As was expected, the Senate passed their revised version of Obama’s stimulus package. In true government fashion, the Senate and the House passed two different bills and will have to reconcile the differences. The likely outcome is a bill that will amount to a lot more than $838 billion.

It is obviously insanity to think that this stimulus bill is going to work better than the one passed last year under Bush. We already tried spending close to $1 trillion dollars to “fix” the economic crisis and it has just gotten worse. The Dow responded to today’s news by plunging over 300 points.

Treasury Secratary Geithner said, “The financial system is working against recovery and that’s the dangerous dynamic we need to change.” In reality, his stimulus bill is working against recovery. The economy needs to remove the bad investments so that we can build on a solid foundation once again. Trying to duct tape and glue this broken economy together is not going to work.

“Added to the congressional stimulus plan, which aims to create jobs and get Americans spending again, the total of these combined efforts could easily pass $2 trillion.” Not only is the bill likely to exceed $2 trillion dollars when all is said and done–why do we put a number on the bill anyway?–but, we are going to waste that money on “creating jobs”. The government cannot create jobs, it can only shuffle the jobs around.

What we need aren’t just “jobs” but, productive jobs. A job can entail digging a hole one day and then filling it back up the next day. What good is that going to bring? The government’s ability to create productive jobs is worse than hit or miss. How does the government know what is productive? It isn’t spending its own money. Only the market can know what is productive. Each action in the market is a person saying that they would rather spend money on this good or service instead of something else–like saving.

Jim Roger’s says the stimulus and bank rescue will only “make things worse”. Amen to that.

Newsweek recently published a piece titled We Are All Socialist Now. The majority of the article is fairly objective and brings up the question of which direction the country is going to move in from here: American free markets or European socialism.

It is completely true that the conservatives spend as much as the liberals in recent decades. There is little difference between the two parties other than the rhetoric–if even that.

The American instinct still favors free markets and small government. That was how America became a land of opportunity for everyone around the world. As much as the socialists in this country want to convince us that the European style of government is better, we know it is not. The European system still stands because of American capitalism–free markets are the only proven means of bringing the most amount of people out of poverty.

My gripe with this Newsweek piece is towards the end as the authors suggest that “the answer may indeed be more government”. It is not the answer. The authors believe in the myth that government needs to stimulate the economy because people and businesses will not. The economy doesn’t need a stimulus, it needs to shed off the bad investments.

The piece further suggests that all the coming problems–global warming, aging population, energy costs–are going to require more government intervention. Of course, that is also wrong. The only means to solve those problems is to get government out of the way. Don’t make things worse by adding government.

Even more ridiculous is the suggestion that “the Obama administration is caught in a paradox. It must borrow and spend to fix a crisis created by too much borrowing and spending”. That is just insanity. The truth is, Obama must not borrow and spend to “fix” a crisis created by too much borrowing and spending. To do more of what caused the problem is ridiculous. There is no paradox; just stop spending.

“Obama talks of the need for smart government. To get the balance between America and France right, the new president will need all the smarts he can summon”. Unfortunately, no president or government or any individual can summon the “smarts” for this illusion of “smart government”. The only thing we are going to get is big government.

Markets are smart. The economy is trying to recover and Obama is only going to kick it while it is down. After Obama is done, we just might all be socialists.

The United States government’s attempts at fixing the current financial crisis has been a complete failure. Nothing has worked. We have spent or allocated trillions of dollars–$7.36 trillion–to “fix” the problem. The irony, of course, is not only will more spending not solve the problem but, it will make things worse.

It is important to remember that government has no money. The only way for government to pay for anything is to take it from citizens through taxes or inflation. Knowing that, the only way for the government to pay for the bailouts and stimulus packages is to take money from one group and give it to another. It is no more useful than taking blood from the left arm to give it to the right arm.

In the case of bailouts, money is taken from productive members of society and then given to nonproductive members of society.

This is called rewarding poor performance. If no one is buying GM’s cars, that means GM is making cars that nobody wants. To bail them out is to force taxpayers to “buy” GM. This only reinforces their current behavior and they will continue to make cars that nobody wants. The result is the same as throwing money into a black hole–nothing will come out of it.

We hear politicians telling us how hard they are working to solve this financial crisis. More bailouts and stimulus packages and tax cuts need to be passed, immediately! They have already stolen trillions of dollars from us and no positives have come from it. No one cares how hard you are trying. We want to see results.

If these politicians really want to solve the financial crisis and keep the pain to a minimum, they would try something else. I propose repealing the 16th Amendment and the abolition of the Internal Revenue Service–most lovably known as the IRS. This would eliminate the income tax. The amount of extra real money available to the people will be a stimulus that no amount of government spending can emulate.

The usual resistance to this idea is the question of how government will function without taxes? First, we aren’t eliminating every tax; just the income tax. Second, the income tax has been around for less than a century–we managed to run this country for over a century without it. Thirdly, individual income tax will only amount to $1.25 trillion in 2008. Compared to all the bailout spending, this is a drop in the bucket! And it will actually do some good.

Without income tax revenue, the government will have to cut spending by–at least–an equal amount. If the government is just going to make up the difference by printing money, it will be no better.

If we give the people $1.25 trillion dollars to do with as they please, the economy will turn around so fast that the history books will not have to rename the Great Depression. What we don’t want is a repeat of the Great Depression where Presidents Hoover and Roosevelt spent the nation into oblivion and turned a recession into a 16 year depression.

Increased government spending is a tax increase no matter how you cut it. Whether the government borrows it and we have to pay it through taxes later or it prints the money and we find ourselves buying a loaf of bread for $5 at the supermarket.

The average American almost spends half the year working to pay taxes. Imagine if we were able to use that money to pay our mortgages, student loans, credit cards, etc. We would be able to dig ourselves out of debt quickly and then have the extra income to spend. However, we cannot simultaneously spend and have a mountain of debt. At some point, the debt will catch up to us and the party will have to end–happening right before our eyes.

The real magic of the removal of the income tax is not just the extra money Americans will have, it is the means by which that money was obtained. If it was just about the absolute number of dollars every citizen had, the government could just print each of us $1 million dollars and everything will be roses and lollipops.

There is little difference between giving everyone $1 million dollars and what all these bailouts and stimulus packages are doing. The common theme is that none of the money was derived by production and therefore does not add to our wealth but, subtracts from it.

The removal of the income tax would provide Americans with “stimulus” money that was derived from production–we had to work for it. This will have the opposite effect of money created out of thin air and we will truly be wealthier.

Few members of Congress are talking about ending the income tax and most of the talk about abolishing the IRS relate to the Fair Tax Act. Although the Fair Tax is better than the current system, we are just moving the burden of taxation from one group to another. The best solution is to abolish the IRS and replace it with nothing.

There are movements across the web to repeal the 16th Amendment, abolish the IRS, and the Federal Reserve System that is most responsible for the financial mess we find ourselves. You can check out the End the Fed website to find the latest on the movement.

The only means of economic relief the politicians can come up with are ones where they spend more and more money while real relief is to stop spending. It is time to tell our representatives in Washington that they need to change course–not just talking about “change” but, actually do it. Tell them to abolish the IRS and the income tax if they are really on the side of the people.

The House defeated the $700 billion bailout plan today and the Dow Jones responded by dropping 777 points–777.68 to be exact. This was the largest single day drop ever. Analyst and politicians may start blaming the people for being non-supportive of this bill but, the market had to fall. It was up or held steady because of speculation that a bailout was coming and due to the naked short selling bans. The market is now merely doing what it is supposed to do: find equilibrium.

TV pundits and Washington elites will try and convince us that we need to do something now more than ever. We should continue to do nothing to bailout Wall Street. Any bailout will only compound the problem and cause more economic problems. We are in the worse crisis since the Great Depression and if government doesn’t keep its hands off, the problem is going to get much worse.

The idea that we need to ensure prices do not fall is a ridiculous notion. By propping up home prices, gas and food prices will go up as well and no one wants that. Housing prices cannot stay at their current levels. In most of the country, home prices have already fallen through the floor from their highs. There should still be more to go. In big cities like New York, real estate prices have held pretty well. It can’t and won’t last.

It was due to the government passing legislation that forced banks to lend money to anyone and everyone so that everyone could “own” a home that caused this crisis. If you cannot afford a home, you should not be buying one. Using “creative” financing is not a good solution. I don’t like to point a finger at any particular party but, in this case, it was the Democrats who pushed through the Community Reinvestment Act. It was originally signed by Carter in 1977 but, not well enforced and amended until 1995. Essentially, it was President Clinton who presided over the increase for mortgage access in inner cities and distressed rural communities.

This act also promoted the use of Fannie Mae and Freddie Mac as a means to unload these mortgages due to their risky nature. Fannie and Freddie were GSEs–government sponsored enterprises–and now they are fully government owned. The two GSEs would repackage the mortgages as securities and sell them on the open market. Because Fannie and Freddie were government backed, their mortgage securities were given high ratings even though they clearly did not deserve it.

The point is, the government caused this horrible financial mess we are in. If left to free market devices, the amount of bad mortgages would have never risen to such levels. So when politicians–especially Democrats–try to blame this crisis on the lack of regulation, they are lying through their teeth or just plainly do not understand economics. Either of which is not a positive for holding public office.

The exponential rise of real estate prices is directly attributed to the massive amount of buyers that flooded into the real estate market due to government demanding everyone own a home and bid prices up higher and higher. Now because everyone’s houses went up in value, some decided it a good idea to refinance and borrow against their home so that they could take that vacation, buy that new car, or whatever. It was fun for several years until people started missing payments and foreclosures started taking place.

Housing prices started to collapse and now millions of Americans have upside down mortgages with negative equity in their homes. The party had ended and here comes the hang over.

Government bailouts and interference of market forces is the equivalent of drinking more and more alcohol in order to delay the hang over. It is logically not a good idea. You need to allow the alcohol to leave the body or in this case, allow the bad debt to leave the market. In fancy-pants talk, we need to liquidate the bad debt. It won’t be painless–hang overs aren’t painless but, they are necessary.

The economy is not in good shape and if we can keep the government from trying to “fix” things, it will start to improve a lot sooner. However, if we allow the government to intervene like it did during the 1930′s, the 16 year Great Depression is going to look like a walk in the park. We do not need government works projects or any other absurd creation of Hoover or Roosevelt.

While it is difficult to do nothing while people are suffering–you and me included, one must remember the ideas of economist Frederic Bastiat. We need to take into account the opportunity costs that we do not see. It may look like a good thing if government provides jobs because in the short run unemployment would be kept in check but, new and more efficient jobs and markets will not get the capital they need because government had directed capital elsewhere. That is exactly how a short painful recession can turn into a long painful depression.

The other danger of government intervention is that the only way government is going to be able to pay for the bailouts and works projects is to increase the national debt by borrowing or by printing more dollars. Both choices are incredibly bad. The current economic crisis won’t kill us, hyperinflation will. Having a lot of dollars is meaningless if they can’t buy anything. The Federal Reserve has already increased the money supply by 8% in the last week to try and “smooth” the gears of the financial system–it won’t work. It is only going to devalue the dollars we currently have.

It was a great victory for the American people today that this bailout of the rich and well connected was defeated. We cannot privatize profits and socialize losses. It is unlikely that Paulson, Bernanke, Bush, and co. is going to let it go. They will try to push some sort of bailout through as best as they can. The Senate will vote on the bill later in the week. This bill does nothing to benefit the people. We need to tell our Senators that we do not support the bill and demand that they vote against it.

Any Senator who votes for this bill should not expect to be re-elected. This is a grand robbery of the American people and I’m glad we didn’t stand for it. The massive public outrage over this bailout bill played a great role in its defeat in the House. Today was a victory for the people. May we continue the fight.

For more insights into the economic crisis and its inner workings, check out LewRockwell.com and The Mises Institute.

It is no surprise that red-light cameras don’t work. When does any government policy do what it was intend to do? I had heard about and seen these red-light cameras long ago but, it appears to be sprouting up in more and more cities lately. In fact, I came face to face with one just recently.

I was driving to Shop Rite and stopped at a red light while on the opposite side, a pick-up truck appeared to have ran past a yellow. The yellows here–New York City–are so short that its hard to tell. I had stopped at this light countless times going to this same supermarket but on this trip, a flash followed the light change. It was a red-light camera and it was definitely new.

I don’t how useful this light is or how accident prone this area is but, I’ve never noticed any problems. The idea behind these cameras is that if drivers know they are being watched, they will be less likely to run reds and therefore everyone will be safer.

Ironically, comprehensive studies have shown that these cameras have increased the number of accidents as drivers make abrupt stops at yellows instead of going through them. I have been in an accident due to a yellow light so I would say that longer yellows would make us safer than these cameras. Cities have also been known to remove red-light cameras once drivers wise up the fact that they are there and less ticket revenue is being produced. Clearly, the city is not looking out for our safety. They are looking to steal as much from us as they can.