If there is one thing that ties all progressives together it is dogma masquerading as science. As I mentioned in a previous article, Progressives; Still Lost in the 1920s the modern progressive movement began around the late 1800s/ early 1900’s when progressive believed that human and societal behavior could be understood and controlled through science. These behaviors spawned the social sciences of Eugenics, Psychiatry, Evolution and Communism; all four were considered to have a scientific base, even Communism was proposed by Marx and Engle’s, not as a form of government, but the eventual scientific destination of all successful societies. One of the basic scientific procedures when trying to prove a theory is to release your findings to the scientific world to see if your finding can be reproduced; this is called peer review. Another basic tenet of science is there must be a way of disproving your theory or the theory becomes non-scientific dogma. As time went on, the pseudo sciences of Keynesian economics and Man Made Global Warming joined the ranks.
Taken separately it is easy to understand that these were not science at all, taken together it is the progressives desire to eliminate God from the equation. Psychiatry as defined by Sigmund Freud held the Newtonian belief that once a psychosis was understood and identified then a cure or course of therapy was not far behind. Once Freud started to understand the true complexity of human behavior he realized his life’s worth has been more defining what psychology is not, more than what was. I have covered Eugenics in several of my articles, but stated simply it is racism, and elitism, proven through pseudo science with the goal of eliminating the useless eaters of the world. The fourth of the original pseudo sciences is the Theory of Evolution or the original title of Darwin’s theory, “The Origin of Species By Means of Natural Selection or Preservation of favored Races in the Struggle for Life.” It is not a big leap of faith to believe, even from just the title, that Darwin believed strongly in Eugenics, which he did.
The Theory of Evolution is still the sole and only scientific theory to challenge religious creation in the origins of life, even though it’s basic premise has never been scientifically proven. As most know the Theory of Evolution states that lower forms of animals evolved into higher forms of animals, and this occurred as animals adapted to their changing surroundings. This evolution was incremental and was the result of a genetic anomalies in animals the proved to be an life advantage, and the same species without this advantage would not be able to compete and would die off. This theory seemed to have been extrapolated from the common occurrences of adaptation, where a color of fur or resistance to a poison, helped a species become more viable. But these animals never morphed into an entirely different species, they simply adapted. Science has showed that similar species have similar genes and even identical strains of DNA, and that these strains of DNA seem to run through extinct and similar species, but no mid-species animals have ever been discovered. When confronted with this information, some of my progressive friends have said, okay so animals evolve in a single generation; which of course is something god could do, but by definition is not evolution.
I will not delve too much into Keynesian theory or Man Mad Global Warming , except to say both are a pseudo scientific, tied closely to progressive political beliefs and also have no avenue where they can be disproved. Those that espouse Man Made Global Warming, claim any and all weather conditions and changes are a result of Man Made Climate Change. Keynesians believe that if an economy does not recover after a stimulus has been injected into the economy, then the stimulus was not enough, with no ideal or maximum amount ever discussed.
So lets not be fooled by what always becomes the science of the oppressor. Science does not objectively become dogma and it takes a great deal of energy and financial considerations to keep this “scientific dogma” from coming crashing to the ground. Therefore, scientific dogma is always very easy to spot, as it will always exist to control and oppress people for the purposes of political or financial gain; or to simply control humanity as purpose unto itself.
Showing posts with label Keynesian Economics. Show all posts
Showing posts with label Keynesian Economics. Show all posts
Friday, March 4, 2011
Monday, November 29, 2010
David Brooks vs The Liberal Technicians; i.e. Paul Krugman is Wrong
In his recent Op-Ed piece, The Two Cultures, David Brooks takes a look at a new economic study of stimuluses’, which comes to the conclusion that they work best with countries that have low debt, fixed exchange rates and closed economies and not countries “like the U.S. with high debt and floating exchange rates.” Unlike Germany, the United States economy is intimately tied to it’s trading partners by overseas manufacturing of US products. Therefore while an $800 billion stimulus might seem to leave a “large footprint” considering the US $14 trillion GDP, “it is hard to find in a $70 trillion global economy.”
Another observation by Brooks parrots my article The Immaturity of Obamanomics. Here Brooks points out the futility of trying to scientifically quantify human behavior and spending habits, “The liberal technicians have an impressive certainty about them. They have amputated those things that can’t be contained in models, like emotional contagions, cultural particularities and webs of relationships. As a result, everything is explainable and predictable. They can stand on the platform of science and dismiss the poor souls down below.” The issue of course is adhering to Keynesian dogma, such as “liberal technician” Paul Krugman. Keynesian models and projections are simply speculative fairy tales, but the likes of Paul Krugman refuses to take his head out of the ground to look around at the real world. Brooks writes, “If the government borrows trillions of dollars, this will increase public anxiety and uncertainty, the conservatives worry. The liberal technicians brush aside this soft-headed mush. These psychological concerns are mythological, they say. That’s gaseous blathering from those who lack quantitative rigor;” this statements pretty much defines every Paul Krugman article I have ever read, or I’m sure he has ever written.
So what is the answer? Well it’s pretty much the opposite of anything Paul Krugman espouses. In the real world you don’t borrow money to reduce the debt. Only in the fantasy of Keynesian macroeconomics, is this considered “a brilliant and aggressive stimulus (model).” It’s what you think it should be. Government cannot create jobs nor will it ever make a profit. In order for the government to receive higher tax revenues, it needs to promote job creation, not raise taxes. This means drastically cutting government expenses and leaving as much capital in the private sector as possible. If there is one area that government can improve is to rein in the naked derivatives market. Since the repeal of Glass-Steagle, the money that was traditionally used to buy stocks and bonds has been invested in these made up instruments, leaving American business grossly under funded; in Germany they have already been outlawed; “When you look around the world at the countries that have come through the recession best, it’s not the countries with the brilliant and aggressive stimulus models. It’s the ones like Germany that had the best economic fundamentals beforehand.”
On might remember that it was Paul Krugman who loudly denounced Germany’s conservative stimulus and austerity, which subsequently boosted their economy to the most robust in all of Europe, contrary to Krugman’s statement, “The key point is that while the advocates of austerity pose as hardheaded realists, doing what has to be done, they can’t and won’t justify their stance with actual numbers — because the numbers do not, in fact, support their position (the numbers Krugman talks about are made up Keynesian numbers).” As I said in Germany Proves the Keynesians Wrong, they were indeed right and Krugman was indeed wrong, just as he is always wrong.
In the final analysis we are left with the obvious, that as much as it was been advertised, you can’t reduce human behavior to a Newtonian equation; human reaction is much closer to Chaos Theory, which produces a pattern but is not necessary predictable. Brooks observed that liberal technicians view “psychological factors like uncertainty and anxiety really are a mirage. The first time a business leader tells you she is holding off on investing because she is scared about the future, you dismiss it as anecdote. But over the past few years, I’ve had hundreds of such conversations.”
As I have said so many times before, Keynesian theory is accepted by those who view government as the answer to society’s problems. Rather than accept the fact, that limited government with reasonable regulations allows the free market to find it’s own level and prosper, Keynesians want constant government influence, unwilling to accept that the economy would work better without it’s interference. Brooks ends with this; “It all makes one doubt the wizardry of the economic surgeons and appreciate the old wisdom of common sense: simple regulations, low debt, high savings, hard work, few distortions. You don’t have to be a genius to come up with an economic policy like that.” It’s like the law of supply and demand; as with gravity, it would exist whether you recognized it or not and is not so easily manipulated.
Another observation by Brooks parrots my article The Immaturity of Obamanomics. Here Brooks points out the futility of trying to scientifically quantify human behavior and spending habits, “The liberal technicians have an impressive certainty about them. They have amputated those things that can’t be contained in models, like emotional contagions, cultural particularities and webs of relationships. As a result, everything is explainable and predictable. They can stand on the platform of science and dismiss the poor souls down below.” The issue of course is adhering to Keynesian dogma, such as “liberal technician” Paul Krugman. Keynesian models and projections are simply speculative fairy tales, but the likes of Paul Krugman refuses to take his head out of the ground to look around at the real world. Brooks writes, “If the government borrows trillions of dollars, this will increase public anxiety and uncertainty, the conservatives worry. The liberal technicians brush aside this soft-headed mush. These psychological concerns are mythological, they say. That’s gaseous blathering from those who lack quantitative rigor;” this statements pretty much defines every Paul Krugman article I have ever read, or I’m sure he has ever written.
So what is the answer? Well it’s pretty much the opposite of anything Paul Krugman espouses. In the real world you don’t borrow money to reduce the debt. Only in the fantasy of Keynesian macroeconomics, is this considered “a brilliant and aggressive stimulus (model).” It’s what you think it should be. Government cannot create jobs nor will it ever make a profit. In order for the government to receive higher tax revenues, it needs to promote job creation, not raise taxes. This means drastically cutting government expenses and leaving as much capital in the private sector as possible. If there is one area that government can improve is to rein in the naked derivatives market. Since the repeal of Glass-Steagle, the money that was traditionally used to buy stocks and bonds has been invested in these made up instruments, leaving American business grossly under funded; in Germany they have already been outlawed; “When you look around the world at the countries that have come through the recession best, it’s not the countries with the brilliant and aggressive stimulus models. It’s the ones like Germany that had the best economic fundamentals beforehand.”
On might remember that it was Paul Krugman who loudly denounced Germany’s conservative stimulus and austerity, which subsequently boosted their economy to the most robust in all of Europe, contrary to Krugman’s statement, “The key point is that while the advocates of austerity pose as hardheaded realists, doing what has to be done, they can’t and won’t justify their stance with actual numbers — because the numbers do not, in fact, support their position (the numbers Krugman talks about are made up Keynesian numbers).” As I said in Germany Proves the Keynesians Wrong, they were indeed right and Krugman was indeed wrong, just as he is always wrong.
In the final analysis we are left with the obvious, that as much as it was been advertised, you can’t reduce human behavior to a Newtonian equation; human reaction is much closer to Chaos Theory, which produces a pattern but is not necessary predictable. Brooks observed that liberal technicians view “psychological factors like uncertainty and anxiety really are a mirage. The first time a business leader tells you she is holding off on investing because she is scared about the future, you dismiss it as anecdote. But over the past few years, I’ve had hundreds of such conversations.”
As I have said so many times before, Keynesian theory is accepted by those who view government as the answer to society’s problems. Rather than accept the fact, that limited government with reasonable regulations allows the free market to find it’s own level and prosper, Keynesians want constant government influence, unwilling to accept that the economy would work better without it’s interference. Brooks ends with this; “It all makes one doubt the wizardry of the economic surgeons and appreciate the old wisdom of common sense: simple regulations, low debt, high savings, hard work, few distortions. You don’t have to be a genius to come up with an economic policy like that.” It’s like the law of supply and demand; as with gravity, it would exist whether you recognized it or not and is not so easily manipulated.
Saturday, November 13, 2010
The Democrats Lost the House Because They Gave Us Two More Years Of Bush
The Democrats did not loose the House because they managed to get the car out of the ditch, it was because they sat there spinning the wheels, burying the car to the wheel wells and then claimed we were out of the ditch; well were not out of the ditch. Here is what you missed, the Republicans under Bush 43 where a fiscal disaster, but the Democrats did nothing to reverse the trend. Obama has ramped up the war in Afghanistan for nothing more than political expedience. Bush seemed oblivious to Katrina and Obama seemed oblivious to the Gulf Oil Spill. What is rarely mentioned is the TARP money Bush loaned to the banks has been repaid with interest, but Obama, rather then returning the money, showed the repayment as income, in a sense paying for his stimulus with repaid TARP money; just more fiscal irresponsibility. The Democrats claimed to fix the cause of the economic melt down with there Financial reform, but did nothing to rein on Fannie Mae, Freddie Mac or the derivative market that caused it all.
Next, the American people have finally had enough with the big lie of the Keynesian stimulus; sorry Joe, but were not buying your,‘we have to borrow money to pay down the debt.’ Stimuluses don’t work and only balloon the debt by trillions of dollars. Next you have Healthcare reform; no different than the unfounded Medicare drug benefit, but on steroids. After all the promises that Obamacare would not increase the debt, the reality, which everybody already knew, is it is going to drive up the price of healthcare and add trillions of dollars to the debt over the next 10-20 years. Finally, you cannot legislate technology. While it will always be the necessity to protect the environment, environmental protection will not result in reducing our dependence on foreign oil, it will increase it, at least in the foreseeable future; that is irrefutable. Fossil fuel is what drives the world’s economies. There is nothing else even close and nothing dawning on the horizon to replace it. If the US does not get its oil in-country, it will need to buy it from foreign countries (many of whom don’t like us very much). The United States has the cleanest processing plants and factories in the world, with the possible exception of Japan. Your Cap and Trade will force industry out of the US with its clean technologies, to China and India who have little regard for environment. And until a miracle happens (i.e. some technological leap), Cap and Trade will result in hundreds of billions of dollars in new taxes, much of which will used to subsidize green jobs that increase unemployment by 2 to1 and some of which will be sent to other countries.
The Democrats lost the House because, rather than "Hope and Change" they offered "More of the Same". After all the rhetoric about the public not wanting 4 more years of Bush, they have so far given two more years of Bush regardless. The American voter has no real faith in the Republicans, but it also has no faith in the Democrats. The party of “no” has simply become the party of “stop!” Stop the spending.“In this present crisis, government is not the solution to our problem; government is the problem.”
Next, the American people have finally had enough with the big lie of the Keynesian stimulus; sorry Joe, but were not buying your,‘we have to borrow money to pay down the debt.’ Stimuluses don’t work and only balloon the debt by trillions of dollars. Next you have Healthcare reform; no different than the unfounded Medicare drug benefit, but on steroids. After all the promises that Obamacare would not increase the debt, the reality, which everybody already knew, is it is going to drive up the price of healthcare and add trillions of dollars to the debt over the next 10-20 years. Finally, you cannot legislate technology. While it will always be the necessity to protect the environment, environmental protection will not result in reducing our dependence on foreign oil, it will increase it, at least in the foreseeable future; that is irrefutable. Fossil fuel is what drives the world’s economies. There is nothing else even close and nothing dawning on the horizon to replace it. If the US does not get its oil in-country, it will need to buy it from foreign countries (many of whom don’t like us very much). The United States has the cleanest processing plants and factories in the world, with the possible exception of Japan. Your Cap and Trade will force industry out of the US with its clean technologies, to China and India who have little regard for environment. And until a miracle happens (i.e. some technological leap), Cap and Trade will result in hundreds of billions of dollars in new taxes, much of which will used to subsidize green jobs that increase unemployment by 2 to1 and some of which will be sent to other countries.
The Democrats lost the House because, rather than "Hope and Change" they offered "More of the Same". After all the rhetoric about the public not wanting 4 more years of Bush, they have so far given two more years of Bush regardless. The American voter has no real faith in the Republicans, but it also has no faith in the Democrats. The party of “no” has simply become the party of “stop!” Stop the spending.“In this present crisis, government is not the solution to our problem; government is the problem.”
Tuesday, November 2, 2010
The Immaturity of Obamanomics
Obama’s economic plan is doomed to failure because it ignores human motivation. It is the same reason socialism doesn’t work and communism results in genocide. When John Maynard Keynes (Keynesian Economics) helped structure the British wartime economy, he was impressed how the British (and Americans) pulled together in a controlled economy and was surprising successful in extremely difficult times. Keynes theorized that if a similar economic structure could be constructed in peacetime, than capitalism, which appeared to be on it's last legs after the last depression, could not only be saved but would thrive. What Keynes later realized was it was not the structure of the economy and government planning that resulted in the economic stability at the time, it was the motivation of the workers. The President is making the same mistake now as he attempts to stimulate the economy by injecting large amounts of borrowed money into the economy, while necessarily increasing the national debt. The Keynesian theory that recessions are the result of a lack of spending does not go far enough. Obviously people spend less during a recession, but just handing out additional money to spend is not going to address the underlying cause, which is a lack of confidence and stability. The mindless belief in Keynesian theory is the result of the progressive worldview, that the government elite by it's very nature is superior in it's decision making, so these elitists have embraced this overreaching theory that espouses influence over the collective to manipulate their spending, making the issue less an economic problem and more a government control issue; but both concepts are horribly flawed.
If citizens are to enjoy their god given rights of life, liberty and the pursuit of happiness, then free market capitalism is the only viable economic plan known to man. Any other plan requires strict control of human behavior because only capitalism recognizes the inherent or inalienable individual rights and human dignity. This is why all forms of socialism always require some form of draconian re-education. When General Eisenhower warned the Nazis to "Beware the fury of an aroused democracy." this was not a warning based on a war time economy, but the realization that when free citizens band together to fight for their freedom, there is little that can stand in their way. In a controlled economy, such as national socialism, austerity and sacrifice are forced; in a Democracy austerity is volunteered. It is a simple matter of fact that enthusiastically volunteered sacrifice will have a more robust result and delayed gratification than forced sacrifice. Further, only in a democracy does delayed gratification have any real meaning, for only with self governess is the individual allowed to succeed or fail based on his own actions and self reliance. The result is the ultimate delayed gratification best personified by Christ's sacrifice, "Greater love has no man than this, that a man gives up his life for his friends."
The Keynesian's belief is that delayed gratification of the masses is very short sighted and can be easily overcome. As I said before, while there is no argument that one of the symptoms of a recession is a lack of spending by the citizenry, Keynesian theory views this is as the primary cause and this is where Keynesian theory goes horribly wrong. The Keynesian believe that all that is necessary is to “prime the pump” by putting cash in the hands of the citizenry and that this will motivate them to spend and end the recession. But the United States has a very mature citizenry and before they increase their discretionary spending they will be looking for a stable income, not a one time "stimulus". The reason stimulus' fail, is that by their very existence it means the economy is in trouble and the mature citizenry knows that spending a one time windfall, rather than saving until the economy stabilizes would be irresponsible. This shows the inherent economic immaturity that exists in government, where spending never seems to be associated with the debt it causes. Probably the height of government elitism and arrogance is Nancy Pelosi and her belief that unemployment insurance. “.. is one of the biggest stimuluses to our economy. Economists will tell you this money is spent quickly. It injects demand into the economy, and is job creating. It creates jobs faster than almost any other initiative you can name because, again, it is money that is needed for families to survive, and it is spent.” Certainly unemployment insurance is a safety net, but the idea that it is a stimulus and is job creating is the blind worldview of the out of touch elite. It is almost absurd that one has to explain that then unemployment insurance is less, usually about 60%, of a person’s wages and the result of unemployment is a sharp reduction in expenditures and the slow leaching of employees qualifications for future employment.
The employed in a recession will not be motivated to spend government stimulus because they are not short sighted and business will not spend or hire because of government stimulus or short term credits because they are not short sighted; in both cases the reasoning is economic maturity. Not only does government not have to balance a budget or make a profit, it is totally ignorant of either concept. The Obama administration has latched onto Keynesian economics theory, not because it has a proven track record, but because it espouses government control and planning. And as much as Neo-Keynesian economics becomes market oppressive, the concepts of a free market and supply and demand have created the greatest prosperity known to man. The reason is self-evident, the free market rewards initiative and delayed gratification and is to date the only economic theory that does not have to be forced on a populace; and like no other forced economic method, it promotes human dignity.
The use of Keynesian economic theory for the purpose of government planning is being rationalized to supposedly free Americans from economic worries. F.A. Hayek warned about this in his book, “The Road to Serfdom”, “It is often said that political freedom is meaningless without economic freedom. This is true, but in a sense almost opposite from that in which was used by our planners*. The economic freedom which is the prerequisite of any other freedom can not be the freedom from economic care which the socialists promise us and which can be obtained only by relieving the individual at the same time of the necessity and the power of choice; it must be the freedom of our economic activity which, with the right of choice, inevitably also carries the risk and responsibility of that right.”
*”planners”, meaning those who would free us by making our economic choices for us. Since “The Road to Serfdom” (1944) was written before Orwell’s 1984 (1949) and the concept of “doublespeak”, Hayek becomes one of the first pre-Orwell to comment on what Hayek called the perversion of language.This was best personified when Christ stated, "Greater love has no man than this, that a man gives up his life for his friends
If citizens are to enjoy their god given rights of life, liberty and the pursuit of happiness, then free market capitalism is the only viable economic plan known to man. Any other plan requires strict control of human behavior because only capitalism recognizes the inherent or inalienable individual rights and human dignity. This is why all forms of socialism always require some form of draconian re-education. When General Eisenhower warned the Nazis to "Beware the fury of an aroused democracy." this was not a warning based on a war time economy, but the realization that when free citizens band together to fight for their freedom, there is little that can stand in their way. In a controlled economy, such as national socialism, austerity and sacrifice are forced; in a Democracy austerity is volunteered. It is a simple matter of fact that enthusiastically volunteered sacrifice will have a more robust result and delayed gratification than forced sacrifice. Further, only in a democracy does delayed gratification have any real meaning, for only with self governess is the individual allowed to succeed or fail based on his own actions and self reliance. The result is the ultimate delayed gratification best personified by Christ's sacrifice, "Greater love has no man than this, that a man gives up his life for his friends."
The Keynesian's belief is that delayed gratification of the masses is very short sighted and can be easily overcome. As I said before, while there is no argument that one of the symptoms of a recession is a lack of spending by the citizenry, Keynesian theory views this is as the primary cause and this is where Keynesian theory goes horribly wrong. The Keynesian believe that all that is necessary is to “prime the pump” by putting cash in the hands of the citizenry and that this will motivate them to spend and end the recession. But the United States has a very mature citizenry and before they increase their discretionary spending they will be looking for a stable income, not a one time "stimulus". The reason stimulus' fail, is that by their very existence it means the economy is in trouble and the mature citizenry knows that spending a one time windfall, rather than saving until the economy stabilizes would be irresponsible. This shows the inherent economic immaturity that exists in government, where spending never seems to be associated with the debt it causes. Probably the height of government elitism and arrogance is Nancy Pelosi and her belief that unemployment insurance. “.. is one of the biggest stimuluses to our economy. Economists will tell you this money is spent quickly. It injects demand into the economy, and is job creating. It creates jobs faster than almost any other initiative you can name because, again, it is money that is needed for families to survive, and it is spent.” Certainly unemployment insurance is a safety net, but the idea that it is a stimulus and is job creating is the blind worldview of the out of touch elite. It is almost absurd that one has to explain that then unemployment insurance is less, usually about 60%, of a person’s wages and the result of unemployment is a sharp reduction in expenditures and the slow leaching of employees qualifications for future employment.
The employed in a recession will not be motivated to spend government stimulus because they are not short sighted and business will not spend or hire because of government stimulus or short term credits because they are not short sighted; in both cases the reasoning is economic maturity. Not only does government not have to balance a budget or make a profit, it is totally ignorant of either concept. The Obama administration has latched onto Keynesian economics theory, not because it has a proven track record, but because it espouses government control and planning. And as much as Neo-Keynesian economics becomes market oppressive, the concepts of a free market and supply and demand have created the greatest prosperity known to man. The reason is self-evident, the free market rewards initiative and delayed gratification and is to date the only economic theory that does not have to be forced on a populace; and like no other forced economic method, it promotes human dignity.
The use of Keynesian economic theory for the purpose of government planning is being rationalized to supposedly free Americans from economic worries. F.A. Hayek warned about this in his book, “The Road to Serfdom”, “It is often said that political freedom is meaningless without economic freedom. This is true, but in a sense almost opposite from that in which was used by our planners*. The economic freedom which is the prerequisite of any other freedom can not be the freedom from economic care which the socialists promise us and which can be obtained only by relieving the individual at the same time of the necessity and the power of choice; it must be the freedom of our economic activity which, with the right of choice, inevitably also carries the risk and responsibility of that right.”
*”planners”, meaning those who would free us by making our economic choices for us. Since “The Road to Serfdom” (1944) was written before Orwell’s 1984 (1949) and the concept of “doublespeak”, Hayek becomes one of the first pre-Orwell to comment on what Hayek called the perversion of language.This was best personified when Christ stated, "Greater love has no man than this, that a man gives up his life for his friends
Thursday, October 14, 2010
Keynesian Economists and Drug Addicts
One of the main Blame Bush talking points is that the economy was in such bad shape after the Bush meltdown, that it will take more than the last 18 months to turn the economy around; and there is some truth to this. The problem is Obama seems to be going in the same direction that Bush was going in when the economy failed. While the sub-prime banking failure pushed the economy over the edge, the economy was already suffering a slow down that caused Bush to institute a $300 billion stimulus plan. The cause of the economic slowdown was primarily the rising cost of oil, which had risen to from $45 a barrel at the end of 2006, to $80 a barrel at the end of 2007 (it would continue to rise to $135 a barrel in 2008). So one could argue that the recession and banking meltdown, while closely related at the time, are now two different problems. And with the banks repaying the TARP (Troubled Asset Relief Program) money and oil prices at least the same as 2007 levels, it would seem the economy was ripe for a Keynesian stimulus. The problem is Keynesian economics is a farce and stimuluses don't ever work.
President Obama poured over $800 billion into the American economy as a stimulus with almost nothing to show for it. He said this stimulus would be dealt out to shovel ready projects to get the economy going again. But what became obvious almost immediately, was the money instead disappeared into state coffers, unemployment insurance and left wing projects dreamed up by the Apollo Alliance (the liberal think tank that wrote the stimulus bill). This left even the heavily partisan Paul Krugman, to denounce in several of his Op-Ed pieces that the stimulus wasn’t a stimulus. Paul Krugman said that the $800 billion stimulus needed to be much larger and used more for stimulus projects, such a repairing and building infrastructure, such as a rail tunnel so workers in New Jersey will have less traffic when they drive to and from New York, even though both states have unemployment rates over 10%. While Krugman has not given a specific figure, one can suppose that he is talking trillions of dollars; this would be added to the $2.5 trillion debt left by 8 years of Bush Administration and the additional $2.5 trillion in debt already attributed to President Obama in his first two years. And of course, if a theoretical $1.5 trillion 2nd stimulus did not kick start the economy, than Krugman would say it’s because it was also not big enough. I would like to borrow a line from Krugmaniswrong.com who deconstructs every Paul Krugman Op-Ed piece. “They convince themselves that if only they had “more” everything would work perfect. Two types of people in this world have that mentality. Keynesian economists and drug addicts.”
But in a rare refreshing moment, President Obama in a recent interview with the New York Times, conceded that the shovel ready projects his stimulus was supposed fund, not only didn't exist, but there is "No such thing as shovel-ready projects". But it does make one wonder, then where did all the money really go? All that is necessary now is for the President to realize that government cannot create jobs; that borrowing large amounts of money to stimulate the economy and loan to bankers, makes about as much sense as cutting taxes without cutting spending, and simultaneously fighting two wars. And finally, while cutting taxes is not the answer to everything, increasing taxes is certainly the way to increase unemployment, especially raising taxes on the top 2% who are the ones that will most likely fund most of the new jobs. But I may be asking for way to much.
President Obama poured over $800 billion into the American economy as a stimulus with almost nothing to show for it. He said this stimulus would be dealt out to shovel ready projects to get the economy going again. But what became obvious almost immediately, was the money instead disappeared into state coffers, unemployment insurance and left wing projects dreamed up by the Apollo Alliance (the liberal think tank that wrote the stimulus bill). This left even the heavily partisan Paul Krugman, to denounce in several of his Op-Ed pieces that the stimulus wasn’t a stimulus. Paul Krugman said that the $800 billion stimulus needed to be much larger and used more for stimulus projects, such a repairing and building infrastructure, such as a rail tunnel so workers in New Jersey will have less traffic when they drive to and from New York, even though both states have unemployment rates over 10%. While Krugman has not given a specific figure, one can suppose that he is talking trillions of dollars; this would be added to the $2.5 trillion debt left by 8 years of Bush Administration and the additional $2.5 trillion in debt already attributed to President Obama in his first two years. And of course, if a theoretical $1.5 trillion 2nd stimulus did not kick start the economy, than Krugman would say it’s because it was also not big enough. I would like to borrow a line from Krugmaniswrong.com who deconstructs every Paul Krugman Op-Ed piece. “They convince themselves that if only they had “more” everything would work perfect. Two types of people in this world have that mentality. Keynesian economists and drug addicts.”
But in a rare refreshing moment, President Obama in a recent interview with the New York Times, conceded that the shovel ready projects his stimulus was supposed fund, not only didn't exist, but there is "No such thing as shovel-ready projects". But it does make one wonder, then where did all the money really go? All that is necessary now is for the President to realize that government cannot create jobs; that borrowing large amounts of money to stimulate the economy and loan to bankers, makes about as much sense as cutting taxes without cutting spending, and simultaneously fighting two wars. And finally, while cutting taxes is not the answer to everything, increasing taxes is certainly the way to increase unemployment, especially raising taxes on the top 2% who are the ones that will most likely fund most of the new jobs. But I may be asking for way to much.
Wednesday, October 6, 2010
Krugman Reduced To Shilling for the Democrats
The other day I heard a liberal radio program KSCO “What’s Left” rag on the Republican Pledge plan. The primary ammunition was an article by Paul Krugman (Downhill With the G.O.P.), where he cites another economist Howard Gleckman of the “nonpartisan” (quotations added) Tax Policy Center has done the math. As he points out, the only way to balance the budget by 2020, while simultaneously (a) making the Bush tax cuts permanent and (b) protecting all the programs Republicans say they won’t cut, is to completely abolish the rest of the federal government: “No more national parks, no more Small Business Administration loans, no more export subsidies, no more N.I.H. No more Medicaid (one-third of its budget pays for long-term care for our parents and others with disabilities). No more child health or child nutrition programs. No more highway construction. No more homeland security. Oh, and no more Congress.” The deejay hammered anyone who called with an alternate view with, “There is no way this will work, look at what a nonpartisan economist said.”
The flaws in Krugman's article starts with the Tax Policy Center, which is anything but non-partisan, and is part of the Brookings Institute, which is a progressive think tank that embraces Krugman's Neo-Keynesian theories. As I said before Krugman views taxes and revenue as a zero sum gain; the more taxes the more revenues, the less taxes to less revenue. They refused to acknowledge decades of history that that have shown higher tax rates create diminishing returns (see video below). During the Kennedy, Reagan, Clinton and Bush years, tax cuts actually increased tax revenues; the fact that Regan and Bush redistributed increased government spending as debt, does not negate the fact that the tax cuts did increase revenues. The true root of Krugman's belief system is businesses in the free market can not be trusted to properly invest and spend the money they create, so it is necessary to heavily tax all earnings so the government can re-distribute earnings through targeted tax breaks and low interest loans; in other words they want to tax business and loan the money back to them as they see fit.
Krugman is also using the Progressive spin on the Bush tax cuts. What they want you to believe is Congress is going to cut taxes. This of course is ludicrous, because the tax cuts we are talking about occurred 10 years ago. What the Democrats are talking about is raising taxes, about $700 billion over 10 years on those that make over $250,000, which they call the rich. What’s interesting is the Democrats have already spent the money and are bemoaning the fact that if they can’t raise these taxes on the rich, then they will have to borrow the money, which will add to the deficit. Don’t you wish you could use this logic on your boss? There is also no doubt in anyone’s mind any tax increases will increase unemployment and reduce GNP by as much or more as the tax revenue it raises. And since the $700 billion figure is based on 2009 GNP computed over 10 years, there is a real possibility that the tax revenues will be considerably less as the GNP is reduced.
When John Maynard Keynes wrote his theories on macroeconomics, he was still a firm believer in the free market and argued that his theories were designed to save capitalism. He was also pragmatic; when asked what he would do if he was wrong about any of his theories, he was famous for saying, “I will change my mind, what do you do?” But Krugman's Neo-Keynesian theories have thrown out any real attempt to save capitalism, concentrating more on Social Justice and the redistribution of wealth; in this matter Krugman has become what Keynes called idiotic, which is a Socialist; more accurately a New Deal Socialist. Krugman has forsaken any real economic thought and has simply created a partisan economic theory based on the spending wants of the progressive Democrats. This was driven home in his most recent article “Fear and Favor”. In this article Krugman throws away any credibility he might have had left, and shows himself as nothing but a shill for the Democratic party. While he had one passing economic comment about the Bush tax cuts, the rest of the article was a non-economic tirade against Fox News; starting with calling the Tea Party the Klu Klux Klan, “A note to Tea Party activists: This is not the movie you think it is. You probably imagine that you’re starring in “The Birth of a Nation.” Then, being true to form, he marks off a list of the tired old complaints we have already heard about Fox from the progressives, “Ministry of Propagana”, "Orwellian fair and balanced”, and of course Fox now runs the Republican Party, which has been bought and paid for by Rupert Murdoch.
So now we know Paul Krugman and Robert Gibbs pretty much have the same job. The only difference is, much like Krugman’s allegation that Fox hires lawyers, scientists and economic prostitutes, Krugman complains most about what he has become, and much like the Climatologists that worked in obscurity until global warming reared it's ugly head, he has sold his soul to extend his 15 minutes of fame beyond it's usefulness. I will leave you with these three You Tube videos. The first is an Obama and Hillary debate. In this debate, Obama said he would raise the Capital Gains tax, even though it would reduce tax revenues for the sake of "fairness". This is the same logic used by Krugman and the political elite who really don’t care about tax revenues, they just want control of income so they can be the ones who re-distribute wealth according to their economic planning.
The second is a debate between Linda McMahon and Dick Blumethal for a Connecticut Senate seat, which has become an overnight sensation on "how to create a job". This is the best example I have seen that demonstrates how someone as intelligent as Paul Krugman, is so clueless to how the world really works outside academia.
And the third is Nancy Pelosi explaining how food stamps and unemployment insurance are the best way to create jobs.
The flaws in Krugman's article starts with the Tax Policy Center, which is anything but non-partisan, and is part of the Brookings Institute, which is a progressive think tank that embraces Krugman's Neo-Keynesian theories. As I said before Krugman views taxes and revenue as a zero sum gain; the more taxes the more revenues, the less taxes to less revenue. They refused to acknowledge decades of history that that have shown higher tax rates create diminishing returns (see video below). During the Kennedy, Reagan, Clinton and Bush years, tax cuts actually increased tax revenues; the fact that Regan and Bush redistributed increased government spending as debt, does not negate the fact that the tax cuts did increase revenues. The true root of Krugman's belief system is businesses in the free market can not be trusted to properly invest and spend the money they create, so it is necessary to heavily tax all earnings so the government can re-distribute earnings through targeted tax breaks and low interest loans; in other words they want to tax business and loan the money back to them as they see fit.
Krugman is also using the Progressive spin on the Bush tax cuts. What they want you to believe is Congress is going to cut taxes. This of course is ludicrous, because the tax cuts we are talking about occurred 10 years ago. What the Democrats are talking about is raising taxes, about $700 billion over 10 years on those that make over $250,000, which they call the rich. What’s interesting is the Democrats have already spent the money and are bemoaning the fact that if they can’t raise these taxes on the rich, then they will have to borrow the money, which will add to the deficit. Don’t you wish you could use this logic on your boss? There is also no doubt in anyone’s mind any tax increases will increase unemployment and reduce GNP by as much or more as the tax revenue it raises. And since the $700 billion figure is based on 2009 GNP computed over 10 years, there is a real possibility that the tax revenues will be considerably less as the GNP is reduced.
When John Maynard Keynes wrote his theories on macroeconomics, he was still a firm believer in the free market and argued that his theories were designed to save capitalism. He was also pragmatic; when asked what he would do if he was wrong about any of his theories, he was famous for saying, “I will change my mind, what do you do?” But Krugman's Neo-Keynesian theories have thrown out any real attempt to save capitalism, concentrating more on Social Justice and the redistribution of wealth; in this matter Krugman has become what Keynes called idiotic, which is a Socialist; more accurately a New Deal Socialist. Krugman has forsaken any real economic thought and has simply created a partisan economic theory based on the spending wants of the progressive Democrats. This was driven home in his most recent article “Fear and Favor”. In this article Krugman throws away any credibility he might have had left, and shows himself as nothing but a shill for the Democratic party. While he had one passing economic comment about the Bush tax cuts, the rest of the article was a non-economic tirade against Fox News; starting with calling the Tea Party the Klu Klux Klan, “A note to Tea Party activists: This is not the movie you think it is. You probably imagine that you’re starring in “The Birth of a Nation.” Then, being true to form, he marks off a list of the tired old complaints we have already heard about Fox from the progressives, “Ministry of Propagana”, "Orwellian fair and balanced”, and of course Fox now runs the Republican Party, which has been bought and paid for by Rupert Murdoch.
So now we know Paul Krugman and Robert Gibbs pretty much have the same job. The only difference is, much like Krugman’s allegation that Fox hires lawyers, scientists and economic prostitutes, Krugman complains most about what he has become, and much like the Climatologists that worked in obscurity until global warming reared it's ugly head, he has sold his soul to extend his 15 minutes of fame beyond it's usefulness. I will leave you with these three You Tube videos. The first is an Obama and Hillary debate. In this debate, Obama said he would raise the Capital Gains tax, even though it would reduce tax revenues for the sake of "fairness". This is the same logic used by Krugman and the political elite who really don’t care about tax revenues, they just want control of income so they can be the ones who re-distribute wealth according to their economic planning.
The second is a debate between Linda McMahon and Dick Blumethal for a Connecticut Senate seat, which has become an overnight sensation on "how to create a job". This is the best example I have seen that demonstrates how someone as intelligent as Paul Krugman, is so clueless to how the world really works outside academia.
And the third is Nancy Pelosi explaining how food stamps and unemployment insurance are the best way to create jobs.
Sunday, September 5, 2010
The Bloom is Off the Rose of Keynesian Economics
Sometimes Paul Krugman manipulates the truth to try and make his neo- Keynesian theory work and other times he just ignores reality and lies. In his ‘The Real Story” article, he makes the ludicrous statement “ inflation always falls during sustained periods of high unemployment and this time should be no different.” Apparently he forgot the Carter Administration where high unemployment and inflation was so rampant that they had to make up a new word for it (Stagflation). You may also remember that I said (Germany Proves Keynesians and Obama Wrong) Krugman would try and spin Germany’s rebound that resulted from its austerity measures; 9% raise in GDP and a drop in unemployment in a single quarter. This was after this remark in his Op-Ed piece “That 30’s Feeling;
"Many economists, myself included, regard this turn to austerity (Germany’s) as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And here in Germany, a few scholars see parallels to the policies of Heinrich Brüning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic. But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here, where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.
Well this was his statement in his Sept 5 Op-Ed, “The Real Story;”
Oh, and don’t tell me that Germany proves that austerity, not stimulus, is the way to go. Germany actually did quite a lot of stimulus — the austerity is all in the future. Also, it never had a housing bubble that burst. And with all that, German G.D.P. is still further below its pre-crisis peak than American G.D.P. True, Germany has done better in terms of employment — but that’s because strong unions and government policy have prevented American-style mass layoffs.
There is simply no way to reconcile his forecast and the180 deg spin. Paul Krugman is running scared.
What Krugman continues to harp on however is a lack of inflation as the US borrowed itself into an additional $12 trillion hole over the last 10 years; $4 trillion in last two years alone. Krugman is so sure of his neo-Keynesian belief that inflation cannot occur with sustained unemployment, that he is willing to bet the farm (aka the US and world economy) on it. The reason however, that the US economy has not experienced any inflation is mainly due to reasons that have nothing to do with unemployment, but are nonetheless very well known by real economists; the first being the cause of the Carter years of stagflation. Here was a classic example of a Neo-Keynesian refusal to do as John Maynard Keynes said to do when situations change, “I change my mind; what do you do?” The reason is centered on the price oil and how its sold. During the Carter years the US was mired in a recession and suddenly oil prices increased, resulting in inflation. The reason is simple and obvious and still very true today. The world buys and sells oil in US dollars. This leads in many ways to the tail wagging the dog; resulting in the price of oil determining the value of the dollar. As long as oil prices are stable and low, the US will dollar will tend to stay stable with low inflation. But if oil starts to spike, then inflation will set in. In the summer of 2008 the US suffered from oil prices spiking to over $4 @ gal. The result was an immediate increase in inflation from 3% to 5.6%, which fell off as soon as oil went down to its previous prices.
Next you have the Fed keeping interest rates artificially low. This can only continue as long as the US Treasury can keep selling low yield Treasury securities. One reason the Treasury securities market continues to stay relatively healthy is that Europe is 10 years closer to the Keynesian “end point” than the US, so even the small yield Treasury securities seem a better investment then those based on the Euro; but that is starting to change. Recently the Fed has announced they are going to buy more Treasury securities themselves, which will increase monetization and eventually lead to increased inflation. Another obvious issue is as the US goes deeper into the debt, the less stable the dollar becomes. Sooner or later, there will be a demand for higher yields from US Treasury securities to cover the increased risk that the added debt will bring upon the economy on which they are based . Once the Federal securities yields go up, you won’t be able to stop inflation with 40% unemployment.
Last, but certainly not least you have China. For years now, China has continually devalued its currency so it can sell its products a lower prices. This has especially helped to pump up the value of the dollar. There has been criticism of this from the other world markets, but China knows on what side it’s toast is buttered on and continues to prop up the currency of it’s biggest trading partner. China has also been one of Washington’s biggest critics for it’s Keynesian deficit spending and has periodically sold off a percentage of its US Treasury securities, of which it holds about $840 billion worth, to goad the US to reduce its debt. A higher valued Yen would certainly lead to inflation.
The world wide opinion of Keynesian economics and it’s debt fueled spending programs has not produced the results it promised, and the realization it has finally reached it’s "end point." As I wrote in another blog article It Wasn't All Bush, Keynesian economics has caused us, particularly since the 1980s, to continually borrow prosperity from our grandchildren and great grandchildren. When Reagan became president in 1981 the debt was $700 billion, when he left 8 years later it was $3 trillion; in today’s money that’s an increase of $5.75 trillion. “Since the 1980s, Americans have consumed more than they produced—and they have made up the difference by borrowing. Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose.” (www.newsweek.com). Like the gangsters after prohibition, the bankers and the Keynesian will try and put the smoke back in the box, but is over. It is time to get back to being responsible again and to go out and make an honest dollar.
"Many economists, myself included, regard this turn to austerity (Germany’s) as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And here in Germany, a few scholars see parallels to the policies of Heinrich Brüning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic. But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here, where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.
Well this was his statement in his Sept 5 Op-Ed, “The Real Story;”
Oh, and don’t tell me that Germany proves that austerity, not stimulus, is the way to go. Germany actually did quite a lot of stimulus — the austerity is all in the future. Also, it never had a housing bubble that burst. And with all that, German G.D.P. is still further below its pre-crisis peak than American G.D.P. True, Germany has done better in terms of employment — but that’s because strong unions and government policy have prevented American-style mass layoffs.
There is simply no way to reconcile his forecast and the180 deg spin. Paul Krugman is running scared.
What Krugman continues to harp on however is a lack of inflation as the US borrowed itself into an additional $12 trillion hole over the last 10 years; $4 trillion in last two years alone. Krugman is so sure of his neo-Keynesian belief that inflation cannot occur with sustained unemployment, that he is willing to bet the farm (aka the US and world economy) on it. The reason however, that the US economy has not experienced any inflation is mainly due to reasons that have nothing to do with unemployment, but are nonetheless very well known by real economists; the first being the cause of the Carter years of stagflation. Here was a classic example of a Neo-Keynesian refusal to do as John Maynard Keynes said to do when situations change, “I change my mind; what do you do?” The reason is centered on the price oil and how its sold. During the Carter years the US was mired in a recession and suddenly oil prices increased, resulting in inflation. The reason is simple and obvious and still very true today. The world buys and sells oil in US dollars. This leads in many ways to the tail wagging the dog; resulting in the price of oil determining the value of the dollar. As long as oil prices are stable and low, the US will dollar will tend to stay stable with low inflation. But if oil starts to spike, then inflation will set in. In the summer of 2008 the US suffered from oil prices spiking to over $4 @ gal. The result was an immediate increase in inflation from 3% to 5.6%, which fell off as soon as oil went down to its previous prices.
Next you have the Fed keeping interest rates artificially low. This can only continue as long as the US Treasury can keep selling low yield Treasury securities. One reason the Treasury securities market continues to stay relatively healthy is that Europe is 10 years closer to the Keynesian “end point” than the US, so even the small yield Treasury securities seem a better investment then those based on the Euro; but that is starting to change. Recently the Fed has announced they are going to buy more Treasury securities themselves, which will increase monetization and eventually lead to increased inflation. Another obvious issue is as the US goes deeper into the debt, the less stable the dollar becomes. Sooner or later, there will be a demand for higher yields from US Treasury securities to cover the increased risk that the added debt will bring upon the economy on which they are based . Once the Federal securities yields go up, you won’t be able to stop inflation with 40% unemployment.
Last, but certainly not least you have China. For years now, China has continually devalued its currency so it can sell its products a lower prices. This has especially helped to pump up the value of the dollar. There has been criticism of this from the other world markets, but China knows on what side it’s toast is buttered on and continues to prop up the currency of it’s biggest trading partner. China has also been one of Washington’s biggest critics for it’s Keynesian deficit spending and has periodically sold off a percentage of its US Treasury securities, of which it holds about $840 billion worth, to goad the US to reduce its debt. A higher valued Yen would certainly lead to inflation.
The world wide opinion of Keynesian economics and it’s debt fueled spending programs has not produced the results it promised, and the realization it has finally reached it’s "end point." As I wrote in another blog article It Wasn't All Bush, Keynesian economics has caused us, particularly since the 1980s, to continually borrow prosperity from our grandchildren and great grandchildren. When Reagan became president in 1981 the debt was $700 billion, when he left 8 years later it was $3 trillion; in today’s money that’s an increase of $5.75 trillion. “Since the 1980s, Americans have consumed more than they produced—and they have made up the difference by borrowing. Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose.” (www.newsweek.com). Like the gangsters after prohibition, the bankers and the Keynesian will try and put the smoke back in the box, but is over. It is time to get back to being responsible again and to go out and make an honest dollar.
Wednesday, September 1, 2010
Idealism vs Economic Theory
At some point, no matter what your opinion, you have to ask yourself three questions. #1 What exactly did Bush do to screw up the economy that we need to reverse? I mean, we blame Bush for the economy, so there must be something he was doing that he alone (or with the Republicans) was doing; some of which I covered this in my recent article, It Wasn't All Bush You can still “blame Bush,” but a more important question is(#2) , What are we going to do about it? And the #3 question is, after 20 months of Obama’s economic recovery plan, with no evidence that the economy has recovered at all, is it reasonable to ask, is Obama’s plan a failure? Should we be looking to do something else? Certainly, if you interject $500 billion into the economy and loan $800 billion to the banks, it is going to have a temporary and positive effect on the economy; and it did. But the economy is slipping back into what some are falsely calling a double dip economy. But this double dip recession appears to be the same recession less the temporary affects of the stimulus; as Ron Paul said, “You can’t have a double dip recession if the first recession never came to an end.”
Presidents like to posture that they are following some economic strategy; Reagan had “supply side”economics and Obama has Keynesian theory. But what usually happens, due to perceived political necessity like Reagan or a re-distributive ideology as with Obama, these strategies become political road kill. When Reagan compromised with the Democrats and allowed high deficits along with his tax cuts, he simply redistributed taxes as debt (and his key economic adviser David Stockman resigned). This is not to condemn what occurred, it just wasn’t supply side economics. The same with President Obama, the key to his economic reform is a Keynesian stimulus to prime the economic pump. But the President’s stimulus was not injected into areas of the economy that would result in any jobs. Rather the stimulus was written by the ultra-left Apollo Alliance to fund those areas of the economy that met with their political agenda. Even Paul Krugman had to agree, “..for all the talk of a failed stimulus, if you look at government spending as a whole you see hardly any stimulus at all.” While FDR also ran up the debt and may have extended the Great Depression, at least he had something to show for it. Where are all the work projects? Where are the dams and bridges and highways? Where are all those “shovel ready “jobs?
The Whitehouse said they saved 3 million jobs, but there are still 8 million jobs lost! Because a Keynesian stimulus is not designed specifically to create jobs, the stimulus simply disappeared in the $34 trillion of private dept. What Keynesian theory has never dealt with before are such large amounts of private debt. People are willing to maintain a rather high debt levels if they are employed, but these safety-net programs like unemployment insurance, are recognized by the unemployed as temporary. So rather than breaking us loose from the "liquidity trap," people are paying off debt and increasing their savings, hoping for the best but preparing for the worst; contrary to Nancy Pelosi saying that unemployment insurance will stimulate the economy and create jobs. This is the fatal flaw that eventually shows itself with Keynesian theory; the inability to factor in unanticipated human behavior. But even with this, the President never gave the stimulus a chance; it was more important for the Apollo Alliance to fund its progressive agenda, than to create jobs or improve the economy, which makes this the coming attraction for Cap and Trade.
Presidents like to posture that they are following some economic strategy; Reagan had “supply side”economics and Obama has Keynesian theory. But what usually happens, due to perceived political necessity like Reagan or a re-distributive ideology as with Obama, these strategies become political road kill. When Reagan compromised with the Democrats and allowed high deficits along with his tax cuts, he simply redistributed taxes as debt (and his key economic adviser David Stockman resigned). This is not to condemn what occurred, it just wasn’t supply side economics. The same with President Obama, the key to his economic reform is a Keynesian stimulus to prime the economic pump. But the President’s stimulus was not injected into areas of the economy that would result in any jobs. Rather the stimulus was written by the ultra-left Apollo Alliance to fund those areas of the economy that met with their political agenda. Even Paul Krugman had to agree, “..for all the talk of a failed stimulus, if you look at government spending as a whole you see hardly any stimulus at all.” While FDR also ran up the debt and may have extended the Great Depression, at least he had something to show for it. Where are all the work projects? Where are the dams and bridges and highways? Where are all those “shovel ready “jobs?
The Whitehouse said they saved 3 million jobs, but there are still 8 million jobs lost! Because a Keynesian stimulus is not designed specifically to create jobs, the stimulus simply disappeared in the $34 trillion of private dept. What Keynesian theory has never dealt with before are such large amounts of private debt. People are willing to maintain a rather high debt levels if they are employed, but these safety-net programs like unemployment insurance, are recognized by the unemployed as temporary. So rather than breaking us loose from the "liquidity trap," people are paying off debt and increasing their savings, hoping for the best but preparing for the worst; contrary to Nancy Pelosi saying that unemployment insurance will stimulate the economy and create jobs. This is the fatal flaw that eventually shows itself with Keynesian theory; the inability to factor in unanticipated human behavior. But even with this, the President never gave the stimulus a chance; it was more important for the Apollo Alliance to fund its progressive agenda, than to create jobs or improve the economy, which makes this the coming attraction for Cap and Trade.
Sunday, August 29, 2010
It Wasn't All Bush
Obama is the first President in memory that has refused to take ownership of the economy he inherited. Because of this, our current President has presided over a US economy were the American people continue to be unsure who is responsible and what is being done. Once they took power, FDR did not blame Hoover, nor did Reagan blame Carter; both took ownership and responsibility for economy from their inauguration forward. This inspires confidence and allows the President to define the present economy and his strategy for creating growth. Obama has done neither, except to blame the previous administration. We therefore are left up in the air wondering what it is exactly that we are supposed to "Blame Bush" for and what strategy Obama is using, besides increasing public dept and expanding entitlements. So lets take a moment to review exactly what we are "Blaming Bush" for and what Obama could be doing if he were to finally take ownership of the economy.
Most have heard something about the repeal of Glass-Steagall, a post Great Depression law that was passed in hopes of preventing another depression, and in many ways what also lead to our current problems. The repeal started as a Republican bill during the Clinton Administration in 1999. The proponents of the bill were Sen. Phil Gram(R-TX) and Rep. Jim Leach(R-IO), but by the time it emerged from it's conference committee it was very bi-partisan bill and Clinton signed it into law.
What really started the ball rolling on the mortgage bubble was Clinton's ex-Director of Management and Budget Franklin Raines. Raines took control of Fannie Mae in 1999 and instituted the American Dream Commitment program which started the pilot program of increasing sub-prime loans to get previously un-qualified and more minorities home loans. By 2004 Raines was raking in the dough but the numbers were not adding up. After Raines resigned in Dec 2004, it was determined he mis-stated over $6 billion in profits adding about $90 million to his bonuses. His penalty was to return about $7 million, but the sub-prime program started by Raines exploded after he left and the rest is history. Raines is now involved in an carbon trading Investment Company waiting for cap and trade to be voted in. Neither the Republicans or Democrats did much to stop the coming melt-down, but it was Democrats such as Barney Frank and Chris Dodd that were the most vocal defenders.
Our crisis however was one of credit. The basis of the credit crunch can be traced in my opinion to Ronald Reagan. The result of Carter Stagflation (a recession with high interest rates; not believed possible till then) caused lower debt and higher savings in the private sector. As interest rates fell and the economy boomed, but the effect was misapplied supply side economics. Now this was not President Reagan's intention. Reagan cut taxes across the board, but also raised the employer tax (ie Social Security) so the Social Security fund would be solvent in the future. When there was a significant budget deficit, Reagan made a deal with the Democrts that he would raise some taxes and they would reduce spending; Reagan did his part, but the Demicrats did not. The effect on the national psyche, was actually Keynesian in nature, that with cheap money (low interest rates) the private sector could borrow their way to prosperity. This reduction in savings and excessive private debt help fuel the economy through the Bush 41 , Clinton and Bush 43 years. Much has been said of the Clinton budget surpluses, which right or wrong are mainly attributed to a lack of major military conflict during his presidency and a markedly reduced GDP, probably a result of increased taxes. The end result was an economy based on credit.
A simplistic definition of Keynesian theory: Keynes explanations of slumps ran something like this: in a normal economy, there is a high level of employment, and everyone is spending their earnings as usual. This means there is a circular flow of money in the economy, as my spending becomes part of your earnings, and your spending becomes part of my earnings. But suppose something happens to shake consumer confidence in the economy. Worried consumers may then try to weather the coming economic hardship by saving their money. But because my spending is part of your earnings, my decision to hoard money makes things worse for you. And you, responding to your own difficult times, will start hoarding money too, making things even worse for me. So there's a vicious circle at work here: people hoard money in difficult times, but times become more difficult when people hoard money. The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. (www.huppi.com). You will notice not once was there a mention of reducing unemployment, that's because Keynesian economics does not key into unemployment, only increasing the money flow. But no time in the history of economics has a private economy been so indebted. The Keynesians have no plan to stop people from paying off debt, rather than re-circulating money.
Another inherent flaw in Keynesian theory is the belief in cheap money; that it doesn't matter if you can't repay a loan as long as you can afford the interest payments. Sound familiar? When Keynesians say "expanding the money supply", they mean low interest loans and subsidizing private industry usually with large construction projects. The problem is there is no mechanism in Keynesian theory to ever actually pay back the loans and when the construction jobs ends, so does the temporary employment. As long as the Federal reserve keeps interest rates low, there will also be no incentive to save money. This reliance on borrowing cheap money has led to our current situation where business must borrow to stay in business. It is like you needing to borrow rent money, knowing you will have the money next month. You pay the rent with the borrowed money but when the next month's rent comes due, you must use what ever money has come in to pay off last months loan and then take out another loan for this month; you can never get ahead and if the bank stops loaning you're dead in the water. Government on the other hand, just keeps taking out interest only loans.
However bad the sub-prime meltdown was, and it was bad, was made ten times worse by side bets (or Credit Default Swaps) made by the investment banks like Leman Bros, AIG and of course Goldman Sachs. For every sub-prime mortgage that was loaned out, there were about 40-50 of these made up side bets made. After the meltdown, US Banks had assets, originally valued at about $1 trillion, who's value could not be determined (i.e. toxic), which basically meant they couldn't lend any money and businesses almost came to a stand still. The government first decided to just buy (or insure these toxic assets, because unlike the banks, the Fed can just hold onto them until their value can be established later. This was done during the Saving and Loan crisis of the 1980's and the Federal Government actually made money when the S&L assets were eventually sold. Unfortunately the players in all this, Henry (Hank) Paulson, Ben Bernanke, Timothy Geithner, all alumni from Goldman Sachs, knew the real danger to the banks was from the outstanding Credit Default Swaps, whose outstanding debt to the banks could be as high as $40 trillion. Therefore the expanded Troubled Asset Relief Program (TARP) money, ($1.2 Billion) ended up being distributed via AIG to US (including Goldman Sachs) and European banks to cover some of these outstanding derivatives. So instead of loosing up money to make more loans, the banks just made good with themselves.
The recession we are seeing now is the result of business holding back until they can once again run their business month to month without having to borrow money. This process is pretty much complete, but before they start hiring again, and borrowing to expand, they want to know what the new government programs and taxes are going to cost them. The only offering the Obama economists are offering is to make it easier to borrow money, this is the Keynesians concept of expanding the money supply. But until business knows what is coming down the pike, they are going to wait. Add to this Obama wanting to raise taxes by letting the Bush tax cuts expire and we are so stuck.
As a final caveat, one should look at Bush's spending compared to Obama. It is difficult to understand exactly how much $700 billion or $800 billion really is. The CBO recently released a study, that shows that Obamas stimulus @ $862 billion, cost more than 8 years of the Iraqi war under Bush. Further, although Bush created a new high in deficit spending adding $2.5 billion of debt in eight years. In 2009 Bush submitted a budget with a $487 billion deficit, but Obama added another $700 billion resulting in a $1.2 trillion deficit (the left wing media usually charges Bush with the entire amount). TARP was a two part process. Bush distributed $267 billion in 2008 and the Obama Administration distributed some $151 billion in 2009. Then, because banks and Wall Street firms repaid a net $110 billion in TARP funds in 2010, Obama claimed credit for cutting spending by that much.The combination of TARP lending in one year and much of that money being paid back in the next makes Obama's spending record for 2010 look $261 billion thriftier than it really was. This also means of the $700 billion TARP loans guarantees that were added to the 2009 Bush deficit, only $418 billion were ever disbursed of which $405 billion was repaid, but because the repaid Bush TARP money was claimed by Obama as cost saving, rather than returned to the Treasury, it continued to be counted as Bush deficit spending. Add the 2010 deficit of an estimated $1.3-1.4 trillion and Obama will have raised the national debt by over $2.5 trillion, matching Bush's 8 year debt in only 2 years. Obama and the left say these deficits are necessary to reverse to damage done by Bush, but if that is so, why don't they actually change the policies as well?
While Bush claimed to believe in supply side economics (lower taxes and cut spending), with the exception of his tax cuts, he was really a Keynesian with his spending and $152 million stimulus. While Bush was the President of note as the sub-prime bubble became critical, the seeds sewn for this recession and were planted at least as far back as the Clinton Administration. Bush even did try to regulate Fannie Mae and the other mortgage GSEs in 2003 New Agency To Oversee Freddie Mac and Fannie May, which failed. But now we see the new Financial Reform Law, still does nothing to reform the regulations of Fannie and Freddie. As usual the politicians that created the problem tell us they are the only ones that can fix it. There is also the reminder discussed by Thomas Sowell, "No President of the United States can create either a budget deficit or a budget surplus. All spending bills originate in the House of Representatives and all taxes are voted into law by Congress. Democrats controlled both houses of Congress before Barack Obama became president. The deficit he inherited was created by the Congressional Democrats, including Senator Barack Obama, who did absolutely nothing to oppose the runaway spending. He was one of the biggest of the big spenders. The last time the federal government had a budget surplus, Bill Clinton was president, so it was called 'the Clinton surplus.' But Republicans controlled the House of Representatives, where all spending bills originate, for the first time in 40 years. It was also the first budget surplus in more than a quarter of a century."
The direction I believe we need to go is what Germany is doing; read this Op-Ed piece by David Brooks and see if you don't agree The Parent Model . If any of what I have tried to explain in the article runs true, then hopefully you will realize that it's doesn't matter if you blame Bush43 as the President of record when the economy collapsed, as long as we change they way we are doing business and that is not happening.
Most have heard something about the repeal of Glass-Steagall, a post Great Depression law that was passed in hopes of preventing another depression, and in many ways what also lead to our current problems. The repeal started as a Republican bill during the Clinton Administration in 1999. The proponents of the bill were Sen. Phil Gram(R-TX) and Rep. Jim Leach(R-IO), but by the time it emerged from it's conference committee it was very bi-partisan bill and Clinton signed it into law.
What really started the ball rolling on the mortgage bubble was Clinton's ex-Director of Management and Budget Franklin Raines. Raines took control of Fannie Mae in 1999 and instituted the American Dream Commitment program which started the pilot program of increasing sub-prime loans to get previously un-qualified and more minorities home loans. By 2004 Raines was raking in the dough but the numbers were not adding up. After Raines resigned in Dec 2004, it was determined he mis-stated over $6 billion in profits adding about $90 million to his bonuses. His penalty was to return about $7 million, but the sub-prime program started by Raines exploded after he left and the rest is history. Raines is now involved in an carbon trading Investment Company waiting for cap and trade to be voted in. Neither the Republicans or Democrats did much to stop the coming melt-down, but it was Democrats such as Barney Frank and Chris Dodd that were the most vocal defenders.
Our crisis however was one of credit. The basis of the credit crunch can be traced in my opinion to Ronald Reagan. The result of Carter Stagflation (a recession with high interest rates; not believed possible till then) caused lower debt and higher savings in the private sector. As interest rates fell and the economy boomed, but the effect was misapplied supply side economics. Now this was not President Reagan's intention. Reagan cut taxes across the board, but also raised the employer tax (ie Social Security) so the Social Security fund would be solvent in the future. When there was a significant budget deficit, Reagan made a deal with the Democrts that he would raise some taxes and they would reduce spending; Reagan did his part, but the Demicrats did not. The effect on the national psyche, was actually Keynesian in nature, that with cheap money (low interest rates) the private sector could borrow their way to prosperity. This reduction in savings and excessive private debt help fuel the economy through the Bush 41 , Clinton and Bush 43 years. Much has been said of the Clinton budget surpluses, which right or wrong are mainly attributed to a lack of major military conflict during his presidency and a markedly reduced GDP, probably a result of increased taxes. The end result was an economy based on credit.
A simplistic definition of Keynesian theory: Keynes explanations of slumps ran something like this: in a normal economy, there is a high level of employment, and everyone is spending their earnings as usual. This means there is a circular flow of money in the economy, as my spending becomes part of your earnings, and your spending becomes part of my earnings. But suppose something happens to shake consumer confidence in the economy. Worried consumers may then try to weather the coming economic hardship by saving their money. But because my spending is part of your earnings, my decision to hoard money makes things worse for you. And you, responding to your own difficult times, will start hoarding money too, making things even worse for me. So there's a vicious circle at work here: people hoard money in difficult times, but times become more difficult when people hoard money. The cure for this, Keynes said, was for the central bank to expand the money supply. By putting more bills in people's hands, consumer confidence would return, people would spend, and the circular flow of money would be reestablished. (www.huppi.com). You will notice not once was there a mention of reducing unemployment, that's because Keynesian economics does not key into unemployment, only increasing the money flow. But no time in the history of economics has a private economy been so indebted. The Keynesians have no plan to stop people from paying off debt, rather than re-circulating money.
Another inherent flaw in Keynesian theory is the belief in cheap money; that it doesn't matter if you can't repay a loan as long as you can afford the interest payments. Sound familiar? When Keynesians say "expanding the money supply", they mean low interest loans and subsidizing private industry usually with large construction projects. The problem is there is no mechanism in Keynesian theory to ever actually pay back the loans and when the construction jobs ends, so does the temporary employment. As long as the Federal reserve keeps interest rates low, there will also be no incentive to save money. This reliance on borrowing cheap money has led to our current situation where business must borrow to stay in business. It is like you needing to borrow rent money, knowing you will have the money next month. You pay the rent with the borrowed money but when the next month's rent comes due, you must use what ever money has come in to pay off last months loan and then take out another loan for this month; you can never get ahead and if the bank stops loaning you're dead in the water. Government on the other hand, just keeps taking out interest only loans.
However bad the sub-prime meltdown was, and it was bad, was made ten times worse by side bets (or Credit Default Swaps) made by the investment banks like Leman Bros, AIG and of course Goldman Sachs. For every sub-prime mortgage that was loaned out, there were about 40-50 of these made up side bets made. After the meltdown, US Banks had assets, originally valued at about $1 trillion, who's value could not be determined (i.e. toxic), which basically meant they couldn't lend any money and businesses almost came to a stand still. The government first decided to just buy (or insure these toxic assets, because unlike the banks, the Fed can just hold onto them until their value can be established later. This was done during the Saving and Loan crisis of the 1980's and the Federal Government actually made money when the S&L assets were eventually sold. Unfortunately the players in all this, Henry (Hank) Paulson, Ben Bernanke, Timothy Geithner, all alumni from Goldman Sachs, knew the real danger to the banks was from the outstanding Credit Default Swaps, whose outstanding debt to the banks could be as high as $40 trillion. Therefore the expanded Troubled Asset Relief Program (TARP) money, ($1.2 Billion) ended up being distributed via AIG to US (including Goldman Sachs) and European banks to cover some of these outstanding derivatives. So instead of loosing up money to make more loans, the banks just made good with themselves.
The recession we are seeing now is the result of business holding back until they can once again run their business month to month without having to borrow money. This process is pretty much complete, but before they start hiring again, and borrowing to expand, they want to know what the new government programs and taxes are going to cost them. The only offering the Obama economists are offering is to make it easier to borrow money, this is the Keynesians concept of expanding the money supply. But until business knows what is coming down the pike, they are going to wait. Add to this Obama wanting to raise taxes by letting the Bush tax cuts expire and we are so stuck.
As a final caveat, one should look at Bush's spending compared to Obama. It is difficult to understand exactly how much $700 billion or $800 billion really is. The CBO recently released a study, that shows that Obamas stimulus @ $862 billion, cost more than 8 years of the Iraqi war under Bush. Further, although Bush created a new high in deficit spending adding $2.5 billion of debt in eight years. In 2009 Bush submitted a budget with a $487 billion deficit, but Obama added another $700 billion resulting in a $1.2 trillion deficit (the left wing media usually charges Bush with the entire amount). TARP was a two part process. Bush distributed $267 billion in 2008 and the Obama Administration distributed some $151 billion in 2009. Then, because banks and Wall Street firms repaid a net $110 billion in TARP funds in 2010, Obama claimed credit for cutting spending by that much.The combination of TARP lending in one year and much of that money being paid back in the next makes Obama's spending record for 2010 look $261 billion thriftier than it really was. This also means of the $700 billion TARP loans guarantees that were added to the 2009 Bush deficit, only $418 billion were ever disbursed of which $405 billion was repaid, but because the repaid Bush TARP money was claimed by Obama as cost saving, rather than returned to the Treasury, it continued to be counted as Bush deficit spending. Add the 2010 deficit of an estimated $1.3-1.4 trillion and Obama will have raised the national debt by over $2.5 trillion, matching Bush's 8 year debt in only 2 years. Obama and the left say these deficits are necessary to reverse to damage done by Bush, but if that is so, why don't they actually change the policies as well?
While Bush claimed to believe in supply side economics (lower taxes and cut spending), with the exception of his tax cuts, he was really a Keynesian with his spending and $152 million stimulus. While Bush was the President of note as the sub-prime bubble became critical, the seeds sewn for this recession and were planted at least as far back as the Clinton Administration. Bush even did try to regulate Fannie Mae and the other mortgage GSEs in 2003 New Agency To Oversee Freddie Mac and Fannie May, which failed. But now we see the new Financial Reform Law, still does nothing to reform the regulations of Fannie and Freddie. As usual the politicians that created the problem tell us they are the only ones that can fix it. There is also the reminder discussed by Thomas Sowell, "No President of the United States can create either a budget deficit or a budget surplus. All spending bills originate in the House of Representatives and all taxes are voted into law by Congress. Democrats controlled both houses of Congress before Barack Obama became president. The deficit he inherited was created by the Congressional Democrats, including Senator Barack Obama, who did absolutely nothing to oppose the runaway spending. He was one of the biggest of the big spenders. The last time the federal government had a budget surplus, Bill Clinton was president, so it was called 'the Clinton surplus.' But Republicans controlled the House of Representatives, where all spending bills originate, for the first time in 40 years. It was also the first budget surplus in more than a quarter of a century."
The direction I believe we need to go is what Germany is doing; read this Op-Ed piece by David Brooks and see if you don't agree The Parent Model . If any of what I have tried to explain in the article runs true, then hopefully you will realize that it's doesn't matter if you blame Bush43 as the President of record when the economy collapsed, as long as we change they way we are doing business and that is not happening.
Sunday, August 8, 2010
Keynesian; A Tool of the Progressives
No one can show the arrogance of the neo-Keynesian economics embraced by the Obama administration, then it’s loudest mouthpiece, Paul Krugman. This time he attacks Paul Ryan and his plan of reducing spending. Krugman’s main complaint, as always, is without high taxes, government will not be able to pay for it’s obligations, in this case, a $4 trillion short fall over 10 years, compared to the Obama alternate scenario. What Krugman will not acknowledge is the economy will grow if you cut taxes on business, that any attempt to cut taxes always shows up a zero sum gain; more taxes equals more tax revenue, less taxes equals less tax revenue. Never mind that in US economic history, especially in hard times, tax reductions resulted in the money being re-invested, record growth, higher profits and more employment; the taxes on these higher profits, even though it was a lower percentage, often results in higher tax revenues than with the higher tax rates. Further, the Obama is back loading the national debt, so by 2020 the GDP to debt is 87%, 2040- 233% and 2060- 433%!. This compared to Paul Ryan’s plan, which never exceeds 99% over the same time periods. (The Congressional Budget Office). Which scenario would you want? I guess it depends whether you want to start paying for the debt now or pass it on to your grandchildren.
Well the Neo-Keynesians (aka Paul Krugman) are beside themselves because, try as they will, no one will buy their snake oil anymore; we have come a long way since said Time magazine said, “We are all Keynesians now”. It (Keynesian economics) can, he said, achieve calculated prosperity by manipulating three main tools: tax policy, credit policy and budget policy. Their use would have the effect of strengthening private spending, investment and production”. $2 trillion worth of stimulus appear to have had little effect on the economies continuing to slide into a worsening recession. The Keynesians were well known for their dire warning that the GI’s returning from WWII would cause rampant unemployment and a clasped economy if not steered by their theories. The result, without Keynesian steering was the opposite, yet the Keynesians were so entrenched, they gave themselves credit for the prosperity that followed.
The inherit flaw in Keynesian theory is the human element. John Maynard Keynes assisted running the wartime economy during WWII and theorized that if the same type of government planned economy were to exist during peace time, then one could have the idealized government planned economy without sacrificing societal freedoms that occurred in Italy, Germany and the Soviet Union. The problem is, the British were sacrificing because their very existence was at stake. Take away that inducement, and citizens start questioning the extent of their sacrifice just for the good of the State. The welfare state the neo-Keynesians are now suggesting, has had to create a new entitlement that can only be defined as guaranteed employment. The result of their failed policies has resulted in 9.5% of the population actively looking for work and 16-20% unemployed. In order to address these near depression numbers, the federal government has extended the 6 month unemployment compensation to 2 years. In typical demand side idealism, the Keynesians claim with money in their hands, the unemployed with start spending again and the economy will pick-up. Reality of course is something quite different. When one is faced with living on 60% of their previous wages and no real relief in sight, the unemployed are going to cut back and save wherever they can. Further, it ignores one of the basic truths that exist between citizenry and government. If the government subsidizes something, the people will do it, be it home ownership and marriage, or Welfare and now unemployment; instead of unemployment being a cushion as Welfare was supposed to be, it will become a lifestyle.
In reality, Keynesian theory is just an obscure economic theory that was co-opted by the Progressives to justify big government and the welfare state. Keynesian theory, much like the Man Caused Global Warming scheme, is the classic scheme of an emerging totalitarian regime, using cult science to justify tyranny. Progressives are already talking up the imaginary separation between a planned economy and Democratic politics. "Such assurances are usually accompanied by the suggestion that by giving up freedom in the pursuit of higher values. On the ground people who abhor the idea of a political dictatorship, often clamor for a dictator in the economic field." (F.A. Haytek).
In a forum response to the first paragraph printed in the Santa Cruz Sentential 8.15.2010 under the heading "Thanks for Krugman". The writer complained of failed Republican policies, this was my response.
"Bush 43 raised the debt 2.5 Trillion dollars in 8 years, Obama has exceeded that in 18 month. Bush 43 was a Progressive and a Keynesian, not a conservative, nor was his father. As with Reagan, his tax cuts were not offset with government spending cuts, but this time the economy could not absorb the debt so the economy floundered. With the exception of rhetoric, Obama has not only continued all of Bush 43 policies, he has accelerated them. One can rightfully blame Bush 43 for our economic mess, since he set in motion all of Obama's policies! As I wrote yesterday, to paraphrase the President, "The choice is whether we want to go forward or we want to go backwards to the same policies that got us into this mess in the first place....(Democrats) have not come up with a single, solitary, new idea to address the challenges of the American people. They don’t have a single idea that’s different from failed Keynesian tax and spend ideas -- not one".
Well the Neo-Keynesians (aka Paul Krugman) are beside themselves because, try as they will, no one will buy their snake oil anymore; we have come a long way since said Time magazine said, “We are all Keynesians now”. It (Keynesian economics) can, he said, achieve calculated prosperity by manipulating three main tools: tax policy, credit policy and budget policy. Their use would have the effect of strengthening private spending, investment and production”. $2 trillion worth of stimulus appear to have had little effect on the economies continuing to slide into a worsening recession. The Keynesians were well known for their dire warning that the GI’s returning from WWII would cause rampant unemployment and a clasped economy if not steered by their theories. The result, without Keynesian steering was the opposite, yet the Keynesians were so entrenched, they gave themselves credit for the prosperity that followed.
The inherit flaw in Keynesian theory is the human element. John Maynard Keynes assisted running the wartime economy during WWII and theorized that if the same type of government planned economy were to exist during peace time, then one could have the idealized government planned economy without sacrificing societal freedoms that occurred in Italy, Germany and the Soviet Union. The problem is, the British were sacrificing because their very existence was at stake. Take away that inducement, and citizens start questioning the extent of their sacrifice just for the good of the State. The welfare state the neo-Keynesians are now suggesting, has had to create a new entitlement that can only be defined as guaranteed employment. The result of their failed policies has resulted in 9.5% of the population actively looking for work and 16-20% unemployed. In order to address these near depression numbers, the federal government has extended the 6 month unemployment compensation to 2 years. In typical demand side idealism, the Keynesians claim with money in their hands, the unemployed with start spending again and the economy will pick-up. Reality of course is something quite different. When one is faced with living on 60% of their previous wages and no real relief in sight, the unemployed are going to cut back and save wherever they can. Further, it ignores one of the basic truths that exist between citizenry and government. If the government subsidizes something, the people will do it, be it home ownership and marriage, or Welfare and now unemployment; instead of unemployment being a cushion as Welfare was supposed to be, it will become a lifestyle.
In reality, Keynesian theory is just an obscure economic theory that was co-opted by the Progressives to justify big government and the welfare state. Keynesian theory, much like the Man Caused Global Warming scheme, is the classic scheme of an emerging totalitarian regime, using cult science to justify tyranny. Progressives are already talking up the imaginary separation between a planned economy and Democratic politics. "Such assurances are usually accompanied by the suggestion that by giving up freedom in the pursuit of higher values. On the ground people who abhor the idea of a political dictatorship, often clamor for a dictator in the economic field." (F.A. Haytek).
In a forum response to the first paragraph printed in the Santa Cruz Sentential 8.15.2010 under the heading "Thanks for Krugman". The writer complained of failed Republican policies, this was my response.
"Bush 43 raised the debt 2.5 Trillion dollars in 8 years, Obama has exceeded that in 18 month. Bush 43 was a Progressive and a Keynesian, not a conservative, nor was his father. As with Reagan, his tax cuts were not offset with government spending cuts, but this time the economy could not absorb the debt so the economy floundered. With the exception of rhetoric, Obama has not only continued all of Bush 43 policies, he has accelerated them. One can rightfully blame Bush 43 for our economic mess, since he set in motion all of Obama's policies! As I wrote yesterday, to paraphrase the President, "The choice is whether we want to go forward or we want to go backwards to the same policies that got us into this mess in the first place....(Democrats) have not come up with a single, solitary, new idea to address the challenges of the American people. They don’t have a single idea that’s different from failed Keynesian tax and spend ideas -- not one".
Friday, July 9, 2010
Paul Krugman and the Folly of Keynesian Economics + "Fear the Boom and Bust" Rap
Paul Krugman just may be the icon of intellectual dishonesty. His continuing efforts to prove the already much discredited Keynesian theory of economics shows him to be the most anti-perspicacious economist in the current war against the free market. In his recent article, “Pushing the Unemployed With Penny-Pinching”, Krugman decried the fact that the federal government would not extend state Unemployment Insurance (UI) as “everyone took it for granted that UI that normally terminates after 26 weeks would be extended in times of persistence joblessness” (everyone?). The fact that unemployment across the nation has already been extended by 26 weeks seemed to have slipped his mind. What congress has done is decided not to extend any more UI extensions. Krugman defends extending the extensions, calling the fiscally responsible coalition in the Senate “heartless” or “clueless”. On one hand he considers it clueless to believe that extended UI “is a disincentive for them to seek new work”. Why? Well because there is some unknown “recent economic research” that says it’s not so. On the other hand he claims that UI will put money in peoples pockets that will help support consumer spending; I doubt most people would find any disposable income with a 40% reduction in pay.
This of course is the fallacy of Keynesian theory; 1) it ignores the very human decisions (and behaviors) Keynesians fault for inefficient economic outcomes; and 2) it exudes that re-distributing wealth will somehow stimulate the economy. Every time Demand Side economics extends misery, the Keynesians claim victory when the free market finally recovers despite their best efforts, and every time Supply-Side economics (reduced taxes and government spending) works, the Keynesian claim there was some other cause. One has to remember why Keynesian theory exists in the first place; it's based on a dislike of the free market and a love of government. The intellectually dishonest love to explain that President Obama is not a socialist because he does not believe in state ownership of the means of production. But in most other ways Keynesian economics is like socialism; and it would be great if it worked, but like all ideas that believe government needs to dominate over the private sector, it always ends in misery for the common man.It's the need of bureaucrats and government officials to control everything and a belief that an economy can be planned and supply and demand can be manipulated to create social justice through redistribution of wealth. What is lost on the Keynesians is supply and demand is a law of human nature, trying to manipulate supply and demand is like trying to manipulate gravity; you can stay up in the air for a while, but eventually you have to come down to earth.
This is just flat out genius.
This of course is the fallacy of Keynesian theory; 1) it ignores the very human decisions (and behaviors) Keynesians fault for inefficient economic outcomes; and 2) it exudes that re-distributing wealth will somehow stimulate the economy. Every time Demand Side economics extends misery, the Keynesians claim victory when the free market finally recovers despite their best efforts, and every time Supply-Side economics (reduced taxes and government spending) works, the Keynesian claim there was some other cause. One has to remember why Keynesian theory exists in the first place; it's based on a dislike of the free market and a love of government. The intellectually dishonest love to explain that President Obama is not a socialist because he does not believe in state ownership of the means of production. But in most other ways Keynesian economics is like socialism; and it would be great if it worked, but like all ideas that believe government needs to dominate over the private sector, it always ends in misery for the common man.It's the need of bureaucrats and government officials to control everything and a belief that an economy can be planned and supply and demand can be manipulated to create social justice through redistribution of wealth. What is lost on the Keynesians is supply and demand is a law of human nature, trying to manipulate supply and demand is like trying to manipulate gravity; you can stay up in the air for a while, but eventually you have to come down to earth.
This is just flat out genius.
Thursday, July 1, 2010
Paul Krugman is Really Worried and That's a Good Thing
Paul Krugman is beside himself that Germany and other European nations are not going to continue trying to spend themselves out of the current recession; thank god! The economy is like an engine and if it running good, it creates enough goods and services to keep everyone secure and happy. The engine uses money as fuel. The owner of the engine also pays it’s workers to keep the engine running good, makes what the workers want to buy and the workers use their wages buy the goods and services produced by the engine; this is called supply and demand. When money is not used to buy goods and services, it is used as more fuel to run the engine. The system is pretty much self correcting, except when a company gets so big it can sell products and services at a loss to drive it’s competition out of business. This is where the government steps in to make sure this doesn’t happen. However the government has also taken control of all the fuel (money) and taxes the engine owner and workers to redistribute tax money as they see fit.
Every once in a while, the engine’s fuel tank runs low and the engine starts to sputter. Now there are two theories on how to fix this problem. One is called “supply side” and the other is called “demand side”. The supply-siders believe you should help the engine owner, by cutting spending and reducing taxes on the workers and the engine owner. This is so the owner can buy more fuel and the workers can buy products. The demand-siders (or Keynesians) believe the answer is to raise taxes, borrow large sums of money and distribute it to the workers through particular workings of the engine as they see fit. Both these concepts have been tried and history shows that the supply side solution acts by filling the fuel tank, and actually results in more money going back to the government then with the higher taxes. The demand side solution has never worked. It acts like pouring gas down the carburetor; yes the engine will run, abet poorly, but only as long you pour in the gas. As soon as you stop, the engine will stop and the fuel tank will still be empty; plus the workers and engine owner will be burdened by higher taxes and will still have to pay back all the money borrowed by the government.
The big demand-sider these days is Paul Krugman. During the recent G20 meeting, the European countries have decided that after 30 years of trying to make their welfare states work and watching countries like Greece and Spain going bankrupt, they are going to turn away from Keynesian theory, unlike President Obama and stop borrowing money to infinitum. This led Mr Krugman to hysterically forecast that the world is now headed for a depression. The last time this happened, was the end of WWII. The Keynesians hysterically warned that if the US did not maintain wartime control over the economy the US was economically doomed. The result of course was an economy that grew at record rates. If you get one thing from this, let it be that when the Keynesians becomes hysterical, we’re probably doing the right thing.
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Every once in a while, the engine’s fuel tank runs low and the engine starts to sputter. Now there are two theories on how to fix this problem. One is called “supply side” and the other is called “demand side”. The supply-siders believe you should help the engine owner, by cutting spending and reducing taxes on the workers and the engine owner. This is so the owner can buy more fuel and the workers can buy products. The demand-siders (or Keynesians) believe the answer is to raise taxes, borrow large sums of money and distribute it to the workers through particular workings of the engine as they see fit. Both these concepts have been tried and history shows that the supply side solution acts by filling the fuel tank, and actually results in more money going back to the government then with the higher taxes. The demand side solution has never worked. It acts like pouring gas down the carburetor; yes the engine will run, abet poorly, but only as long you pour in the gas. As soon as you stop, the engine will stop and the fuel tank will still be empty; plus the workers and engine owner will be burdened by higher taxes and will still have to pay back all the money borrowed by the government.
The big demand-sider these days is Paul Krugman. During the recent G20 meeting, the European countries have decided that after 30 years of trying to make their welfare states work and watching countries like Greece and Spain going bankrupt, they are going to turn away from Keynesian theory, unlike President Obama and stop borrowing money to infinitum. This led Mr Krugman to hysterically forecast that the world is now headed for a depression. The last time this happened, was the end of WWII. The Keynesians hysterically warned that if the US did not maintain wartime control over the economy the US was economically doomed. The result of course was an economy that grew at record rates. If you get one thing from this, let it be that when the Keynesians becomes hysterical, we’re probably doing the right thing.
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