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Obama says Congress needs to pass his “stimulus” package immediately. Nancy Pelosi says we lose “500 million jobs a month” until we pass it. [the population of the U.S. is 310 million]

The Democrats’ message, translated into plain English, is “Stop looking at our ‘stimulus’ bill. Just pass it.”

Since they have the votes, it’ll pass. Since all the votes but two are Democrats, that party will own the bill.

They have said the world would come to an end if it did not pass quickly. Now it has, and the implication of the world-coming-to-and-end rhetoric is that we will be in economic paradise the day after it passes.

More likely, nothing will happen at all. Next month will bring more layoffs. It will become more and more apparent to those who voted the Democrats this power that no one in Washington knows what they are doing or cares about those outside of Washington. The parts of this plan that actually might relate to stimulating the economy are just a guess, but most of the bill assures Democrats of bigger government which is what that party is really all about.

An international trade war has broken out. A front-page story on the 2/6/09 Wall Street Journal was titled “Nations rush to establish new barriers to trade.” There is talk about closing that barn door, but the horses already appear to be gone. And the bad-mouthing of NAFTA by Hillary and Obama in the Ohio primary were a contributing factor, as were the “Buy American” provisions in the “stimulus” package.

An international trade war means we will have a depression. That’s not a macroeconomic prediction. Just a simple two-step action reaction. Trade wars reduce trade—by two-thirds in the 1930s. If you reduce trade by two-thirds, and the current trade war should do that or worse, you create a worldwide depression—one that building a frisbee golf course in Podunk (one of the pork items in the “stimulus”) won’t lay a glove on.

The February, 2009 “stimulus” plan will do nothing but add another $800 billion of debt to our problems.

Payoff to supporters

There are many reasons why they don’t want us to look at it. Mainly, it’s not a stimulus bill. It’s a financial payoff to the various left-wing groups that supported Obama: global warming true believers, unions, environmental extremists, pro-abortionists, corporation haters, and the rest of the usual suspects in the Democrat coalition. Instead of earmarks, which are well, earmarked for a specific project, the “stimulus” package is blank-check pork or wild card earmarks. The Democrats appear to see the recession as a chance to raid the piggy banks of the elementary school kids of today and tomorrow and dump on them the enormous debt that is being created for such projects as improvement of trails in the woods, contraceptives, free health care for affluent children, and so on.

Obama’s chief of staff, the reptilian Rahm Emanuel said,

A crisis is a terrible thing to waste.

That tells you all you need to know about the Obama White House’s perspective on the current economic problems: they are an opportunity to get all the leftist Christmas wish list items for the last 30 years bum’s rushed through hidden in a monster bill disguised as a recession cure.

‘I won’

Obama famously responded to an effort by a Republican to persuade Obama to change one of his legislative positions by saying

I won. I trump you on that.

Trump this. You won the election. You get to live in the White House, period. The November election results do not mean you get your way in everything. They may not mean you get your way on anything. You still have to win the voters over to your side bill by bill. There are no more mandates any more, especially when you get elected on vague promises like hope and unspecified change.

100%

All money for the “stimulus” package and all other government spending like national defense and social security payments, comes from the same source: business profits.

Business profits provide:

• jobs
• employee salaries and wages, a portion of which goes to the government as taxes
• business taxes to the government

ALL tax revenue starts out as business profits. The greater business profits are, the better the economy does and the more money the government has to spend on its activities.

The public thinks government jobs are equivalent to private enterprise jobs. No. Government jobs all require private businesses to fund them. No private business profits, no government.

Business and parasites

The American public can be divided into two groups:

• private business
• parasites on private businesses, namely government

Parasites in the natural world, like leeches and tape worms, are smart enough not to suck so much blood that they kill the host animal. Government is not that smart. For evidence, look at the Soviet Union, Cuba, North Korea, and China and India before they switched to capitalism.

If the federal government wants to spend on a “stimulus” package or anything else, it must get the money by taxing private business either now, or in the case of deficit spending, later.

Democrats loves jobs, but they hate employers.
Democrats love housing, but they hate home builders, also called developers.
Democrats love tax revenue, but they hate business profits.
Democrats love leadership, but they hate managers.
Democrats love freedom, but they hate deregulation.

Democrats are congenitally incapable of creating a proper stimulus package because they desperately hate that which needs to be stimulated: profit-making businesses.

Jack Kemp says,

If you want more of something, subsidize it.
If you want less of something, tax it.

In America we tax growth, investment, employment, savings, and productivity and we subsidize non-working, consumption, welfare, and debt. The Democrat “stimulus” bill is more of that. It also subsidizes environmentalist nuttiness like global warming, having sex with strangers (free abortions and STD money), union wages, uncompetitive U.S. corporations, poorly-run banks, getting sick, not paying your debts, failing, and walking around in the woods, the latter being an activity which one would have thought did not need to be subsidized.

Only if they get credit for them

The Democrats are in favor of more jobs, but only if they get credit for them, like government jobs and government construction projects. They can name the structures created after themselves and put bronze plaques with their names on them where the public will see them as they use the building. When private enterprise hires someone or builds a building, no politician gets credit for it.

The Democrats are in favor of more tax revenue, but they hate corporations and business profits so much that they mindlessly discourage businesses from increasing profits, which would mean they would have to pay more taxes. The best example came in a late Democrat debate where George Stephanopoulos and Charles Gibson repeatedly explained to Obama that his plan to raise capital gains tax rates would reduce the amount of revenue coming to the government. We know this because capital gains rates has been raised and lowered in the past. When you raise the rates, people sell before the date of the raise then hold on to the assets in question until a new administration lowers the rates again. And when rates are lowered, many owners of stocks and real estate sell them to take advantage of the new, lower tax rates. When Kennedy (Democrat) and Reagan (Republican) lowered tax rates, Democrat politicians howled at the “unfairness” of rich people paying the same tax rates as the non-rich, but the government got more revenue from the taxes in question as a result.

Obama finally claimed that his reason for raising capital gain tax rates, in spite of the fact that it would lower government capital gains tax revenues, was “fairness.”

There is no such thing as fairness. It is merely a politician’s code word for favoritism to his supporters. What Barack was saying is that he and his supporters hate business and rich people so much they will even raise tax rates on them in a “cut off our noses to spite our faces” manner. Democrats would rather hurt Democrat-enacted government programs by reducing government revenues than let rich people pay lower tax rates even though those same lower rates mean the rich people actually pay more total taxes.

To Democrats, punishing the rich for being rich is a higher priority than improving the economy. The two goals are mutually exclusive which means Democrats will not be improving the economy.

Optimum rate for maximizing tax revenue

There is an optimum tax rate if your goal is to maximize government revenue. If you set the tax rate too low, like 1%, you hardly get any revenue. But the same thing is true if you set it too high, like 99%, because people will quit working or doing whatever it is you are taxing at 99%. Somewhere in between 1% and 99% is the Goldilocks rate, the just right rate that produces the maximum tax revenue.

If Democrats were not more consumed by their hatred of business than their stated goal of good government, they would recognize that no one should ever raise the tax rate above the rate that produces the maximum government revenue. Republicans may want to charge a lower rate than the one that maximizes government revenue because they are not the party of maximizing government revenue. But both parties should easily be able to agree never to go above the rate that maximizes revenue. They cannot because the Democrat voters are too dumb or too consumed with business or rich people hatred to understand this.

This is explained by the famous Laffer Curve. Most people think the Laffer Curve was a Reagan Administration thing. It was. It is also a forever thing that applied to government revenues since taxes were invented and always will. Famed liberal economist John Maynard Keynes identified it before Laffer.

The lesson from lotteries

The Laffer Curve is easy to see in another form of taxation called state lotteries. State lotteries siphon off a certain amount of lottery ticket money to spend on government stuff. The rest of the ticket revenue goes for administration, marketing, and paying winnings to players.

From time to time, stupid politicians try to pass laws that increase the state’s take, which, in turn, decreases the amount of winnings paid out to players. Invariably, many former players stop playing and the higher percentage government take results in lower government revenues because the percentage of people playing goes down farther than the government share percentage goes up. The politicians are then forced to lower the rate back to the one that optimizes the government take. By the way, the optimum winners payout percentage in state lotteries appears to be 60%. That is how much of gross ticket sales Washington State, for example, pays back to its winners.

The basic principle is that incentives matter. When government gets too greedy and lowers incentives too much, people stop doing whatever it is government is overtaxing. Overly high tax rates also encourage extreme legal efforts to find loopholes and increase the amount of illegal efforts, that is cheating.

If Democrats were competent and well-intentioned, they would realize that the only way to fix the economic mess is to encourage businesses to operate as efficiently as possible, to expand, and to innovate. All economic growth comes from businesses innovating better ways to do things and new products and new markets.

How would they do that? Well, it ain’t the Democrats “stimulus” package. It is closer to the opposite of the Democrats “stimulus” package. You would :

• lower all tax rates at least down to the ones that optimize government revenue, even lower rates might maximize U.S. prosperity which is arguably a better goal than maximizing government revenue
• eliminate all unnecessary regulations
• encourage foreign businesses to locate in the U.S.
• abolish all tariffs and other restrictions on imports to the U.S. and encourage other countries to do the same, which make Americans dollars go farther and gives us more to spend on U.S.-grown products and services
• encourage a brain drain of talented citizens of other countries to immigrate to the U.S. by our offering more opportunity than the more socialist Old World—the story of America—and the basis for our two centuries of prosperity
• mimic the economies that have grown the most in recent years, namely China and India, by becoming less socialist, not more as the Democrats are trying to do
• let poorly-run companies like the Big Three U.S. auto companies go bankrupt—it’s like going on a needed diet
• end the exemptions in antitrust laws that say unions are allowed to violate those laws

In 1953, the CEO of General Motors Charles Wilson said to a Senate Committee:

...what was good for the country was good for General Motors and vice versa.

That is not true. General Motors is a poorly run company that has made overly generous concessions to its unions over the years. But the following similar statement by another early 20th century figure is correct.

President Calvin Coolidge once said that,

The business of America is business.

That is not currently politically correct, especially among Democrats, but it’s true. Every American, including government employees and welfare recipients, is ultimately living off of business profits. Socialist idiots ought to finally figure that out and do everything they can to maximize the profits of honest businesses.

Do nothing

Will Democrats do any of the things I listed above? Absolutely not. Their hatred of business transcends all other motivations. So how about a Plan B?

OK. Do nothing at all. An op-ed in the Wall Street Journal by an economist was titled “Don’t just do something, stand there.”

Business is cyclical. It always has been. Some years business revenues go up. Other times it goes down. Now is the latter.

It used to be that the public accepted and understood this. When I was a kid in the 1950s, my mom would often urge me to save for a “rainy day.” The current economy is a “rainy day.” Obama wants to borrow trillions that your children and grandchildren will have to pay back to end “rainy days.” It’s a fraud. We will always have “rainy days.” And your children and grandchildren will always have the mountain of debt that Obama laid on them in his efforts to make it look like he was fixing the economy.

Hundreds of mainstream economists oppose Obama ‘stimulus’

The 2/9/09 Wall Street Journal had a full-page ad paid for by the Cato Institute. It quotes Obama saying,

There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy.

Then it has its own headline:

‘With all due respect, Mr. President, that is not true’

How many times do you see a battalion of Ph.Ds unequivocally call the President of the United States a liar?

Then there is one paragraph that recounts the failed efforts to use government spending by Hoover and Roosevelt in the Great Depression and by the Japanese government in their 1990s depression. It further states that,

To improve the economy, policymakers should focus on reforms that remove impediments to work, savings, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

It appears to be signed by about 250 economists, almost all associated with U.S. universities. For example, here are those whose names start with U through Z:

Kamal Upadhyaha, U. of New Haven; Charles Upton, Kent State U.; T. Norman Van Cott, Ball State U.; Richard Vedder, Ohio U.; Richard Wagner, George Mason U.; Douglas M. Walker, College of Charleston; Douglas O. Walker, Regent U.; Marc Weidenmeier, Claremont McKenna College; Christopher Westley, Jacksonville State U.; Robert Whaples, Wake Forest U.; Lawrence White, U. of Missouri at St. Louis; Walter Williams, George Mason U.; Doug Willis, U. of Washington at Tacoma; Dennis Wilson, Western KY U.; Gary Wolfram, Hillsdale College; Huizhong Zhou, Western MI U.

Obama is supposedly smart. If he is, then he is a lying son of a bitch who selling the country down the river to pander to the most ignorant voters.

The alternative explanation is that he is dumb, hasn’t done his homework, and won’t admit it when he has made a trillion-dollar mistake. I thought that was supposed o be a description of George W. Bush? (Actually, it is.) But Obama said he would bring “Change we could believe in.” That brings us back to the same conclusion the economists reached. Barack Obama is a liar who will sell us all down the river to win the votes of the ignorant.

Credit and blame

Then politicians discovered that they could get elected by taking credit for the top of the business cycle and by blaming the other guy for the bottom of the business cycle. It’s well known that the party in power in a down part of the cycle loses the election. The truth is politicians and government are irrelevant to the economy although they do have the power to mess it up with rent control, price controls, gasoline rationing, tariffs, and so forth.

Nowadays, incumbent politicians flail frantically using their powers to prevent or end downturns or to at least bullshit the public into thinking they are doing everything that can be done to fix them. An incumbent who “did nothing” would be pilloried by his opponent. But the truth is doing nothing is the best course of action.

Worst except for all the others

The free market is the worst economic system except for all the others. That applies not only to generally producing prosperity over the long term, but also to recovering from recessions. We will get out of the current recession fastest if the government does nothing. According to the book New Deal or Raw Deal by Burton W. Folsom, Jr., recessions before the Great Depression lasted three to five years. The Great Depression lasted until World War II—about 12 years. Why? Because the government, both Hoover’s Republican administration and FDR’s, flailed incompetently and thereby turned a short recession into a long depression.

They triggered an international trade war which dropped international trade by 66%. There is no way to deal with an international trade war other than to end it. Trade wars increase prices—because you have to buy everything from your own country rather than from the cheapest source—and trade wars decrease jobs because of layoffs in export industries and in domestic industries because of the drop in international business.

They tried to control prices—always disastrously stupid and destructive. They paid farmers not to plant crops—an idiotic practice that never ended after the Depression ended. They built unneeded expensive buildings like the football stadium at my high school. (I did not attend that high school until 1962, but the WPA plaque seeking votes for FDR was still there.) They hired unemployed guys like my uncle Frank to work for the Civilian Conservation Corps. A bunch of make-work nonsense with guys living in tents and wearing military style uniforms. I never got to meet my Uncle Frank. A CCC truck backed up over him and killed him in Sitka, AK. That can happen in private business, but I’ll bet it happened more often in the CCC just like it happens more in the military, another SNAFU government organization.

How does the free market fix recessions? Debts that are too big get reduced by paying them down, renegotiation, or bankruptcy. Inventories that are too big are worked off by slowing or shutting down production. Leases for space no longer needed are abandoned when they end, bought out if they have not yet ended, or cancelled through bankruptcy. Employees not needed because of the drop in sales are laid off. Companies that took too much risk fail. Those that took prudent levels of risk survive. This is fundamentally healthy and necessary, like weeding a neglected garden. Like losing weight, recovering from recessions is painful. But also like losing weight, you are better off for having done it.

John Stossel, who is listed as an unappreciated national treasure on my Web page listing such people, wrote an excellent article about the wisdom of doing nothing called “This is no time to panic” in the February 2, 2009 Weekly Standard.

I appreciate informed, well-thought-out constructive criticism and suggestions. If there are any errors or omissions in my facts or logic, please tell me about them. If you are correct, I will fix the item in question. If you wish, I will give you credit. Where appropriate, I will apologize for the error. To date, I have been surprised at how few such corrections I have had to make.