Government: Symbiosis to Parasitic

Throughout recorded history, when human kind has come together to form a society, it has also created a government to govern these interactions. The reason for this is obvious. When people get together, crime, disease, and scarcity will plague human interactions and make large gatherings problematic. Governments exist, first and foremost, to protect the populace from malignant external incursions, protect the populace from the deprivations of its own citizens and to create the infrastructure that is required for large quantities of people to live together as healthily as possible. Society benefits from this governing because when humans work together, they accomplish great things. Everyone's lives benefit from human efforts working in concert for the common good.

Need proof? Think of all the wonders of the world. None of them would have been possible without a large governing body overseeing the huge masses of humanity required to create these masterpieces. In order to organize humanity, you need a group of people whose roll it is to oversee them. Someone needs to plan. This general thesis is the argument most people have against a purely libertarian or anarchic state. It is hard to see all the benefits of an organized modern society and not claim that humanity has benefited from the oversight of government.

But now let's look back at those great masterpieces, the wonders of the world. While they were the end result of a great mobilization of humanity made possible by government, they were not created without significant losses of life and other opportunity costs. Take the Great Pyramid of Giza. It was created using slave labor by the Pharaoh. It is not hard to think that Egyptian society of the time would have benefited more if all that effort was put into projects that benefited all of society. So despite that it is now a major tourist attraction and bringing in a huge amount of money to Egypt (well, between civil wars and unrest it does. Once Egypt figures out its government, it will no doubt become a major tourism draw once again) it is hard to argue that the Egyptian populace of the time benefited from its creation. You can say similar things about the Great Wall of China. While it was created with a noble thought in mind, namely keeping the Mongols and other western barbarians out of China (at a time in history when incursions involved murder, rape, theft and arson), it also cost countless human lives to make and failed in its primary purpose. After all, China was eventually conquered by the Mongols and forced to pay tribute to the mongol empire for centuries.

So at what point does a government move from a net positive to a society, to a net negative? This is a complex question and largely depends on what you view the ultimate purpose of government is. I tend to believe that a government that governs least governs best, but I realize there is a large contingent of humanity that wants government to take a more totalitarian roll and run all aspects of human life for the benefit of society. The problem here is that government, while great at organizing people to work for the common good, has historically been very bad at identifying what is in the common good, and terrible at selecting rulers who are actually interested in the common good instead of personal enrichment. Again, think of the Pyramid of Giza and the Great Wall of China.

I write all of the above as a prelude to my next observation. I believe that the US government in particular, though it is certainly not alone (I am looking at you Europe) have transitioned from net positive to net negatives for the societies they govern. Now don't get me wrong, I am not advocating the overthrow of any government. But I would like to see it reformed to better help the populace as a whole.

But lets not get ahead of ourselves. Why do I think government has become a net drag on society? The answers lie in our current economic malaise. We are currently dealing with the 4th or 5th year of a recession that started when the sub-prime real estate market collapsed. This caused property values to decline rapidly. Banks at the time were heavily invested in real estate securities, so this huge decline in value pummeled the stock market and the value of most banks' portfolio of assets. For some financial companies (Lehman Brothers in particular), this drop in value triggered margin calls on their loan agreements which they couldn't pay because their assets were suddenly illiquid and losing value rapidly. The fed then stepped in, bailed out the banks, preventing large scale failures and bank runs. This was government working properly to avoid a disaster.

The problem is that the above disaster was the fault of government in the first place. You see, financial panics caused by real estate collapses are nothing new. The panic in the 1890s, the great depression, and the savings and loan fiascoes all had at least partial roots in real estate crashes. The problem was that after years of economic success, the government relaxed lending standards under the guise of making home ownership more affordable to the less credit worthy, they gutted depression era protections from economic speculation (Glass Steagall), and they allowed easy money policies that further inflated the real estate asset bubble. The result was when property values began to falter due to lack of demand and mortgage rates ticking upwards (from option arms rates resetting), defaults skyrocketed and property values fell. Had better lending standards been in place, had banks not been allowed to speculate on real estate securities (Glass Steagall), and had the government had a less permissive monetary policy, this likely could have been avoided.

When you couple our current economic woes, with what we have been learning about the modern police state we live in. I am referring here to the NSA PRISM program (read more here: http://en.wikipedia.org/wiki/PRISM_%28surveillance_program%29 ) and our multiple costly wars in foreign countries with questionable strategic significance, it is easy to see how our government has become more parasitic than symbiotic (i.e. it is hurting us more than it is helping). To this I would also add the Affordable Care Act, the Dodd Frank Act and Sarbanes Oxley, but these assertions are likely more contentious to some readers and are better dealt with on an individual basis in separate posts. And while the government has been spending time on these projects, our local infrastructure crumbles, our local governments' tax revenues dwindle (further cutting funds to infrastructure) and our local civil institutions whither. In fact the only area of America to not suffer from the depression was the Federal Government and the greater DC metropolitan area. The government continues to raise taxes while providing worse and worse service to its citizens and the only people benefitting are in the government itself.

When an entity lives off another (in this case society) and benefits at the expense of the host, it is a parasite. And without drastic reform to our federal government, future prosperity will be difficult to achieve. It is time we wean ourselves off the teat of big government and start cutting budgets for programs that do more harm than good.

Don't Let the Unemployment Rate Fool You...

Today I want to talk about the unemployment rate and how it is used to pull the wool over your eyes in regards to the effects of the current recession.

As I have discussed in previous posts, the current recession started around 6 years ago when the housing bubble burst, nearly causing a catastrophic meltdown of the financial system. The end result was that US government stepped in and very selectively doled out aid to Wall Street and to specific non-investment, non-bank institutions to help keep our financial house of cards from completely collapsing. Europe, following in our footsteps in both falling into recession and working to cure it, did much the same thing, but on a national level, offering up huge loans for austerity (i.e. cutting the budget to meet certain deficit targets).

Since then, the nation and the world, has been watching unemployment rates with the frenzied fascination of someone waiting for a bomb to be defused. Unfortunately, the unemployment rate is a very misleading measure of the health of the labor economy. The reason? How it's calculated. Most people believe that the official unemployment rate is calculated based on the number of working aged adults not currently employed, but they are wrong. That is actually the labor participation rate (Note: labor participation rate is the rate of employment among working aged adults expressed in percent. But since there are only two option, employed or not, it also reports its opposite, the number not employed). The unemployment rate is based on a survey of 60,000 US families and involves more complex math and fudging. It determines the number of people currently employed in those families, those currently actively seeking work based on a set of narrow criteria, and those that are not in the labor force (who are not counted for purposes of the unemployment rate). It then extrapolates this out to the entire country and then weights the answers (hence my use of the word fudging). But don't take my word for it, read the description of it from the Bureau of Labor Statistics itself. http://www.bls.gov/cps/cps_htgm.htm

So this brings us back to my initial point, how is this used to pull the wool over our eyes. The answer is in the two statistics themselves. While unemployment rates peeked in 2009 and have been steadily decreasing, the labor participation rate is still more or less on the decline. http://data.bls.gov/timeseries/LNS14000000 (unemployment rate) http://data.bls.gov/timeseries/LNS11300000 (labor participation rate). In fact, labor participation rates have been on a fairly continuous decline since the tech bubble burst around the year 2001 (which you can see by adjusting the dates shown in the above link). Why are the two different? Because unemployment only includes those people who fit the narrow definition of actively seeking work. As you stay unemployed, you move from the actively seeking work category into the "discouraged worker" category and cease to be counted. So why do we focus so much on the unemployment rate and not on labor participation? Supposedly we do this because it focuses on those actively seeking work and thus is a more fair measure of the economic activity of the nation. But I think the reality is that the government and the media focus on this rate because it is much more likely to improve over time (as workers get moved into the non-counted discouraged worker category). After all, if you focus on labor participation, then it looks like the real estate bubble was just a plateau in the continued failure of the American economy. Politicians seeking re-election don't like that because it makes them look incompetent and news papers don't like it because doom and gloom doesn't sell papers, get viewers or help them with advertising revenue. So they together hype the rosier picture.

The reality though is something else. We have record low levels of labor participation in this country not seen since before the 80's boom and women entering the work place. And if the last time we saw participation this low was back then, it means that now, with most women of working age working, we are in much more dire financial straits than we were then. I.E. most of those women in the past were not employed and not seeking a job by choice, not because of the terrible economy (and the stagflation of the 70's was a terrible economy). Now we have more people looking, not finding and being moved into the "discouraged worker" camp slowly bringing unemployment rates down. Doesn't sound as nice as when the government or the papers trumpet the unemployment rates' decline does it?

So don't let the unemployment rate fool you, we are still in dire financial straits. Until we see steady improvement in the labor participation rate, it meas most of the unemployment declines came from people "leaving the work force".