Tuesday, October 21, 2008

Obama, Kratovil, Comegys - The Triple Threat of Economic Theory

Put a Democrat in government and what do you get - socialism.  Call it what you want, but government interference in the markets is socialism;  the picking of winners and losers either directly, indirectly or by queering the markets.

Living in Wicomico County, I have the dubious honor of observing three individuals who wish to play with the free market while showing less knowledge of economics than my 17 year old.  One man wishes to be our President.  One wishes to represent us in Congress.  The last wants to be the Mayor of Salisbury.


Barack Obama is the "ONE".  He wishes to save us all by "spreading the wealth".  How?  Obama wishes to turn America into a welfare state unrivaled in our history.  Obama claims that 95% of Americans will receive a tax cut if he is elected.  That's a pretty mean trick given that 40% of Americans pay no income tax.

Like our Lord turning water into wine, the "ONE" is somehow turning direct transfers into "tax cuts".  It is almost fortunate that Ronald Reagan is not here to see his legacy dismantled.  Reagan's "Welfare Queens" will be most of us if Obama has his way.

How will Obama do this?  Two events must take place.  One, the most productive (financially) must pay more in taxes to subsidize those of us who are not as well off.  Second, our children and grandchildren must bear the burden of an even greater national debt.  Before you go off about Bush and the Republican Congress, note that you will get no argument from me.  Few liberals have been a greater critic of either.

The fact is that if we are going to increase the tax rates on corporations and high earning citizens then we are going to provide a disincentive for them.  Corporations are already moving offshore in greater numbers because of our relatively high corporate tax rates.  While I don't expect to see waves of the wealthy relinquishing their citizenship, history has proven that they will be more reluctant to risk their capital if the government is going to take an increasing share.

While liberals like Obama claim that increased government spending is "investment", this is merely a rhetorical device to soften the blow of being labeled a "tax and spend" liberal.  Investment comes from those willing to put their capital at risk.  Granted, under the waning days of the Bush administration we are seeing government put OUR capital at risk.  Obama and his socialist brethren are literally liking their proverbial chops at the example set by a Republican party who turned the word conservatism into a synonym for "socially correct" big government.

It's the Speculators

When gas was $4.00 a gallon, Frank Kratovil opposed offshore drilling.  Refusing to acknowledge the basic laws of supply and demand, Kratovil claimed that it was the evil speculators who were responsible for escalating energy prices.

In a few short months, the price of a gallon of gas has fallen to $2.64 (locally).  Why?  Was Kratovil somehow able to wave a magic wand and abolish those horrid people on the commodity desks of New York and London?

No.  Frank has witnessed a phenomenon that has worked from the moment there were enough people to trade; a phenomenon explained since Adam Smith publish The Wealth of Nations in 1776.  It's the market Frank.

Due to a variety of factors, not the least of which was a mortgage crisis caused by government interference in the markets, the world's economy has been contracting.  A contracting economy means a reduction in the demand for oil.

A lowering of demand means a reduction in price (assuming supply stays the same).  Do you get it Frank?  Supply.  Demand.  There are basically the same number of speculators today as there were six months ago.  What happened Frank?

The market is what happened.


Salisbury Councilman Gary Comegys is our own local Nobel laureate.  To hear Comegys expound on economic theory from his perch in the Salisbury Council chambers is a thing to behold.  It's enough to make you lose whatever faith you had left in our educational system.

Comegys is what some would call a "Big Business" Democrat.  He seems to believe that the average citizen should be forced to subsidize residential developers.  A socialist by any other name is still a socialist.

The Salisbury taxpayer does this by building roads so that developers can complete their projects (and paying the developrs for the land to boot).  They reimburse developers for infrastructure (such as sewage lift stations) that only the developer will make use of.  They do this all against their will.

Comegys claims that this interference with the market is necessary to increase the revenue stream of the city.  Unfortunately, Comegys doesn't spend much time on the expense side of the ledger.  Why else would tax burden of the average Salisbury citizen be spiraling upward?

Comegys may continue to hold out hope that one day he will be called to Stockholm and rewarded for his great "Growth Pays for Growth" theory.  If that ever occurs, I will admit that I should have voted for Al Gore in 2000.

Comegys opposes impact fees.  Again, he argues that the average citizen shoudl subsidize the few.  He does so by claiming that an impact fee will raise the price of new housing.  He can only make this argument by assuming that the developers are not charging what the market will bear.  Again, for the socialist, the market does not work.

Comegys may keep clutching to this totally discredited nonsense, the balance of the citizenry knows better.  Why?  While the average man or woman does not claim any great expertise in economics, they know in their hearts that subsidy is merely corporate welfare.  Corporate welfare queers the market, just as individual transfer payments skew the individual's incentive to be a productive member of society.

Comegys, however, should be forgiven his transgressions.  Like his brethern Barack Obama and Frank Kratovil, Comegys does not accept the near a priori truth of the market.  While this is the economic equivilent of claiming that the sun is shining in Salisbury at midnight, socialists like Obama,  Kratovil and Comegys must cling to the discredited belief that markets do not work.  If they did not, the reason for their political existence would cease.

cross posted at Delmarva Dealings


Anonymous said...

It's Obama, Kratovil, O'Malley and their Guru, Wayne Gilchrest who revealed to world that HE voted for O'Malley not Ehrlich.

Anonymous said...

I spent a lot of time writing my comment and you refuse to publish it ? it would be more intellectual honest of you to just censor the parts you don't approve of and/or publish a list of rules and acceptable topics.

This of course is my opinion and I respect your rights as ultimate authority of what is politically correct.

* please disregard if this suggestion is premature-- if you have not had time to review my profound comment to this post.

streiff said...

I think you are laboring under the mistaken assumption that your desire to post something on this site entails an obligation by me to publish it.

The blatantly racist attacks on Kenneth Burns forced me to go back to moderated comments. While I'm moderating for vile I decided to moderate for stupid as well. Sorry your magnum opus didn't make the grade.

Anonymous said...

Racial comments clearly are not acceptable. But the question of what is clearly acceptable remains -- 'stupid' is subjective-- can you perhaps create a list of objective criteria so that opinions can be put forth for consideration by those of us that may not understand your nuanced approached to censorship.

It is my opinion that this could lead to a constructive dialogue.

streiff said...

first, this is a private site so what I do is not censorship.

second, this is a center-right site and I prefer commenters who fit in that milieu. Those outside that persuasion need to bring something to the table: insight, great writing, humor, etc.

If all they bring is standard lefty talking points and an obvious unfamiliarity with the subject I'd just as soon they stayed away.

AnotherWatcher said...

On oil prices. The price of oil on July 11 was $147.27. Bush signed the Executive order lifting the ban on offshore drilling on July 14.
Is it PURELY coincidence that since that day, oil prices have been dropping? NO. Watch what the price of oil does when the FIRST rig sets it drill in the Continental Shelf.

G. A. Harrison said...

Anon 1102 -

You are absolutely correct, though perhaps for other reasons. Many of us have argued that opening up exploration would have both a short and a long term impact on the price of oil. The reason for the short term impact is the very "speculation" that liberals like Frank Kratovil claim that they wish to eliminate.

First, I don't like the term "speculation" when it comes to the futures markets. When a farmer goes to lock in a price for his crop, is he a "speculator"? Yet, without "speculators" participating in the market, the need for the futures market would cease. Large buyers would simply exercise the same amount of control over the futures market as they do over the spot market.

The bottom line is that the very threat of increased supply had an impact on the market. Any long term effects would be caused by the increased supply itself.

Gee, ain't the market a wonderful and miraculous thing? Wouldn't it be great if people like Frank Kratovil learned a little bit about it before attempting to socialize it?

Thomas H Powell said...

If our tax money is used to buy mortgages is that not practically communism ? Is the bailout not government interference with the free-market and by definition socialism ?

am I the last true conservative left in America ?

the silence of the REAL conservatives is deafening.

G. A. Harrison said...


At "Delmarva Dealings" we have a fairly well defined commenting policy that disagrees with the looser policy at "Red Maryland". However, this is Streiff's site. One of the things that I agree to, for the privilege of writing at "Red Maryland" is to abide by Streiff's rules.

I don't find them particularly difficult. If I did, I wouldn't post here.

The internet is a marvelous thing. If Anon 1039 wants to be heard, the alternatives are almost immeasurable - from buying a newspaper to writing on the washroom wall. He (she?) could even start a blog. They have no RIGHT to be heard on Streiff's patch.

BTW - "stupid" is only subjective to liberal relativists. There are valid arguments and invalid arguments. Strong and weak. Stupid usually boils down to an invalid argument or a valid argument without the benefit of evidence (a weak argument).

If you want lessons, study Newgent's posts. We can all usually learn something.

streiff said...


we haven't had anything approaching free markets since before Teddy Roosevelt.

Given the options available -- a global depression being one of them -- government backing of mortgages (most of which are performing loans) in order to create liquidity in capital seems a pretty good choice.

G. A. Harrison said...

Streiff -

While I am not an advocate of laissez faire, I certainly don't advocate the kind of interventionism we are now seeing. Every major economic crisis of the 20th and (now) 21st centuries has had government action as a root cause.

Government coercion was a primary cause of the current mortgate crisis. Now you believe that more government intervention will solve the problem? I'm as shocked as I am disappointed.

streiff said...

I think academic economic principles are fine until they meet reality.

Regardless of how we arrived at this situation, unless you are perfectly willing to precipitate a substantial collapse of the current financial system the government had to be involved.

The point being missed is that the mortgage issue is only a small and inconsequential part of the problem. If the problem was limited to mortgage defaults and some investors losing their collective ass because they were trying to make a killing then I'd be against government intervention.

That isn't the situation.

What the mortgage crisis has done is to cause the credit supply to evaporate as banks become unwilling to lend money to anyone for just about anything.

What this means is that a business can't get the bank to advance money based on invoices or inventory. This means that smaller businesses, especially those in the service/construction industries, simply can't make payrolls.

If someone could show me a way out of this without the government extending its full faith and credit to a lot of financial institutions I'd like to see it.

So I offer no apologies for not being a financial conservative.

G. A. Harrison said...

Streiff -

You are absolutely correct that this was a liquidity crisis. That is why we have the Fed. Rather than the government bail these entities out, the discount window could be used for banks.

Let the investment banks fail. Let the insurers fail. What the government has done is remove moral hazard from the equation.

Another problem is the government's willingness to continue allowing these bank mega-mergers. We now have too many institutions which are too large to be allowed to fail.

I disagree that this is an academic exercise. What the government has accomplished is to send the message that a chosen few will be bailed out. Result - these institutions will simply be spending more money on political contributions and lobbying that could be going to productive economic activity.