Monday, March 9, 2009

Capital Problems

So we have bailouts for banks. We give millions upon billions of dollars to Auto manufacturers. And we tell people now that we're going to help take care of their mortgages. All of these things save jobs. Save investments. They keep American people in their homes. But at what cost? Trillions of dollars in 'bailouts' and 'stimulus' bills spending money to float short term government loans to businesses whose practices got them to this particular spot in the first place.

Ladies and Gentlemen. What Barack Obama is trying to do is put a band aid on the hull tear of the Titanic and call it 'progress'. Do not be deceived! I'll tell you something. We elect these 'well educated' politicians. People who studied political science, law, and other disciplines that graduate from Ivy League universities run our country. Yet, any high school Government and Economics student can tell you how these people are failing our country.

Let us, ladies and gentlemen, revisit a few basic theories of economics through history. We won't be going too far back in time, I promise. Just before the founding of America.

In the late Middle Ages and into the Rennaisance, there was the great standard of economic theory. Mercantilism. That is, that basically a state's economic clout and power was tied directly to raw resources and valuable capital. Gold Bullion, Timber, Beef, Aerable Farmland, Silver, Iron, and other such sources and means of production were the key. Why? Because in that day and age, Mercantilism held that there was only a finite amount of wealth in the world. Therefore? If England wanted to be a bigger more powerful nation than say... France or Spain or Portugal in the 16th century (which it did), then the race was on to claim territory in the New World: The Americas. The thought process was that whomever could carve out the biggest chunk of the new colonial territories would be able to wage war in Europe far more effectively, as America had vast tracts of unclaimed, unused natural resources.

Fast Forward...

1760's England. 40 years really before the rest of Europe and the world catches on to the Industrial Revolution, it's starting here in England. Entrepeneurs open small factories of weavers in the university town of Oxford, followed by Birmingham and other 'industry' towns. These are not landed nobles of the Mercantilist theory. Nor are they the working poor. These are the middle class. The class of people who, during the Middle Ages, represented towns as the burgesses. In the Holy Roman Empire? Burghers and Burghermeisters. In France we come to a term many are familiar with, the Bourgeoisie. All of which mean the exact same thing: A freeman of a borough (in England) or burgh (Scotland) who was selected to represent the small village/town (borough or burgh in the modern UK) in Parliament after 1215. Now of course the English people don't want just any idiot representing their town to the King, so they select educated people. These were days well before public education, so the only way to be educated was to be a nobleman (who were never burgesses), or to be independently wealthy. The only independently wealthy people in the Middle Ages were the merchant class, which evolved into these Entrepeneurs of the Industrial Revolution. Fronting cash to create factories and hire workers, they knew that money was to be MADE, not merely discovered and hoarded as Mercantilist philosophy seemed to suggest. Capitalism revolved around, instead of the State's relationship to property and the means of production, but the personal relationship between property and means of production! No longer was it the state's duty, according to Locke, North, Hume, and the great Scottish economist, Adam Smith, to gather up resources and use them as the state saw fit. Now it was the state's job to take their hands off and let people do the production! After all, the theory goes that when people are producing their own goods and can earn the profits and see their work come to fruition, they're proud of it, and being proud, consistently perform better and better. The state's job, is to protect the rights of personal private property through legislation and military action if necessary.

When our forefathers wrote the Constitution in the late 1780's, it was a document created specifically for this purpose. After all, Mercantilism had been the catalyst of the Revolutionary War in United States history!

Whoa whoa whoa! Economics? The almighty dollar? (or in those days, the British Pound Sterling). What about Truth? Justice? The American Way? (Well first off that's Superman, and second off, YES! Economics!).

The cause of the Revolution was one of ideals and political integrity. "No Taxation without Representation!" was the rallying cry of the rebels, meaning that the American colonies shouldn't be taxed without having equal representation in Parliament. (A totally separate argument exists as to whether or not the Parliament DID represent them or not that I will not digress into here). In Europe, Frederick II of Prussia, also known as Frederick the Great, along with his British Allies, are at war with France, Austria and their Allies. The war rages on from 1756 to 1763 in what we know as the Seven Years War. Now, a small digression into military tactics. An Army marches on its stomach right? Right. The Economic stomach of any military at the time was her colonies, providing raw resources, giving over vast amounts of wealth to the mother country. For France? This was the huge dominion of Canada. For Britain? The 13 Colonies of Maine, Massachusetts, New York, New Hampshire, Connecticut, Rhode Island, Delaware, Maryland, Virginia, Pennsylvania, North Carolina, South Carolina, and Georgia. (Interesting factoid for those of you who don't remember grammar school social studies. Your 13 red and white stripes on the American flag represent these 13 original Colonies!) For Spain? Florida, Mexico, much of Modern Day South America, the Carribean basin, and a large portion of the modern Western United States. Portugal? That means Brazil and a number of islands overseas. So if you want to hit the army's stomach. You hit those colonies. Those colonies far far away from the crown and the central government of Britain, Spain, France, Portugal, etc. Consequently, the French and Indian War breaks out between the 13 Colonies and France as an extension of this Seven Years War in Europe.

1763 rolls around (See? And you thought I wouldn't get back to the 1760's! Oh ye of little faith!). Britain is hurting, so is France, as are Spain and Portugal. Wars hurt in this Mercantilist society. So what does a government facing a money shortage do to rectify it? Raise taxes. For the people of England this isn't a big deal. They've been paying taxes for quite some time now and have their local Parliamentary representative fairly close at hand where they can talk to him. 3000 miles away however? America has different problems. They have no direct representatives, yet they're now paying tax after tax after tax to help pay for the expense of British troops defending British interests from French aggression which was started because Great Britain joined the Seven Years War. Britain jumped into it and tries to pass at least part of the bill off to the colonies. The colonies are indignant about it, and la dee dah dee dah we have the American Revolution. July 4th 1776 with the Declaration of Independence, later on the Battle of Yorktown on October 19th, 1781 which ends it all and ta da! Here we are! America! Land of the free and home of the brave! A land where Adam Smith's book, The Wealth of Nations carries considerable weight. The entire Constitution guarantees the right to freedom of property over and over and over again. Everything from protecting people from Illegal Search and Seizure, Freedom of the Press, Protection from Quartering of Troops, and other Amendments, uphold this idea of Capitalism.

Now again we fast forward this time to Germany in 1848. Karl Marx writes his Communist Manifesto, believing that the truly best way to handle the government involvement in economics is the creation of a government led economic monopoly where the means of production (Land, Labor, and Capital) are controlled exclusively by the government.

Now we have a crisis. Bad loaning practices, horrible decisions with production of vehicles and labor disputes, as well as bad investments have brought banks, insurance companies, and manufacturers to bankruptcy or reorganization. Now what is the state doing with these bailout stimulus bills? We're taking over, via a communist ideal, one of the means of Production. Publicly traded companies like GM, Chrysler, AIG, and others that get stimulus money are beholden to the shareholders. If the United States Government becomes the majority shareholder, then it is the United States Government that these companies answer to for the majority. Undermining the very spirit of the Constitution, these new financial 'boosts' are going to strangle America's industry.

So what's the alternative? Thousands upon thousands of layoffs? Businesses closing left right and center? Unemployment on the scale of the Great Depression? Yup. Pretty much.

But if you've ever read any shred of Capitalist economic theory? The same economic theory which has run this country successfully for over 200 years while theories like Communism and Socialism have faltered and utterly failed in under a quarter of that time period, proscribes that Capitalism is based on competition. If GM, Chrysler, AIG, and other companies go out of business, it creates a vacuum. It is a vacuum which can only be filled with 1 thing: Competition. Competition drives innovation and ingenuity in the respective manufacturing fields. In order to maintain a positive growth of a market share, a given company has to be competitively priced and create a good product. As Henry Ford once said: "There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible." What has happened, Ladies and Gentlemen, is that prices have gone up while wages have increased, and in order to maintain profit margins, the qualities of various produced goods have gone down. When competitors enter the marketplace, they hire workers from business that have closed their doors. In the short term? Times are hard. In the long term however? They're extremely prosperous.

We need competition to enter the marketplace. We need innovation and creativity. We do not need a bandaid on the hull tear of the Titanic for the next four years just so Obama can win re-election. Ladies and Gentlemen, problems are solved by action, not merely sitting back and throwing tremendous amounts of money at them that our grandchildren (Yes, OUR Grandchildren, the grandkids of Generations X and Y) will be paying off in their lifetimes. It's been a month and a half since Inauguration day, and already Mister Obama has issued spending orders that even FDR would have flinched at.

God help us for the next few years.