Archive for category Economics
War on Drugs-Unintended Consequences: Killing Innocents and Wasting Money
Posted by Tom in Economics, National Character, War on Drugs on January 10, 2012
Jerry O’Driscoll alerts us to this excellent Cato video featuring a young El Paso citizen, Beto O’Rourke, a former El Paso councilman who had just been introduced by Mary O’Grady, a WSJ feature writer. Like Prohibition the only accomplishment of the war on drugs is increased gangland crime and wasted money on enforcement. Oh, there is the matter of Eric Holder’s gun running and the possibility of Mexico becoming a failed government. Those aside, this video brings the drug war up close and personal.
The “war” will of course fail. The lives ruined and wasted in the process will be the price. Perhaps it is time for a change. Like alcohol, regulation and taxation may indeed be preferable. We learned a lesson with the 21st Amendment. Can we relearn that lesson, and soon?
Public Employee Unions Strangle Governments and Numb Public Employees
Posted by Tom in Economics, Employment, Justice, State Finances, Unions on January 7, 2012
Reno Nevada cannot afford to staff five of its fire stations because of crippling union compensation, bloated benefits, top heavy command structure and make-work work rules. This is only one example of how public employee unions are strangling the communities that they are hired to serve. This is one small example that is replicated throughout each community and state in the nation. Unfunded union benefits alone–a time bomb waiting to explode–are Three Trillion Dollars nationwide.
The sad truth is that there is no justification for public employee unions in the first place. The system that tolerates them is dark and unjust existing only for (i) the benefit of the politicians dependent on union contributions and support to get themselves elected, (ii) the union bosses that get power and wealth from their members, and (iii) the few deadwood employees who would fail in any competitive environment and are dependent on union seniority to remain on the public payroll. Excellence is not even mentioned, mediocrity is the norm.
Also true, the good, dedicated, high-preforming public workers are held back by the same unions that claim to represent them. Performance bonuses that could otherwise be available to reward excellence in performance are nonexistent. Seniority governs, holding back the top performers. This disincentive enforces mediocrity, the stuff of a declining society. Likewise the union members really have no voice. The cliques supporting the union bosses pressure conformity. If work slowdowns are called for, work slowdowns are socially enforced. Then, there is the lack of political choice in where political contributions generated from the pockets of public employees from their union dues go. In essence, they are paying for incompetent political leadership but have no choice in the matter. Finally, there is the false promise of retirement benefits which, because of the incompetent political leadership, will not be available to them on retirement. In short, the public employee union members are used for short term gain by others.
There is a critical difference between private sector unions and public sector unions, PRIVATE SECTOR UNIONS ARE SUBJECT TO THE LAWS OF THE MARKETPLACE. PUBLIC UNIONS ARE A MONOPOLY WITHOUT MARKET COMPETITION.
This fact is lost on the voting public. Private unions work for companies that compete in the marketplace. If their demands are too exorbitant in terms of wages, benefits or work rules, their employer will lose business to it competition. If the employer loses enough business, the employees lose their jobs. So a competitive market forces parties to be reasonable and respond to market conditions; in short, to excel in their jobs.
In the public union case, the government by definition is a monopoly free from competition. There is no market in which it must compete. Governments are by definition inefficient necessities in society. If their workers are allowed to unionize and collectively bargain for wages and benefits, there is no check or balance on their ability to extort increases, security, tenure, etc. A strike, walkout or slowdown creates a situation where there are no substitute government services. No competition.
A public union labor negotiation, is really no negotiation at all. The ritual of collective bargaining in the public union case is just a union boss talking to the incompetent politician who was elected with the help of the union dues. This incestuous relationship is driving our states, counties and cities to the brink of bankruptcy. It is dis-economic at its core.
Public employee unions perpetrate a fraud not only on the unsuspecting public but on the public employees themselves. We all lose with this unjust, uneconomic system.
Time for a change!
“Bailout-er” of Last Resort–For Europe?
Posted by Tom in Economics, Europe, Fed, Financial Policy, Monetary Policy, National Debt on December 28, 2011
Jerry O’Driscoll penned a dynamite op-ed in today’s WSJ. It raises serious questions about the Fed’s role and is reprinted below:
The Federal Reserve’s Covert Bailout of Europe
When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.
By GERALD P. O’DRISCOLL JR.
America’s central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.
The Fed is using what is termed a “temporary U.S. dollar liquidity swap arrangement” with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or “swaps” dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman’s collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.
The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.
The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.
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The Fed’s support is in addition to the ECB’s €489 billion ($638 billion) low-interest loans to 523 euro-zone banks last week. And if 2008 is any guide, the dollar swaps will again balloon to supplement the ECB’s euro lending.
This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.
The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed’s reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed’s Swap Operations report, and the ECB website.)
No matter the legalistic interpretation, the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement.
First, the Fed has no authority for a bailout of Europe. My source for that judgment? Fed Chairman Ben Bernanke met with Republican senators on Dec. 14 to brief them on the European situation. After the meeting, Sen. Lindsey Graham told reporters that Mr. Bernanke himself said the Fed did not have “the intention or the authority” to bail out Europe. The week Mr. Bernanke promised no bailout, however, the size of the swap lines to the ECB ballooned by around $52 billion.
Second, these Federal Reserve swap arrangements foster the moral hazards and distortions that government credit allocation entails. Allowing the ECB to do the initial credit allocation—to favored banks and then, some hope, through further lending to spendthrift EU governments—does not make the problem better.
Third, the nontransparency of the swap arrangements is troublesome in a democracy. To his credit, Mr. Bernanke has promised more openness and better communication of the Fed’s monetary policy goals. The swap arrangements are at odds with his promise. It is time for the Fed chairman to provide an honest accounting to Congress of what is going on.
Mr. O’Driscoll, a senior fellow at the Cato Institute, was vice president at the Federal Reserve Bank of Dallas and later at Citigroup.
Brad Schiller, et al on Crony Capitalism
Posted by Tom in Corporate Welfare, Economics, Government Regulation on December 14, 2011
This latest Economic Freedom pinpoints “rent seeking.”
Supply Side Analysis of Obama’s Latest Stimulus Plan
Posted by Tom in Congress, Deficit, Democrats, Economics, Employment, Fiscal Policy, Politics, Welfare on November 4, 2011
Obama’s incessant campaign call for the past months had been to demand the “Republican Congress” PASS IT NOW. The “It” is, of course, another stimulus plan, excuse me, “jobs bill;” you see the word “stimulus” has, by fiat, been stricken from the Democrat’s lexicon–must be something to do with the pejorative connotation generated by the last stimulus! Anyway, the new stimulus consist of: 1. Temporary payroll tax cuts, 2. Temporary extension of unemployment benefits to two years, 3. Additional debt to finance public sector jobs, and 4. Higher taxes on “the rich.” That this is an insincere reelection effort on his part can be of little doubt, since he knows it would not pass even his Democratic controlled Senate, much less the House.
Stimulus by whatever name it is called should, nonetheless, be subjected to economic analysis and Art Laffer, that infamous supply-sider, has obliged in the current issue of National Review. Laffer calls it a “four point plan for failure.” His article is worth a summary here, with full attribution:
Payroll tax: This is broad-based but effects only the moderately paid workers; it stops at a bit over $100,000 of annual compensation. Broad-based, low-rate taxes are generally good since there is little incentive to avoid them, so a reduction in these taxes presents little incentive to work or not to work, to hire or not to hire. Laffer points out that a reduction in this tax will not effect the decision makers typically earning over the $100K limit and much of that in dividends and capital gains. Laffers point is that cutting the payroll tax, temporarily, will not effect hiring or seeking employment. In other words, it doesn’t effect any job creation.
Extending unemployment benefits to almost two years: Laffer uses a time tested analogy to the Department of Agriculture payments: pay farmers to grow and they grow; pay them not to grow and they don’t grow. Simple: people respond to economic incentives. Obama wants to pay people not to work for almost two years. Obviously, they will take the money. And, by the way, not look very hard for that next job. In short, this is a big negative to job creation.
More deficit stimulus spending: Here we get in to the so-called Keynesian multiplier: the recipients of the extra federal dollar will spend a portion of it thereby creating new jobs which induce more spending thus more new new jobs. This “marginal propensity to consume” gives us the “multiplier;” or $1 divided by $1 minus that marginal propensity to consume. So if the marginal propensity to consume is only 50 cents, the multiplier effect is $2 for ever $1 borrowed! Thus the Keynesians have magically created money!
Wow! What’s missing here? Well, to get that dollar of federal largess, the federal government must take that dollar from someone else. In this case it must take not only that dollar, but it must run that dollar through the federal bureaucracy, then it must pay interest on that dollar because it borrowed the dollar. In short, the economic effect is to rob Peter, waste part of the loot on bureaucracy and interest, and pay Paul the balance. The economic effect is not neutral but is NEGATIVE. It destroys jobs, the jobs that would otherwise be created by Peter via his spending or investment! Look no further for proof than Obama’s last stimulus expenditures.
To cap off the point Laffer offers the “Slutsky equation:” This aggregates the deficit financed stimulus, both debits and credits. “By taking resources from those who produce and giving resources to those who don’t produce, government reduces the incentives to work for both parties. Output, employment, and production will fall.”
Higher taxes on “the rich:” It’s hard to tell if Obama wants to raise revenue or merely redistribute income with this effort. If raising income is the goal, increasing tax rates at the highest brackets will have the opposite effect; lowering tax rates on that bracket however will raise revenue. The simple reason is that those earners in the highest tax brackets have the ability to minimise marginal taxes by converting income to capital gains, deferring income, and shifting income; and they have access to tax accountants, investment advisors and attorneys to help in this process. If, on the other hand, he merely wants to redistribute income or wealth, he succeeds in his election tactic of creating class warfare but he fails in his so-called job creation purpose. And this for the same reason suggested by the “Slutsky equation.” Taking money from the producers and giving it to the non-producers has a negative effect on both; it’s a double disincentive!
In sum, our President is a campaigner who has a negative record on which to run. He has created a straw man with his rants against the “Republican Congress” failing to mention the Democrat controlled Senate which is fully one-half of that Congress. And he has come up with a sure-to-fail stimulus plan which he will use to deflect voter attention away from his abysmal record.
Is Papandreou the Only European Leader With Balls?
Posted by Tom in Economics, Entitlements, Europe, Financial Crisis, Socialism, Welfare on November 2, 2011
Is Greek Prime Minister George Papandreou the only European leader with “balls?” With Germany and France continuing to kick the can down the road and none of the nations calling for a referendum on the can kicking, it seems that the Greek Prime Minister is the only one with any sense. He has called for a referendum from the voters on whether to accept the latest edition of the European bank bailout. These are the same voters who have been rioting. The same voters who have been sucking money out of Germany. The same voters who are accustom to handsome entitlements while cheating on their taxes. Politically, Papandreou is smart in letting the socialists rioters make their own democratic decision. Admittedly, it will not be a well informed decision. But then, in a socialist nation, how could it be?
The point for Europe, America, Asia and the world is the same: the sooner a real resolution is reached, the sooner a real recovery can commence. The contrary example is the real estate market in the U.S. where reaching the market bottom has been forestalled by Obama and the socialist left. The result has been the stagnation and real estate depression that we now witness. By the Greek call for a referendum, Papandreou has cut to the chase. And done so where democracy was born!
Economically, socialism doesn’t work, the European welfare state doesn’t work, and need I say that the American welfare state will not work? We cannot borrow and regulate ourselves into prosperity as Obama would have us believe.
Europe is broke. We are almost as broke. We have the advantage in that our fiscal policy and monetary policy are structured under one federal government. Europe, on the contrary, is a mess simply because it lacks that structure.
Hopefully the can kicking will stop and serious plans will be made to reorganize Europe so that it or its component nations can prosperously function in this economically interdependent world in which we live.
Sinking With Europe?
Posted by Tom in Economics, Europe, Fed, Financial Policy, Fiscal Policy, Foreign Policy, Monetary Policy, Welfare on November 2, 2011
The following is a republication of Jerry O’Driscoll’s op-ed in today’s WSJ, Why We Can’t Escape the Eurocrisis. The article also had lead position in today’s Real Clear Politics.
Why We Can’t Escape the Eurocrisis
EU and U.S. debt are interlinked through the banking system.
By GERALD P. O’DRISCOLL JR.
When is a bailout not a bailout? When the bailor is short of funds. The recently announced debt plan in the European Union comes up short in almost all respects.
The debt crisis is not just an EU problem, but a trans-Atlantic financial crisis. The overwhelming debt problems on either side of the pond are interlinked through the banking system.
First to the EU. The underlying dilemma is that governments have promised their citizens more social programs than can be financed with the tax revenue generated by the private sector. High tax rates choke off the economic growth needed to finance the promises. Economic activity gets driven into the underground economy, where it often escapes taxation.
Nowhere is this truer than in Greece, which has a long history of sovereign defaults in the 19th and 20th centuries. There is a bloated public sector, and competitive private enterprise is hobbled by regulation and government barriers to entry. Successive Greek governments ran chronic budget deficits, and the Greek banks lent to the government. Banks in other EU countries, such as France, lent to the Greek banks.
In Greece and elsewhere in the EU, the banks support the government by purchasing its bonds, and the government guarantees the banks. It is a Ponzi scheme not even Bernie Madoff could have concocted. The banks can no longer afford to fund budget deficits, yet they cannot afford to see governments default. Governments cannot make good on their guarantees of the banks.
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Details differ by country. In Ireland, problems began with an overheated property sector that brought down the banks. The economy went into depression, which threw the government’s budget into deficit. Further aggravating the deficit was the government’s decision to guarantee bank deposits, converting private, financial-sector debt into public-sector debt. The details differ from Greece, but the linkage between the government and the banks is the common factor.
France’s growth is weak to nonexistent. Germany’s economy has performed well since the recession, but concerns are growing regarding its banks’ exposure to greater EU risk. And U.S. banks and financial institutions are exposed to EU banks through funding operations, issuance of credit default swaps and unknown exposure in derivatives markets.
The Federal Reserve has engaged in currency swaps with the European Central Bank to support the dollar needs of EU banks. The ECB deposits euros (or euro-denominated assets) with the Fed and receives dollars in return. It promises to repay dollars plus interest.
The Fed maintains they cannot lose money because the ECB promises to repay the swaps in dollars. And yet, with the world awash in greenbacks, it is unclear why the Fed and the ECB even needed to engage in these transactions—except that it suggests funding problems at some EU banks. And if neither EU banks nor the ECB can secure enough needed dollars in global markets, there is a serious counterparty risk to the Fed. The ECB can print euros but not dollars. Sen. Richard Shelby (R., Ala.), ranking member of the Senate Banking Committee, was correct to raise concerns about the Fed’s policy last week. Losses on the Fed’s balance sheet hit the U.S taxpayer, not EU citizens.
The sad fact is that there is not enough money in the EU to pay off the public debts incurred by the governments. Most countries have long since squeezed as much tax revenue from their citizens as they can. That is why they have toyed with a tax on financial transactions, the one remaining untaxed activity in all of Europe.
Greece is the first of other sovereign defaults to come. With last week’s bailout, the EU leaders might have bought time, perhaps a year. But at some point, the ECB will cave and monetize the debt, leading to euro-zone inflation.
The debt calculus changed dramatically this week with the announcement of a Greek referendum on the bailout agreement next January. If voters reject the agreement, the ultimate outcome is unpredictable.
Americans must not be smug about the suffering of Europeans—our financial system is thoroughly integrated with theirs. Moreover, the International Monetary Fund will most likely be involved in the event of future bailouts and will likely need large funds from its members, which ultimately means the taxpayers.
And, of course, the U.S. has its own large and growing public debt burden. We have not gone as far down the road to entitlements, but we are catching up. If you want to know how the debt crisis will play out here, watch the downward spiral in the EU.
Meanwhile, expect more volatility in financial markets. U.S. traders in particular simply have not grasped the enormity of the EU debt crisis.
Mr. O’Driscoll, a senior fellow at the Cato Institute, is a former vice president of the Federal Reserve Bank of Dallas and later Citibank.
Cuba’s Re-Revolution….Very Slow
How’s the Revolution working for you after 50+ years? “Not well….it’s failed,” is the common answer you, if you are trusted, will hear in Havana. A week in Havana gives but a glimpse of socialism at its best.
The equality Castro delivered is depressing. Havana’s citizens live in run down squatter-occupied former commercial buildings, worn public housing projects, and middle class apartments, while foreign residents and diplomats live in upper class ghettos a little better in quality. The residents get a monthly food ration of so many pounds of rice, coffee, beans, etc. which lasts 15 days on average. The bodegas where ration allotments are spent, are basic, but there are open air farmers markets which are a step up. They also get a salary depending on their status of 200 ($10) to 400 ($20) pesos per month. The best jobs are government jobs particularly military and police who “earn” on average what a doctor earns. The citizens are not free to travel without permission, and do not have access to the internet or outside TV programs.
The government controls the press and the educational establishment. Freedom is extremely limited. I asked one economic grad if he studied the Austrian economists like Hayek, he say yes but he was taught that only socialism worked. I then asked if there was academic freedom; he said, of course not!
There is also the snoop part of the culture, the hard liners who will report on their neighbors. In fact some of the better neighborhoods because they are better have a higher ratio of snoopers. The less desirable neighborhoods are thus freer. A Cuban joke asks why you often see three cops standing on the street corner, the answer: you need one to write, one to read, and one to watch the two intellectuals!
All this yields a population in decline. The birth rate is below replacement level at 1.7. Cuba has one of the highest divorce rates. Abortion is high and used as contraception. Women who plan to advance will not have children. Men who plan to escape don’t want a family. The young educated people leave when they can, usually by marrying a non-citizen or over extending the rare opportunity to travel. Doctors and health care workers who are part of Castro’s diplomatic efforts have a likely exit route, as Joel Millman’s WSJ article, New Prise in Cold War: Cuban Doctors, shows. There’s a joke that Cubans aren’t allowed to fish in the ocean because they “fish too far” referring to the 90 mile distance to Key West.
That said, the people generally appear to be healthy and not malnourished. Public health is said to be good with fumigation the major tool. Medical care is free. Education is free. There is no discrimination in this social melting pot. But the high end government jobs are typically held by the whites and the jails are typically populated by the blacks. Gays and lesbians, in earlier times shunned and later tolerated are now encouraged.
The government manages to keep most people occupied, not productive, but occupied. There is a ministry for this and a ministry for that, ad infinitum. There are those, though, who sit around the public squares and beg, pose for tourists pictures or sketch tourists and demand payment. The government’s renovation projects are honored more in anticipation than in real activity. Work on those projects seems to lack processes and tools we find common.
Culture is the freest outlet for expression. Music is omnipresent, varied and excellent. Jazz at the Buena Vista Social Club is just great. Ballet aficionados in our group compared the Havana troupe to those seen in San Francisco. Art is flourishing and excellent, some very dark, some very difficult for government negative interpretation, which I suspect was intended by the artist. Cuisine is not an art and very basic. As one guidebook suggests, don’t expect much.
Religion was initially banned as atheism, a tenant of communism, doesn’t quite accept belief in God. The results are evident today with churches seized by the government standing in disrepair and fenced. As communism was dropped fron the constitution following the demise of the USSR, restrictions started to loosen up. Following the Pope’s visit, religions became freer and more accepted. We attended a Greek Orthodox Mass that was inspiring. The congregation is growing and young. It’s responsible for some good charitable work among the poorer classes.
Property rights as we know them are non-existent. Aside from the expropriations of foreign and domestic businesses in the Revolution, the government has allowed home “occupancy” to continue and to be passed to succeeding generations. But buying and selling homes is prohibited. This generates a Byzantine system of trading, phony divorce-remarriage schemes, and bribes. Car ownership including buying and selling for pre 1959 cars is permitted, but not until this past week for more modern cars! Contract rights are in the same boat as property rights, legally enforced to a limited extent if at all. Torts, intentional or negligent, are not actionable. I was told in the hotel if you trip over there and break your back, its your problem, don’t even think about suing, “that’s a Gringo thing.” That, a positive for the Cuban system!
Cuba works as a cash economy. There is no credit for Cubans. Everything is paid for in cash. The ordinary society functions on non-convertible pesos. The foreign businesses, foreign residents, and tourists use CUCs, convertible pesos, 20 to 24 pesos to the CUC. Converting a US dollar to the CUC gets you .86 CUCs. The government takes 10 cents from your dollar and 4 cents goes for exchange vigorish. A favorite occupation of the three museum docents or guards (in each room!) is to ask tourists to change a twenty dollar bill. This budding entrepreneurial effort at the “exchange” business is encouraging!
The most encouraging thing economically is the underground economy. It is significant and growing. Tips don’t get reported and with tourism such a large part of the economy they are significant. Profits like tips don’t get reported and folks like the museum ladies make profits. Government cab drivers who exceed their monthly fare quota don’t turn in the excess but consider it a large tip! Remittances are a large part of the shadow economy and they are significant. Remittances to Cuba as recently as 2008 were estimated at $1.4 Billion. The underground or shadow economy is estimated at $2.0 Billion. Paul Haven’s Washington Times article, Cuba’s shadow economy sees some daylight, paints an interesting picture.
Characteristic of Cubans is to accept life, make do, make things work. Protests and dissent is rare. We saw no evidence of the dissent evidenced by Mary Anastasia O’Grady’s recent WSJ article Cuba’s Repression Escalates. This because there are few rebels. The attitude toward property rights limitation is typical, not being able to sell your house at a profit, or at all, but only to trade it, typifies the acceptance. Laws and promises of the government are accepted no matter how silly. The “free lunch” is taken for granted; of course, it’s really not free. It’s a numb society. A generation of the revolution has succeeded in numbing the people. Big government is in control. Socialism is taught as the only system that works. There is no academic freedom, only conformity. Outlets now are music, art, cinema, and most recently religion, all of which have seen the seesaw censorship lessen. The real hope is that these and the budding entrepreneurship of the underground economy will flourish.
The Revolution has failed. What’s called for, for these wonderful people, is a re-revolution. Let’s hope we see it and, in our case, learn from it!
Class Warfare: Politics of Victimhood
Posted by Tom in Democrats, Economics, Entitlements, Justice, National Character, Socialism, Welfare on August 6, 2011
Barack Hussein Obama is the master of class warfare; his background is community organizing, pitting sub class against sub class and class against class. As such he doesn’t relate to all classes, his politics are dependent on his ability to divide and thus to create more dependency, pushing victimhood, resentment and class warfare.
Kyle Meintzer alerts us to this in Bill Whittle’s video Rich man, poor man?. Bill uses Heritage Foundation data to show that while the rich get richer, the “poor” get richer also. In fact, the definition of poor is suspect. But Obama and the Democrats need to expand the definition of poor just to keep up with those becoming non-poor, and this, just to buy votes. Enough said, here’s the video:
“Stimulus” Obfuscation…or spinning to the dummies!
Posted by Tom in Economics, Fiscal Policy, Stimulus/Bailout on July 18, 2011
Thanks to Jim Clark who has penned a follow-up to Tom Cargill’s recent post, set out in full here:
In last week’s Bonanza Jeff Quinn wrote in a column titled: “Economic Advisors’ Bafflegab” that the just released Council of Economic Advisors report on the effect of the American Recovery and Reinvestment Act of 2009 (the “Stimulus” bill) stated that it: “raised employment relative to what it otherwise would have been between 2.4 and 3.6 million jobs . . .” Huh?? Jeff, ever the canny CPA, calculated that this would work out to a cost of just about $300,000 per “job”. Except there are no jobs. There are instead 2.4 million less people employed today than when Obama took office.
Two years ago UC Berkeley Economist Christina Romer chaired the Council of Economic Advisors and famously advised President Obama that unless a huge stimulus bill was passed unemployment would rise above 8%. She further advised that each dollar of government stimulus spending would produce a $1.60 increase in gross domestic product. When unemployment rose to nearly 10% she departed for her ivory tower in Berkeley. It has taken almost two years to discover her second big mistake which is where UNR Economics Professor Thomas Cargill comes in.
Writing in the July 13 Reno Gazette Journal Cargill points out that at the time the stimulus package was under consideration: “there was no empirical consensus on the size of the multiplier.” (that which would supposedly create $1.60 in economic activity for every $1.00 in federal spending). “Estimates ranged from a zero multiplier to $1.60 and higher.” But, he wrote, the “stimulus efforts lacked scientific support.” This “lack of a scientific consensus suggest(s) politicians have exaggerated the ability of government spending to stimulate the economy, especially in Japan and the US,” Cargill continued. “Politicians often rationalize any lack of success to the fact government spending was not large enough or that without government spending the economy would be in worse shape” An interesting observation because Cargill wrote this before release of the current Council of Economic Advisors “bafflegab” report cited above in which they do precisely that.
“The real issue” Cargill continued “is whether an alternative policy, such as cutting marginal tax rates and simplifying the tax code, would have produced different results. Some politicians continue to argue for more government spending to stimulate the economy. Perhaps they should do their homework before committing more taxpayer funds and further increasing the size of the deficit and debt” Cargill concluded.
Yeah but in this case the politicians (all of them Democrats . . . not a single Republican voted for Obamulus) had U.C. Berkeley Whiz Christina Romer telling them everything would be wonderful if they would just borrow all that money from the Chinese and spend it.
Had the politicians “done their homework” they could have ignored Romer and simply looked at history. In 1929, when the stock market crash that triggered the Great Depression, unemployment was 3.14%. By 1934, after the original Keynesian stimulator, Franklin Roosevelt, had been in office for a year unemployment was 21.6%; by 1938, after 4 years of stimulus spending to create jobs unemployment was 18.9%. In 1942, as the US industry shifted to wartime production, unemployment fell to 4.7%. These statistics could lead reasonable people to conclude that government spending does not stimulate the economy. But who ever said politicians are reasonable.
The Council of Economic Advisors’ obfuscation still persists, we are up to our neck in debt and the current red hot battle in Washington is whether we should raise the debt ceiling to borrow more money to pay the interest on the money we previously borrowed to finance the stimulus that didn’t work.
Oh well, maybe we’ll get bailed out by a world war again.
Jim Clark is President of Republican Advocates, a member of the Washoe County and Nevada GOP Central Committees; he can be reached at tahoesbjc@aol.com