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 with reason.

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.