San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, November 2, 2012

Government Caused The Great Recession

I finished a very good book last night.  It is called Financial Fiasco and it is written by Johan Norberg, a Swedish economist and senior fellow at the Cato Institute.  If you are interested in discovering the real causes of the Great Recession of 2008-2009 you need to read this book.  If I could wave a magic wand and force all citizens of the Socialist Democracy of America to read a book this year, it would be this book. 
In today's posting I am going to quote extensively from Chapter 6 of the book.  He begins a section of that chapter with the heading "Stockholm Syndrome".  He goes on to describe how "some people believe that politicians and bureaucrats are somehow wiser and more enlightened, take a more long-term view, and are guided by more honorable motives than the millions of people who make decisions and set prices every day in the market economy."  This idea is a common refrain in my blog postings.  I am mystified by the fact that otherwise rational people suddenly jettison their logic and embrace the mistaken belief that simply because one is in public office, one is a superior human being.  Norberg quotes Swedish historian Vilhelm Moberg on this phenomenon when he writes, "Their faith in the government as savior must have a purely metaphysical basis; it has no ground in reality as we have experienced it so far."
Norberg makes this observation in the context of the political and bureaucratic response to the Great Recession of 2008-2009.  In particular he is addressing the failed policies of a multitude of government agencies that actually brought about an exacerbation of the economic downturn.  As an example of the inadequacy and counter productive nature of the political responses to the recession Norberg writes, "The former SEC commissioner Paul Atkins believes that the SEC failed to develop open marketplaces for mortgage-backed securities and credit-default swaps because it was 'distracted'--devoting its time and resources instead to grabbing power from other government agencies by starting to regulate hedge funds and introducing new types of supervision of mutual funds." Does that surprise anyone?  A major branch of the federal bureaucracy (SEC) is charged with monitoring and regulating the securities markets of the SDA and it spends most of its time competing with other government bureaus for federal funds.  Meanwhile, the task that it was formed to accomplish remains undone.  Norberg goes on to describe the reason for this behavior when he writes, "One reason the regulation and supervision of the US financial markets are oddly divided among the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Treasury, and various government agencies is that these entities report to different congressional committees, and the politicians on those committees refuse to let go of areas of responsibility that guarantee them generous campaign contributions from financial companies and banks."  Who would have thunk it?  Politicians are in the business of buying votes and the bureaucracy they have created, ostensibly to serve the citizens of the land, really exists to expand their power and authority over us.  I am shocked.
Norberg has little patience for the activities of immoral bureacrats who exploited the financial crisis for their own political gain by fomenting fear among the American people.  Nancy Pelosi, one of the dimmer bulbs in the shining bank of lights that is Congress, tells the story of meeting with Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke in her office at the height of the panic over the looming financial meltdown.  According to Pelosi, when she asked Bernanke how serious the crisis was he responded by saying, "If we do not act immediately, we will not have an economy by Monday."   This same story was being told by Bernanke, Paulson and Timothy Geithner to as many politicians as they could round up.  Being a rather stupid group of people, the politicians fell for it.  Norberg says, "Those who believe in the government as savior should study not only how it laid the foundation for this crisis but also how it dealt with the subsequent financial tumult: how the US administration tried to scare the nation out of its wits and constantly changed strategies, and how lobbyists and corporations control politics.  They should have been there when the Treasury secretary tried to escape democratic scrutiny and tricked $700 billion out of Congress or when car makers and pharmacy chains were redefined as financial companies so that they would enjoy a protection from investors that Treasury knew would be meaningless."  Once again, I am shocked.
Norberg goes on to describe how one of the biggest problems with political action in the marketplace is the fact that politicians are notoriously short-term in their time orientation while businessmen, or at least successful businessmen,  are necessarily long-term in their time orientation.  Politicians make decisions based upon the next election cycle.  Politicians who do not give the people what they want, and give it to them immediately, will not be reelected.  This brings about the highly undesirable state of affairs where politicians will promise to spend money on their constituents today, and figure out how to pay for it later.  Norberg tells the highly insightful story of Mario Monti.  Mr. Monti served a ten year stint as a European Commissioner responsible for various economic activities in the Eurozone.  According to Norberg, "Monti described how finance ministers from European Union member states would often come to see him in Brussels.  They would explain that they had made promises to their voters at home about giving subsidies to local companies, but as they were aware that doing so would be economically destructive, they now asked Monti to say that those subsidies were illegal under European antitrust law.  This enabled the ministers to return home and blame the big bad European Union for not letting them keep their promises."  Norberg concludes, "...if you shower voters with cheap money and build up a deficit today, you will win their love, while the next administration will have to explain why there has been a financial crisis and pay for the cleanup."  I am beyond shocked.
Norberg points out another astounding truth about the political process in the SDA.  Largely due to the fact that voters persist in their belief that politicians are gods, we find a strange state of affairs in which politicians in this country are rewarded for their profligate behavior.  Norberg writes, "When business people and senior executives do a bad job, they are thrown out on their ear. When politicians and financial authorities do a bad job, however, they get more power...as Fed governor, Ben Bernanke convinced his colleagues to pump up an inflationary bubble to avoid a crisis; as US housing secretary, Andrew Cuomo did all he could to foist mortgages on people who could not afford them.  When the bubble burst, Bernanke and Cuomo had both moved on to other positions and were given even more power so that they could save us from the chaos they themselves had helped bring about."
Norberg concludes that we do have a crisis in this country today.  It is, however, not an economic crisis.  Nor is it even a debt crisis.  No, he concludes that we have a political crisis.  Our economy and our debt can be fixed.  Our political process is another issue entirely.  I find myself logically constrained to agree with Norberg.  If politicians would get out of the way the economy would do fine.  If politicians stop strangling the economy they would also discover that the debt problem would no longer be a problem as economic growth would naturally kick in.  The economy is amazingly resilient.  The real problem that we all face has nothing to do with the economy or the national debt.  The real problem we all face is our political process.  Specifically, we are cursed with a democracy and a nation of voters filled with the envy.
As much as I despise politicians (did I mention that they are all liars?), the fact of the matter continues to be that they are only being what we, the electorate, have fashioned them to be.  More precisely, I should say that politicians are only being what 51% of the electorate want them to be.  51% of the people in this country want to live off the productive activities of the remaining 49%.  The power of the vote and the democratic process allows them to do so.  The entire machine is fueled by the powerful explosive known as envy.  Every man has sinful envy lurking in his heart,  just waiting to come out and wreak havoc.  Once men become a part of the 51%,  moral restraint dissolves and we inevitably end up with a democratic political process dedicated to ensuring that the parasitic majority can live off the capital of the productive minority.
There is nothing new about the condition we find ourselves in.  The infamous quote, generally attributed to Alexis de Tocqueville (although some dispute that attribution), is that "a democracy cannot exist as a permanent form of government.  It can only exist until the voters discover that they can vote themselves largess from the public treasury.  From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury."  My friends, we have arrived at that point.  Welcome to the Socialist Democracy of America.  We have seen the enemy and it is us.

Thursday, November 1, 2012

Hurricane Sandy Victims Have No Right To My Money

Mitt Romney is in a tough spot.  He is on record stating that the Federal Emergency Management Agency (FEMA) should not exist.  For those of you who might not be aware, FEMA is the branch of the federal bureaucracy that takes money from taxpayers and gives it to people who have experienced some sort of natural disaster.  The underlying philosophical belief behind FEMA is that all citizens of the Socialist Democracy of America have a moral claim upon the money of their fellow citizens if they experience a natural disaster big enough to get the attention of the media and the politicians. (A sinkhole could open up under my home tonight.  If my house disappeared into that sink hole I can guarantee you neither Obama nor Romney would appear with a bag full of money for me.)  You might think that Romney's opposition to FEMA would be a clear indication that he also disagrees with the philosophical presupposition that under girds its activities.  That would not be correct.  Romney fully agrees that all citizens in the SDA should have some of their money forcibly extracted from them and given to victims of natural disasters when those natural disasters rise to the level of being noticed by the media and politicians.  His disagreement with FEMA is not about its function.  His disagreement with FEMA is about its form.  Romney believes that the individual states should be about the business of stealing from their own citizens, leaving the federal government out of the crime.
Hurricane Sandy rose to the status of an official natural disaster in that it caught the attention of the media and the politicians.  All politicians who are either presently in office or who are seeking office in the next election have descended upon hurricane stricken areas in order to be photographed handing out food, shaking hands, shedding tears and generally schmoozing the survivors.  A disaster like Hurricane Sandy makes for good politics, except in the case when a politician has been so crazy as to say something that is true, or at least half true.  Romney is correct that FEMA should not exist.  He is paying the price for his statements about FEMA.  Reporters are hounding him with questions about his previously stated position on FEMA as he wanders around various parts of the disaster area looking for photo opportunities.  Romney and his handlers know enough to ignore the questions.  Reasserting his belief that FEMA should not exist at the exact same time Obama is calling in FEMA bureaucrats with bags full of federal dollars to give away does not endear him with envy dominated voters.  So he keeps his mouth shut and hands out another free meal and bottle of water.
Political posturing in times of natural disaster, however, is not the point of today's posting to this blog.  We all know that politicians are parasites who will exploit any opportunity to advance their careers.  Of more interest to me is how a decent human being and citizen of the SDA can suddenly become the bad guy because he believes that he has a right to keep what is his.  Specifically, why should I be demonized because I do not believe victims of natural disasters have a right to use the government to steal my money and give it to themselves?  Let's face it.  Almost nobody is willing to come right out and say that victims of hurricane Sandy have no right to government dollars.  Folks are afraid that such statements will make them look as if they lack human compassion.  People are afraid that such assertions will make them unpopular with the more sensitive members of society.  Hogwash.
The burden of proof is upon any person who is dumb enough to assert that being the victim of a natural disaster automatically gives that person a moral claim on the money of his neighbors.  If you believe that, please explain how it is so.  There is no obvious reason why it should be so.  There is no clearly rational reason why it should be.  There is no moral principle that says it must be so.  In fact, just the opposite is the case.  Using the coercive power of government to forcibly extract some of the income and wealth from one group just to give it to another group that has experienced a natural disaster is as much an act of theft as any other income transfer or wealth redistribution program.  The mere fact that the recipients of the income transfer might be pitiable does not change anything.  I can find millions of pitiable human beings who would, under that same principle, be worthy of wealth transfers.
Speaking of being pitiable, allow me to tell you about myself.  In my short life I have been a victim of love, a victim of rock and roll, a victim of chicanery, a victim of a frivolous lawsuit, a victim of a multitude of viruses (including a nasty retro-virus), a victim of gossip and slander, a victim of grade-school bullying, a victim of theft of my personal property, a victim of stock market bear markets, a victim of an errantly struck golf ball, a victim of a bike crash in which my ribs were broken by the lady riding behind me, a victim of anti-Welsh racism and a victim, on rare occasions, of my own ignorance and stupidity.  Where is my compensation?  Where were the politicians and bureaucrats with bags full of money when I was in my hour of need?  Nobody shed tears for me, despite my long and sordid history of victimization.  But, don't get me wrong, I don't want any of those bags of money.  My point is simply that we all are victims in this life.  Nobody, including me, deserves the money of his neighbor simply because he is classified as a victim of something or another.
The belief that victims of hurricane Sandy have a right to taxpayer dollars is nothing more than another example of the fallacy of the seen and the unseen.  What is seen is the fact that a large number of people (maybe millions?) have been victimized by a hurricane.  What is not seen is the fact that 330 million citizens of the SDA are being robbed in order to transfer money to the hurricane victims.  The choice is yours.....do you want five or ten million victims or do you want three hundred and thirty million victims?  Better yet, can you conceive of a way to resolve this dilemma that does not victimize anyone?  I can.  Leave everybody alone. Don't steal from anyone. The most compassionate thing we can all do for the hurricane victims is stay out of their way and let them rebuild their lives and property.  If you want to send some of your own money to somebody who was victimized by the hurricane, do it.  If you want to staff a soup line, do it.  If you want to rebuild a roof, do it.  In fact, go do anything you want to do.  You are free to be as charitable as you wish.  Just be sure to use nothing but your own time and money and leave the coercive power of government and my money out of it. 
Actions have consequences.  Building homes along oceanfronts sometimes results in the destruction of those homes by hurricanes.  A person who builds his home along the oceanfront is aware of the risks he is taking.  Neither I nor the federal government should subsidize losses associated with individual risk taking.  It is wildly ironic that so many citizens of the SDA are spitting mad when the federal government bails out Wall Street banks, thus subsidizing the financial losses associated with the risks they take, yet, at the same time, believe the federal government has a moral duty to bail out citizens who took foolish risks building homes in hurricane zones. Does anybody besides me see the contradiction here?
Furthermore, there is a reason insurance companies exist.  People do not have to face potential risks alone.  Insurance companies are here to help us manage the risks associated with life.  Men and women stupid enough to go through life refusing to insure the risks they voluntarily decide to take should not be granted a reprieve from the circumstances of life when things backfire on them.  Taxpayers are not the final line of insurance.  Stealing from taxpayers to subside irresponsible behavior is a bad idea.  Even worse, it is immoral. What almost everyone realizes is true when it applies to bankers is just as true when it applies to individual citizens in the SDA.
Everything I have written, of course, makes no difference.  I am being rational and this is not about rationality.  This is about pure, unbridled emotions.  Soft headed people who are driven by their emotions see victims of natural disasters and scream out for an all powerful and loving government to do something about it.  Government, ever willing to expand power over the citizens, is happy to oblige.  As always, we end up getting exactly what we deserve.

Wednesday, October 31, 2012

How Many Laws Do We Need?

As folks prepare to go to the polls to elect sinful, selfish, arrogant and ignorant men and women to congressional seats, it occurred to me that nobody ever asks the question about just how many laws we really need.  The legislative branch of the government of the United States, and all fifty states as well, exists for the purpose of making a never ending list of laws.  The first article of the constitution enumerates the powers associated with perpetual law making.  Yet nobody ever asks the question about how much is enough.  How many laws do we need?  Do we really need hundreds or thousands of new laws every year?
God has given mankind a law code.  It consists of ten major headings, the Ten Commandments, followed by several hundred examples of case law where the major categories are explained in detail.  The entire law of God is contained in five short books that make up only several hundred pages.  There are less than seven hundred case laws in the biblical text.  That combination of commandments and case law was sufficient to order the legal lives of the chosen people for thousands of years.  For some orthodox believers, it is sufficient to resolve any legal issue down to this very day.  If God was able to tell us everything we needed to know to resolve our legal disputes so succinctly , why does the state need to be creating new laws every single day?
Many folks do not realize how bad it has become.  Paul Craig Roberts, in his book The Tyranny of Good Intentions, describes how complex the modern legal code has become.  He says, "Most Americans are accustomed to thinking of law as a list of deeds that the government prohibits.  This list is long.  The US Code, which contains all federal statutes, occupies 56,009 single-spaced pages.  Its 47 volumes take up 9 feet of shelf space....Administrative lawmaking under statutes fill up the 207-volume Code of Federal Regulations, which spans 21 feet of shelf space and contains more than 134,488 pages of regulatory law.  The Federal Register updates federal regulations daily.  In 1994, its 250 volumes had a total of 68,107 pages.  Federal law is further augmented by more than 2,756 volumes of judicial precedent, taking up 160 yards of law library shelving."  Does this seem excessive to anyone besides me?  Do we really need all of this law to resolve our legal disputes with one another?
The list of laws enumerated by Roberts in the above quotation does not include the enormous body of law that is imposed upon us by state, city and local governments.  It is probably fair to say that the entire body of law that we are expected to obey is double the number of laws found at the federal level alone.  If each page of the US Code, the Code of Federal Regulations, the Federal Register, and the various local government laws we are bound to obey contains a description of just one law (a highly unlikely assumption), then we are all subject to a body of law that enumerates 517,208 individual laws that we are expected to obey with blind obedience.  That is over half a million opportunities for us to "break the law" every single day.  You have probably already broken several laws today.  I ought to be arrested because of the laws I have already broken today alone (see my posting for 5-15-12).  Do we really need over half a million laws?
The problem, of course, is our form of government.  The body of law can be kept quite small when law exists for the purpose of protecting life, freedom and property.  There are only so many ways it can be declared that life, freedom and property are to be inviolable.  The law of Moses did a pretty good job of illustrating how life, freedom and property can be protected by a small body of law.  We, however, live in a democracy.  In a democracy every citizen wants a piece of the "franchise".  In a democracy every citizen wants a law that allows him to violate the life, freedom and property of his neighbor in order to advance his own status and wealth.  There are millions of ways that we can steal from each other.  There are millions of ways we can attempt to control the behavior of our neighbors for our own benefit.  As a result, we have a body of law that can literally expand to infinity as we dream up new and unique ways to rob one another of our property and control one another's behavior.  The half a million laws on the books today could end up being only a tiny percentage of what we could have a couple of years from now if we really put our minds to creative robbery and state expansion via law creation.
I conclude that we should all go to the polls next Tuesday and elect idiots to Congress who will promise to expand the body of law exponentially.  After all, nobody wants to elect a "do-nothing" congressman.  Especially qualified for congressional seats are women like Nancy Pelosi who famously declared to her fellow congress-people that they needed to vote for Obamacare so "we can find out what's in it".  Now that is leadership!  Let's set a goal for Congress.  Let's see if Congress can double the body of extant law in one four year period.  Then, let's try and do it again.  Let's see if we can get to the point where everything we do, or think about doing, has become illegal.  Now that would be a country I would love to live in.  It would be safe and secure from all alarms.  Praised be the state.  As you go to the polls next week rejoice in the fact that you are a part of this process.  Thanks to you we can all legally steal from one another.  Isn't democracy wonderful?

Tuesday, October 30, 2012

Professional Athletes Are Selfish Brats

The title of this post tells you all you need to know. Can anybody disagree with that simple assertion?  Consider the following general examples we have all been witness to in the recent past:
  • A baseball team is losing a game when one of the players on the losing team hits a home run.  He then struts around the bases while watching the diamond-vision replay of his home run.  He seems oblivious to the fact that his team is losing.  He has a huge smile on his face as he considers how many home runs he has hit and how much of a bonus he might receive for hitting them.  Repeat the same scenario when a player makes a good defensive play.
  • A basketball team is losing a game when one of the players on the losing team makes a highlight-film dunk.  He follows up his dunk with chest pounding, arm waving and screaming as he struts down the court like the King of France.  He seems oblivious to the fact that his team is losing.  All that matters to him is the possibility of making it on Sports Center that night.
  • A football team is losing a game when one of the defensive linemen on the losing team slashes into the backfield for a sack of the quarterback.  The sack is followed by some sort of ritualistic dance designed to declare the greatness of the player to the watching world.  He seems oblivious to the fact that his team is losing and nobody but his mother cares about his sack.
  • A football team is losing by several touchdowns with very little time left on the game clock when a wide receiver on the losing side makes a good catch and run for a touchdown.  That touchdown is followed by some sort of flashy jump and dance combination (perhaps derived from figure skating?) that announces his superiority to the world.  He seems oblivious to the fact that he is going to lose the game.
  • A baseball player is playing in a game in which his team is winning but he just struck out for the fourth time that night.  The camera follows him as he returns to the dugout where he promptly proceeds to slam down his helmet, break his bat, overturn the water cooler and shout as many profanities as he knows into the air.  His fellow players know enough to keep their eyes forward and their mouths shut.  He seems oblivious to the fact that his team is going to win the game.  All that matters is his personal statistics.
If you are a fan of professional sports I am sure you can think of hundreds of examples of behavior just like those I have described above.  Professional athletes seem utterly incapable of getting beyond their own selfish interests.  They seem to be only able to think of their individual statistics and how much money they might earn on their next contract if they can achieve individual statistical glory.  They seem to be nothing more than screaming infants in diapers.  They seem to have no ability to exercise emotional self control.  They have no concept of team.  In a phrase, they are selfish brats.
The Broncos/Saints game played last Sunday night gave us a perfect example of the intense, infantile selfishness of professional football players.  In this case the Broncos were winning the game.  Demaryius Thomas had just caught a touchdown pass for the Broncos.  He and fellow receiver Eric Decker had scripted a touchdown celebration that they planned to use that night if one of them caught a touchdown pass.  At the end of the play they went into action.  The plan was to do a football equivalent of the alley-oop dunk play in basketball.  Fellow receiver Brandon Stokley saw what they were doing and jumped in to intercept the alley-oop flip from Decker, thus preventing Thomas from spiking the ball over the goal post and avoiding a costly penalty for the team.  Here is how the Denver Post described the situation, "By aborting the planned alley-oop dunk over the crossbar that Thomas and Decker had schemed, Stokley saved his team a 15 yard penalty --at what was still a critical juncture in the game--and saved his teammates certain league fines of between $10,000 and $25,000."  Stokley then reported that "they were mad at me on the sideline for stopping them." 
So let me get this straight....two millionaire football receivers make the conscious decision to script an endzone celebration that they know is illegal and that they know will cost their team a penalty at a critical time during the game and they are mad when a fellow player prevents them from doing it?  Is it possible to be more selfish than that?  Is it possible to be more oblivious to the goal of the team than that?  Is it possible to be more of a selfish jerk than that?  When interviewed after the game, Stokley had this to say about his fellow receivers, "I've got these two knuckleheads I've got to mold.  These kids, nowadays.  You've got to put them in timeout."  Did I hear that right?  Is a fellow player referring to his selfish counterparts as "knuckleheads" and "kids"?
What I have never understood in these situations is the perspective of the coaches and managers of the teams.  Why do they allow this sort of selfish behavior?  Have managers and coaches lost control of their teams to the point that it is impossible for them to prevent selfish behavior on the part of some individuals who would willingly put the fortunes of the team at risk for their own personal glory?  If I was the head coach of the Denver Broncos I can assure you that both Thomas and Decker would be sitting the bench for the next game.  If they ever tried a stunt like that again they would be off the team.  End of discussion.
My wife has a great idea on how to deflate the enormous egos of professional sportsmen.  She believes that rather than replaying the highlights of great individual plays on the diamond-vision the team should replay the errors and mistakes made by the players.  Rather than allowing the star shortstop to watch himself hitting a home run, show a clip from the last time he booted a routine ground ball.  Play it over and over so he can see it multiple times.  Remind him that he, too, is human and subject to error.  Remind him that his error could have cost the team the game.  Remind him that the world does not revolve around him. Now that is something I would like to see.
Meanwhile, I offer my services as "team counselor"  (much like Counselor Troi on Star Trek-TNG) for any professional team that needs a sharp dose of reality therapy.  If you hire me for the position I promise that I will ceaselessly root out selfish behavior in players and then publicly point it out to them in as demeaning a fashion as I possibly can.  My goal would be to humiliate and subjugate all selfish brats on the team.  My goal would be to either drive them from the team or convince them to modify their behavior to the point where they consider the team to be more important than themselves.  I found it particularly telling that Bruce Bochy (manager of the World Series champion San Francisco Giants) credited the success of this year's team to the fact that every member of the team was dedicated to playing as a team, leaving their own selfish interests behind.  A team full of no-names playing as a cohesive unit can beat a team full of egos playing for their own individual statistics (hear that Yankees?) any day of the week. 
Watching spoiled, selfish millionaire sissies play professional sports takes its toll.  I have told myself to stop watching and go outside for a walk many times.  But then some team like the SF Giants comes along and makes me enjoy the games once again.  Congratulations to the San Francisco Giants.  You showed the meaning of teamwork, dedication and selfless play the entire year and were then rightly rewarded for your behavior with the title of Major League Champions. 

Monday, October 29, 2012

Government GDP Figures Are Misleading

The Bureau of Economic Analysis (which can be found within the Commerce Department of the federal government) announced its most recent estimate for Gross Domestic Product last week.  According to the BEA, the real (inflation adjusted) GDP for the third quarter of 2012 was +2.0%.  This represents an improvement from the second quarter which registered a +1.3% rate of economic growth.  According to the BEA website, "The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures, federal government spending, and residential fixed investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and private inventory investment.  Imports, which are a subtraction in the calculation of GDP, decreased."  Did you get all of that?  Reading that paragraph reminds me of the old routine from the television show Get Smart.  The Chief is preparing to give Maxwell Smart a complex set of instructions about his next mission.  Prior to giving him the instructions he exhorts Max to "listen carefully."  He then gives him the instructions.  After delivering the instructions he asks him, "did you get all of that Max?"  Max answers, "Not quite."  The Chief responds, "Which part didn't you get?"  Max answers, "The part after 'Now listen carefully.'"
Economists and bureaucrats employed by the government strive mightily to measure the thousands of constituent parts that make up our economy.  It is an impossible job of course.  Nobody, now matter how large his computer, can measure all of the constituent parts of an economic system.  The problem is not that he simply does not have powerful enough computers.  The problem is one of knowledge, or rather, the lack of knowledge.  The economy, being made up of the hundreds of millions of financial decisions made by millions of people every day, is simply not exhaustively  knowable.  To know about every transaction that takes place the moment it takes place would require omniscience.  Despite what many worshipers of the state may believe, the government is not omniscient. So the bureaucrats at the Bureau of Economic Analysis do the best they can with the information at their disposal.
One of the most important and watched government statistics is GDP.  GDP theoretically measures the total output of the entire economy for a particular period of time.  When the BEA announced that the GDP increased by a real 2.0% in the third quarter it is telling us that total economic production in the country increased by an annual rate of 2% when compared the amount of goods and services that were produced in the second quarter of the year.  As you might suspect, these are the figures that are used to determine if the country is in a period of economic growth or contraction (officially called a "recession").  We are presently in a period of economic growth, and have been for several years now.  The rate of growth that we are experiencing is somewhat lower than historic averages and that causes many economists and politicians to describe our present economy as "sluggish".  The lower rate of economic growth that we are presently experiencing gives abundant opportunity for the political parties to blame each other for present conditions as well as giving each party the opportunity to brag that it could do a better job.  I am not interested in the economic nonsense that comes out of the mouths of politicians in today's posting to this blog.
What interests me today is the somewhat arcane makeup of the GDP calculation.  In particular, I am interested in why government spending factors into the calculation of total goods and services produced by the economy as a positive data point.   But first, we need a brief review of our principles of economics.
  1. Capital is created in an economy when people apply labor to land.  That is the simplest and most common definition for capital creation.  'Land' refers to all natural resources that can be developed by humans and not merely to real estate.  When men take natural resources and make other things out of those resources, capital is created.
  2. Capital expands when men take the capital goods they have created and trade them with each other.  The process of free trade allows for the division of labor that maximizes the utility of each participant in the economic process.  As each person does what he does best, everyone prospers.  As men trade freely with each other, the wealth of everyone increases.
  3. Government creates no capital.  It is impossible for government to create capital because all government "investment" comes from the existing capital that is presently held by the taxpayers who are subservient to that government.  Unlike the operation of the free market, government can only "create" capital by first taking it from somewhere else where the free market has already produced it.  Government activities that restructure the capital in the economy are never zero sum games.  The costs associated with the government activities guarantee that all attempts by government to "create jobs" or "invest in the economy" will ultimately be net capital destructive.
If you were able to comprehend the definition of GDP from the BEA quote above, you would have noticed that "government spending" is considered to be an addition to GDP.  In other words, according to the fine folks at the BEA, the more government spends the greater the economy grows.  Even a fifth grader knows that the economy of this country does not get larger when government raises taxes to fund its own spending programs that it sometimes refers to as "investments".  At the very best government spending should be considered a neutral factor in the GDP calculation.  More properly it should be seen as a subtraction from the total goods and services produced by the free market.  It most certainly should not be considered to be a positive contributor to GDP.  If government spending really was indicative of true economic growth, the government of the SDA would be able to spend itself to prosperity at any time.  In a recession?  Create enough government spending to make the growth positive.  Want higher rates of growth?  Increase government spending.  Clearly it is all nonsense and craziness.
The most recent GDP figures are also inherently misleading.  According to the American Institute for Economic Research (Business Cycle Conditions, September 2012), " The private sector part of GDP includes consumer spending, business investment in plant, equipment, and inventory, and the net effects of trade with other countries. It only excludes federal, state, and local government spending. The private sector is doing pretty well. On a year-to-year basis, it is running just below a 4 percent annual growth rate, showing remarkable stability. The problem is that government spending has been declining since 2010. This has dragged GDP growth to a reported 1.3 percent for the second quarter of 2012."  Although I would dispute that a decline in government spending is a "problem", this quote powerfully illustrates a huge problem with the GDP calculation.
Real GDP has been running around 2%/year for the past three years.  However, government spending at all levels of government, thanks to the recession and a dramatic reduction in tax revenues, has decreased by around 2%/year for the past three years.  At the same time private sector economic expansion has averaged around 4%/year for the past three years.  The net result is that total GDP is reported as a sluggish 2%/year when the real rate of GDP expansion is actually closer to 4%/year.  That should be cause for celebration rather than concern.
The net impact of all of this is that things are not nearly as bad as you are being told.  The warring political factions in this country are exploiting inaccurate economic information in an attempt to scare you into believing that we are falling apart economically.  That is simply not true.  Private economic growth is taking place at a healthy 4%/year rate while the overall size of government is contracting.  Both of those items are good news that should give you an optimistic view of the future.