What happens when government does not take in enough money in taxes as it spends? It borrows. How does it do that? It issues bonds. A bond is a certificate for a loan. If you buy a government bond, or any kind of bond, for that matter, you are loaning the entity from which you bought it money. The bond contains a rate of interest which you get during certain time periods for corporate bonds, or at the end for government bonds. The rate of interest paid is directly related to the demand and supply of bonds. If there is a big demand for your bonds, you can offer a smaller rate of interest than if you have to “force” people to buy them, which requires a larger rate. (For the sake of this article we will not complicate the model by talking about selling bonds on the bond market, prior to maturity, although the same economic rules hold.)
Government bonds do not have as high an interest rate as corporate bonds, and one main reason for this is safety. Companies do go out of business, and there is a possibility that the bondholders might not get their money. But what is the likelihood that the government will go out of business? Not much. Investment managers like to show good returns for their companies by purchasing bonds, but a large part of their portfolio will be in “safe” bonds. The more safe bonds are public utilities bonds and the like, AND government bonds. Even though the fund managers want to get a respectable return, they do not want to take too much risk, so a large part of their portfolio will be in safe investments. The most safe bonds are government bonds.
Now you are a corporation who needs a very expensive piece of equipment and you do not have enough profits saved up to buy this machine. Not buying this machine will mean that your business will come to a dead stop because you will not be able to make a component of your product. So you issue bonds. The problem is that your bonds are competing against a ton of safe government bonds. In tough economic times there is a “flight to safety,” which means investors are more likely to buy “safe” bonds than regular corporate bonds. In order to get people to buy your bonds, you must offer a high rate of interest to entice them away from the government bonds. But this raises what is called “the cost of capital.” This means that the corporation will have to make more money on their product to pay the higher interest rate than they would if they did not have to compete with government bonds.
This is similar to a situation where you need a car for work. You have no choice but to buy a reliable car. But because your credit rating is not as good as that of your neighbor, Fred, you get charged a higher rate of interest to buy the car. Both you and Fred are competing for the same available money. Because he is “safer” than you, his “cost of capital,” the interest on his car, is less. If your personal budget is already strained, you will lose weight quickly, because you still have to get to work, but will not be buying your usual quota of food. If you cannot make the payments because of the high interest, the car gets repossessed, and you are out of work completely.
Now, how does the company make more money to pay the larger rate of interest? In a competitive market, it cannot raise prices, because most of their customers will go to its competitors. It could improve the product, it could do better advertising, but none of these things guarantee success, and they cost money, which was the problem in the first place. In truth, the company might not be able to buy the machine, or, having bought the machine, not be able to keep up the interest, or the cost of capital. They then will declare bankruptcy, or just go out of business.
So when government tells you that it will spend tons of money to help the economy, and taxes are not scheduled to pay for these expenditures, remember there will be many more safe government bonds available to compete with corporate ones, which will be crowded out of the market, making it harder for companies to borrow money in the bond market. Government deficit spending (sound familiar, President Obama) to help the economy is actually helping to kill it!
1. Economists are armed and dangerous: "Watch out for our invisible hands."
2. Economists can supply it on demand.
3. You can talk about money without every having to make any.
4. You get to say "trickle down" with a straight face.
5. Mick Jagger and Arnold Schwarzenegger both studied economics and look how they turned out.
6. When you are in the unemployment line, at least you will know why you are there.
7. If you rearrange the letters in "ECONOMICS", you get "COMIC NOSE".
8. Although ethics teaches that virtue is its own reward, in economics we get taught that reward is its own virtue.
9. When you get drunk, you can tell everyone that you are just researching the law of diminishing marginal utility.
10. When you call 1-900-LUV-ECON and get Kandi Keynes, you will have something to talk about.
Ann Coulter recently published a book entitled Guilty. I have not read the book, but what I do know is that it has generated some controversy on at least two TV shows, namely, The View and The O’Reilly Factor. The essence of the controversy, at least as it was shown on these shows, had to do with statistics Coulter cited in the book about social problems and single mothers. It turns out that many if not most of social offenders, that is, criminals, delinquents, druggies and others, were raised by single mothers. The women on The View and an actress who is a single mother interviewed on The O’Reilly Factorseemed to be accusing Ms. Coulter of blaming single mothers for this social aberration of their children, as if they intended bad outcomes for their children. I do not believe that Ms. Coulter defended herself well verbally. That being said, let’s analyze the situation.
1. There is such a thing as statistical correlation. For instance, 95% of the time I hit my head when getting into my wife’s car. This statement is a fact (it’s really an estimate). The data correlates. If you took count of the times I got into my wife’s car, you would see that 95 out of 100 times I hit my head getting in.
2. Statistical correlation does not prove cause and effect. In the example of my wife’s car and my head, one cannot point to the cause of the hitting of my head merely from the data. More is needed.
3. Folks who talk about these things usually fail to make proper distinctions. To say that Coulter was blaming the single women for poor parenting skills is insufficient to be meaningful. Do some mothers (single or not) have bad parenting skills? Of course. Do some single mothers try their best to raise their children properly? Yes. Do all single mothers succeed in raising good children? No.
The question we have to ask ourselves is, “Are the children of single mothers more likely to become socially aberrant than the children raised by a mother and father both permanently present in the home?” Ms. Coulter’s data seems to say yes. But why is that true?
Firstly, children need the role models of both a male and female in the home. The mother and father show different complimentary strengths which benefit the upbringing of any child. In a single-parent home, half of this influence is missing.
Secondly, when children get to those difficult teenaged years, the mothers frequently have difficulty handling unruly children, where most fathers would have no problem, purely because of their size and temperament. Countless talk shows have shown that when teenagers get out of control, the mothers get physically intimidated by children who are having obedience problems. I was over 6 feet tall at an early age, and my mother was a skinny 5' 1¼". I was a good kid, raised by a mother and a father, but if it was my mom vs. me, there is no way she could stop me from going out, or whatever. Now my father was a skinny, athletic 5' 10" World War II veteran. Even though I was much bigger than he, he had no fear of anything, and I would not have succeeded in my plans.
Thirdly, being a single mother is one of the biggest causes of poverty. Men are the ones who pursue careers and generally get the credentials and experience to advance in jobs, which means in salary as well. Mothers frequently put off career and/or education to start a family. If the husband leaves, and especially if he is not paying proper child support and alimony, the mother has to go to work at low-end jobs. Children end up in day care or with babysitters who are not the mother. This is a further drain on funds, and on the bonding between mother and child. This might not be so bad if there were still extended families, where the mother could leave the children with her sister, or grandma, especially if the relatives shared the same dwelling with the mother and child in question. But these extended families are less prevalent all the time.
Fourthly, a big result of the sexual revolution is promiscuity and illegitimate pregnancies. There was an article in Newsweek years ago where black teenagers were interviewed about their illegitimate children. The boys were proud of fathering, not just a child, but children all over the neighborhood, of different mothers. Many of the fellows did not even care to be around the mothers or their children. The young mothers were almost as bad; they gave in to the desires of these men and to their desires to father children. It is almost as if the girls were so desperate for children at their young age that they would do anything to have them, and to heck with the consequences.
Lastly, the desire to have a man in a woman’s life does not die with the flight of the irresponsible father of her child. This leads many women to have serial boyfriends, many of them sleeping with her, and playing the role of temporary father. This produces confusion in the mind of the child, and frequently worse consequences, where the man is only interested in the woman.
It should be understood that many single women have heroically overcome these barriers, but the data seems to indicate that heroism, because it is heroic, is not that common. The actress who was on The O’Reilly Factor seemed to be saying that because she was successful, anyone can be. The fact that actresses are wealthy, while most single moms are not, pokes a big hole in her argument. Most single mothers obviously could not afford to give the time and care to their children that this actress could.
All of this points to the main issue here. God intended children to be conceived in love, by a male and female parent, both of which are committed for life. Falling short of the standard is a sad fact of life, but has been exacerbated by promiscuity, lack of understanding or even desire for monogamous marriage, irresponsibility, selfishness and heartlessness. To assert that this thinking will not be an influence on the children is foolish, if not outright stupid. Children need love and stability from their mother and father. Not adhering to God’s plan for families will produce aberrations, and the aberrations will be passed on from generation to generation, because the children will think that the aberration is the norm. This will produce misery for parents, children and the society at large, not to mention, put countless souls in jeopardy.
As many readers have no doubt read, law professor Douglas Kmiec, who is Catholic and has pro-life credentials, has taken offense at some criticisms leveled at his pro-Obama stance. If you read his comments, he makes it appear that he has been attacked only by immature, name-calling, right-wing Catholic nuts. Of course, others, like myself on these pages, criticized him on reasonable grounds, grounds he has yet to respond to.
Why did Professor Kmiec bring up only the vitriolic criticisms, and not the rational ones? There are, I think, two reasons. First, as a law professor, he is first and foremost a lawyer. Lawyers are trained in debate and one of the ways one can successfully debate is to draw people’s thoughts away from the issue at hand, especially if your arguments on that issue are weak. By not addressing my criticism of his support of Obama, which, as I wrote, placed the “social gospel,” a phrase which the Church never uses, above specific moral evil, he is reversing the role of the Church, turning it from primarily a herald of the right order into a welfare agency. This is aside from the fact that, as a law professor and not an economist, his idea that the Obama administration can do things to help the poor is questionable at best.
But the second, and perhaps the most disturbing, fact here is not merely that he was supporting a pro-abortion politician, but that he supported a flaming statist! There was more than one issue in this campaign. And although the life issues are the most important by far, the others are not insignificant. The fact that no one ever brought out that the whole Obama message was that government is the solver of everyone’s problems is very disturbing. It backs up the fact that for generations the Church authorities have been teaching the faithful to see the government at the sole source of the common good (see my article “The Common Good as an Excuse to Reject Human Dignity”), and have ignored the findings of economists in the Public Choice school, if in fact they ever heard of it. We have been moving, with the help of countless Catholics, bishops and priests included, toward an economic fascism, with its concomitant destruction of personal, moral responsibility for economic problems. I have written elsewhere that long-time Catholic support of the Democratic Party has led Catholics into the dilemma of supporting a socialist party which has become anti-life. Well, make your choices! The one goes with the other.
Many people cannot get the idea into their heads that society was not created nor is run by a single authority. Now someone objected to this idea once by saying that since God created everything, He is effectively the creator of society as well. That is true in a sense, but one thing I have insisted on, along with the late Pope John Paul II, is that God made man a co-creator with him. This applies to inventions, etc., but also applies to society and the market as well. Remember, John Paul II held that we humans have self-possession and self-governance which give us self-determination. Men are in control of their actions (assuming they are not a slave to their passions or public opinion, or something else), and therefore are responsible for those actions. This includes the setting up of institutions, usually occurring over long periods of time, and resulting from trial and error. These institutions serve the function of human flourishing. For example, look at the way universities evolved since the later middle ages. They went from monastic schools, meant for monks, to being open to others, to the great universities in the major cities, to the institutions we have today. Are they perfect? Of course not—nothing man does can be so. But one cannot argue that they have not been centers of great learning and progress for the benefit of the human race.
The same is true of the growth of markets. Agricultural inventions in the middle ages allowed more than minimal food to be grown, thus allowing people to travel. They traveled to the great trading cities and brought back things never available to people in the medieval non-costal areas before. These folks set up bazaars, which the people visited and bought things which enhanced their quality of life. These turned into towns when the patterns of trade became habitual. The towns became cities, etc.
The great Austrian economist Friedrich Hayek uses the Greek terms “cosmos” and “taxis” to describe the difference of worldview between those who see the spontaneous order of society and the market and those who do not. Cosmos describes the self-governing order of things—like the cosmos. Did you know that the Andromeda galaxy and our Milky Way galaxy are on a collision course—and there is nothing we can do about it? This is an example of cosmos in the area of space. Think of taxis in the sense of hailing a taxi cab, and then telling the driver where to take you. In this case, you are directing the cab. In the first instance, the cosmos is self-directing.
Society and the market conform to the cosmos rather than the taxis. Both are self-generating by the billions of interactions between thinking human beings all over the globe and those interactions are based on the interactions yesterday and those are based on the interactions on the day before that, etc. No one controls this. This does not mean that large institutions can’t influence the society and market. But there is no control here. Even with President-elect Obama’s economic “stimulus” plan, no one is really sure how the market is going to react to it. How did it react to the original issuing of money to free up loans? Well, Donald Trump put it this way the other day: “No matter what your credit rating or your track record, you still can’t get a loan.”
The implications are clear. Those who say that they can fix this, that, or the other thing, in society or the market are blowing smoke. Even if they can influence things, this influence might not be for the better, because of the Law of Unintended Consequences, which is founded on the fact that people will act in their own perceived best interest, regardless of what a government program will try to accomplish. This is why it is better to let the economy deal with circumstances than try to tweak it. It was that constant meddling with the economy which caused the problems in the first place. More meddling can’t remedy the results of the original meddling—at least if we are not in some kind of dream world.