Examining Socialist Myths: Tax Cuts Don’t Stimulate the Economy

Aw Hell. It’s election season again. As someone posted, “It’s a great time to pare down my Facebook friends.” I’m sure a fair amount of that goes on. As an acquaintance of mine recently described it, “Political beliefs are largely an echo chamber. Election season is an invitation to everyone else to enter your personal echo chamber.”

I’ve gotten better about things. I enter fewer political discussions on Facdbook and have greatly reduced my objectives. The truth is that as a Libertarian, I disagree politically with well over 90% of the voting public. So if I responded to every invitation to enter a political argument, I’d never have any to time to myself.

And some arguments are really subjective and not worth discussing. If you think Obama’s the best President in history, good for you. If you think Mitt Romney is the voice of sanity in the political wilderness, good for you. I’m not here to debate things like that. I’m never going to win the argument, first off, because these beliefs are not subject to change. They are part of political identity that people have absorbed and they’re sure as hell it giving them up for me.

But then, sometimes, I just can’t help myself. Sometimes political beliefs are so out there that I just can’t help myself. If a NeoCon is arguing that invading the entire Middle East will usher in a new American Golden Age, I just have to wade into the fray. I can’t say I have any success in converting people, but occasionally people do tell me that they find discussing things with me enlightening.

Which brings us to today’s political Facebook discussion, “Do tax cuts stimulate the economy?” I find it strange that this is a real question, but I am going to treat it as legitimate and go forward from there. Continue reading Examining Socialist Myths: Tax Cuts Don’t Stimulate the Economy

Paul Krugman: Raving Socialist Moron of the Day

If a Socialist raves in the woods, but there’s no one around to hear it, should the forest creatures still seek to dismantle their private enterprise activities in order to develop a strong public sector? Or, put another way, Kevin sent me another Krugman diatribe. Here he is decrying the debt limit “crisis.”

Krugman’s rantings are rather formulaic. As he is Keynesian Socialist, you know exactly where he stands on all issues before he even opens his mouth. In fact, I’d say you can make you own Krugman rants by simply mixing and matching the following arguments:

  • The free market is an unstable system that will tear itself apart without strong government intervention
  • Depression is the logical result of an unregulated free market, and the private sector could never get out of a depression on it’s own.
  • Instead, the government must spend money counter cyclically to “stimulate” the economy
  • Private enterprise harkens back to our more primitive natures when it was a dog-eat-dog and we had to fight each other over scare resources. Bureaucratic action tends to be far superior because it is arrived as through consensus and often developed with the benefit of more enlightened minds like… well, him!

That last point is not really overtly stated as implied. But keep in mind, he’s got an Economic prize issued in Memorial of Alfred Nobel. As I’ve said in a prior post, Mr. Krugman has been the recipient of a funny kind of prize. Suffice it to say that Alfred Nobel never established a Nobel prize for Economics.

At any rate, let’s check Krugman’s latest rant and see how we did here. Hmm, well this one’s about how the terrible Republicans have sabotaged the Democratic process by demanding the government spend less money. With all the Republican bashing, I guess we can safely establish that Krugman is a Democrat. Oh wait, I already said that. See earlier where I said he was a Socialist. Continue reading Paul Krugman: Raving Socialist Moron of the Day

The Central Banks Have Spoken

Four central banks acted in concert today to each lower their benchmark interest rates by 50 basis points (that’s half a percent to you and I). That leaves the Federal Reserve’s rate for overnight lending at just 1.5%. The central bank of Japan applauded the move, but couldn’t go along with a 50 basis point cut itself because to do so would be to return to an interest rate of zero. In a statement that seemed designed to both drive sales of my book and prove that Keynesianism was far from dead, chief economist at High Frequency Economic in Valhalla, New York, Carl Weinberg said, “We are now looking at the first page of the global- depression playbook.¬†The only solution is to cut rates as close to zero as you dare… pump money into the banking system…hand over fist… and increase government spending.”

So there you have it folks. It turns out that the Vapors had it right all along. We really are turning Japanese– the whole world this time. I don’t suppose it occurred to Carl Weinberg or anyone in power that Keynesianism doesn’t work. Despite following the Keynesian playbook as closely as possible, Japan remained in a depression that still hasn’t really lifted to this day. Not to mention it didn’t do much for us when we faced our own depression. Never before have I seen a theory be so utterly disproved time and again, yet continually embraced as the truth.

It’s not like economists haven’t known. When Keynes first introduced his ideas he had a number of detractors. Keynesian theory was beautifully destroyed piece by piece in Henry Hazlitt’s Failure of the New Economics and that was originally published over 40 years ago. In that book, Hazlitt goes page by page through Keynes’s General Theory and points out the logical¬†fallacies, the ever shifting definitions, and where he makes a prediction that flies in the face of what we know of the world. And yet here we are, decades later, ready to dust off Keynes’s playbook yet again to see if it can bail us out of this predicament. A predicament that was arrived at precisely through following Keynesianism to begin with.

It would seem that we are incapable of learning as a people. That somewhere in our genetic code we are hardwired with the desire to believe that we really can get something for nothing. Paper money systems have been tried many times without history and always ended in failure. Yet here we are trying it again. Convinced we can do it this time because we have a theory that, though flawed and easily¬†disproved, contains enough math to choke a horse. Anything that is expressed in the form of calculus seems to escape our understanding, and when the professor gets finished filling up the black board with incomprehensible symbols and equations, he turns to us and says, “See. You can get something for nothing. Fiat money can be printed with no limit and interest rates lowered to make money cheap for everyone.” It’s a lie that we want to believe.

That we are faithfully following the road to the poorhouse is tragic, but there’s little we are do about it except prepare ourselves as individuals. Buy gold. Gold stocks were up 15% today alone. The market seems to know that when the world’s central banks are acting in concert to destroy their money together, gold is the logical place to turn. I’ve made a rather tidy sum on that move today, and I feel certain that this is just the beginning. As the system gets worse and more money gets printed and thrown at the problem, gold will just become increasingly attractive. The physical demand for it is already so intense that the gold coins are getting increasingly hard to find with bullion dealers. I believe that not only will the situation get worse, but that there is a very real possibility that the government may move to limit people going into gold. Get yours while you still can.

In terms of investment opportunities, I feel that the stock market is still a poor buy right now. It has further to fall when measured in real buying power. US government bonds are still yielding less than 2% for bonds under two years. That’s a rate that’s less than heavily doctored official inflation figure that the government has trotted out. The reason the yield is so low is that if investors with lots of money to protect are worried that the US banking system is so unstable that they can’t leave their money their. So they instead plow their money into short-term government bonds knowing that they are at least guaranteed to get their money back.

Other bonds can be attractive short term investments. I bought $20,000 worth of bonds in Citibank that are set to expire in one month. The effective annual yield on that purchase was over 27%. So there can be some profit opportunities in corporate bonds, but there is also some risk there- just ask the bondholders for Washington Mutual. On the investment front, gold is the only thing that I really feel strongly about. For a list of all the different ways you can invest in gold, I’d encourage you to pick up a copy of my book.

Till next time.