Wreckonomic Dimulus - Coke Addict Economy to Get Boost

The $150 billion $165 billion "economic stimulus" package will pass, providing a little boost for the economy, a little snort of cocaine to keep the delusion of economic health going for a little longer before the inevitable crash. It won't work. It might help fight off sleep for a little while, but its main effect will be to make the hangover worse. No, this economy is not healthy. It has not been healthy for ten years, just high as a kite.

It boils down to poor notions of wealth. Our very concept of wealth has become warped; just as a drug addict feels fine as long as they are high, so do orthodox economists feel good about the economy so long as markets rise and GDP figures show "growth." The real question they should be asking, though, is, "Are we wealthier?"

What is wealth, anyway? Is it the rising portfolio? No, it's what the portfolio buys. The portfolio is just a way of keeping score. What does the portfolio buy? That's what wealth is. You don't really want the ten million bucks; you want other things that you suppose the ten million bucks will afford you:

1) Security
2) Freedom
3) Respect
4) Luxury
5) Ease
6) Entertainment
7) Quality
8) Power
9) Sex
10) Beauty

These and a million other things are what people want for their ten million bucks. The ten million bucks themselves are just numbers that say, "This person is entitled to all these things." There are healthier ways of getting these things, though. In the same way, cocaine (or any drug) is just an easy way for the user to feel good. There are other ways of feeling good, euphoric even, but who wants to climb a mountain and meditate on top of it when you can just sniff some powder? Who wants to go to all the trouble of actually being a rock star when you can just feel like a rock star?

Wealth is not money. Wealth is all the things in the above list and many more. Money can be a sign of wealth, but it is not wealth. Just ask anybody who lived through the Wiemar Republic or any Latin American dictatorship of the 1970s; a million-dollar bill wouldn't do you much good if you needed ten of them to get a glass of water.

Why shouldn't we expect our current government to act like a Latin American dictator of the 1970s? This is totally par for the course! Torture your enemies. Spy on your citizens. Print money to get yourself out of economic trouble. What's next? Round up and "disappear" whole classes of people?

We've already printed too much money. That's the whole problem. Consumer debt is way out of hand, especially now that many people are underwater on their mortgages. The federal government is the biggest buyer of its own mind-boggling debt. States and municipalities are squeezed to the hilt. We import way more than we export. The economy has been on a borrowing binge to end all binges! This coke freak needs to go to sleep, not take more coke. Christ, you'd think they were trying to send the economy into cardiac arrest with the wreckonomic dimulus package.

What we should have been doing is building wealth, not printing money. How is that done? Work. Yup, Adam Smith, then Marx got that one exactly right. You may know it as the Labor Theory of Value.

It works like this: You have some source of wealth, something people want or need. Let's say it's diamonds. Are they worth anything in the ground? They only gain value when mined, sorted, cut, and sold. Is a book worth anything if it stays in the author's head? No, it only has value when it's written down, shopped, published, promoted, and read.

With that in mind, let's consider how investing should work:

Somebody, let's just say me, has an idea. I don't have money to get it off the ground so I go to some people and ask them for money. If they like my idea and have faith in my ability to execute the work that will be necessary to get it off the ground, they give me some money in exchange for some share of ownership in the enterprise. My idea is a big winner, and all the people who had faith in me win big.

That's how it should work, but it doesn't work that way anymore. Now it's all idle speculation with very little work. More people throw their money at the market, so it goes up, but is it really worth any more? If anything, markets reward less work, which they regard as efficiency. When a company lays people off, its stock price often enjoys a nudge upward.

What, exactly, has this country been producing? We still make good movies sometimes, and we sure make a lot of them. We build houses, but not out of local materials and not with local labor in most cases. We still make a few cars, but they're useless without the gas we import. We make high-tech weapons out of high-tech chips that we buy from the Japanese and Chinese. We have made some nifty gizmos for health care providers. We still make some plastic stuff (out of oil that we import) like Styrofoam cups. We grow some food on soil that is mostly dead thanks to decades of industrial mono-cropping. There's definitely still work being done and wealth being produced.

The problem is that there has been a slow drain of actual wealth (defined as having the things one wants and needs), even if GDP figures and market indexes show growth. Americans are working longer hours and taking shorter vacations. For the bottom nine deciles, our disposable income has shrunk. We're paying more for increasingly diminished health care services. We're paying more for everything, in fact, yet our wages are not keeping up with this "growth." Home prices in many markets are out of reach of the median income family, and predictably, foreclosures are through the roof, as are bankruptcies. Most of us stand no chance of retiring at an early enough age to enjoy the fruits of a lifetime of work at a semi-dignified level.

Oh, but the GDP is growing. Productivity is up. The markets are up. Yeah, we're feelin' goooood! The Fed slashed rates again! A $600 check is on the way for every taxpayer!

It's exactly like an addict whose health has been deteriorating even as he/she kept upping the dosage to maintain that high.

This little $600 check won't do anybody any good because prices will just rise since no real wealth has been created, just money. That's just basic Econ 101 stuff -- increase the money supply, you get inflation. Once the $600 is spent, the new, higher prices won't go down. The hangover will be worse.

What we need to do is get to work -- real work. The government needs to smack Wall Street upside the head, and if the government won't do that, We the People need to smack the government upside the head. We need policies that encourage wealth, not just growth. Growth for its own sake is the definition of cancer.

Here are some ideas for policies that would create wealth:

1) Nationalized single-payer health care. Take that burden off employers and families. Reduce costs (long term) by taking care of treatable conditions early. Pay health care providers, not insurance company executives. Part of this program will be to train more physicians, nurses, and other health care providers. (Econ 101 again -- increase supply, lower prices.)
2) Boost infrastructure, focusing on renewable energy and mass transit. There are millions of jobs just waiting to be created by putting people to work laying rail and building solar panels. This would have the added benefit of reducing our dependence on foreign oil.
3) Punish the elimination of jobs. Force companies to pay high taxes for every worker they lay off or every job they export. Also penalize for employing people on a part-time, temporary, or low-pay basis. Yes, this will stunt hiring at some companies, but new companies will be forming to build and install the solar panels and run the trains.
4) Encourage real investment, not idle speculation. Create tax incentives to encourage investors to put up money to support new ventures.
5) Help the small farmer, not big agribusiness. Restore the health of the soil and the health of the people by encouraging the production of fresh, local food.
6) Raise interest rates to keep money valuable and encourage people to save. Freeze low rates on certain types of existing loans. Let stupid, greedy market players sink into the putrid morass of fraud that they've created. A healthy capitalist market punishes dumb decisions with losses; it does not reward dumb decisions by cheapening money. Most of us work hard for our money, and it's not fair to cut our pay in order to bail out the Wall Street wonder boys.
7) Drastically reduce military spending ($700 billion a year is profligate) and give the middle class a tax cut.
8) Drastically increase spending on education -- educated people produce more and cost less (in terms of their propensity to commit crimes, let their health deteriorate, etc.).
9) Find some other way of dealing with the enormous drug problem. We've tried draconian methods of enforcement and incarceration for almost 30 years now, wasting over a trillion dollars and getting few results.
10) Perform a massive audit of government contracts at all levels. People are getting too rich off plum government contracts and shoddy work, like Bechtel. Taxes should be as low as possible, but we're not going to get low taxes unless we keep a close eye on how our tax monies are spent and put the kibosh on the billions of dollars of fraud and gross inefficiency that occur every single year.

Those are just a few ideas. Some of them are half-baked, to be sure, and I'm sure I missed more than a few good ones. Anyway, the main points are 1) that kicking the cheap money and debt habits will not be easy, but it is necessary and 2) that building real wealth is not as simple as printing money.