The Nation's Pulse
The Fundamentals Still Suck
“Consumer confidence” won’t fix the capital shortage.
It was Black Monday, Sept. 15, 2008. Major financial institutions were sliding into bankruptcy and the Dow Jones average was plummeting. Sen. John McCain, however, was speaking confidently. “The fundamentals of our economy are strong,” the Republican presidential candidate told supporters at a Florida campaign rally.
A chorus of GOP mouthpieces echoed their candidate’s assertion, but four days later, after Treasury Secretary Henry Paulson outlined the Bush administration’s bailout plans, conservative blogger Michelle Malkin erupted in fury. “I have had it with Pollyanna conservatives who continue to parrot the ‘fundamentals of the market are great!’ line,” Malkin declared. “The fundamentals of the market suck. The fundamentals of capitalism have been sabotaged.”
Malkin was right. The market closed that day with the Dow at 11,388.44, nearly 3,000 points below its October 2007 peak, but if you had sold all your stocks that day…
Well, “if” is the biggest two-letter word in the language. Five weeks later, the Dow closed at 8,378.95, a 26-percent loss from Sept. 19. By March 6, the Dow was at 6,626.94, a mere 46 percent of what it was worth in October 2007.
The past two months have seen a bounce in stock prices (the Dow closed Friday at 8,212.41), leading some to speculate that the “bottom” of the recession is now in the rearview mirror, and that we will see nothing but economic fair skies ahead. Unfortunately for the optimists — and nowadays, the Pollyannas are mostly liberals — the fundamentals still suck. Indeed, the fundamentals suck much worse now as a result of the misguided policies pursued by the Obama administration and the Democrat-controlled Congress.
To explain what’s wrong with the economy, and why the Keynesian “stimulus” approach is only making matters worse, is a difficult task even for trained economists to accomplish in the limited space of an analysis column.
The Atlantic Monthly’s Megan McArdle (MBA, University of Chicago) took a stab at it last week and was only able to boil it down to 1,070 words. A mere amateur at economics, but a professional editor, I was able to condense the problem to two sentences totaling 69 words: “The stimulus-and-bailout policies have not addressed the fundamental problems of the economy — namely, an excess of debt and a shortage of capital to spur job creation — while the entitlement trainwreck of Social Security and Medicare looms immediately ahead. By piling on new trillion-dollar deficits, at a time when the recession will result in significant tax revenue shortfalls, the Democrats are steering the economy into a stagflation trap.”
The key words in all that are “a shortage of capital.” The capital shortage affects the federal government as much as it affects you or me as individuals. Although capital is created constantly by economic production, it is still true that, at any given time, there is only so much capital in the world. Washington’s deficit-spending spree represents increased demand for capital at a time when the supply has been shrunken by 18 months of meltdown in asset value.
Suppose you’re an investor who, in October 2007, had a stock portfolio valued at $5 million. If your portfolio is typical, today it is worth slightly less than $3 million. Your $2.1 million loss represents a 42-percent decline in your portfolio’s value.
Ah, but you have other assets, including your primary residence and a cottage by the lake. These, too, have declined in value — so much so that, if you wanted to sell your lakefront home today, you’d have a hard time getting 70 percent of what it might have sold for at the peak of the housing bubble in 2006.
Your total loss in asset value, whatever its size, is quite real. Even rich people have monthly expenses and even rich people borrow money, so you likely have mortgages and other accounts that require payments every month. In good times, you might have made these payments from the return on your investments, but now your portfolio has been losing money for 18 months.
Are you, our hypothetical millionaire investor, now in any position to make new investments, the kind of investments required to fuel job creation? Of course not. In fact, if you wanted to switch some of your investments over to the relative safety of government bonds, your ability to purchase bonds has been diminished by your previous losses in asset value.
Yet the deficit-spending spree in Washington means that the federal government is trying to sell lots of bonds, as Bloomberg reported in March: “President Barack Obama’s government is selling record amounts of debt to revive economic growth, service deficits, and cushion the failures in the financial system. Debt sales will almost triple this year to a record $2.5 trillion, according to estimates from Goldman Sachs Group Inc.” And, as Bloomberg also reported, the Federal Reserve had to buy $7.5 billion of unsold bonds to compensate for weak demand.
This is why the Keynesian demand-side obsession with “consumer confidence” — e.g., Yale University’s Robert Shiller — is utterly useless for economic forecasting in the current situation. Psychobabble about the “mood” of consumers can’t fix the inescapable reality of the capital shortage, a shortage that will only be worsened by the deficit-driven flood of new government debt into the bond market. Yet in January, Shiller actually argued that more deficit spending is needed.
As if Keynesian theory had not been completely discredited by the “stagflation” crisis of the 1970s, just wait and see what happens now, as unprecedented government deficits siphon already scarce capital supplies away from private-sector investment.
“Change” has been the mantra of the Obama administration, but there’s one thing it hasn’t changed: The fundamentals still suck.
About the Author
Robert Stacy McCain is co-author (with Lynn Vincent) of Donkey Cons: Sex, Crime, and Corruption in the Democratic Party (Nelson Current). He blogs at The Other McCain.
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Steven| 5.4.09 @ 6:37AM
To reduce things even further, to a four word sentence: De-leveraging is a bitch.
Dealing with the entitlement fiasco (on state and local, as well as Federal, levels) is beyond the current crop of politicos and the present electorate. Therefore: crank up the presses and inflate our way out of this! Hello, Argentina!!
Pingback| 5.4.09 @ 7:26AM
Topics about Go-greener » Blog Archive » The American Spectator : The Fundamentals St links to this page. Here’s an excerpt:
SC Mike| 5.4.09 @ 8:11AM
To compound the idiocy Obama has sent the message that if you do have a bit you’d like to invest, he’s going to tax it at a rate higher than what we’ve been accustomed to over the past decade. Why then take much of a risk investing large or small sums when the return is going to be subject to the whims of spendthrift executive and legislative branches?
The genius of the Reagan recovery in the early 1980s was its simplicity: tax rate reductions let folks with good ideas (entrepreneurs) find folks with capital (venture capitalists) and work out a deal that would not face punitive taxes. The technological boom we saw in the 1980s was the result of folks doing risky things with their own money, knowing that success would not be penalized.
Today why invest? Not only are taxes on the upswing, but regulation and never-before-seen direct government involvement in enterprises will make success less likely.
P. Aaron| 5.4.09 @ 8:42AM
The real Robber Barons are here! It's the Democrat majority in congress and it's leader in the White House.
Curly Smith| 5.4.09 @ 8:49AM
I have to disagree a bit. The "mood" of the consumer is extremely important since 2/3rds of the US economy is driven by Consumer Spending. A big portion of that spending is strictly discretionary and all investing is totally discretionary. When you've seen your portfolio decline by 42% then, even if you have excess income relative to expenses, you're not eager to either spend or invest until you've recouped some of your losses. But, the geniuses at the Fed, Treasury, in Congress and the White House continually spend the consumer's income thus further reducing the amount of discretionary spending. Even dollar that is spent on bailouts, buyouts and bribes to donors is two dollars that won't stimulate the economy. It's almost as if the administration wants to fuel another Depression...
ARealist| 5.4.09 @ 9:26AM
The assumption of too much debt fueled by easy money - courtesy of the Fed and zero interest rate Japanese Yen (the carry trade), plus the "creativity of Wall Street (CDOs, mortgage securitization, etc) - encouraged by left wing politicians, via Fannie/Freddie, in their quest to make all Americans homeowners - created unsustainable asset inflation and an unsustainable growth in production.
The bubble has burst.
Asset levels MUST be allowed to fall to levels where supply/demand once again equilibrate.
FED / Obama policy , just as that of FDR, is aimed at re-igniting consumer demand and maintaining asset levels and PRICES at unsustainable levels.
Supply presently exceeds demand; demand cannot be "created" by providing more credit and more deficit spending to consumers already drowning in debt.
Any money finding its way into the pocket of consumers will be used to pay down debt - not to buy a new car or fridge or eat out or buy a house.
You cannot force folks to borrow money regardless how readily available or cheap it is. Further , business will not borrow if they see no need to expand or if they see contraction ahead.
Prices - and production - must be allowed to fall; only this will re-ignite demand consistent with consumer demand.
No one can make gravity disappear; its impossible.
Neither can demand be created by simply providing more easy credit to those drowning in debt.
The Obama/Fed policy - print trillions of paper dollars, spend this fake wealth and try to prop up prices seeking to fall - will not work. It failed in the 30s, it has failed in Japan over the last 15 years, it failed in Weimar Germany, it failed in Argentina several times, most recently about 10 years ago.
It has NEVER worked , ever, wherever and whenever it has been tried anywhere in the world.
The result has ALWAYS been the same- zero growth or recession or depression or inflation or stagflation and destruction of wealth.
I am not smart enough to put the above in dense mathematical formalism and associated economic theorems and "proofs."
If I could, economists would pay attention to the obvious.
ARealist| 5.4.09 @ 9:26AM
The assumption of too much debt fueled by easy money - courtesy of the Fed and zero interest rate Japanese Yen (the carry trade), plus the "creativity of Wall Street (CDOs, mortgage securitization, etc) - encouraged by left wing politicians, via Fannie/Freddie, in their quest to make all Americans homeowners - created unsustainable asset inflation and an unsustainable growth in production.
The bubble has burst.
Asset levels MUST be allowed to fall to levels where supply/demand once again equilibrate.
FED / Obama policy , just as that of FDR, is aimed at re-igniting consumer demand and maintaining asset levels and PRICES at unsustainable levels.
Supply presently exceeds demand; demand cannot be "created" by providing more credit and more deficit spending to consumers already drowning in debt.
Any money finding its way into the pocket of consumers will be used to pay down debt - not to buy a new car or fridge or eat out or buy a house.
You cannot force folks to borrow money regardless how readily available or cheap it is. Further , business will not borrow if they see no need to expand or if they see contraction ahead.
Prices - and production - must be allowed to fall; only this will re-ignite demand consistent with consumer demand.
No one can make gravity disappear; its impossible.
Neither can demand be created by simply providing more easy credit to those drowning in debt.
The Obama/Fed policy - print trillions of paper dollars, spend this fake wealth and try to prop up prices seeking to fall - will not work. It failed in the 30s, it has failed in Japan over the last 15 years, it failed in Weimar Germany, it failed in Argentina several times, most recently about 10 years ago.
It has NEVER worked , ever, wherever and whenever it has been tried anywhere in the world.
The result has ALWAYS been the same- zero growth or recession or depression or inflation or stagflation and destruction of wealth.
I am not smart enough to put the above in dense mathematical formalism and associated economic theorems and "proofs."
If I could, economists would pay attention to the obvious.
JP| 5.4.09 @ 9:51AM
I would like to point out that consumer spending (ie consumer debt) is what got us into this mess n the first place. Yes, the Fed's easy money policies, as well as Fannie Mae/Freddie Mac were the vehicles, but it was ultimately too many consumers borrowing trillions of dollars from 2002-2007 that propelled most of our growth. What also had a hand in it was the large amount of outsourcing by firms of all shapes and sizes that squeezed evey penny of efficiency out of labor. The Chicoms were our enablers. Not only did they buy our consumer and public debt, but their cheap labor allowed all of this speculation and consumption to occur with minimal inflation. Eventually inflation in the energy sectors reared its head, but that was after the die was cast.
What the President is attempting to do is similar the desperate efforts of the Fed circa 1927-1928. In that year, the roaring 20s was becoming unsustainable. The Fed's solution: inject tons of credit into the market. The Obama-Bernercke-Geithner troika is doing something similar. In 1928-29, all of that excess liquidity went into stock speculation. I'm not sure where it will go now.
Until or economy can fully absorb the losses of 2007-2008 it cannot grow, except through artificial means. And as Robert noted, the Medicare/Social Security challanges loom large. How much more debt can our economy handle?
Son Of Sam | 5.4.09 @ 10:23AM
JP, I absolutely agree that consumer debt is a major part of our problem. I'm no world traveler, but I don't believe for a second that there's any other group of people the world over who are as enamored of plastic as we Americans are.
Where we part company, it seems to me, is the reason WHY Americans have become so "stuck on plastic". Is it because we're selfish and shortsighted? We're just way too into immediate gratification? Maybe...but I believe that ultimately it is BIG GOVERNMENT LIBERALISM that has fueled this. Here's how I see it:
A) beginning with the launch of the so-called "war on poverty", the tax burden on the average American family began skyrocketing.
B) Trillions of dollars spent and forty years later, poverty is still with us, and the middle class has been gutted. Where once upon a time,one income was sufficient to pay for the family budget, now it takes two. The reason is simple enough:
C) The average American family pays something like half its income in taxes. Not just INCOME TAXES,mind you, but the full gamut of sales taxes, property taxes, gasoline taxes, taxes for the Social Security "lock box", etc etc. Not to mention all the corporate taxes that CORPORATIONS DON'T PAY, because they bundle it into the price of their products, and "we the people" pay them
D) To put it bluntly, one parent is paying the bills, while the other pays the taxes. Naturally, people might get pissed off with a situation like this, and maybe they'd start wondering why they have to work more and more just to keep even, just so a bunch of bureaucrats can throw a bone to the poor and keep most of the money to pay the bureaucracy, while "compassionate" politicians pat themselves on the back. But fear not:
E) Those same "compassionate" politicians have helped make it easier for all of US to borrow money and get into debt. It's kind of like the government decided to jack up deficit spending by getting all of US to borrow the money. THEN, when we've maxed out our credit, some insufferable jackass who's never held a real job in his life can get elected President and then
F) Lecture the American people about how selfish and greedy they've been, attack the banks who've been doing the lending and shove through a tidal wave of spending which makes the national debt mushroom in size.
Tell me, if anyone can, how is it that us maxing out our credit cards is "irresponsible" but the government spending a trillion dollars each year that it doesn't have is somehow a "common sense solution"?
Stay strong until freedom dawns
Son Of Sam
http://www.geocities.com/samadamssos
Robert Rosencrans| 5.4.09 @ 11:39AM
Sometimes it's the obvious stuff that gets you. While the economy got hit by socialism flu, it looks like nothing was learned. According to this article in the WSJ the FHA is already engaging the same loan practices, and a new bailout is already brewing.
According to the article, 1 in 8 of those new loans is already in trouble, and will require 50 to 100 billion in another bailout.
http://online.wsj.com/article/SB124139474675481713.html#mod=loomia?loomia_si=t0:a16:g4:r3:c0:b0
Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn't well known is that a parallel subprime market has emerged over the past year -- all made possible by the Federal Housing Administration. This also won't end happily for taxpayers or the housing market.
Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.
The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent -- nearly triple the rate on conventional, nonsubprime loan portfolios. Another 7.5% of recent FHA loans are in "serious delinquency," which means at least three months overdue.
The FHA is almost certainly going to need a taxpayer bailout in the months ahead. The only debate is how much it will cost. By law FHA must carry a 2% reserve (or a 50 to 1 leverage rate), and it is now 3% and falling. Some experts see bailout costs from $50 billion to $100 billion or more, depending on how long the recession lasts.
How did this happen? The FHA was created during the Depression to help moderate-income and first time homebuyers obtain a mortgage. However, as subprime lending took off, banks fled from the FHA and its business fell by almost 80%. Under the Bush Administration, the FHA then began a bizarre initiative to "regain its market share." And beginning in 2007, the Bush FHA, Congress, the homebuilders and Realtors teamed up to expand the agency's role.
The bill that passed last summer more than doubled the maximum loan amount that FHA can insure -- to $719,000 from $362,500 in high-priced markets. Congress evidently believes that a moderate-income buyer can afford a $700,000 house. This increase in the loan amount was supposed to boost the housing market as subprime crashed and demand for homes plummeted. But FHA's expansion has hardly arrested the housing market decline. The higher FHA loan ceiling was also supposed to be temporary, but this year Congress made it permanent.
Paul from SA| 5.4.09 @ 12:49PM
I agree with ARealist, "Prices - and production - must be allowed to fall….”, You cannot force folks to borrow money….”
Fed policy is responsible for the inflated prices and production -- excessive, irresponsible, and at times, reckless lending, borrowing, and spending -- in another failed attempt by politicians to micromanage the economy. They always seem to be unaware of the negative future consequences of their meddling.
The recession is a correction. More of the same, by the gov't, will only make this worse -- but later. The Keynesians/Democrats are sacrificing our future for the current.
I don’t believe people will ever spend or borrow or invest their money the same as we used to. The sheer magnitude of the loss of wealth, for many -- 10 years of sacrifice and investing -- occurred so quickly and without adequate explanation and without accountability for those responsible, it caused permanent damage to our economic foundation. Trust is gone. Millions of jobs are gone. Financial uncertainty rules. The media, if they wanted, could make this uncertainty much worse.
We know what’s coming, and Obama and the Dems can’t be stopped: higher income taxes on individuals and businesses, higher taxes on investments, higher taxes on carbon energy, higher taxes to pay for free health insurance for people who don’t have it, more unions, more failures, more bailouts, more stupid trains, more borrowing, more spending, … , and eventually massive inflation.
Bob| 5.4.09 @ 1:00PM
RSM, you got it wrong again. I suggest you tune into CNBC, Bloomberg, or other financial networks. Many of the underlying economic indicators are moving in a positive direction. Production is now less than demand and inventories are reaching new lows. Just his morning, there were a slew of positive reports from investment analysts indicating the bear market rally is over and we have all of the signs of a bull market.
While it will take 6-12 months for companies to start hiring again, jobs are a lagging indicator as we all know. Furthermore, with all of the retail bankruptcies, the retailers that are left will be a lot stronger.
Those are the facts, RSM, and I suggest you talk to a business economist (or maybe Philip Klein) and learn them. You will not see any significant rise in GDP until next year for this reason, but the foundation right now looks good.
The effects of deficit spending are long term, not short term, as spending is stimulative and you don't pay for it for a number of years. To believe that any stimulus has any major effect for the first 6 months or so is just idiotic. To then come to the conclusion that it has not worked after just 3 months or so shows a total lack of economic understanding.
daboss| 5.4.09 @ 1:12PM
Bob –
While you and I agree on the consumption tax, we differ on the effects of federal stimulus. If getting an economy on track only required Federal spending we would never have a recession.
A bubble built on debt cannot be solved by more debt. Simplistic view – yes it is. But it is also accurate. Because debt inflates the market – and the market needs to contract.
My employer is slow … real slow … and we are in an industry that has yet to see the coming commercial real-estate bubble – let alone any aspects of the stimulus. Although I think the plan was to have the stimulus kick in just prior to the 2010 election (good politics) but bad economics.
Todd| 5.4.09 @ 1:15PM
Bob has not commented yet but I am sure he will as some point. Here is what Bob said last Friday, "If you look at a chart of normalized GDP, you will see that the growth in our economy doesn't change much when inflation is high or low. That is simply fact. So, Todd, learn how to read the data yourself. "
What his point in saying this I can't really say except maybe that we shouldn't worry about inflation because it will not affect growth. Is he really saying that inflation can have no ill effects? I am not old enough to remember the ill effects of the inflation and stagflation of the late 70's but I have talked with people who have along with reading much about it and looking at a chart of GDP growth does not reflect the stark reality.
Let me quote some of the famous Austrian economists (the only economist other than Milton Friedman worth a damn) about the weaknesses of GDP figure.
Criticisms of GDP figures were expressed by Austrian economist Frank Shostak.[5] Among other criticisms, he stated the following:
The GDP framework cannot tell us whether final goods and services that were produced during a particular period of time are a reflection of real wealth expansion, or a reflection of capital consumption.
He goes on:
For instance, if a government embarks on the building of a pyramid, which adds absolutely nothing to the well-being of individuals, the GDP framework will regard this as economic growth. In reality, however, the building of the pyramid will divert real funding from wealth-generating activities, thereby stifling the production of wealth.
Austrian economists are critical of the basic idea of attempting to quantify national output. Shostak quotes Austrian economist Ludwig von Mises:
The attempt to determine in money the wealth of a nation or the whole mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimension of the pyramid of Cheops.
The main point is that while government spending will increase GDP, it is not wealth creation but capital consumption which in reality makes us poorer by diverting the use of capital from more productive means. The famous Keynesian example of building pyramids for economic growth shows the utter stupidity of such thinking.
We all know that Bob dresses himself in the sheeps clothing of a fiscal conservative and is nothing but an Obama apologist. Call me uneducated or whatever arrogant insult you want Bob but I have the words of the great Austrian economist on my side.
Todd| 5.4.09 @ 1:19PM
I was being writing my post before Bob's post but I knew he would have something to say and of course he is defending the so-called "stimulus" which stimulates nothing but big government while punishing the private sector.
Bob| 5.4.09 @ 1:36PM
So Todd, should we even listen to you when you said we should measure economic growth by stock market prices? You obviously know nothing about economics. You didn't even realize the chart I showed on GDP (by the Heritage Foundation) was normalized with inflation removed.
Again, if you knew how to read data, you'd see that my point about economic growth, over the long term, is absolutely correct. And by the way, while I've said that inflation has a couple of positives, I've also said that it has more negatives than positives. But then again, it seems you have a comprehension problem.
I did live through the 70's with stagflation. Inflation only hurts the economy if it lasts for a long period of time deflating the purchasing power of average consumers. However, we are not a third world nation and we do tend to fight inflation over time. Volcker did a great job fighting inflation in the early 80's when the Fed Funds rate was in the high teens. There is no doubt in my mind that Greenspan, and now Bernanke will do the same thing once we are out of the recession.
daboss -- While tax cuts are proven not to be stimulative on a macro basis, the big issue on stimulus is payback, i.e., do we get more out of spending than we put in. For most of the items in the stimulus bill, I haven't seen evidence that we do get full payback. Therefore, the only ones I could support are those stimulus items that help our country's productivity like those in infrastructure and specific types of research. I personally thought the stimulus bill was far too large and have said so several times.
You will not see businesses really get better until next year. The underlying economic factors are improving, but it will take a while, and very low inventories, for companies to start hiring again. Remember that jobs is a lagging indicator.
Todd| 5.4.09 @ 2:43PM
You made your assumption that I didn't realize that Bob but you just made that up. I know what the graph says and you would never have known how screwed up the economy was in the late 70's just by looking at GDP. There are many weaknesses with using just GDP to measure health of the economy. The fact that Austrian economists point out its weaknesses illustrate my point and I will listen to them before I take your word for it. The fact is under a terrible President like Carter with Keynesian economics, we were becoming a third-world type country until Reagan came in and got the house in order by getting rid of those fraud economists. Now we have history repeating itself with Obama and with Keynesians like Summers dictating economic policy and the results will be ugly. GDP will likely rebound later this year due to all this government spending but it is not wealth creation but capital consumption. Predictably, the press will triumph the success of the stimulus later this year but it is all a fraud.
To say the stock market and the health and growth of the economy have nothing to do with each other is a falsehood and you know it Bob. If you are bullish on the economy, you will also be bullish on the market. I did not even say that we should measure economic growth by stock prices, just another example of you twisting other peoples words for your desired effect like a true sophist.
McCain is absolutely correct, the fundamentals do indeed suck unlike what John McCain said. Of course they suck much more since Obama and his Statist thugs have taken over. If you think the fundamentals are bad now, if they ever pass this cap and trade scam, it will get much worse. But I guess we can feel good that we will keep the tides from rising by 1 cm and the temp by .5 degrees.
daboss| 5.4.09 @ 3:07PM
For what it’s worth – GDP growth rates for Carter:
1977 4.700805
1978 5.574035
1979 3.208398
1980 -0.24041
Not bad numbers … I remember the late 70’s “sucking” really badly … but these numbers show something else.
Todd| 5.4.09 @ 3:13PM
daboss,
That is what I am talking about daboss, GDP figures are not always reliable as stated by the Austrian economists and the late-70's are a prime example of that. Excess government spending inflates GDP artificially and creates no wealth.
JP| 5.4.09 @ 3:20PM
DaBoss,
You left out inflation, which is strange in that inflation was probably the biggest reason he lost in 1980. Inflation in 1977 was 5.4%, and 13% by 1980.
EUGENE HAUBER| 5.4.09 @ 3:35PM
OBAMA IS JUST THE NEXT NIGGER IN CHARGE OF PUBLIC MONEY AND IT ALWAYS WINDS UP IN A BIG RIPOFF AND THEFT ON A MAJOR SCALE...NEWARK, NJ, CAMDEN, NJ, LA, SAN FRANCISCO, ATLANTA, ATLANTIC CITY I'M SURE YOU PROS CAN COME UPWITH MORE HUGE BUDGETS RAPED OVER BY INCOMPETENT BLACK ADMINISTRATORS.
THIS IS NEVER THEIR MONEY, IT IS MOST OFTEN SUPPLIED BY WHITE TAXPAYERS. CHECK THE EXTORTION TECHNIQUES USED BY JESSE JACKSON AND AL SHARPTON AND ALL THE REST OF THE RACE(WHORE) MONGERS.
NIGGERS ARE IN THE SHAPE THAT THEY ARE IN TODAY BECAUSE THEY REFUSE TO TAKE RESPONSIBILITY FOR THEIR OWN ACTION....ALWAYS, I, A WHITE GUY, AND SO, SO, SO, TIRED OF BEING BLAMED FOR THEIR DRUG USE, FAMILY ABANDONMENT, AND VIOLENT CRIME. THE BLACKS ARE 15% OF THE POPULATION AND COMMIT 75% OF ALL VIOLENT CRIME....THAT'S WHY MOST OF THE YOUNG ONES ARE IN JAIL...DADDY TOLD THEM TO DO IT.
SEND THEN TO MY HOUSE IN THE MIDDLE OF THE NIGHT OR ACCOST ME ON THE STREET!!!
GENE HAUBER
BRICK, NJ
5
Robert Rosencrans| 5.4.09 @ 3:36PM
If government spending make for economic success then the former Soviet Union would have been the most successful economy in the world. Instead, it collapsed.
Bob| 5.4.09 @ 3:37PM
Todd, again you don't know what you're talking about. Excess government spending? Here's a chart of federal spending:
http://www.heritage.org/Research/features/budgetchartbook/fed-rev-spend-2008-boc-S1-Federal-Spending-Has-Increased.html
Perhaps you can show us where the "excess government spending" lies?
And by the way, GDP measure the GROWTH of an economy -- not the HEALTH of an economy. Again, you don't seem to know the difference. You proposed we use market indexes!!!! Under that scenario, our economy would have dropped by 40%!!!!
And by the way, wealth creation is an artificially weak measure of economic health. All you have to do is look at the series of bubbles we've had to know that. Here are some charts I just googled quickly. I'm sure you can find better ones if you had the time:
http://chartingtheeconomy.com/?page_id=27
Todd, instead of reading and regurgitating, please learn how to analyze the data yourself. You seem to have a tendency to misunderstand theories and data. You do realize that most economists on both the right and left think the Austrian school has little or no relevance. The primary adherent today in political terms is Ron Paul. In fact, there are only a couple of universities in the U.S. who think it is important enough to teach except for econ history. Many of the tenets of the Austrian school have proven to be unpredictive. In fact, most economists value Keynesian economics far more than the Austrian school.
If you learned this in a class, I'd ask for my money back....
JP| 5.4.09 @ 3:38PM
"The effects of deficit spending are long term, not short term, as spending is stimulative and you don't pay for it for a number of years"
Bob,
You are correct. While the Fed induced bubble of 1927 took 2 years to burst, and President Obama is mainly borrowing money, his Fed and Treasury are inflating the economy via credit injections. Thus far over $2 trillion has been injected into out economy via bond auctions. Couple that with a net borrowing of some $2 trillion over the last 12 months and you have a recipe for disaster, sooner rather than later.
I would certainly hope that the recent injections of liquidity, 0% interest rates, and massive defecit spending on the part of 2 Presidents would lead to some economic activity. However, the Fed is playing with fire. Our currency risk is real, and if positive growth does begin, the Fed will have to begin raising interest rates, which will lower the spread between what banks charge each other and what they charge customers. Thus far lending hasn't been great despite the "favorable climate"; something is spooking the banks.
By guess is that thier losses are far greater than what they are publishing on thier balance sheets. Just 2 weeks ago we saw BOA former CEO admit that he was told by Treasury not to disclose his losses last December in order to assist the purchase of Merril. What is preventing this from not continuing? I'm not a conspiracy theorists, but this bit of TARP foul play got very little press.
Until the full measure of ALL LOSSES are absorbed and officially written off, there is very little confidence that this current market trend has legs. Just my opinion.
Bob| 5.4.09 @ 3:39PM
JP, the chart I showed were inflation adjusted.... You also must realize that much of the growth seen in the raw numbers of Reagan were inflation tainted. Many political hacks like Ferrara use non-inflation adjusted numbers to lie about the results under Reagan.
daboss| 5.4.09 @ 3:40PM
I also left off the “misery index” – which is what we have to look forward to.
Although the posters and pundits will cheer the GPD numbers and BHO will claim all is well again – but it is just another bubble to burst.
See building or repaving a road does not lead to more productivity – and that is how economies grow. Companies (and their employees) must be more productive – and Gov’t spending does not increase productivity.
Bob| 5.4.09 @ 3:43PM
JP, the numbers for the banks are most likely real. Remember that the spread between their loans which might average about 5% and the Fed Funds rate which is near zero is as large as it has ever been. They are making gobs of money on the spread right now. That's why they are pushing up the credit card rates as well.
That said, I totally agree with you that the Fed is playing with fire and we are in uncharted territory.
Bob| 5.4.09 @ 3:48PM
daboss -- I wouldn't worry about the misery index. When Reagan came along, the Fed Funds rate was about 18% or so -- it is now near zero. Also, inflation in this environment is much more difficult. The next bubble we will see is on treasuries -- and it will be a big one. Any growth in GDP will be real. However, I can't see that GDP growing at the rate Obama has in his budget. The problem will not be economic growth, but how large that growth rate is.
daboss| 5.4.09 @ 3:52PM
Has there ever been a bubble with treasuries?
Won’t the holders of treasuries demand a higher rate of return for their investment – and would that not force interest to rise? Otherwise, who will buy the notes? And if no one buys the notes and we buy them from ourselves – wouldn’t that jack up inflation?
Need some schoolin’ here.
Bob| 5.4.09 @ 4:05PM
daboss -- google "treasuries bubble" and read some articles. I'm not familiar with any of these bubbles in the past and, while I understand it, I've never seen it. We all need "schoolin'" here.... Including me...
Todd| 5.4.09 @ 4:12PM
You are such a liar Bob, I never said the stock market directly correlates with the economy. My point is that a real growing, innovative economy will also have strong growth in the stock market. History bears that out so quit twisting my words liar.
Government spending is a drag on the economy Bob when it gets into areas where it has no business being which is about everywhere today. Chrysler is a great example of that, sucking up billions of tax dollars for a complete failure but got to prop up the UAW for political donations. You were the one making the argument Bob that GDP demonstrates the health and growth of the economy by saying inflation has little impact on it and we should not be concerned about it. I make the argument that GDP by itself can be misleading and not accurately portray the health of the economy.
I am aware about Keynesian economics being widely taught in schools today because I was taught much of it myself. Of course you dismiss the Austrian school of economics because you are not a fiscal conservative and you are from the Keynesian school of thought that infects universities around the world. Milton Friedman was greatly inspired by the Austrian school of economics and spent his life fighting Keynesian economics.
Excellent comments from JP, the Fed is indeed playing a dangerous game once again and putting the value of our currency at stake. You do not have to be a conspiracy theorist to believe their is foul play under TARP and we will see more evidence of that in the near future. We have already seen with the BOA-Merrill merger debacle that the rule of law is under assault along with the Chrysler "bankruptcy".
Todd| 5.4.09 @ 4:15PM
There is foul play, not their.
Bob| 5.4.09 @ 4:37PM
C'mon, Todd. You said that GDP is not a good measure of economic growth and used the stock market instead. Now you are trying to get out of that? The problem with using the stock market is that it is a form of gambling and susceptible to bubbles. That's why it is a terrible measure of economic growth. You know that's true, just admit it.
You said that government spending is a drag on the economy. Nice statement, now show me the data. You can't, because it just isn't true. Please, show me the mathematical correlation....
By the way, Milton Friedman was a monetarist, not an adherent to the Austrian school. Prior to that, he was a strong Keynesian. But then again, why let facts get in the way.
I understand the concept of economic "growth", but perhaps you can explain the theory behind your view of economic "health". Generally, economic health is measured by a series of economic indicators including unemployment, inventories, inflation, etc. But most of these measures do not measure "growth". After all, when we talk about tax policy, we relate it primarily to "growth". And by the way, in general you don't have economic "growth" without a majority of the economic indicators being positive. That's why virtually all economists use GDP (normalized) as the most important measure of economic growth.
Again, Todd, if you did take a class in economics, I'd ask for my money back...
Todd| 5.4.09 @ 5:18PM
Where is the statement for that? I did not say that the GDP is of no use and only the stock market counts. I said that just looking at a graph of GDP does not tell the whole story and that GDP has weaknesses as is well know in economic circles. Just check out the wikipedia page, it has a big list for it. Your dismissal of the stock market as a form of gambling sounds like something you would hear from a proponent of Marxism. Has not the stock market throughout its history in the US generated wealth unlike any known throughout history? Again, I did not say the stock market is a short-term measure of economic growth but it surely goes hand-in-hand with strong economic growth in the long-term.
In the 70's, the market performed terribly because the economy fundamentals were weak (high inflation, price controls, Jimmy Carter and his Keynesian economic clowns) but performed amazingly well though-out the 80's and 90's due to strong productivity gains and innovation unleashed by decreased taxes and regulations.
I said Milton Friedman was strongly influenced by the Austrian School though he was not strict adherent because he advanced his own brilliant theories. There is little doubt that the great Friedrich Hayek was a profound influence. In fact on his wiki page, he is listed as one of the two influences on Friedman along with Arthur F. Burns. Sure he started out as a Keynesian at the beginning of his career but soon realized the error of his ways when he realized how high taxes and government spending retards the market.
Todd| 5.4.09 @ 5:39PM
Just some background on Milton Friedman so Bob can get the facts.
Originally a Keynesian supporter of the New Deal and advocate of high taxes, in the 1950s his reinterpretation of the Keynesian consumption function challenged the basic Keynesian model. In the 1960s he promoted an alternative macroeconomic policy called monetarism. He theorized there existed a "natural rate of unemployment" and he argued the central government could not micromanage the economy because people would realize what the government was doing and shift their behavior to neutralize the impact of policies. He rejected the Phillips Curve and predicted that Keynesian policies then in place would cause "stagflation" (high inflation and low growth).[3] Friedman's claim that monetary policy could have prevented the Great Depression was an attempt to refute the analysis of Keynes, who argued that monetary policy is ineffective under depression conditions and that fiscal policy — large-scale deficit spending by the government — is needed to fight mass unemployment. Though opposed to the existence of the Federal Reserve, Friedman argued that, given that it does exist, a steady expansion of the money supply was the only wise policy, and he warned against efforts by a treasury or central bank to do otherwise.
Too bad he is not still alive today to speak out against the Federal Reserve and its excesses. He would surely warn against the danger of stagflation because that is the road we are heading on under Obama.
Bob| 5.4.09 @ 5:42PM
Todd, again you are wrong. It is not the market that generates wealth, it is the underlying companies. The market just prices the value of the companies. If you understood economics, you'd understand the difference.
Again you make the mistake of referring to the market when talking about the 70's. If the market is not a measure of economic growth, then why use it? Again, the all markets a susceptible to irrational influences like bubbles. Using them as a measure of economic growth is both naive and wrong. Please show me any major economist who uses the market as a measure of economic growth.
Milton Friedman, (as I understand it because I wasn't there), was influenced by Hayek and not necessarily the Austrian school. For that matter, Larry Summers was also strongly influenced by Hayeks thinking be he isn't an Austrian proponent either. Again, Milton Friedman is a MONETARIST, not an Austrian. And, by the way, he, like other great economists recognized the strengths, and weaknesses, of Keynesian theories. You seem to think that you must be of one school or another. That type of thinking is pretty juvenile.
So, again, Todd, what is your point? Can we agree that RSM doesn't know what he's talking about no matter which measures of growth or health you use?
Ralph Averill| 5.4.09 @ 6:04PM
Just where is all this money that some people are dying to invest? Whose got it? Is it in their matresses?
Robert Rosencrans| 5.4.09 @ 6:14PM
One issue overlooked is the rampant corruption inside the beltway, and the corruption of values in the business sector, bought on by billion dollar bail outs.
Just yesterday, Obama claimed he was closing tax loopholes which would result in a savings for the American taxpayer. In that one statement he lied twice. First, they weren't loopholes but legitimate tax strategies, and secondly, there never are any tax savings for the taxpayer because the government spends all they take in and more.
Ignoring the fact that it was laughable that Treasury Secretary Geithner, a tax cheat, announced the proposals to close alleged tax loopholes, the whole scenario of political gamesmanship by the Obama White House will eventually lead to a failure of confidence.
The never ending lies, the staffing of government with corrupt insiders and lobbyists, while misleading the public with Punic statements, is hardly a confidence builder.
Economic theories be damned. What we have is treachery by government officials and not only in the White House.
A FEMA report targets U.S. citizens while offshore, real terrorists are planning further attacks. The U.S. President circles the globe genuflecting before the one world government clones.
While the President is at home he attacks the capital markets, implying they are greedy for wanting to make a profit. All the while, the President and the government are grabbing more power, or threatening to destroy the business community if it doesn't play along.
An article in the WSJ describes how a FED Chairman also sat on Goldman Sachs board and was one of the forces behind the bailout for companies like Goldman Sachs.
Everywhere you turn in D.C. there is grab for power or a grab for money by the ruling elite.
Like Ludwin VonMises stated about easy credit, "It can only end badly."
Emo| 5.4.09 @ 6:49PM
""I have to disagree a bit. The "mood" of the consumer is extremely important since 2/3rds of the US economy is driven by Consumer Spending""
Actually it isnt. Consumer confidence surged in the 2-3 months after 9-11 yet the economy stagnated and unemployment rose for another 18 months until mid 2003. There is no statistically significant relationship between consumer confidence and future economic growth.
Emil| 5.4.09 @ 6:52PM
"" For what it’s worth – GDP growth rates for Carter:
1977 4.700805
1978 5.574035
1979 3.208398
1980 -0.24041
Not bad numbers … I remember the late 70’s “sucking” really badly … but these numbers show something else. ""
What those numbers dont show is that real incomes were falling as inflation was rising. The economy did indeed suck. Unemployment may have been 5.5% by mid 1979, but inflation was running near 15%. So you had a job, but had less to spend in real terms every week
NoCrud | 5.4.09 @ 6:55PM
Bob, you denegrate Todd and infer that if he took a class on economics, he needs to get his money back. Apart from a discussion of economics, I suggest you go back to school and take a good, thorough class on diplomacy. You are not only agressive in your 'attacks,' you are obtuse and demeaning. While others you speak with may or may not be correct, and you also appear to into this mold, they are practicing much more courtesy with their replies.
I suggest that this forum is to inform and not merely to defend a view of economics. You have been shown much more courtesy in their responses to you than apparently you are capable of and it is also apparent that you are so intent on posturing that you do not realize this.
Like a man or woman who stands on the sidewalk and screams hatred to the mate as if they are the only ones in the world while, at the same time, bystanders only see a raging maniac, I suggest you learn to convince others without use of contrasts with those around you. I am learning much from some of the comments by various people in this forum but what I have indeed noticed in your range of comments is that you do distort the premises of some of the others and carry that distortion forward and make it part of an argument. I certainly hope they do not have to talk to you as a child to merely avoid misinterpretation of what they say.
May I also say that I appreciate the comments of RSM and believe I have learned something from what he says and tend to agree with his views. I care not if you are anyone else agrees with him or me and will not spend time defending these views when the intention of the 'attacker' is to promote a sense of his being of some kind of superior intellect or more experienced.
As for taking a class in economics, IF I were in a class where the instructor had your attitude and mindset, Bob, I'd leave immediately and ask for a refund. This would be after letting the school know that the instructor was doing little to promote the reputation of the school.
stmichrick| 5.4.09 @ 7:33PM
I would like to pile on by saying thanks, Todd, for taking on Bob. His raison d'etre is insulting conservatives. He can't stick to the discussion without demeaning reasonable discourse.
And he won't de-couple government revenue generated by tax cuts from increases in spending, as if they are inseparable.
Thom| 5.4.09 @ 7:42PM
All these stories about Economic theories are fine and I have an economic background but at the end of the day all the study of economics is when you boil it down is the study of human economic behavior using a scientific method (or two or three). The fundamentals are much simpler to understand than the smartest people on the planet would have you believe. Complexity worship rules today unfortunately.
I lived through the inflationary times of the 70’s and contrary to what some have said here, there is no good to come from it. I doubled my income between 1973 and 1977 only to have my tax burden triple. Between 1977 and the end of Carter’s reign of terror I increased it another 30+ percent and added another 50% to my tax burden. Contrary to some people’s views, marginal tax rates do matter with regard to how and in what direction the economy grows. It certainly mitigated my behavior since my effective GDP was falling while the government reported GDP was growing like gang busters…… On top of this, “savings” were moot and as the realization took hold that saving money was losing value at a rapid rate, consumers took to spending their way out of losing “value” in their savings inflating an artificial market where none really existed in the first place. When consumers tapped out the economy collapsed just like now. Reagan’s indexing of income taxes, reducing overall tax marginal rates and keeping inflation under control has had a lot to do with not having a repeat of the 1970s “stagflation” but the current administration wants inflation because it shows a false picture of economic growth and health via GDP figures. It also devalues “debt” which government likes to do in order to keep spending everything and then some to buy votes. Contrary to what some think, the current uptick in the “market” is going to be short lived because the “fundamentals” do indeed suck for long term growth. None of Obama’s tax increases, burdens on business, energy cost increases have even seen the light of day and when these hit, combined with $4-5.00 a gallon fuel again our economy in real terms is simply not going to grow to keep up with even our population growth. Somebody has to pay for all this “debt” and unlike the past we owe foreigners more than we owe ourselves now so our $700.00 billion a year paid to foreigners for imported oil is going to become secondary to what we owe places like China. Government spending is not going to bring us long term growth (except in Government employment) or prosperity.
While some will continue to look at government charts that focus on macro economic terms from “orbit” the microeconomic world for those paying the freight on all this is quite different than what the “charts” show. My experience is not by any means unique for those that lived through the 70s and 80s. The “charts” only tell a portion of the story and the important shift in who pays the taxes vs. who consumes them is missing from all these “charts”. The study of Economics is a fine thing to know but the humanity portion is what is important and the current climate is not conducive to real long term growth.
Robert Rosencrans| 5.4.09 @ 7:59PM
When GDP rises as a percentage of government spending, it is often an indicator that meaningful GDP is not forthcoming. GDP growth under Keynesian fairy tale policies often predicts just the opposite of economic health, leading to stagflation or the destruction of economic wealth and health through government inspired inflation.
http://www.realclearmarkets.com/articles/2009/04/whatever_gdps_path_dont_expect.html
On the GDP front, it’s easy to see why some might presume a recovery that won’t be, but that will show up in this most Keynesian of economic measures that presumes real output can be measured within country borders. Indeed, government spending will surely increase this measure of output, but as most intuitively understand, governments cannot create economic growth. More realistically they can rob the economy of growth thanks to taxing and borrowing money from the private sector. No growth will occur, probably the opposite, but unreliable GDP figures will suggest recovery.
Even more problematic when it comes to GDP is the faulty way in which it measures trade. When massive amounts of imports reach our shores, meaning the trade “deficit” is increasing, this is one of the surest signals of economic growth. That’s the case because production and consumption are ultimately identical, and when imports flow our way, that’s a sign that we’re being rewarded for our productivity with more imports. But with our trade deficit at a 9-year low, meaning imports are declining, this unfortunate signal of our wilting productivity will paradoxically add to GDP growth. In short, what so many economists deem “recovery” in fact signals the opposite.
To develop a sense of what economic “recovery” will feel like, it would be best to look back to Jimmy Carter’s presidency. With the dollar regularly testing new lows alongside weak imports and heavy government spending, the U.S. economy experienced under Carter what author William Greider described as “one of the longest and most expansive periods of economic growth in postwar history.” It’s also true that percentage job growth under Carter hit postwar records.
So while job and GDP measures of growth showed expansion under our 39th president, markets saw something entirely different. Not fooled by Keynesian measures of output, investors bid up shares during Carter’s presidency a paltry 24 percent. And in real terms, investors lost a great deal of ground given the inflationary dollar that paradoxically added to GDP growth.
More modernly, job growth under President George W. Bush was similarly impressive, plus he regularly pointed to a 52-month expansion in GDP terms as a way of talking up the economic portion of his presidency. The problem there was that neither the markets nor voters were fooled, just as they weren’t under Carter. The S&P fell 36 percent during Bush’s presidency.
In truth, the dollar was in steady decline throughout his two terms, and as Carter’s term in office proved, GDP statistics can’t whitewash over the economic realities wrought by currency decline that effectively robs voters while retarding economic growth. Notably, the dollar’s debasement was a boon for firms in the energy sector, and it was energy sector health that made the total market look healthier than it actually was.
Indeed, as of last May, when the S&P was 40 percent higher than it is at present, profits within S&P firms were the worst they’d been in a decade. If not for the earnings of ExxonMobil, Chevron and ConocoPhillips, S&P profits would have shown their biggest declines since Bloomberg data analysts began compiling earnings data. By last year the energy sector accounted for 15 percent of the S&P’s total capitalization, and this explains why a relatively high S&P average of 1473 coincided with a great deal of unhappiness among the electorate.
The broader lesson from all this is that stocks do well when the dollar is strong and gold is falling, and they do really well when the dollar is strong and stable. At present the dollar is weak and gyrating, so no matter what the faulty measures of GDP may suggest in the coming quarter, any future recovery is something investors and workers alike should curb their enthusiasm about.
Inflation rarely if ever correlates with strong stock markets, and worse, the chance for a noticeable economic recovery was most likely stolen from us last fall. It was then that the federal government stepped in to block out the very company failures (and resulting unemployment) that if allowed to occur, would have authored a greater recovery. As awful as unemployment and bankruptcy are, both are economically cleansing for allowing debased assets and capital to reach better overseers, all the while creating a happy process whereby healthy firms are able to hire skilled workers on the cheap.
Instead, Congress and both the Bush and Obama administrations foisted bailouts on a country whose voters did not want them. The alleged “security” offered us has shown up in growing government oversight of the banking sector that promises to politicize the latter while giving American citizens a form of economic paralysis.
So while esoteric data may well point to economic recovery beginning in the fall, the reality will likely feel a lot different. In short, we’ll only feel economic recovery through rising market indices and in ways intangible once the toxic asset that is the dollar is strengthened alongside a humble Washington that steps aside and allow markets to work. Absent that, what some deem recovery will be the kind of growth that shows up in government statistics, but that most won’t notice.
DaveS| 5.4.09 @ 8:44PM
You're all making too much noise over the simplest things. Chimps could do monetary policy as well as anyone in charge the last nine months. Government is the problem (not Enron, not Reagan, not derivatives, not leveraging).
Rob Stumpf| 5.4.09 @ 8:54PM
The Democrats are setting us up for an economic catastrophe. To say out of control government spending is okay because some economic indicators are looking better is like saying that hurricane is okay because the rain is slowing down a little. Your house is still eventually going to get blown away.
Asset values have to fall. Even children can understand that and the reason for it, but politicians are only in the business of keeping voters happy. So politicans cannot do the job, any rationalization aside.
As it has become clear to many (not, of course, to those with a vested interest in keeping the status quo) that neither Keynesianism or Monetarism has anything near the whole picture, it is only right that we search for better alternatives. The Austrian School is one such possibility...if it may hold a piece of the puzzle, why not?
I think it was JFK that said that we are all Keynesians now. If that's true, we are also all stupid. Look where these policies have led us, and you tell me if we can continue to follow them blindly.
Thom| 5.4.09 @ 8:57PM
DaveS, yes chimps could do the same level of work but they don't vote their self interest like government workers do. As Robert Rosencrans said, if government spending was the solution to anything numerous other places would be Utopia for sure by now. Government is the problem but half the country works for or depends on the government.....
Thom| 5.4.09 @ 9:03PM
Rob Stumpf, I think it was Nixon that said that actually. I think the 70s proved that was a stupid path to follow.....
Ed | 5.5.09 @ 1:00AM
A dirty picture is worth a thousand words. Show people the first two charts here:
“Real Dow & Real Homes & Personal Saving & Debt Burden” at
http://homepage.mac.com/ttsmyf/RD_RJShomes_PSav.html
Bob| 5.5.09 @ 7:54AM
NoCrud
The problem here is that people with a shallow understanding of economics like Todd and RSM who gain their knowledge primarily from political blogs and misuse data are hurting the cause of fiscal conservatism. By doing things like talking about economic fundamentals without understanding what they are, they give the opposition so much ammunition and make Republicans look like fools. If I weren't so "nasty", people would not pay attention.
This is the exact same strategy used by most of the posters here when talking about Obama and Democrats. There is constant denegration and name calling in most articles/comments. The reason you don't complain about that verbiage is because you agree with it.
So examine yourself and this board before you are critical of me. Examine all of the people who would call me a "liar" not because I've lied, which I have not, but because they disagree. You need a course on objectivity.
I'm glad I got a rise out of you. Now take a step back and see if you can be objective.
Bob| 5.5.09 @ 8:08AM
Rosencrans, you said this:
"When GDP rises as a percentage of government spending"
What this shows is that you don't have a clue about economics. You don't look at GDP as a percentage of government spending, you look at the reverse -- government spending as a percentage of GDP. The fact that you would make such a fundamental mistake of logic shows that you don't know much about the subject matter.
Now let's get to the subject matter... The author of the article seems to argue that the stock market is a better measure of the economy than GDP. He doesn't say this directly because he'd be laughed off of the planet by other economists. Show he uses this to show the weakness of GDP. And yes, there are weaknesses in using GDP. However, virtually all economists agree that this is the best overall measure we have even with its warts.
The author also, because he's trying to make a point, does not bring up the problems with using the market as a measure. He doesn't talk about bubbles, or short sellers, or hedge fund manipulation, or irrational exuberance, or downturns. The market is down 40% right now. If the economy was really down 40% then unemployment would be over 30% and it isn't.
If you are an investor, you look at the market. If you are an economist, you look at GDP.
Bob| 5.5.09 @ 8:17AM
Thom,
The point is that during the inflation and high tax rates of the 70's, you still made more money -- bottom line -- during this period. You didn't like the high marginal tax rates, but your income grew nonetheless. GDP measured that increase and showed it. Your income rose and so did GDP.
That said, however, you raise a good point about the distribution of income. When the market rises at a much faster rate than GDP, we tend to see more disparity in personal wealth. People who have money have more of their wealth in the market than people who don't have money and are spending it on necessities. The people at the top then earn a lot more money during market upturns.
One of the big problems in our society is that during the last decade, the incomes of average people has actually dropped while the incomes of high net worth people doubled. This disparity is not good for a democracy and is one of the reasons Democrats are winning. Republicans need to find a way of making the playing field more level if they want to win. I think we need a flat tax that includes all federal taxes including social security and medicare so that there is not benefit to any segment. There might be a threshold at the bottom, but I think that would benefit everyone. Certainly, you should like the idea... Right????
Todd| 5.5.09 @ 8:25AM
Bob,
I call you a liar not because we disagree but because you delibrately twist my words and you do the same to everyone else you disagree with. Everyone here knows that is what you do. Your pretense of being a fiscal conservative while carrying water for Obama and his den of thieves is beyond laughable. Thom had a very astute post to state my points in a more concise way with his economics background (I have an MBA specializing in Accounting) and I notice Bob did not want to take him on and instead focus on his misleading attack on me on the stock market and economic growth. Also the article Robert posted was excellent and helpful. But of course Bob will ignore those and will continue his misleading attacks because he knows he cannot win the argument in an honest manner.
Bob| 5.5.09 @ 9:00AM
Todd -- there is a habit of making statements without thinking about the consequences. This is exactly what you did when talking down GDP in favor of market indexes. Technically, you were correct that GDP has weaknesses, but you only mentioned market indexes as an option -- and they are much worse measures of the economy. The fact is that GDP is not perfect, but it is the best overall measure we have. But you didn't say that because you wanted to argue with me rather than get at the truth. Calling you out on the follow up logic is not "lying". If you really have an MBA and are smart, you'd know that.
I did not take on Thom because he wasn't trying to make a political argument -- he was trying to get to the truth. I may disagree with him on issues, but I respect people that go after the underlying truth. You don't go after the truth, Todd. You try and find information that denegrates the opposition and I respond in kind.
The fact is that I don't like the bailouts and the stimulus plan and I've said so on numerous occasions. Furthermore, I have also said that I don't support the current type of taxation and want a flat tax. I also want to get rid of corporate taxes in favor of a consumption tax. But you, Todd, are so blinded by your ideology, you don't look for the truth. You would rather defend a lie than say anything good about the opposition.
Todd, if you don't start with the truth, then your solutions will be ineffective. This is the problem of the hard right at present. That's why I always bring up the fact that tax cuts have not been stimulative over the short term. Once you accept the fact (and it is fact), then you are free to develop a fiscal conservatism that works which means you concentrate more on spending reductions than tax cuts. If you believe the truth, you will then realize that tax cuts should be a result of spending decreases, not the reverse.
Robert Rosencrans| 5.5.09 @ 9:05AM
Angry little men never solve problems because then they would have nothing to be angry about, and that's the gist of their whole worthless existence.
Bob| 5.5.09 @ 9:11AM
Rosencrans -- it sounds like you and your therapist are making some progress.... Congrats.... Will you be less angry in the future????
Robert Rosencrans| 5.5.09 @ 9:20AM
Bob: The fact that you responded indicates you had to defend yourself against an observation, although it was not addressed to you. You are obviously a loser, who claims to know all, but in reality, simply deals in ignorance, never dealing yourself a winning hand. You are too much of a coward to come out from behind your keyboard and that states it all. You have a yellow stripe down your back a mile wide. I would be willing to bet that you still live with your elderly mother, and simply diffuse your anger at being a loser by lashing out at others on the internet. You're laughable and good for a few comedic laughs. One thing is obvious, you're no economist, but excel at lying. I wouldn't be surprised to find out you've spent time in prison.
Crackerjack Joe| 5.5.09 @ 9:37AM
Here's an interesting article. Just for your edification.
http://www.theadminzone.com/forums/showthread.php?t=26193&p=189571
I actually find that there are two classes of people who cause maximum trouble on forums. One is of course, the traditional "troll" who wreaks havoc by anti-social behaviour and by deliberately riling up forum members to get kicks out of it, causing havoc and bad blood in the process.
I think as admins, we need to realize that there is another group which I would term as "online bullies" or "internet bullies" who can become equally destructive in undermining communities.
These gentlemen/ladies differ from trolls in the sense that they are not anti-social, but they are an accepted and sometimes well-respected members who assume a sort of informal and unofficial leadership role. They use this position to intimidate and assert their views on newer and less established members and often push their weight around to mark territorial rights. They will generally try and behave properly, but subtly try and behave like moderators and preach about forum behaviour. They will also turn and insult people as they wish and surprisingly other forum members will turn a blind eye to them. They will usually "adopt" ownership of a single forum or a subforum of a board and hang out there frequently with their clan. (this feature is usually more common in larger forums)
These people are often the starting point of cliques because they can gather a group of yes-people around them in no time.
Beware of these people and watch out for them because they can be a lot more trouble in the long run than isolated trolls running loose.
Sometimes you just need an excellent troll to combat an established forum bully
Similarities between trolls and bullies:
1. Both trolls and bullies can cause enormous damage to a forum by their behaviour.
2. Both trolls and bullies usually have excellent communication skills using which they attack their opponents unmercifully.
3. Both trolls and bullies can be intimidating to any normal forum user.
4. Both trolls and bullies have the effect of creating bad blood.
5. Both trolls and bullies are hard to control without intervention right from the top - the forum administrator(s) or owner(s) because even moderators might find it hard to control them without support from others.
Differences
1. Trolls are usually isolated. They are generally short-lived in a forum. A person who signs up on a forum specifically to troll doesn't hang around in other parts of the forum and leaves as soon as the damage is done.
Bullies are more or less regular forum members who might have a huge post count and a following.
2. Trolls usually hit and run. A successful troll needs only a couple of posts in a single thread to turn it into a raging tornado.
Bullies stay on and intimidate other members by throwing their weight around and using their group of yes-people to lend force to their powerful attacks.
3. Trolls are usually identified for what they are.
Bullies rarely get identified for what they are, because they are regular members and nobody can suggest that they are ordinary trolls because they have a huge post count.
4. Trolls hardly respond to challenges. Instead they enjoy watching others fight.
Bullies enjoy fighting and run around bashing everybody who dares oppose them.
5. The potential damage done by trolls is limited to a particular topic of discussion or at most a forum.
The potential damage done by bullies is forum-wide and not related to topics, but to the personality of the bully and the kind of respect and influence he wields.
__________________
Bob| 5.5.09 @ 10:03AM
Rosencrans -- such anger!!!! Now you are degenerating to schoolyard snipes, talking about my mother, and speaking about "lashing out". If you notice, I always support my position with data, charts, and logic. What you must consider is why you just post other people's articles rather than original thought.
I throw in derogatory phrases when someone utilizes ideology over rational thought. If you also notice, when someone is actually interested in the truth, or is supporting an opposing position, I engage in rational discourse.
If I were you, I'd sit down in front of a mirror and ask why you are so angry.
Crackerjack -- so what was your purpose in posting an article about bullies and trolls? Why don't you just say what you're thinking?
daboss| 5.5.09 @ 11:16AM
This bickering over the details is out of hand and is distracting from the core issues; we are either being dazzled or baffled (if you can’t dazzle them with brilliance, baffle them with BS).
Anyhow, libertarians and conservatives need to concentrate on core issues to the American people with – how about this platform:
• Limited constitutional government and let the states and people take over the responsibility of the displaced programs.
• Abolish the IRS in favor of a consumption tax
• Strong aggressive defense.
Anything else – gay marriage, school choice, housing, etc. the answer should be “those issues are not federal – but can be handled by the people and the states as THEY chose”. Nuff said?
Bob| 5.5.09 @ 11:37AM
Daboss -- as you know, we are in general agreement. However, I would only abolish corporate income taxes and not personal taxes since a consumption tax is highly regressive and I believe the tax burden should be flat/equal among all individuals. Secondly, I would say that governmental decisions should be made on the basis of cost rather than ideology. If something is going to be less efficient by being done separately by all of the states, then it is not good for our world competitiveness. Lastly, if you are really serious about the social issues agenda, then they should be removed from the Republican platform. When you do that, what will happen with the social conservatives?
That said, we are in basic agreement as to the direction of the agenda.
daboss| 5.5.09 @ 11:50AM
Government spending should be dictated by the constitution – not cost or ideology.
Social conservatives would still have a home with republicans – they can have the best of both worlds - an unobtrusive Fed and states that can be tailored to the needs of their people. Federalism at it’s best.
If Vermont wants gay marriage or socialized medince, then let them experiment with it. If Texas wants neither, then more power to them. It’s a win-win for everyone.
Taxes are used for political favors. Then only way to remove the temptation would be a consistent, no deduction tax that everyone has. Consumption or flat – either is fine with me. But no income tax at all.
Bob| 5.5.09 @ 12:32PM
Daboss -- a flat tax is an income tax. The place where both of us have problems is in government putting incentives in the mix. Once there are rates or incentives (deductions/exclusions), then it becomes political. If you replace the income tax with a consumption tax from an economics point of view, then money will flow out of the country as the wealthy spend their money elsewhere.
With regard to social conservatives, their ties to the Republican party would be weakened if the platform were changed from anti-abortion and gay marriage to federalism. They would move to a third party, I believe, that would state those things in their platform. I'm certainly not a social conservative so it would be interesting to hear from some of them on this.
daboss| 5.5.09 @ 12:54PM
i guess that’s right - a flat tax is an income tax. duh on my part.
not sure i agree on the wealthy purchasing items abroad. Seems like it would be more trouble for them – but I have no evidence either way. I am open to either flat or consumption – so which ever works best.
I would love to hear from some social conservatives (not libertarians like me) to see if they can support a more federalist style of government.
Robert Rosencrans| 5.5.09 @ 1:35PM
Government spending in all it's forms only leads to a desire for more government spending, more control or both. It rarely leads to any success for the individual.
http://mises.org/story/3436
The post–World War II economy tells us why the government's current program to stimulate the economy by spending trillions of dollars of revenues generated by borrowing and creating new money will fail. As Robert Higgs has shown, when the federal government drastically cut spending after World War II, the economy boomed. The recovery from the Great Depression was due to the reduction of government spending after the war.
Reducing the amount of government predations (Murray Rothbard's term for the government burdens on the economy) improves productive economic activity just as the massive increases in predations today will harm our economy. The economists who worried at that time that spending cuts would lead to a recession were wrong, just as the economists who are now in positions of political leadership are wrong about the causes and cure for the current panic.
$29 $21
"One school of thought, the Austrian School, foresaw this downturn."
BusinessWeek has done us a favor by pointing out that most economists continue to accept the very theories that prevented them from anticipating the financial collapse. However, the magazine errs in concluding that we should now listen to those same economists. It would make more sense to ignore those economists that not only failed to predict but also had a hand in creating the crisis.
BusinessWeek would have done their readers a favor if they had pointed out that one school of thought, the Austrian School, foresaw this downturn and understands how markets will correct the errors of the central bankers.
The magazine should have advised their readers to listen to Congressman Ron Paul and financial advisor Peter Schiff, and pointed their readers to the writings of Ludwig von Mises (The Theory of Money and Credit), F.A. Hayek (Prices and Production), Murray Rothbard (America's Great Depression), Jesus Huerta de Soto (Money, Bank Credit, and Economic Cycles), and Tom Woods (Meltdown).
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Bob| 5.5.09 @ 2:23PM
Rosencrans -- so you are posting another article instead of thinking for yourself. Actually, the article is wrong. It was government spending (on the war) that actually took us out of the Great Depression.
Tax Federal GNP Unemp.
Year Receipts Spending Growth Rate
-------------------------------------------------
1929 -- -- -- 3.2%
1930 4.2% 3.4% - 9.4% 8.7
1931 3.7 4.3 - 8.5 15.9
1932 2.9 7.0 -13.4 23.6
1933 3.5 8.1 - 2.1 24.9
1934 4.9 10.8 + 7.7 21.7
1935 5.3 9.3 + 8.1 20.1
1936 5.1 10.6 +14.1 16.9
1937 6.2 8.7 + 5.0 14.3
1938 7.7 7.8 - 4.5 19.0
1939 7.2 10.4 + 7.9 17.2
1940 6.9 9.9
1941 7.7 12.1
1942 10.3 24.8
1943 13.7 44.8
1944 21.7 45.3
1945 21.3 43.7
Perhaps, Rosencrans, if you learned how to look at the data yourself, instead of just posting other people's work, you might be more accurate.
Robert Rosencrans| 5.5.09 @ 3:17PM
When it comes to choosing between an idiot like you Bob and the Mises Institute I'll take the Mises Institute.
Robert Rosencrans| 5.5.09 @ 3:21PM
A further analysis of the effects of Keynesian politics.
http://www.cfif.org/htdocs/freedomline/current/in_our_opinion/massive-government-spending-ineffective-stimulus-primer.html
Does massive government spending constitute effective economic “stimulus?”
Liberals say “yes,” conservatives say “no.” Exhausted Americans, who are worried about the economy and saturated in conflicting arguments from both sides, understandably become confused and throw up their hands. This makes it even more important that we understand the relevant economic truths, as well as the instructive real-world historical examples confirming them.
Barack Obama, economically uninformed and obviously confusing his temporary personal approval rating with some sort of permanent mandate to do whatever he pleases, crudely justified his unprecedented spending proposal by grunting, “I won.” Shortly thereafter, Obama rationalized his agenda to House Democrats attending their retreat last week with the following irrational and simplistic attempt at humor:
“So then you get the argument, ‘well, this is not a stimulus bill, this is a spending bill.’ What do you think a stimulus is?! (Laughter and applause.) That’s the whole point! (More laughter and applause.) No, seriously! That’s the point! (More laughter and applause.)”
Clearly unable to defend the indefensible, Obama instead retreats to sarcasm and juvenile humor as if his premise is self-evident. So much for his campaign promise to bring “post-partisanship” and “change.”
But are he and liberal advocates of Keynesian government spending correct?
No, and here’s why.
First and foremost, government spending on “stimulus” necessarily removes money from other uses to which it would be applied in the private economy. After all, every dollar spent by government must germinate from somewhere, whether via taxation, borrowing, printing money out of thin air or some combination thereof.
If it comes from taxation, that merely eliminates a dollar that would have been spent or invested toward other private uses chosen by someone better-informed on how it should be spent.
If it comes from borrowing, it becomes a dollar that cannot be lent to businesses or individuals who could put it toward better use, not to mention that it adds principal and interest to federal debt.
If it is printed from thin air, it thereby creates inflation, thereby robbing us of wealth by devaluing the dollar. In other words, the truism that “there’s no such thing as a free lunch” applies, because these dollars don’t derive from some pot of gold sitting unused at the end of a rainbow.
Second, governmental spending schemes naturally spring wasteful “leaks” into the vast governmental abyss. Stated differently, money evaporates when government transfers it from one source to another, because this requires legions of inefficient bureaucrats and red tape. Economist Arthur Okun labeled this phenomenon the “leaky bucket” principle, and it applies whenever government redistributes money from private sources to uses chosen by Congress.
Third, many beneficiaries of government “stimulus” efforts are simply wasteful by their very nature, and do more harm than good for the economy. For instance, dumping billions of dollars into condom-distribution programs, unworkable wind farms, unnecessary infrastructure projects, school buildings that will sit unused, or on overpriced union labor under Davis-Bacon wage regulations does nothing to help the economy.
Of course, this all sounds correct in theory, but how does it square with real-world experience?
Well, let’s look at the facts.
Governments have attempted massive Keynesian spending efforts like the one proposed by the Obama-Reid-Pelosi triumvirate time after time. Each time, they have failed to cure economic downturns or spark prosperity. In the Great Depression, for instance, Presidents Hoover and Franklin Roosevelt increased federal debt from 16% of gross domestic product (GDP) in 1929 to 44% in 1939. But that unprecedented increase in government spending failed to end the Depression, and only impeded the economy’s ability to correct itself naturally as it had during earlier depressions.
As another example, Japan redistributed enormous amounts of money during its “Lost Decade” toward the same type of infrastructure projects that our current “stimulus” package proposes. Yet, almost 20 years later, Japan remains mired in economic stagnation, and only crippling debt to show for it. And from 1965 to 1980, Americans will recall that the federal government engaged in massive spending and redistribution efforts beginning with President Johnson’s “Great Society.”
Those toxic efforts continued under Presidents Nixon, Ford and Carter, and Nixon himself foolishly said that “we’re all Keynesians now.” Unfortunately, these programs did nothing but increase poverty, waste billions, stall the stock market and create “stagflation” (the combination of inflation and economic stagnation that Keynesian theory considered impossible). From 1965 to 1980, the Dow Jones Industrial Average stalled between 800 and 900 over that long period.
In contrast, Ronald Reagan’s supply-side, market-based principles ended America’s worst recession since the Depression itself. In eight short years, the stock market jumped from 900 to almost 2500, inflation plummeted from 13.5% to 4.1%, unemployment fell from 7.1% to 5.5%, interest rates tumbled from over 20% to under 10%, per capita income jumped from $20,000 to $24,000 and consumer confidence skyrocketed from 74.4 to 116.
This also explains why the stock market crash under Reagan in 1987 did not destroy the healthy economy, whereas Hoover’s and Roosevelt’s government spending and protectionist programs turned the 1929 market crash into a decade-long depression.
Simply put, the laws of economics and real-world experience are clear: market-based, supply-side economic principles bring prosperity, whereas Keynesian government spending programs perpetuate stagnation and waste resources.
Already, Obama has presided over the worst Inauguration Day plummet in stock market history, the worst January in stock market history and saw the market descend almost 5% more when his stimulus plan passed. These economic lessons are apparently about to be learned again.
[Posted February 12, 2009 ]
Bob| 5.5.09 @ 3:40PM
Rosencrans, don't you even read the articles you post? Here is the last paragraph of the article you posted:
"Already, Obama has presided over the worst Inauguration Day plummet in stock market history, the worst January in stock market history and saw the market descend almost 5% more when his stimulus plan passed. These economic lessons are apparently about to be learned again."
That was posted on February 12th. Now the market is up and economists on both sides are saying the recession is ending sooner than they thought.
Again, please learn to think and not just read the titles. Obviously the writer of that article didn't know what he/she was talking about.
You are a piece of work, Rosencrans....
Robert Rosencrans| 5.5.09 @ 3:59PM
Bob: Your problem is you should read what I post instead of cherry picking irrelevancies. It shows once again how stupid you are. Dumbo!
Robert Rosencrans| 5.5.09 @ 4:06PM
Before you read this understand that I have never pretended to be an authority on anything like some of the numbskulls who post here. However, it is interesting to ask, is history repeating itself?
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/28/AR2008112802370.html
Early in what became the Great Depression, John Maynard Keynes was asked if anything similar had ever happened. "Yes," he replied, "it was called the Dark Ages, and it lasted 400 years." It did take 25 years, until November 1954, for the Dow to return to the peak it reached in September 1929. So caution is sensible concerning calls for a new New Deal.
The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending -- President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt -- unemployment was 17.2 percent.
"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.
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In "The Forgotten Man: A New History of the Great Depression," Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserve's tight money, deepened and prolonged the Depression. The policies included encouraging strong unions and higher wages than lagging productivity justified, on the theory that workers' spending would be stimulative. Instead, corporate profits -- prerequisites for job-creating investments -- were excessively drained into labor expenses that left many workers priced out of the market.
In a 2004 paper, Harold L. Cole of the University of California at Los Angeles and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages and then reduced employment and consumer demand. In a forthcoming paper, Ohanian argues that "much of the depth of the Depression" is explained by Hoover's policy -- a precursor of the New Deal mentality -- of pressuring businesses to keep nominal wages fixed.
Furthermore, Hoover's 1932 increase in the top income tax rate, from 25 percent to 63 percent, was unhelpful. And FDR's hyperkinetic New Deal created uncertainties that paralyzed private-sector decision making. Which sounds familiar.
Bear Stearns? Broker a merger. Lehman Brothers? Death sentence. The $700 billion is for cleaning up toxic assets? Maybe not. Writes Russell Roberts of George Mason University:
"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."
Barack Obama says that the next stimulus should deliver a "jolt." His adviser Austan Goolsbee says that it must be big enough to "startle the thing into submission." Their theory is that the crisis is largely psychological, requiring shock treatment. But shocks from government have been plentiful.
Unfortunately, one thing government can do quickly and efficiently -- distribute checks -- could fail to stimulate because Americans might do with the money what they have been rightly criticized for not doing nearly enough: Save it. Because individual consumption is 70 percent of economic activity, St. Augustine's prayer ("Give me chastity and continence, but not yet") is echoed today: Make Americans thrifty but not now.
Obama's "rescue plan for the middle class" includes a tax credit for businesses "for each new employee they hire" in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies -- labor costs not justified by value added.
Here we go again? A new New Deal would vindicate pessimists who say that history is not one damn thing after another, it is the same damn thing over and over.
Bob| 5.5.09 @ 4:14PM
Now, Rosencrans, if you actually understood what you posted, you'd see that the closing paragraph was meant to be a proof of the theory. The theory is wrong and so is the proof.
So tell me, Rosencrans, which economist wrote that article? Did you notice that when they talked about Reagan, they never mentioned GDP -- the primary measure of economic growth? Did you also note that when they talked about market growth, they made no adjustment for inflation? They made the statement that government spending did not end the Great Depression when it is a proven fact that the government spending in WWII was the thing that stopped it.
The article was written by a political hack, not an analyst who knows anything about economics. Now if you had half a brain, you could have figured that out by yourself -- but you'd rather post articles than think.
It sounds like some political hack is using the Jedi mind trick on you....
Robert Rosencrans| 5.5.09 @ 5:19PM
If you had bothered to read that article I posted earlier, the point is that GDP is not a primary indicator of economic growth under all circumstances. Your economic knowledge is limited to outdated ideas. Your problem is that you can't think outside the box which leads me to believe you're a middle age government desk clerk.
Bob| 5.5.09 @ 5:30PM
Rosencrans, if GDP is not the primary indicator of economic growth, please tell us what it is. Even the conservative think tank Heritage Foundation believes GDP is the primary indicator. If my knowledge is limited, please enlighten us.
It is funny that you talk about thinking "outside the box" when all you do is post articles by unknown people or articles that prove themselves wrong. Also, it seems that your thinking is clearly inside the box of political hacks.
So please, Rosencrans, give us a dissertation on what is the best measure of economic growth if it is not GDP, and it is certainly not market indexes. Failure to do so is certainly an indicator of your intellectual shallowness....
Good luck -- you'll need it....
Robert Rosencrans| 5.5.09 @ 6:37PM
Bob: You're the typical liberal. You have to be spoon fed everything. You can figure nothing out for yourself.
aware| 5.6.09 @ 7:26AM
Bob, how can you say that WW2 state spending "saved" the economy and ended the Great Depression? Let's see... rationing, wage and price controls, meatless days, drafting of potential workers, and production shifted almost exclusively to the making of the implements of war, which means less consumer goods. For the average citizen these required a life style even more frugal than even the dark days of the depression called for. In all, a prefect example of the State getting what it wants at the expense of the citizen.
How can a tank that is destroyed landing at Normandy be the wealth creator that say a truck bought by a delivery company and used for the next 5 or 10 years is? Sure the builders of the tank got paid as did the suppliers of the resources to build it. These activities are reflected in your GDP numbers and give a false impression of "growth" but they do not create real wealth at all.
I see intelligence in your comments but I have to agree with some here, it is increasingly overshadowed by smug arrogance in the way you are talking down to others. Maybe some, like me, don't express the theories as well as they could but they are right in saying that the Austrians present the best understanding of economics. No offense, but you seem to be intent on studying leaves in the midst of a forest fire. And you are hostile to those who won't stop fighting the fire and agree with you about the leaf you are currently obsessed with.
Bob| 5.6.09 @ 9:07AM
Aware -- As with any discipline, true knowledge requires interest, skills, capability, education, and experience. If you were to go to a doctor, you would want that person to have a medical degree, some experience, and some smarts to figure out what's wrong with you.
The problem with Rosencrans and others is that they don't understand that economics is the same type of discipline. If you don't understand the underlying mathematics, business economics, and historical events, you really can't understand how to apply theories. Virtually all great economists are mathematicians as am I. We look at data and not rhetoric. We look at all of the theories and then, without immediately accepting them, look for data to back them up. Then we do the analysis. If you don't do the mathematical analysis, you can't really understand economics.
You don't want a doctor to believe, let's say, that all of your medical problems comes from warts. That's why most trained economists are influenced by the Austrians, but don't buy the theory in total. They are also influenced by Keynesians and supply siders. In fact, most economists believe that the Austrian school is not very useful because it is just not predictive. It has been thrown away by most modern economists.
Then you have the political hacks who find selected data to back up Keynes or supply siders. We can all find selected data to prove either case. But the political hacks are talking to people who want to believe certain fairy tales about their ideologies.
It isn't "smug arrogance", it is anger that the Republican party does not objectively look at the mathematical data and instead plays down to people without the education and mathematical skills to understand the veracity of the data.
Like Rosencrans, the best they can do is post articles without understanding the underlying data or even the application of the theory.
From an economics perspective, government spending is government spending whether it is done domestically or in war. Life may have been difficult during WWII, but economics does not address the quality of life, it addresses capital inflows and outflows and the overall health of the financial variables.
Let's take, for example, your assumption that WWII did not create real wealth. This is actually false. The strength of an economy is a progenitor of wealth creation. If the economy is strong, then wealth creation ensues. If the economy is weak, then you don't have a lot of wealth creation. The boom after the war was a direct result of the health of the economy after the war. GDP is directly related to wealth creation. The greatest growth in GDP was during Clinton's presidency and it was also the greatest period of wealth creation. If you understand economics, you'd understand how the underlying factors affect people's lives.
Robert Rosencrans| 5.6.09 @ 10:47AM
Bob: The only thing obvious form your posts is that you're too stupid or obtuse to understand what I posted. You claim that the greatest period of wealth creation occurred under Clinton. You lie again as usual. You're obviously an Obama shill and I find it interesting you're probably posting from a government computer, which is illegal, unless you're being paid to do it. The greatest wealth creation occurred after the year 2000. The year 1997 was a hallmark year in wealth in America but it was followed by even greater wealth creation after the year 2000. In short, Bob is most likely a paid Obama shill or disgruntled middle aged government desk clerk.
http://www.moneyweek.com/news-and-charts/economics/after-the-wealth-binge---what-next-for-the-us.aspx
1997 was a year of great symbolic importance for the US economy. It was the first time in 30 years that household sector net worth moved back above its longer-term trend. And, of course, it was only the beginning of what we now know to have been the greatest surge of US wealth creation in the post-World War II era. There have been two major legs to this explosive surge in net worth. Reflecting a powerful equity bubble, real household sector net worth surged nearly 28% above trend by early 2000.
That was followed by a 16% pull-back in the aftermath of a wrenching post-equity bubble shakeout. But then, courtesy of the property bubble, a second leg kicked in - taking real household sector net worth up about 23% above trend as of early 2006. From bubble to bubble, US wealth creation broke the mold of anything seen in the past. Trend growth in real household sector net worth has averaged 5.5% since 1995 - more than 50% faster than average gains of about 3.5% over the prior 40 years.
The wealth effect: the US consumption boom
This wealth binge has reshaped the macro performance of the US and global economy over the past decade. First and foremost, it has fed a record American consumption boom. Initially driven by the largely psychological wealth effects of the equity bubble but then supported increasingly by the tangible proceeds of equity extraction from the property bubble, the US consumption share gapped up to a record 71% of GDP in early 2002 - well above the 67% norm of the prior 25 years.
Bob| 5.6.09 @ 11:13AM
Rosencrans, you really don't understand what you are posting, do you? We are talking about a period of time, not single years. If you knew anything about analysis, you'd understand the difference. The article actually supports my statement regarding wealth creation in the Clinton administration. Furthermore, this article was written in 2006 and wealth has dropped considerably in the past 3 years. But then again, you don't know how to analyze data, only how to post irrelevant articles.
How stupid are you???
Robert Rosencrans| 5.6.09 @ 11:48AM
You keep coming back for more because you're a loser. The article was clear and indicates that if anyone is stupid it's you. You're Forrest Gump, admit it.
aware| 5.6.09 @ 11:56AM
Bob, I appreciate your response and it also shows intelligence. However I respectfully disagree on some points and I hope you do not assume contrariness as the reason.
First, you couldn't possibly be as disgusted with, not just the Republicans, but both parties as I. In fact I'm not even sure I call myself "conservative" anymore, mainly because it promised smaller government and plainly has failed to be the vehicle to achieve this. And I hate the soul-destroying collectivism of the Left and its weapon the State. So I'm no Democon for sure.
My biggest disagreement is with your assertion that Austrian economics is not predictive. It is nothing but predictive. It was Von Mises that accurately showed the inherent flaws in the centrally planned economic model of socialism and how it would eventually collapse in exactly the way it did in the USSR. This he pointed out in several works but especially in Socialism in 1923(English version). His argument is that the virtual removal of the market setting prices meant that both producers and consumers are groping in the dark, because prices convey information so if the price is false, the information is too. Sounds familiar. Not to mention people like Bob Higgs, Lew Rockwell, Peter Schiff, Ron Paul, et.al. all predicting, and being laughed of the stage for doing so, this very meltdown.
The reason it is the best predictive economic philosophy is summed up in the title of another Von Mises book "Human Action".
I also disagree about why the Austrians are, in my opinion, marginalized. The real reason is the role of the State. In both Keynes and Friedman the dominant factor is the State. Granted, more so with Keynes than Freidman. While the Austrians see the role of the State as capricious, arbitrary and most times detrimental to the implied motives of its interventions. Like I said, as in trying to stop deflation of home prices in a recession caused in part by their "making homeownership more affordable" schemes.
As to economics being about cash in cash out with nothing to do with the relative well being of the average person, this is to miss the entire point of wealth, money, and economic systems themselves. Following this logic means that the Soviets were as well off as we in the Cold War. Their government spent as much as we on weapons, infrastructure, so on so that the charts showed (especially in the 1930s) impressive GDP "growth". But the people were in misery and had no choice but to live with it. I hope that you are not saying impressive numbers is all that is necessary regardless of the condition of people's lives. The first prehistoric who traded his extra meat for a flint axe was seeking, not to build an economic system, but to improve his life. And that was the reason with his trading partner too. It is the only point of buying and selling.
Back to the bubble thing, as someone who is involved in the financial sector you have surely heard the phrase "you can't fight the Fed". That is because they are the dominant player and to ignore what they do is impossible. They certainly influence every investment there is. In fact a large part of the investment industry is built around reacting to their moves. And that's what happened in the sub prime world as "banks" reacted to the signals beaming from the State and its central bank as pertains to "homeownership". The State wanted the people in homes and the system rushed to get it done and make tidy profits in the process. This was done for political, not economic reasons. The State only makes political decisions but we still expect an economically reasonable policy from them. Like the silk purse and the sow's ear.
And now what they are doing is trying to inflate another bubble that they will call "recovery" just as they did after the 2000/2001 recession. They will by spending money in favored areas, like "green" jobs, and by regulation "direct" investment by the private sector into areas they designate. The investors will follow because the activity and no doubt find ways to maximize profits. This will roll on and spark the bandwagon effect, or as you say "irrational exuberance". Then it will burst because it was directed by the State and not by consumer choice. If any of their ideas were profitable they would occur in the market without government subsidies. This is how they drive this boom/bust cycle through malinvestment caused by their intervention.
Bob| 5.6.09 @ 12:33PM
Aware, while we may disagree on the Austrian school, I think our differences are due to our backgrounds. As a mathematician and businessman, I look at the data. The Austrian school is not a data grounded discipline. I think all of us buy into the irrationality of markets propounded by that thinking, but that is a philosophical, rather than economics, perspective. Again, I don't believe that any one school of thinking is absolutely right. That's why most of my pointy headed friends are influenced by the thinking, and not bound to it. I find the same problems with strict Keynesian's and supply siders, by the way.
That said, I tend to agree with your other conclusions. My view is that politicians are more alike than different. That's why once a party gets in office, their behavior is neither extremely liberal or extremely conservative. The way you get elected is to bring money back to your district/state. That means politicians will never really cut spending because they want to get reelected. That is an oversimplification, but I think it is basically right.
As relates to the Fed, I have stated many times that monetary policy is more effective than either spending or tax cuts. In that sense, I agree with you on the power of the Fed. Things like "green" jobs makes little economic sense in the shorter term. A politically charged energy policy is also highly problematic to me on both sides. We should be producing much more nuclear, some wind, looking for ways to make solar more cost effective, and buying less foreign oil. Thus development funds should not be in oil given our low level of reserves, but should be in nuclear. Neither side has this point of view.
I would disagree that the housing bubble was caused by the state. Over the longer term, bubbles/recessions are cyclical and while the state can contribute to them, private enterprise is the cause as they look for opportunities for short term profits rather than longer term investments. But there is always a correction when this hits an extreme. The dotcom bubble is an example of this. The state did not cause the dotcom bubble and the housing bubble is similar in my opinion -- especially after having been part of that business and seeing how those business decisions were made.
Sue| 5.6.09 @ 1:34PM
When the government competes for private capital to provide services on the scale that Obama and the democrats are doing now, the Country is doomed. Private capital is the engine that spurs the expansion of the economy. Government does nothing but suck up private capital and spits it out as "entitlements." What does the government produce for sale or exchange? Nothing. I've been sitting on the sidelines since 2007 because I was afraid a democrate would win. I'll continue to sit on the sidelines with my savings until I see different policies from Obama and the democrats. I will not spend anything except for the essentials, because the government is doing my spending for me right now. When my husband and I first married, our debt obligation was $32,000 (the government portion). We both were young and working our way through college, but didn't see this as unreasonable for our government. In the early 80s, it was $64,000. Now it stands at over $250,000 with the social security/medicare entitlements, Obama and Democrat spending, the war in Iraq, etc. We are now in our late 50s and know that we can never retire this debt with our remaining years. It's quite simple. Everyone should do the math. It's our children, our grandchildren and great grandchildren. Their standard of living will be considerably less, but (laugh, laugh) they'll have a "free" college education!
Robert Rosencrans| 5.6.09 @ 2:07PM
Comparing the Dot.com bubble with the housing bubble is ludicrous. The Dot.com companies did not receive nor ask for nor need any government help vis a vis a CRA. They were two different bubbles which exacerbated for two completely different sets of reasons. Ironically the Dot.com bubble also had different after effects requiring no government bail outs and the Dot.com bubble did not cost the taxpayers any direct funds. No, in fact, the housing bubble was accelerated thanks to over reaching as a result of various government policies and programs.
In the meantime here is a great article which indicates clearly (By the way the link source contains graphs and charts for those of you who like to connect dots, etc.) that the worse may be yet to come, not only in the stock market, but in the housing market which, thanks to government policies, tried to turn houses in to welfare checks.
http://www.moneyweek.com/investments/why-you-should-be-worried-about-the-bond-market-14757.aspx
Sentiment everywhere is improving. In fact, I was astonished to hear such bullish talk from the likes of Anthony Bolton and Crispin Odey this last week. Their records and experience dwarf mine, but I see an intermediate top coming in the stock markets more or less now. In fact, I think we may have made it on Monday.
What's more, I am observing a worrying trend in the bond market, both for US Long Bond (the 30-year US Treasury) and for UK gilts. Even now, after months of attention due to the Bank of England's quantitative easing plans, I suspect that few people – or politicians for that matter - are really that interested in government bonds. But, believe me, the last thing we need right now is a collapse in the bond market.
Unfortunately, it could be just around the corner...
Is this stock market rally over?
Looking first at the stock market, it's worth reminding ourselves that bear market rallies of 20% or more are perfectly normal. This first chart from Tom Denham of www.Elliotwave.com shows how there were seven rallies of 19% or more in the Great Stock Market Crash of 1929–32. Note how fast and violent they all were.
Dow Jones Industrial Average
In other words, this phenomenal rally we have seen in stock markets since March 8th is, both in its size and duration, a perfectly normal occurrence in a rotten bear market.
This next chart from Flint Stephens at MarketOwl.com is also worth considering. It shows the S&P 500 from March 2000 until October 2002. Even though the index lost 48%, there were four rallies of 18% or more.
S&P 500
Why do I think this rally should peter out now? Looking at the S&P 500, rising some 36% from early March to Monday's high at 910, this has been one of the greatest two-month rallies ever seen. Rallies of this magnitude should at least retrace. Volume levels are down, which would suggest a loss of momentum. What's more, there is a great deal of resistance in the 900 to 950 area. It took several attempts to rally through this level in 2002 and it also proved the stumbling block in December last year, and January this year.
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I have drawn some lines on the chart of the S&P 500 since the highs of October 2007. There is a clear channel in place and we are hitting the top of it. It's a long way to the bottom. I'd love to know what Bolton and Odey are seeing that I am not, but in terms of risk-reward, stock markets must be a sell here. It's May, for goodness sake. How many times do we need to learn the lesson, 'Sell in May and go away'?
S&P 500 weekly
Banks' problems are far from over
We might need some bad news to upset sentiment. And it may already be coming. After hours last night, Reuters reported that the Bank of America has been deemed by its government stress test to need as much as $34bn of extra capital. Meanwhile, General Motors announced in a filing with the SEC that it is issuing 60 billion new shares, a move which, if it meets with US Treasury approval, would dilute common shareholders into oblivion. Those titbits might kick things off.
But perhaps more worrying are concerns over the bond market. The Federal Reserve has been buying into the US government bond market with the aim of lowering interest rates across the economy. But despite its plan – announced in March - to buy $300bn worth of T-bonds to keep rates down, long bond yields have actually gone up (yields rise as prices fall). Could this trend of rising prices, which has been in place since the early 1980s, finally be over? Here is a chart of long bond prices since 1979.
US 30-year T-bonds
Here it is in close-up, since 2006. After that colossal spike-up in late 2008, which some are arguing was the blow-off top to mark the end of the bull market, we appear to be moving lower. It is now sitting on its 52-week moving average. There is a lot of support from 122 to 112.
US T-bonds
The massive provision of credit or 'liquidity' from the US government has helped this recent stock rally. But if government's own long-term borrowing costs go up, so – in the long run - will rates across the rest of the economy. This could add to the pressures on the US housing market, just as it seemed to be stabilising. Add to this mix the problems that may still lie ahead in credit cards, corporate loans and the commercial property market, and you can see that the problems of the banks, and the wider economy, are far from over.
Are higher interest rates just around the corner?
A collapsing bond market means higher interest rates. At the moment those in debt are not suffering too badly – those with tracker rate mortgages, for example, are sitting pretty at the moment. But higher rates will decimate anyone with any debt, be they individuals, companies or governments. They are the last thing the economy needs just now.
Now the Fed is still able to borrow in the shorter term at low rates, so this may not have an immediate impact. But the drop in bond prices in the last five months is an early warning sign that markets will only prop up even the world's largest economies for so long.
Those who want to short the long bond might consider the US-listed exchange-traded fund, TBT. But with the bond market already having made a big move down, I do not see now as a good entry point. Keep an eye on this market though and await a pull back before entering.
Bob| 5.6.09 @ 2:25PM
Well, it looks like Rosencrans continues to post articles (because he can't think for himself) without any comprehension. Furthermore, he completely misses the point that bubbles can, and are, primarily created by private enterprise as a function of economic cycles and market behavior. Or perhaps you can enlighten us with your analysis of why the hyping up of dotcom companies in the 90's was that different than the rush to flip houses in the early 2000's. If the government really causes bubbles, then please show us how they caused the dotcom bubble. Inquiring minds want to know!!! Can you even do something like this without posting someone else's work? I doubt it....
Robert Rosencrans| 5.7.09 @ 8:58AM
Bob: You're being obtuse again. I didn't say the government caused all bubbles. You really need to learn how to read. In essence, you're really not very bright. You've convinced me of that if nothing else.
Pingback| 5.14.09 @ 11:31AM
The Greenroom » Forum Archive » The Road to Weimar America links to this page. Here’s an excerpt:
cimarron| 5.17.09 @ 9:14PM
i probably have different economic indicators than most, and i am in california, where it is always worse, both the economy, and the burden of govt.
in calif, the preferred way to stimulate the economy is to carve out a 52 billion dollar tax hike right out of its heart. income tax, sales tax, car registrations, booze, cigarettes, parking meters($1 for 15 minutes, except some which have been bagged, and the parker is directed to an atm type device, where they can pay more per minute than the old parking meter can actually swallow), in short, anything they can use to hack away at the wallets of the taxpayer/consumer.
and sacremento decided that the average taxpayer would be happy to pay 500 million of the taxes for the major studios, and 36 million of the horse tracks taxes as well.
isn't it swell to be a calif taxpayor? after being self righteously lectured by studio types, (who often live in france, to avoid taxes) on how they weren't doing enough to take care of the needy, we get to pay their taxes for them. and surely the needy include those who spent 553 million last year lobbying sacramento, for all their special needs.
construction is as dead as the dodo. 200 pedros guard every home depot parking lot. industrial streets are lined shoulder to shoulder thru the entire day with those seeking work. an aluminum can is caught and bagged on its first bounce, as multitudes scour the recycling bins on trash night.
it would be almost impossible to find an apt building without a "for rent" sign on it. evictions outpace foreclosures by an order of magnitude or two. multitudes live on the streets, running the gamut from winnebagos to shopping cart hooches.
unemployment will be the only economic factor of importance. last i heard, calif had 11.7%, climbing a half point monthly. la county is a half point ahead of the rest of calif. in normal times, 15 major movies are booked per summer for shooting. this summer, the number is 5. a lot of producers lost their pickle jars in disappearing hedge funds. last year, at least 8 movies got shut down by the unions, because the craft people weren't getting paid.
more and more strip malls are loosing tenants, the "for lease", and "available" signs popping out like mushrooms. lots more commercial properties are empty.
even some fast food places are being shut down, and offered for resale. catering trucks on the street with for sale signs. i passed one parked the other day, and i suddenly realized, that i had never SEEN a catering truck with a for sale sign on it.
and many successful businesses, are leaving for less crushing places, ariz, ore, and nevada leading the lists. the only problem is, that they can't get enough in their liquidation to put together a planned exit. if they CAN get their go together, it turns more into a didimau type movement, than a proper strategic retreat.
people are scared shitless. they aren't sure if they will have a job to go to on monday, or a house to come home to at night.
and the teachers say its not enough, they want more, more, more. duffy, the head of the union, reelected in a lackluster turnout last year, vows to bring the city to its knees. it's like he's caught in a different space time continuum.
the govt unions(labor) are cahooting with management(elected officials) to thoroughly screw the shareholders(taxpayers).
unions supply cash and votes, and they are rewarded with jobs and lifetime pension plums.
and the taxpayers carry them on their back like the old man of the sea, as he digs in his claws and and shreds them to pieces.
it's so jolly to be a california taxpayer. just smile and wave.
and tell yourselves, that "it can't happen here!"
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The Greenroom » Forum Archive » Liberal Lecture on Economics and Why It Won’t Work links to this page. Here’s an excerpt:
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