Let's take a look at the numbers...
-$49.1 billion goes to elementary/secondary schools
-another $79 billion is going to the Department of Education through the State Fiscal Stabilization Fund
-$46 billion goes directly to unemployment insurance, with another $27 billion in extended "emergency" unemployment funding. Translation: more money for unemployment insurance and more time you can stay on it.
-$60 billion for transportation works
-$87 billion goes to Medicaid
-$49 billion for energy programs
-$20 billion for health care information technology
-many more billions for college loan programs
-$190 billion in tax cuts
you all can read the bill here:
http://www.cbo.gov/ftpdocs/99xx/doc9968/hr1.pdf
One of the most interesting provisions is the business tax cut: $90 billion (expected) for the first year in immediate write offs. But, here's the weird part.... unprofitable firms can gain access to income taxes they've already paid in previous years. I support the idea of tax cuts for businesses. However, paying money out to unprofitable firms seems like it may be a waste of taxpayer money. It is the companies' previously paid money though. I'm a little conflicted as to how to feel on that.
In my opinion... there is way too much money being pumped into welfare and entitlements and not enough into business tax cuts. When you compare how much of the money is going into government programs to how much is going back to the businesses or individuals... it's kind of astounding. I look forward to see how this will do in the Senate (it will pass, I'm almost sure). I don't know what I was expecting but this is a little bit more of the aggressive, opportunistic expansion of government than I was expecting.
I, however, really do like the large, accross the board investment being made in human capital. I really hope there is a more specific plan than just "throw money at it". But I think that it's a great step to improving our schools and making sure underprivileged students can still go to college even in these trying economic times. I think it's a great move there (though I'll be on the look out for how they're gonna use the money).
So.... good news, bad news. Definitely not what I wanted. But, there are some spots of sunshine.
PLEASE READ MY LAST BLOG TO SEE MY PREFERRED STIMULUS PLAN
Wednesday, January 28, 2009
Protestant Ethic and the Spirit of Stimuli
Many of my conservative and libertarian friends do not want to see stimulus plans, bailouts, subsidies, etc. You are not alone. I happen to be of the persuasion that less government intervention in the markets is a good thing, a preferred thing, the best thing. But, we've come thus far and we've lost so much money and so many jobs and so we must accept that a stimulus plan is coming. I'm not saying that this is the best course of action, but it will be the course of action. What I'm trying to articulate is WHAT I want to see the stimulus plan doing/encouraging.
In a seemingly irrational and unrelated move, I'm going to direct you all to look at the essays of Max Weber. The Protestant Ethic and the Spirit of Capitalism was a book/series of essays that was compiled after extensive study of political, industrial, economic, and religious history of the world (Western Europe in particular, as this is clearly the focus of the book).
If I may paraphrase my Professor... Weber argued that the Protestant ethic was a NECESSARY condition for the creation of capitalism. Granted, Protestant ethic was not the ONLY condition. Before capitalism could emerge, transportation and communication needed to be made more expedient. However, Weber says that without this Protestant (Puritan/Calvinist) work ethic, capitalism could not have started.
We could spend all day debating his theory. It is a very interesting and convincing piece of literature. Weber was an extremely well-read and intelligent man and he makes a strong case. For my purposes, I will assume that his theory bares significant truth.
The Puritans believed, contrary to many other sects of Christianity, that worldy activities were not devoid of spiritual purpose. The Puritans believed that man was called to a profession by God. They believed that by pursuing their calling (berufsmaβig), they were doing the will of God. They believed that work was salvific and that by being successful in their calling, God was indicating that they would acheive salvation.
This next part is absolutely essential to the point I'm trying to make.... Puritans believed that they must work tremendously hard to achieve salvation while simultaneously abstaining from SPONTANEOUS PLEASURE SEEKING. Capitalism was able to emerge because Puritans believed that saving and reinvesting back into their work was the only proper way to spend their money.
"A penny saved is a penny earned" - Benjamin Franklin. This quote exemplifies Franklin's (and many other Puritans') belief in saving over spending and consuming.
Many argue that Protestant ethic was essential for the founding of capitalism but not it's survival. However, it is crucial to note that without the hardened and (in this case) redemptive philosophy of the importance of PRODUCING AND SAVING, capitalism would not have existed.
We can look around the United States and see that the Protestant ethics of hard work, saving, and reinvesting into that work are almost vanished. The US government and its citizens are ardently subscribed to the idea that an economy based on borrowing and spending is viable. This is a fallacy.
Artificially rising home prices allowed many people to believe in this fairy tale. They believed that they could keep borrowing against their house, investing into their house, spending money on furnishings and new cars and new clothes and still stay strong economically because of the ever-increasing value of their home. But, in 2008, this philosophy proved itself to be a formula for disaster.
Americans gave out and took on billions of dollars of loans so that they could spend. US citizens, under Bush and Clinton, were inundated with the idea that spending money on goods was a good thing for the economy. People thought they were doing their country a service by buying things that they couldn't always afford. This is because we thought that an economy based on consumption could work. An unbelievable 70% of GDP is made up of consumption. Americans spend more money than they earn.
In direct contrast to the Puritans, spontaneous enjoyment of goods is now EXPECTED in the United States. It is no longer a virtue to save, to grow your business, to work hard. These things can be bypassed so quickly by filling out a loan application. However, look at where these things have gotten us: need I point to the financial bailout (covered in my previous blog) and impending $825 billion stimulus plan?
That being said, there needs to be a significant and substantive change in the makeup of our economy. My free market friends argue that these changes can be made painfully through the economy's built in self recovery mechanism. I agree with them. However, that process is long and painful. Although I agree that it is in many ways the best course of action, hundreds of millions of Americans are demanding immediate action from their government. There will be a stimulus, that I guarantee. There will be negotiating over the size, makeup, and timing of the plan. But, it will happen.
Americans, in place of God and salvation, must see producing and spending as the spirtitual craft that makes retirement (salvation) and the prosperity of the United States economy (the glory of God) possible. I'm asking you to take God out of the equation. Retirement is the end, the place where all worldly work pays off. The prosperity of the country is different reward, a patriotic congratulations for hard work. Some may not care about this. That is fine too. But as Americans we should feel, at least in some part, a dutifulness to achieve this end. I want the stimulus plan to encourage this by doing (or not doing) the following things.
THIS IS WHAT I DON'T WANT TO SEE:
I don't want to see the Federal Reserve continuing to lower interest rates so as to encourage lending. Americans are broke. We don't need to buy more things that we can't afford. This is monetary policy, but it is and will likely continue to be a part of the recovery plan. I would rather see them pull a Volcker (which would make Obama's ratings plummet and send the country into an even bigger temporary recession, but would, I think, help the country fix its debt problem). Encouragingly, Volcker is the leader of the newly-formed Economic Recovery Advisory Board.
I don't want to see the Obama team cutting checks and making tax cuts for individuals (honestly, lol to proposed tax cuts for people who don't make enough money to even pay taxes). All they will do with the money is pay off some of their debt or continue to buy products they don't need (which will, in all likelihood, be from foreign producers anyways).
THIS IS WHAT I WOULD LIKE TO SEE:
As a rule, the things that I want to see are things that will create jobs. Not jobs working for the government because the last thing we need is expanded government. Expanded government in no way helps to produce anything. The size and scope of government is big enough already.
I'm encouraged that the Obama plan is all about job creation. However, I'm slightly discouraged that he talks about doing this through government works projects. New roads and bridges are nice, but they only temporarily employ people and don't provide much in terms of economic growth.
I want to see small business tax cuts. You want to employ people? Then give tax cuts to the people whose business it is to employ people. It's not the government's job to employ people. By giving large tax cuts to small businesses, the government encourages growth, innovation and competition among firms. This is great especially as some of these small business are in new or underdeveloped technology that could be the future of the American economy.
------------------------------------
The United States neeeeeeeds to be in the business of production again. This stimulus needs to say, "enough borrowing and spending". The government needs to provide capital to businesses who will use it to produce things, employ people, and then reinvest in their company and expand. THIS is the Protestant work ethic that has been missing. This is the work ethic that I would like to see make a significant comeback in a more secular form.
The stimulus plan is, in itself, a total contradiction for what I want. I want people to see that borrowing and spending is not a feasible means for survival or prosperity. Seeing the government borrow and spend to promote ideals of producing and saving is quite hypocritical and borderline preposterous. However, THE GOVERNMENT NEEDS TO COMMUNICATE THAT THIS IS A ONCE IN A MILLION YEARS KIND OF PLAN. Government is not a safety net. It cannot employ people. It cannot distort market forces. It cannot encourage its citizens to live above their means. This needs to be a one and done deal. Government cannot reach back into our pockets, back to the printing presses to provide more money. We are broke, as a nation and as a people. This injection of capital needs to be to get things going again; it needs to be a spark. People have to see this plan as A SIGN THAT OUR BRAND OF ECONOMY HAS FAILED. We cannot continue to borrow and spend. We must go back to producing and saving.
In a seemingly irrational and unrelated move, I'm going to direct you all to look at the essays of Max Weber. The Protestant Ethic and the Spirit of Capitalism was a book/series of essays that was compiled after extensive study of political, industrial, economic, and religious history of the world (Western Europe in particular, as this is clearly the focus of the book).
If I may paraphrase my Professor... Weber argued that the Protestant ethic was a NECESSARY condition for the creation of capitalism. Granted, Protestant ethic was not the ONLY condition. Before capitalism could emerge, transportation and communication needed to be made more expedient. However, Weber says that without this Protestant (Puritan/Calvinist) work ethic, capitalism could not have started.
We could spend all day debating his theory. It is a very interesting and convincing piece of literature. Weber was an extremely well-read and intelligent man and he makes a strong case. For my purposes, I will assume that his theory bares significant truth.
The Puritans believed, contrary to many other sects of Christianity, that worldy activities were not devoid of spiritual purpose. The Puritans believed that man was called to a profession by God. They believed that by pursuing their calling (berufsmaβig), they were doing the will of God. They believed that work was salvific and that by being successful in their calling, God was indicating that they would acheive salvation.
This next part is absolutely essential to the point I'm trying to make.... Puritans believed that they must work tremendously hard to achieve salvation while simultaneously abstaining from SPONTANEOUS PLEASURE SEEKING. Capitalism was able to emerge because Puritans believed that saving and reinvesting back into their work was the only proper way to spend their money.
"A penny saved is a penny earned" - Benjamin Franklin. This quote exemplifies Franklin's (and many other Puritans') belief in saving over spending and consuming.
Many argue that Protestant ethic was essential for the founding of capitalism but not it's survival. However, it is crucial to note that without the hardened and (in this case) redemptive philosophy of the importance of PRODUCING AND SAVING, capitalism would not have existed.
We can look around the United States and see that the Protestant ethics of hard work, saving, and reinvesting into that work are almost vanished. The US government and its citizens are ardently subscribed to the idea that an economy based on borrowing and spending is viable. This is a fallacy.
Artificially rising home prices allowed many people to believe in this fairy tale. They believed that they could keep borrowing against their house, investing into their house, spending money on furnishings and new cars and new clothes and still stay strong economically because of the ever-increasing value of their home. But, in 2008, this philosophy proved itself to be a formula for disaster.
Americans gave out and took on billions of dollars of loans so that they could spend. US citizens, under Bush and Clinton, were inundated with the idea that spending money on goods was a good thing for the economy. People thought they were doing their country a service by buying things that they couldn't always afford. This is because we thought that an economy based on consumption could work. An unbelievable 70% of GDP is made up of consumption. Americans spend more money than they earn.
In direct contrast to the Puritans, spontaneous enjoyment of goods is now EXPECTED in the United States. It is no longer a virtue to save, to grow your business, to work hard. These things can be bypassed so quickly by filling out a loan application. However, look at where these things have gotten us: need I point to the financial bailout (covered in my previous blog) and impending $825 billion stimulus plan?
That being said, there needs to be a significant and substantive change in the makeup of our economy. My free market friends argue that these changes can be made painfully through the economy's built in self recovery mechanism. I agree with them. However, that process is long and painful. Although I agree that it is in many ways the best course of action, hundreds of millions of Americans are demanding immediate action from their government. There will be a stimulus, that I guarantee. There will be negotiating over the size, makeup, and timing of the plan. But, it will happen.
Americans, in place of God and salvation, must see producing and spending as the spirtitual craft that makes retirement (salvation) and the prosperity of the United States economy (the glory of God) possible. I'm asking you to take God out of the equation. Retirement is the end, the place where all worldly work pays off. The prosperity of the country is different reward, a patriotic congratulations for hard work. Some may not care about this. That is fine too. But as Americans we should feel, at least in some part, a dutifulness to achieve this end. I want the stimulus plan to encourage this by doing (or not doing) the following things.
THIS IS WHAT I DON'T WANT TO SEE:
I don't want to see the Federal Reserve continuing to lower interest rates so as to encourage lending. Americans are broke. We don't need to buy more things that we can't afford. This is monetary policy, but it is and will likely continue to be a part of the recovery plan. I would rather see them pull a Volcker (which would make Obama's ratings plummet and send the country into an even bigger temporary recession, but would, I think, help the country fix its debt problem). Encouragingly, Volcker is the leader of the newly-formed Economic Recovery Advisory Board.
I don't want to see the Obama team cutting checks and making tax cuts for individuals (honestly, lol to proposed tax cuts for people who don't make enough money to even pay taxes). All they will do with the money is pay off some of their debt or continue to buy products they don't need (which will, in all likelihood, be from foreign producers anyways).
THIS IS WHAT I WOULD LIKE TO SEE:
As a rule, the things that I want to see are things that will create jobs. Not jobs working for the government because the last thing we need is expanded government. Expanded government in no way helps to produce anything. The size and scope of government is big enough already.
I'm encouraged that the Obama plan is all about job creation. However, I'm slightly discouraged that he talks about doing this through government works projects. New roads and bridges are nice, but they only temporarily employ people and don't provide much in terms of economic growth.
I want to see small business tax cuts. You want to employ people? Then give tax cuts to the people whose business it is to employ people. It's not the government's job to employ people. By giving large tax cuts to small businesses, the government encourages growth, innovation and competition among firms. This is great especially as some of these small business are in new or underdeveloped technology that could be the future of the American economy.
------------------------------------
The United States neeeeeeeds to be in the business of production again. This stimulus needs to say, "enough borrowing and spending". The government needs to provide capital to businesses who will use it to produce things, employ people, and then reinvest in their company and expand. THIS is the Protestant work ethic that has been missing. This is the work ethic that I would like to see make a significant comeback in a more secular form.
The stimulus plan is, in itself, a total contradiction for what I want. I want people to see that borrowing and spending is not a feasible means for survival or prosperity. Seeing the government borrow and spend to promote ideals of producing and saving is quite hypocritical and borderline preposterous. However, THE GOVERNMENT NEEDS TO COMMUNICATE THAT THIS IS A ONCE IN A MILLION YEARS KIND OF PLAN. Government is not a safety net. It cannot employ people. It cannot distort market forces. It cannot encourage its citizens to live above their means. This needs to be a one and done deal. Government cannot reach back into our pockets, back to the printing presses to provide more money. We are broke, as a nation and as a people. This injection of capital needs to be to get things going again; it needs to be a spark. People have to see this plan as A SIGN THAT OUR BRAND OF ECONOMY HAS FAILED. We cannot continue to borrow and spend. We must go back to producing and saving.
Tuesday, January 27, 2009
TARP's effects: for better or for worse?
It has been several months now since the Troubled Asset Relief Program was introduced as part of the proposed solution to the subprime mortgage crisis. TARP was created and implemented as a way to stimulate lending and provide relief for homeowners.
The Congressional Oversight Panel's second report (issued Jan. 9) about TARP indicates that the goals of TARP are to:
1. Stabilize the financial market.
2. Stabilize the housing market.
3. Protect taxpayers.
It was a stated goal of the TARP and the Treasury that this $700 billion in giveaways would cause banks to lend more, providing more credit and support to homeowners, avoiding preventable foreclosures.
HOWEVER, this has not been the case.
There are several, deep fundamental flaws that have not been addressed or changed with the use of the TARP funds.
First of all, the money is not being used to lend more. The money is given out with absolutely no strings attached nor requirements of how to use it. It is extremely unclear how this could bolster more loans. Many TARP banks, financial strategists, and Congressional reports indicate that the banks and firms are not using the money to make more loans. In a recent NYT article, Director of (TARP participant) Whitney National Bank, John C Hope III, said that "We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans".
John C Hope III is not alone. His sentiments represent the general sentiments of most other TARP banks. They are using the money to:
1. Acquire other banks.
2. Fortress their budget sheets with excess capital
And, most importantly, 3. TO SURVIVE THE RECESSION.
So, ultimately, the funds have not been used properly to provide relief in the credit market. But, the funds couldn't possibly do any harm, could they?
Yes, they could.
The other major flaw is that the Treasury has been extremely dodgy and unclear about which banks they decide to include in TARP. I'm sure most of you are thinking, "oh well it's the Treasury, I'm sure they'll decide correctly." BUT THIS VERY FACT UNDERMINES CAPITALISM IN THE UNITED STATES.
The banks and companies that are the recipients of this money are using it to essentially weather the storm. This means that companies that are a part of the TARP program aren't stimulating the economy at all. No, in fact, the only thing that they are doing with the money is amassing it to protect their arse. What about the other banks? What about the other financial institutions that aren't on this list? How is it fair for the Treasury to decide who lives and who dies based on criteria that, so far, seems completely and totally arbitrary?
Peter Schiff, director of Euro Pacific Capital puts it best in this video. EuroPac, his investment company, is not a part of the TARP program. He gets no money. What's wrong with this? Well, the failing and sick banks that are benefitting from TARP as a result of free money thrown their way or as a result of mergers, are being allowed to stay afloat even though they took on billions of dollars in bad loans. They took on these bad loans because of poor management and poor financial strategy. EuroPac, however, did not take on bad loans. This is a time when EuroPac could look to pick up staff, securities, etc. from these failing companies. But, the government is keeping these sick companies afloat. This demolishes the investment opportunities for non-TARP banks and firms.
Start watching at 3:00 for the relevant part of the argument. However, I encourage you to watch the whole video along with the first installment. He presents a series of very interesting points.
What's wrong with this? .... It is completely and totally anti-capitalism. The government is deciding who should benefit and who should gain from this under the guise that their decisions are best for the consumer. However, as has been demonstrated by John C Hope III and other like-minded banks and firms, the TARP funds are NOT being used to provide relief to the consumers.
This situation, in a more free market, would work as follows: the bad banks would likely go under. The banks and firms that made smart decisions would be able to pick up the value from these failed banks and firms on the cheap so as to benefit and grow from the opportunities. However, this is not happening. The gov't is interfering, propping sick banks up, deciding who benefits, and getting rid of the customary investment opportunities that would have otherwise been available to prosperous or healthier investment groups like EuroPac.
How is our tax money being used????
It's simple. The gov't is using it to undermine capitalism.
I don't want to throw out accusations of corporate cronyism or a grand conspiracy theory to nationalize the financial sector or anything of that sort. This is for several reasons. Firstly, God knows that more financial panic is the last thing that we need right now. Secondly, I have no evidence nor belief that this is the case. All I'm saying is that TARP is not only failing to help consumers, but it's hurting financial recovery in this country.
The Congressional Oversight Panel's second report (issued Jan. 9) about TARP indicates that the goals of TARP are to:
1. Stabilize the financial market.
2. Stabilize the housing market.
3. Protect taxpayers.
It was a stated goal of the TARP and the Treasury that this $700 billion in giveaways would cause banks to lend more, providing more credit and support to homeowners, avoiding preventable foreclosures.
HOWEVER, this has not been the case.
There are several, deep fundamental flaws that have not been addressed or changed with the use of the TARP funds.
First of all, the money is not being used to lend more. The money is given out with absolutely no strings attached nor requirements of how to use it. It is extremely unclear how this could bolster more loans. Many TARP banks, financial strategists, and Congressional reports indicate that the banks and firms are not using the money to make more loans. In a recent NYT article, Director of (TARP participant) Whitney National Bank, John C Hope III, said that "We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans".
John C Hope III is not alone. His sentiments represent the general sentiments of most other TARP banks. They are using the money to:
1. Acquire other banks.
2. Fortress their budget sheets with excess capital
And, most importantly, 3. TO SURVIVE THE RECESSION.
So, ultimately, the funds have not been used properly to provide relief in the credit market. But, the funds couldn't possibly do any harm, could they?
Yes, they could.
The other major flaw is that the Treasury has been extremely dodgy and unclear about which banks they decide to include in TARP. I'm sure most of you are thinking, "oh well it's the Treasury, I'm sure they'll decide correctly." BUT THIS VERY FACT UNDERMINES CAPITALISM IN THE UNITED STATES.
The banks and companies that are the recipients of this money are using it to essentially weather the storm. This means that companies that are a part of the TARP program aren't stimulating the economy at all. No, in fact, the only thing that they are doing with the money is amassing it to protect their arse. What about the other banks? What about the other financial institutions that aren't on this list? How is it fair for the Treasury to decide who lives and who dies based on criteria that, so far, seems completely and totally arbitrary?
Peter Schiff, director of Euro Pacific Capital puts it best in this video. EuroPac, his investment company, is not a part of the TARP program. He gets no money. What's wrong with this? Well, the failing and sick banks that are benefitting from TARP as a result of free money thrown their way or as a result of mergers, are being allowed to stay afloat even though they took on billions of dollars in bad loans. They took on these bad loans because of poor management and poor financial strategy. EuroPac, however, did not take on bad loans. This is a time when EuroPac could look to pick up staff, securities, etc. from these failing companies. But, the government is keeping these sick companies afloat. This demolishes the investment opportunities for non-TARP banks and firms.
Start watching at 3:00 for the relevant part of the argument. However, I encourage you to watch the whole video along with the first installment. He presents a series of very interesting points.
What's wrong with this? .... It is completely and totally anti-capitalism. The government is deciding who should benefit and who should gain from this under the guise that their decisions are best for the consumer. However, as has been demonstrated by John C Hope III and other like-minded banks and firms, the TARP funds are NOT being used to provide relief to the consumers.
This situation, in a more free market, would work as follows: the bad banks would likely go under. The banks and firms that made smart decisions would be able to pick up the value from these failed banks and firms on the cheap so as to benefit and grow from the opportunities. However, this is not happening. The gov't is interfering, propping sick banks up, deciding who benefits, and getting rid of the customary investment opportunities that would have otherwise been available to prosperous or healthier investment groups like EuroPac.
How is our tax money being used????
It's simple. The gov't is using it to undermine capitalism.
I don't want to throw out accusations of corporate cronyism or a grand conspiracy theory to nationalize the financial sector or anything of that sort. This is for several reasons. Firstly, God knows that more financial panic is the last thing that we need right now. Secondly, I have no evidence nor belief that this is the case. All I'm saying is that TARP is not only failing to help consumers, but it's hurting financial recovery in this country.
Introduction!
Hey everyone!
I look forward to providing you with insight and criticism of many proposed and active financial recovery plans. My goal is to keep this primarily focused on monetary and fiscal policy, but I may at times explore tangential subjects. Please stay tuned for updates in the near future and let me know what any of you guys think. I hope this will allow for lively debate and new learning opportunities for any readers and also for myself. If you want my opinion on aaaannnnnyyyyyttttthhhhiiiiinnnnggg just send it my way and I'll poke around and tell you what I think.
UPDATES COMING SOON!
I look forward to providing you with insight and criticism of many proposed and active financial recovery plans. My goal is to keep this primarily focused on monetary and fiscal policy, but I may at times explore tangential subjects. Please stay tuned for updates in the near future and let me know what any of you guys think. I hope this will allow for lively debate and new learning opportunities for any readers and also for myself. If you want my opinion on aaaannnnnyyyyyttttthhhhiiiiinnnnggg just send it my way and I'll poke around and tell you what I think.
UPDATES COMING SOON!
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