"A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor and bread it has earned - this is the sum of good government."

Thomas Jefferson

Q:  How does capitalism work?

A:  Unsound and uncompetitive businesses fail.  Healthy businesses apply sound policies to produce competitive products, generate profit, and survive and grow.

Q:  Can an unsound or uncompetitive business be bailed out through capital infusion?

A:  No, bankruptcy can only be postponed, unless the core problems causing failure are solved.  Since none of the core problems are being addressed, shortly after each bailout, the unsound companies will be asking for more, until the final answer is no and all is lost.

Q:  So in 'bailouts', the bankrupt US government is incurring more debt to throw away money and the nation's future?

A:  Yes.  While capitalism would naturally amputate the cancer of failure and incompetence in business, government interference is creating additional astronomical debt, to be repaid by future taxpayers, to perpetuate and spread the cancer to the entire US and world economies.  Our politicians have decided that all taxpayers should incur debt in order to absorb all losses, future losses (until bailout efforts are abandoned), and interest on the losses until the debt is repaid, rather than simply stopping the losses and unsound practices through bankruptcy as has always occurred naturally under the principles of free market capitalism.

See AIG: The bailout that won't quit

Q:  Why are manufacturing and financial businesses failing?

A:  Manufacturing businesses in the US cannot compete due to the high cost of doing business - taxes and labor.  This is nothing new, it's a decades-long trend over which growth through innovation has slowed and the US has become the world's greatest net consumer.  Along with unbelievable levels of deficit spending by the US government and its unlimited power of monetization (ability to print money), the result of declining value of the US dollar, economy, and standard of living is inevitable due to the massive net flow of manufacturing and production jobs and wealth out of the country, and the corresponding gigantic and growing trade imbalance.  Don't be fooled into thinking that the bankers and housing markets that triggered the current crisis are the main reasons for our problems.  The financial crisis would not have occurred in a healthy economy, so it is to some extent merely a symptom of the basic economic problems causing the trade imbalance.

Some financial businesses are failing due to incompetence in leadership and unsound business practices.  This includes making, packaging, and trading bad loans in extremely speculative markets, creation of adjustable rate and balloon mortgages, and legalized gambling in the form of derivatives trading.  Many banks and financial businesses had the foresight to avoid fatal policies.  Those are the only ones that deserve to survive.

Q:  What is a necessary component for US economic recovery?  Why are the bailouts and 'stimulus' spending only making things far worse?

A:  A balanced budget amendment is absolutely mandatory.  Our government must be forced to live within its means.  Unlimited deficit spending by irresponsible politicians is a huge factor in our overall economic health.  It should be a crime except when it might be required for national defense.  Even worse is deficit spending in order to throw it away in undeserved and ineffective bailouts, or as a 'stimulus' providing only temporary relief to symptoms of the real and obvious economic problems that are being ignored.  If spending were to create permanent long-term value equal or greater than the amount of the debt created plus interest, it would not be wasted, but that's not the case here.  Certainly, bailouts, digital tv tuner boxes, and modernizing health care records will create little if any real permanent value.  Public works projects will provide only temporary jobs and artificial short-term demand for materials.  One-time tax rebates and credits might help people out temporarily but will provide no permanent relief from the natural economic forces at work that are reducing the US standard of living.  Those who are struggling will be in the same boat one month after receiving aid.  The bottom line is that the US must produce more than it consumes in order to improve the strength of the economy, just as individuals and families must produce more than they consume in order to save, and spending is in general equivalent to consumption.  Spending (rather than saving or investing) tends to acquire goods and services that reduce in value over time (especially food!), so wealth is generally lost (consumed) by borrowing in order to spend, because the debt increases over time with interest.  Government deficit spending, except in an emergency necessary for defense in case of attack, must be made to be an illegal form of consumption through Constitutional amendment.  Our politicians, Republicans and Democrats alike, have proven beyond a shadow of a doubt over decades and many executive administrations that they are absolutely incapable of practicing any degree of fiscal responsibility.  This is almost beyond belief - how can enormous additional deficit spending possibly be seen as a solution to a bad economy caused in large part by unlimited and ridiculous levels of deficit spending?

The effect of deficit spending for bailouts and stimulus is to create more bureaucracy and taxpayer debt in order to distribute the lesser, diminishing and often disappearing proceeds to specific groups of the politicians choice.  This provides great power and support since it effectively gives politicians unlimited control of the wealth of the entire nation, and it's easy to convince those individuals receiving benefits into thinking it's a good idea, even though it diminishes the nation's wealth at a continuously increasing rate.   Bailouts additionally perpetuate and transfer to the taxpayer the practices and losses of unsound businesses.  Deficit spending has become a political scam and a pyramid scheme that allows politicians to designate the beneficiaries of their unlimited ability to spend future tax dollars by borrowing.  It gives politicians the unlimited ability to spend and redistribute the nation's present and future wealth while causing it to continuously diminish.  It can only lead to total collapse of our government and economy."

The national debt as of today, January 29, 2009 is about $10.6 trillion, or $35,000 for every man, woman, and child in the US.  The size of the US labor force is about half the total population, so the current US national debt per member of the US labor force is about $70,000 per worker.  Compare that to the average annual income of the US worker, about $46,000.  Over the last year and a half, the debt has increased by an average of $3.3 billion per day (see http://www.brillig.com/debt_clock).

The $825 billion deficit spending proposed by the American Recovery and Reinvestment act that the democrats are pushing through Congress will increase the total debt by 8%, and will be funded by government bonds, notes, or loans (mainly from other countries with large trade surpluses, like China).  Why is it that none of our politicians are talking about how we are going to repay these ridiculous debts?  Who is going to repay it?  The upper 5%?  They have about 59% of the total wealth, so if we only take half, there will be a little left over to look for those weapons of mass destruction for a little while longer!  (I'm being sarcastic here, in case you didn't get that).  Right now the total debt owed by the government (citizens) of the United States is about $70,000 for every working (and recently laid off) person, and it represents 15-20% of all personal assets.  And it's accruing interest!  If every person in the US was to donate their entire equity in their home in order to pay off the debt, it wouldn't be enough given the recent market declines.  The future of the US is being sold out.  Actually, it already has been, and it's increasing exponentially.  Right now is the future that was sold out some time ago!    Now we are allowing and encouraging our politicians to sell us out again at an all-time record amount, so that they can throw away the proceeds in bailouts constituting economic suicide, and in providing temporary relief in the form of stimulus spending that treats only the symptoms of the real problems.

Q:  Why is the working class in the US struggling?  What is the only hope for real improvement?

A:  Workers are struggling because US business is struggling - it cannot compete in manufacturing and production.  We are seeing a long-term equalization in the international labor market.  In order to compete in areas without significant technological differentiation, labor costs in the US will have to equilibrate with the rest of the world.  The US must once again become a producer of wealth through technology innovation and value creation, rather than continue as the world's leading net consumer that is has slowly become over the last few decades.  The US has increasingly become a service-based economy.  The US Department of Labor January 2009 Employment Report shows that of non-farm payroll, about 85% of jobs are in services, and only 15% are in and manufacturing of goods.  Only individual and corporate competition and desire and persistence in efforts to excel and succeed in an economy unregulated by government except where necessary to protect individual rights and ensure fair competition, a balanced budget amendment to force the government to control spending, and reducing taxes on everyone can possibly begin to reduce the gigantic trade imbalance and restore long-term prosperity to America and its workers.

Q:  Why are politicians promoting Socialism over Capitalism?

A:  Because the majority believes them when they say that their incompetent policies will save the economy and help them, and so they get elected to office and are supported in implementing those policies.  A growing fraction of Americans are becoming poor and unsuccessful due to the inability of American businesses to compete in manufacturing and production.  The promise of increased spending and consumption, to provide temporary aid to struggling individuals and unsuccessful corporations, even through deficit expense and mortgaging of the future, can now win elections and drive policy.  Unless the socialistic and suicidal policies of our politicians are soon recognized as such, which does not seem very likely, change really is coming - the US is well on its way to becoming a third world socialist or communist country, just like Karl Marx predicted.  Unless majority opinions and policies change quickly, the inevitable big change will essentially be a revolution associated with total government and economic collapse.

Q:  Can increasing taxes on successful businesses and individuals help?

A:  No.  It can only cause more failures and accelerate the loss of productivity.  It is the opposite of what is needed.  US tax rates are among the world's highest.

Q:  How might we simplify the individual tax system to promote production and economic growth?

A:  Personal income taxes on wages should be abolished in favor of a flat tax rate on all purchases except for food.  This encourages individual effort, production, and savings and discourages consumption.  The founders of our country intended that no tax be placed on the wages of labor.  Unfortunately, our politicians do not seem to understand the concept of material balance.  In order to gain, any entity must produce more than it consumes.

Q:  What about the rest of the world?  The recession is worldwide.

A: Those who have been following similar economic policies and investing in unsound businesses are also suffering.  Bailouts are spreading the bankruptcy of a few giant unsound corporations to the entire world economy.  The solution in these countries is the same as ours.  Capitalism must be allowed to work, and socialism must be confined to social policy, i.e. aid to the poor.  The fittest will survive.  That applies to countries and governments too.  The US has not been among the fittest for a very long time.

Q:  Here's a quote from the Summary of the American Recovery and Reinvestment Act released by the democrats leading the Committee on Appropriations on January 15, 2009.  The Act  is currently before Congress, proposing to spend in deficit 825 billion dollars:

"With passage of this package, we will face a large deficit for years to come. Without it, those deficits will be devastating and we face the risk of economic chaos."

Does that make any sense?

A:  This is obviously an idiotic statement.  You can thank the chairman, Congressman Dave Obey of Wisconsin.

Or maybe he's right?  If we would all start spending everything we have as quickly as possible at the exact same time - think of all the wealth we could create!  If everyone that receives that spent money would continue to spend it, and if everyone would also take out as many loans as possible and spend that money too, then, since according to the pro-spending economists who President Obama keeps deferring to, all the spent money multiplies in value as it changes hands, the total benefit will increase exponentially!  Then all those taxes on every transaction will balance the budget and start to pay off the debt.  Should we make saving illegal?   Is there some way we can make money expire, like milk, so that it has to spent quickly?  Maybe the key to prosperity is massively concerted spending at a continuously accelerating rate?  Maybe the problem with the all the spending efforts in the past is that they simply have not spent enough, or that they stopped spending before the profits began to roll in?  If this works, we can outsource the spending, and everyone can retire, except for the people building our personal warehouses that we'll need to keep all our stuff in.

Q:  I'm still not convinced.  How can this be?  You must be wrong.  Our leaders and economists can't all be wrong!

A:  Not all of them are.  A few have common sense, but so far no one is listening to them.  See Fred Thompson's take on the situation:

http://www.silverbearcafe.com/private/12.08/goodnewa.html

This is from Wikipedia:

See United States Public Debt

Also See Don't Buy Stuff You Can't Afford