Friday, July 31, 2009

Tea-bagging and Doing it Austrian Style

I promised to make this post concise and hold it up to my usual humorous style. I failed miserably on both counts. If you were hoping for my usual funny posts, here’s a funny picture to hold you over until tomorrow.



In his post “Are American’s stupid” Jamie Jefford accused anyone of not supporting the Teabaggers of not understanding economics. The Teabagging parties actually follow two thoughts of economics. One that the corporate organizers support, and one that their followers believe. It’s like how PETA gets models to get naked (something I’m in favor of) to protest the wearing of fur, but they have a crazy belief that having pets is like having slaves (it’s not).

What most of the followers believe they are supporting:

The Austrian School of Economics: This Economic thought (It cannot be called a theory as it has no mechanism for Falsifiability) holds that basically government should take a hands off approach to the economy and let market cycles go through wild booms and busts which would be more frequent, more intense and shorter.

Ignoring that the Austrian School is not a valid Economic theory, it has two major moral problems (In Economics a theory can be valid meaning it works but immoral meaning it leads to human suffering ie: Discrimination Economics and Slavery).

The sharper (although shorter) downturns inflict massive suffering to the people affected. Under this school of thought people seeking entry-level jobs are simply ignored and asked not to make too much of a fuss as they curl up on the street corner to die. Having the Government stand by and do nothing as a quarter of their citizens die of starvation is not morally acceptable or a reality as starving masses tend to revolt.

The other moral hazard the Austrian School faces is that nature arbores a vacuum. If the Government takes a completely hands off role in business, it leads to the rule of “Might makes Right” where the larger businesses stifle competition through violence against small businesses.

The Austrian School also has two inherent weaknesses, (besides not being a theory and all). First, having to deal with frequent downturns makes consumers and entrepreneurs jumpy. It stifles economic risk taking as people are less likely to gamble with their savings if it means a bad decision could mean death.

The hands off approach leads to wealth accumulating in the hands of the very few. If you are one of the lucky ones who has wealth under this system you will be reluctant to change anything. So innovation is stifled.

While proponents of the Austrian School claim that making the economic system more dynamic makes for more innovation, history has shown the opposite happens.

What the Corporate Organizers want:

Fascism, Corruption, Cronyism, Corporatism better known as Supply-Side economics. The idea is if money is given to the rich they will invest it and it will benefit everyone.

The problem with this approach is Corporations hold to the line, “Never innovate until your competition forces you too.”

By favoring large corporations over small businesses they have no incentive to innovate so they invest quickly run out of “Real” things to invest in and make false economic bubbles like the housing market in the 80s and the past 7 years.

Even the modified Supply-Side economic policies of the Clinton administration which tried to create real bubbles by favoring the more innovative companies, first the Personal Computer boom then the Internet boom, ran into the problem of companies have no incentive to invest in the underling science to fuel these booms. Without the science behind them there cannot be technological innovations.

They also want a regressive tax system, I’ve written about the problems of that here.

Some things I support the Tea-Baggers on.

With a grab bag of complaints the Tea-Baggers have there are bound to be something I agree with them on. Here are a few.

Bringing the word Tea-Bagging onto the airwaves. I crack up every time I hear a reporter say it.

TARP- They didn’t protest when Bush started it, but now that President Obama is handling it they are all against it. But no matter who is handling it, it is a shitty idea.

The idea was to save the banks so investors don’t lose more of their money. They could then lend out more money and get the credit system working again.

The problem was our credit system was lending out millions of dollars for every “real” dollar the banks had in reserve. I wrote about that here.

The amount of “real” money that would need to be used to offset the major banks losses of imaginary money simply doesn’t exist. The federal government would have been better off raising the FDIC (Federal Deposit Insurance Corporation)’s guarantee to a couple of million, protecting the depositors “real” money and letting the banks fail.

If they had done that “real” money would flow into the banks that were solvent and these small and mid-sized banks would take over for the larger ones. The stock market would have taken a bigger hit, but it had already been knocked down to half of its former value.

Things they are protesting that make no sense.

They seem to be protesting getting a tax-cut. 95% of people are poised to get a tax-cut under President Obama. This cut is aimed to make the tax system more progressive leading to shallower recessions as I explained here.

They seem to be complaining about Healthcare Reform, which has to be done one way or another. It can be done through an orderly transition, or we can do nothing and watch the costs spiral out of control until Healthcare goes through Demand Destruction killing millions and tanking the economy again. As I wrote here.

As far as the expanding Federal Deficit they seem to be protesting the cures for it. Investment in Education pays off with a roughly 10 to 1 increase in GDP. Investments in Science have a direct payoff 8 to 1 and continue to payoff for years in the future. Think of the Aerospace Industry that was spawned by Jet research in WWII, the Internet which was spawned by military investment in DARPAnet and the PC Industry which was spawned by NASA’s investment in Microchips for the Space Program.

President Obama has pledged $12 Billion towards education and promised to restore Investment in Science to 3% of GDP.

These are investments that will grow the GDP and the only way to cure the Deficit and start working on the national debt is to grow the GDP.

Without even getting into the crazier voices at the Tea-Bagging parties like the ones who shout out “Burn Books” I’ll stick by my claim that the Tea-baggers are stupid, for lack of a better term, for the total lack of Intellectual curiosity and the insistence to deny any and all facts that contradict their pre-conceived beliefs that they display.

1 comment:

Steve said...

I agree with much of your post, except the part about health care reform. The reason many Democrats are now shunning Obama's proposed reform is that it makes no sense. It will not only mortgage the future for the next generation, but will cause rationed care, as well as creating two levels of care, and cost this nation 250,000 health care-related jobs to boot!

In my industry, medical sales, we have already seen the loss of 20,000 medical device sales and pharmaceutical sales jobs in anticipation of socialized medicine.

You may participate in a discussion of how health care reform will evastate the medical sales industry at http://www.gorillamedicalsales.com/blog