Some interesting facts about stimulus

Reason magazine have a very interesting article about the effects of stimulus. One of my main criticisms of stimulus (and the whole nonsense of Keynesian economics which gives as fictional multipliers effects, demand deficits and deflationary spirals ) is that the political leaders and supporters of stimulus never let themselves be in a position to be proven wrong. Which is the true sign of an ideologue.

If the economy continues to slump, jobs are shed, GDP falls, then the stimulus wasn't big enough.
If the economy grows, then the stimulus is said to work.

In America, the stimulus isn't working. Sometimes, very vague but optimistic predictions are made as the stimulus is introduced.. and it can be shown that they have fallen wide of the mark when looking back at the data.

My most recent analysis found that the total number of jobs the government attributed to stimulus spending as of April was 682,000. Factoring in stimulus dollars spent up to that point, the average cost of these jobs was $282,000.

That’s a lot of money. Worse, four-fifths of these jobs were in the public sector. This outcome is far afield from the administration’s original promise that the stimulus would create 3.5 million jobs over two years, 90 percent of them in the private sector.

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The data released by the Bureau of Labor Statistics in June, then, were bad news. (See the chart.) They showed that since the passage of the stimulus bill, the private sector has lost 2.55 million jobs while the federal government gained 416,000.

Away for work

Blogging has been extremely light lately, and I apologise.
Ever since starting a new job in Feb, there has been little spare time to devote to blogging. And there are plenty of stories that deserve attention.

From Kevin Rudd's sacking, to Julia Gillard's snap election announcement, to the myriad of stupid policies being proposed by meddling "public servants", there is no end to my daily frustration at how the government and its actions are treated as the essence of society and the definition of newsworthiness for our brain-dead media.

Socialism, and the idea that governments can and should spend a large chunk of our money on things that we need, is not a rational philosophy and is far more crazed than many perverted cults and sects. No matter how often governments prove that they are incompetent, no matter how many hundreds of billions they gather and spend on stupid things, and mismanage our wealth, squander our taxes and introduce red tape into our every day lives, the people seem to focus on who is currently PM, the head honcho of the government and not the abhorrent things that it does.

Expensive school halls, people killed by deadly insulation, a centralisation of the health system in Canberra, handouts to parents and family groups and whoever else puts their hands up, bailouts, stimulus spending, handouts to home owners.. its all just a massive waste and a tragic mess.

Right now, I am in Norway, and from today's experience, I'll guarantee that it is no socialist paradise. Five of my co-workers in the cafeteria all agreed that taxes (48% + 7.5% health levy) are too high in this country. They discourage people from working, and they didn't create equality anyway.
But this morning, my own personal experience with the Norwegian postal service, a government monopoly, got my blood boiling.

You see, I commited the *crime* of ordering a mobile phone online. It arrived in Norway, and instead of having it delivered to my hotel, I received a letter from the post office about tax and customs, and collecting it from their post centre.
I wasted 40 minutes of my time travelling there, to encounter layers of bureacracy, incompetence and extortion.

• I take a number, and proceed to the counter with my letter and my passport. Guy #1 explains that VAT is payable (about $150 worth). It was 25% based on the price on my invoice, which includes postage. I asked them why VAT was payable on the postage as well as the item, and they said "yes, it is payable". He told me to proceed to the collection counter to get my item.
• At the collection counter, I meet Guy #2, who goes out back and looks for my parcel for 5 minutes. He comes back, and instead of handing it over, tells me to take a number again and go back to the first counter to do the paperwork.
• Back at the first counter, I meet Guy #3. He also agrees that the system is too complex, but needs my passport. He tells me to sit down for 15 minutes whilst he busily types away and enters all my details into their system. 2 other co-workers are standing around behind the counter just chatting over a coffee and having a laugh. 15 minutes later, he explains that I have to pay the VAT, but when I leave Norway, I can get a stamp at the airport to show the items have been taken out of the country. ONLY THEN can I write a letter to the customs agency with the stamp and paperwork to APPLY to get the VAT refunded. Meaning it would take a few weeks !! He stamps my papers, gives me the passport back, and I proceed to the collection counter.
• Guy #2 comes out again.. He asks me if I am paying the total by card. I explained that I would pay the VAT with cash and opened my wallet to start counting. Then he drops a bombshell. There was a processing fee and a payment fee !! They added up to nearly $40. Now I knew I wouldn't over have a chance of getting this money back, so I started complaining and said that its too much, and that I shouldn't have to pay it.
• I was left with only one option, to refuse to pay and have them return the item back to sender. It would be cheaper for me to post it out to Australia then deal with these pricks, and on principle, I didn't want to pay these communist technocrats for their meddling.

I let each and every one of these paper-pushing idiots know that this isn't how normal countries behave, and this isn't how you should treat people. You cannot just shake-down and extort money out of people to fund these public sector parasites.

Furthermore, this system of VAT across Europe is overly complex and ridiculous. It is extremely difficult to have it refunded, it requires 2 or 3 rounds of paperwork.

Back to the Scandinavian system... social democracy isn't perfect at all. They have very high prices, largely due to high taxes and VAT. Whenever they do repairs on their train system, there is an army of unionised workers in fluorescent vests standing round. For the entire month of July, the westbound train lines from Oslo are shutdown for track works. Each train station has replacement buses, and the platforms have been manned with at least 6 of these people who simply point towards buses and make announcements through a megaphone.

Whilst the unemployment rate is extremely low in Norway, perhaps due to their oil industry and resources boom, they have huge unemployment with migrants and huge numbers of people living off welfare. Their debt to GDP ratio is well over 50% and they squander all their wealth on wasteful government spending. Their health system, like most socialist countries, is based on rationing and queues:

Waiting Times. There are significant waiting times for many procedures. Many Norwegians go abroad for medical treatments. The average weight for a hip replacement is more than 4 months. “Approximately 23 percent of all patients referred for hospital admission have to wait longer than three months for admission.” Also, care can be denied if it is not deemed to be cost-effective

They're getting divorced you say ?? I'm serial !

I blame manbearpig for this:

Former US vice-president Al Gore and his wife Tipper have told friends that they will separate after four decades of marriage.

Public health is a bottomless money pit.

Public health officials and senior administrators who blame today's problems on a lack of funding should be immediately ridiculed and shouted down.

They've had their funding provided at every turn in the past decade, as Australia and many other Western nations have poured funding into their public health systems. The NHS in Britain should scare people much more than America's so-called "free market" health system.

Via Reason Magazine comes this terrific article:

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It was the tragic case of 73-year-old Mavis Skeet, said the Tory-leaning Daily Telegraph, that "came to symbolize the crisis in the NHS" during the early Blair-Brown years. After having her cancer surgery cancelled five times—it was first scheduled for December 1998; it was cancelled a fifth time in January 2000—her condition was declared inoperable. She died in May 2000.

In January 2000, as the situation with the health service worsened, Blair appeared on David Frost’s morning program to declare that NHS spending was "too low" by European standards and a request a new infusion of cash to shore up the faltering system by adding doctors, nurses, and beds.

In a 2007 interview with the BBC (for the very good documentary "The Blair Years"), Blair acknowledged that around the time of Skeet’s death he was "receiving letters from people—heartbreaking letters—about people waiting for their heart operation, their husband or their relative, and dying on a waiting list because they couldn’t get treated quickly enough."

Socialised healthcare

I read somewhere that the health care bill was 2400 pages.

Why is it that the media report it as a universal health care package ? Wouldn't that just be a few pages of legislation ?

At 2400 pages, its the mother of all crap sandwiches. There is stuff in the bill forcing restaurant chains (with 20 or more outlets) to put calorie counts on their menus.

But focussing on one of the main points, the bill basically punishes Americans who don't purchase their own home insurance. Here are some lovely examples courtesy of Mike Shedlock's terrific blog:

Example 1:

Had a VERY INTERESTING conversation this evening with a CFO for a local business who employs about 100 people total..

I asked him how this health care bill was going to affect the company he works for.

He told me that he had run the numbers based upon providing health care for all of their employees and realized that he could save the company 1/2 million dollars by just paying the $2000 per employee penalty and not offering any coverage at all.

Example 2:

I ran the same simulation for the company I retired from. As a retiree, I continue to be in their group plan, at my own expense.

They can save $607,000 by terminating the health insurance plan, offset by a fine of $200,000.

One informed commenter sums up:

It is only after this bill is law for 5 or 10 years that we will begin to understand its effects. I believe they will be:

1. Costs far greater than anyone is the Government is letting us know. I challenge to name 3 government programs that cost what the government claimed they would. I can't think of one, except, I think I read, the prescription drug bill.

2. Like Mass. the costs will increase greatly on an annual basis.

3. The quality of medicine will drop drastically. Can you name me a single government program of this size that actually improves anything. Feds got into schools and they got worse, Feds got into energy and the situation is worse.

Deflation should be embraced, inflation should be rejected

The Angry Economist sums up much of the misguided fear that our economic and political "experts" have towards deflation.

Deflation is defined a decrease in the supply of money and results in falling prices. Each dollar has a stronger purchasing power. And just who wouldn't want this outcome ?

Well, our poorly schooled Keynesian economists warn that falling prices cause some kind of never ending deflationary spiral and a deficit in aggregate demand. Keynes asserted that people just won't spend anything under a scenario where all/most prices fell, and there would be pressure to cut wages as the outputs of industry fell in price. The so called spiral was as follows: Start->Inventories would grow, output would contract, employment would contract, incomes would fall -> Return to Start.

Keynes actually thought the laws of supply and demand didn't apply to labour like all it did with all other goods, and that wages could never adjust downwards to clear. So he blindly assumed unemployment would result and an economy would contract. When he suggested that this was the underlying cause of the business cycle and the great depression, the politicians swallowed every word of his.

This theory should have been flushed down the toilet in the face of reality. People always need to eat, they need clothing, work tools, housing, schooling and education. Not all purchases are speculative decisions. Sure, you'd think people might postpone many investment purchases if shares or property kept falling, but deflation isn't some never ending process. And real economic activity will continue despite the fall in speculative activity.

The kind of speculative activity that thrives under inflation - like the huge credit bubble that fueled the US property market till 2006, or the share market, or other asset bubbles across the world that occurred under inflation.

But returning to the fearmongering about deflation, The Angry Economist gives a great example of how misguided the arguments are:

The common wisdom is that deflation of the currency is bad. When money deflates, it becomes more valuable, even when you do nothing. So the theory is that people won't spend their money, because it will become ever-more valuable.

That theory cannot be true.

Look at the PC market over the last 30 years. In each one of those years, the PC became more reliable, faster, came with more memory and storage. The original MDA display was one color and text only. The CGA had 16 colors and 640x200 bits. The price -- of the computer you really want to have -- has stayed constant, at about $5000.

If the story told about deflation was true, then you would always be better off delaying your purchase of a PC by 6 months. You could be confident that the PC you would buy would be a more valuable PC.

Except ... that people did that very rarely, if ever. The standard advice was always "don't wait to buy a computer, because there will always be a better computer on the horizon."

So, in a situation where people can predict a constant stream of increase in value, people STILL made the trade. Thus, I think it's safe to predict that in a similar situation, where people could predict a constant increase in the value of their money, they would spend their money as needed.

The taxman strikes

I'm in a particularly foul mood, that has heightened my animosity towards government.

The Australian Tax Office has ever so kindly sent me a letter about my 2007-08 tax assessment, and my failure to disclose an interest amount I received from an Australian financial institution.

Their database matching system shows that I had only disclosed 2 out of the 3 sources that generated interest in that financial year.

Of course, it was a genuine mistake, and the letter says that no penalty will be applied but that in 28 days, I will be assessed for taxation on that income.

You know, being an enemy of socialism and having half a clue about all the theft and coercion it relies on, I see straight through their doublespeak and I simply interpret their message as follows:

" You trying to hold out on us slave ? Hand over the cash or go to jail !"

The Fed as Counterfeiter

The Mises blog has a great article that explains the complicated workings behind central banking, and how despite the complex mechanisms and multiple actions/strategies, they all combine to create a scenario where the government really can just print new dollars to finance its spending.

No wonder all the governments of the world are such big fans of central banking ... it gives them the 'flexibility' to just issue more debt, which gets exchanged for newly minted dollars, whenever it needs to spend on warfare, welfare, bailouts and special interests.

The mother of all Ponzi schemes

Is the modern Western welfare system.

The Mises Institute have a tragic/comic article about how today's welfare systems, social security, government backed pensions, medicare etc are completely out of hand and about as financially sound as Bernie Madoff's investments.

The money collected in taxes will simply never come close to covering the future liabilities in the form of pensions, medical coverage and government services.

And the article makes a very good point. That like all Ponzi schemes, the winners are the people who get in early. It presents this lucky lady, the first recipient of a social security cheque, as the prime example:

Social Security was a sure thing in its infancy. Just think of Ida May Fuller (1874–1975), a nonexempt legal secretary from Ludlow, Vermont. Ms. Fuller exemplifies the advantages of getting in early and getting out early. She paid a whopping $24.75 to participate in Social Security. Her first monthly Social Security check was issued January 31, 1940, for $22.54. Within three months, Ms. Fuller's investment was in the black. Over the ensuing 35 years, she would collect $22,888.92 in Social Security payments.