Monthly Archives: March 2014

Central Planning Always Fails in the End

Central Planning Always Fails in the End-Now it’s Yellen’s turn to learn.

Ms. Yellen is strong proponent of central planning. Shortcoming is not using practical rules. She prefers economic models and then likes names like “optimal control” or “communications policy.”  To Yellen, ‘optimal control” equates to abandoning current conditions and substituting a policy to keep rates lower longer. She believes that by communicating the Fed’s intentions individuals will “get the message,” making decisions on investments, spending, and borrowing based on promises of lower rates. That in turn will lead to increased demand, strong economic growth and higher employment. When that occurs the Fed can start to withdraw support so inflation doesn’t occur.

That’s her theory. How about reality? The Fed is trying to change consumer psychology. The trouble occurs if it succeeds. Once consumers change philosophy it’s very hard to get them to change back. Kind of like putting the tooth paste back into the tube. The Fed would like inflation at 3% or so. Changing psychology could mean inflation quickly jumps much more than that. The Fed believes they can control it. But like all central planning that rarely happens.

Politicians in a Bipolar World

The Problem with Politicians is their inability to say “no” to runaway spending and special interest groups. Today the problem is bigger than individual countries. In USA, entitlement spending is projected to grow at more than $8 trillion per year.

Corporate income tax from all US corporations is projected at $1.6 trillion.  Another $6.7 trillion is projected from adjusted gross income of all Americans making more than $66,000. Those are not enough to cover the increase in entitlement programs, much less other government spending.

I’m certainly no fan of Obama.  There is a good reason he doesn’t mention spending reform. That has to start with cutting benefits to seniors. Absolute political suicide.

There’s always a solution for every problem…even a government that is out of control.

Our current problems can be solved.  Commerce has always trumped politics. It just takes longer sometimes than others. Government is about coercion.

Business is about individual choices and freedom. The objective of the private sector is to bring people better goods and services at ever cheaper prices while lasting longer. 

Government is about taking from one group and giving to another…after taking a good chunk out for themselves. Government by definition is inefficient, and very frequently corrupt. Business inefficiency is rewarded by bankruptcy. Government inefficiency is always solved by taking more from citizens and printing more money…until it tips over. Then another group moves into government and starts the process over again.

Congress has 6% approval rating…and 91% re-election rate. No surprise they just kick the can down the road.

Nothing positive will change until voters kick them out of office or impose term limits. Until then don’t expect responsibility from elected officials…at any level. That means unpleasant disruptions to the investment and business world from time-to-time. Swings like  2008-09 are going to happen with increasing frequency.

That means more business disruptions. Understand and invest accordingly both personally and professionally. Push for term limits every chance you get. We each need to be more active politically if we hope to mitigate the damage done by politicians and governments.

Ideally we need to have federal balanced budget annually, just as states do. With no “off-budget” expenditures. Balanced budgets force politicians to be  more pragmatic. When you are with young people and others who support the government grab for power and wealth, point out how close it is to hitting them in the pocket book.

(Tell me your philosophy and I turn off and go to sleep. Tell me something that negatively affects my spending money and you get my interest. Perhaps reluctantly, but you will get it, especially if you just give facts without editorializing. Think about the way we all need to communicate with teenagers to get our point across. The velvet hammer works better than the sledge hammer or pile driver.)

Take a more active interest in politics. That’s not how most of us in business world want to spend our time. Politicians and those relying on the welfare society count on that. We each need to maintain frequent communication with our elected representatives.