The financial genius Warren Buffet thinks the rich should be taxed more. It’s baffling to me how someone who clearly understands the use of capital and how inefficiently the governments use capital can suggest such a thing.

If Warren takes his capital gains and invests it, the money will go to things like machinery. The purchase of that machinery will create jobs. The use of the machinery will create jobs and the resulting products will benefit society.

Now let’s go a different route. Let’s listen to Warren and give that money to the government. Let’s itemize a bit. We will assume 1/3 goes to administration, to pay government salaries in which nothing is produced. Let’s say they spend the 1/3 on food stamps. Once again nothing is produced. Now we will assume the remaining 1/3 is spent on building a bridge. If we are lucky the bridge will be useful to someone but don’t count on it.

Now I’m not saying that Warren’s money was wasted. Though a piece of the government salaries will be donated by individuals to the Democratic party, you’ve got to feed the beast, I’m sure most of it went to buying groceries and paying electric bills. As for the food stamps, of course some of it will get traded for cigarette money, but at least some of it will get used to buy baby formula. Finally, the bridge. Yes, it’s useful. I hope it’s not a bridge to nowhere.

Now I’m not saying government completely ineffective in leveraging capital and that the free market is proficient in using the same. But without question the free market is better at using money in a way that will answer the needs of the people. How about a few examples of government spending that I read about just this week:

#1 ‘Insane’ even by Illinois standards? Union official to get $500,000 in pensions

A labor leader in Chicago is expected to receive pension payments of nearly $500,000 a year, while another could get about $438,000 a year, according to reports Wednesday.

The Chicago Tribune and WGN-TV, which obtained information about union pension benefits during a joint investigation, said at least eight union officials in Chicago were eligible for what were described as inflated city pensions on top of union pensions for the same period of employment.

Chicago and Illinois are facing financial trouble, in part due to pension shortfalls.

On Tuesday, state Sen. Mark Kirk released a report on Illinois’ debt that said it had the worst credit rating of any state and that its debt was rising, NBC Chicago reported.

The Tribune said the official who was expected to get about $438,000 a year would do so from three pensions covering the same work period: a city laborers fund, a union district council fund and a national union fund.

It said an analysis showed that this 59-year-old union official, Liberato “Al” Naimoli, would get a total of about $9 million if he lived to his expected lifespan.

Another official, Charles LoVerde III, a former trustee of the city laborers’ pension fund, stood to receive three pensions for the same time period totaling nearly $500,000 a year, the investigation found.

The Tribune said he took leave of absence in 1998 from a job with the city’s water management department, which paid $44,000 a year, to work full time for the local.

The paper said the law states that union leaders with city pensions cannot “receive credit in any pension plan established by the local labor organization based on his employment by the organization.”

The Tribune said the joint investigation with WGN-TV found that Naimoli, president of Cement Workers Local 76, was receiving a city pension of about $158,000 a year. It said his city pension was based on his union salary.

Naimoli, who retired in 2010 from the $15,000-a-year city job, is also now eligible to receive a pension of about $60,000 a year, the paper said, from the Laborers’ Pension Fund for Chicago and Vicinity.

He also will become eligible for payments of about $220,000 a year from a third pension, provided by the national union, LIUNA, on his 60th birthday next year.

The Tribune said he had not worked his $15,000-a-year job with the city for a quarter of a century.

http://www.msnbc.msn.com/id/44872639/ns/us_news-life/t/insane-even-illinois-standards-union-official-get-pensions/

#2 Report: Pentagon doesn’t know where the money is going

The Defense Department, which has promised to publish a reliable account of how it spends its money by 2017, has discovered that its financial ledgers are in worse shape than expected and that it will have to spend billions of dollars in the coming years to make its financial accounting credible, the Center for Public Integrity reported Thursday.

The U.S. military has spent more than $6 billion to develop and deploy new financial systems, but the effort has been plagued by significant added overruns and delays, defense officials told the CPI, a nonprofit investigative news organization.

The Government Accountability Office said in a report last month that although the services can now fully track incoming appropriations, they still can’t demonstrate that their funds are being spent as they should be.

http://openchannel.msnbc.msn.com/_news/2011/10/12/8294595-report-pentagon-doesnt-know-where-the-money-is-going

The Defense Department can’t tell reliably how it spends money for another six years. And it needs xxx billion just to do that? The Defense Department represents 20% of the Federal budget.

#3 Green Jobs Brown Out or How to spend $157,000 per Job.

The green jobs subsidy story gets more embarrassing by the day. Three years ago President Obama promised that by the end of the decade America would have five million green jobs, but so far some $90 billion in government spending has delivered very few.

A new report by the Labor Department’s Office of Inspector General examined a $500 million grant under the stimulus program to the Employment and Training Administration to “train and prepare individuals for careers in ‘green jobs.'” So far about $162.8 million has been spent. The program was supposed to train 125,000 workers, but only 53,000 have been “trained” so far, only 8,035 have found jobs, and only 1,033 were still in the job after six months.

The green jobs subsidy story gets more embarrassing by the day. Three years ago President Obama promised that by the end of the decade America would have five million green jobs, but so far some $90 billion in government spending has delivered very few.

The jobs record is even more dismal when you consider that many of the jobs classified as green aren’t even new jobs, much less green, according to a report from the House Committee on Oversight and Government Reform. They include positions that have been “relabeled as green jobs by the BLS [Bureau of Labor Statistics].”

This means that bus drivers, Environmental Protection Agency regulators, university professors teaching ecology, and even the Washington lobbyists who secure energy loan guarantees count as green employees for the purposes of government counting. The Oversight Committee finds that even a charitable assessment of the Labor program puts the cost of each green job at $157,000.

http://online.wsj.com/article/SB10001424052970204524604576611191286160766.html

Of course private enterprise wastes money. But here’s the thing. The money wasted was given up voluntarily. That can’t be said for the money wasted by government. That money is extracted. You would think that money you are forced to surrender would be used with some sort of oversight. The term “government oversight” is an oxymoron.

Obama isn’t responsible for the recession or unemployment. He certainly contributed to the problem by supporting Barney Frank and Chris Dodd’s, house for everyone policies but there are lots of people who are culpable. He also failed to understand that markets have to correct when they make mistakes. Democrats think capitalists consider markets perfect. On the contrary, it is their imperfection that makes them work. They have to make corrections. It’s just like going out to eat. Have you ever ordered a dish from a restaurant and not enjoyed it? What did you do? You didn’t order it the next time. It was relatively easy to fix. The Gosplan would have you eating that same dish for five years before deciding to order something else. That may sound like a fare fetched example but its not. You are a consumer spending capital on goods and services. When those goods and services fail to meet your needs you realize your capital was wasted so you adjust. It’s no different than a bank or company running a business. Obama doesn’t get economics 101, so he increases the pain by dragging on the economy by spending money covering up the problem. You can’t afford the house so let’s make a few payments for you. Don’t get me started on “Cash for Clunkers”.

Listen to Obama this week, “There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers…. You see it when you go to a bank and you use an ATM. You don’t go to a bank teller. Or you go to the airport and you’re using a kiosk instead of checking at the gate. So all these things have created changes in the economy.” http://www.marketwatch.com/story/obamas-atm-story-cant-explain-slow-hiring-2011-06-16?dist=countdown

“Structural issues”? Seriously? This goes to show who his supporters are. You seriously have to be a complete idiot to agree with that line of reasoning. Amazingly, those idiots are carrying iPhones instead of sending smoke signals. They are driving cars not walking and are wearing polyester not homespun.

I haven’t blogged in over two months. I’ve just been too busy. However, Obama and his complete stupidity brought me back. Today in a so called “town hall meeting” sponsored by CNBC, he was speaking on repealing the Bush tax cuts.

“‘On average, millionaires would get a check of $100,000. It is an irresponsible thing for us to do. Those folks are the least likely to spend it,’ he said to applause.”

I have to thoughts on this ridiculous statement. Either he doesn’t understand economics 101 or he just can’t stand to let someone spend money he believes he should control.

There are certainly many liberals who just don’t understand economics. They think it is better for an economy to spend than to save? Does Obama spank his kids if they don’t spend 100% of their allowance? In the old days people believed that saving was good.

What does Obama think happens to saved money? Does he think all millionaires sleep on huge mattresses full of cash? Whether money is spent or saved it is put back into the system. Let’s take a minute to run through an example.

If I get $5,000 back in taxes and chose to save it, where does it go? If I put it in the bank, they will loan it out. Whoever gets the loan will spend it. They will likely spend it on something more worthwhile than junk at the mall.

I could also put the money in an eTrade account and invest it in Apple, Cisco or some other company. If I do that, where does it go? It goes to someone who owns those stocks and believes those stocks are going to fall. Once that person gets the money they will either spend it or buy another stock. They may even purchase an IPO. Initial Public Offerings are a means for companies to get cash to buy stuff. Stuff that is likely more worthwhile than junk at the mall.

No matter what, it will get spent. It still goes into the economy to drive production. Now I will admit that they money will have less velocity. It will not stimulate the economy as fast as a trip to the mall but it will still stimulate the economy.

My comments about “stuff more worthwhile than junk at the mall”, is important. What will make our country richer; the creation and subsequent purchase of bathing suit or the purchase of a hammer by a contractor? If the answer isn’t readily obvious then think about it a while.

I doubt Obama is really that stupid. He just wants to retain the money so he can hand it out to his own constituents i.e. wealth redistribution. Obama and other democrats have shown their true colors the last few months.

Here are a few quotes: “’Sen. Ben Nelson, D-Neb., Sen., Kent Conrad, D-N.D. and Sen. Joe Lieberman, a Connecticut Independent who caucuses with Democrats, have all recently said that raising taxes — even for the rich — doesn’t make sense while the economy is faltering.’

‘Rep. Harry E. Mitchell, D-Ariz., said in a letter sent Friday to House Speaker Nancy Pelosi that he wants to make the Bush era tax cuts on capital gains and estate taxes permanent.’

‘Senate Budget Chairman Kent Conrad, D-N.D., a fierce deficit hawk, said last month that he would be reluctant to let anyone’s tax cuts expire just yet.

‘In a perfect world, I would not be cutting spending or raising taxes for the next 18 months to two years’ Conrad said”

“At least 38 House Democrats have now come out publicly in favor of at least a short-term extension of current income tax rates for couples earning more than $250,000 and individuals over the $200,000 threshhold — bucking calls from Obama and Pelosi to let taxes increase on wealthier Americans. Other Democrats have indicated privately that they prefer an extension instead of allowing rates to expire for top earners, and Maryland Rep. Chris Van Hollen, who heads Democratic campaign efforts, has argued behind closed doors for taking a political issue off the table by giving a short reprieve to wealthy folks before the midterm elections.”

So in other words, these guys see tax cuts as economic stimulators. The problem is that it interferes with their redistribution plans. They are normally happy to put the economy in the back seat but since they are going to be the ones getting the blame this time around, they are willing to cut taxes.

Now Nancy Pelosi is another story. I think she actually fits in the category of stupid. The other day she said, “The tax cuts at the high end have not produced any jobs; it only increased the deficit.” She actually seems to believe that tax credits for the poor stimulate the economy yet tax cuts for the wealthy do nothing.

I think economics and wealth distribution have formed a sort of lasagna in her head. They are now impossible to separate.

We are facing a serious financial crisis in the United States. Frankly, most governments are facing serious financial difficulties and frankly possible collapse.

We are in a severe recession. Government debt is through the roof. Money is being printed out of thin air at such a rapid rate that inflation is unavoidable. Of course this money isn’t being put under Obama’s mattress. It’s being spent. Keynesians argue that we need to spend more money in a down economy. “You need to invest to stimulate the economy.” That reminds me of one of my father’s favorite sayings, “You can’t spend your way to prosperity.” That is true for young couples as well as for governments. Would anyone suggest to a young couple that they get as many credit cards as possible and then load them up with debt? There are famous examples of people who have made such attempts. Some experience temporary success but it almost certainly ends in failure.

I believe now is a time for tightening our belts. There is a chance that it could prolong the recession but a recession is not a bad thing. It’s a correction. It’s a time to catch up. It’s a time to clear out bad investments. A recession is a time to correct investments that were not sound.

I think of a recession this way. If you have ever been hiking in the mountains you know that maintaining your footing can be difficult. As much as you may want to enjoy the scenery, you need to keep your head down and watch where you step. If you don’t, you will trip and fall. Though keeping your head down helps you avoid sprained ankles and falls, it also promotes getting lost. You periodically need to stop and look around. Get your bearings. Make sure you are on the right trail. Get a drink of water and look at your compass.

The economy is the same way. There are bad investments and they must be realized. Ask yourself, what if Sony had not stopped making the betamax? In my twenty years in the software industry I’ve seen literally hundreds of products killed. It’s this level of responsiveness that keeps businesses alive. Government has a very difficult time killing programs. Government suffers from a lack of accountability. And as a result, they are not incented to be efficient, agile or flexible.

When a recession is trying to work, government spending masks the problem. Other government actions such as housing stimulus, or band aids such as cash for clunkers, greatly slow down or even postpone the needed correction. Does anyone outside of Detroit argue that the auto industry needs to make fundamental changes in the way they do business? Recklessly pouring billions of dollars into the industry doesn’t encourage such changes. Does anyone love to fly commercial? Did the government assuming tens of billions of dollars in airline pension debt encourage airlines to make the changes that are necessary for the long term good of the industry? Don’t get me started on Amtrak.

Based on these realities, we need to cut out all our wants and focus solely on our needs. That is what the families of the world have been doing the last few years. Families are mini economies. They invest, produce, sell and spend. What is good for the goose is good for the gander. Governments need to take a hint from the families of the world. They need to tighten their belts.