Friday, January 22, 2010

Cities Now Seek the "Blank Check"

Fiscal policy begins at home (or does it?)

Ok, so far we are in a jobless recovery.

The recovery is jobless due to Federal bailouts and other programs which have prevented the market to correct itself (e.g. prices to go down through bancrupcy) against over-priced housing and the encumbent debt created in the economy by over-priced housing derivatives backed, again, by the Federal government and through expansionary monetary policy by the Federal Reserve Bank. Or, in other words, government policy is not allowing the bubble to "pop" to free up money to invest in better things.

So now the Conference of Mayors are asking for another "stimulus" package at the Federal level to come their way.

Of course this is besides predictable just another example of the unintended consequences of government intevervention. Instead of the cities cutting their own budgets and being responsible to their own cititzenry they (the Mayors of these cities) want to pawn-off this responsbility to the Federal government who has of course a money "blank check" because the central bank will buy all the Treasury debt that the Federal government wants to create.

There is no free lunch, everything has an opportunity cost. More Ferderal Government money flowing to the cities means that more Federal money is needed. This means that, as more Federal government money (e.g., the central bank - Ben Bernanke - printing money) is created, the value of existing money (dollars) goes down. So you and I, the Workers of the World have to pay for the political opportunism of local politicians.

The only status quo solution, and Workers is sorry to say this for those that think government can help improve our lives, is to decrease the value of our money to help politicians locally at the expense of hurting everyone globally. Needless to say this this is why coffee, for example, has gone from $9 a pound to $11 in the last year. Or dishwashing soap from $.99 to $1.29. Or the subway from $2. to $2.25, and we could go on. It is the poor who, ironically enough, get hurt by populist politics.

Is this anyway to live? Politics really suck (J.J. Rousseau in the 1750s said that politics ruined people's innate good and said this in an idealistic reductio ad absuridum way, if only he could have lived to see the modern welfare state today !), and the only way to stop the blank check is to end central banking and let real money trade competitively in the market and to see what money-forms develop in healthy competition. This may sound radical, but in fact, as we have seen with the bailouts, it is the real populism. The Federal Reserve Bank dollar needs competition, the free-banking alternative, now, to keep it honest and to allow politicians at all levels to be accountable to their electorate.

Stopping the blank check of the Federal government will of course then create less bailouts, less war and a better economy, as government spending will become more costly without the blank check. And less government spending means more real spending by people who want to create things that people want to actually buy voluntarily and as well does not destroy living standards, most incidiously of the poor, through creeping, or hopefully not, rapid inflation and devaluation.

But this in not what politicians want. Today the Federal grants to cities go to the Blue (Democrat) states, tommorrow they will go to the Red (Republican) states. This is devisive, dividing, and not-at-all condusive to a unified sense of well-being. Marx said that politics is used as power by the minority to control the majority, the power just trades-off between the Blues and the Reds, whereas to end the vicious cycle and enforce real accountability on the political class, an end to the "blank check" is needed.