Posted tagged ‘Myth of Infrastructure Spending’

Must Reads For The Week 10/14/17

October 15, 2017

ECON MUST READS

Our Crazy-Making, Profiteering Education Career Maze, by Charles Hugh Smith, at oftwoinds.com. CHS lists 7 things that you would do if you wanted an education system that fails. He calls our current education system a “career maze”. By design, a maze is difficult to get out of. The question is; who does our education system benefit? The students? No! The beneficiaries are the receivers of the borrowed money.

Excerpt from the article: “Clearly, it would be enormously beneficial to teach the skills needed to learn on one’s own and adapt successfully to changing circumstances. The current system is a hierarchy of credentialing that enriches those dispensing and funding the credentialing…………When the student graduates after borrowing a fortune and discovers their diploma has low value in the marketplace or is in a field they’ve found they loathe, then suggest the “solution” is to borrow another fortune and invest more years in obtaining another credential.”

The answer is always the same. Do more of what got you in the mess in the first place.

How Higher Education Became A Obscenely Profitable Racket That Enriches The Few At The Expense Of The Many (Student Debt Serfs), by Charles Hugh Smith, at oftwoinds.com. Another article by CHS concerning our education system. He offers great analysis. Excerpt from the article: “Student loan lenders are skimming tens of billions in profits guaranteed by the taxpayers…….The number of employees in central system offices has increased six-fold since 1987, and the number of administrators in them by a factor of more than 34…..While the higher-ed status quo is failing the students, it’s enriching itself immensely Assistant deans of student loans and thousands of other administrators who be managed to do without a generation ago are racking in huge salaries and fat benefits/pensions.

Financialization And The Destruction Of The Real Economy, by Charles Hugh Smith, at oftwominds.com. What happens when government leaders regulate a free market economy so much it becomes a crony capitalist (or crony socialist) economy, and the central bank (our Federal Reserve) prints (counterfeits) money? The real economy starts to consume it’s own seed corn (capital). Whoever has access to the printed money first is stealing the production of the people who don’t have access to the printed money (that would be you and me). The economy gets hollowed out similar to what termites do to wood. Termites eat the joists in a floor and the studs in a wall from the inside out so all that remains is the veneer of stability, but no interior strength.

Excerpt from the article: “Strip an economy of capital, productive incentives, talent and yes, ethics and what are we left with? An economy spiraling toward an inevitable collapse…….like a Yellowstone forest fire. The deadwood of bad debt, extreme leverage, zombie companies and all the other fallen branches of financialization pile up. But the central banks no longer allow any creative destruction of umpayable debt and mis-allocated capital; Every brush fire is instantly suppressed with more stimulus, more liquidity ad lower interest rates. As a result the deadwood sapping the real economy of productivity and innovation is allowed to pile higher. The only possible output of this suppression is an economy piled high with explosive risk. Eventually Nature supplies a lightning strike, ad resulting conflagration consumes the entire economy.”

More Spending Does Not Drive More Employment, by Per Bylund, at mises.org. Excerpt from the article: “There is no escaping the fact that production precedes consumption in a very real and fundamental sense: that entrepreneurs endeavor in production before they know that they will be able to sell the goods produced. Spending is a possible outcome of entrepreneurial production, but not the other way around. The former does not employ people, but the latter does…..What drives the economy is not demand or spending, but entrepreneurship and production. In other words, entrepreneurs bear the uncertainty of their enterprise. They anticipate that consumers will value their goods and, based on this, estimate the price. That price, in turn, determines what costs and entrepreneur can reasonably expect to cove in production, which means the entrepreneur’s actual choice is for the cost structure in production – the price is an anticipation of consumer value.”

What does this mean? Production is the creation of wealth. The more you produce the more wealthy you become. Spending on the other hand, is the consumption of what has been produced. It is the destruction of wealth. This is true even though we know the reason we produce is so we can consume. We either consume what we produce, in the present, or we save what we produce for consumption in the future. We also use what we save for future production. It is like saving a portion of the corn we produce so we can plant it in the future in order to produce more corn. Production has to stay ahead of consumption or we start eating our seed corn (capital consumption).

The Myth Of Infrastructure Spending, by Ryan McMaken, at mises.org. Does infrastructure spending stimulate economic growth and create jobs? On the surface it seems logical that they do. Deeper analysis shows us a different picture. Excerpt from the article: “….it is assumed that government infrastructure programs were all necessarily “proven winners” for the metaphorical construct known as “the economy……But infrastructure spending is not some one-time thing that blesses the nation with new wonderful things that everyone can use indefinitely. It is often a commitment to simply spend much more money in the future. So, you’d better be sure you’re buying exactly what you need……. Building a new bridge or a new road brings totally unproven or hypothetical benefits, especially….. in less industrially dense areas. What’s worse, the promoters of such spending do not take into account the opportunity cost of the spending. After all, this sort of spending requires that the money must first be removed from the pockets of taxpayers. It is assumed that this is justified because it creates “stimulus.” It creates new jobs in building highways, and makes roads everyone can use. But what would the taxpayer and the worker have done in the absence of that spending?”

“……Borrowing immense sums to spend on infrastructure that doesn’t boost productivity actually cripples an economy by channeling scarce capital and tax revenues into projects that only boost spending for a few years at best, while the costs of borrowing the money pile up for decades to come……If a new highway is needed in Peoria, let the Peorians pay for it, either with a toll road or local taxes. If the benefits of infrastructure spending is so abundantly obvious, then it will pay off for every metro area that builds a new road. The great benefit of federal spending on infrastructure, however, is that the new spending can be forced on the taxpayers with much less political effort than would be required to obtain a new local tax.”

Paul Krugman Destruction Worshiper, at ecoomicpolicyjournal.com. It is hard to believe that economists could think that destruction of things which still have years of service left is some how stimulative to an economy. Have they never heard of the ‘broken window fallacy’? Or are they too smart to understand something so basic? Excerpt from the article: “ Ludwig von Mises once allegedly tried to encourage his students to speak up more freely in class by saying: “Don’t be afraid to speak up. Remember, whatever you say about the subject and however wrong it might be, the same thing has already been said by some eminent economist.”

 

CARTOONS

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