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Tony Rubolotta
Restoring Economic Sanity
October 2, 2008
Not that long ago, a dollar was worth a half-gallon of gasoline. Just a
few days ago, a dollar was worth a little less than one-quarter-gallon
of gasoline. When the value of the dollar is expressed this way, the
question is did the gasoline become more expensive or did the dollar
become worth less? The dollar is a commodity that is bought and sold,
borrowed and loaned and not exempt from economic laws. When the
government tampers with the value of the money supply and the value of
gasoline, we end up with high energy costs that send a shock wave
through the entire economy. Calling the impact of high energy costs a
"ripple” would be a grossly misleading understatement.
The Sherman Anti-Trust Act, in my opinion, was a valid role of
government to prevent any one individual or company from exercising
monopolistic control that would threaten the free market exchange of
goods between the states. Standard Oil was broken up because it
threatened the free market exchange of crude and refined oil products.
Today, Uncle Sam is doing exactly what it prevented Standard Oil from
doing, and that is exercising monopolistic control of the oil market. It
doesn’t do this directly but through an "energy policy” for which it has
no constitutional authority.
The insanity driving the ethanol scam is based on left-wing, eco-whacko
ideas about energy consumption and the environment. Ethanol now competes
with corn flakes and cattle feed for crop land. Without government
subsidies and regulations, ethanol would be in a Jack Daniels bottle
where it belongs, and not in your gas tank where it doesn’t belong.
Ethanol costs more than refined gasoline and has less heating value.
There are other problems with using ethanol, but the point is a free
market would reject ethanol as a fuel additive. The price of a box of
corn flakes contains both the higher fuel costs and the higher corn
costs from competing with ethanol production. This is the cost of a
government energy policy.
The left-wing, eco-whackos are forcing us to choose between food and
fuel. In a free market (that is free of government manipulation and
interference) there would be an abundance of food and fuel. The left
wants to control everything and the eco-whackos want two-thirds of us to
die off. They may both get their way if this insanity continues.
Government interference and manipulation in the housing and home loan
markets caused home prices to skyrocket. Unqualified, high risk
borrowers were making bigger and bigger loans to buy homes that were
spiraling up in price. The more the government required banks to lend,
the faster it drove up home prices and the more they would have to lend
in the future to keep up with prices. The terms inflation and bubble
describe what was happening eloquently. The problem of too many risky
dollars chasing too few homes was compounded by the secondary mortgage
market coming under the same insane government regulation forcing them
to make high risk loans on the inflated equity. What we got was the
economic equivalent of a shark feeding frenzy where the sharks bite
anything that moves in the water, including each other.
Government interference and manipulation of the health care industry has
had the same effect on the costs of treatment and medicine. That in turn
has forced insurance costs up. We have also seen increases in fraudulent
claim submissions paid by government.
For every problem it has caused, the left has created a bogey man; Big
Oil, Big Food, Big Banks, Big Drugs, Big Insurance and so on, but not
Big Government. With every crisis caused by left-wing inspired
regulation, the answer is always more of the same. Now the left wants to
bail out the money lenders, but they want even more control and gifts in
exchange. The left elites are not worried about the cost of gasoline,
corn flakes, medicine or housing because they have taken care of
themselves. They are only worried about how you and I perceive their
role in driving these costs knowing they would be thrown out of power if
the truth were known.
Unraveling Big Government interference with the economy is not going to
be easy because the unraveling will itself cause problems. Free markets
will fix those problems, but it does take time before the adjustments
take place. Those adjustments will not be painless, but the alternative
is more of the same and a never-ending series of crises, exactly what
the left wants as an excuse to run everything. As much as I would like
to see these regulations repealed immediately, I know the economy simply
cannot withstand the shock of withdrawal. We need a plan for repeal. We
need the economic equivalent of the Manhattan Project and it may take
eight to ten years for it to work.
First, there should no more bailouts. The price of failure should be
failure, not a government reward or cover-up of its responsibility in
creating the disaster in the first place. These companies have assets
that can be sold and they don’t need the government to do it for them.
They don’t need politicians directing those sales to favor their friends
and allies. When people start to understand that there is risk and cost
for failure, they will adjust their investment habits and the economy
will recover, and be stronger as a result.
Second, the left-wing, feel-good, vote-buying regulations must be
repealed. The best place to start is where the problem has most
manifested itself, and that is the home mortgage market. Lenders need to
re-assert sound lending practices the government says are illegal. It is
then up to the investors to decide which lenders are worthy of their
investment dollars based on their mortgage portfolios. The only role
government should have is enforcing laws to investigate and punish
fraudulent reporting practices and deceptive loan practices. Companies
that dupe investors and borrowers must be put out of business quickly,
not at the whim of government but on the basis of complaints and solid
evidence. The only question then is how long it will take to restore the
health of the home mortgage market. The resulting ripple needs to play
out before further reforms take place.
Third, our insane and unconstitutional "energy policy” needs to be
addressed before it causes any more damage. Any government support for
ethanol must be ended, but that too must be done over a period of time
to permit those duped into the scheme to find alternatives. By
government support for ethanol, I mean any subsidies for its production
and requirements for its inclusion in fuel formulations. If the free
market decides ethanol is good for your gas tank, the free market will
put it there. Obviously, there is much more to be done to end government
interference with energy production, but again the economic ripples need
time to play out before the next steps are taken.
I’m going to stop here but there is much more to be done. The government
has been tampering with the economy as an instrument of socialist
experimentation since 1932 (arguably, even before then) and it has
failed miserably. It is going to take time and dedicated legislators to
undo the mischief and damage done by the left. The Republicans had their
shot for ten years and did nothing but jump on the left-wing band wagon.
Can they be trusted now? They have to prove they can. |
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