March, 2013 Political Class Insanity, Part 4: Bottled Water Idiocy, Community Reinvestment Act, And More

This is the fourth in what is likely to be a record six post series of monthly political class insanity. In the three previous posts we reviewed such insanity as to what a corrupt U.S. Congressman (Jesse Jackson, Jr.) spends illegally obtained money on, how the political class flushed half a trillion dollars down the sink hole that is Afghanistan, how some politicians are using a Ulysses S. Grant era law to protect their mining company cronies, and other equally idiotic political doings.

Today’s latest insanity review starts with items from the April, 2013 issue of Reason magazine, a great publication in support of freedom and in opposition to political insanity:

1) Politicians and voters in Concord, Massachusetts voted to enact a law this past January 1, 2013 that banned the sale of water bottles less than one liter in size. The effort was a silly attempt to reduce the use of plastic and encourage the use of water from taps to improve the environment. Concord businesses caught selling these horrific bottles of water were subjected to fines.

So what has been the result of the environmental and political activist effort that restricted freedom of choice? Residents of Concord simply drive over to other nearby cities to purchase the bottled water in convenient sizes. Thus, the use of plastic bottles is not significantly reduced, if reduced at all, and the environment takes a hit as people burn more gasoline to drive to get their bottled water in convenient sizes. All the law did was reduce the revenue stream of local Concord businesses. Insanity.

2) The justification for the Obama administration to spend over $800 billion to stimulate the economy during the Great Recession is that somehow when government spends a dollar it miraculously results in more than a dollar of incremental economic growth. This so-called “multiplier effect” is measured to a breakeven basis of $1.00.

For example, if a government stimulus program had a multiplier effect of $1.50 it would say that the economy got a $1.50 increase in economic activity for that one dollar government investment, a 50% return and a good thing. If a government stimulus program had a multiplier effect of only $.50 it would say that for every dollar spent by the government, the economy got only a $.50 increase in economic activity, a net loss of $.50, a bad thing.

The flawed, theoretical reason behind this type of economic reasoning is that somehow the Federal government can take taxpayer wealth and spend it more efficiently than taxpayers. Given that antics, idiocy, and insanity of people like Harry Reid, Joe Biden, Nancy Pelosi, et al, this is seems like a very foolish assumption.

And now there is hard data to actually prove this is a foolish assumption. A major study by economists from the Federal Reserve Bank of St. Louis, the University of California at San Diego, and the Bank of Canada have definitively proven that in the United States, that government stimulus spending during recessions has a negative effect on the economy, i.e. the multiplier effect is substantially below $1.00.

This study entailed detailed analysis of economic activity from 1890 to 2010 and measured stimulus effects across various economic components including differing levels of unemployment. Their findings were worthy enough to be presented at the January meeting of the American Economic Association.

What were their findings based on real data and not political rhetoric:

• During hard times when unemployment was below 6.5%, government economic stimulus spending had a multiplier effect of only $.63 to $.78. In other words, in these periods, as much as $.37 was lost for every dollar spent.
• The interesting finding was that for unemployment levels higher than 6.5%, the multiplier effect was even worse, between $.54 and $.64. In other words, the higher the unemployment rate, the worst return the economy got on government stimulus spending.
• The authors’ main conclusion: “We find no evidence that multipliers are higher during periods of slack in quarterly U.S. date from 1890 to 2010.” In other words, the $800 billion that Obama spent in his economic stimulus program was an economic bust.

But Harry Truman could have told him that based on Truman’s handling of the economy after World War II. He proved conclusively that government spending does not make for a healthy economy, government shrinkage is the best way to grow an economy, the proof and details of which can be found at the following link:

http://loathemygovernment.blogspot.com/2012/08/economic-policy-why-truman-got-it-right.html

3) In 2008, the Federal government was given unprecedented leeway to to secretly monitor Americans’ electronic communications without the fuss of getting a warrant and proving probably cause as a result of the Foreign Intelligence Surveillance Act or FISA. This law is an obvious intrusion and violation of the Fourth Amendment of the Constitution, a detail that was lost on those in Congress who voted for the legislation.

But the law recently came up for renewal and four Senators actually took the heroic effort to reduce the intrusion into our rights. Unfortunately, the common sense ideas form these four Senators were soundly defeated and this atrocity against freedom was renewed in the Senate by a vote of 73 to 23.

4) We have already proven in a previous post the Community Reinvestment Act (CRA), which was passed during the Presidency of jimmy Carter and used and abused by Democratic politicians since then, was the primary cause and driver of the Great Recession:

http://loathemygovernment.blogspot.com/2012/05/who-really-caused-great-recession-part.html

Further verification of this conclusion has been proved by an article in Reason which summarized the analyses and findings of trained economists from Harvard, the Massachusetts of Technology, and the University of Chicago who took a detailed look at the impact and history of the Community Reinvestment Act.

Besides looking at the default rates of banks that made a lot of questionable mortgage loans as a result of the CRA, the article also documents how the Federal government, via Fannie Mae, was actually looking for and encouraging questionable loans via CRA requirements. In 2000, Fannie Vice Chairman Jamie Gorelick told banks that “We [Fannie] want your CRA loans because they help us meet our housing goal.” These CRA loans included mortgages with low down payments and questionable underwriting, i.e. bad loans.

Since 2000, Fannie Mae and its sister Federal entity, Freddie mac, have racked up well over $100 billion in taxpayer bailout expenses, Gorelick was forced to resign amid accounting improprieties at Fannie, the housing market collapsed, the Great Recession started, and the economy never really recovered.

Thus, politicians messing around with things they have no expertise in, mortgages, banking, and economics resulted in the worst economic disaster since the Great Depression, the effects of which (higher national debt, persistently high unemployment, anemic economic growth, etc.) that will be with use for years and decades to come.

Depressed yet after these four posts? Well, the insanity will continue to tomorrow where we will hear the actually words of the Washington political class, words that will confirm that the woes of the country and the insanity we as Americans endure every day are almost totally the result of the people that sit in Congress and the White House.

Their inane actions, their incompetence, their idiocy are the reasons why the country is in the state it is in today. Fortunately, we will also prescribe a set of steps that stop their voices of ineptness and fix what the ails the country, simply and easily with minimal pain to most Americans.