Thoughts on the role of government and life

Jeffrey Tucker wrote an excellent article on the End of the US Piano Industry.  I took piano lessons as a child, and still play occasionally today, but I had no idea that the U.S. piano industry was as big as it was from 1870 until the start of the (first) Great Depression in 1930.

Today our biggest investment, after our house, is our car.  Back then, after our house, the biggest single investment was a piano.  Everyone wanted one, both as a status symbol and as a means of entertainment (before TV, the internet, and iPods).  Eventually demand dropped, and piano production moved overseas.

Mr. Tucker makes the point that a once vibrant industry declined, but the world did not end.  What would have happened if FDR had done what Obama is doing today and nationalized the piano industry (like Obama is doing with the banking and automotive industry)?  Presumably the industry would have limped along for a few more years, at a huge cost to taxpayers, before eventually collapsing due to lack of demand.

It’s sad to lose an industry, but it’s even sadder to spend billions in taxpayer money to try to prop up a dying industry.  Obviously the automotive industry creates millions of jobs in North America, but if we decided to buy cheaper and better cars overseas, so be it.  Strong auto makers will survive in North America; the  rest won’t.  It’s sad, but that’s how it works, and all the government meddling in the world cannot change reality.

I said on Inauguration Day that I was hopeful President Obama will represent a fresh start for America.  I also offered the opinion that there is ultimately very little any government can do to create wealth.

Dick Morris, a former President Clinton official, is very pessimistic about Obama’s legacy.  That may be nothing more than sour grapes that his candidate didn’t get the Democratic nomination, but his thoughts are worth repeating.  You can read his Obama thoughts here.

Personally, I hope Obama moves to the center, and abandons some of his damaging interventionist ideas.  Time will tell what actually happens.

As I sit here watching the coverage of the Inauguration of President Obama, I am struck by two things. Before I tell you those two things, let me remind you that I am a Canadian, living in Canada. I did not vote for or against Barack Obama, and I have no vested interest in the proceedings.

I am struck first by the euphoria surrounding the Inauguration. Millions of Americans have done everything in their power to travel to the heart of Washington to “be a part of history.” I don’t fully understand why someone would want to brave the crowds and the cold and the security to witness a 20 minute speech, when you can get a much better view watching at home.

I don’t fully understand it, because I am a white Canadian living in Canada. I suspect if I was black, living in the United States, and if I had witnessed racism first hand, I would probably have a very different view. I was born in Toronto, a city that today has more “non-whites” than whites. My best friend growing up was Jewish. I had many friends who were black, Chinese, East Indian. I even had one or two American friends. Obviously there is racism everywhere, but growing up in my middle class neighbourhood on the outskirts of Toronto, I never experienced serious racism first hand.

My father, also a Canadian, went to university in Indiana in the late 1950s. I remember him telling me the story of a fellow college student, who happened to be black, asking my father where he got his haircut. My father gave him the name of a local barber, and my father’s friend came back to tell him that the barber refused to cut his hair, due to the colour of his skin. My father immediately passed the word around campus, and none of my father’s friends ever got a haircut from that barber again. So I understand that racism exists; I’ve just never experienced it directed at me.

I also understand that as late as 1970 there were many college football teams in the U.S. that had no black players. That’s astounding.

I guess if I couldn’t get a haircut, or couldn’t play football, or if I was ostracized or mis-treated because of my skin colour, I too would be rejoicing today. Being black no longer means you can’t be President.

And that’s a very good development.

And that is why there is such euphoria in the States today.

Today there is euphoria, but what will there be tomorrow? Will President Obama actually be able to do anything? Can he solve the economic crisis? Can he eliminate the massive burden of debt we are carrying? Can he fix the horrendous structural problems now facing the U.S.?

Personally, I don’t think so. I don’t believe the government can actually solve any problem. The government can raise or lower taxes, and they can spend my money, but that does not change reality.

Obama’s only chance for success is if he can convince the American people to fix this mess themselves. If he can convince people to live within their means, to pay down debt, and to not expect the government to take care of them, he will be America’s most successful President. He will succeed if he can convince Americans to take care of themselves.

I’m pessimistic on that front, because government officials tend to want to us government power to fix things. Why go into government if you want to lessen the role of government?

One final thought: President Obama owes a huge debt of gratitude to George W. Bush. President Bush greatly expanded the role of government. He has dramatically curtailed individual freedoms. Thanks to George W. we now think it’s normal to have to take our shoes off before boarding an airplane, stupid as that is. We are used to government intrusion in every aspect of our lives.

If President Obama wants to use the full power of government to enforce his agenda, the American people will not resist, and for that he can thank George W. Bush.

As a Canadian, I have taken a somewhat perverse pleasure in making fun of Americans for having to decide between McCain and Obama in the 2008 Presidential election. I am on the view that either way America will see higher government spending and more government influence in 2009. President Obama will give the U.S. a psychological boost, and I honestly hope that his ascension to the throne will begin to heal the racial divide that exists in America. Unfortunately, economically, I don’t see how he can save the U.S. from the almost certain depression that will hit in 2009.

Unfortunately, as a Canadian, my commentaries on such topics as Why This is a Sad Day for America have now come back to bite me. We Canadian certainly look like fools this week.

The Harper Conservative government won an increased number of seats in our federal election in October, but they are 12 seats short of a Parliamentary majority. Mr. Harper, stupidly, decided he would govern as though he has a majority, and so with no warning to anyone he proposed cutting funding for all federal political parties. (Under the current Canadian system each political party receives funding based on the number of votes they received in the last election). The Conservatives have Obama-like skill in fundraising, so they don’t need the federal money. The opposition parties are not as good at fundraising, so losing the federal money really hurts them.

I support reducing government spending, and I support not giving my tax dollars to fund political parties. However, Mr. Harper should have had the guts to make his case before the Canadian public during the election campaign. If he had, than no-one could criticize him for implementing the change now. Unfortunately for him, he said nothing about it during the campaign, and now appears to be nothing more than a common thug, kicking his opponents while they are down.

The three opposition parties (one of which is the Quebec separtist party, whose main objective is to separate from Canada), have banded together and formed a coalition. They hope to defeat the government, and install Stephane Dion as Prime Minister, even though Mr. Dion got beaten so badly in the election that he announced he will resign as leader of the party in May, when a leadership convention will be held.

Mr. Harper convinced the Governor General to prorogue Parliament, meaning the vote to defeat the government won’t happen until after January 26 when Parliament resumes sitting. This will give Mr. Harper time to make his case to the Canadian public, and, he hopes, give time for the coalition to collapse.

Yes, we Canadians look like a bunch of fools, as we wait for Mr. Dion, a disgraced, retiring leader, to become Prime Minister, supported by the separatists.

Wouldn’t it be nice if, instead of looking out for themselves, the politicians actually acted in the best interests of the people?

After the election Mr. Harper should have convened a meeting of all opposition parties and said something like this:

Ladies and gentlemen, none of us achieved a majority. The world wide economy is in a mess. We need a plan to save the country, and so us fighting amongst ourselves won’t do it. Here’s what I want to do: I want to spend on infrastructure, lower taxes, or whatever. I realize that as opposition parties you will have somewhat different priorities. Tell me one or two things you want to accomplish for the good of the country, and we will agree on a common set of priorities for the next year. At the end of the year, we will see where we are at, and if we haven’t accomplished anything, we can go back to the electorate. What do you say? Are you with me?

Instead, he took the low road:

Ha ha, I won and you didn’t. Now I’m going to cut your funding so I can crush you in the next election! Ha ha!

Very Primeministerial, Mr. Harper. You have made all Canadians proud. The unemployment rate is rising. Our automotive industry is collapsing. Our resource base is collapsing. Personal bankruptcies are rising. And your solution is to shut down Parliament for almost two months.

Great. We are all very proud.

Should the North American automotive industry be "bailed out" by the government? The answer is simple: No.

The pro-bailout faction, who call it a "rescue" instead of a "bailout" to make it sound more appealing to the populace, keep quoting the job numbers. Millions of jobs will be lost, they say, if the Big Three are allowed to fail. That may be true, but it’s still a bad idea. Let me count the reasons:

1 Bankruptcy destroys a corporation, but it doesn’t destroy physical assets. If General Motors declares bankruptcy tomorrow, all of the General Motors machinery and factories will continue to exist. All the suppliers stamping plants will still exist. Physical assets are not lost; they simply change ownership. New owners will buy the assets, for cents on the dollar, and re-deploy those assets by starting new companies. And given how poorly the existing owners have used those assets, wiping them out is a good idea.  

2 Speaking of the Big Three, management has done a horrible job. Instead of focusing on cost cutting and quality, they have spent the last decade focusing on building big SUVs and big trucks. It’s Honda that has perfected the Honda Civic (now the number one seller in Canada, and high on the list in the United States), and it’s Toyota that invented the Prius, the most popular ultra low mileage car that is currently mass produced in the world. Giving money to the Big Three simply rewards them for these past mistakes, and guarantees us more of the same.

3 We all know how governments work. If they give money to the Big Three, they will want control. They will place limits on executive compensation (which given past history for those clowns isn’t an entirely bad idea), but they will also tell them how to run the company. They will mandate that a certain number of cars must be "green"; they will tell them were to maintain plants and build new ones (presumably where their voters are). In a free market, companies should be free to make their own decisions, good or bad. If they make bad decisions, they fail. If governments make bad decisions, we the taxpayers have to pay for their mistakes, and that’s a bad idea.

4 A government bailout doesn’t solve the problem. Restructuring is necessary, but if the government pays for the sins of the past, restructuring won’t happen.

5 A bailout would be a band aid solution. Whether Detroit gets $25 billion or $50 billion, if their cost structure remains out of whack, they will continue to lose money. If they keep building vehicles that no one wants to buy, they will keep losing money. And when it’s taxpayer’s money, I object.

Bailing out the banks was bad enough. The auto makers would be worse. And then whomever comes next (credit card companies? computer makers? Shoe shine boys?) will drag us down even further.

There comes a time in life when we must all pay for our mistakes. If you drink too much wine on Saturday night, you will have a hangover on Sunday morning. If you spend more than you make, you may be faced with personal bankruptcy. And if a car company makes very expensive lousy cars, the ultimate solution is bankruptcy, so let’s do it, get it over with, allow new owners with new management and a new vision to take over the assets, and get started on building a new, vibrant, efficient North American automotive industry.

Today is election day in the United States, and it appears that Barack Obama will be the next president of the United States. As I said in my last post, Good luck, America, I don’t think it matters who wins the election, because either way America will end up with bigger government, higher taxes, and therefore less personal freedom.

The central problem, I believe, is that Americans actually believe the government can do something. They believe governments can actually create wealth and make things better. For the most part, that’s not true.

The only real power that government have is the ability to take money from one person (through taxation) and give it to someone else (through spending). That’s it. That’s all government can do. Unfortunately, when government does that, it messes up the economy, and makes things worse for everybody. Here’s why:

Someone wants to get elected, so they promise to make things better for the voters. Perhaps they promise to give everybody $1,000 to buy a new, energy efficient, environmentally friendly, solar powered lawn mower. Everyone thinks it’s a great idea. It will help the environment, and create jobs.
Sure enough, when everyone gets their $1,000 lawn mower cheque from the government, demand for solar powered lawn mowers goes up. Lawn mower companies hire more staff, which creates jobs. Banks lend more to lawn mower companies, because it’s a great business. Everybody is happy. Companies continue to expand. Life is great. The boom times are here.
But then, at some point, the demand for solar powered lawn mowers starts decreasing. Lawn mower sales decline. Employees are laid off. Banks have trouble collecting loans. Unemployment rises. The economy goes into a recession. The people are not happy. They call for more help from the government.
In order to get re-elected, the politicians realize that the simplest answer is to spend more money. So they create another new program. Perhaps this time it’s tax credits for wind powered snowblowers. The cycle repeats. Demand increases, jobs are created, demand peaks, jobs are lost, and more government intervention is needed to pump the economy back up.

Over and over it goes. Boom and bust. It’s as simple as that. Government intervention causes booms and busts. If it wasn’t for the government meddling in the economy, there would be no recessions.

Yes, you read that correctly. Prices would rise and fall in a free market based on supply and demand, but recessions only exist because the government caused them.

I fear that until people realize that the government is not the solution to all of their problems, this cycle will continue.
Here’s a video of an American who appears to honestly be live that Barack Obama as President will "pay for my gas and my mortgage."

I hate to be the bearer of bad news, but Mr. Obama does not have any money of his own. The government does not have any money of their own. All they have is the money they have either borrowed or raised through taxation.

If the government gives you money to pay for "gas" and your "mortgage", they have to take that money from someone else. It’s that simple. Taxes mean they took the money from someone else today; borrowing means they are taking it from a future generation.

Now please, don’t misunderstand me. I’m not saying we shouldn’t help people less fortunate than ourselves. We should. If your family member or neigbour can’t afford to buy gas, by all means help them out. Give them some money, or even better help them find a job so they can support themselves. I also have no objection to giving money to charities to help people either. Charities are run, for the most part, by volunteers, so their cost to provide a service is much lower than the overhead cost when government gets involved.

It would be great if…..

It would be great if a politician stood up and said "I can’t take care of you. Only you can take care of you. So starting today I am going to gradually wind down this massive, unproductive government we have built. I won’t do it all at once, but I will do it. At the same time I will drastically reduce your taxes, so you will have more money to support yourself and your family. The government will still control law enforcement, and the military to protect our country from outside aggressors, but for the most part the government will no longer control your lives."

Yes, that would be great, but it won’t happen. There are estimates that more than half of the population receives more from the government in subsidies than they pay in taxes, so it is highly unlikely that there will be any will to change.

And that’s sad.

It would appear that Barack Obama will be the next president of the United States, and if the voting irregularities can be kept to a minimum that may even be confirmed this week (although my gut tells me this could drag on for a while). I am a Canadian, so I don’t have a vote this Tuesday, and if I did I would be tempted not to vote at all.

Americans are faced in this election with the same choice we Canadians were faced with in October: a bunch of people running for office that I would never hire to run my own company. In Canadian we had a wacky professor, a wacky socialist, and a "conservative" who has spent more than any socialist before him. (The "conservative" won). At least in Canada we are still running surpluses, although that will probably end this year.

In the U.S. you get to choose between a 72 year old former soldier, who actually thinks it’s in America’s best interests to be fighting wars in foreign countries, and a lawyer who believes in redistributing the wealth. The lawyer is very good with a teleprompter, and he will probably win.

Regardless, taxes will increase in America to pay for universal health care, more bailouts, and more redistribution. I have no idea whether or not it’s true, but many commentators estimate that 50% of the American public receives direct financial support from the government. In other words, half the people work to support the other half. I don’t see how a society can survive long term under those conditions.

Good luck, America. I don’t envy your choice.

As I sit and listen to the rhetoric coming out of Washington these days, I ask myself: “John, where did it all start?”

How did the once great nation of the United States of America, the land of freedom, opportunity, hard work, and reliance on self, become a nation where the only solution to our problems is a government bailout? A nation where everyone, Democrat and Republican, believes the government must save us from our problems?

The answer, of course, is that the direct dependence on government can be traced to March 4, 1933 in the Inaugural Address or Franklin D. Roosevelt. That speech started the trend in motion that resulted in the government bailouts of 2008, and is not done yet.

In my not-so-humble opinion, that speech was the start of today’s problems. FDR decided that the public could not solve it’s problems without government intervention. The government had no choice but to redistribute the wealth of the rich to the common man to create jobs.

Yes, that’s right, a President of the United States actually believed that a government could create jobs, which is of course ridiculous. Wealth is created by inventing something, designing, producing, marketing, and selling. Wealth is created by hard work, not by government order.

He believed that economic problems can be solved:

…in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our natural resources.

In other words, it was up to the government, not the free market, to decide how resources should be used. Scary stuff. He also believed that government intervention could reduce:

the tragedy of the growing loss through foreclosure of our small homes and our farms.

Yes, people were over extended back then as well, and tragically were losing their homes. As we now know, the “New Deal” merely served to prolong the Great Depression, which did not end until the start of WWII.

He did say some good things, including:

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.

I agree. Unfortunately, he had other tragic ideas.

Here are some other things he believed:

Our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of a sound national economy. I favor as a practical policy the putting of first things first. I shall spare no effort to restore world trade by international economic readjustment, but the emergency at home cannot wait on that accomplishment.

In other words, yes, perhaps we have borrowed money from foreigners, but when push comes to shove, we will default and depreciate our currency, and put up trade barriers if needed. Yup, that’s a great long term strategy.

The scariest part, though, was FDR’s belief that “broad executive powers” outside of the Constitution were necessary to deal with the crisis:

Our Constitution is so simple and practical that it is possible always to meet extraordinary needs by changes in emphasis and arrangement without loss of essential form. ….

I am prepared under my constitutional duty to recommend the measures that a stricken nation in the midst of a stricken world may require. These measures, or such other measures as the Congress may build out of its experience and wisdom, I shall seek, within my constitutional authority, to bring to speedy adoption.

But in the event that the Congress shall fail to take one of these two courses, and in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me. I shall ask the Congress for the one remaining instrument to meet the crisis—broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.

Scary stuff indeed. Sort of sounds like George Bush justifying the war in Iraq, and the spying, and the lack of Congressional oversight, doesn’t it? Now you know where he got the idea, and why I believe this speech was the start of many of today’s problems.

Lest you think that I have taken these quotes out of context, I have added a page to this site with FDR’s Fear Itself speech so that you can read the entire speech and judge for yourself.

Pat Buchanan wrote a great article today; his basic premise is that the party is over. For the last few decades we have lived beyond our means. We have financed everything with debt. We don’t save a dime anymore.

The left argues that this is a failure of conservative capitalism, that we need more government involvement in our lives. That’s ridiculous. Does anyone really believe that our problems were caused by Wall Street being cautious and prudent?

Living Beyond Our Means

No, our problems are caused by living beyond our means, and by believing that government can save us. Here’s Mr. Buchanan’s conclusion:

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.

What the Greatest Generation handed down to us — the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved — the baby boomers, oblivious and self-indulgent to the end, have frittered away.

Sad, but true; you can read the full article here.