Tuesday, June 29, 2010

Capitolism Requires Capitol

The biggest reason that the world economy will not be recovering soon, and is headed into the depths of depression is that the socialist governments of the world (United States now included), are starving the world of capitol. Pretty much all of the world powers are running massive government deficits. To finance those deficits, they need to compete on the open market for capitol allocation. The are competing well, and starving the world of investment capitol. We need to stop talking about bogus GDP numbers and think about the concept of wealth creation. The government simply does not create any wealth, while private industry does. Starving private industry of capitol hinders wealth creation and leads directly to the hopeless economy we now see. It's been a long time coming.

When a private company borrows money to build a factory, they create jobs and real goods when the factory opens. You end up with a factory that has value and goods that have value to society when you are done. When the government borrows money to run a massive deficit, the money goes towards paying people to not work (unemployment insurance extensions), and paying bureaucrats to come up with new levels of red tape and to generally hinder private businesses. Also the high level of taxes required to support a bloated government, is a huge disincentive to even try to build a new factory. So when private industry raises capitol, wealth is created. When the government raises capitol, wealth is not created, but is likely destroyed.

The Keynesian economic theory that the governments need to deficit spend to increase aggregate demand at the time of recession is just a theory. There is zero evidence that this works in practice. All of the US recessions since the great depression were resolved through fiscal policy (low interest rates), and/or individual tax cuts. Stimulus spending was not required. Now after the great depression we did try to government stimulate our way out, but it did not work at all. The great depression dragged out for years until World War 2 ended it. If stimulus spending by the government works, why did in not work the ONLY time it has ever been tried???

There is also this huge problem with the government thinking it needs to be in charge of the economy. If the government has to run massive deficits now to increase aggregate demand, how good would the economy need to be before we could completely stop defect spending? How good would it need to be before we could take 1 trillion dollars of tax money and not spend it, but use it to pay down the debt instead. Is the economy ever strong enough to risk pulling that kind of money out of it? The facts are simple. The money borrowed today has to be paid back in the future with interest. The government wastes tons of money and does not create any real wealth. At some point that money (2x or so) needs to come back out of the economy, and that is going to hurt way More than stimulus now can help.

The only hope is for massive reductions in government spending to balance the budgets, and stop starving the world of the capitol required for wealth creation. The Europeans get this, but Obama does not. He looks like a village idiot when he goes on and on about how the recovery is fragile, and huge stimulus actions are still required. Is he the last person on earth that does not see that reckless government spending and deficits were the cause of this depression, and the solution is not to double down and spend more. The solution is to stop spending so that private industry can raise capitol to create jobs and wealth. Think about it this way Mr. president. Once all of the wealth is gone, how are you going to redistribute it? It's in your best interest to let private industry create some wealth, so you can steal that wealth from the hard workers and give to the lazy per your agenda.

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