16 August 2010

Saving Life and Limb

In battlefield medicine it is necessary to triage casualties, and to make tradeoffs. First you decide who can be saved, given the time constraints and resources available. Then you decide how much of the person's body and function can be saved. You may need to sacrifice a limb or two to save a life. You may need to sacrifice a lung, a kidney, part of a liver, a bowel . . . even part of a brain -- to save a life.

We are close to the same point for economic decision making in western nations. For market economies, the markets make the hard choices. But we are so far from having market economies anymore -- the economies are so taken over by government functionaries -- that economic triage is happening in mirky back rooms, with the involvement of extremely shady and self-interested characters.

US economic news has been dismal ever since it became clear in the fall of 2008 that Mr. Obama was to become US President.
♦ Revised economic data that show the recent recession to have been the worst of the post-war years.
♦ The slowdown in economic activity in China.
♦ The absence of any long-term plan to rein in the deficit.
♦ The possibility of a “shock” to the world banking system if Greece defaults on its sovereign debt as seems increasingly likely, or if any one of our several states finally drown in their own red ink.
♦ The negative effect of the increase in health care, energy costs, and taxes, the latter planned by President Obama for year-end.
♦ The 2.6 percent decline in already-depressed pending home sales in June, despite record-low mortgage rates.
♦ The 1.2 percent decline in factory sales, indicating that the manufacturing recovery might be stalling.
♦ The pile up in inventories of durable goods.
♦ The widest trade deficit since October 2008.
♦ And, perhaps most important of all, the increasing number of workers unemployed for so long that their skills are atrophying, while economic growth no longer seems to produce very many jobs, causing two-thirds of Americans to believe that the economy has further to fall.
The worse news is that the bad news cited above is only the tip of the iceberg: The lethal out-of-sight 90 percent is a more dangerous threat to the good ship Robust Recovery.
Start with the state of the nation’s finances. The federal deficit remains untamed, at 10 percent of GDP, topping the decade’s pre-Obama high of 3.5 percent in 2004. Given the slowing of the recovery, a reasonable argument can be made that what is needed is continued spending, but only if combined with a medium-term plan for bringing the deficit under control. No such plan is on the horizon, in part because of the political paralysis produced by the impending congressional elections, and in part because “kicking the can down the road” – leaving every problem to the next generation of politicians – has become a durable feature of American political life.
The second longer-term problem is the Obama-created imbalance between the private sector that creates wealth and the public sector that depends on that wealth. A recent analysis by USA Today, based on government compensation data, shows that federal government employees earn, on average, twice as much as private sector workers. That’s a result of the recent stagnation in private sector compensation and a steady rise in the pay of public sector workers. This situation was exacerbated earlier this week when Congress decided to spend $26 billion to prevent lay-offs of teachers and other state employees, funded in part by higher taxes on U.S. corporations that do business overseas. Teacher lay-offs, of course, are used by politicians to attract sympathy and bail-out money, rather than fire less useful workers in their over-manned bureaucracies.

Then there is the perverse incentive created by a badly structured tax system. A small businessman in New Jersey took to the op ed pages of the Wall Street Journal to point out that it costs him $74,000 to pay an employee $59,000 per year, when taxes and benefits are factored in. But when the employee pays her taxes, she is left with only $44,000. So the gap between his cost of hiring and her incentive to work is substantial. Not a prescription for full employment.

It has become clear that Mr. Obama and the Pelosi Congress are burdened by many obsessions when it comes to the domestic economy, the energy sector, and foreign affairs. One of their obsessions is reviving the dead ghosts of past manufacturing and manufacturing unions. But basing policies upon ideological obsessions and special interest paybacks can create problems.
When politicians pick winners and losers, they interfere in the natural economic process and invariably cause harm. If members of Congress believe they recognize profitable opportunities better than the market does, they should retire from Congress, start businesses and grow rich.

If they’re really successful, they might even be able to afford a great vacation in Spain. _Bloomberg

For Americans who value the US Constitution and basic freedoms of individual and group action, the upcoming US national elections present an opportunity for a re-calibration of government behaviour -- a turning back toward constitutional norms. But is that a realistic hope? Some American traditionalists are hopeful:
“The problems stem from allowing Congress to tax incomes from whatever source,” says Randy Barnett, professor of constitutional law at Georgetown University Law Center in Washington. The 16th amendment represented “a major change in the federal government’s relationship to the people” and should be repealed.

...Efforts at tax simplification, such as the implementation of two flat rates (14 percent and 28 percent) and the elimination of many loopholes in 1986, tend to be short-lived.

Why? For the simple reason that Congress likes using the tax code to dispense favors. Lawmakers may disagree over whether political spending by corporations constitutes free speech (the Supreme Court says it does), but they let money speak to them loud and clear. We must stop them before they kill (the economy) again.

A constitutional amendment is probably the most difficult remedy, but also the most enduring. Congress can propose amendments to the Constitution on a two-thirds vote by both Houses and must call a constitutional convention on a petition from two-thirds of the state legislatures (Article 5).

The chances of lawmakers depriving themselves of their tax- favor status are about as good as their voting themselves out of office by enacting term limits. _Bloomberg
The author then suggests going the route of state legislatures to create a constitutional amendment which would hold the US Congress' feet to the fire, and enforce fiscal discipline and fairness. That is where a truly monumental battle of ideas could play out, if the anti-statist forces are disciplined and ingenious enough.

For it is abundantly clear that the US Congress, the US Executive, and probably the US Supreme Court along with the Federal Judiciary, are all corrupted beyond redemption -- without radical triage. Without an iron-clad constitutional guarantee of Congressional discipline, transparency, and fairness in budgeting, the truly grisly job of radical triage passes beyond the government into the nation at large.

The trigger for such radical triage may be a large scale power grid collapse, a massive and deadly epidemic, a natural disaster of epic scale, or simply the culmination of the ongoing descent into Idiocracy. The wealthiest and most prepared persons will remove themselves from danger if they can, keeping their escape routes open. Most of the rest will have to make compromises and sacrifices in order to survive. Triage is never pretty, and is often delayed too long.

It is time to consider your contingencies.

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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