Archive for September, 2012

“Unsustainable Patterns of Economic Activity”

Saturday, September 29th, 2012

Originally posted at the Coalition to Reduce Spending

(Note: I am a member of the Board of Directors of the Coalition to Reduce Spending)

Congressman Ron Paul, who is perhaps most well known for his career-long quests to rein in the Federal Reserve, published an interesting commentary this past week in his “Texas Straight Talk” series entitled “Interest Rates Are Prices.” Here at the Coalition to Reduce Spending, we’ve made it a point to touch upon the rarely discussed but centrally important concept of how artificially low interest rates encourage economically unsustainable behavior from not only the federal government, but private citizens as well. (For more on this, please read Coalition to Reduce Spending advisory board member Peter Schiff’s Washington Times piece, “The Real Fiscal Cliff“).

Touching further upon the important interest rates issue, Congressman Paul says:

Because the interest rate is the price of money, manipulation of interest rates has the same effect in the market for loanable funds as price controls have in markets for goods and services. Since demand for funds has increased, but the supply is not being increased, the only way to match the shortfall is to continue to create new credit. But this process cannot continue indefinitely. At some point the capital projects funded by the new credit are completed. Houses must be sold, mines must begin to produce ore, factories must begin to operate and produce consumer goods.

Congressman Paul makes an interesting analogy when he compares interest rates to price controls for goods and services. Certainly, one could see where this might be problematic in a long-term context.

As Paul states:

Because the coordination between savings and consumption was severed through the artificial lowering of the interest rate, both savers and borrowers have been signaled into unsustainable patterns of economic activity.

What does Congressman Paul mean by “unsustainable patterns of economic activity?” As he goes on to explain, resources that would have been put to use in more productive ways in a less manipulated system are allocated toward projects that are later found to be unprofitable, and thus, unsustainable. Paul posists that the only way for an economy to recover from this kind of manipulation is that the resources that have been invested in unproductive sectors need to be liquidated, instead of consistently propped up. And the latter has been standard practice for some time – only prolonging recessions, as Paul notes.

Additionally, as Paul explains:

Another effect of the injections of credit into the system is that prices rise. More money chasing the same amount of goods results in a rise in prices. Wall Street and the banking system gain the use of the new credit before prices rise. Main Street, however, sees the prices rise before they are able to take advantage of the newly-created credit. The purchasing power of the dollar is eroded and the standard of living of the American people drops.

Certainly, there has been a correlation between rising prices and increased credit injection into the system, and there’s no doubt that with a stagnant economy and the purchasing price of the dollar decreased, that the American people are adversely impacted. At the Coalition to Reduce Spending, we’re very concerned about the fact that so much money is being reallocated from productive sectors of the economy to serve the interests of well-connected central planners at the expense of honest taxpayers.

Current economic conditions demonstrate that the central planning in Washington, which has unfortunately been promoted in large part by both major parties, is not only not working – it’s harming everyday Americans. It’s time to reduce spending and manipulation in DC, and to put more resources back in the hands of the American people. After all, our national debt already divides up at $51,000 per citizen and $140,000 per taxpayer – and will increase exponentially if Americans do not demand a serious change of course in Washington immediately.

Polling Shows Americans Want to Reduce Military Spending

Saturday, September 22nd, 2012

Originally posted at the Coalition to Reduce Spending

(Note: I am a member of the Board of Directors of the Coalition to Reduce Spending)

In the October 2012 issue of Reason Magazine, pollster Scott Rasmussen has a comprehensive article that discusses the feelings of Americans on the issue of military spending. Based on the findings, he concludes that on a bipartisan basis, the political class is squarely against the people on this matter.

As Rasmussen says:

Republicans who demand cuts in every program except the military open themselves up to justifiable Democratic charges of hypocrisy. Exempting major budget categories from spending discipline is a key reason government almost never gets cut. The American people are ready to take a more mature approach. A 2011 poll conducted by my firm, Rasmussen Reports, found that 67 percent favor finding spending cuts in all government programs. Every budget item, Americans emphatically believe, needs to be on the table.

That 67% of Americans believe the entire federal budget should be open to cuts, yet the political class refuses to make commitments reflecting that, speaks to a growing disconnect between the government and the governed. Often in Washington, numerous special interest groups approach politicians looking for favors, yet the majority of actual taxpaying citizens either don’t realize it, or don’t speak up in high enough numbers to drown out the lobbyist noise. In the face of our $16 trillion dollar debt, however, it’s imperative that we work on a paradigm shift in that area, and finally force politicians to compromise in the right direction: they must put their sacred cows aside, and actually reduce spending.

As Rasmussen touches upon, it’s hard for Democrats and Republicans to come to a rational compromise on spending reduction when one party refuses to consider entitlement spending, and the other won’t touch military spending. Of course, there are exceptions on both sides of the fence, but by and large, this is the situation our nation faces as our elected officials push harder on the gas in our drive toward a major fiscal cliff.

That being said, it’s not as if military spending has in any way decreased, or even leveled out under a Democratic administration; even during the time when Democrats also controlled Congress. Sadly, this is similar to how entitlement spending was not meaningfully reformed or decreased when Republicans last possessed all three branches of government.

As Rasmussen explains:

(more…)