Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

23 November 2008

A Government-Troubled Economy

Government is the problem, it is not the solution.

For some time the housing industry has been in trouble. What caused those problems? The cost of lumber has been high for a long time due to heavy world-wide demand for lumber as much of the world has latched onto America's coattails and been carried along into relative prosperity and development. This has led to great increases in the price of steel, concrete, and copper, among many other things. Nonetheless, the housing industry has not been in trouble in much of the U.S., despite these cost factors being universal. Why not? Because the principal reason for the housing crunch has been that many communities have limited housing development in the name of planned growth and in order to maintain undeveloped, green areas. In these areas, and a few areas where the federal government owns all of the available land and makes it unavailable, the cost of housing has simply become prohibitive for people to buy homes. When it is recommended that people commit to a purchase price for a home of no more than 2.5 times their annual family income, but the average home costs 8 times their family income as it does in California, one has a recipe for disaster for the housing industry and those who stretch reality to try to acquire a home anyway.

Such situations brought pressure to bear on Congress to make homes more affordable. Congress was largely of a mind to support local community and state restrictions on home building, but needed to appear to care about the desire of middle class and upper lower class families for a home of their own. After all, this is a very real part of the American Dream. So, Congress used the Community Reinvestment Act to force banks to make mortgage loans to people who would not otherwise qualify for a loan. They used Fanny Mae and Freddy Mac to make it so the original mortgage loaners could unload their risky loans to others. They encouraged the Federal Reserve to keep interest rates down to help make home mortgages more affordable as well and what else was the Fed to do if it was to keep the housing industry afloat anyway? So, in consequence, we had not only a housing industry in trouble in those areas of the country with highly restrictive new housing development, but also many mortgage lenders, banks, government-sponsored corporations (Fanny and Freddy), and securities and investment firms in major trouble.

The auto industry has been sick for a very long time. For a long time, that industry has been under a huge burden laid on it by the United Auto Workers, which government rules for unionization and company actions when it has been unionized very much helped bring about. Of course, some other industries are also badly hurt by labor unions. Then the auto industry was further burdened with CAFE, which requires each auto company to make a set of vehicles whose average fuel efficiency is below a limit set by Congress. Basically, American companies really began losing out to the Japanese and other foreign car makers when this became the law of the land. We were used to cheap gasoline, and in comparative terms we still are. So, American companies never had as much incentive to make cars that were as highly fuel efficient as the foreign car makers. This was really what opened the door for the foreign car makers into the American market. For decades, American car makers have been forced to make money-losing small cars to meet the CAFE mandate. The tens of billions of dollars lost in this way had a multiplying effect upon the car makers to minimize innovation and the development new technology and quality manufacturing methods. Government destroyed the auto industry, with some help from bad management. Of course, when it is clear to good managers that government has it in for an industry, they steer clear of that industry. After all, the best managers are no dummies.

In addition, we have the highest corporate income taxes in the world, save those of Japan where they are equally high. This discourages American companies from bringing profits made abroad home. It encourages them to build more plants abroad and fewer at home. Most countries throughout the world have been reducing their corporate income taxes, but we have not and BO says that he will not do so in his administration. So, we raise the costs for American corporations and make it harder for them to export goods. Our policy is that they should export jobs and capital instead. Except the government pretends otherwise. The government lives in LA LA land. No, I am wrong. The government largely knows what it is doing. It thinks we life in LA LA land and will never catch on to the fraud they are putting over on us.

Then, as I have recently discussed, the government has monopolized a huge fraction of the land, especially in the West. As our population has grown and as we have used more of the resources available in our privately owned lands, these Western federally owned lands have become more and more valuable. Still, the government holds on to these lands and is constantly trying to remove more and more land from private ownership and productive use. This crimps the economy.

The government mandates for ethanol production have resulted in the misuse of much of our privately held and potentially productive farmland. There is no net energy produced by ethanol production and it simply causes less food to be produced and thereby raises our food prices. As more of our income goes to meeting our food needs, less goes to other industries and they start to hurt. American agriculture is the most productive in the world and will do well without ethanol subsidies. With these subsidies, we raise taxes for everyone, including the other industries who will only be hurt by diverting money to farmers and ethanol distillers.

The government has made it exceedingly difficult for companies to drill for oil in the U. S. and in our off-shore areas. They have made it hard to produce natural gas in many areas. They also make it hard to mine coal, use nuclear power, and frequently to deliver electric power, especially from coal-fired power plants.

Government has given over the education of our children to the teachers labor unions. These most socialist unions now pound American youth with socialist propaganda and teach them to hate making money (creating wealth) and industry. They also fail to teach them the skills they will need as productive employees, such as rational thinking skills.

So, governments have done great damage to our economy by damaging the housing industry, lenders and bankers, investors, the auto industry, other industries saddled with blood-sucking labor unions, the electric power companies, all corporations competing on a global basis, the oil and natural gas industries, the nuclear power industry, coal mines, and all companies who wish to hire young employees with critical thinking skills.

But, this does not yet give us the full scope of how government is the source of the troubles in our economy. Not yet even close!

Companies and industries must look to the future and plan how to use their employee's time, invest their capital, figure out what new products are needed, train employees to do the work they will need to do in the future, find ways to improve present products and to transport them efficiently, and figure out where to build facilities and how to heat, air-condition, and light them. Companies and industries must plan to survive. But, governments are insidious in popping surprises upon companies and industries that wreck their planning and development processes. Companies no sooner make an investment than Congress, state legislatures, and local politicians change the rules and turn their investments into losses.

The Federal government is doing just this on all sorts of fronts. With the Bush tax cuts scheduled to come to an end in 2010, the Democrat Congress is surely going to raise many taxes, especially on the wealthy who invest much of their money and on corporations. But, no one knows what the new taxes will be. Consequently, if they invest money, will the new taxes insure that they will have a bad investment? Under such conditions, people sit on their money, which is exactly what the politicians are presently complaining that they are doing. I sure am sitting on my lab's income at this time.

BO has said that he is going to bankrupt the coal-fired power plants. As I have noted several times, coal-fired power plants produce 50% of the U.S. electric power. Does this mean that we are about to lose 50% of all American electric power? If so, the coal mines, the trains that carry coal, the coal-fired power plants, the electric utilities, and all companies that use electricity are going to be hurting. Every blackout at my lab creates havoc. Vacuum pumps stop and air is sucked into some vacuum systems. All data collection stops and some long experimental runs are ruined and may take days of work to reproduce. Many industries have to undergo long processes to restart production when power is lost. At the moment of power shutdown some products are ruined. Power outages are much more serious for many businesses than they are for households. Of course long power outages at home cause concern for our two freezers and about loss of food in them. Frequently power outages and power fluctuations also increase the failures of electronics at home or in the workplace.

What will future energy costs mean for business? The imposition of cap and trade restrictions on the use of fossil fuels will have huge, unknown implications for the cost of making goods, transporting them, will in many cases determine which goods should be made, and will perhaps keep some employees from coming to work. Trained, critical employees will be lost if they live too far from the workplace. Plants may have to be moved to reduce transportation costs or to have more reliable electric power. Of course, many jobs will be exported to India and China where cap and trade does not exist.

As BO induces much of American youth to go to work on road and bridge-building, they will not be available to other industries. BO's service leagues will take still more young people out of the workforce. Labor costs will go up. Industry cannot yet know how much they will go up. Uncertainty again.

BO and Congress are determined to make it easy for labor unions to coerce workers into signing union election cards. Many more businesses will be saddled with unions. How badly will this cost the business in higher wages, less labor force flexibility, and less labor productivity?

What will BO and the Congress impose as costs for a nationalized health insurance and health system upon companies and wealthy individuals? Will this force companies to let employees go? Will this force them to export jobs aboard? Or to build new plants that use more robots and fewer people? Or redesign product to be made by more machines and fewer people?

Many privately held companies will be ruined when the death tax is reinstituted by BO and the Democrat Congress. Many companies will have to be sold to pay taxes. Many will have to be shutdown, since no buyer will be available. Many businesses will either be sold before 2010 or will be shutdown before then to take advantage of the higher threshold for the death tax that will be available before then.

Many capital investments will be cashed out before BO and the Democrat Congress raise the capital gains tax. Many investments will not be made because it is not yet certain what the capital gains tax will be.

Many individual taxpayers do not know what their tax burden will soon be. They think it will go up and will go up considerably. They know that someone has to pay for the bailout, the youth leagues, the welfare checks posing as tax rebates, the building of roads and bridges in accelerated rates, the payouts to the teachers unions, the bailout of the United Auto Workers Union, the subsidies for inefficient alternative fuels, and the nationalized health care and health insurance system coming. So, they are sitting on cash and are unwilling to invest it.

The trillion dollar bailout has failed to save the lenders, the banks, and Fanny and Freddy, and the investment firms. New winners and new losers are being picked by the politicians and bureaucrats daily. No one can figure out if they will be a winner or a loser, but most understand that there will be many more losers than winners. With this uncertainty, who wants to make an aggressive and forward-looking business decision. With no decisions, less and less money will be made, fewer goods will be delivered, and fewer services will be offered and fewer purchased. The economy slows down more due to uncertainty than due to any other cause, because uncertainty stops everyone in their tracks. Everyone feels as though they are in a minefield, so no one wants to make a step for fear of stepping on a mine. This is exactly the response to be expected.

Yes, the economy is hurting. Governments sure have worked overtime to put it in that world of hurt. Government is the problem, not the solution. We need a determined return to the concept of limited government, of Constitutional government.

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