The Country Thinker

Bub­bles and bombs, bub­bles and bombs…

Week­end Thoughts

Rush Lim­baugh likes to brag that he has been “sci­en­tif­i­cally proven to be right 99.6% of the time,” although I think he recently upgraded him­self to 99.7%. This is easy, of course, if you cherry-​​pick the prior state­ments that are sub­jected to scrutiny. (I really need to find an online alter­na­tive, but for now he’s the only talk radio I can get via the air­waves from noon-​​3PM.)

Any­how, I make no such claims, and indeed, have gen­er­ally given up on the pre­dic­tion busi­ness alto­gether, instead choos­ing to place odds on var­i­ous sce­nar­ios. In my defense, I still think a Mitch Daniels v. Hillary Clin­ton matchup would have been bet­ter for both of the Big Two par­ties, which seem to be beg­ging for a third party rise; see e.g., Gary John­son and the Lib­er­tar­ian Party.

That said, the news over the last week or so has sup­ported some of the larger macro-​​level con­tentions I’ve made over the last few years. On the one hand it’s trou­bling, because none bode well for many ordi­nary peo­ple over the short term. On the other hand, hope springs eter­nal and maybe—just maybe—the lessons of fail­ure can be etched into peo­ples’ mem­o­ries so we avoid them in the future.

I am far from the only one who saw these var­i­ous crashes com­ing, so I make no claims of orig­i­nal­ity. But they’re com­ing so fast and furi­ous that I felt it would be ben­e­fi­cial to point them out because they all flow from the same fun­da­men­tal lib­er­tar­ian (e.g., uni­ver­sal) truths such as the supe­ri­or­ity of man and econ­omy over the state. (Please do not inter­pret “supe­rior” to mean “perfect.”)

With­out fur­ther ado.

So-​​called “safety nets” inevitably become spi­der webs that ensnare indi­vid­u­als and destroy nations. Front page news from yesterday’s Wall Street Jour­nal: Europe’s Banker Talks Tough: Draghi Says Continent’s Social Model Is ‘Gone,’ Won’t Back­track on Aus­ter­ity. Greeks fore­see entire lost gen­er­a­tions as they try to recover from their prof­li­gate ways. Page A8 of yesterday’s WSJ shows protests in the streets of Spain resist­ing cuts. Unfor­tu­nately, the cuts will come, either vol­un­tar­ily, or invol­un­tar­ily when your gov­ern­ment runs out of other peo­ples’ money.

The U.S., of course, is headed down the same path, hell-​​bent on mak­ing “failed poli­cies of the past” the cen­ter­piece of our eco­nomic and social agenda. Obama and his pre­de­ces­sor both dou­bled down on the enti­tle­ment state, and Obama is promis­ing more in his sec­ond term. Repub­li­can front-​​runner Mitt Rom­ney is promis­ing to “fix holes” in the safety net if he sees any, mean­ing the enti­tle­ment state—which needs seri­ous paring—will either grow or stay more-​​or-​​less the same if he’s the boss. Nei­ther man “gets it,” and I see no evi­dence San­to­rum does either.

Repub­l­i­crats are Repub­l­i­crats are Repub­l­i­crats… A while back I cited an arti­cle by Matt Welch in which he attended a meet­ing of the “bipar­ti­san” think tank the Aspen Insti­tute. He noted how there was vir­tu­ally no dif­fer­ence between the Repub­li­cans and Democ­rats in atten­dance. I pre­dicted at the time that Mitt Rom­ney would sur­round him­self with Bush-​​era advi­sors (or their pro­teges), who are indis­tin­guish­able from top advi­sors to Demo­c­ra­tic leaders.

Lo and behold: Rom­ney Tops Bush Hands to Shape Eco­nomic Poli­cies. If you seri­ously think there’s a sub­stan­tive dif­fer­ence between Key­ne­sians in the form of Glenn Hub­bard and Greg Mankiw and Obama’s for­mer advi­sors such as Larry Sum­mers of Christina Romer, then you can split some might fine hairs. And San­to­rum, as near as I can tell from his indus­trial pol­icy pro­pos­als, falls some­where between Rom­ney and Obama, assum­ing there is enough day­light there to squeeze some­body.

I can­not reit­er­ate enough that the prob­lems we are fac­ing here and abroad emanate from the same basic flawed macro­eco­nomic views. The dif­fer­ences are of degree, not sub­stance. Choos­ing between Romney/​Santorum and Obama might change the tra­jec­tory, but it will not change the direc­tion.

China going “Pop!” I’m not a close China-​​watcher, and I rarely write about the ris­ing giant that some have cast as the “ideal for the future of the world.” For quite a while I sort of took for granted all of the won­drous sto­ries about the emerg­ing eco­nomic pow­er­house. But a few China crit­ics got me to shake the cob­webs out of my head and apply my lib­er­tar­ian eco­nomic know-​​how to the situation.

While I give them credit for open­ing mar­kets some, what do you get when you add top-​​down cen­tral plan­ning, polit­i­cal dis­tri­b­u­tion of cap­i­tal, excess liq­uid­ity, and cur­rency manip­u­la­tion to “boost exports?” You get a great big bub­ble des­tined to end badly! That has been my con­clu­sion about China’s future for a while now.

Front page news from Thursday’s Wall Street Jour­nal: New Push for Reform in China: Influ­en­tial Report to Warn of Eco­nomic Cri­sis Unless State-​​Run Firms Are Scaled Back. Add to that a known seri­ous hous­ing bub­ble in China, and lo and behold, the ris­ing giant has been doing it with smoke and mir­rors. Let’s hope for everyone’s sake it doesn’t lead to a rise in nation­al­ism.

Green energy = brown eco­nom­ics and even worse “stim­u­lus.” Obvi­ously I’m far from the only critic of so-​​called “green” energy, but I was prob­a­bly one of the first to use the term “green energy bub­ble.” It’s now becom­ing obvi­ous to just about every­one out­side of Wash­ing­ton what a lead blan­ket green energy is to an econ­omy. Last week über-​​green Ger­many announced mas­sive cuts to its solar energy sub­si­dies, as well as plans for mas­sive reduc­tions in solar instal­la­tions! Finally, klep­to­crats who get it!

Mean­while, our cur­rent planner-​​in-​​chief keeps drum­ming up the need to keep up with coun­tries like Ger­many and China when it comes to solar tech­nol­ogy, even though Germany’s solar sec­tor is crash­ing, and China’s largely state-​​run solar indus­try is set to implode! (See sec­tion above.)

Now, to mix two ill-​​advised eco­nomic policies—“green” indus­trial pol­icy and eco­nomic “stimulus”—to the extent that any of our much-​​maligned Rein­vest­ment Act was actu­ally directed toward the pro­duc­tion of goods and ser­vices, there have been a mul­ti­tude of case stud­ies in the harm­ful fall­outs from such make-​​work programs.

Keep in mind that this is merely illus­tra­tive, but it is very sad.

The Wall Street Jour­nal reports here that Alfredo Gar­cia owned a restau­rant in Texas. As a wind farm was built nearby with $108 mil­lion in stim­u­lus funds (and mil­lions in sub­si­dies will be needed to keep it oper­a­tional, I might add), Gar­cia increased the size of his restau­rant by 50% in antic­i­pa­tion of a rush of new busi­ness. When the wind farm opened for busi­ness it employed (drum­roll please!) … 3 workers!

Garcia’s restau­rant (pre­sum­ably expanded with the help of loans) sub­se­quently filed for bank­ruptcy and was closed by the judge last year, leav­ing 18 peo­ple with­out a job.

Wel­come to joys of green energy stimulus!

But hey! I can hear the Key­ne­sians plea. The whole thing was just fine from an eco­nomic stand­point. The con­struc­tion work­ers got pay­checks while expand­ing the restau­rant, and the mul­ti­plier effect, and, um, (gobbledy-​​gobbledy-​​gook).

And as long as we keep believ­ing this non­sense and elect­ing lead­ers who do as well, I will keep mak­ing these sorts of pre­dic­tions and watch­ing them come true. Amer­ica and the rest of the world needs a par­a­digm shift, not a tweak or a nudge. Any­thing less and my great­est fear will come true; his gen­er­a­tion will be remem­bered as the “Dump­ster Generation.”

(If you want some spe­cific pre­dic­tions for 2012, see here. Trestin did pretty well last year-​​unfortunately.)