There are a three elements to economic recovery: people must need to buy things, they must have the money to buy them, and they must be believe that that the future is worth investing in. Every economic downturn leads to people postponing purchases of new cars, new homes, and new consumer goods. After a while, we expect people to be compelled to catch up with purchases; the old car cannot be fixed and must be replaced, and so forth. What’s remarkable about the current poor economy is how little of the automatic bounce back we’ve seen. We look to the factors of money and confidence to explain the lack of recovery.

The debate over raising the debt ceiling has passed, but the debt crisis will be with us for years to come. Unlike news of celebrity meltdowns and notorious crimes, the debt crisis has some tricky points that the press has not well explained. Everyone needs to know about debt ceilings and default and their consequences, taxing the rich, what the people really want (a miracle, of course), and the balanced budget amendment. There never was a danger of default, but the shape of the real problem has been left ill-defined by the press.

Taxes are explicit, so it is easy to sum them up. Total spending by government at all levels in the US is estimated at $6.41 trillion for 2010. [ 1 ] That’s about 44% of the gross domestic product. So that means that the private sector gets to choose how to spend the remaining 56% of the money, right? Not really. The government also requires us to comply with its rules, and the indirect costs are substantial. My partial list of indirect costs amounts to $1.8 trillion, more than 12% of the economy on top of the 46%.

Poe wrote, “Once upon a midnight dreary, while I pondered weak and weary, Over many a quaint and curious volume of forgotten lore.” I’ve done that too, in my case trying to figure out my electric bill. The cheapest electricity is from hydroelectric power, a couple of cents per kilowatt hour. Electricity from coal is perhaps four cents, from gas or nuclear around five to seven cents. But here in California, a small allotment of electricity is billed at around eleven cents, then rates rise rapidly to over forty cents. How are the astronomical rates achieved? It’s hard to figure, but when all the costs of green energy are included, a picture starts to emerge.

One of the Democrats campaign themes is to assert that Republicans will return us to the failed policies of the past. The talking heads on television repeat the theme every day. It’s not unusual for a Party to have a broad generic slogan. What’s odd is that no one seems to ask, “Exactly what failed policies are you talking about?” Not even conservative commentators often ask the question, and Democrats rarely volunteer. It turns out that most of the failed policies were instigated and sustained by Democrats, and others were by the Federal Reserve Board, beyond Bush Administration control. Aside from policies, the mentality of an economic bubble was a product of human nature, not government. The Bush Administration can be faulted for some of it’s weak efforts to clean up the policies they inherited, but they made strong attempts to reform Fannie and Freddie.

There was a micro-story in the news this week about a new tax imposed on tanning salons. The 10% tax is supposed to generate $2.7 billion over ten years to help pay for the Obama health care legislation. Why tax tanning salons? Because tanning is related to skin cancer, so it ought to be discouraged by taxation. Everyone knows that whatever is taxed is discouraged, right? But when the revenues from the tax are calculated, the assumption is that there will be no effect, so revenues will be reaped as if no one is deterred. That’s the way tax revenues are usually calculated, which explains why there are usually shortfalls. These days, having computers and such, revenues ought to projected taking tax avoidance into account.

I think it is possible for government to compete fairly with private enterprise, although I cannot think of an instance where it has happened. When the question is posed, what first comes to mind are subsidies by taxpayers to the government operation. That’s true, but there are also issues of access to and the cost of capital, costs of building market share, equatable rules of competition, and the risk of failure. All of these factors must be taken into account when considering if there is level playing field. I’m here to help.

This week I went to a presentation on “Stimulus Opportunities for Small Business,” one of a series around the country slated to run through next February. One might think that talking about stimulus opportunities a year after passage might be too late, but not to worry, the stimulus rollout will take years. In fact, we were told that the the plan not designed to have an immediate impact, but rather to accrue slowly over time.

My method in building the spread sheet was to begin each year with the balance from the previous year, adjust the balance with investment gains or losses, and finally add the contributions for the year. … The stock market provided more excitement than Treasury Bills. The $216K in contributions grew steadily to be worth $613K at the start of 2009. The stock investments lost a heart-stopping plunge from $1,740K last year, but nonetheless still had $1,093 at year end. So despite the worst market year in the 45 year period, the stock investment was still 78% ahead of Treasuries.

The purpose of minimum wage laws is to attempt to force employers to subsidize low wage workers. This attempt fails because there are alternatives to paying the low-wage worker. One is to simply eliminate that business. The other is to automate the job, replacing the unprofitable low-wage labor with machinery and skilled labor that turns a profit.

Is the current financial crisis the result of too little regulation? People asking that question often seem to suppose the total quantity of regulation at issue. If more regulation were always better, then North Korea should have one of the best economies in the world, because surely it is among the most regulated. If it is not that the maximum amount of regulation is best, then it may be that an intermediate quantity produces an optimum. Perhaps too little regulation allows chaos and too much produces strangulation, so that in between there is just the right amount.