When will it end?

GM, Chrysler now say they need billions more

General Motors Corp. and Chrysler LLC summoned the prospect Tuesday of their collapse unless they get $7 billion in federal aid within six weeks — part of a dramatic plea for a total of up to $39 billion to survive the worst economic crisis in the history of Detroit’s signature industry.

Didn’t we just give them a boatload of money? And they need more? Who thinks giving them $39 billion will make them stop asking for money? When will it end? How much is enough? $39 billion? $789 billion? $1.7 trillion? $9 trillion?

So long as we keep bailing out failing companies, it won’t end. So long as we allow our feckless Congressional representatives to remain unaccountable, it won’t happen.

Incentives matter. Paying people to waste money gives them reason to waste more.

So-called stimulus

Excellent video from Dan Mitchell at Cato:

“If government spending were the key to growth, North Korea would be a nirvana!”

And there’s this too:

No time to think

No time to think, just do it. Stop thinking!

“We’ve got to work through the differences, find the best bill we possibly can, and get it in place as quickly as possible,” Lawrence Summers, a top Obama economic adviser, told “Fox News Sunday,” noting some 600,000 jobs were lost last month.

“If there was ever a moment to transcend politics, this is that moment,” said Summers, director of the White House National Economic Council. — Reuters

Can’t stop to debate it, after all it’s only $900 billion or so. Chump change compared to current outlays and guarantees.

The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages. … The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve. — Bloomberg

$9.7 trillion dollars.

There’s this from Robert Higgs: (HT Will Wilkinson)

The headline of Newsweek’s current cover story reads: “We Are All Socialists Now.” The story tells us that Republicans and Democrats, oligarcos y peones, have given up on the market economy and, however reactionary some people’s rhetoric may be, we are all in fact being swept toward bigger government by an irresistible wave. Pretty soon, we Americans will be just like the French, though lacking a comparable command of the beautiful French language.

I don’t recommend the Newsweek article. Although the writers, Jon Meacham and Evan Thomas, have absorbed a number of true facts, their level of economic understanding is abysmal, and hence their reasoning is close to worthless.

Truth is, socialism is not the wave of the future. Indeed, it is already almost as dead as the dodo. Hardly anybody in a position of political power or influence now wants to establish socialism along the lines of the Soviets or the Maoists. Everyone knows that doing so is a one-way ticket to widespread poverty, which leaves precious little surplus for the political kingpins to rip off.

No, the world is converging ever more visibly, not toward socialism, but toward what I (following Charlotte Twight’s usage) have for many years been calling participatory fascism. The hallmarks of this system are, on the political side, the trappings of democracy (parties, elections, procedural niceties, etc.), and, on the economic side, the form of private property rights (though not much of the substance that characterizes the real thing).

Will is slightly more upbeat than Robert Higgs (it’s hard not to be),

I strongly feel the pull of Higgs’ Chomskyite analysis, and I don’t think many enthusiasts of actually-existing democracy, like Josh Cohen, take seriously enough the extent to which Higgs is right. Yet I cannot help but think that the ability of the “power elite” to  ”manufacture consent” is eroding. The fragmentation and democratization of media production, and the relative ease with which one can create alternative institutions, pushes against both the ability of the “power elites” to control the message and hand-pick their heirs.

As for me, I think Higgs is wrong. Completely wrong. The French language is not beautiful. On the fascism? Yeah… he’s got that right.

$9.7 trillion in outlays and guarantees within the space of six months is simply staggering. I’m all for the creation of alternative media institutions (this blog is an example), and while I take Will’s point seriosuly, I fear that the speed with which the government has spent this money signals a profound weakness in the American politcal system. The political system is too deeply corrupted to be reformed. The political class is too richly rewarded for their perfidy;  they simply cannot be persuaded to dismantle the apparatus that grants them their privilege.

Why the stimulus plan sucks

I’ve been pretty critical of the stimulus plan.

The economy is in the tank, no question. That, at least, I don’t dispute. But the economy is in the tank because a whole boatload of people made very, very bad decisions. It wasn’t just “fat cats” on Wall Street making bad decisions, it was financial planners in Poduka and loan managers in Los Angeles. Congressmen and women (both Democrat and Republican) share the blame with the voters that elected them. Then there are the families that defaulted on their debts, the companies that invested too heavily in real estate and the investors around the worldthat bought into the credit default swap swamp. There’s plenty of blame to go around.

A lot of people lost money and many, many more will lose much more. A lot of people are much worse off than they were before. That’s what it means when we say “the economy sucks.” We mean, “a lot of people have lost a bunch of money.” And that’s all we mean. We’ve lost a bunch of money. We’ve overextended our debt and we can’t pay our bills.

The “stimulus” plan works on the idea that we really haven’t lost a bunch of money. The stimulus plan (and the bailout, and TARP, and the other bailout, oh… and the other bailout) amounts to no more than a “Maybe the money is under the couch?” kind of approach to the financial crisis. Current policy (Obushama policy) amounts to pretending that what is valueless has value, that devaluation of the dollar and deficit spending are like, totally different from inflation, and that debt can be counted as capital.

The big idea behind the stimulus plan is that so long as we spend $90 million on this project and $40 million on that project and $7 bejillion on those politically connected projects, and so long as we mail out more checks to more people and borrow more and more money from China (because owing money to communist dictatorships is SUCH a good idea), then everything will be peachy and we’ll find the money under the couch and we won’t have any more recessions any more and daddy will solve all our problems…. It’s adolescent bullshit.

The economy sucks. We lost a bunch of money. It’s not under the couch; it’s gone. Moving a bunch of other money around isn’t going to make anything better.

Oh, the plan will make some people better off. There are always winners in any government policy. But there are also always losers. And if there’s a bedrock principle of politics, it’s that the winners are always very loud and highly visible and the losers are quiet and invisible. The thing is, there’s always more losers than winners. In most cases, the losers are our kids; they get to pay off our debt.

The “stimulus” plan will “stimulate” the people it’s meant to stimulate: the politically connected. That’s all it will do because that’s all it can do.

So, we should do nothing?

Yes.

Nothing. Really?

Yes.

Nothing… just let banks fail and let people lose their homes?

Yes.

But… that’s a catastrophe!

Well… no. See, the banks have already failed. The bailout doesn’t keep the bank from failing, it just lets the bank avoid the consequences of its failure. When a business fails, the capital that the business held is released and the market allocates that capital to new ventures. Some of those ventures succeed. Some fail. That’s how the market works. When we bail out a failed business we keep the capital from being reallocated. That means that the capital stays in a spot where it’s not being used as well as it could be. That means that we don’t make as much money as we otherwise could.

As for people’s homes. the same thing applies. When a home is foreclosed, the house is put on the market where it’s sold to another family. A family that might actually pay its bills!

We  see the loss of the bank and all of the jobs at the bank, but we don’t see the business that would have been created had the bank been allowed to close, and we don’t see all the new jobs that would have been created.

We see the family that loses it’s home, but we don’t see the family that didn’t get a home.

We see the politically connected interests that will slop up the stimulus pork. We don’t see the millions who will inherit crippling taxes, growing deficits and an economy that grows at a slower rate. (More on the seen and the unseen here.)

Wait… an “economy that grows at a slower rate” that’s all? That’s what you’re up in arms about? “a slower rate?”

Yes!!!!!! Absolutely!!!! Economic growth is the THE GREATEST THING in the HISTORY OF MANKIND.

Economic growth lifts people out of poverty faster and more assuredly than charity, aid, or education. Economic growth saves more lives than any hospital, doctor, or government health program can ever hope to match. Economic growth makes us all rich, allows all of us to live longer, live better, and have more fun. In short, economic growth freakin’ rocks!

From the Concise Encyclopedia of Economics:

In the modern version of an old legend, an investment banker asks to be paid by placing one penny on the first square of a chessboard, two pennies on the second square, four on the third, etc. If the banker had asked that only the white squares be used, the initial penny would have doubled in value thirty-one times, leaving $21.5 million on the last square. Using both the black and the white squares would have made the penny grow to $92 million billion.

People are reasonably good at forming estimates based on addition, but for operations such as compounding that depend on repeated multiplication, we systematically underestimate how quickly things grow. As a result, we often lose sight of how important the average rate of growth is for an economy. For an investment banker, the choice between a payment that doubles with every square on the chessboard and one that doubles with every other square is more important than any other part of the contract. Who cares whether the payment is in pennies, pounds, or pesos? For a nation, the choices that determine whether income doubles with every generation, or instead with every other generation, dwarf all other economic policy concerns.

The massive increase in deficit spending, the corresponding increase in taxes (debt = taxes), and the increase in percentage of GDP that the government consumes, all work to slow economic growth and slowing economic growth means consigning more and more people to poverty.

Wealth is good. The sole object of sane public policy is to make as many people as wealthy as posible; to unleash the power of compound interest and increase the rate of economic growth.

Or we could borrow from our children and try to push our mistakes under the rug. That’s what Bush/Obama/Pelosi/McCain want to do. They and their cohorts will contnue to sacrifice the future in a futile attempt to ignore the present. They’ll continue to do it so long as we let them.

$4 trillion and counting

More and more banks have decided to reject the intial bailout offer. The banks that did accept the bailout used it to help pay bonuses to their executives, resulting in predictable, if Captain Renault-esque, outrage from President Obama. (Really, what did he think? He voted to give them $300 billion. What did he think they’d do with it? Make paper hats?)

Biden, as usual, makes the dumbest comment,

I’d like to throw these guys in the brig,” he said. “They’re thinking the same old thing that got us here, greed. They’re thinking, ‘Take care of me.’

Well, I wonder why they think that? Let me get this straight… Biden voted to give the banks $700 billion dollars, no strings attached, and is campaigning for an additional $900 billion and he says that someone else is greedy? He gave them the money and now he wants to put them in prison for accepting it.

Local banks are rejecting TARP money because, well because it only makes sense to spend the money on bonuses and corporate jets. Using it to make more bad loans is stupid.

Congress wants banks to make loans, so businesses can expand and people can start buying houses again. But lawmakers also want them to make only trustworthy loans. But there are only so many good loans to make in a weak economy with high unemployment.

So the money’s not going where Congress wants. But where does Congress want the money to go?

We’ve looked it over, and even we can’t quite believe it. There’s $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years; $2 billion for child-care subsidies; $50 million for that great engine of job creation, the National Endowment for the Arts; $400 million for global-warming research and another $2.4 billion for carbon-capture demonstration projects. There’s even $650 million on top of the billions already doled out to pay for digital TV conversion coupons. — Wall Street Journal

Don’t forget the billions of dollars they’re giving Acorn. And… wait… wait a minute! The whole farging point of this “stimulus” bill is to spend money, right? To “create jobs?” then why is buying a corporate jet a bad thing? That creates demand for jets, right? That stimulates demand for manufacturing jobs, right? Why is that bad spending, but $600 million for government cars is a good spending? Is there any sense in this mess?

The numbers are staggering:

If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars.

Crunching the inflation adjusted numbers, we find the bailout has cost more than all of these big budget government expenditures – combined:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

– Barry Ritholtz

But some of that $4 TRILLION must be “good” spending right?

If, for example, your teenager came home after spending the day at the shopping mall with your personal credit card and tells you “Hey Mom and Dad, I know that you told me to spend no more than $100, but I spent instead $10,000,” you’d likely be furious.  And you would not be becalmed by your profligate teenager suggesting that, because he spent $10,000, surely some of it is wise. — Don Boudreaux

We’re up to our necks in debt! Let’s borrow our way out!

I’ve said it before and I’ll say it again. If the economy really does need a “stimulus” then why not simply stop withholding taxes? Simple, easy, direct, effective, and immediate. But no graft.

Crisis or excuse?

“You don’t ever want a crisis to go to waste; it’s an opportunity to do important things that you would otherwise avoid.”  — Rahm Emanuel, President Obama’s Chief of Staff.

Steve Horowitz gets it exactly right,

One of the (correct) complaints about the proposed stimulus plan is that it’s full of all kinds of programs that would appear to have nothing to do with any accepted economic theory about what sorts of spending could even possibly lead to recovery.  The best example of this is the funds for family planning policy that are in the bill.  Of course to those who understand public choice, none of this is a surprise. …

This isn’t just your run-of-the-mill pork.  What we are seeing happen right now is that Congress sees this crisis as an opportunity to enact a whole variety of programs that they’ve wanted to pass for years, especially (but not only) the Democrats who no longer fear a veto, and now finally have the chance.  Just as the Patriot Act was a bunch of laws waiting for a political “crisis,” so is much of the stimulus package a bunch of programs waiting for an economic “crisis.”  The current crisis is just a convenient excuse.

As it happens, the family planning provision has now been deleted from the bill.  The bill is over 1,500 pages long. There’s money for ACORN in there. What else? Will the administration comb through the bill to remove pork, or will they be content to react only to the most egregious examples that get media attention?

Peter Boettke explains the basic economic principles at work,

Government can raise revenue in one of three ways: (1) tax, (2) borrow and (3) inflate.  The natural proclivity of democratic governments is to pursue public policies which concentrate benefits on the well-organized and well-informed, and disperse the costs on the unorganized and ill-informed.  And there are strong reasons why this bias in policy making will also be biased toward shortsightedness — pay out the benefits now, and worry about the costs down the road.  Thus, the natural tendency for elected government officials is to borrow (rather than tax) and then inflate (rather than tax).  Deficit financing, accumulating public debt, and monetization of the debt. …

The US has made a lot of bad policy choices that violate the teachings of basic economics and common-sense for over half a century.  We have not yet destroyed the US economy through these choices, but we are potentially on that path. The most effective way to get off that path would be to establish new restraints on the natural proclivities of elected politicians (take away discretionary powers in fiscal and monetary policy) and unleash the private sector and the creative powers of entrepreneurs. We can still pull out of this current crisis, but first government must stop making matters worse by catering to the natural proclivities of elected officials (from whatever party).  As James Buchanan once summed up the policy wisdom of public choice: “Don’t let the fox guard the chicken coop.”

And from Ilya Somin,

These days, we are repeatedly told that we have to pass a massive new infrastructure spending bill in order to fix our “crumbling” roads and bridges. Everyone seems to have forgotten that just three years ago, in August 2005, Congress enacted the biggest federal public works program in American history, spending a massive $286.4 billion on the 2005 highway bill. At that time, President Bush and congressional leaders from both parties told us that the new highway bill was needed to fix our infrastructure problems.

Before passing a new and potentially even bigger infrastructure spending bill, I would just like to know what happened to all that money Congress appropriated for the same purpose back in 2005? If that act succeeded in its purpose, it’s not clear why we need another huge federal infrastructure bill now, less than four years later. If it failed, we need to know why.

One reason why the 2005 bill may have failed is that much of the money was spent on various porkbarrel projects, such as the notorious “Bridge to Nowhere,” which is the only thing most people now remember from that bill. It’s certainly possible that the 2005 money was largely wasted because most of it went to politically connected interest groups and districts rather than genuinely valid infrastructure priorities. But if the 2005 bill indeed failed for that reason, why would we expect a different result this time around? You have to be a very committed partisan to believe that today’s Democratic Congressmen and senators are any less committed to lining the pockets of their favored interest groups than their Republican predecessors were in 2005. Certainly, Democrats such as Barney Frank have been more than willing to do that with the funds allocated in the bailout bill. Whether Congress is controlled by Democrats or Republicans, it is almost inevitable that much of the money appropriated in in large spending bills will be allocated on the basis of political power rather than economic rationality. Congressmen who refuse to channel money to politically influential constituents are unlikely to hold onto power long.

It’s simply impossible for the federal government to spend $900 billion effectively, efficiently, or even sensibly. The numbers are too large and the opportunities for graft too numerous. The potential rewards for gaming the system are simply too large for us to imagine–for even a moment–that vast amounts of money won’t be completely and utterly wasted.

If a stimulus we MUST have, then why not a simple moratorium on tax withholding? Why not simply take less from the American public for two months?

Because that leaves no opportunity for graft, and Congress lives on graft.

Here’s a link to a full page ad opposing Bailout ’09 taken out by Cato and signed by 200 economists.

No we can’t.

Excellent, excellent article by David Boaz at Cato, Can We Afford All This Spending? No We Can’t.

Political leaders talk about making the hard choices and laying the groundwork for the future, but their actions demonstrate a different approach. They try to solve problems — or at least to be seen to be solving problems — today without in fact thinking about the long term.

Where will this new spending come from? It could come from raising taxes; but even President Obama seems reluctant to raise taxes during a sharp economic slowdown, indicating that he does know that taxes reduce work, investment, and production. And would anyone propose to raise taxes by $825 billion? Or by the $3 trillion that it would take to cover the already-projected deficits and the current proposed spending? And of course money taxed away from those who earn it is taken out of the economy, only to be reinjected by politicians and planners rather than by consumers and investors. That means, as the Washington Post reported on Tuesday, “It will fall to Obama and his subordinates to decide winners and losers in the banking, financial services, automobile and other major industries, a span of control that dwarfs President Harry S. Truman’s attempt to seize control of steel production.” That’s not good for freedom or for economic growth.

If not taxes, of course we could borrow the money. Assuming a government plunging further in debt to the tune of a trillion dollars a year can still borrow. But again, borrowing just transfers money from private investment to political investment. What we’ll actually probably do is create the money out of thin air on the books of the Federal Reserve. More money injected into the economy surely means inflation, maybe a lot of inflation given the size of the spending already undertaken or now in the works.

Update:

OK, so let’s see….

Give money to the automakers because they’re going bankrupt.

Pass laws making cars more expensive to build.

Make plans to close military detention center.

Make no plans of any kind to do anything with the detainees.

Promise to increase “transparency” in government.

Vote to give hundreds of billions of tax dollars to private banks with absolutely no oversight.

Promise to make the word better for the children.

Borrow trillions of your children’s dollars to make payments to your parents.

Argue that the economy needs a “jump-start.”

Propose spending projects that won’t begin paying out funds for two more years.

Promise to eliminate pork barrel projects from the stimulus plan. (no, really!)

Fill the stimulus plan with highway and infrastructure spending. (Highway spending is the crispy bacon of congressional pork products.)

Stimulus and Spending

via Glenn Reynolds,

If the Government wants to stimulate the economy, then why not just declare a payroll tax holiday immediately?

It’s fast to turn on, fast to turn off once CPI ticks up, and you don’t have all these “is it really shovel ready” questions you have with fiscal stimulus.

and a critique,

The main problem with a payroll tax holiday is that it minimizes Congressional opportunities for graft and larding out goodies to their contributors. That makes it both wise and politically unfeasible, at least until we get a better class of congresscritter.

This is all true as far as it goes, but the fact remains that any revenue reduction–no matter how it’s effected–without a corresponding reduction in spending is a tax increase. A payroll tax holiday would be grand, but without a corresponding reduction in government spending, it’s exactly the same as selling bonds.

A “stimulus” package buys prosperity now at the expense of future debt. The politicians backing the stimulus package are betting that the cost of the stimulus won’t be paid until after they leave office.