It’s worthwhile to periodically re-read a good book. Hayek’s “Road to Serfdom” is a mere 31 pages long.
Take a few minutes to read it this weekend. You’ll be glad you did.
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In just another example of the federal government cooking their books in ways that the SEC would say are criminal, lets look at the Roth IRA conversion.
Individuals are flocking to convert their traditional IRA’s to a Roth, paying full current income taxes on the amount converted in exchange for the potentially huge benefit of never having to pay taxes on future distributions – neither on the principal, nor any income or gains earned in that account.
But what is really going on here? The taxpayer is simply being asked to pay now for a tax bill that is not due until well into the future. This “advance payment” is indisputably simply a loan to our government. But the federal books do not reflect it as a loan – it is reflected as a tax receipt. If that is not bad enough, the “interest cost” on this tax receipt – the foregone tax on all the income that will ever be earned on that account – will never be recorded as a cost at all!
The effect of this is that future generations will lose the revenue from these IRA conversions since the taxes are being collected now. This creates lower tax receipts for our children and grandchildren, who will undeniably be saddled with incredible tax burdens to make up the difference.
Yes, our deficit and debt burden is again being increased in a deceitful way – so what else is new?
As we head into the election homestretch, I wanted to share with you a brief but poignant essay by economist Thomas Sowell over at the Jewish World Review. Sowell reminds us of the disastrous effects of government intervention into the economy during the Great Depression–a situation that is being paralleled today.
Songs that are “golden oldies” have much less pleasant counterparts in politics– namely, ideas and policies that have failed disastrously in the past but still keep coming back to be advocated and imposed by government. Some people may think these ideas are as good as gold, but brass has often been mistaken for gold by people who don’t look closely enough.
One of these brass oldies is the idea that the government can and must reduce unemployment by “creating jobs.” Some people point to the history of the Great Depression of the 1930s, when unemployment peaked at 25 percent, as proof that the government cannot simply stand by and do nothing when so many millions of people are out of work.
If we are going to look back at history, we need to make sure the history we look at is accurate. First of all, unemployment never hit 25 percent until after– repeat, AFTER– the federal government intervened in the economy.
What was unemployment like when the federal government first intervened in the economy after the stock market crash of 1929? It was 6.3 percent when that first intervention took place in June 1930– down from a peak of 9 percent in December 1929, two months after the stock market crash.
Unemployment never hit double digits in any of the 12 months following the stock market crash of 1929. But it hit double digits within 6 months after government intervention– and unemployment stayed in double digits for the entire remainder of the decade, as the government went in for one intervention after another.
The first federal intervention in June 1930 was the passage of the Smoot-Hawley tariffs by a Democratic Congress, a bill signed into law by Republican President Herbert Hoover. It was “bipartisan”– but bipartisan nonsense is still nonsense and a bipartisan disaster is still a disaster.
The idea behind these higher tariffs was that reducing our imports of foreign goods would create more jobs for American workers. It sounds plausible, but more than a thousand economists took out newspaper ads, warning that these tariffs would be counterproductive.
That was because other countries would retaliate with their own import restrictions, reducing American exports, thereby destroying American jobs. That is exactly what happened. But there are still people today who repeat the brass oldie that restricting imports will save American jobs.
You can always save particular jobs in a particular industry with import restrictions. But you lose other jobs in other industries, not only because other countries retaliate, but also because of the economic repercussions at home.
You can save jobs in the American sugar industry by restricting imports of foreign sugar. But that results in higher sugar prices within the United States, leading to higher costs for American candy producers, as well as American producers of other products containing sugar. That leads to higher prices for those products, which in turn means lower sales at home and abroad– and therefore fewer jobs in those industries.
A study concluded that there were three times as many jobs lost in the confection industry as were saved in the sugar industry. Restrictions on steel imports likewise led to an estimated 5,000 jobs being saved in the steel industry– and 26,000 jobs being lost in industries producing products made of steel.
Similarly, the whole idea of the government itself “creating jobs” is based on regarding the particular jobs created by government as being a net increase in the total number of jobs in the economy. But, since the government does not create wealth to pay for these jobs, but only transfers wealth from the private sector, that leaves less wealth for private employers to create jobs.
Songs that are golden oldies bring enjoyment when they return. But brass oldies in politics just repeat the original disasters.
A statistical analysis by economists, published in 2004, concluded that federal interventions had prolonged the Great Depression of the 1930s by several years. How long will future research show that current government interventions prolonged the economic crisis we are living through now?
Another example of the Obama Administration using the yardstick of “fair”.
While talking about guidelines for world exchange-rate policies, Timmy Geitner tells the WSJ, “Right now, there is no established sense of what’s fair”. If that was not bad enough, this admission came during an interview where he discussed his desire to “advance efforts to ‘rebalance’ the world economy so it is less reliant on U.S. consumers”.
“Fair” and “Rebalance” are code words for redistribution of wealth. This has been a singular goal of Obama’s, which he admitted even while he was still campaigning.
And what does he mean about the world economy being “less reliant on U.S. consumers”? This administration’s blatant disdain for America is disturbing. More ulterior motives here, which we need to keep an eye on.
Catching up on some old reading this weekend, I wanted to share Bloomberg’s wry observation of the current state of the NYC pension fund.
“It’s overstating it a little bit to say the only one who’s done that well is Bernie Madoff, but 8% for a long period of time is not something that very many pension funds have ever achieved.”
Gotta say, I love how Bloomberg (correctly) compares the pension fund to fraud. It’s just like Social Security, the biggest Ponzi scheme of all.
Because some content on Crains NY is subscriber only, I’m reproducing the article below. It’s a good read.
Mayor Michael Bloomberg says the defined benefits in the city’s pension plans are too expensive and will drive more municipal projects into the private sector.
(Bloomberg)-New York Mayor Michael Bloomberg said city pension funds have set unrealistically high assumed rates of return on investments, at 8%, which may require spending more than has been budgeted for retirement benefits.
“It’s much too high an assumption for us; I think it should be lowered,” Mr. Bloomberg said Monday at a news briefing. “That’s going to require the city to put in more money. It’s very difficult to see where we could get the money to do that.”
The city, which must balance its budget or face a state takeover of operations, has to close a $3.3 billion budget gap projected for fiscal year 2012, which starts July 1. The deficit is forecast to grow to $4.8 billion in 2014, a period in which officials expect pension costs to increase to $8 billion in 2014 from $7.6 billion now. Last month, the state pension fund cut assumed returns to 7.5% from 8%.
The real problem, the mayor said, is the pension system itself, which provides defined benefits that can’t be reduced under guarantees the Legislature has placed in the state constitution. While it permits new, less-expensive benefit tiers for future employees, savings wouldn’t be realized for 10 or 15 years, Mr. Bloomberg said.
“We’ve been trying to get the governor and the Legislature to vote a fifth tier,” Mr. Bloomberg said. “They won’t do it unless the unions ask them to.”
“The taxpayers don’t want to pay for it and the economies of the world don’t really support those kinds of plans anymore,” the mayor said.
Without a change, Mr. Bloomberg said, the municipal work force will shrink, because the city won’t be able to afford a payroll of the current size and cover retirement benefits at the same level as today. The city employed 302,436 in May, according to a mayoral spokesman.
“We’re going to try to farm things out to the private sector more because the municipal workers just cost too much,” the mayor said. “The bottom line is, you can see in this country, the public is frustrated, they don’t want to spend any more money.”
Representatives of city Comptroller John Liu, who acts as the steward of city pension funds, didn’t immediately comment on the mayor’s remarks.
The state’s $124.8 billion pension fund, the nation’s third-largest, reduced the assumed rate of return on its investments as it recovers from market losses, Comptroller Thomas DiNapoli said. Mr. DiNapoli, the sole trustee of the plan, said state and local government employers’ payments to the fund will increase to about 16.3% of payroll in February 2012, from 11.9% due in February 2011. The fund covers 1 million current and retired government workers.
New York City’s five pension funds provide retirement benefits for its police, firefighters, school employees and civil-service workers with more than $103.8 billion in assets under management as of March 31. On Sept. 28, its largest plan, the New York City Employees’ Retirement System, which covers more than 180,000 active and about 130,000 retired workers, reported a 14% return in fiscal year 2010, which ended June 30.
“Some years you make money, some years you don’t,” Mr. Bloomberg said. “It’s overstating it a little bit to say the only one who’s done that well is Bernie Madoff, but 8% for a long period of time is not something that very many pension funds have ever achieved.”