February 15, 2008

Flogging an Economy Too Tired to Run

by Donald G. Mashburn

The stimulus package – or “The Voter Pacifier Package” – cobbled together by the Bush administration and Congress may be a matter of flogging a horse too tired to keeping running at its current pace.

The nation doesn’t have the money to pay the $168 billion price tag of the stimulus package. Congress, in its usual shortsighted view, is willing to simply add the cost to the already huge mountain of debt that future generations will pay.
But neither the “bighearted” Congress – with our tax dollars – nor a president desperate for any bit of economic sleight of hand that will perk up a weakening economy, should realistically expect that handing out money we don’t have will put new life into a horse that’s too tired from having run too long with too much of a load.

The package’s handouts of $600 for individuals, $1,200 for adults who file joint tax returns, $300 per child, and a $300 minimum for those who pay less than that amount in taxes won’t make a very big splash in the consumer-spending pond.
Some recipients may save part or all of it. Some may live a bit higher on the hog. Some may pay off some debt. But countless dollars no doubt will find their way into the casino tills, lottery ticket pots, and any number of food and drink establishments.

The latter, it will be claimed out, will help the economy by boosting restaurant and fast food revenues. But they will not help the economy in a way that’s beneficial over the long term. And looking at today’s prices of beef, booze and gasoline, it won’t take long to run through $600.

And then, instead of stimulus, there will be the letdown of slowdown. Nothing new will have been produced. No products will come into the supply line that are needed for mankind’s welfare or betterment. No permanent jobs will have been created.

All we’ll get from the political show – financed by our tax dollars – will be added debt to be paid by our children, grandchildren, and generations of children and grandchildren to follow.

The president and Congress would have served all of us better if they had concentrated on fixing what is broken in government: getting a grip on out-of-control spending, and freezing or eliminating the growing bureaucratic regulation that hampers American productivity.

To encourage businesses to invest, the stimulus package did include a token increase of $125,000 in the expenses businesses can write off immediately. Imagine how that must “thrill” management of a corporation faced with laying off hundreds, perhaps thousands, of employees, and stemming the flow of red ink running into the million or billions.

To clarify that picture: If a business is already facing a large loss, there’s no incentive to increase expenditures by $125,000 to increase the loss.

Other giveaways range from cynical to silly. These include giveaways to seniors on Social security who pay no income tax, include other items Senate Majority Leader Harry Reid, D-NV, pressed for to please the tax-and-spend interest groups. As usual, Reid and his fellow Democrats were not as interested in helping the economy as they were in helping win votes for Democrats in November.

Our economic horse has been running long and hard. It’s not ready for the glue factory, by any means, but with its load of government regulation, and the added burdens of financial turmoil and high energy prices, it needs a period of time to get its wind.

What it doesn’t need is doctoring by the voter-hunting Congress and a president anxious to keep the horse running at its pre-mortgage-meltdown pace.

Private Philanthropy is Bad for Socialism

by Thomas E. Brewton

The New York Times is distressed that private philanthropists can give money to any charity they choose. Only a socialistic Federal government is capable, says the Times, of making wise decisions about dispensing money to achieve social justice. The flip side of American private largess is the stinginess of the public sector.

Philanthropic contributions in the United States – about $300 billion in 2006 – probably exceed those of any other country. By contrast, America’s tax take is nearly the lowest in the industrial world. Federal, state and local tax collections amount to just more than 25.5 percent of the nation’s economic output.

As a result, the United States spends less on social programs than virtually every other rich industrial country, according to the Organization for Economic Cooperation and Development. The Finnish government collects 48.8 percent. The Finnish government probably has money to build children’s health clinics.

Critics of government spending argue that America’s private sector does a better job making socially necessary investments. But it doesn’t. Public spending is allocated democratically among competing demands. Rich benefactors can spend on anything they want, and they tend to spend on projects close to their hearts.

The real point, of course, is not that private philanthropists misplace their donations. The point is to move the United States farther toward what Hilaire Belloc called The Servile State and Friedrich Hayek called The Road to Serfdom.

True socialism of the kind lovingly promoted by the New York Times requires that all economic resources of the nation be collectively controlled by government ownership or by regulation. Social justice being defined as equality of income, the Federal government must roughly double income taxes to bring the United States up to par with other Socialist nations.

The Democratic Party’s presidential candidates, all liberal-progressive-socialists, have not explicitly acknowledged that goal, but Senator Hillary Clinton’s recent pronouncements make clear the direction in which she intends to head if elected.

Thomas E. Brewton is a staff writer for the New Media Alliance, Inc.

Morgage Mess to Worsen

The mortgage mess if far from over. As this is written, Bank of America (BAC) plans to acquire the nation’s largest mortgage lender, Countrywide Financial Corporation (CFC).

With the huge write-downs being taken by giant financial firms like Citigroup, Merrill Lynch, UBS and others, some business observers wonder if the BAC ship can sail the rough mortgage seas with the added “dead weight” – delinquent loans, subprime and prime – that CFC brings on board.

Sure, BAC reportedly would be getting CFC for less than market value, but still, delinquent loans are not assets where having more is means better than having less.

The big problem is that the rate of delinquent borrowers has been in an alarming up trend for nearly two years, according to data from the Mortgage Bankers Association reported in the Wall Street Journal.

After bottoming at around 11 percent, the percentage of subprime borrowers at least 30 days delinquent bumped up to almost 12 percent in early 2006, and has been climbing since, to between 16 and 17 percent. And based on recent observations, and the steep shape of the curve, the delinquency rate is expected to go perhaps as high as 18 percent, or higher.

Even the prime mortgage delinquencies, after declining from 2002 to 2005, have since crept upward to three percent, which exceeds their 2002 levels.

Merrill and Citigroup have both announced gargantuan write-downs, and the stocks of both firms recently were down more than 50 percent from their 12-month highs. Some savvy observers with a bearish mindset think that more bad news is to come.

That’s something they weren’t born knowing. They learned it from listening to corporate heads, who, like politicians, downplay bad news that makes them look bad. And when bad news is unavoidable, they dribble it out in chunks instead of all at once.