Government’s Attempt to Solve Problems is the Problem

Feb
14

By Charles Biderman

 

What I heard from the President’s State of the Union address was that he believes that the US government can successfully and efficiently and effectively solve our problems. What President Obama and his backers do not seem to understand is that big government is, in fact, the problem, not the solution.

 

So in his address he told us that the his government can save the climate, fix inequality of income and opportunity, take care of all of our health needs and ultimately guarantee that happy days will be here again. That is, if he were only given the power to do all these things.

 

And he is not alone in this mistaken belief that government can actually do all that. After all, he was elected to a second term. The problem is it is hard to find one service the federal government provides that is effective, other then writing checks. We have not won the federal wars on poverty, or drugs, nor overseas wars in Iraq, and Afghanistan.

 

So although governments have rarely successfully provided services, we have a government committed to doing just that. Moreover, millions of Americans obviously think governments can do what they never have done before because they keep electing officials who promise to provide even more services.

 

Now for the record, I am not saying that Democrats are bad and Republicans are good. No, I am saying that both Democrats and Republicans are not equipped to solve any of our problems because in essence they are the problem.

 

The problem is that the elected representatives of our representative form of government require huge amounts of campaign contributions to get reelected. And they get the money from special interests, who in essence, own the representatives who’s jobs they have paid for.

 

So to me, the specials interests of the Republicans are just as bad as the special interests of the Democrats. Neither party’s policies are capable of solving our problems.

 

But since January 1, investors are pouring billions into the markets in the mistaken belief that the “fake” money created by central banks is just as good as previously existing money, and the markets will keep soaring. But for how long?

 

Until recently most investors have been too frightened to invest in stocks. But now greed is replacing fear because investors believe that the Federal Reserve can successfully keep the markets from dropping.

 

This is magical thinking. At some point the markets will have an “aha” moment and stop allowing central banks to use newly created money with which to pay government bills. When that happens the markets will crash.

 

Meanwhile, it seems that contingency plans are being created by those who think governments deserve as much of the economy’s assets as necessary to take full care of us. This past Sunday’s New York Times had an article postulating a source of government funds would be to tax not just income but also appreciation of assets. If stocks go up by $10 trillion, doesn’t the government deserve a nice cut of that? After all it created that $10 trillion gain.

 

Scary? It is to me.

 

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12 Responses to Government’s Attempt to Solve Problems is the Problem

  1. Gene Reinold on February 14, 2013 at 12:39 pm

    Great Valentine’s Day video regarding government promises to ‘do everything for its citizens’ is spot on. Elected federal officials, supported by special interest groups, work first to be re-elected. Then, they work for the citizens that sent them to Washington.

    Your commentary is an unequivocal argument, though unstated, for term limits.

  2. Jimmy Stewart on February 14, 2013 at 2:25 pm

    …and Morgan Stanley this week claims “Spain will be the next Germany” and be Europe’s economic powerhouse. I don’t know who or what to believe now.

    • Ed_B on February 17, 2013 at 10:58 pm

      In many cases, I don’t know what to believe either but Spain becoming the next Germany is so far out of the realm of possibility that we probably have a better chance of Germany becoming the next Spain than that happening. The only country in Europe that makes Spain look good economically is Greece and that’s just not a neighborhood wherein an economic power-house is likely to reside.

  3. Lincoln Hawks on February 14, 2013 at 4:40 pm

    You make reference to a NYT article that “a source of government funds would be to tax not just income but also appreciation of assets. If stocks go up by $10 trillion, doesn’t the government deserve a nice cut of that? After all it created that $10 trillion gain.”

    I’ve said previously that the Fed Reserve is simply the conduit of 0% money. Who’s actually following the players receiving that money? Don’t you think it’s easy for a Govt. created entity to trade equities with this money? If so, you can see why they think they deserve a cut of any gains.

    • Ed_B on February 17, 2013 at 11:02 pm

      It’s pretty clear that no one is following the free money once it is delivered. If anyone is, they are awfully quiet about what they are observing. Of course, if anyone was actually following the free money, that would imply that there is so responsibility being taken for it, which seems unlikely. The entire budget / debt fiasco is a HUGE tar baby of which NOBODY wants to claim ownership. As is sometimes said, “Success has many fathers but failure is an orphan”.

  4. Dick Green on February 14, 2013 at 5:05 pm

    I think almost all agree that government within limits is necessary. Determining those limits is and has always been the problem, not government per se. It is too simplistic to say government is the problem (perhaps implying that to get rid of government is the solution). Isn’t it better to be more precise and say that unbridled gov’t is a problem. That allows room for compromise and setting of boundries.

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  6. Tony Noonne on February 15, 2013 at 3:36 pm

    Hi Charles, I live in Sweden and I saw, (lived troug), what our Olof Palme did to Sweden back in the 70-ties. To me it looks like youre on the same path. Here in Sweden it turend out to be a disaster, and we´re still on the path of trying to fix the mess that socialist government put us in.

    All the best, love youre blog…
    /Tony

    • Ed_B on February 17, 2013 at 11:12 pm

      Socialism is always a disaster. It has no successes that it can point to yet those who think it wonderful never seem to grasp the importance of this or give up on trying to implement that unworkable system. One would think that recognition of the obvious would be possible, if not common, amongst our highly educated politicians but apparently it is not.

      This has been compounded in recent years by politicians, particularly here in the US, who make economic decisions based on politics. This too is not workable and will fail utterly. That has already been demonstrated by the collapse of the USSR. They thought that they could run a command economy from Moscow and that all would be well. Unfortunately, bureaucratic fiat can only trump economics so many times before economics asserts itself and wins while the political system implodes. This is another lesson that we do not seem to be learning here. For unclear reasons we seem to have a need to repeat the political experiment that is socialism in spite of the fact that all of the data needed has already been collected… multiple times… and with the same dismal results.

  7. Ed_B on February 17, 2013 at 11:36 pm

    The only way that government spending can be cut in the US (and perhaps other countries as well) is to simply have LESS government. Government is not the be-all and end-all of human life, although many on the fringes of the left seem to think so. What government is, however, is primarily a resource hog that is deep in the trough of the public treasury… and it is consuming the resources that are needed by business for genuine economic success.

    In the US today, government is consuming 24% of every dollar created in this country. This is basically just overhead and it would be difficult to find a legitimate business that could survive such a cash-burning rate. Not only is this too high by at least double but it is unsustainable now and increasing. This is why 46 cents of every dollar spent is either borrowed or zapped up out of thin air via various money printing schemes. While this money printing is not a direct tax, it functions as one by diluting the value of our savings.

    The solution is as clear as it is politically impossible and that is to cut government to 1/2 its current size… and sooner rather than later. There is plenty of tax revenue for paying for the essentials of operation for a reasonable amount of government but there is not enough money to be squandered everywhere on a routine basis.

    Currently, about $2.4T is collected annually in tax revenues. This is a LOT of money, folks. The Gov, however, is not satisfied with this level of spending, so spends another $1.4T or so on top of that. If the Gov were cut in half, we would need about $1.9T to fund it for a year. This leaves about $500B to repay the national debt of $16,500B. At this rate, the national debt could be repaid in about 33 years, assuming that spending were frozen at this level and that both Gov spending and tax increases were limited to the real rate of inflation.

    Note that this suggestion is just for openers and that additional Gov cuts might be necessary. In such an environment, prioritizing necessary spending would be of prime importance. This is also a MUCH more difficult job than simply squandering the national treasury and is probably one that the current crowd of DC leeches is not up to handling.

    Of course, we can always “stay the course” and not make any significant changes to our current financial and economic policies. Since these are not sustainable programs, they will, of necessity, get worse with time and eventually collapse. All unsustainable and unchangeable systems collapse because they HAVE to. There simply is no other option.

  8. Joey Anchovey on February 18, 2013 at 1:31 pm

    It’s unfortunate but true – Obama lists all of these socialistic programs to improve our welfare and it won’t cost a dime! And nobody calls him on it! We’ve had trillions of dollars of deficits and he can still say with a straight face that all these future spending programs that he lists in his SOU speech will not add to the deficit. And the lapdogs int the media believe him. I watched Dr Zhivago last nite and found many similarities in pre revolution Russia and today. Those who ignore history are doomed to repeat it.

  9. Tom Sullivan on February 19, 2013 at 4:22 pm

    The US problem of freedom and economic growth is that government now consumes nearly 60% of our economy. Federal, state and local spending is equal to 40% of GDP. Federal regulations compliance costs another 11% of GDP annually, almost $2 trillion. State and local regulations probably cost another $1 trillion.

    It is simply insane that government grows ever larger while its citizens are wealthier than ever. Since we are wealthier, we are more self-sufficient and need less aid.

    We must cut government back to 30% of GDP like it was in 1950. (In 1900, it was well under 10% of GDP.) That would free up about 30% of GDP to be added to the income of the private sector, about a 75% increase in the private sector’s take of the economy. How’s that for stimulus?

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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