions of years.
  • The waste components that are really dangerous last only for a few hundred years. By comparison, we release larger amounts of chemicals that are more toxic and will last for millions of years, instead of storing them safely, and we don’t even solve global warming in return.
  • If we dumped all the long-lived isotopes from all the spent nuclear fuel we have into the ocean with no containment at all, the increase of background radiation would be too small to even measure.
  • You would get more radiation dosage from taking a couple of long plane flights every year than from working in a nuclear power plant.
  • Nuclear power costs about the same as power from natural gas, but without producing any carbon dioxide.
  • There is enough uranium to last for as long as we will need it. If we stick with today’s inefficient (but proven safe) technology, we’ll have to use lower and lower grade ores, but it doesn’t really matter. The cost of recovering uranium is a trivial part of the cost of nuclear power.
  • Nuclear power plants don’t need any more cooling water than coal or gas plants do. All large scale electric power requires cooling water.
  • Nuclear energy costs a fraction of what wind energy does and, unlike wind, it is very steady and reliable.
  • You can confirm any of these things for yourself with a little reading (and maybe some fourth grade math).
  • If you’re a greentard, you’d rather continue to wallow in ignorance, spout bullshit that you “heard somewhere” and think that you’re an expert merely by virtue of having a big mouth. But then, if you’re a greentard, you probably can’t do fourth grade math and you probably didn’t get this far.

    In summary: the number one cause of environmental damage isn’t evil corporations, it’s stupid hippies – we can thank them for global warming. Thanks, hippies.

Why the “Stimulus” Will Fail

“Those who cannot remember the past are condemned to fulfil it.”

-George Santayana, Life of Reason

    The ultimate objective of any “pump priming” plan is to motivate producers to hire more workers and generate more goods and services. Simply spending a lot of money isn’t the real purpose. Even if they see an increase in sales, employers will only step up production (and employment) if they are reasonably confident that the demand will continue. If they are pessimistic, they will “wait and see” instead of taking the risk of investing in higher capacity, and the extra demand will only result in a price increase. This is especially true of industries that are monopolistic or near-monopolistic (which is most American industries these days). A company with no competition, or a few friendly “rivals”, doesn’t need to worry about its competition stealing an opportunity from it – it can afford to hold off. Both the high degree of monopolism in our economy, and the general pessimism that has reigned since the massive act of naked corruption perpetrated in the form the bank bailout, mitigate against any positive business response to higher demand.

    A stimulus program can only work by putting money into the hands of consumers who will actually spend it on domestic product. Money that winds up in the hands of the wealthy does no good at all; they’re already consuming as much as they want. Money that gets hoarded because of deflation or simply because people fear for their jobs does no good either. Money that is spent on imported goods (meaning almost any goods) mostly helps China, not us.

    What happens to the money the Federal misgovernment spends on construction programs? Well, in the first place, most of it will be balanced by cuts in State spending. The States normally pay for construction themselves, and right now almost all of them are in dire financial straits. Federal construction spending will just allow the recipients to cut back their own construction spending – with the taxpayers of other States picking up the tab instead of their own.

    Out of whatever increase is left, a good bit will be siphoned off by the inevitable corruption of the bureaucracies involved, and then the big contractors will get a healthy cut. None of that money goes into consumption; it goes into the hoards of the rich (who, if they’re wise, will invest it overseas). What about the part that goes to the workers? Well, it keeps the citizens off of unemployment, meaning once again that the States can cut their spending further. The construction industry also employs a large number of illegal aliens, who typically send as much money as they can to Mexico (where a U.S. dollar is still worth something). Of the small portion that does turn into higher consumer spending in the U.S., the bulk will probably go straight to Asia.

    Why would Obama pick such an ineffective economic plan? The construction industry is usually considered a leading economic indicator, but only someone as stupid as an economist would think this meant that the housing slump was the cause of the depression. The housing slump was just one of the early symptoms of a deeper cause (which I may get around to explaining someday). The real reason all the money is going into construction is that it’s an easy way to reward not just states, but cities and counties, very selectively. It’s a simple wealth transfer, from Obama’s political enemies to his supporters. That’s Chicago politics – it has crap to do with national economic recovery.

    A real economic plan would address the underlying causes – but failing that, even a makeshift scheme should take some cognizance of reality. This depression is similar to the Great Depression in many ways, but different in others. The so-called “stimulus” not only ignores the differences, but contradicts the similarities. Consider:

    FDR financed the New Deal largely through very heavy taxation of the very wealthy. He borrowed some money, but not more than the country could afford. Taxation of the rich was a necessary remedy at the time, and it is a necessary remedy now. Obama’s plan is to depend entirely on borrowing and allow the wealthy to continue paying very little taxes. Thus the continual drift in the maldistribution of income is not addressed, and surpluses of investment funds will continue to fuel speculative bubbles.

    The U.S.A. entered the first Great Depression with very little debt and could afford considerable borrowing. We have entered the current depression already carrying a crushing debt load. To continue this colossal spending (and it must be sustained, if it is to have any impact) can only be done by borrowing or printing money, since taxation of anyone but the poor has already been ruled out. With the U.S. government insolvent and hyperinflation looming, it’s doubtful whether borrowing can continue much longer. How fast can the government print money before people stop accepting it as payment? We’ll likely find out soon enough.

    Why does the spending have to be sustained? Because, once again, it’s not enough for consumers to spend money; producers must first sell off all the surplus inventory they have accumulated and then be persuaded that the sales increases will continue for long enough to justify the expenses of bringing production back up to speed. It will be a slow process because each of them will be waiting for the economy to take a definite upward turn before proceeding, yet that upturn will not happen until enough of them have gone ahead on faith. This is one reason the Bush “stimulus” package failed to accomplish anything; everyone knew that any sales increase in April 2008 would be temporary, not something to base business plans on until after it worked – which it plainly couldn’t, with such a small time window.

    Another key difference between this depression and the Great Depression is the nature of international trade. Until the Seventies, America was the world’s great exporter, and had large trade surpluses. The notorious Hawley-Smoot protective tariff was a disastrous mistake because it was the rest of the world that needed protection from cheap American goods – which is certainly no longer the case! The modern American economy needs protection from the impoverished labor of Asia and the Caribbean, if we are to maintain a standard of living higher than theirs. Any economic stimulus that allows the money to flow overseas to nations from whence it will not return, can only succeed in boosting those economies.

    Mr. Obama cultivates the appearance of thinking that history has cast him as Franklin Roosevelt; if he truly believes this, he is sadly mistaken, as he has not one-tenth of the latter’s political courage and has merely continued with business as usual, instead of undertaking radical reform (or any reform at all). He has cast himself as Herbert Hoover.

Big Oil, Big Lies

“The broad mass of a nation… will more easily fall victim to a big lie than to a small one.”

-Adolf Hitler, Mein Kampf

    If you’ve been awake in the last five years, you probably already know that the production of corn ethanol consumes nearly as much energy as the final product’s energy content (maybe even more, but it’s possible there’s a net gain of as much as 30%). That may still seem like a prodigal way of getting energy, but that’s just the beginning of the story. The real costs of ethanol production are much larger than the natural gas wasted to make it.

    First, there is the severe impact on the food supply, which has already caused large increases in U.S. food prices and shortages in countries that we used to feed. This is the inevitable result of the law of supply and demand; when you reduce the supply, the price goes up. There are some brazen liars who try to blame the price increase on increased costs of production, but this is ridiculous when you think about it: farmers have no control over the price of their product and cannot pass their costs on to consumers. This has been their major whine for centuries! Agricultural commodities sell in a competitive market and the seller will get exactly what the market gives, not a penny more or less. If the cost of growing crops is more than their value, the farmer just has to take a loss – unlike a manufacturer, he can’t charger higher prices and sell a little less. In agriculture, you sell at the market price or you sell nothing at all.

    Some of the sneakier “bio” fuels crowd want to start in on alternative crops that would supposedly be grown on “marginal” land and not compete with food production. Here’s a fact of life: any crop that will grow on marginal land will grow better on prime land. If there’s better money in growing switchgrass than in growing wheat, farmers won’t waste money developing low-yield marginal land for a crop that has zero non-subsidized value; first they’ll plant switchgrass in their existing fields for a better yield with no investment or risk.

    What about “bio” diesel? The energy balance is a little better than ethanol, but it’s still pretty shabby and it still destroys badly needed food supplies. What’s more, diesel – of any kind – is an inherently dirty and polluting fuel. This is just the nature of the diesel engine cycle and cannot be changed. Diesel engines require high compression ratios, which gives them their high power-to-weight ratios but also means that they produce more nitrogen oxides (which contribute to smog, acid rain, and global warming). Also, because the Diesel cycle requires a liquid fuel, complete combustion is all but impossible, and thus diesel engines produce soot, especially in cold weather. Diesel engines are sometimes necessary, but they don’t belong on light vehicles like cars.

    Ethanol, though not as bad, is also a dirty fuel – worse than gasoline, though in different ways. Because alcohol burns cooler than gasoline, less nitrogen oxides are formed and less carbon monoxide, but instead you get nasty chemical byproducts like formaldehyde. What’s more, the production of ethanol creates much larger amounts of pollution of all kinds – carbon dioxide from fertilizer manufacture, various pollutants from diesel tractors, nitrogen oxides from fertilizer decay, aldehydes and other processing byproducts, and runoff of fertilizers, pesticides, herbicides, and silt.

    But pollution is just the beginning of the eco-catastrophe being wrought by “bio” fuels. The real damage is in the depletion of our precious land and water resources. Most modern cereal production (and certainly any increased production) requires irrigation. Using up precious water for unnecessary crops that contribute very little net energy is incredibly foolhardy; water shortages are a far more serious problem than energy shortages. Irrigation puts a heavy demand on dwindling water supplies, often using up groundwater that is (for all practical purposes) irreplaceable.

    Irrigation also destroys the soil over the long run by salinating it. Any water that’s been in contact with the ground has some salt in it, and inevitably some of this salt is left behind in the soil. In some places irrigation can also bring up additional salt from subsurface soil layers, which can destroy the soil quite rapidly. More often, it is a very long process as only a trace of salt is added each year, but it does add up and some of the best agricultural land in America is already suffering heavy attrition from salination.

    Needless to say, agriculture also depletes the soil of nutrients. We routinely replace nitrogen in mass quantities (which consumes a lot of energy and creates a lot of pollution), but other nutrients are much more problematic. Calcium has to be replaced by quarrying limestone and grinding it up, which is very expensive if the limestone has to be hauled any distance. Phosphorus is also mined (in the form of phosphates); it is already expensive and supply shortages are expected. Potassium is still more difficult to replace – and these are just the major plant nutrients. Iron, sulfur, magnesium, zinc, boron, copper, manganese, selenium and molybdenum are also gradually used up by cropping (and sometimes washed out by irrigation). Just as importantly, tilling causes rapid decay of the vital organic matter that helps keep soil permeable to air and water and able to retain water and nutrients.

    The biggest source of fertility loss, however, is erosion. Modern farming practices have greatly reduced this, but millions of acres of land are still ruined every year in the U.S. alone. Much of the eroded silt winds up in rivers and lakes, where it wreaks havoc on ecosystems. Silt and fertilizer runoff are responsible for the vast dead zone – thousands of square miles – in the Gulf of Mexico where the Mississippi river delivers the waste from most of North America’s farming.

    Every ninety hours, the combined effects of erosion and salination cost the world as much cropland as the entire Chernobyl exclusion zone – that’s a hundred Chernobyls, every single year, caused mostly by agriculture.

    Of course, most of this is for food production, not “bio” fuels – but we should hardly be planning to make large increases in it without a very good reason! And regarding the prospect of growing switchgrass or the like on marginal land, we should keep in mind that this “marginal” land isn’t just waste – most of it is either pasture (now being naturally and sustainably fertilized!) or part of the last remaining wilderness and wildlife refuge in the world. And much of this “marginal” land is very vulnerable to erosion, being relatively steeply sloped. If we destroy it, we won’t get it back.

    Brazil has already ruined a great deal of its “marginal” land (in this case, rain forest) in its miguided quest for temporary energy independence. The production of ethanol from cane sugar in the tropics has a far better energy balance than any “bio” fuel available to the U.S., yet even with this advantage Brazil had needed to raze most of its forests for crops. Unfortunately, the cleared forest soil is low in nutrients and subject to hardening when exposed to rainfall, and is often useless after just a few years. Then the only option is to burn some more rain forest… but the rain forest is starting to run out. Some of this devastation is due to the demand for cattle, not sugar cane – and isn’t it a bitter irony that the same “environmentalists” who would rather see people starve than see forests cut down, applaud the destruction of those same forests for the purpose of replacing gasoline with ethanol which is dirtier and more expensive?

    One of the side effects of clearing more land for crops is a huge increase in atmospheric CO2. Trees tie up large amounts of carbon, and Brazil has burned so much forest that it now has a larger carbon footprint than the U.S. “Bio” fuels in general cause a major increase in global warming (as compared to fossil fuels). In addition to the CO2 released when they are burned, there is all the CO2 released in the process of growing and making them – it takes a lot of energy, remember? Most of that energy comes from natural gas. There is also a substantial amount of nitrous oxide created as a byproduct of fertilization – and nitrous oxide is 300 times more powerful a greenhouse gas than CO2. And then there’s the CO2 released by clearing land, whether that’s done the quick way by burning vegetation or the slow way by tilling the soil so that the organic content decays.

    On an energy-for-energy basis, the burning of ethanol (by itself, without any of the other contributions) releases the same amount of CO2 as gasoline. Only on a liter-for-liter basis does ethanol release less CO2 – the energy content of ethanol is a third less than that of gasoline. It has also been deceptively claimed that “bio” fuels are carbon-neutral because growing them takes the same amount of carbon out of the atmosphere. This is false, because it doesn’t account for the greenhouses gases emitted in the process of making “bio” fuels – and it should be obvious to anyone that the land used for growing crops would not be totally barren if left uncultivated; some of it will actually sequester less carbon once it has been converted from forest into crops. This is certainly true of the “marginal” land that is temporarily cultivated and then abandoned because it can no longer support crops!

    Anyone who cares about global warming would make it their first priority to put a stop to the use of so-called “bio” fuels. There is no other way of achieving so large a reduction in greenhouse gases so quickly, and there is no advantage whatever to using them. They are catastrophic for the environment, bad for the economy, bad for the poor (who are hurt the most by food shortages), and sometimes bad for your car as well.

    “Bio” fuels have never had any prospect for making a major contribution to our energy supply. There simply isn’t enough land in the U.S.; even Brazil, with its vastly better conditions, doesn’t have enough land. Because they are expensive, “bio” fuels transfer wealth from taxpayers (who are forced to pay for the subsidies) to the giant agribusinesses that produce them. The artificially high food prices also benefit the owners of factory farms at the expense of everyone else. Smaller farmers benefit too, of course, like remoras clinging to a shark, but less than one percent of Americans work full time at farming – and one hundred percent of Americans have to eat.

    Another beneficiary of the “bio” fuels dementia has been the natural gas industry, because the extra demand for natural gas (used to make fertilizer and drive chemical processes) has forced the price up sharply. Again, it is the poor who are most hurt by the higher cost of home heating. And who benefits – why, the same oil companies who own the natural gas wells, and who also own huge tracts of farmland and have partnership deals with the big manufacturers of ethanol!

    If you don’t smell a rat yet, you should cut off your nose and mail it in for a refund. The oil companies are raping us at both ends – they profit from the ethanol itself, from the higher food prices, and from the waste of natural gas – while at the same time greenwashing their own dirty image and diverting public attention from energy sources that might actually compete with oil. They get around the necessity of finding replacements for gasoline additives like MBTE, and as an added bonus, the presence of ethanol allows gas stations to water your gasoline without detection. (If your mileage goes down by more than 2-3% on 10% gasohol, you should suspect adulteration. On the other hand, you should protect the environment by avoiding gasohol if it all possible.)

    Ethanol is a gigantic swindle perpetrated by Big Oil – along with soy diesel, switchgrass, and any other crop-based “bio” fuels. But what about energy generated from other bio-sources like “cellulosic waste”? Some of these may be acceptable, but remember that everything “bio” is something we take from the living environment – there’s nothing “green” about it; “bio” fuels don’t support life, they burn it. All biological “waste” contains nutrients that could be returned to the soil – nitrogen, phosphorus, trace minerals, organic matter, whatever. Even if we’re presently wasting it, making it into fuel is not necessarily preferable to recycling it. And a certain amount of crop waste should always be left in fields to protect them from erosion – it’s the single most effective defense against the single biggest soil thief.

    The only “bio” fuel that is environmentally positive is “producer gas” – methane generated from the decay of sewage, landfill trash, etc. This gas gets produced anyway, it contains no nutrients, and it’s a very powerful greenhouse gas, so we actually benefit by burning it. However, the available amount is quite small – a well-designed sewage treatment plant might recover enough energy to meet its own needs, but that’s about it. Any other “bio” fuels that are environmentally acceptable will also be strictly limited in quantity. There’s a niche there, but not a very big one.

    Sadly, there’s not much chance of changing the legislative ethanol agenda set by Big Oil. Nor is there much chance of a shift to sustainable agriculture before it’s too late. But most of us still have, at least, the option not to buy their damned moonshine.

Vampires of Detroit

“There is no art which one government sooner learns of another than that of draining money from the pockets of the people.”

-Adam Smith, Wealth of Nations

    The Big Three – Ford, Chrysler, and most of all GM – are in trouble again – well, not really “again”, they’ve been failing for the last decade to adapt to market realities. But now that all the big kids on the block are getting giant government bailouts, Detroit has settled on a “solution” – if Americans won’t buy their shoddily made, overpriced, gimmick-laden gas guzzlers, they’ll just have the government take money from the taxpayers instead! This is a great business model; with that kind of support they could quit the dirty business of making cars altogether and go into the lobbying-government-for-handouts business. Actually, they already have.

    As if the Federal debt weren’t already high enough, our President-Elect is demanding seventy-five billion dollars for the failed U.S. auto industry – that’s $75,000,000,000, or $250 for every man, woman, infant, ninety-year old, prison inmate, and illegal alien in the U.S. – and you don’t even get a crappy used car for it. The interest on the bailout (at 4%) will cost the taxpayers three billion dollars a year, more than General Motors best-ever annual profits from its U.S. production.

    And it’s a bailout, not a loan, pretenses not withstanding. Even if the government charged only the interest it has to pay (a zero-profit high-risk “loan”), there is little chance the automakers would ever be able to even catch up with the interest. There’s a reason they can’t borrow money from the private sector – it isn’t a lack of funds, it’s a lack of suckers. Historically, General Motor’s global profits from all operations have averaged less than two billion a year for the last decade, and even in the best of worlds it will be several years before they can recover to that level. Ford and Chrysler aren’t much better off. But even if payments started at four billion a year immediately, the “loan” would take thirty-five years to pay off. Can the Big Three stay in business for thirty-five years? Not unless they drastically change their way of operating – and why would they do that when the taxpayers are there to rescue them from their failures?

    Twenty-five billion dollars was, allegedly, already earmarked for the automakers – but in fact this money was supposed to be for research into more fuel-efficient vehicles. This is retarded because plenty of research has already been done and we already know how to make vehicles that use less gas (make them smaller), but anyway that loan wasn’t intended to prop up a bankrupt company so it could keep on producing cars that people don’t want to buy (and paying fat executive salaries).

    The reason that GM, Ford, and Chrysler are going to get a seventy-five billion dollar handout, when millions of unemployed Americans are struggling to eat, is simple: they’re unionized. The Democratic Party has a firm partnership with unions, which provide it with generous funding, and Democrats fill their end of the bargain by shoveling everyone else’s money down the union rat hole. Barack Obama, like any politician, is primarily concerned with paying off his own allies and supporters. Letting GM (and maybe Ford and Chrysler as well) go under would indeed cost some people their jobs, but bailing them out will ultimately cost a lot more jobs – those of people who actually work hard for a market wage and have trouble getting by, not union slackers who have savings and continuing benefits to fall back on.

    Whatever union members do lose their jobs, it’s their own fault anyway. The greed of the UAW has painted the automakers into this corner in the first place; with their fat benefits, the auto workers make two or three times as much as they would otherwise. This might work alright if they took proportionate responsibility and worked conscientiously to turn out a quality product as efficiently as possible, but instead they have agreements protecting their jobs when they screw up and goof off. The worst thing about the UAW, though, is that it has deprived the automakers of flexibility. They can’t eliminate jobs that are obsolete, and they can’t shut down plants that are inefficient or unneeded without paying a fortune in benefits to the workers laid off. Inept management has its own role, of course, but the biggest single reason the Big Three are in trouble is that the UAW prevented them from cutting back production when sales declined.

    With seventy-five billion dollars of your money, the union freeloaders can keep their “jobs” producing unwanted cars that will sell at a loss, and the Big Three can maintain their twilight existence, sucking the sustenance of the living to sustain themselves past their natural expiration date. There’s nothing whatever you can do to stop it, because the unions have bought the government. You won’t even get a kiss, except to kiss your money goodbye.

Anatomy of a Depression

“Let us all be happy and live within our means, even if we have to borrow the money to do it with.”

Charles Farrar Browne

    The sudden unravelling of the global financial structure seems to have caught a lot of people by surprise, even (especially!) those who profess knowledge of economics and finance. But it should have been (and was) easily predictable, by a simple application of the most basic principles of economics and a rudimentary knowledge of history. The current Depression is rooted in U.S. policies not just of the last ten years but of the last thirty years and even older. When we understand the nature of economic reality, it is easy to understand why the collapse had to occur and why it will inevitably worsen.

    It isn’t my intent here to explain the whole of macroeconomic theory, but there are two fundamental facts that every human being over the age of twelve ought to understand: the nature of wealth and the balance of income and expenditures.

    Every economics text teaches in its first chapter that money is not wealth. Economists seem to hardly ever remember this, though it is the foundation of their discipline. Wealth consists only of goods and services – money is a convenient way of arranging for goods and services to be produced and exchanged, but it is has no value on its own. You might think of your labor as being “worth” fifteen dollars an hour and a satellite phone as being “worth” five hundred dollars, but if you were stranded on a deserted island with nothing but five hundred dollars and your wits, you would quickly realize that five hundred dollars are not necessarily worth a satellite phone, and your labor is worth your life, even without a paycheck! Likewise, money can never be capital; capital (to an economist) consists only of things that are used to produce goods and services. A factory is capital, or a farm, or an education; a billion dollars might buy capital – that is, transfer it from one owner to another – but it does not embody any capital whatsoever.

    Gains or losses of money are never gains or losses of wealth! They represent only a change in the ability of individuals to affect the distribution of wealth, and even that is only by social convention. If one person gains a million dollars at someone else’s loss, that may matter very much to each of them, but the total amount of wealth hasn’t been changed at all. If a bank error erases a billion dollars from existence, or (more likely) a government prints a billion dollars of cash, no wealth has been destroyed or created. The distribution and use of money can indeed have a huge influence on the creation of wealth in the long run, as we shall soon see, but critical errors (like investing in stock markets) arise whenever it is forgotten that money is not wealth and cannot create wealth.

    It may seem perversely wrong at first to say that income and expenditures always balance, but remember we’re not talking about an individual bank account here, but an entire world economy (or a national economy, give or take its foreign trade balance). On an instantaneous basis (thought not in the long run!) it’s a zero-sum game. An expense for one person (or corporation or government) is always an income for someone else – every transaction has a zero balance in the world economy as a whole. Even if money is printed or destroyed, everything still balances because money is not wealth. It’s only a yardstick for measuring wealth – an imperfect one, but the best we have. Although the yardstick gets remarked all the time, the real value of the things being exchanged doesn’t, and every transaction still balances – each gain is lost by some other party.

    Economists divide wealth into two categories – consumer goods (including services) and capital. Consumer goods are things that go directly to the end consumer to be used up, like packaged bratwurst, dental examinations, or refrigerators. Capital is everything used in the process of creating and delivering the consumer goods – factories, mines, unpackaged brats, trucks, dental schools, shopping malls, etc. Sometimes the line between capital and consumer goods isn’t completely clear, but the principle should be. Everything that the economy produces is either capital or a consumer good – so consumption comes at the expense of capital growth, and vice versa.

    And now we approach the crux of it. If people consume everything that they produce, nothing at all is left over to go into capital. In economics, we usually ignore any production that isn’t paid for in money, and that’s a good enough approximation for most purposes – a few people might do a little unpaid work at a hospital, but no one is going to build a hospital in their spare time and give it away. Therefore, we consider either the total of all incomes or the total of all expenses (they’re the same amount, remember?) in any period to measure the total economic output for that period. If everyone spends 100% of their income on consumer goods, 100% of the output must be consumer goods. If people spend 20% of their income on capital, 20% of the output must be capital.

    But what if all the income doesn’t get spent? What happens to the money that people save? The answer, surprisingly, is that there is nothing to save. Recall that money has no value – nor do any of the monetary obligations that most people think of as “savings” – bonds, CD’s, stocks, bank accounts, etc. are all quite devoid of value. Their accumulation adds nothing whatever to the wealth of the future. The only real kind of savings – the only kind that contributes to wealth in the future – is the the stockpiling of actual goods and, much more importantly, the building up of capital that will produce more wealth in the future.

    When you “save” or “invest” money, you are not saving anything at all! By forgoing some amount of consumption in the present, you do not save anything to consume in the future; rather, you allow someone else to consume the share of current production you would otherwise have enjoyed. Hopefully the money you accumulate will allow you to transfer future wealth from other people to yourself (that’s the purpose), but your savings are not wealth and do not in themselves create any wealth for the future. More than saving is required.

    The building up of capital is referred to in economics as “investment”. This is not the same thing as “investment” in finance! Economic investment is that portion of all production which goes to build capital rather than to provide consumer goods. It is equal to the total output of the economy minus all consumption. Whenever you save money (unless you stuff cash in a mattress, in which case you’ve simply reduced the money supply), someone else spends it – the bank loans it out, or the person who sold you securities pays their taxes, or whatever. The money itself may go through many transactions before it’s used to buy something real (i.e., wealth), but ultimately someone else will purchase the wealth that you didn’t. They will buy either consumer goods or capital.

    “Net” savings refers to the amount of savings which are loaned out for real investment (as opposed to consumer loans), as well as corporate profits (or even personal income) that is spent on business expansion without any intermediaries like banks or stock markets. That is, net savings are equal to the amount of current production which hasn’t been consumed. By definition, this is also the amount of capital produced. Thus we see that savings are necessary for investment to happen, but do not guarantee investment – consumer borrowing can cancel them out.

    There’s another catch, and it’s a major one. In fact, it’s the point of this whole discursion. Net savings must, by definition, be used to purchase capital, but not all capital is created equal! In economics, everything that’s not a delivered consumer good is capital – including not just things like steel mills or engineering software, but raw materials, intermediate products, and even inventories of finished goods that haven’t been sold yet. This little accounting trick is necessary to make net savings equal investment, but it means that “investment” doesn’t always translate into genuine economic growth. Sometimes it’s just unwanted goods piling up. It can also be investment in capital that’s not really useful, like liberal arts educations or sociological research, but that’s a different issue.

    Investors – the people who actually spend money on capital, not the people who loan them money – can’t be forced to build productive things like oil refineries or research laboratories instead of producing goods that might go unsold. Well, they could be, but Communism is a whole different can of worms. Sane people (government is of course excluded from this category) will only invest in new capital when they think they can make a profit from it, and this will vary a great deal depending on what kind of new ideas and technologies appear, on rates of interest and taxes, on how strong the market appears to be, and on many other things – consequently, there’s no reason why useful investment should match up with net savings, and it never does.

    The amount of useful capital that investors try to purchase is called autonomous investment. When net savings are less than this amount, some investment won’t happen because too much is being consumed, the economy will grow more slowly than it should, and prices tend to rise because people are trying to consume more than what is being produced. Theoretically, if the discrepancy is too large, the economy could even shrink as not enough investment is available to even replace the capital that is being worn out and depleted.

    On the other hand, if net savings exceed autonomous investment, someone will be forced to make an investment they didn’t intend. This unplanned “investment” will take the form of inventory accumulation. Another way to look at it is that goods are going unsold because people saved money instead of buying them. This situation will normally result in a recession; plenty of resources are available to build capital but businesses are unlikely to expand production when they aren’t even able to sell what they’re already making. They are more likely to cut back, which means fewer jobs, less income, even less consumer buying, and more cuts in production, a vicious cycle which if left unchecked will continue until production has sunk to whatever level the consumers are willing (and still able!) to purchase.

    A corollary is that net savings can’t exceed autonomous investment, at least not for long. When we try to save too much, the economy will shrink until we are unable to save more than just enough to fund whatever demand for real investment is left! This is called the Paradox of Thrift. Beyond a certain point, the more people try to save, the less they are actually able to save.

    You can see that it is necessary, in a free market economy, to have a certain proportion between spending and saving. Either too little saving (too much spending) or too much saving (too little spending) is disastrous. Capitalism inherently tends strongly toward excessive savings, and here’s why:

    The division between spending and saving is heavily dependent on the distribution of wealth. Those with extremely high incomes usually save a very high proportion of it, sometimes nearly all; those with moderate incomes rarely save much more than they borrow. Lower income people don’t even have the option of saving. In the U.S., the top 1% of income earners account for more investment than everyone else combined. If income was evenly distributed, the median income wouldn’t rise that much (less than double) and few people would save anything; the result would be that GDP would decline while prices soared. But if income is too severely concentrated at the top, there isn’t enough spending – the billionaires would prefer to reinvest their funds, but nothing is profitable because there are no customers.

    This is the typical situation in a capitalist economy, because capitalism favors inequality. The more money you have, the more leverage and opportunities you have to make more money. Even if growing wealth for the richest also meant a better living for the workers (and it does sometimes work that way), the distribution becomes more uneven (i.e., the rich gain proportionately more), and that eventually causes the system to fail. The masses might be much more prosperous than the previous generation, yet they still can’t consume what the very wealthy could have ordered into production.

    Historically, economic growth is typically associated with a shortage of labor. A scarcity of workers means an increase in wages (through the “law” of supply and demand). Higher wages mean more customers for whatever goods anyone might think to provide, and thus more business opportunity. The European Renaissance was driven by the Black Plague, which killed so many workers that wages doubled, creating vast new consumer markets. The rapid growth of the U.S. economy for centuries was largely due to underpopulation and the resulting high wages. Other New World nations (and the Southern U.S.) fell behind partly because they depended heavily on slavery and so never developed strong consumer markets. China and India, cheap-labor nations whose modern growth depends on foreign markets, are doomed to the same fate.

    One thing that happens when consumer markets are deficient is that people who have money to “invest” (in the financial sense) will look for other places to “invest” it when there are not enough good opportunities for productive growth. One of these places is government securities (government borrowing is more or less a way of getting the rich to buy things for other people that they can’t buy for themselves, but with the contradictory expectation of being somehow, someday, repaid). Sometimes the money goes overseas. Another common place for dumping surplus “investment” funds is the stock market.

    Naturally, when people spend more on stocks, the price of stocks is driven up – that’s just supply and demand. Also, new investment vehicles will appear to absorb the cash, financial constructs that are just ways of selling the same thing twice. In the Twenties it was holding companies and mutual funds; in the Nineties it was derivatives. The stock market reflects the availability of surplus savings much more than it reflects the health of the business sector. This is why a “bull” market (the nickname is well chosen) is often a sign of approaching recession, and the growth of indirect investments – crap like mutual funds or derivatives – is a warning of dire economic weakness.

    The recent stock market bubble began in 1985, when Reagan was President, and as a result of Reagan’s policies. The bubble (and the underlying economic malaise) has stayed with us; every time consumer spending has failed, the Federal Reserve has manipulated interest rates to encourage more consumer borrowing to prop it up. Obviously, this process can’t go on forever, because it causes consumer debt to grow out of control – sooner or later, the consumers as a whole are unable to service their debt loads and banks will refuse to make low-interest loans to borrowers who can’t repay.

    This is the wall we have run up against. The stock market isn’t the problem, and the root cause of the credit crisis isn’t panic or irresponsible banking. Banks made shit tons of bad loans because the government deliberately made it easy for them and they believed (apparently correctly) that the taxpayers would take the risk while the lenders made the profits. The reason the government encouraged this was to keep Americans borrowing so that Americans could keep buying and keep the corporations in business. The root cause is simply that the American consumer isn’t getting a large enough share of the pie.

    Note that I don’t say a “fair” share of the pie. I don’t give a rat’s ass about vague ideological crapola like economic “fairness”. If the world was fair, there wouldn’t be any really wealthy people able and willing to make the big, risky decisions necessary for growth. If the world was fair, millions of lazy deadheads would be getting euthanasia instead of a welfare check. The right distribution of wealth is that which makes the system work; then everyone is better off whether they deserve it or not.

    And here is why we still blame Reagan for the Depression, twenty years after he left office: his policies are still in force! Reagan gave a truly colossal tax break to the wealthy, cutting the top rate from 70% to just 27%. It’s been raised only slightly since then – in spite of all the rhetoric from Democratic Presidents and Congresses who (rightly) blame Reagan for every recession, no effort has been made to reverse Reagan’s policies.

    The Reagan tax cuts obviously caused a big shift in the distribution of disposable income; even though taxes on the poor were increased only slightly, and consumer incomes did rise for a few years in the Eighties, the very rich enjoyed a far larger increase in income. Naturally they tried to save most of it, but the consumers, who hadn’t gotten the same windfall, couldn’t support rapid growth. Instead of being used to acquire capital, the excess savings had to go into bogus “investments”, i.e., financial instruments like stocks and bonds. The U.S. government sold a huge amount of bonds to the rich, to replace the revenues it had lost by cutting taxes (causing enormous growth of the Federal debt). This helped keep consumption up for a while, since government expenses run almost exclusively to consumption.

    The other big dumping ground for surplus savings was the stock market. The stock market went on a binge that continued with little interruption even after 1985, when economic growth fell off sharply. It’s the same bubble that is now collapsing; the adjustments of 1987 and the early years of this decade were the bursting of secondary additional bubbles-on-bubbles – the real correction has yet to be completed, although it appears to be in progress.

    Reagan wasn’t the only one responsible for too much money being diverted into the stock market. Also to blame are all of the institutions and financial “advisors” that badgered people for the last thirty years to put their savings into the stock market for “retirement”. You know by now that this was very bad advice, and (since I’ve so generously explained it), you know why: the stock market is a zero-sum game, strictly for speculators; it does not create wealth but only exchanges it. For every person who makes a retirement on the stock market, someone else has to lose a retirement. Unfortunately, a lot of people bought into the scam, and pumped even more money into the stock market. This made it go up and therefore seem like a good investment, which attracted more suckers to feed the spiral…

    The other big mistake of Reagan’s administration was to lower the bank reserve requirement. This was what allowed banks to leverage themselves at 30:1; it was part of the easy money policy that helped reverse the Carter recession. It worked, but fractional reserve banking is risky and running a bank with only enough money to back 3% of the deposits is begging for disaster (as we all know now). It would have been better just to print money, which would have done the same thing without the risk and reduced the Federal deficit a little as well. The drop in the reserve requirement would have been easier to undo, but of course it never was because that would reduce the loaning capacity (and profits) of banks that operate at taxpayer risk. The savings and loan crash of 1989 was primarily the consequence of the lowered reserve requirement, and it continues to bear fruit today as overextended lenders are ruined when even a small percentage of their assets go bad.

    So now you have a picture of how the whole thing works (or did work): Consumers don’t have enough money to buy enough crap, so the owners of the crap factories indirectly loan them the money – with nothing but these loans to back up the country’s bank deposits. The consumers take advantage of easy credit to buy houses, causing a bubble in the housing market that gives banks an excuse to make ever larger loans (with over-valued real estate as collateral) to people who can’t pay them back. Consumer spending is still never enough, so excess funds fuel bubbles in stock and commodities markets and drive the real estate bubble even harder. The rising markets create a climate of false optimism when they are actually a sign of deep systemic weakness.

    This obviously can’t work forever because consumer debt keeps piling up, but the government has kept it going for a generation by making it as easy as possible for the consumers to keep right on borrowing whenever the system falters, and by borrowing money on its own account for even more spending. This policy has prevented a crash until now, but it means that the final collapse will be enormous – the consumer debt, the government debt, the bad loans, the inflation of real estate prices and stock prices have all been accumulating for more than twenty years. Mortgage loans and credit cards are now the major source of consumer buying power, and valueless, speculative markets are the basis of many people’s (formerly planned) retirements.

    This whole process has happened, more or less exactly, before. The Twenties were a close parallel to the Nineties: there was economic growth that benefited mainly the wealthy, a rapid growth in consumer debt, a surging but erratic stock market laden with leveraged securities, and eventually a decline in sales followed by a drop off of real investment and growth followed by a huge stock market bubble after the economy had already begun to sour. In both cases ordinary people who had no business in speculation put their savings into the stock market bubble. In both cases, people borrowed money for “investments” – buying stocks on margin or real estate on interest-only loans. In both cases the Federal Reserve exacerbated the problem by feeding the system with cheap money. In both cases new “tech” industries of dubious viability led the bubble – dot coms in the Nineties, radio and others in the Twenties. In both cases, a lot of rhetoric was thrown around to “justify” why the economy was somehow fundamentally different and there would never be another crash. In the Twenties the buzzword was “New Era”, in the Nineties it was the “New Economy”. Anyone who remained visibly skeptical was scoffed at as living in the past or worse. And in both cases, then as now, most “authorities” continued, throughout the cataclysm, to announce that nothing had really changed, things were about to turn around, and the pre-crash “prosperity” would return promptly.

    The reality, of course, is that only a change in the distribution of income can do more than postpone the inevitable. As long as consumers are unable to buy without borrowing, the economy is doomed to a cycle of declining sales, declining production, declining employment, and growing poverty. The longer the cycle runs, the worse the outlook will appear to any prospective business venture, and the harder it will be to break out of. Having the government borrow and spend, in place of consumers, is just a temporary delaying tactic that has probably run its course – not even governments can carry infinite debt.

    There are important differences between the new Great Depression and that of the Thirties, of course. One is that the Fed has managed to keep the illusory “boom” going for a longer time, so we are more heavily dependent than ever on borrowing and bubble pricing. Another, perhaps more ominous, difference is that the U.S. government entered the first Great Depression with little debt. Now, the government is already burdened with crippling debt, even before tax revenues have really fallen off. There does not seem to be any possibility of financing a “New New Deal” through borrowing (as if the government wasn’t big enough already!). The Washington regime is also hopelessly corrupt, as was demonstrated by the appalling brazen betrayal that culminated on October 3, 2008. Unlike that of 1929, our government will not hesitate to intervene, but it seems likely to do more harm than good.

    Another weakness we have, relative to the Thirties, is our higher degree of interdependence. During the first Great Depression, most people were prepared to survive without electricity or gasoline and many could grow their own food or at least lived close to a food source. Many people could get water from a well and relieve themselves in an outhouse. Those options are no longer available. Almost everyone now depends on fuel, electricity, and remote food sources, and the supply of these things depends on complex nation-wide industrial networks and financial arrangements. Even city water and sewage services are rarely locally self-sufficient. A failure of key industries would leave tens of millions of people entirely without food, water, sanitation, communications or transportation. Can you spell A-N-A-R-C-H-Y?

    I knew you could!

    So what is there to do? The usual borrow-and-spend-and-fix-the-interest-rates might postpone the landslide for a bit, but after the last couple of weeks it seems unlikely. Government actions so far even seem to have accelerated the panic (although that may only be because blatant corruption has destroyed whatever faith in government was left). It is too late now to avoid the Second Great Depression; there is no political possibility of undertaking the necessary reforms and there probably won’t be until things have gotten very bad – hopefully not to the point of complete meltdown, but this is a prudent time for gun ownership.

    Of course the situation could be remedied, if the political means existed. I could draw up a plan, but the essential element is just this: tax the rich and give to the rest. Would that be fair? Maybe not. Would it make the lackeys of the power elite in Washington and the media, and their Libertopian dupes, squeal like stuck hogs? Hell yes! But it would also restore the economy.