THE ROOT OF THE CURRENT ECONOMIC PROBLEMS
Whenever there is a problem, many people
automatically think that government is the solution, even when the
problem is primarily caused by the government. So when there is an
increased disparity in earnings, let's vote for a socialist president
(Mr. Obama) to redistribute wealth by outrageous government spending.
(I haven't heard anyone applauding the redistribution. Mr. Obama
repeatedly claims that he is not a socialist. This somehow echoes
China's claim that it is not capitalist.) When there is a sub-prime
mess, let's have a set of new laws to have the government take care of
it, while nobody ask why the nation suffers these financial problems
periodically, forcing repeated necessity of government's (really
taxpayers') bailout of someone else's risk-taking mistakes or fraud.
The problem of the increased disparity of earning is not caused by the
lack of government intervention but by the global competition that has
essentially taken out the old profit margin of the entire
manufacturing industry. Only creative endeavors, which require both a
lot of creative thinking and a lot of risk-taking, can possibly get
high reward. In other words, if a person cannot make himself creative
(as an employee) or take some long risks (as a small business owner),
he would not be able to command high earnings. Government intervention
(i.e., redistribution) cannot change that reality. The world has spent
the last century proving that socialism kills all initiatives of
private risk-taking. Look no further than Cuba and ask: Do we really
want to become the next Cuba? Incidentally, one of Fidel's claims of
fame was universal healthcare.
The fundamental problem of the sub-prime mess is created by the big
government pension funds buying these repackaged worthless mortgage
bonds (which are called CDOs, repackaged to obscure its original
worthlessness). When the rating agencies, e.g., Moody's, give these
worthless debt triple A rating, and then banks buys CDS (a de facto
insurance designed to evade insurance laws, primarily to avoid the
required reserves) to insure it, large pension funds, especially
government pension funds, bought them in billions.
New laws increase the complexity of the financial market, leading it
in the wrong direction. They may legally require transparency, which
will do good. However, when everyone, including the pension funds,
banks, insurance companies, other financial institutions that do not
want to be called banks or insurance companies, newspapers, television
stations, regulatory agencies, the Fed, Congress, etc., work together
to game the system, the next problem will most certainly appear in the
next 10 to 20 years.
What we need are people who can recognize these things (these people
do exist) and a government that can respond accordingly (the U.S.
Government, among other components mentioned in the last paragraph,
has lost that ability). In 2006, the bill to put a stop to Freddy and
Fannie's reckless lending practice failed to pass Congress, because it
is not in line with Barney Frank's political game playing. As its size
increases, we can expect the government to have less and less to do
Big government is a monster. Now, out of frustration, we are working
hard to increase its size, with the private-sector's risk-taking money
much needed to kick start the economy. In the end, the smart people
will adjust their risks (why take the long odds when the loss is
entirely theirs and the major portion of the winning has go to the
government) and do fine. The middle class (or, to be more precisely,
from mid-middle class down), who so whole heartedly voted for big
government and does not pay much income tax, if any, will be swallowed
by the monster that they made.
While the Democrats are driving the train full steam in the wrong
direction, the Republicans, even if they retake both houses this
November, may not be able to give up the political game playing and
start to think reason. Incidentally, a government that is unable to
see reason is the identifying characteristics of a banana republic.
What we really need is another enlightenment movement, leading to
another age of reason.