Calling John Galt

The Stimulus Needs More Stimulus!

From Brattleboro, Vermont:

ROCKINGHAM — The Rockingham School District will have to borrow $600,000 to make payroll because the Windham Northeast Supervisory Union business office failed to get information to the Department of Education in time.

So the system is going to eat some interest penalties because it didn’t get paperwork finished on deadline. So, what exactly were employees in Rockingham doing that might have contributed to their delay?

The business office has been asking for more help for months, Allbee said, and she said the office got behind while waiting for the authority to bring an extra hand into the finance department.

The Rockingham School District approved the use of stimulus money to handle the extra work caused by the complicated stimulus process.

So, they have so much paperwork involved in using Stimulus money, they have to dip into Stimulus funds to pay for the paperwork – the volume of which prevented them from getting their mandatory statistical report to the state in time to qualify for the release of tax dollars.

I thought the whole point of Stimulus was to put a bunch of people out in a field digging holes; not pulling legitimate ditch-diggers away from ditches to dig additional holes elsewhere.

Stimulus – it’s not just for breakfast anymore.

More Tree Math

There are 120-million trees in a forest.

Let’s say the forest ranger comes up to you, and tells you there is a big out-of-control fire coming over the hill – and that if you follow his prescription now, you can grow or save 3-million trees.

What exactly has that person promised? Well, if he has forecast where the fire will spread before burning out, he might be able to show you how many trees the fire is likely to torch. Maybe the plan is to plant many seeds in an area protected from the flames.

A combination of those activities might well be poised to meet the demands of the promise – after all, it wasn’t a promise that we would have a net gain of 3-million trees. Just that we would grow or save 3-million trees.

So, how many trees must be standing at the end for the promise to be kept?

Answer: 3-million.

Think about it…

Forest for the trees

For decades, the US Forest Service inadvertently screwed up the nation’s forests. It wasn’t out of malice or greed, just well-intentioned idiocy.

If you’re going to manage a wildlife area, there are times you let nature take its course. Lightning strikes cause small forest fires that clear away the underbrush and create fertile ground for regrowth. If you are overzealous in preventing fires, you create conditions that allow a small fire to get way out of control.

We do controlled burns these days for that very reason, to keep a small fire from becoming everyone else’s problem. On a small scale, destruction is actually good.

Why is it the well-intentioned people in our federal government can’t leave well-enough alone with the economy? A little loss is a good thing, when it weeds out the bad or otherwise intractable. It is healthy to start over from time to time, and it’s much better for all the creatures living in that environment if only small sections get burned out at once.

Our recent economic/financial collapse has no single cause, but rather a number of contributing and enabling factors. I have a pet theory that the popularization of 401-K plans has meant a great deal of wealth for people who never would have been part of the “investing class,” but came with an Unintended Consequence: the amount of money pumped into investment circles was not matched by a proportional degree of oversight. When you own just a few shares each of 200 different companies, you’re not likely to investigate the balance sheets of any of them.

The main enabler, though, is the government. Politicians love softening the blow to the average family, and boy do we sure love to avoid discomfort. Rather than take our lumps with some bad economic news, we instead allow our representatives to patch over this ‘bubble’ with something that inevitably becomes the next bubble.

Let the bubbles break! Now we’re stuck with three or four bubbles worth of correction, and its no wonder that so many people are out of work. Yet, instead of leaving well enough alone, we’re patching yet another bubble by practicing Stimulus.

Maybe we should let the White House Economic Brain Trust intern for a summer in a National Park.

Is it THIS easy to get an economics degree?

In the Freakonomics blog, Justin Wolfers tries to make the case for another round of Federal Stimulus.

Some argue that the original stimulus didn’t work, and so we shouldn’t try more.

This is silly for a variety of reasons. First, it is way too early to tell. Second, the economy may be bad, but to figure out whether the stimulus helped or hurt, you need to know the counterfactual: how would the economy have performed otherwise?

The two arguments here are stunning in their lack of logic.

1. If it is way too early to tell if the Stimulus was a failure, then it’s too soon to throw more money at the project!
2. The fact that we had a first stimulus destroys the counterfactual – just as not having a second stimulus destroys the counterfactual argument for continuing the program! How will the economy perform with more stimulus?

Finally, there’s the issue of all the unspent Stimulus. We’ve only used a fraction of the $800-billion originally allocated. Maybe Wolfers could argue we should have spent that allocation faster, and on actual activity that stimulates the economy and not special interest groups and partisan political projects?

If I buy a dozen eggs and eat two of them, it would be stupid to come back and say “Four eggs would be great! Let me buy another dozen!”

The resistance to the Stimulus is the broken eggs – the sheer amount of waste we must deal with to get to the “good spending.”  (Yes, I deny the existence of “good spending” in my opposition to Keynesian theory, but for the sake of argument if you grant them the possibility their own logic still fails.)

The Stimulus in My Backyard

For anyone who wants to know what classical Keynesian stimulus looks like, you’re welcome to hang out in my backyard.

I live in Jefferson County, Alabama, which currently sports the highest municipal debt in the nation.

We started down that path through honest means, and time will tell how much dishonest means added to the debt.

A few years back, there was an environmental lawsuit which tagged the county for having sub-standard sewers, leading to nasty stuff getting into the creeks. The county went into an EPA consent decree, with a timetable for improvements.

It occurred to the county leaders they might seize this opportunity to go beyond the scope of the decree. After all, while you’re digging that old pipe up, why not replace it with something bigger and better? Why not expand capacity for future growth, and prepare large sections of the county for future industrial and residential expansion?

You know, invest in infrastructure. It just took a little bit of extra borrowing.

Well, now we’re sitting on a three-billion dollar debt. We’re a full year into servicing interest only. We’re more than a year past the point where bankruptcy made sense, and many of us quit counting after the first dozen emergency extensions. Think Orange County, California, and multiply it by three, factoring the population difference.

Granted, it wasn’t a three-billion dollar project at first. But that’s the nature of government projects, they tend to grow.

Granted, there was a decent amount of graft and corruption involved, and little deals here and there deciding who would get those lucrative contracts. That’s also the nature of government – there larger the amount of money on the table, the greater chance of money changing under that table. No fewer than 6 current or former commissioners have been either tried or are under indictment, a stunning number when you consider there are only five seats on the commission.

Granted, our county leaders tried playing the shell game of bond swaps and other money-moving machinations to keep the interest rates as low as possible. And it blew up in their faces, so now the insurers are trying to force the county to raise sewer rates to cover the shortfall. Average homeowner would see a $120/month increase if they got their way. Oh, and if you had a sewer hookup that was put close enough to your house that you had an option to use it one day, but never used, you’d be hit with a $40/month convenience fee.

No S#!t.  Literally.

So, what do we have for all this debt? We have a half-completed sewer, mounting interest debt, and legal nightmares. We have de facto bankruptcy, and the prospect of laying off essential county staff. And we face a monetary reputational hit that is far worse than bankruptcy would have been.

What we don’t have is record employment and economic bliss.

Keynesian theory dictates that government spending can be a catalyst for raising aggregate demand in an economy. It does not factor at all what you spend the money on. All that amounts is the amount that is pumped into the system. Those dollars “turn over” in the ecosystem, and a magic multiple is announced that makes it sound like your economy made a profit on the extra spending.

By all accounts, there was a large amount of extra money spent in Jefferson County. But it came from somewhere.

That money that was “spent” did create jobs, but you can never calculate the opportunity cost — how well would those dollars have been spent, what kind of “Un-Keynesian” multiplier did we give up to buy half of a non-stinking sewer that we didn’t need, for ten times the cost of the original decree?

If Keynesian stimulus worked, then Jefferson County, Alabama, would be the subject of numerous national stories and articles. Other communities would be flocking here to collect the evidence they would need to justify new taxes and increased spending, all in the name of job creation.

I haven’t seen any of those articles, have you?

Python Prophecy

We’ve got Somali pirates AND financial insurance disasters in the news.

Who knew?

(see Part 1 and Part 2 of “The Crimson Permanent Assurance”)

Media Malpractice

This piece from the Foundation for Economic Education clearly shows how the fourth estate is falling down on the job, and can’t seem to report anything involving economics with any real context.

What amazing magical powers our benevolent government has! It stimulates when it spends, unlike what happens when the rest of us spend. I suppose the difference is that when you and I spend, the money comes from somewhere.

The Change I Am Looking For

It’s actually just a single letter.

The Audacity of Nope

We need a leader with the guts to turn to the corporate welfare recipients, and give them the answer that will finally lead to economic growth.

It’s not bailouts.

It’s not stimulus.

It’s the notion that unmade beds remain the way they were slept in.

It’s the only way investors and consumers will proceed with confidence, knowing that financial activities have consequences that are predictable and visible.

Every act of propping up failed practices and businesses only prolongs the damage, passing it along to further generations. You can’t replace a bubble with another bubble, without getting a louder and bigger implosion down the road.

We don’t need a government that says the right things, we need a government that says nothing. Then does it.

We need a government that believes in the Audacity of Nope.

The $2 Stimulus

A pharmacist in Brewton, Alabama, prescribed his own cure for the recession. He gave his employees unexpected bonuses, paid out in two-dollar bills.

He challenged them to give to charity, and spend all of that money in local downtown businesses. Just as you’d expect, the money is circulating in a very visible and tangible way.

The instructive piece here comes from the comments. This one, from Zekie:

It’s called basic economics. It is exactly how Obama’s stimulus bill is supposed to work. And it’s exactly how Bush’s worked. However, there were no new jobs created to keep the $$ circulated.

First of all, there is a big difference between a stimulus where they money is injected from the outside (the $16,000 in savings the pharmacist invested in the project), and money that the Federal government must first acquire through taxation, borrowing, or printing.

Second, there is a bit of circular reasoning in effect. The stimulus is supposed to create (or save) 3.5-million jobs, but if the jobs don’t exist the money doesn’t circulate?

CDM2008 adds this piece of wisdom:

Wherever you live, spend locally. Eat at local restaurants, shop at local stores, patronize the businesses that are the foundation of your community. It’s a shame large news stations won’t pick up on something like this. Imagine if it happened in communities throughout the U.S. Good news for a change.

Sorry, but “Buy Local” only works if “Local” saves you money. Going out of your way to prop up local businesses is clearly your choice, but any effort to artificially reduce competition just results in higher costs and greater inefficiency. 

If “communities throughout the U.S.” did this very thing, we’d be in seriously dire straits. Trade creates wealth at a greater clip if those trades are of the greatest value to both parties. Such artificial caps reduce the overall wealth and welfare. Yes, it looks good for your community in the short term, but “if everyone else did it” there would be a tremendous flow of capital into the community that gets shut off in the bargain.

If Zekie and CDM2008 have their way, you’d better get used to those $2 bills, because they’ll be getting awful lonely and stale.