Does Anyone Around Here Know How To Run An Economy? Part 3, Latest Economic Numbers

The Federal government released some of the latest data on the economy this past Friday and the data is not good, according to a July 8, 2011 Associated Press article covering the findings:

• Employers added the  fewest jobs to the economy in nine months, 57,000.
• The economy needs to add 125,000 jobs a month just to keep up with population growth and twice that many just to start bringing down the unemployment rate. At 57,000 jobs in June, that goal was missed by about 73%.
• The unemployment rate rose to 9.2%.
• The number of jobs created in May, while low to begin with, was readjusted lower in this June report.
• 14.1 million Americans who want a job cannot find one.
• If  over 250,000 Americans had not stopped looking for a job the unemployment rate would have been higher.
• If you include all of those Americans who have stopped looking for a job and those that are working part time but who would prefer full time, the underemployment rate moved up from 15.8% to 16.2%.
• Unemployment has topped 8% for 29 straight months, the longest such streak since the Great Depression years in the 1930s.
• At the same point in the past three recessions, after the recoveries had begun unemployment had already dropped to 6.8% on average.
• Those lucky enough to have a job saw their hourly wages drop last month.
• The number of temporary workers also dropped, a bad indication since temporary workers is a leading economic indicator for future economic growth.
• Economic growth for the second quarter is expected to be weak and similar to the 1.9% growth in the first quarter of 2011. Economic growth for the entire year of 2011 would have to be 5% to being reducing the unemployment rate.

Bad news all around. And to think we trusted the Federal government and the political class to spend $830 billion in a doomed economic stimulus package to get us to this point. We trusted the Federal Reserve Board to print $600 billion worth of money, reducing the strength of the dollar and our consumer purchasing power, in the second quantitative easing effort, to get us to this point. We trusted the political class to spend tens of billions of dollars on crackpot economic incentive programs like Cash For Clunkers and First Time Home Buyer programs to get us to this point.

This all reminds of an old baseball tale. Ralph Kiner was an excellent outfielder of the Pittsburgh Pirates back in the 1950s. His biggest asset as a ball player was his ability to hit a lot of home runs. One year he hit over 50 home runs in a single season, more than anyone else in the league even though his team, the Pirates, finished in last place.

At contract time after his good home run season, he sat down with the Pirate front office personnel and said he deserved a raise since he led the league in home runs the year. However, the front office people correctly pointed out that even though he led the league in home runs, they really did not need to pay him more or keep him on the team since they could finish in in last place without all of his home runs and an increased salary.

Same thing with the economy and political class. Do we really need them to do anything more or waste more taxpayer money since economically speaking, we are still sitting in last place, given the dire economic numbers above. The nation has probably expended over a TRILLION dollars worth of wasted wealth (over 50 home runs in the Kiner example) with nothing to show for it. What a disgrace.

In order to get out of last place, we need to implement a number of steps from "Love My Country, Loathe My Government:

• We need to fix our election processes in order to dump the current political class out of office and replace them with some smart Americans who 1) know how to run an economy and 2) are not so scared of not being re-elected that they actually show some fortitude and courage to make the difficult financial economic decisions for the good of the country, their re-election chances be damned.
• We need to force all incoming members of the administration and Congress to take and pass a basic course on economics in order for them to at least understand how their lame proposals and programs will not work before they implement them.
• We need to start systematically downsizing government by 10% a year for five years in order to get our out-of-control government spending in line with a reasonable tax plan and reasonable tax revenue stream which would also get the political class focused on a much smaller but the most important set of priorities, a set of priorities so small that they actually can focus on them and actually accomplish them.

By the way, the bad economic news, in case you have not heard, does not stop with last Friday's horrific economic data. According to a March 21, 2011 article in Business Week:

• The price of wheat has grown 27% since last June.
• The price of coffee is up 104% since January, 2007
• The price of milk is up 23% since last November.
• The price of sugar has tripled since June, 2007.
• The price of cocoa has double since January, 2007.

Combine these huge price jumps in commodities with the fact that the Federal Reserve Board has thrown hundreds and hundreds of billions of newly printed dollars into the world economy and it is not hard to see that we are rapidly approaching the conditions that will make the stagflation of the Carter Presidency reappear: high inflation, high unemployment, low economic growth. Strike one, strike two, strike three.

Doesn't anyone around here, or in Washington, know how to run an economy? Apparently not, if we are about to enter same phase of economic distress that we experienced almost forty years ago under Jimmy Carter. Looks like the political class has learned nothing when it comes to economics. Like Ralph Kiner and his Pirates, looks like the American consumer and our economy will soon be in last place despite the historic waste of taxpayer funds on failed economic policies.









Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.loathemygovernment.com/
http://www.cato.org/
http://www.robertringer.com
http://realpolichick.blogspot.com
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment.com

Economic Amateur Hour In Washington D.C.

A new round of bad economic news has been spewing forth this week, ranging from the poor housing market to the stagnant stock market to rising first time unemployment claims. After two years of very uneven and unpredictable economic performance, it makes you wonder whether it truly is economic amateur hour in Washington. Consider what we have endured from Washington over the past few years:

• Cash For Clunkers - we have reviewed this program a number of times, pointing out how it was a failure in so many ways. The major bottom line is that the program did nothing to incrementally spur sales in the downtrodden new car market. All it did was cause prospective new car buyers to advance their purchase in order to get the free government rebate money. Once the Clunker rebates ended, the car market tanked for several months since the sales that would have occurred in those later months just occurred a few months early. Thus, there were little, if any, increment sales and all the program did was provide free taxpayer money to people who were going to buy a new car anyway. In addition to this one obvious and fatal flaw were the other mini disasters. These included people using the program to buy low gas mileage trucks and low gas mileage cars, contrary to the other objective of Clunkers which was to increase gas mileage of the U.S. car fleet and that perfectly good used cars, that were traded in under the program, were destroyed, robbing the less affluent citizens of our country the opportunity to purchase a good used car at a reasonable price.
• A similar experience occurred with the government's attempt to spur the housing market. Until the spring of this year, first time buyers of homes could get a cash rebate from the government if they signed a home purchase by a certain day and closed within a few months of signing that contract. Well guess what happened, once that program ended? The National Association of Realtors announced this week that sales of existing homes fell by more than 27% in July. It was the largest monthly drop on record since 1968, resulting in an annualized total home sales estimate of just 3.83 million, the lowest annual number in 15 years. A quote from the article reads: "The weakness follows a strong spring, when now-expired government tax credits sparked sales, especially among first time buyers of lower priced homes." Thus, the same economic principle that happened with Cash For Clunkers happened here: all the government program did was accelerate forward some home sales without incrementally growing the market. Once the incentive went away, sales dipped dramatically, resulting in a net effect of virtually no incremental business. All the program did was give away taxpayer dollars to people who were going to buy a home anyway.
• More bad news from another Washington housing industry program came to light this week, this one relative to the Obama administration's mortgage relief program. According to an Associated Press article, almost half of the homeowners enrolled in the program to help avoid foreclosure have fallen out of the program. The AP reported that the $75 billion program to help owners lower their monthly payments is failing to stem the flow of foreclosures in the country (in a separate article in The Week magazine from August 27, 2010, it was reported that recent monthly foreclosure levels are up year over year and that over a million more homes will be foreclosed on in 2010 vs. 2009.) The article quoted Mark Zandl, chief economist at Moody Analytics, as predicting that the program will eventually help out only about 500,000 homeowners even though another 1.5 million homes will likely fall into foreclosure in 2011. If Zandl is right and the $75 billion program will only help out 500,000 homeowners, then the government would have spent about $150,000 per successful homeowner saved ($75 billion divided by 500,000), certainly a pathetic return on investment from an economic perspective.
• Another government program, Cash For Appliances, was supposed to be designed to incrementally increase the sale of energy efficient appliances for the home. Since absolutely no one in any part of the government is talking about how successful this program was, one has to assume that it performed as badly as Cash For Clunkers and the first time home buyer credits: it likely resulted in no incremental sales and just wasted more taxpayer dollars.
• The Obama administration warned us two years ago that unless the administration's economic stimulus plan was passed, unemployment could go as high as 8%. Well, the econ mic stimulus plan was passed and we have not seen unemployment less than 9.5% or so for lord knows how long. Does that mean if we had not passed the economic stimulus plan that unemployment would be 8%, 15-20% lower than it is today?
• Many times we have spoken about Washington's inability to foresee the gathering economic storm clouds even though there were tens of thousands Federal employees working in economic related government entities including Fannie Mae, Freddie Mac, the Treasury department, the federal reserve, HUD, FDIC, Senate and House banking and finance committees, etc. Of all these people and all these organizations, no one saw the economic mess that has engulfed us until it hit them in the face.
• The current administration has introduced so much economic uncertainly into the market, e.g. what will the health care reform bill actually cost business and consumers, will the Bush tax cuts go away or be renewed, will other taxes be raised and how much, will it be inflation or deflation that we all have to deal with, etc., that both businesses and consumers have reduced their from spending due to this uncertainty/fear factor, with the uncertainty locking up the economy.

Combine these failures with the fact that the political class is spending so much money that our national debt is approaching alarming levels, having just exceeded $13 TRILLION, you really have to wonder what economic novices are running the country today. Economic programs that do not increase economic activity, economic programs that are wasteful and inefficient, and government economic resources that do not see economic trouble before it occurs: certainly looks like amateur hour in Washington.

Obviously, a few major steps and changes have to occur in order to get the amateurs out of Washington, many of which are outlined in "Love My Country, Loathe My Government:"

• Step 1 - start downsizing government functions by 10% a year for five years. This step would reduce the number of insane and wasteful program such as Cash For Clunkers and get the political class focused on fewer but more impactful economic policies and programs. In other words, less people and less bureaucracy should result in less stupid economic policies that government entities launch to protect their turf and justify their existence, all of which are failures.
• Step 34 - systematically but fairly relieve all Congressional members of their committee posts if those committees fail to execute their jobs satisfactorily. In this area, all Congressional members sitting on House and Senate committees responsible for housing, finance, and Treasury should have been relieved of their committee posts for their amateurish handling of the recent economic crisis.
• Step 39 - term limits, as provided under this step, would ensure that the same economic hacks currently sitting in Congress would be gone in a relatively short time and not be allowed to continually perpetrate these stupid and failed economic programs and policies on the American taxpayer.

While 'American Idol", for this generation, and "Ted Mack's Original Amateur Hour", for the older generation, may prove entertainment, the economic amateurs in Washington are not entertainment, they are economically destructive and wasteful. Time to get some pros involved and dump the incumbents in November.

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Also visit the following sites for freedom:
http://www.cato.org/
http://www.reason.com/
http://www.robertringer.com/
http://www.realpolichick.blogspot.com/
http://www.flipcongress2010.com/

The Five legged Dog Riddle - When A Federal Law or Program Is Just Not Worth The Effort

I believe it was Abraham Lincoln who posed the following riddle:

Question: If you called a tail a leg, how many legs would a typical dog have?

Answer: Four, just because you called it a leg does not make it a leg.

So it is with most Federal laws and programs. Congress and whatever Presidential administration that is in power goes to great lengths to convince us, the American taxpayer and voter, that they have been hard at work solving the nation's problems by passing landmark legislation or instituting new programs. Unfortunately, when you look back on their claims, you realize that the claims never pan out to be true benefits to Americans and in many, many cases, actually make the situation worse or drive us further into debt as a nation. Consider the following five legged dog claims that the political class has recently hoisted on us:

Five Legged Dog Claim: The new financial market reform law will solve all of our financial system problems and we will never again live through the economic trauma of the past couple of years.
Reality: Nice try but calling this reform comprehensive is false on two major points. First, the law that is about to be signed by President Obama does not address the malignant problems of Freddie Mac and Fannie Mae. Remember, subprime mortgages and loans were at the heart of the economic calamity we are still living through and Fannie and Freddie were at the epicenter of those problems, selling securities based on home mortgages that eventually failed. How can you say that you reformed the financial sector when the biggest problem in that sector, now and going forward, is Fannie and Freddie? There are some estimates that these two organizations are so broken that they may cost the American taxpayer $1 TRILLION in subsidies over the next ten years. Sounds like they needed to be included in any reform measure.

Second, according to an article summary in the July 16, 2010 issue of The Week magazine, James Surowiecki reported that the financial reform bill will exempt car dealers from the consumer protection agency that the legislation creates. These dealers arrange 80% of the $850 billion in car loans every year, they obviously have a big part in many household's financials. Their exemption from this legislation illustrates the five legged dog example: just because you said your reformed the financial market does not mean you did if you leave out this huge chunk of financial transactions. According to Mr. Surowiecki, by exempting car loans, "it's like creating the FDA and then denying it authority over painkillers."

Five Legged Dog Claim: Obama care will rein in escalating health care costs, will provide affordable health care insurance for everyone, and will reduce the Federal budget deficit.
Reality: We could spend a whole week on this topic but let's keep it short for now. The Associated Press has reported that when the legislation was passed, it did not include all of the funding that would be necessary for all of the aspects of the law. Thus, when you include all of the additional funding bills that will still have to be passed to fund everything in the law, the tiny budget surplus becomes another government deficit spending program.

Second, it will not rein in escalating costs since the legislation did not adequately address the underlying causes of escalating health care costs. As explained in a March 1, 2010 interview in Fortune magazine with Delos Cosgrove, head of the Cleveland Clinic, health care costs will continue to rise because our population is getting older, our population is too obese, our population does not exercise enough, and our population smokes too much. Until you address those issues, this five legged dog claim of reining in health care costs will not fly. According to the expert, Mr. Vosgrove, and not the non-experts, the political class, getting these few elements of life under control would make an incredible dent in our nation's health care costs. Until then, this legislation is still a tail and not another leg.

Five Legged Dog Claim: The first time buyer housing stimulus program gave a great economic boost to the housing industry.
Reality: According to an article summary by Kevin Hassett that was included in the July 23, 2010 issue of The Week magazine, this stimulus program did not stimulate anything. The numbers show that it may have moved up some housing purchases by Americans but once the program ended, housing demand fell though the floor; new home sales in May "dropped to their lowest level in recorded history" which just so happened to be one month after the new home buyer credit ended. Also, as Mr. Hassett correctly points out, some of those that participated in the program would have likely purchased a home anyway so that the credit used for them was money thrown away.

Five Legged Dog Claim: The Cash For Clunkers stimulus program gave a great economic boost to the auto industry.
Reality: This program was just a replay of the ineffective first time buyer housing stimulus program. Demand was shifted, not increased, no incremental market activity was created. Plus, many of those that received Cash For Clunkers Federal rebates would have purchased a vehicle anyway, with or without the program, so the program just threw away taxpayer money in these instances also.

Five Legged Dog Claim: The Patriot Act will protect the country's freedoms, liberties, and safety from terrorism.
Reality: The Patriot Act really does nothing of the sort. It provides the government with extraordinary powers to snoop into our lives with the least amount or provocation, which is obviously not freedom protection, and has only protected us from terrorism so far because of pure luck. The would be Christmas Day Underwear Bomber over Detroit and would be Times Square Bomber failed due to faulty bombing equipment, not the Patriot Act.

Five Legged Dog Claim: The Social Security Trust Fund will provide for you an your retirement.
Reality: the definition of trust fund in my dictionary states that it "is an account that holds money, securities, etc. in trust." Unfortunately, calling Social Security a trust fund does not make it a trust fund. The Social Security Administration holds on to nothing. As money comes in, it is paid out immediately to those that are eligible. If you "trust" and believe that the political class and the Federal government are holding onto the money you pay into the Social Security Trust fund, you are falling for this five legged dog fallacy.

Five Legged Dog Claim: Government pre school programs such as Head Start provide $10 worth of benefits for every tax dollar spent.
Reality: President Obama made this claim but his own HHS department recently released the results of an extensive study showing that those children who participated in the Head Start program were no better or no worse off than those kids that did not participate in the program. In other words, Head Start, on average, is nothing more than an expensive government baby sitting service. Thus, saying it returns a 10 to 1 benefit does not make it return a 10 to 1 benefit.

We could go on and on but you get the point.

The political class is so busy telling themselves and us how they have turned a tail into a leg that the fail to notice that calling it a tail a leg does not make it a leg, i.e. saying they addressed a problem usually means that they did nothing of the sort. Which is why November and Step 39 in "Love My Country, Loathe My Government" are so important. In November, we have a chance to dump out of office all of the incumbent politicians who constantly solve nothing and then constantly brag and compliment themselves about what they did not do. In Step 39, we have the chance to finally impose term limits so that the politicians are one and done and do not have the chance to fall into the five legged dog riddle: claiming they are working so hard yet accomplishing nothing.



Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Also visit the following sites for freedom:


http://www.cato.org/
http://www.reason.com/
http://www.robertringer.com/
http://www.realpolichick.blogspot.com/
http://www.flipcongress2010.com/

Cash For Clunkers - Real Estate Style

We have discussed the much maligned Federal government program, Cash For Clunkers, last year. The basic premise of the program is the government, using taxpayer money, gave new car buyers thousands of dollars in a tax credit rebate if the purchased a new car late last summer. The hope is that this would incent consumers to rush out and buy a new car and spark the economy.

Unfortunately, none of the program's objectives were met. As we look back on the historical monthly sales rate, it becomes apparent that new car sales actually did spike upwards the last month of the rebate program, Unfortunately, as soon as the incentive ended, sales plunged when measured on a seasonally adjusted basis. The obvious conclusion is that many of the sales were not incremental, the program just pulled forward sales that would have happened anyway. All it did was give away billions of dollars to car buyers, most of whom would have spent their own money anyway. Other problems, that we will not rehash today, included the fact, that contrary to the program's intent, many of the vehicles sold were not fuel efficient ones that were hoped for and that the used cars that were turned in were destroyed, drying up the used car market, and driving up prices for those Americans that could not afford a new car.

Given that failure, one would have hoped that the political class would not launch another such program. Unfortunately, that hope was dashed when in 2008, the government launched a rebate program for first time home buyers, hoping to spark a rebound from low home sales volumes. The program eventually evolved so that first time home buyers would get an $8,000 tax credit and repeat buyers would get $6,500. The only criteria is that buyers had to enter into a contract for a home by April 30, 2010 and close on the house by June 30, 2010.

You can only guess what happened. In an Associated Press article by Alan Zibel on June 22, 2010, the National Association of Realtors reported that sales of existing homes fell 2.2% in May, contrary to the recent trend and far below what many housing experts expected. The article reported that many of these experts now think that sales will continue to trend down as the new home owners rebate program ends later this month. Thus, we will likely see the same results as Cash For Clunkers, many of the home sales for the past few months, leading to that upward trend, were nothing more than people moving their purchase plans forward to grab the $8,000 and $6,500 rebates. It is highly likely that existing housing sales were continue to drop in the next few months since the sales that would have happened, already have under the program.

And now today, Mr. Zibel wrote another housing article where he reports that the sales of new homes in May were down a whopping 33% on a seasonally adjusted basis, the lowest level since tracking began in 1963. According to the article, "analysts were startled by the depth of the sales drop." If they had tracked the Cash For Clunkers program, they would not have been surprised. The government incentives ended and thus, the market did not pull forward any more sales. I expect that you will continue to see a very low level of sales of new homes since many of them had already been pulled forward, much like Cash For Clunkers.

Thus, the government and the political class continue to learn nothing from their experiences in providing incentives. These programs rarely work in that they do not generate a substantial amount of incremental sales, the basically give away taxpayer money to people that would have eventually used their own money for the car or house purchase, and the administration of such programs is usually sloppy, inefficient and worse, subject to fraud. According to recent news reports, based on an analysis by the Treasury Department's Inspector General Russell George, the investigators found the following instances of fraud just from 2008, when the home rebate program began:

• The IRS paid out $9.1 million to just under 1,300 people who were in jail at the time they said they bought a home. This computes out to about $7,000 per prisoner
• 241 of those prisoners were in for life terms, making it highly unlikely they had bought a home or would ever buy a home.
• $17.6 million were paid out to 2,555 people who purchased their home before the program started but who still received their tax credit.
• Over 10,000 people got a tax credit rebate for a home that also was used by another taxpayer to claim the credit. In one case, 67 different people claimed, and received, the tax credit for the same address. Can you say "organized crime?"
• Eighty seven IRS agents themselves filed fraudulent claims for homes that did not qualify for under the program.
• In a late 2009 Bloomberg report, some of the early claimants for the tax credit were made by kids under the age of 18 with one of the more infamous cases involving a four year old who filed for the tax credit.

As with Cash For Clunkers, this was an ineffective program from a sales incentive program, it did not generate many incremental short term sales or increase the long term trend and worse of all, it was riddled with fraud, wasting millions, if not billions, of taxpayer money. This report covered only 2008, according to the the Inspector General, and did not cover the 2009 and 2010 activities. Thus, the fraud numbers could go up even higher if the IRS did not get things under control. And the numbers will probably go higher since news reports indicate that the IRS wrote a letter to prison officials today, asking for their help in the prison fraud area. This letter happens as the program is about to end, what good will that do? Finally, this is the fraud they uncovered, how big is the fraud that they did not identify but still paid out on? Pathetic.

But lets not stop here with government/political class incompetence in the housing market. According to bloomberg.com as reported in The Week magazine on June 25, 2010, the two government mortgage giants, Fannie Mae and Freddie Mac, will need $389 billion in taxpayer subsidies between now and 2019. This is in addition to the $145 billion they have already received. Thus, these two government operations will cost every American household about $4,600 on average to pay off ($534 billion divided by about 117 million U.S. households). Such a deal.

These are just a few examples of the economic ignorance of the political class. The home buyer tax credit/rebate credit was supposed to prop up housing prices, according to it supporters. However, just the opposite is needed. Prices need to fall to the level where people are willing to use their own money to buy a home. By artificially propping up housing prices through the tax credit program, it just delayed the time when the housing market will turn around, i.e. when prices are in line with income levels. Until that happens, no short term incentive program is going to turn around a massive segment of the economy. All it does is needlessly give away taxpayer money to people who likely had enough money to purchase a house anyway.

Both Fannie Mae and Freddie Mac need to be eliminated as soon ass possible in an organized systematic way. They control (i.e., politicians control) far too much of the economy and have proven that they cannot operate their respective operations unless taxpayers give them a half a TRILLION dollars, money that could be better spent remaining in the wallets of taxpayers. Too much control means lack of freedom, too much incompetence means too much of a financial burden.

Several steps from "Love My Country, Loathe My Government" would address these issues. Step 36 would require all government employees including members of Congress and the Presidential administration to take and pass a course in basic economics so that we no longer see these wasteful rebate and tax credit programs that never work. Step 1 would start an immediate downsizing of government since most of it does not work effectively or efficiently. The half a TRILLION in savings form shuttering Fannie and Freddie would be a great way to start reducing our national debt. Step 39 would institute term limits so that we could get rid of these tired, economic illiterate politicians who have been in office for decades but who still insist on rolling out ineffective government economic programs (Cash For Clunkers) and ineffective government bureaucracies (Fannie and Freddie).

All of this bad news on bad government programs and we did not even address the Cash For Caulkers and Cash For Appliances failures....



Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Also visit the following sites for freedom:
http://www.cato.org/
http://www.reason.com/
http://www.robertringer.com/
http://www.realpolichick.blogspot.com/