Economics and Scrambled Eggs

Every event has an economic lesson. It is true even with the birth of Jesus.

http://www.lewrockwell.com/rockwell/bethlehem.html

I wrote a few weeks ago that our country is doomed because the entire government and financial system has been built on a foundation of lies. Every day the government or some special interest group publishes a set of data points meant to convince the ignorant masses to throw more money for the bank to feed on or show them how the bureaucrats make their lives better.

An industry group that keeps tracks of real estate transactions has just admitted (discovered) the data on home sales has grossly overstated the true housing environment by as much as twenty percent over the last five years. These are the same people that have been pointing toward their data as evidence of a housing recovery. 

http://www.nashuatelegraph.com/news/943311-196/national-home-sales-have-been-overstated-for.html

Why do corrections to economic data always be for the worse?

A story yesterday about the pay of toll booth operators demonstrates what is wrong with our economy. Austrians often talk in terms of malinvstment brought on by easy credit as the source of economic depressions. Because interest rates have been grossly manipulated lower than what would be observed in a true market for money, businesses expand under the belief of increase demand and they take on longer term risks due to the affect the low rates have on the future present value of projects.

The pay received by some toll booth operators shows another type of malinvestment where resources represented by money are diverted toward government wages far greater than what could be earned in the free market. A toll booth operator basically lowers a gate in front of a driver. In order to continue on their way, a driver pays money to the toll booth operator. This description sounds almost identical to a parking lot attendant where a gate is raised after a driver pays a fee to exit.

In any thread of sound reasoning, does anyone believe that a parking lot attendant receives a pay of $100,000 or more. Yet this is exactly what some toll booth operators show as their annual pay. Since they work for the government, the wages for government workers also determine pension payouts. 

http://nation.foxnews.com/new-york/2011/12/14/ny-toll-booth-worker-makes-100000

Any questions why are economy is going down the toilet

The answer to bad government is always more government. A proposal by US Senator Charles Schumer from New York perfectly illustrates this sad but true axiom.  After stories surfaced about strip searches of old ladies at airports in this country,  the Senator has proposed setting up a passenger advocate at air terminals where passengers can lodge complaints against the TSA on the spot.

Of course like most government solutions, this idea completely misses the mark on several fronts. First and foremost, searches conducted by the TSA violate the Fourth and Fifth Amendments to the Constitution.  You cannot solve the inherent problems of an unconstitutional government arm with another unconstitutional government arm.  It is akin to one thief overseeing the actions of another thief.  The question always with government advocates is what side they will be advocating for. One thing I can say for certain is that their concerns will not involve the US Constitution.

Secondly, TSA personnel are not professionals in any meaning of the word.  Most have little more law enforcement experience than a night security guard at the lumber yard. I would suspect that for many receiving a government check for non-work is quite common. The bottom line is that the people working for the TSA are not the brightest bulbs on the tree.

The real answer to airport security is to follow the path of private property and the free markets. The airlines should handle their own security issues. If passengers feel a particular carrier is not adequately promoting the safety of customers, than the flying public travel with another airline that will. The consequence of bad experiences will be customers taking their business to a competitor. The free market is the only advocate a customer needs; an idea that government does not advocate for.

Apparently the military has lobbied for special expedited security measures at the nation’s airports.  In addition to members of the armed forces receiving preferential security treatment, I also heard on Freedom Watch hosted by Judge Napolitano that the police and fire unions are lobbying for the same type of screening.  Why is it we believe people in government issued uniforms, which in the case of the police and fire personnel comes with a badge, are beyond malicious intent.

Examples of individual policeman committing heinous crimes that include murder stretch back in the history of law enforcement to the time cops first started walking the beat. Some have been trained in using special types of weaponry and even plastic explosives.  I would also suspect that elite police personnel have also been educated  onhow explosives and arms can be transported past security checkpoints.

The same argument can be made about military personnel.  Individuals particularly in the Special Forces certainly know how to hide and proficiently use different types of explosives.  The military or for that matter any government enforcement agency is not foolproof from an individual or a small group with destructive intentions blending in among their ranks.

On November 9, 2009, Army Major Nidal Milek Hasan opened fire at the Fort Hood base outside of Killen, Texas. When the shooting ended, thirteen people lay mortally wounded and another twenty-nine fell wounded. Hasan is an American born Muslim of Palestinian descent.  Internal Army reports showed for four years concern over Major Hasan’s radical Islam tendencies. Imagine what the Major might have done if airport security gave him a pass. If the Army could not stop a person like Hasan from creating mayhem, then what makes anyone think that the mental midgets of the TSA can?

This brings up a second point. In the age of computers and digital replication, what is the chance of a dumb-eye TSA person spotting a phony military ID.? Considering how often airport security misses weapon breaches during internal test runs, I would estimate the odds to be next to none.   I personally know a person that mistakenly had a knife in his carry-on bag. Despite going through all the security show, the knife made it through.

Finally, the laws of the land are supposed to apply to everyone equally. No one gets a pass or differential treatment because of their lot in life, including members of Congress and the President. Members of the military, police, fire departments, and public officials all take an oath to defend the Constitution. Instead of protecting individual rights, people in uniform and politicians have demonstrated an allegiance toward government power. I see everyday more reasons to trust people in uniform less and less.

As most know, except those schooled in Every Day Math or government accounting or working as a journalist, a ratio can be decreased by either shrinking the numerator or increasing the value of the denominator. For instance, if a family’s annual food bill eats 20% of the yearly income, then two ways exist to lower the percentage food expenditures take from the paychecks. One option is to reduce the dollars spent on groceries by eating less, shopping at discount grocery stores, growing your own food, or kicking someone out of the house.  One or some combination of reduction results in only $15 out of every $100 of income spent on food or a ratio of 15%.

The second option is to find a higher paying job, a second job, or have more family members get a job. For simplistic purposes, let us say that the extra income route increases annual deposits into the checking account from $100 to $200. We still spend our initial $20 on groceries but the ratio of food expenses to income drops to 10%. It seems pretty simple to figure out.

Today the Bureau of Labor Statistics released the monthly national employment report. According to the report, the economy added a net of 120,000 jobs last month. The increase in employment magically dropped the unemployment rate to 8.6% from 9%. The unemployment rate is a ratio calculated by taking the number of people out of work looking for a job divided by the number of individuals estimated to be in the labor pool (employed and unemployed).  A person is considered to be unemployed if they are out of work but actively looking for a job.  The unemployment rate is also sprinkled with some pixie dust in the form of what is called the birth-death ratio.

So how does a relatively small number of net new jobs compared to the size of the labor pool drop the unemployment rate by .4%? Simple, you can either fudge a decline in the numerator or in the denominator. It is a little difficult to show a great increase in the labor pool (denominator) from month to month. But with a straight face the Bureau of Labor Statistics removed 350,000 unemployed people from the numerator because they have simply given up hope of finding work and they are no longer classified as looking for employment. And hocus pocus, the unemployment rate shows a dramatic decline.  On a side note, a good size source of the 120,000 net new jobs came from retailers adding help for the Christmas season.

Here is a thought to leave with, if an addition of 120,000 jobs really lowered the unemployment rate by .4%, then how many new jobs would it take to completely eliminate unemployment in this country?  A good estimation would be 2,640,000. Do you really think that makes

sensehttp://www.bloomberg.com/news/2011-12-02/u-s-jobless-rate-unexpectedly-declines-to-8-6-payrolls-rise-by-120-000.html

** Individuals in the armed forces and government non-worker, workers are considered to be part of the employed portion of the labor pool even though they destroy instead of produce.

People losing their homes, the unemployed, bank closures, rising healthcare costs, and the BP oil spill are all recent examples according to the ignorant masses and statist (one in the same) of free market failings.  Correcting market failure can only be accomplished by a labyrinth of government bureaucracies dictating regulations that cover the minutest details in everyday life.

As noted many times before, the argument for government intervention in the free market is of course based on a fallacy. You cannot logically blame something that does not exist in the first place. Free markets do not include a central bank manipulating the cost of money. Free markets do not include bureaucrats telling a producer the minimum amount to pay their employees or what benefits they must offer. The free market does not have government reaching into the pockets of people and extracting a chunk of their wealth. The free market does not have government subsidizing housing, medicine, education, agriculture, energy, and hundreds of other industries. Backstops against failure are not part of the free market playbook. For at least the past hundred years, the government at all levels has increasingly molded private transactions into a form that looks nothing like a society based on voluntary exchange.

The governments of Europe and their central banking partners are rapidly crumbling. The extent of the damage is so great that trillions of dollars are needed to just keep the boat floating for a few more months. Across the United States the roll of municipalities declaring bankruptcy grows daily. The accumulated debt of numerous states like Illinois and California makes Greece look frugal. The total liability of the federal government that includes Medicare and Social Security dwarfs the world’s wealth. Individuals around the globe are in danger of being swept out into a sea of financial ruin by the massive government debt wave circling the earth.

What is to blame for all of this? Not the free market, it does not exist. When the Federal Reserve set out on a course of bailing out Europe yesterday in a clandestine operation, Ron Paul summed it up best. According to Paul, the action by the Federal Reserve essentially bailed out socialism.   

The other week I wrote about the concept of “could happen” laws. My post referred to the opponents of conceal and carry gun laws because allowing a citizen to pack heat could result in someone getting shot.  A number of laws today, including the ones covering drugs and prostitution, are based on the possibility that somebody could be harmed.

William Anderson posted a story about a man charged on the basis of “could happen”. One of the weapons citizens have against laws that inhibit liberty is to nullify or ignore government edicts. In the case of a trial for instance of a person charged with drug possession, a jury contrary to all evidence can vote the defendant not guilty on the basis that the law is wrong. I believe it was Jefferson that once declared people have a duty to ignore bad laws. The civil rights movement was an example of people turning their backs on “Jim Crow” laws.

Summarizing the story relayed by Anderson, a man in New York City stood outside a courthouse passing out leaflets arguing for jury nullification. Federal prosecutors had the man arrested and charged him with jury tampering even though he was not on trial or had any personal benefit in a specific court case, which is usually necessary to prove to find an individual guilty of trying to influence a juror or the jury.

http://www.lewrockwell.com/blog/lewrw/archives/99621.html 

What is the man guilty of in the eyes of federal prosecutors? The people receiving the leaflet could happen to sit on a jury one day. The next thing you know there will be a law against team sports because the coach could happen to become a child rapist.   

Last week Germany received a warning from the bond markets to consider what country it ties its economy to.  The common link to the Euro and the Eurozone has made the debt problems of Portugal, Italy, Ireland, Greece, and Spain (known in lingo as the PIIGS or Club Med) a financial crisis for Germany.  Bond investors turned their backs on new debt offerings from Deutschland a week ago due in part to the company it keeps.

Germany now faces a dilemma. One course of action is to copy the insanity of the United States by giving the European Central Bank the authority to buy the sovereign debt of European Union members that banks and investors shy away from.   The central bank purchases the bonds by printing new money. In essence the central bank institutes price controls on debt yield. Do you really think the free market interest rate on 5 year US Treasuries is less than 1%?

Printing money in order keep a lid on debt yields may work for a brief time. As the Germans learned firsthand after WWI when investors shied from purchasing German bonds, the country’s central bank resorted to  money printing that eventually exploded into hyperinflation. Prices rise so rapidly that the value of money totally disintegrates. In such an environment the middle class is wiped out as their savings evaporate into thin air. Store shelves lay bare as distribution cannot keep pace with individuals seeking goods in exchange for a currency becoming more worthless with each passing moment. Rapid increases in prices all but make it impossible for producers to make the necessary revenue and cost calculations. Productions of goods come to a standstill. Knowing the history of money printing to buy debt, Germany has rightfully balked at any agreement to allow the European Bank to engage in monetizing the debt.  

The only alternative for Germany to regain the confidence of bond investors is to sever ties with the Eurozone. Without the common thread of the European Union and a singular currency, Germany’s financial structure can be viewed with a microscope instead of a telescope scanning the entire continent.

When the Titanic made its icy plunge toward the ocean floor, passengers in lifeboats had to row far enough to keep from getting sucked down in the vortex of the sinking ship. Germany needs to paddle hard away from the Euro.

The question for people in this country is why anyone should be shackled to another person’s debt. Many, including myself, have handled our personal finances responsibly carrying little or no liabilities. If a neighbor takes on a debt load that will in the future wipe out his assets, then why must I be forced to surrender a portion of my wealth and financial security to keep the neighbor afloat? The same can be said for bad decisions made politicians. Because I am tied to the currency of the federal government and they by law dictate that I must use their money for transactions in this country, their irresponsible behavior directly affects my wealth. The only option left to the public is either let the Federal Reserve continue buying Treasuries by printing money or let the politicians tax every dime we possess. Either choice results in a destroyed economic system.

The only chance to be saved from such catastrophe is no different than choices facing Germany. We must sever ties from the source of the problem.

Nearly two months ago, a gathering of friends highlighted a problem facing the mainstream media labeled frontrunners for the Republican Presidential nomination. At that time, the two leading candidates were Mitt Romney and Rick Perry. Among our group not one single person picked either one as their candidate of choice.

Last night at an impromptu meeting of a half-dozen friends the same question was again put to the table. The people involved in the question, like the time before, are quite intelligent and knowledgeable about an array of subjects. The answers last night were again all over the board. Gingrich pulled one vote; Cain got one other; two voted for Paul; one said anybody but Obama, and the most politically astute member of the group voted they were deeply conflicted. Notice how Romney again received not a single nod.

Furthermore, several voiced the opinion that if Gingrich or Romney ended up winning the nomination, then two would sit out the election and another stated they would mark the ballot for Obama in an act of pouring gasoline on to the fire.

The problem for the Republicans, and thus the country appears to be this: A significant portion of the country truly wants liberty restored and an end to American imperialism abroad. They see government at all levels as corrupt. Additionally, they recognize the crony capitalism of government and the Federal Reserve as the source of all economic evil, which is true.  Many may agree with such an outline, but swayed somewhat by the media and the Republican power brokers, they have determined a candidate espousing these views cannot win a general election.

A candidate like Gingrich or Romney that speaks in tempered terms about freedom  while still promoting the ideas of American global power and government solution to economic woes is according to the experts palatable to the masses. But the two recently anointed front-runners leave a bad taste to those with a deep conviction toward minimal government, not just less. With a chunk of the electorate bolting someone other than Gingrich or Romney, then the pair becomes no different than the stigma attached to Ron Paul; they are unelectable.

The fact remains this country is about evenly divided between the “makers and the takers”.  At this point, the election for President appears to be headed for a very ugly conclusion, which is the re-election of Obama.