There was so much going on in the Second Amendment world that I skipped right on past Paul Krugman’s demand that we print a $1 trillion dollar platinum coin and then give it away saying “we paid off the debt!”
Way back when, Mike Konczal felicitously made that analogy to discuss the people who were calling for a rise in interest rates despite high unemployment and low inflation — a group at the time exemplified by Raghuram Rajan. For those who don’t read the classics, Calvinball is a sport in which you change the rules whenever you feel like it, very much including in the middle of games.
Proponents believe that a sustained period of low interest rates and excessive credit creation result in a volatile and unstable imbalance between saving and investment.
In his Prices and Production (1931), Hayek argued that the business cycle resulted from the central bank‘s inflationarycredit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates.
Raghuram Rajan, who Krugman mocks, is actually making a very salient point (without comparing Krugman to Dagwood Bumstead demanding a bigger sandwich as more stimulus):
Clearly, someone is paying a price for ultra-low interest rates: the patient and uncomplaining saver. Interestingly, if traditional spenders such as firms and young households are unwilling or unable to take advantage of low interest rates, low rates could even hurt overall spending, because savers like retirees receive lower financial incomes and curtail spending.
This is not a heretical concern. As with any tax and subsidy, the net effect depends on whether those taxed cut back spending less than those subsidized. Economists have sensibly advocated that China raise the interest rates that it pays on bank deposits so that Chinese households earn more and consume more. Some Japanese now wonder whether their ultra-low interest-rate policy could be contractionary.
Equally worrisome are the distortions that easy money creates. Evidence from the recent crisis suggests that ultra-low rates prompted a wide range of portfolio adjustments, whereby Asian and Middle East central banks and funds ended up holding the safest low-interest securities, while the US and European financial sectors went on a risk-taking binge. History never repeats itself exactly, and those singed by fire do learn not to play with matches, but we should be aware that unnaturally low interest rates have consequences other than inflation.
The total bill: about $255 billion out of the federal government’s pocket – an amount the GOP would likely say needs to be offset by spending cuts elsewhere.
For emphasis, I’ll write it again, if you missed it the first time, and I’ll put it in bold.
The total bill: about $255 billion out of the federal government’s pocket – an amount the GOP would likely say needs to be offset by spending cuts elsewhere.
The federal government doesn’t have pockets. It doesn’t have money of its own. It has what it takes from the taxpayer.
That right there sums up so much of the problem – the belief that government has money and that it doesn’t take it from taxpayers… and that can be extended to a lot more problems in the proposition, as well as pretty much all of the root overspending causes.
This is the proposition:
How about a little government economic stimulus?
That may sound incongruous considering the budget deficit and the push from Republicans to cut government spending.
But President Obama’s first offer to avoid going over the “fiscal cliff” holds out the hope of at least some stimulus. This would include extending the 2 percentage point Social Security payroll tax cut, boosting a tax incentive to businesses, establishing a $50 billion bank for long-term infrastructure projects, and extending unemployment benefits.
Stimulus doesn’t work, it’s more Keynesian idiocy. Why doesn’t it work? Because it takes from the citizen either through direct taxation or through devaluation of the citizens’ currency, strains it through government, and redistributes it to losers that can’t function in a free market.
This is redistribution plain and simple. The government will take $255,000,000,000 from taxpayers, then turn around and spend much of that money on an army of bureaucrats to filter it through, then give it to programs and policies that aren’t working and aren’t solvent on their own, and in some cases, those that directly hurt both the nation’s ability to engage in an economic recovery.
UNEMPLOYMENT BENEFITS
And, finally, Obama wants to extend unemployment benefits, which would cost about $30 billion.
Under current law, if Congress does nothing, the maximum number of weeks in which an individual could receive jobless will drop to 26 from the current 73 weeks for states with unemployment over 9 percent and 63 weeks for states with unemployment over 7 percent.
If Congress does nothing about the program during the lame-duck session, some 2.1 million jobless will lose their benefits in the first week of January, says Judy Conti, a federal advocacy coordinator at the National Employment Law Project (NELP) in Washington. By the end of the March, she says, another 900,000 people will lose their benefits.
“Forty percent of the unemployed are long term unemployed,” she says. “They have been out of the workforce for over six months.”
Oh really? You think the reason they might be out of work for 6 months is because they get 17 months of unemployment benefits that incentivize not working? Of course, Ms. Conti is an advocacy coordinator (a job that would not exist in the free market) whose existence in life is entirely dependent on her ability to take from some by force and redistribute to others.
There’ve been studies done on unemployment before, and every time, the eggheads who study it are shocked to find out that when unemployment runs out, people get jobs.
Consider the Welfare Cliff from the other day:
Unless you’re making a lot, there are diminishing returns to actually working. And when you’re making close to $50,000-$60,000 in benefits for not working, why bother?
The planners are either naively blind to this, or are embracing it as a destructive means to obliterate the United States. Of course, it’s “government money”, as in, once again, taken from productive citizens and given to non-productive citizens, all the while enshrining the state as the lord and savior of the poor, naive serfs.
And the politics of it are Obama setting the doofus Republicans up to either take the blame for tax rate increases (that the Democrats were opposed to during the Bush years) when he doesn’t work with Republicans, or for being the winner when he gets to institute whatever policies he feels like if they cave… and he’ll still blame their “obstructionism” for his own failures.
the ’50s — the Twinkie Era — do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.
Today’s conservative orthodoxy isn’t about either coddling the rich or demeaning workers. Bosses don’t get good results from employees who are hurt, and bosses who are favored by government (like Obama and bestest buddy Jeffrey Immelt from GE) means that there is no free market as the govt. picks winners and losers. A rising tide raises all boats.
Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”
Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.
And here we’re going to begin the misty-eyed dreaming of days gone by from the leftist perspective. Lower tax rates at every level are necessary for growth. Lower tax rates at the top free up capital, and stability in government and politics establishes confidence in business owners to go out and expand their businesses, leading to more and better paid employees. The current administration’s populist “eat the rich” attitude is something that’s setting back business development, and their fickle and flawed creation of a socialist health care system is causing businesses to respond to that uncertainty as well.
The tax rates of the 1950s, with a lot of analysis, could also be looked at as why the economy didn’t develop even faster. Let’s keep in mind that there were still bureaucrats from the FDR era in government, and the government was still busy being huge, still impacted in size by WWII and going off to Korea to fight another war as well. Also, ask what amount of those rates were actually paid versus what the rates were.
Nor were high taxes the only burden wealthy businessmen had to bear. They also faced a labor force with a degree of bargaining power hard to imagine today. In 1955 roughly a third of American workers were union members. In the biggest companies, management and labor bargained as equals, so much so that it was common to talk about corporations serving an array of “stakeholders” as opposed to merely serving stockholders.
Squeezed between high taxes and empowered workers, executives were relatively impoverished by the standards of either earlier or later generations. In 1955 Fortune magazine published an essay, “How top executives live,” which emphasized how modest their lifestyles had become compared with days of yore. The vast mansions, armies of servants, and huge yachts of the 1920s were no more; by 1955 the typical executive, Fortune claimed, lived in a smallish suburban house, relied on part-time help and skippered his own relatively small boat.
Putting burdens on businessmen ignores that that’s also putting burdens on the business. Also keep in mind that the character of the nation was different then. In 1955, unions hadn’t become as bad as they are today, with things like “job banks“:
One of the benefits negotiated by the United Auto Workers was the former jobs bank program, under which laid-off members once received 95 percent of their take-home pay and benefits. More than 12,000 UAW members were paid this benefit in 2005
Union sloth is legendary, but the character of the country also worked against it in those days.
Executives weren’t the only ones relatively impoverished.
The average American in 1955 wasn’t very well off, either. The were better off than in the Depression (some of them), and they were better off than when they were conscripted, but they weren’t well off. Consider this (pulled off the net in 2 seconds):
Average Yearly Wages $4.130.00 (around $2/hour, or alternately TheCostofLiving.com says average yearly wages were only $3301, and so does the Social Security Adminstration at $3301.44)
Minimum Hourly Rate $1.00
Average Cost of a new car $1,900.00
Black and White TV $99.95
Right now, I’m sitting typing at a computer that can instantly communicate with millions of people across the world, with processing power unimaginable in 1955. If you’re reading this, it’s most likely also on an incredibly powerful computer that would still be deep in the realm of science fiction for 1955, or even reading it on a handheld tablet, phone, or some other device that could not exist in 1955.
Right now, the average American wage is around $43,000, hardly a trifiling amount. A new car in 2011 can run you as low as $13,600… of course, that’s before taxes and government fees. Let’s say you don’t want a Kia as a price point even, and would prefer something made by an American-owned company. You can get a Ford Fiesta for around $14,200, before the government gets involved with tax, title, and license fees. Now the average cost might be a little higher, but the substantive cost is very different. The lowest-grade car you can find today has technological advances that did not exist in 1955. The Fiesta gets 29 mpg on a bad day. A car from 1955 would be running in the 10s for fuel efficiency. And how about safety?
As for the cost of a B&W TV set… well, those are difficult to find anymore. Consider that your phone can probably watch youtube videos with a lot more choices than CBS, ABC, NBC and maybe a local station or two. But what kind of TV can we get today for $99.95? How about a 19″ LED ($99.98 online)? Compare the size and performance with back then.
Going back to the car really quickly, the $1900 for a car translates to $16,399. So you can still afford an average car or light SUV that will last much, much longer than an old car, will require less maintenance, get better mileage, be safer with regards to crash ratings and brakes and belts and airbags, and provide features like power windows, AM/FM/CD/aux jack radio, AIR CONDITIONING, and other features that simply didn’t exist in 1955, or were prohibitively expensive.
Krugman’s desire to see the US reduced to the 1950s ignores a massive substantive increase in quality of life as he tries to reduce the rich to groveling at the temple of the state.
The data confirm Fortune’s impressions. Between the 1920s and the 1950s real incomes for the richest Americans fell sharply, not just compared with the middle class but in absolute terms. According to estimates by the economists Thomas Piketty and Emmanuel Saez, in 1955 the real incomes of the top 0.01 percent of Americans were less than half what they had been in the late 1920s, and their share of total income was down by three-quarters.
Why are lower incomes for anyone a good thing? There was also a depression in the 1930s and there was that war thing in the 1940s, and the 1920s were a time of prosperity. By the 1950s, there were still two decades worth of monetary policy damage and war costs being recovered from.
Today, of course, the mansions, armies of servants and yachts are back, bigger than ever — and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism.” Indeed, the whole Romney campaign was based on the premise that President Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy.
Yes, for many reasons. Eating the rich is foolish. They’re the most prosperous in society, often for good reason. They produce things – often capital for others’ ideas, but often the ideas themselves. Consider this guy:
He makes some music that lots of folks really, really like. His music talents and his ability to spot others with musical talent has led him to becoming a very, very rich man. He’s worth $460,000,000. Half a billion dollars.
If Jay-Z were taxed at a 91% rate, however, what would his music empire be worth? If every year, rather than be able to reinvest in new promotions, reinvest in new shows, put money down to back new artists, or even to just lavishly spend stuff on himself, which improves those who provide luxury goods, how much poorer would we as a nation be? Maybe that last phrase is a bit over the top for somebody who’s a rapper, but consider that his money is spent somewhere, it goes somewhere, it’s reinvested somewhere, and there are a lot of people whose lives do depend or are at least influenced by, whether directly or indirectly, how much he makes and spends. And not just the champagne producers. Every small venue that hosts somebody he promotes is making money, the sound and lighting guys at those venues are getting paid because the venue’s full, everybody who’s making merchandising and t-shirts and everybody who’s providing concessions to the shows – that’s a lot of income and improvements in life that come from one man’s large amount of wealth being directed back into his own business.
Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?
Actually, some people thought so at the time. Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in “Atlas Shrugged,” published in 1957, was basically Dwight Eisenhower’s America.
Yes, Eisenhower’s America, where individual wealth was confiscated and ideas were confiscated and man was forced to serve man under the cruel collectivist boot of the state. /sarc Krugman, you’re an idiot, and have clearly never read the book (then again, Paul Krugman doesn’t read his own books, so who knows). Krugman, please watch:
Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, if Fortune is to be believed, they were working harder than ever. And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973.
“Strange to say?” Krugman’s worldview is so warped he doesn’t understand, and perhaps can’t understand.
The decades after World War II were because war-footing ended. The decades after World War II were because World War II ended the idiotic New Deal. The New Deal is what caused the Great Depression – governmental policies that established uncertainty in markets, governmental policies that picked winners and losers, governmental policies that sucked up the labor force into the CCC and other make work programs while simultaneously draining the rest of society and screwing up monetary policy.
The 1950s were a recovery from FDR years. They were a recovery from a decade of the New Deal and the war years. There was much to be improved on yet, but rest assured, 91% tax rates do not spur people to work harder.
Which brings us back to the nostalgia thing.
There are, let’s face it, some people in our political life who pine for the days when minorities and women knew their place, gays stayed firmly in the closet and congressmen asked, “Are you now or have you ever been?” The rest of us, however, are very glad those days are gone. We are, morally, a much better nation than we were. Oh, and the food has improved a lot, too.
Let’s see… people in political life who want minorities to know their place…
Democrat Senator Robert Byrd, Kleagle and Exalted Cyclops of the KKK
And women to know their place…
Democrat Ted Kennedy’s car that he drowned Mary Jo Kopechne in… as he left her and went back to a party… and called his lawyer to figure out how best to proceed since he’d left her to die…
Krugman is just trolling here. The only people who agree with it, already agree with it. Those who look at it critically suddenly find his statements there, which are typical leftist slop, to be nonsense.
A couple paragraphs before he’s citing Ayn Rand, a female Russian Jew as an exemplar of right thought, and then suddenly women and minorities are supposed to “know their place?” I guess if their place is at the head of the table with ideas about equality based on character, then sure, absolutely.
In the 1950s even moreso, who was it that integrated schools? Let’s look at the Little Rock Nine from 1957. Segregation was pushed and integration resisted by DEMOCRAT Governor Orval Faubus. Integration was forced by Republican President Eisenhower.
As for the gay issue, there’s a difference between asking for special priviledges, special laws (hate crime laws are idiocy in many ways), and special treatment rather than asking for equal treatment (exercising equal rights prevents so-called “hate” crimes, too). Removing fedgov from marriage entirely, and leaving it up to religious organizations, would solve the issue entirely. And I’ve covered the issue with regards to the military before, which comes with a seperate set of problems that aren’t the same in regular society, and would make this long post even longer.
Moderator: What percentage of the American legislature do you think are card-carrying Marxists or International Socialist?
West: It’s a good question. I believe there’s about 78 to 81 members of the Democrat Party who are members of the Communist Party. It’s called the Congressional Progressive Caucus.
Congressman West’s office responded to questions from CBSMiami.com with the following statement:
“The Congressman was referring to the 76 members of the Congressional Progressive Caucus. The Communist Party has publicly referred to the Progressive Caucus as its allies. The Progressive Caucus speaks for itself. These individuals certainly aren’t proponents of free markets or individual economic freedom.”
As for the food being better… being a leftist who wants to control people’s lives, Krugman probably believes the death of the Twinkie is a good thing, but even factoring that out, the reason food has improved has been due to the ideas and implementation of people in agribusiness and food industries. Those who put their money behind new technology from the 1950s to now, even such things as microwaves, tv dinners, frozen pizzas, organic arugula and whatever else – these things have improved not because of labor or high taxes, but because of those who push the ideas forward. (Yes, laborers contribute by doing the grunt work, but they don’t do the skull sweat as laborers… though some who do grunt work also do skull sweat. The two aren’t exclusive by any means.)
And we finally get to the last part of this fisking of Krugman’s current Keynesian idiocy… except today he’s a lot more socialist.
Along the way, however, we’ve forgotten something important — namely, that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.
Economic justice is socialism. It’s the idea that everyone should be equal, and that the state should make them so. That’s not equal justice under the law, that’s the demand for “justice” for the proletariat raging against the bourgeoisie; defining a caste system by economic income, pitting man against man, rather than acknowledging that everyone in their own capacity as an individual can earn and live as best they earn.
America in the 1950s was still influenced heavily by decades of powerful progressive politicians, and “their fair share” is quite subjective. Fair in the use of “fair share” is typically taken as “marked by impartiality and honesty : free from self-interest, prejudice, or favoritism”. Not as in “that’s a fairly stupid thing to say, Krugman”, which would be fair in this definition: “moderately numerous, large, or significant <takes a fair amount of time>.”
Krugman, who ends by saying “right-wing propaganda” immediatly preceeds it with the union fairy tale of “gave workers the power to bargain for decent wages and benefits”. Workers always have the power to bargain. Person A selling Person B his labor in exchange for a wage and/or benefits is exercising his freedom as an individual to sell his skills at the highest level. Person B can take it or leave it, as can Person A, both free from interference. When Person B wants to pay for Person A’s labor, and Persons J,K,L,M, and O all are threatening Person B, suddenly Person A and B don’t have good footing to work anymore. Persons J,K,L,M, and O are busy telling Person B that they own Person B’s capital that Person B wants to pay for Person A’s labor with because they work at Person B’s shop. Now Person B can’t even hire Person A because he’s busy fighting with Persons J,K,L,M, and O, who have formed a gang against Person B… and against Person A.
Or let’s assume Person B and J,K,L,M, and O get along fine. Well when Person A shows up, he’s the junior guy. J,K,L,M and O get favorable treatment, while Person A gets shafted, and has to pay J,K,L,M, and O in order to work. Person A loses part of his salary just to be able to work at Person B’s business. And Person A has to pay for Person O, who’s JKLM’s representative, to tell him not to work while they fight with Person B.
Now, let’s assume there’s Person C. Person C is in a right-to-work state. Person C can see that Person A wants to work in B’s field. Person C offers a better rate to A than B can offer, and A doesn’t have to live under JKLMO anymore.
I’ve rambled a bit here (thanks for sticking with me, reader), but unions pit one group of workers against another. We’ve seen this just this last week in how the Teamsters union got screwed over by the Baker’s union. Normally it’s most easy to see in how the one man is isolated from the union, but here we have an even better example in how the Teamsters had reached a deal with Hostess, but te Bakers screwed them over and killed the company – and thus the Teamsters’ jobs are now gone.
Krugman’s entire piece is a vivid leftist fantasy about how eating the rich is great, how good unions are, and how big government is good. He’s a firm believer in Keynesian top-down economics (as has been detailed many, many times). His title of “The Twinkie Manifesto” is perhaps more appropriate than he thinks it is. It’s saccharine fluff for those who are already inclined to it, and distasteful to those who don’t like it.
I’m partial to Zingers myself.
As a final note here, and something I may make it’s own post (as this has gotten a bit long… though by fisking a “manifesto” it’s to be expected), an anecdote. My grandfather worked for a railroad for decades. In the 1950s, he was still working for the railroad, and the railroads are rather famous for their own unions, as well as having their own retirement programs that pre-date Social Security. Well, in this wonderful union world in which he worked, he would spend days after work at his house disassembling an old cistern in the backyard and breaking the bricks to make gravel for the driveway. In this rich, wonderful world of “decent wages and benefits”, my grandpa would take bricks from a broken cistern in the backyard at his house and break the bricks – by hand with a hammer – to make gravel for the driveway.
I’m not averse to hard work, but the 1950s economically were a relative improvement over previous decades. The Democrat economic issues Krugman brings up as good things to his mindset are just as abhorrent as bringing back Democrat racists and misogynists. We don’t need any of those ideas.
The nostalgic looks that many people have on the right are about going back to a time of much more moral certainty, and equality under the law. Communism was identified for what it was, a murderous statist ideology that killed millions. America was recognized for its greatness in allowing people freedom – which is why the struggle for civil rights came about, and often primarily driven by people on the Republican side of the house. Welfare was looked at derisively, hard work was a virtue (which also meant the character of unions, by their people, was different). The law was still respected, and though flawed, people sought to work to change it – again, the struggles of the civil rights era were about people defending themselves within the law. Civil disobedience works in a moral nation – not in an immoral one – and that’s why it did work in America, and improved the American condition.
No one wants to go back to cars with drum brakes and no seatbelts, no one wants to go back to black and white TV and no computers; no one wants to go back to segregation (though there are some places where it exists by choice of the residents, but that’s because of welfare and economic policies). No one wants to go back to the days when Democrat sheriffs, governors, mayors, congressman, and senators oppressed minorities and women. They do that enough today. Nobody wants government in their bedroom, and only the left wants discriminatory laws for different people.
And only self-named progressives want to go back to regressive, destructive taxes and powerful government controls.
At video on HotAir, Geithner is asked if we should get rid of the debt ceiling.
Interviewer: Do you agree with Alan Greenspan that we ought to just eliminate the debt ceiling?
Geithner: Oh absolutely.
Tim Geithner can’t pay his own taxes, so there’s zero reason he should’ve been Treasury Secretary to begin with, but that’s just another in the long string of Obama appointments that are glossed over entirely by the media. Just a reminder, though.
ZeroHedge asks what Geithner will do now, as it seems he’s leaving the Obama administration, and briefly recaps his past, which also ties in with his statement above:
Tim Geithner’s public “servant” tenure has not been without its blemishes: from his deplorable run as the (figure)head of the New York Fed (from 2003 until 2009), when the entire financial system literally imploded under his watch, to his epic failing up as Hank Paulson’s replacement as treasury Secretary of the United States, despite his legendary inability to navigate the Minotaurian labyrinth that is the TurboTax income tax flowchart, the Dartmouth alum has had his share of run ins with adversity (and adversity won). Of course, Geithner’s tenure in charge of the Treasury in the past 4 years has been somewhat mollified by the fact that here too here was merely a figurehead, and the true entity that runs the US printing presses is none other than the JPM and Goldman Sachs co-chaired Treasury Borrowing Advisory Committee (for more on the TBAC read here and especially here as pertains to the former LTCM trader and current head of JPM’s CIO group), meaning that the US Treasury, just like the Fed, are merely branches of the one true power in US governance: Wall Street. Geithnerian figureheadedness aside, the one undeniable fact is that Tim Geithner’s days as head of the Treasury are now numbered: he has made it quite clear that he will not accompany Obama (should the incumbent be reelected) into his second term. So what is a career “public servant” to do once the public no longer has any interest in retaining his services? Bloomberg’s Deborah Solomon has some suggestions…
First, it may come as a surprise to some, that just like virtually every other central planner currently in charge of deciding the fate of billions of people in US and around the world, Geithner has never really had much interaction with real life:
Despite the fact that much of the public — not to mention some lawmakers on Capitol Hill — assume Geithner worked on Wall Street, he never has. Instead, he has spent most of his career in public service. Before taking the Treasury post in 2009, Geithner headed the Federal Reserve Bank of New York for six years and worked at the International Monetary Fund. His main private-sector job was at Kissinger Associates Inc.
The years in public service — particularly engaging in diplomacy with domestic and foreign partners — left a deep impression on Geithner, infusing him with a sense of purpose that he might find lacking on Wall Street (see: “Why I Left Goldman Sachs” by Greg Smith).
This by itself isn’t to much of a surprise, but consider what the debt ceiling is. It’s an artificial limit set by congress that says “we’re not spending money we don’t have past this mark”. It’s a way (though not a great way) to somewhat reign in spending by government.
Tim Geithner, who can’t figure out how to pay his own taxes, has been a Treasury Secretary who’s functionally done nothing but print more money. His plan to deal with the economy and government debt has been Quantitative Easing 1, 2, and now Ad Infinitum. Of course he’d want to eliminate the debt ceiling. Then the government can just spend spend spend into oblivion without even a hint of restraint. Besides, Geithner is part of the powerful elite ruling class, and he won’t be living a life impacted by his own decisions, whether he leaves as Treasury Secretary or stays on.
SHANGHAI — China, the largest foreign holder of United States debt, said Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the rating agency Standard & Poor’s downgraded America’s long-term debt.
…
“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” read the commentary, which was published in Chinese newspapers.
When the govt. is printing bonds and TIPS and everything else to sell to the Federal Reserve and all the mess that is Quantitative Easing, and especially if the debt ceiling is removed, at best, all this becomes is a longer game of kicking the can down the road, assuming someone wants to solve the problem.
As for the rest of the population, nothing has ever worked as well for the peronist party as keeping those families poor and numerous, and the Ks repeat that same recipe. The handouts for one reason or another make sure those votes keep coming. Handouts per child, for political support, its all there if you show up to the rallies or protest against the companies that aren’t “team players” with the government. If you are a company owner, in the legal or illegal pharmaceutical business, a good amount of donations will go a long way in ensuring the health of your business. We’re (sic) does the money come from? Stealing the retirement funds helped, so does sucking the blood out of what’s left of the middle class through taxes…
What if they really don’t want to solve the problem? What if they just want to destroy everything? Fundamental transformation? The super-rich Democrats have for the last few decades managed to paint themselves as a party that cares about the poor through giving handouts, and they’ve done well politically with it. There are entire regions in cities that vote exclusively for Democrats, and mostly because they’re areas that are clearly politically defined as handout-recipients and usually along ethnic lines. Thomas Sowell has written extensively on how the Democrat party has abused the urban black community into poverty and squalor and convinced them that the Democrats will save them, a disturbing mass Munchausen by proxy. Democrats by their Alinsky playbook mean to go out, create a crisis, and “solve” it; they never let a good crisis go to waste, and instituting a crisis in order to further their own political goals is something that has been done many times before.
And while there are some in the party who do want that, there are others, like Geithner, who are probably just ignoramuses, or insulated “geniuses” convinced of their own superior intellect who don’t understand that spending money you don’t have doesn’t work forever. Isolating purely the economic side of it and ignoring the political power grabs that are coming from it, you simply cannot kick the can down the road forever.
Apparently there’s a nice term for when this ends, now. A Keynesian Endpoint.
Keynesian endpoint is a phrase coined by PIMCO’s Anthony Crescenzi in an email note to clients in June 2010 to describe the point where governments can no longer stimulate and rescue their economies through increased government spending due to endemic levels of pre-existing government debt.
“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note titled “Keynesian Endpoint” that referenced the Great Depression era economist John Maynard Keynes. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.”
President Barack Obama managed to overtake Republican challenger Mitt Romney on the exit poll question “Who is better for the economy?” and a strong majority of Obama voters felt that the economy is better off than four years ago. Indeed, anyone (particularly Bernanke) would concede that without the Fed’s zero interest rate policy we would be experiencing a far worse economy—the true Obama-Keynesian economy.
The danger here, as we have seen in every other bust for a century or more, is that we can only suspend the laws of economics for so long. And in general we are only good at considering immediate consequences, while being very, very bad at considering later consequences. As 19th century French economist Frédéric Bastiat observed, “The bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.”
In the short run (and this is what is so insidious about the Fed’s artificially low interest rates), all we are seeing is an illusion of economic progress. Specifically, the Fed has manufactured a distortion intended to trap both consumers into spending more and entrepreneurs into investing more, or lengthening their production periods (becoming more “roundabout,” as the Austrian School economists said), as if savings were more plentiful. This combination would never occur in an unhampered, noninterventionist economy for the simple fact that higher consumption would mean higher interest rates (from less savings), which would discourage longer production.
Thus, investment in this illusory economy is malinvestment, or investment that always unravels with the intervention’s inevitable end, due to either untenable credit levels (such as today’s corporate debt-to-asset ratio, still at historic highs) or a resource crunch (rising commodity prices) that eliminates any advantage from printing money; and one or both of these scenarios is unavoidable.
Economic progress requires a chain reaction from lower time preferences: foregone current consumption and a higher pool of savings lowers interest rates and triggers a natural entrepreneurial response, greater productivity, and subsequent economic growth. (The “Paradox of Thrift” that warns of the hazards of higher savings is the nonsensical stuff of the ivory tower.) By circumventing this process, as we have today, we have built but a temporary façade.
Worth reading more highlights at ZeroHedge or the whole thing at Forbes.
Long story short, we’re kicking the can down the road. There will be very hard times ahead financially due to this.
Every day I am consistently amazed at the number of searches done with the phrase “paul krugman is an idiot” or some variation thereof. If you came here with those search terms, you are so very, very, not alone.
The Federal Reserve on Thursday, in an effort to target stubbornly high unemployment, offered an array of open-ended stimulus programs designed to keep interest rates low until an economic recovery gains significant traction.
In a strategy shift, the Fed’s latest round of quantitative easing, commonly referred to as QE III, will target mortgage backed securities rather than U.S. Treasuries. And, importantly, the Fed said it plans to keep interest rates low even after a recovery gains momentum.
The Fed statement said it “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
…
During a press conference Thursday afternoon, Bernanke said the new open-ended policies are designed to “assure the public that the Fed will remain accommodative long enough to ensure recovery.”
“We don’t have a single number that captures that, but we anticipate that we’ll have to do more and we’ll do enough to make sure the economy gets on the right track,” he added.
Except it didn’t work with QE1. It didn’t work with QE2. It’s applying more of the problem and calling it the solution. Nothing good will come of this. It will promote some short-term excitement, but ultimately, it devalues the dollar and kicks the can down the road. Helicopter Ben can’t keep inflating money against and as real capital that isn’t there, and Mike In East Texas’ warnings of freefall deflation or the consequences of not resetting will eventually mean that when we will have to take our medicine it’ll be that much worse. More like Zimbabwe and less like Greece.
Update: I should also add that the way much of this will work is to get bad debt away from the big banks, so it’s also a bank bailout as well as a loan and debt-buying scheme. It all hangs on a recovery that will not happen because of the uncertainty it creates, the unstable entities it keeps alive, and the knowledge that politics and pull are running economic policy. Nothing good will come of this.
Krugman had this piece last week. I can always tell when he writes something new, because the blog receives a spike of hits on prior Krugman pieces; notably Paul Krugman, Keynesian Idiot parts One, Two, Three, and Four. For easily discernable reasons, there are people every day going to search engines and typing in “Paul Krugman is an idiot” or some minor variation thereof.
We’re coming up on the second anniversary of my piece “Myths of Austerity“, in which I tried to knock down the simply insane conventional wisdom then gelling among Very Serious People. Intellectually it was, I think I can say without false modesty, a huge win; I (and those of like mind) have been right about everything.
Um, yeah… We’ll go back to that. However, his “huge win” is the kind that Mohammed Saeed al-Sahhaf is famous for trumpeting.
But I had no success in deflecting the terrible wrong turn in policy. Moreover, as far as I can tell none of the people responsible for that wrong turn has paid any price, not even in reputation; they’re still regarded as Very Serious, treated with great deference. And the political tendency behind that terrible economic analysis has at least a 50% chance of triumphing in America.
That’s because austerity works. The idea is to not spend more than you have, more than you take in, and definitely don’t spend more than you’re worth. If you continually deficit spend, you’re just maxing out credit cards. Well, eventually you run out of credit. This is happening for the PIIGS right now.
It’s also happened at the state level inside the US. And you know what? An objective look at Wisconsin shows that it works. Look at any state that reduces taxes and fosters growth and eliminates barriers to entry and you’ll see it. North Dakota’s energy boom, Michigan’s increase in the film industry (since they cut taxes for movies… sadly they’re too dumb to cut taxes for everything), and Texas’ overall economy shows it again and again.
Krugman finishes up his “anniversary” piece with more stupid:
Meanwhile, Ed Balls — who I gather was nearly forced out of a leadership position by the Very Serious members of the Labour Party — has been right all along, and now has a great term for the failed policy prescription: since it was advocated by Cameron, Merkel, and Sarkozy, he calls it “Camerkozy” economics. Well done.
Yeah, about that. The Balls piece here says “austerity has failed, we must go for growth”:
I warned in my Bloomberg speech nearly two years ago that a global hurricane was brewing; and that before economic recovery had been secured, a premature rush to austerity — led by Britain’s new Chancellor — risked tipping Britain and the world back into recession.
Britain is now in that double-dip recession. Other countries are bound to follow. And the global hurricane I forecast is well and truly upon us. There is now a real risk of the global economic recovery being swept away. So what should world leaders do?
Oh noes, socialism failed. That’s never happened before.
First, the eurozone must admit that muddling through, patching up bank vulnerabilities, country by country, while sticking to the ideology of austerity has failed and is now building to a catastrophe.
This is stupid on so many levels. No, Europe hasn’t stuck to austerity. His very next point shows it.
The eurozone countries — above all, Germany — must face up to the economic and political logic of the single currency they have signed up to: that they stand or fall together and must do whatever it takes to support any and all of its members in difficulty. That means a recapitalisation of troubled banks and the European Central Bank able to act — like the Bank of England can in Britain — as a lender of last resort to support banks and countries in the euro area.
You know what happens when you’re “recapitalising troubled banks”? You’re giving them money they shouldn’t have. You’re bailing out nations that shouldn’t be bailed out. You’re doing the exact opposite of austerity. Austerity means let them fail. It means let them suffer the consequences of their actions, let them learn from their mistakes, let them go bankrupt and reorganize and rebuild themselves into a streamlined model of a nation-state that doesn’t outspend its own resources.
You know what else Germany doesn’t have to do? They don’t have to bail you out, stall for time, and fall with you. They can ditch the Euro and go back to the Mark.
Being the “lender of last resort” should tell you something – that your system has failed so much you’re down to your last resort. Maybe you should reconsider what got you there, rather than just continue on that foolish path.
As long as that doubt remains, market confidence will not be restored and this crisis will not be resolved. That deep uncertainty is why last weekend’s bail-out of Spanish banks has not restored market confidence. And it is why, without a proper firewall to stop contagion spreading to other troubled economies such as Spain and Italy, a disorderly Greek exit would be catastrophic not only for Greece but for the rest of Europe and the world economy.
That doubt remains because they were bailed out, not in spite of it, you orally flatulent twits!
If your neighbor goes bankrupt, you don’t keep giving him money until you have none. He never learns his lesson, he spends you into the poor house with him. The global marketplace knows that you idiot Keynesians just want to keep giving money to junkies. The global marketplace and the “bond vigilantes” that Krugman laments in his old column don’t want to deal with you. Every single time that you bail something out and try to “stop contagion”, you’re doing nothing of the sort. Greece’s problem is they spent money they didn’t have, so your solution, Balls and Krugman, is to give them more money they don’t have? You don’t see why the market wouldn’t feel confident in a junkie’s ability to reform?
This is gas on the fire, not a firewall.
There is no easy option for Greece, given its problems. Difficult reforms are vital. But how can an austerity plan — which has seen recession turn into depression, youth unemployment soar to more than 50 per cent, the economy shrink by six per cent in the last year alone and the national debt grow further — be seen as a success? As even the credit rating agencies now recognise, as Standard and Poor’s puts it, that “austerity alone risks becoming self-defeating”.
The irony is that yesterday’s vote now allows eurozone leaders to do what they should have done before. They must now revise the Greek bailout agreement if it is to have any chance of economic success or lasting political support.
Apparently the global supply of stupid is pretty high, because Balls and Krugman are both well-equipped.
Greece will not reform if you throw money at it. Greece has a governmental structure set up to spend spend spend, and it will do so again until it runs out of money again. Margaret Thatcher famously said “Socialism works well until you run out of other people’s money.” Krugman and Balls are screaming “we need more money so it can work!”
The systemic failure of the socialist welfare state is what’s self defeating. Austerity measures will result in that system collapsing, and that’s the only solution to it. Throwing more money at it just means everyone involved will collapse with it. There’s a reason that socialist welfare state economies are imploding basketcases. More bailouts just prolong failure and kick the can down the road. Kicking the can, to the Keynesian, is seen as proof that things are going well again… and when they immediately fail as the stimulus wears off, they need their next hit.
Second, we need a global growth plan. President Obama and new French President Hollande are right to argue for action now to stimulate economic growth and employment, as part of tough medium-term plans to get deficits down. They deserve support from every world leader. So why is our Prime Minister unable to join them in trying to persuade German Chancellor Angela Merkel to change course? Because he has spent the past two years championing the very German-led austerity policies which are not working across the eurozone or in Britain.
The consensus of the past two years between David Cameron, Angela Merkel and former French President Sarkozy — “Camerkozy” economics — has been horribly exposed. Tough decisions on tax and spending are needed but if every country cuts at reckless speed at the same time, the world will risk tipping back into recession, and it will be harder to bring deficits and debts down.
Obama and Hollande are both socialists. They’re both economically inept schmucks who think that taking money from taxpayers and throwing it around is the best way to stimulate an economy. They believe that visible things like public works projects will somehow save the world, taken by the force of the government’s gun from the private sector which would’ve spent that money in a productive manner.
Taking money from a small business owner, be it a small IT company, a gun shop, or a vinyard, whatever it may be, and lumping their resources together to throw money at failed European states hurts those otherwise productive businesses inside the US (and France, and any other nation that is forced to pay bailouts by its political leaders) and merely reinforces the idiotic behavior that got the failures where they are. It subsidizes and endorses failure.
Back to Krugman’s piece that he’s celebrating the anniversary of:
For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.
Okay, let’s make this simple. Click and read.
Stimulus does not work. It cannot work. It rewards failure, the friends of politicians, takes money from the taxpayer for needless expenses, and props up failures.
You don’t cure depression by maintaining failure. You cure depression through success.
But don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because “confidence-inspiring policies will foster and not hamper economic recovery.”
Krugman, you’re an idiot. Trichet is correct.
Spending cuts will only hurt the recipients of government largesse. And the “confidence fairy” will not take the pain away. Trichet never said there wouldn’t be pain (at least not as quoted). There will be. But the ultimate result will be increased confidence in the marketplace, and knowledge that stable governments will quit screwing with monetary policy and leave the market to take care of itself – that will lead to confidence and reduction in uncertainty. It will lead to the knowledge that failing companies need fo reorganize or die, not start lobbying for bailouts. It will lead to recovery. And it will be painful for a time, but it will end.
And current examples of austerity are anything but encouraging. Ireland has been a good soldier in this crisis, grimly implementing savage spending cuts. Its reward has been a Depression-level slump — and financial markets continue to treat it as a serious default risk. Other good soldiers, like Latvia and Estonia, have done even worse — and all three nations have, believe it or not, had worse slumps in output and employment than Iceland, which was forced by the sheer scale of its financial crisis to adopt less orthodox policies.
Now, I’ll be the first to admit that I don’t know as many specifics about these national examples as a serious economist does. Being that Krugman is not a serious economist, and instead is a mindless big government deficit spending bailout-supporting junkie-enabling Keynesian idiot, I’ll hazard a guess as to why some of these issues continue to persist.
It is hardly surprising that “austerity” is unpopular. It is nothing other than a transfer of incomes from labour and the poor to capital and the rich. One of the greatest fallacies of the current crisis is that “there is no money left”. This is wholly untrue. Companies are sitting on cash mountains all across Europe. And the profit share of national income has risen. This is why stock markets are rising – corporate incomes (profits) are rising.
All recent history suggests that Irish voters will come under intense pressure to vote yes. They will be accused of wrecking the euro if they vote no, and that all sorts of calamities will follow.
But those wrecking the European economy and potentially the euro are the politicians who allow capital to flow freely within the eurozone when it is allocated by bondholders, and refuse to allow the state to reallocate capital on the basis of what is economically rational.
Yeah, they’re pretty much beset by Keynesian idiots on all sides. Makes it difficult to stop spending taxpayer money when you’ve got idiots arguing that by giving everyone cuts, you’re engaging in “transfer of incomes from labour and the poor to capital and the rich”. Did they learn nothing from Hazlitt? Or, more likely, they never read his work
Krugman finishes:
So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.
Parse away. You’ll find that it’s got a rock solid foundation of how you need to have money to spend it, and spending money you don’t have on things someone else wants for you doesn’t work. The “bond vigilantes” crap is just the market moving within the constraints established by governments. There is no “confidence fairy”. Is this more of that “animal spirits” magic? Do Keynesians really rely on totems or something?
A policy that blights millions is their government taxing the individual to redistribute their money into failing programs. That the programs fail and the blame is shifted from government to “the rich” or “bond vigilantes” or anyone else is the the government doing just that – shifting blame.
What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.
- Adam Smith
Governments have taxed their citizens and forced the citizens whom the government is supposed to serve into the untenable position of having to pay for failures. Governments have overspent money in the interests of political social programs that ultimately fail.
This is the equivalent of a father of a family taking on great debt to pay for his delinquent junkie son’s habit. His daughter and wife suffer while the son continues to enjoy his handouts, all in the name of “helping” him. Then the neighbor asks the father to help out with his mortgage, so the father takes on more debt and overspends is his income bailing out his neighbor. His own daughter and wife suffer, and his son continues to be a junkie because his actions are enabled and supported by the father. Ultimately, there is not enough money for the father to keep up his payments unless he starts begging for help from other neighbors (nations), or taking from his daughter’s allowance and his wife’s income (taxation). Pretty soon, no one has any money – the junkie still wants more, and the father is obligated to help pay for his neighbor.
If the father is forced to stop spending when the daughter and wife say “no more”, and the neighbor he tries to borrow from says the same, the father will have to correct his ways or simply collapse. Either way, the daughter, wife, and even son will benefit as the daughter and wife are free to earn their livings and the son is free of his enabler and is forced to change his life.
There is no confidence fairy, and the idiocy that has been spouted since the General Theory was put out is still as idiotic on Krugman’s self-congratulatory one-handed anniversary as it was the day Keynes crapped it out. Though I should give Keynes an iota of credit – even he noted that in a nation with systemic debt and deficit spending that you can’t engage in bailouts for the very reasons discussed above.
Kyle Smith has a great piece at the New York Post ripping Paul Krugman’s latest book: “End This Depression Now! We Need An Extraterrestrial Invasion!” Well, the first part of that is the book title. Really, it rips much of Krugman’s idiotic Keynesian philosophy, one that Krugman is even inconsistent with.
as a Keynesian, Krugman usually maintains that it doesn’t matter what you’re spending on, as long as you’re spending: Just shovel the bucks in the furnace, we’ll all warm ourselves by the glow.
Hence his “Independence Day” stimulus scenario: To you and me, that looks like a colossal waste of money on laser cannons that will never be used and will sit there rusting and burning up maintenance dollars for the next hundred years. But you and I aren’t geniuses like Krugman.
Blithely ignoring evidence that there have not been savage spending cuts in Europe, he continued making the same argument in his May 17 column, saying (he must have a hot key for this by now), “Europe’s answer has been austerity: savage spending cuts” (note he didn’t say tax hikes). Free-market economists (also known as the Austrian school, hence Krugman’s clever combo term for his enemies as “Austerians”) can hardly be blamed for Europe’s weak economies if those countries are doing the opposite of what Austerians prescribe, which is to cut out a lot of spending while reducing taxes.
And it gets worse, as Krugman gets worse.
Earlier this year Krugman wrote, “People think of debt’s role in the economy as if it were the same as what debt means for an individual: There’s a lot of money you have to pay to someone else. But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.”
In 2003, when the debt was less than half what it is today, he wrote, “We’re looking at a fiscal crisis that will drive interest rates sky-high . . . But what’s really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government’s solvency . . . How will the train wreck play itself out? . . . My prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.”
Inflation to pay current bills, a reference to hyperinflation, is exactly what he would later ridicule Kinsley for worrying about.
In 1996, Krugman (who, as Wall Street Journal blogger James Taranto never tires of reminding us, is a former Enron adviser) said Social Security has a “Ponzi-game aspect in which each generation takes out more than it put in.” Last year he said it “is and always has been mainly a pay-as-you-go system, which is nothing like a classic Ponzi scheme.”
Of unemployment benefits, Krugman wrote in his textbook that “The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job.” Later he ridiculed Sen. Jon Kyl (R-Ariz.) as “bizarre” for saying, “Continuing to pay people unemployment compensation is a disincentive for them to seek new work.”
Krugman rejects the things he once wrote in his own book. That’s back there in part 2, but once again, it’s a glaring example of an “economist” who’s really an inconsistent hack bent on pushing for more spending.
How Keynesians feels about government spending.
And MOAR stupidity is provided:
This month Krugman gave us a great summation of why he refuses to even stick to one set of wrong-headed ideas. He has a short attention span, like politicians focused on the next election cycle.“It’s usually far from clear,” Krugman wrote, “what exactly the long-run policy is supposed to be, other than the fact that it involves inflicting pain on workers and the poor.”
See, Paul, a free market system means you take care of yourself, because you know what’s best for you. You get to keep more of your money, you get to spend it where you like it, and the poor and the suffering get to keep more of their own money and spend it how they like. Since they keep more, so do other people who want to expand their businesses (and even charities) which helps out those who are working their way up. The long-run policy of a powerful state will keep the proletariat down, because if the poor proletariat becomes the well-to-do bourgeois, then there’s nobody for the socialist to save.
You knew Krugman was just building up to a one-liner, the one that showed how careless he was about consequences: “In the long run, we are all dead.”
This is a trademark Keynesian phrase, a cop-out, and a weak, pathetic retort. The effect of “in the long run, we’re all dead” is hedonism, selfishness (not in the Randian self-improvement kind, either), destroyed morality, and chaos. It’s an excuse for failure that ignores that future generations will ultimately have to deal with their progenitors’ problems.
It’s a philosophy that ultimately rejects the idea of improvement of human condition. It believes there are limited resources, limited capacities for the human mind, limited abilities, and that governments manipulating money and people is the best way to go… and if it fails, who cares? There’s no improvement of humankind, there’s only destruction. There’s only suffering and pain for the workers and the poor, that’s the only long term goal.
That’s not so much Keynesianism as it is nihilism, though. After all, Keynes wouldn’t have supported the kind of spending and systemic debt that we’re dealing with today. He knew better. But the modern Keynesian knows it will fail, and flippantly ignores it.
Perhaps especially today, on Memorial Day, it’s worth noting that some people believe in something, and they believe in future generations and making a great country and a safe world for them. “In the long run, we’re all dead” is the defeatist drivel of a coward who refuses to make tough choices today.
In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.
This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: When people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about – and the people who talk the most understand the least.
And then it gets worse from there:
But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians think about debt is all wrong, and exaggerates the problem’s size.
Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
First, families have to pay back their debt. Governments don’t – all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second – and this is the point almost nobody seems to get – an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.
And here’s where the fail begins. Governments that don’t pay their bills and debts turn into Greece. Governments that don’t pay their debts and continue to spend spend spend drive themselves into oblivion, and wreck their economies. The death of the New Deal caused by WWII allowed the American economy to expand. The huge returning labor force in the form of US troops caused the labor pool to expand for employers, while simultaneously bringing in new consumers. Those previously employed in wartime industries were able to manufacture goods that people, not government, wanted to buy. The debt from WWII also was handled differently because, unlike today’s spending, we didn’t keep spending on the military at WWII rates after WWII. In WWII we had a massive military, then we demobilized a great deal.
That led to unprecedented expansion of the economy.
To contrast to today, the bulk of US government spending is on entitlements and handouts. FY 2010 spending, in pie chart form from here:
Note that social security is 19.63%, unemployment/welfare is 16.13%, medicare is 12.79%, medicaid & SCHIP is 8.19%. 56.74% of government spending is mandatory handouts/entitlements.
Department of Defense spending (which is a legitimate function of government as outlined in the Constitution) is only 18.74%. Interest on nation debt is 4.63%, which dwarfs everything else after it.
Notice how “mandatory” spending, as in, entitlements that were promised to people to vote for FDR, then to vote for LBJ, and so on continue to expand? Percentagewise, they get larger, while DoD, which is “discretionary” only in DC, but not “discretionary” according to the Constitution, gets smaller? Worth noting is that these are percentages. The actual numbers will vary according to what the US govt spends. So in order to avoid lies and damned lies, note that the budget in 1962 was a total of $169 billion, while in 2010 it was $5,920 billion. SS, Medicare/caid and SCHIP have all increased not only in percentage, but vastly in size.
There will be no economic change like the end of WWII that will result in those dropping precipitously. As Reagan said, the closest thing to eternal life on earth is a government program.
The money in Krugman’s second statement that “we owe to ourselves” is the money that children will be working off to pay for their parents, and that the fewer children western societies have, the fewer people we have to pay for the entitlements our politicians keep giving away. Mark Steyn spends a lot of time pointing this out.
The WWII debt that Krugman cites existed before the perpetual ever increasing sarlacc pit of the welfare state existed. It disappeared in a world that still wasn’t ruled by the welfare state. Krugman fails to see that the mass expenditure that is analagous to the war effort is entitlement spending… because he’s an idiot.
Professor Krugman calls all the conversation in Washington about debt and deficits a “misplaced focus” and says all of the economic experts “on whom much of Congress relies have been repeatedly wrong about the short-run effects of budget deficits.”
He derides the fears that deficits will cause interest rates to soar by pointing out that they haven’t moved.
What he doesn’t say is that they haven’t moved because they’re not free to move.
The fact is that the U.S. Federal Reserve has corralled the free market in interest rates by knocking short-term rates to almost zero through successive open market operations and extraordinary quantitative easing measures.
Mr. Krugman mocks those waiting for rates to rise and notes that while they wait “rates have dropped to historical lows.”
The crux of Mr. Krugman’s supposition that debt doesn’t matter much is based on his bashing of the popular analogy comparing America’s debt problems to those of a mortgaged homeowner.
He continues:
First off, the homeowner analogy is excellent–not irrelevant.
Mr. Krugman is wrong when he says that homeowners have to pay back their debt. The truth is they don’t have to.
Just like the government, as long as their creditworthiness is intact and money is available, at whatever cost, homeowners can refinance their mortgages over and over. That’s no different than how the government rolls over its own debts.
We saw this phenomenon play out in stark reality during the housing bubble.
Not only were homeowners refinancing their homes to take out money for consumption purposes, they leveraged themselves to buy more homes to multiply the wealth effect they were already experiencing.
In the case of the housing crash, borrowers were counting on rising property values to finance their expanding debts. That’s the same as what Krugman says governments should do: make sure debt expansion doesn’t outpace revenue growth, in this case taxes.
In the end, though, didn’t the bursting of the housing bubble prove that debt eventually matters?
To me, the housing bubble was a pretty darn good analogy as to what happens when mounting debts aren’t repaid. When it happens on a systemic basis, the entire economy suffers.
And yesterday in the New York Times, of all places, there was this piece:
The Dangerous Notion That Debt Doesn’t Matter
By STEVEN RATTNER
WITH little fanfare, a dangerous notion has taken hold in progressive policy circles: that the amount of money borrowed by the federal government from Americans to finance its mammoth deficits doesn’t matter.
Debt doesn’t matter? Really? That’s the most irresponsible fiscal notion since the tax-cutting mania brought on by the advent of supply-side economics. And it’s particularly problematic right now, as Congress resumes debating whether to extend the payroll-tax reduction or enact other stimulative measures.
Here’s the theory, in its most extreme configuration: To the extent that the government sells its debt to Americans (as opposed to foreigners), those obligations will disappear as aging folks who buy those Treasuries die off.
If that doesn’t seem to make much sense, don’t be puzzled — it doesn’t. Government borrowing is still debt that must eventually be paid off, just as we were taught in introductory economics.
Failing to repay the debt would mean not only the ugliness of default but also depriving the next generation of whatever savings their parents parked in government bonds.
The basic understanding that debt is a big deal gets through. Of course, what little understanding there is turns stupid partway through the piece:
Of course every modern economy both tolerates and benefits from some amount of debt. But the United States has been on a binge, brought on by a toxic mix of spending increases and tax cuts that began with the Reagan tax cuts in the 1980s and were later turbocharged by those of President George W. Bush.
Tax cuts allow businesses to grow. Increased business results in greater tax revenue. It’s economy of scale, stupid. Plus when tax cuts are blocked and taxes are raised again, hindering expansion of business, then the revenue that comes from greater economic activity as a result of those deleted tax cuts obviously never materializes. Entitlement spending increasing is already addressed.
the dark shadow of the Tea Party movementhas made added spending — the route for most new government investment — taboo.
While public investment may take longer to unleash its positive forces, the case for it is compelling, in part because rising entitlement expenditures have crowded out government’s investment activities.
Because “public investment” is pork barrel spending. Because “public investment” for anything other than what’s outlined in the Constitution inevitably turns into a boondoggle. Because government didn’t create Carnegie Steel, Union Pacific, Hughes Tool Company, Dow, Ford, IBM, Apple, Microsoft, Google, Vivid Entertainment or PWS. Individuals, unhindered by government, not controlled by government, and often even despite government regulation, create them.
Y’know, the PWS CSAT? From Boise, Idaho.
Franklin D. Roosevelt’s much-praised Works Progress Administration spent the equivalent of at least $1.5 trillion over eight years on projects that in New York City alone ranged from building La Guardia Airport to reroofing the New York Public Library to creating a lasting body of literary and artistic work.
FDR’s $1.5 trillion was taken from productive sectors of the economy and stuffed into pet projects. La Guardia got a reroofing because politicians with pull got it done. NYC’s public library is for NYC to deal with. For the fedgov to take money from a rancher in Colorado or an oil rig worker in southern California (back in those days) and give it to New York to have some fluffy effite snobbery “lasting literary and artistic work” is the height of conceit. This is the mindset of the limousine liberal, who believes that artistes are the highest form of life and should be patronized via the guns of the IRS taking from “the masses”.
Not only that, but La Guardia is owned by NYC. They should pay for it. It’s their property. If it generates money for the city, they should have no problem reroofing it. Same goes for their library. If their public library generates revenue for the city, they should improve it. Oh, but wait – if they did generate revenue, they could’ve offered city bonds. If people believed they were good investments, those bonds would’ve been purchased by all kinds of investors wanting a good return. Except… libraries don’t make money. And La Guardia must not have needed a new roof. The money taken from the citizen and stuffed into government pork helped no one but the politicians and their select constituency who are being bribed for votes.
Y’know, Vivid Entertainment? From Los Angeles, California.
Government spending would not result in the best AR rifles for the civilian world (they resulted in the poor performance of the original military M16, issued without cleaning gear), and certainly not the best customer service, nor would it result in the best adult entertainment. A porn movie designed by government committee would be … pretty damned hilarious, actually, but only in a pathetic, sad way. There would be a lot more Janet Reno/Napolitano of Washington, DC, and a lot less Linda Ann Hopkins of Great Falls, MT.
Y’know, Linda Ann “Tera Patrick” Hopkins, of Great Falls, Montana?
Going all the way back to the titular Keynesian idiot, Mr. Paul Krugman, he finishes his most recent chart-topping magnum idiopus with this, which if you noticed was parroted by Mr. Rattner a couple weeks later, as all Keynesians always do:
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
