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

Is Obama Misplaying His Hand?

Kevin, good friend and loyal blog reader, recently posed me this question:

I was reading the May 6th issue of _Cardplayer_ magazine today, and Roy Cooke’s column, which always sports excellent advice, had this quote about Limit Hold-Em:

“The larger the pot and the greater the risk you are taking, the less you should try to obtain extra bets and the more you should focus on playing your hand in a manner to win the pot with as little risk taken as possible.”

I thought that was superb advice, since taking any large hit to your stack is actually meaningful, whereas you can afford to take several small hits and continue on your way.

Then, I suddenly got chills up my spine, and thought, what if Obama’s overplaying his hand? I know the economy *seems* like a No-Limit game when the government (especially the Feds) has your money, but it’s really closer to Limit poker than it is to NL [As an example of a No-Limit Hold-Em government game, think cold-war military spending in the ’80s, and S.D.I. as the all-in move. Thank G-d Russia folded.]

“The larger the pot and the greater the risk” — sounds like a bajillion-dollar already-failing business bailout, doesn’t it? “The less you should try to obtain extra bets” — such as Nationalized Health Care — “and the more you should focus on playing your hand in a manner to win the pot” — a healthy United States economy — “with as little risk taken as possible” — such as giving a bajillion dollars to prop-up already-failing businesses instead of giving every taxpaying adult in this country a $17,000 tax rebate? Imagine all the cars that we’d be buying from those now-failing Detroit businesses if we all had $17,000 in our pockets! Imagine all the companies now in financial distress that Bank of America wouldn’t be allowed to buy! And the $17,000 play would definitely minimize O’s risk, since it would correct the economy (at least for now), guarantee his party’s dominance in the elections a year-and-a-half from now, and almost certainly set him up for the final table (his second term as President). That’d be playing your hand, O. My advice: Don’t give up your day job.

–kevin

Just so people understand the poker principle at work, the idea is that sometimes you should play your hand differently than math would dictate to add deception as to what you have. However, as the size of the pot grows, deception loses its value in comparison to playing a strong hand in a straight forward way in order to win the pot since the value of a large pot begins to outweigh the value of additional money won through deception.

The analogy is a bit stretched here, because we’re not talking about Obama being deceptive per se. Rather Kevin is saying that saving the American economy is of tremendous importance and Obama should not waste precious time and effort trying to get pet projects approved. This is true. However, it also highlights an classic area where our elected officials have a significantly different interest than the citizenry. For citizens, political crises are caused by disruption and are to be avoided if possible. For politicians, political crises are their opportunity to pass far reaching laws that expand the scope of their purview. “Never waste a crisis,” as the saying goes. In this regard, Obama is acting like you’d expect a Socialist politician to act; he’s using the crisis to pass his agenda.

In terms of ending this recession, Obama’s actions are doomed to fail. Kevin is correct in pointing out that the bailout bill of $17,000 per adult would be far better spent as a tax rebate then as a bailout given in the form of a loan or an equity share in auto companies. Of course, it would be better still if the government did the opposite of Keynes’s advice and began to cut spending altogether rather than expand it, but austerity has fallen out of fashion in government circles. Cutting back on spending was a tried and true method for restarting a stalled economy from time immemorial, and a method that has an unparalleled level of success.

Spending our way out of a deficit, unfortunately, has very little to show for itself in terms of ending recessions. It didn’t end America’s Great Depression of the 1930s, nor did it end Japan’s ongoing depression. It really has very little in terms of economic history to suggest that it will work at all. To return to the poker analogy, this seems like the kind of self-destructive behavior you see losing players engage in all the time: they make plays they shouldn’t make, but feel they’re a good player despite never having seriously studied the game and being a consistent loser at it. Sadly, we the taxpayers have decided to stake this losing player with as much money as he needs. No one would be foolish enough to do this in the poker world, but that’s why government is such a wonderful invention- it allows us to collectively act far dumber than any one individual ever would.

Former Bush Administration Officials Shameless in Defending Torture

I’m amazed, but somehow the former Bush Administration still has the power to piss me off. Back when Bush was in office, the official word was that American didn’t use torture. Except that Bush officials gave a bit of a wink and a nod when the topic came up and Bush himself added a signing statement to the anti-torture bill saying, in effect, “It’s only torture if we say it is.”

Now that Barack Obama has released official memoranda that show that we were, in fact, engaged in torture, two former Bush Administration officials have come out in opposition to the release. From Bloomberg:

But in an editorial in The Wall Street Journal, former CIA director Michael Hayden and former attorney general Michael Mukasey charged that disclosure of the memos “was unnecessary as a legal matter, and is unsound as a matter of policy.”

We can always count on the Wall Street Journal’s editorial page to be the mouthpiece of whatever BS the Neo-Conservatives want to heap onto us next. Continue reading Former Bush Administration Officials Shameless in Defending Torture

Attention Dr. Lacy Hunt: Your Plan’s Not Going So Hot

The United States and the United Kingdom are both pursuing similar strategies to deal with this global recession: print more money. France and Germany are taking a rather different track and talking about reducing government spending. Germany went so far as to argue before the last G-20 meeting that if it were to reduce itself to “stimulus” spending, then it would become a burden on the rest of Europe; their reasoning being that they would eventually have to raise taxes to pay off their increased debt load and that that would cause a drag on the rest of the European economy.

It looks like Keynesianism isn’t a huge hit in France or Germany, as they are managing to avoid the peer pressure of their deficit spending neighbors. I’m sure Helicopter Ben is calling them up saying, “Come on! Everybody’s doing it.” But no dice. In fact, the President of the European Union Mirek Topolanek recently came out and called Obama’s plan to get us out of the recession a “road to hell“.

Ouch. Continue reading Attention Dr. Lacy Hunt: Your Plan’s Not Going So Hot

“The Dollar Sucks!” Says China’s Central Bank

Increasingly various Chinese sources have been going on about their dollar woes. A year ago it was just an academic. Freedom of expression is a limited commodity in totalitarian China, so if you see an academic coming out making statements critical of China’s trading partner you can probably surmise that that message is coming from higher up’s in China’s chain of command. Having a lesser known academic figure make the statement was a way to distance the criticism from the official channels.

But that kind of subtle criticism didn’t seem to have made much of an impact. In fact, we spent the next year attempting to solve every round of bad news by borrowing or printing more money. Last month, the Premier himself said that he was concerned about the value of his country’s investment in the US Dollar. No longer relying in mere academic to hurl criticism, the Chinese wanted us to know on no uncertain terms that they were starting to get a little peeved. We responded to that proclamation by having Helicopter Ben print up $200 Billion or so and start buying US Treasuries- the highest form of inflationary money printing there is.

Now, China’s pissed. “How pissed?” you ask. So pissed that their central bank just came out and called for a new reserve currency. Having the central bank of your major trading partner and holder of close to $2 trillion in your country’s debt come out and call for a new currency to replace yours is not usually considered a good sign. It’s a bit like taking a woman out on a date and having her say that she would very much like to have children someday… with someone who is almost completely unlike you. Rocky times are clearly ahead for this relationship.

But you wouldn’t know that by looking at the US Stock market. Both the Dow and the NASDAQ were up 6.8% today. Continue reading “The Dollar Sucks!” Says China’s Central Bank

Obama’s Budget Attempts to Create “The Great Society”

The politicians and bankers of this nation have historically been quite content to enjoy the inflationary good times brought on by easy money; particularly if the deflationary crunch will happen on someone else’s watch. These days it doesn’t raise an eyebrow when the President announces a budgets that shows deficits as far as the eye can see, but that furnish a projection that the deficit can be cut dramatically cut in half a few years down the road… on someone else’s watch. Every President in modern history has done the same, and making excuses for our financial irresponsibility has just become part of the political process. 

By that measure, Obama’s budget is hardly a surprise. It has lots of government spending on pet issues while not making any hard choices about where to cut back in order to pay for it. Like other Presidents before him, Obama is promising that once the investments that his budget is making in this country come to fruition, that America will become a great nation once again. It comes as no surprise to anyone that Obama will be long gone by the projected time that these “investments” come to fruition and therefore he has no accountability in the outcome. Taking action that seems like a bad idea at the time, but claiming that history will show your wisdom in the long run is just part of being President. Bush did it so much you’d have thought that the historians of the future were his main political base.  So much of Obama’s budget just seems to be politics as usual. 

What does strike me as strange is the fervor and hype with which the Democrats are touting it.   Continue reading Obama’s Budget Attempts to Create “The Great Society”

Exploring the Myths of the Consumer Driven Economy: Part III

In the previous blogs of this series, I have laid down some basic fundamental definitions for things such as assets and liabilities. In the second post in the series, we saw how the banks serve as the inflationary engines of society, but that their activity does not add to the fundamentals level of assets in a society. Instead, banks expand the monetary base by creating and loaning far more money into circulation that they could actually deliver were their depositors to demand it; banks thereby create situations whereby there are far more claims to the amount of real goods in society then there are actual goods which leads to inflation.

As banks create and loan out money the economy booms, but it is an unsustainable growth. It is caused because the market misinterprets the source of the amount of money flowing into their products and services as a genuine increase in demand as opposed to simply a credit induced event. This leads business to expand their operations in an effort to make more profit, but the problem is that they are responding to false/credit induced demand as opposed to genuine demand. Eventually things have to revert back to fundamentals, and that is when the bubble collapses. 

Now lets take these tools and bring them to bear on our current situation. Continue reading Exploring the Myths of the Consumer Driven Economy: Part III

Exploring the Myths of the Consumer Driven Culture: Part II

In a previous blog, I defined the basic terms of economic analysis: assets, liabilities, debt, capital, and production. In the second part of this series, it’s time to introduce the complicating factors of the banking section.

As we defined last time, debt is a liability that must be paid from future production. Assets/savings are properly represented either by unconsumed economic goods; the reason we adopt this strict definition is because you can’t store a service and because we need to differentiate between the real savings of a society and money. If money is itself an unconsumed economic good, as it is with all forms of commodity money, then there is no difference. If, however, the money is issued by fiat, then it is functioning merely as a medium of exchange between members of a society who seek to exchange some of theirs production for the benefits of other’s production.

I’m sure astute readers will notice I’ve left services out of the above discussion. That’s not because they are not valuable, but only because they can ultimately only be paid for out of someone’s production. Sure, I may render a service to someone else who herself only derives income by way of providing services, but one can not base a society of services alone: real goods must enter the equation at some point or we’d all starve to death. That’s why I’m saying that ultimately, services must be paid for out of production.

Now enters fiat money into the picture. By law, it must be accepted as money, and it has a certain par value for the trade of goods and services. If the money supply is fixed at a certain level, then good and services should trade in fairly stable range; in fact, because technology lowers production costs, we should see money gain purchasing power of time. If, on the other hand, money is printed by fiat and injected into the system, then you will start to see price distortions. The price distortions will start in roughly the area that the new money entered the system, but over time it will cause an across the board increase in prices. This is because the purchasing power of each unit of the fiat money is being diluted by the introduction of each new unit of fiat money. Continue reading Exploring the Myths of the Consumer Driven Culture: Part II

Reaction to Barack Obama’s Speech

 

Newsweek Cover
Newsweek Cover

I started a three part series “Exploring the Myths of the Consumer-Driven Economy” a couple of days ago, and I intend to get back to that. But yesterday was a day full of events that just demand comment. Ben Bernanke gave assurances and the recession might end this year, and it sent the stock market up and gold solidly down. Then later that day, Barack Obama addressed the nation and reaffirmed what Newsweek had already declared on its cover. We are all Socialists now. 

 

It was a long hard road to get America here; we have a strong tendency towards individualism and an inherent distrust of the powers of government. At least, we used to once upon a time. Not anymore. Now we have to depend on the powers of the state to correct the excesses of the free market, and we can not rely on the forces of free enterprise to get us out of this crisis. It is only through the intervention of government that we can put this crisis to a end. Or, in the words of our new President:

Continue reading Reaction to Barack Obama’s Speech