Wednesday, October 29, 2008

Pay As You Go Thinking

Barack's infomercial was well produced. Unfortunately, the message didn't move me.

I really disliked Obama's plan to repeat Jimmy Carter's folly of trying to make the government the primary investor in alternative energy. The spike in fuel prices was sufficient to spur the investment our economy needs.

Obama's claim to nationalize the alternative energy sector is likely to decrease the overall investment in altnerative industry.

The free market is the best avenue for developing alternative energy.

Think about it. The goal of alternative energy is to maximize the returns on the investment of resources. This is what the free market does. Unfortunately, plans to make the Federal government the primary investor in the sector will result in a false economy where business compete on gaining political influence rather than competing on the efficient use of energy. Companies with viable plans will wane, while those with political ties will dominate. When the government manna dries up, the country will be in a worse energy position than before the plan.

This is exactly what happened in the Carter era.

Nationalizing the alternative energy sector was just a minor part of the infomercial.

The main thrust of the infomercial was to highlight individuals who are being crunched by the economy and gave hope that the President could solve their personal problems. This is the part that ripped at my heart as I hate to see the little guy crunched.

The infomercial highlighted the fate of a retiree who lost the bulk of his pension when his former employer bellied up.

Clearly, it should be illegal for a company to go broke or for an investment to lose value. It makes me angry that an employer went broke without government approval. But I am not sure how a president sitting in an oval office is going to arrange it so all investments go up at an equal rate.

There was a really touching picture of a women driving through neighborhoods filled with nice looking houses who was feeling all harried. Of course, there were the stories of people with illnesses that led to outrageous medical expenses ... there is also a legion of people who are underserved by employer based health care.

With just a pinch of audacity, there is hope that a president with a highly skilled production staff that tells such stories in heart-filled ways must have the ability to solve our individual problems.

Unfortunately, I am a jaded person. I fail to see how a person 3000 miles away is going to solve any of my problems.

It seems to me that our problems lay with the sad fact that most of us are trying to live our lives on a pay-as-you-go plan instead of a save-and-play plan. I want a leader who leads us back to a day where people saved their money and built equity in their community.

This problem isn't limited to government.

Employeee based insurance is a private effort to fund health care on a pay-as-you-go scheme. The structure gives us comfort in economic booms. In times of economic uncertainty, we find the system suffering a dip in our ability to pay.

I've written a number of gripes about mortgage lending. Mortgage brokers and real estate agents try to coax people to buying based on the monthy payment rather than matching the size of one's house to one's needs.

The great fault in our economy is that we are all taught to see our income as something that is fixed, when, in truth, it is something that is fluid and that we must be prepared for hard times. With this present mindset, Americans systematically build up a big load of fixed expenses on the belief they have a fixed income that will increase at a rate higher than inflation. Even worse, many people borrow on the assumption that they have a fixed income that will steadily increase.

It is the failure to realize that the economy is fluid that leads us to ruin.

BTW, the same mindset affects business. The system calcifies American businesses with fixed costs. The business seems stable in times of economic growth. But, even a small puff of economic uncertainty can topple a business made brittle by fixed expenses.

Rather than accepting the obvious truth that the economy is fluid, we fall for the ploys of insurance agents and hedge fund managers that say we can shelter ourselves from risk with complex financial instruments like government backed reinsurance or by wrapping our entire financial system in credit default swaps.

Both private and government efforts to create a regulated market are doomed to failure. Prices will always fluctuate in relation to eachother. The path to prosperity is to give up both the private and government efforts to create a regulated market, and to encourage a mindset where individual people own and build real equity ... and have the expectation that prices fluctuate.

I was not happy with Obama's infomercial as the presentation had the government being the primary source of investment, while Americans at large would be continue the destructive path of living pay-as-you-go lives in a nation marching on the road to serfdom.


Anonymous said...

You are paying way too much attention to what politicians are saying. Look at the person. Look at their motives. Given the “real world”, politicians do silly dances in order to get elected, then once elected, as Bush so beautifully demonstrated, they run rough shod”, as they show us what they were really thinking. Barry is really just an extremely bright eloquent guy with altruistic motives, who has made it to this point in spite of being black. This simple event has given me more pride in being an American than anything that has happened in my lifetime.

Kevin's favorite instrument is clearly the “free market”, but in order to make decent music, you need more than one instrument. You also need instruments like socialism (healthcare), you some liberty (gun ownership), you even need a little communism (prisons). You then need a maestro, who can compose something that resembles music. Given the current lineup, Obama best fits the bill. You my friend are a one trick pony. Like a child, you beat your “free market drum”, and experience despair, expecting a symphony.

y-intercept said...

There is no free market or no real freedom for that matter when one group, in this case the government, has a lock on all the things that really matter ... education, and retirement.

As for the analogy of a directed concert band ... that analogy has been used since antiquity to support tyranny. You can't let the little people be heard because they make discordant noise. Those black people or those red people should be silenced because they have a primal beat. It doesn't fit with our angelic harmony.

BTW, when you go to a concert these days, you find 98% of the people passively watching the show and only 2% of the people involved in the creation.

The free market system offers more opportunities for creation.