Engineering disaster: the Obama rescue.

Just when it seems that economists and historians have finally gotten around to debunking the myths of the New Deal and the Great Depression it appears that Barack Obama wants to replay the Rooseveltian disaster. It is now widely accepted that Roosevelt's policies extended the problems of the depression. Obama appears set to do the same thing. In other words, Obama's solution is not a solution, no matter how well-intentioned he is or how often he promises to deliver "hope" to the masses.

The so-called "bailouts" were simply the wholesale theft of the masses of Americans for the benefit of some very wealthy elites. Now some of the highest paid workers in America, the auto workers whose extreme demands for salary packages helped spur the success of foreign car manufacturers, seem set to get the Democrats to hand them millions via the Big Three (no longer of course, due in large part to the unions). And the government has been cranking up the money supply by astounding levels. The assumption is that more "easy money" will solve the problems created by the previous "easy money" policies. Hey, if a little arsenic didn't kill you right away why worry about a massive dose?

Now Obama "promised Saturday to create the biggest public works construction program since the inception of the interstate highway system a half century ago...."

The New York Times says Obama is not putting a price tag on his grand plans but said "he would invest record amounts of money in the vast infrastructure program..."

Obama dishonestly pretends that this is a "jobs creation" program. Rubbish. As I've explained before all public works projects are fraudulent. They don't create jobs they merely redistribute some jobs while destroying other jobs lead to a net loss of jobs over all. Doing nothing would be far less lethal than doing this.

Begin with a simple question. Obama says he will "invest vast sums of money" into his politically controlled central plan. Where will that money come from?

Politicians rarely answer that question. There are two options to secure the "vast sums" he wants to spend. One is through taxation and the other is by cranking up the printing presses at the government mint. The first method means that the private sector will see "vast sums" sucked out of productive sectors of the economy. Those sectors will then have to constrict their activity and jobs will be destroyed. By this method the only way to create jobs in one area is to first destroy them in the other.

However, "vast sums" of money in the hands of politicians gives them massive opportunities to reward special interest groups and big donors. So expect Obama to continue his fraudulent policy of rewarding the wealthy at the expense of the poor, all in the name of helping the poor. The total sum of jobs created will, by necessity, be less than the total number of jobs destroyed.

Of course the jobs created will be for individuals beholden to politicians. The jobs destroyed will be in the private sector which has to be plundered in order to create the fake "jobs program". And when that sector loses more jobs the politicians will crow that this is proof that the private sector is deficient and only government can save us. A great trick and they can pull it off easily as most people pay zero attention.

The second option is even more deceptive. In this method the government pays for some or all of the government jobs by printing more money. The government, as the first spender of this expanded money supply gets to spend it at current prices. Once that money seeps into the economy the increased supply reduces the value of all money. As the value of the money decreases prices go up. This is the cause of inflation -- an increase in the money supply.

Of course the politicians will once again blame the private sector for "higher prices". They ignore the fact that the price of a good reflects both the value of the good and the value of the money being used. Reduce the value of money and the price of the good has to increase just for the producer to get the same payment as he was receiving before. This is how Robert Mugabe destroyed the economy in Zimbabwe, through the use of printing presses to pay for government programs.

Obama is quite simply a charlatan. In fact I would say he is one of the most successful charlatans in long time. He pretends to care for the poor and then announces programs that rip off the poor to benefit corporate interests. He says he is antiwar and then leaves a major Bush administration war monger to run the damn thing. He says he is for change and then puts into his administration a plethora of old time party hacks who represent politics as usual. He said he would repeal "Don't Ask Don't Tell" and then abandoned that before taking the oath of office. And now Mr. Obama is doing all the things necessary to turn this recession into a long-lasting, major depression.

In light of that what should you do? Well, when we see the effects of an inflated money supply it means you can pay off current debt at a fraction of the real cost -- provided you still have any income at all. On the other hand kiss your retirement plans good bye. An inflated money supply will strip your retirement of its value. All the better for the Democrats as that means you will have to depend on the state and the plans of that party is to make everyone reliant on the state unlike the Republicans who want to make everyone terrified of the state.

I would expect that hard assets like gold and silver would be a good idea. Having savings will be a bad idea.

Under the Obama scenario productivity in the country will drop. More precisely production of goods and services in demand, those things people value, will drop and be replaced by the production of goods and services not in demand. So the actual products which have value will become more scarce that means they will become more expensive. As the value of your money is dropping the value of the goods and services you need will be increasing. So the Obama solution, if inflation is used, would mean that you will find it harder and harder to survive on what you earn -- if you one of the lucky ones to be employed. It wouldn't hurt to stock up on items that will last, and which you will need, before their costs increase and the value of your money decreases.

What we have with the Obama administration is a group of politicians who have a clear cut, but wrong, plan to save the economy. If Obama were captain of the Titanic he would survey the damage caused by the iceberg and then announce that the only solution is to punch a second hole on the other side to let the water out. So grab your life preservers.

Why politicians benefit from destroying jobs.

It is fascinating how durable are certain fallacies. While much of economics is counterintuitive the basics are not that difficult to understand. Yet some highly intelligent people continue to say to the same dumb things over and over again.

Just a few moments ago I was listening to some politician prattle on about how some government proposal would create “thousands of jobs”. Of course that simply isn’t true. Government programs don’t create jobs. Government programs can’t create jobs. At best they merely redistribute already existing jobs. In this sense creating jobs is like creating wealth. The government doesn’t create wealth. It can merely change the pattern of distribution.

When government confiscates wealth from one segment of the economy and gives it to another segment no new wealth is created. That is obvious. In fact the redistribution makes the economy poorer. It does so for several reasons.

First, when government redistributes wealth it consumes a good portion of that wealth on the process of redistribution. For each dollar the government confiscates at the beginning of the process it returns pennies at the end of the process.

Second, government has to tax those sectors of the economy that are actually productive. It is hard to confiscate wealth from those who don’t have it. To be profitable an industry must produce something which people want and are willing to pay for. That means it has to produce something which people value higher than the money they spend on the product. So people get less of the things they value.

But where do the redistributed funds go? They go to sectors of the economy that people value less. So government takes money from areas which people want more of and give it to sectors where people want less. It encourages the production of services or goods people want less while punishing the production of goods or services which people want more. The net result is that less valuable things are produced more and more valuable things are produced less. That makes everyone poorer. Government never actually redistributes wealth, it redistributes poverty. Government “redistribution” of wealth destroys wealth.

How wealth is redistributed is relatively open and apparent. And it is pretty easy to see how wealth is destroyed in the process. But how the same thing happens to jobs is hard to see.

The reason it is more difficult to notice is that government doesn’t actually go out and confiscate jobs. It doesn’t appear at the door of a successful company and orders employees out of the building, and then takes them to an unproductive plant where they are forced to work. If that happened it would be clear what is going on.

The way government redistributes jobs is actually the same way it redistributes income. Of course, politicians never admit they are redistributing jobs. They pretend they are “creating” jobs. How does this magic take place?

They find some project or endeavor that they decide ought to be showered with tax money. As the money goes rolling in we see “new” jobs. They are visible and obvious. In fact, the politicians go out of their way to show you these “new jobs”. It might be highway workers standing around a ditch looking serious and filling in the hole that they just dug, or it might be more “supervisors” in the education department, or additional surly desk clerks at the Department of Motor Vehicles. If the politicians are being smart they pour the money into so failed industry so that it appears they are “creating” private sector (another word for productive sector) jobs.

Let us say they pour money on some ethanol plant. You see new workers hired to produce a fuel that consumers don’t want and which is worse for the environment. But hey, that’s okay, it creates jobs! You can see them yourself.

How did they create jobs?

First, they took money out of the productive sector of the economy. That reduces demand in those areas and reduces employment there. But who notices? It’s not like the politician will call in the press to have his photo taken at the company that reduced employment due to higher taxes. The “new” jobs are visible while the jobs they destroy are not so obvious.

Sometimes the jobs destroyed are even less obvious. A company that might have expanded puts off the expansion. They might now lay off employees but they slow down their hiring. Often the jobs destroyed are jobs that were not yet created.

In the case of our ethanol plant notice what else the politicians did. By increasing the demand for corn for ethanol they drove up the price of corn for consumption by humans or as animal feed. The net result is more expensive food. While they created additional wealth for the billionaires who tend to own ethanol plants they harmed the working people who face higher food prices.

So what do you do when food prices go up? Do you stop eating? Not likely. Instead you cut down on other things. You might skip a vacation this year. But the politicians say it is worth it and your sacrifice is minimal. But when you didn’t take that vacation that means less demand in the tourism sector. It means lower profits there. It means less demand for employees there.

Maybe you stop eating out as much. As others do the same the demand for restaurants goes down. Some entrepreneurs who own restaurants lose their business. A lot of waiters, waitresses, dishwashers, counter-help, cleaners, etc., find they either lose their jobs or have their hours cut back.

All over the productive sectors of the economy the same thing is happening. Government “jobs” programs destroy productive jobs. And the results are interesting.

Since the bureaucrats consume much of the money they redistribute they create fewer jobs than they create. If they eat up only 25% of the total (and it is more) then for every $1 million worth of jobs they destroy they create $750,000 in other jobs. Often the jobs they create are better paying than the jobs they destroyed so even more are destroyed than created. It is possible that for every job they create two jobs have been destroyed.

Now if they actually increase unemployment and make the economy poorer then why do they bother?

First, the typical voter is clueless as to what is happening. They actually fall for the baloney that these programs create jobs. Even the politicians who know the smidgen of economics necessary to see through this fraud play the game because they benefit by the delusions of the public. In the end they worry more about being elected again than they do about some poor schmuck who loses his job because of their “jobs program”.

And these politicians know that in doling out the funds that “create jobs” they win favors from special interest groups and votes from the members of those groups. When jobs are actually created in the productive economy the politician can’t claim the credit. They can’t use those jobs as favors to be called in during the election. The jobs they appear to create actually give them power. By destroying jobs through this process the politician actually ends up better off politically.

That is one of the sad truths of politics. Far too often the politician gains the most by during his worst. The successful politician knows how to use the system to stay in office. And in the end the only job he really cares about is his own.