Monthly Archives: August 2012

The Wages Of Socialism

One of the arguments for socialism and progressivism is that expanding government direction of the economy will lead to increased compensation for the working class. However, as the San Francisco Chronicle reports, Barack Obama’s experiment in socialism has led to an across the board loss of income:

American incomes declined more in the three-year expansion that started in June 2009 than during the longest recession since the Great Depression, according an analysis of U.S. Census Bureau data by Sentier Research LLC.

Median household income fell 4.8 percent on an inflation- adjusted basis since the recession ended in June 2009, more than the 2.6 percent drop during the 18-month contraction, the research firm’s Gordon Green and John Coder wrote in a report today. Household income is 7.2 percent below the December 2007 level, the former Census Bureau economic statisticians wrote.

“Almost every group is worse off than it was three years ago, and some groups had very large declines in income,” Green, who previously directed work on the Census Bureau’s income and poverty statistics program, said in a phone interview today. “We’re in an unprecedented period of economic stagnation.”

Not stagnation, which suggests treading water, but rather an unprecedented national decline.

Government Motors Slides Towards Bankruptcy

After plowing well over $60 billion in borrowed money into nationalizing General Motors and Chrysler, it appears that General Motors is failing under government management. In a recent Forbes article, Louis Woodhill started sounding the alarm:

> In order for “T. Boone” Obama to break even in his investment of our money, General Motors shares should be trading at $53 per share. Since the government sold part of its stake in GM at a substantial loss for $33 per share in 2010, the share price has fallen to just above $20.

> General Motors share of the United States auto market has fallen from 20% to 18% under Obama administration stewardship. The “Government Motors” flagship vehicle – the Chevy Volt – made no economic sense and was a complete market failure.

> Obama’s hand picked CEO for General Motors was one Dan Akerson, whose background was in finance and who did not have a single day experience in the auto industry. Ackerson has spent most of his time at GM firing and hiring executives and lecturing the workforce on the need for integrity.

The Obama nationalization of General Motors and Chrysler was an almost identical replay of the British Labour government nationalization of British Leyland in 1975. Like General Motors. British Leyland failed under government direction and conservative Prime Minister Margaret Thatcher ended up disbanding British Leyland to stop its drain on the treasury. Is a similar fate awaiting “Government Motors?”

Rationing Socialism

GOP presidential candidate Mitt Romney’s campaign spent much of this week attempting to distance the candidate from his signature achievement as governor of Massachusetts – Romneycare. It is no wonder. In my book Never Allow A Crisis To Go To Waste, I detail how America under Obamacare will quickly begin to resemble Massachusetts under Romneycare – soaring health care costs and health insurance premiums to pay for it, with a government defunding its other functions to pay for soaring numbers of Medicaid dependents.

In an attempt to fix the market consequences of the Romneycare mandates, Massachusetts has enacted another law seeking to impose a cap on the amount of health care medical providers can provide Massachusetts citizens. In a word – rationing:

It will establish a commission to monitor the growth in spending and require that health care providers or insurers explain themselves if their costs rise above the target growth rate. If there is no valid reason, the commission can demand that an organization submit a plan to bring its spending back in line. As a last resort, the commission can impose a $500,000 fine if it finds that the organization failed to make a good-faith effort. Many analysts expect the state will have to become increasingly aggressive in demanding cost cutting by providers and insurers if savings do not materialize.

All socialist health insurance systems inevitably end up rationing health care to contain the costs of state mandates. Massachusetts arrived at that point less than a decade into its Romneycare experiment. Unless Obamacare is repealed, the rest of America will join Massachusetts in short order.

Payback Socialism

In my book Never Allow A Crisis To Go To Waste, I detail the human cost of Barack Obama’s nationalization of General Motors and Chrysler – from seizing auto company assets from secured creditor police and teacher retirement funds to destroying dozens of profitable dealerships and unemploying tens of thousands of their workers. The purpose of these two acts was impose President Obama’s mandate of “shared sacrifice” on stakeholders of which the socialist administration disapproved.

There was more.

The shadowy Obama Auto Team led by United Steel Worker union hostile takeover artist Ron Bloom directed the nationalizations of GM and Chrysler. During this process, the Auto Team bought billions of dollars in assets from the automakers’ secured creditors for pennies on the dollar and then gave them away to the United Auto Workers union to support their retired members. At the same time, 20,000 non-union retirees of the Delphi auto parts manufacturing company nearly lost their entire pensions.

Bloom and former Treasury official Matthew Feldman testified under oath to Congress that the Pension Benefit Guarantee Corporation (PBGC) (an independent government sponsored entity meant to insure pensions) and not the Obama administration terminated the Delphi pensions.

This testimony appears to be perjured.

The Daily Caller has obtained emails suggesting that the Secretary of the Treasury Timothy Geithner and his department led the administration effort terminate the Delphi pensions specifically because these retirees were non-union. Contrary to the testimony of Bloom and Feldman, Treasury shut the PBGC out of the Delphi pension decision and later demanded that PBGC “rubber stamp” the Treasury plan.

Go to the Daily Caller link and read the full story.

Socialism is an inherently corrupt system where the government redistributes wealth from those who earned it to those the government bureaucracy prefers. During its nationalization of Chrysler and GM, the Obama administration took the assets of various stakeholders and billions in tax payer money to reward its UAW allies. The Delphi retirees were on the wrong side of that equation for committing the sin of not belonging to a politically connected union.

Borrow, Spend and Stagnate

Progressive and socialist economists across the world are at a complete loss. Nothing in their world view appears to be working.

Progressives and socialists religiously subscribe to the theory that, for every $1.00 the government borrows and spends, the economy will grow over $1.50 and business will employ millions of workers. Before they took power in January 2009, the Obama economic team made just such a prediction in a white paper promoting the president-elect’s trillion dollar “stimulus” plan as a great investment in America’s economy.

Of course, this idea is ridiculous on its face. If government spending creates 50% growth in GDP, then communist nations spending nearly all of their wealth would have grown at 50% annually and left “poor” nations like the United States on the ash heap of history. Instead, the economy of every communist nation eventually imploded and the ideology went nearly extinct.

The 2008-2009 recession provided progressive and socialist governments with another chance to justify their article of faith that government spending leads to economic growth. Led by the Obama administration and the European Union, government went on the largest peacetime borrow and spend spree in human history to drive economic recovery. Yet, the OECD nations who borrowed and spent the most money, experienced the sharpest downturns during the 2008-2009 recession. Not only did government spending fail to increase economic growth above a normal business cycle recovery, borrow and spend depressed economic activity:

If you pause to think about it, the reason for the failure of socialist and progressive government borrowing and spending is obvious. Government does not create wealth. Government can only take wealth from those who create it through taxing or borrowing and then spend the money on things the political class values, but the citizenry generally does not.

Under the Obama “stimulus” plan, the U.S. government removed investment capital that normally went towards business and employment growth and instead spent it on things like expensive wind power no one would buy voluntarily. The result was the first recession since the Great Depression without a normal business cycle recovery.

This gives new meaning to the phrase “tilting at windmills.”

New York Post.

A good analogy for the faith in borrow and spend is taking a bucket of water from the deep end of a pool, spilling water from the bucket walking around the pool, dumping what is left of the water into the shallow end of the pool and then expecting the level of the pool to rise.

Faith should be reserved for God and has no place in economics. It is time for borrow and spend to join communism on history’s ash heap of really bad ideas.

The Lost Administration

The Obama administration is fond of telling its critics that recovery from the Great Recession is slow because recoveries from all financial crises are slow and that American voters should be grateful the recession is not worse. The United States is hardly the only country to endure a financial crisis, though. Since 1970, Japan, Finland and Sweden have all managed to recover from financial crises – all of them faster than the United States over the past three years.

Of these countries, Japan and the United States employed a Keynesian borrow and spend strategy to improve over the standard business cycle recovery – and both failed, trailing the Finish and Swedish recoveries substantially. Even after paving over the country with public works projects, Japan suffered through a stagnant economy known as the “Lost Decade.”

Barack Obama’s “recovery” is underperforming even Japan’s Lost Decade. Indeed, the U.S. economy has nearly flatlined for three years without anything approaching recovery-level growth. Something must be crippling American business beyond the stultifying effects of removing $1.3 trillion of investment capital each year to finance the government’s Keynesian borrow and spend spree.

There is indeed.

As I detail in my book Never Allow A Crisis To Go To Waste, Barack Obama’s socialist administration has hogtied business in red tape, doubling the rate of new regulation in an attempt to direct the economy to redistribute wealth. The result has been a Lost Administration without economic growth, jobs or hope.


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