War on Drugs

There is a third war that diverts public funds with little positive results--the War on Drugs. We have spent billions for many years destroying poppy fields and giving aid to the armies and police of countries suppling heroin. What have we accomplished? It simply makes the drug lords richer by driving up prices. And, it corrupts the police and other public officials. Ordinary citizens are caught in the cross fire of feuding drug lords. You would have thought that we would have learned something from our experience with liquor prohibition. It did not work and we eventually repealed the law.
If we legalized heroin and supplied it in regulated clinics, we would destroy the huge profits that fund guns for the drug lords and the Taliban in Afghanistan. If we used a portion of the money trying to help addicts instead of search and destroy we would have more for out money.

Recession and Wars

It saddens me to see public schools closing and teachers laid off. Many people seems fatalistic about it. "It's the recession, you know." But, it doesn't have to be. Let's look at options within public spending. In February, we spent $6.7 billion in Afghanistan and $5.5 billion in Iraq. That would pay for a lot of teachers.

All across our land, state, local governments and school districts are laying off employees and shortening their work week. How can we educate our children for the modern world by reducing spending on education?
This is nonsense. We do not have to do this. The Federal government should be spending more financed by borrowing interest-free from the Federal Reserve as I have outline in previous posts.

Japan Fiscal policy

Japan has a very aggressive approach to turning around the recession.

The record budget, worth $1 trillion, for the fiscal year starting in April will pay for Prime Minister Yukio Hatoyama’s ambitious stimulus agenda, including cash handouts to households with young children, free tuition at public high schools and income support for farmers.

Mr. Hatoyama, who heads the Democratic Party, is looking to bolster both Japan’s deflation-stoked economy.

“Creating a virtuous circle in which a growth strategy spurs employment and demand will help combat deflation,” Mr. Hatoyama said.

Hatoyama understands how the economy works. In contrast, we are closing schools and laying off teachers.

Jobs Bill

A Kentucky Senator held up the extension of unemployment benefits for hundreds of thousands of the unemployed. Why? He said he was worried about the public debt. He wants to reduce spending elsewhere. This makes no sense. When you have unemployed resources there is no real cost to public spending. No opportunity cost forgone. What is needed is an increase in spending, not substituting one expenditure for another.
When consumer demand is inadequate to use all resources, it is not the time to reduce some people's income. The barrier to full employment is the outmoded way we finance public spending with borrowing incurring interest payment obligations. Money is created when banks make loans, if commercial banks do not want to do because they are pessimistic about the economy, the government's own bank, the Federal Reserve, could loan the treasury enough to get nearer full employment. (For more, see some of my earlier posts.)
Sen. Bunning finally relented and voted for the bill, but he and no other politician is looking for a new means of finance.

Consumer Culture

We have created a culture where many Americans don’t think they have to live within their means. So, if they “need” something,” they buy it on credit. More new stuff is acquired even if they must rent a storage space for the old stuff. If people lose their jobs, they try to maintain their old level of consumption. In times past, people in a financial jam would have gone to parents and family, and the parents would tell them “You don’t need that if you are using my money.” But, with a credit, debit, or pay-day loan, they don’t have to face anyone saying no.
There are twice as many pay-day loan offices than there are Starbucks, and people may pay over 400% interest for a two week loan. Overdraft protection on a debit card is not called a loan but euphemistically termed a “courtesy” by the banks as they collect enormous fees. Some people will take money, if available, no matter their chance of repayment. And financial organizations take advantage of this. As one wag put it, there are two words Americans love to see—“Free” and “All you can eat.”

Dark Times

Dark Times

(apologies to Ted Roethke)

In a dark time
the mind begins to search,
It asks
what is a variable,
what is chosen
that no longer works.

People want the President
to solve unemployment,
but they don’t want taxes
and fear bigger debt.

Asset values have dropped
and loans have gone bad.
Do taxpayers have to pay to save the banks?

Is there a variable in there somewhere?
Or must we pay for our sins of greed?

The bank loans created money
from thin air.
Can the process work in reverse?
Release these debts into ether space
and start over.

A.A.S.
27 January 2010