Five Things You Need to Know: "Economists" Embrace Government Spending
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
Economists Embrace Government Spending
The headline on the homepage of the New York Times is grim, and almost speaks for itself:
$1.2 Trillion Deficit Forecast as Obama Weighs Options
But, hey, so what? The "economists" are beyond the point of caring about massive government expenditures, at least according to the Times in a separate article: "We have spent so many years thinking that discretionary fiscal policy was a bad idea, that we have not figured out the right things to do to cure a recession that is scaring all of us,” Alan J. Auerbach, an economist at the University of California, Berkeley, told the newspaper.
The Federal Reserve, naturally, is elated about "the new enthusiasm" for government spending. In fact, San Francisco Federal Reserve President Janet Yellen, speaking at the annual American Economic Association meeting, said exactly that: "The new enthusiasm for fiscal stimulus, and particularly government spending, represents a huge evolution in mainstream thinking.”
Just Who Are These "Economists" Anyway?
Hold on a moment. Let's go back to the "economists." The Times article paints economists as in near universal agreement on massive coordinated fiscal and monetary policy to end a "bad recession":
"The few sessions that dealt with fiscal policy were packed with economists, mostly from academia. Nearly all argued that public spending can be more effective than tax cuts in getting out of a bad recession. Still, they said the present crisis required, as a tonic, a mix of the two..."
While it may be true that "all economists" at the annual meeting of the American Economic Association favor drastic public spending measures to end a "bad recession," it is hardly true that "all economists" everywhere favor this kind of spending.
Not ALL Economists Agree
The Times article completely ignores an entire school of economic thought:
All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production.
- Ludwig von Mises, The Causes of the Economic Crisis
Of course, ignoring the Austrian school makes sense in this day and age. Ludwig von Mises certainly discovered there is no popularity gained from being right about economic doom. Being "right" about doom is the quickest way to create more enemies than you can shake a stick at.
That really is the only way to explain why, today, the very people in charge of driving the global economy over the cliff - global central banks and Keynesian economists - are now charged with "rescuing" it from its death dive.
Unfortunately, I'm afraid there's only so much more "rescue" we can take.
Obama-Biden Rescue Plan
Meanwhile, if you are interested in seeing how it's possible for even the Keynesians to be disappointed in massive government intervention, check out the Obama-Biden Plan draft here (pdf file).
Although the plan promises to spend upwards of $700 billion, a closer look at the details reveals that the "stimulus" is largely smoke and mirrors. By that I mean that there is barely a fraction of direct stimulus into the economy in the plan, the kind that Keynesians would say is necessary to stave off a deep, prolonged recession. Regardless of whether one believes an economic stimulus plan is the right course of action, the plan will be viewed as a deep disappointment in the current iteration.
Psychology of Deflation
Of course, all of this talk of economic stimulus is moot if the psychology of deflation has taken hold, a psychological state where dollars are saved in anticipation of ever lower prices. A state of mind kind of like, this:
""Forty to 50 percent [discounts] used to excite me," the 43-year-old writer said. "Now, I want at least 70 percent." Turner says she has taken advantage of 75 percent discounts on children's clothes in recent weeks and is willing to wait to get the same type of deals in the coming months."
"Stores Worry Holiday Sales May Be Permanent" - MSNBC
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"The few sessions that dealt with fiscal policy were packed with economists, mostly from academia."
I'm willing to bet that economists working in business have a different view.
Social mood is deflated, people are scared. I seem to recall a great many AIG, Merrill Lynch, Citigroup, and WaMu commercials before they went belly up. They were trying to prop up perception, which is little different than the Government and stimulus.
The companies spent money they didn't have to instill confidence and failed, the government bailed them out. The government is now spending money they don't have to try to instill confidence, and if that fails there really is no one to bail them out (China will stop at some point).
Advertising, posturing, bluffing, and positive talk can fool people's gut...for only so long.
75 % percent off of something that's marked up 500% gets you back to cost plus 10%.
A severely deflated economy is easier to stimulate. If it gets deflated enough you could stimulate it with just words instead of money. By then every one is desperate for any kind of hope.
Bear and Bull Scat on Wall Street won't help the Farm Aid Reciprocates in Manhattan.
Mr Obama did not cause this mess he inherited it. Do not forget that. His choice of team players from both parties shows his intent of doing what is thought to be best for our country. Support them. Don't fight the last chance we have to fix this problem. Otherwise we all loose. We are losing ground on our bipartisan efforts which is something we cannot afford at this point. Be a team player. Don't let the media tear us apart anymore then we are already.
JPM
Well yes and no.
Obama...lawyer ...Acorn...sue banks to make more loans...hmmm..
Ryan
You are right about the cost plus 10%.
I keep looking at the flyers that say "70% off" and it's not at a price point that is even 50% off to me.
I'll start buying when it's 50% off 70% off.
I think people's lifestyles are inflated, and the sooner we get to the true or real value of things the better. I'll think positive Jim, and do what I can to pull with you.
Kevin - I forgot to say...Keynesians gravitate to academia because, like government, it is a friendly environment. This begets more like minded graduates, until the captains of Economics have learned navigation and seamanship on vessels that never left the harbor.
A lot of people have worried that giving people more money won't help because they'll just save it, or use it to pay down credit card debt. Is that so bad? If they save it, then the economy has more dollars to lend, which can't be bad in the current environment. Ditto if they use it to pay down personal debt. Granted, not as immediately stimulative, but still working in the right direction.
Yes, that's tongue-in-cheek. :)
The Austrians saw this coming long ago and have accurately predicted the course of events. Of course, this just baffles the Keynesians. To them, more spending and debt (which is precisely what got us into this mess) is all that can cure our ills.
It blows my mind that those in charge of our economy can't use a little common sense to see that more of the same will only exacerbate our problems.
Hence, there has been an eroding of the average American's household income. To maintain our ever hungry nature too many of us tried to borrow our way to a better lifestyle. And the rest of the world became accustom to the average American household carrying $40k+ in consumer debt. Obviously, things have come to a head. We are broke and the rest of the planet has no other super consumer markets.
What to do? GET BACK TO INVESTING IN NEW TECHNOLOGY. Forget the right wing and left wing theories and experiments which got us in this mess, (neither the âfree marketâ nor âsocialismâ ever really existed any way, they are simplistic theoretical models bases on fantasy). Such ideas are the problem â not the solution.
We have to grow our way out of this. The bleeding has been stopped (for now) ... government loans to busted financial institutions by themselves can't fix the problem. An ocean of liquidity has been pumped into the international system ... but what to do with all that money when folks can't (or won't) pay their bills until things get better?
Get the money into the hands of productive people.
How about a form of economic development seemingly forgotten ... industrial development bonds. Tax free bonds issued by state governments on behalf of local business and guaranteed by Uncle Sam. That means 30 year 5% capital - the stuff economic miracles are made of. But - let's not pass out such financing to just anyone.
How about just bankrolling the 1,000 fastest growing mid-cap businesses in the US for about $1B each (on average)?
Do the math - that's $1T pumped into our fastest growing and most hi-tech firms, without a penny leaving the US Treasury. Actually, Uncle Sams gets annual fee for the loan guarantee, say 1% = $10B. Note, we just solved a bit of the budget deficit and ramped up sustainable economic activity. And we just replaced the $1T of the paper wealth which disappeared last year by investing in productive capacity. And if we create just one job per $100k in funding ⦠$10M new jobs.
A few conditions of course ... funds must be invested in the USA, with the vast majority invested in plant and equipment but not ignoring working capital needs.
It is so simple as to be fool proof. Because it declares neither government nor business as evil ⦠just regular old flawed human beings who need each other to prosper.
The biggest problem will be border control - we'll need to import more skilled workers. And we'll have to build more roads, damns, fix bridges & harbors, expand our institutions of learning, subsidize training, pay teachers, build new electrical grids and fiber networks, clean up toxic dumps, bull dose old factories & build new factories, build power plants, new auto plants... to accommodate all the growth. And hire honest people to regulate the system. Raise wages. Send a few folks to Mars ... Build great cars â¦
The solution for the USA is to remember who we are, and act like it.
And that's being generous.
Consider this article: http: // www. huffingtonpost. com /2008 /12/ 01/ bush-administration-weake_n_147311.html
Since it's HuffPost ignore the political slant against the Bushies. Just note the quotes from various bankers begging the Berries not to change the rules, not to stop them from making subprime loans, et cetera. Note how many of those people who told the Berries "we know what we're doing" are now out of business because, hey, they didn't have a clue.
You need to demonstrate that a significant number of the loans currently in default were made as a result of Acorn, vice the number that were made because Countrywide could originate a loan based on lies they encouraged the borrower to tell, and then sell it. I'm going to go out on a limb here and say Countrywide is responsible for 1,000 times more bad loans. Care to bet a nickle?
Then, you have to admit than subprime was not the real problem. The total value of subprime loans that have failed is less than a trillion dollars. The critical, crucial element in the crisis is LEVERAGE. And the banking system is leveraged because it was re-regulated to permit more leverage, and because they devised off-the-books conduits to add more leverage than the new regulations permitted.
Blaming the Democrats for reducing government regulation is rather like Hollywood blaming Focus on the Family for s*x and violence in the movies because James Dobson once rented a video. Deregulation has been a Republican core value for decades.
Summary: blaming Obama for this mess is a G-D lie. Those (Limbaugh et al) who are trying to do so know they are lying. They lie because they make more money by being dishonest. You do Minyanville no favor by repeating these obvious lies.
are all the lawyers who pose as congress take stupid 101 before entering office? is this part of their oath?
It really does not matter who is President, the Depression will occur. And so will the eventual recovery.
But it is nice to have a President whose brain actually functions and who probably has a sincere desire to leave his children a better world.
It's appalling to those of us who witnessed this bubble inflate to hear and see history being rewritten, like Rove in the op-ed of the credibility challenged WSJ today. During the bubble we heard; Paulson, Bernanke, Greenspan, Kudlow, and other sunshine pumpers say it was 'contained', apologists and psuedo economists on CNBC who always had an excuse when economic data came in lackluster, managers who blindly believed the BLS employment data, cheerleaders who said it was a Goldilocks economy, and the same ones who told us the investment bank CEOs deserved those bonuses.
And now the same ones who never saw this coming are pointing the finger of blame at someone else. I sure would like to see some accountability from these folks, but unfortunately they'll have a job on a financial news network giving their 'expert' opinion on how to get out of this mess. And they'll never be questioned by the complacent anchors about their responsibility for this disaster.
I should have waited before I responded to this Acorn hoey to see if you would do so. If the Sept./Oct. Market collapse had occured after Jan. 20th, and the Govt. had responded in exactly the same way, can you imagine the Right's (correct) reaction?
Disclosure: I would like to see the criminals from BOTH Parties tried for treason for this debacle, along with the Wall Street and Ratings agency co-conspirators.
You are right about refuting these efforts at every turn. The other new strategy is to say, "well, there is plenty of blame to go around". They then equate the ones who walked away with trillions with the subprime borrowers who took them up on their offer.
No, they still have their jobs in the house and senate.
by Ministry.... tho its an old video by now.... is strangely current. check it out on youtube.
william s burroughs is the old guy in the vid.... his book "naked lunch" could be seen as an allegory of keynesian econmic policy...
the movie is a little weird but that's were were at... hey where's my mugwump juice?
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and once that above gets all the negativism funneled maybe we "find a bottom"?
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side comment.
haven't heard rush bimbo for a while. in the 80's he was still somewhat humorous and informative now hes more of a lab animal to be observed... he does lead an odd assortment of young white guys and old farts [who oddly enough make money on slot machines on a consistent basis]. a sort of savanarola of our time.
like savanarola, when will his mob lynch him? when they make a rope strong enogugh? do we have the technology??? i heard there's a sale at mall-wart while supplies last...
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anyway.
i think its a little hopeless to beat the austrian-drum.... everybody's over at john maynards drum cricle 'cause he's got the free kool-aid dude...
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thoughts from shanghai.
visiting consistently every year at the same time of year allows some sort of meaningful observation.
the street beggers are more numerous and now -- lilttle bunches of women and children who hit me up bam-bam-bam in coordinated effrorts. almost as annoying as the ones in india now. usually i'd keep a pocket of 1 yuan coins and it would last me a day. now maybe an hour due to the "leveraging effect".
car traffic still strong tho.
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crowds a little sparce on the shopping streets.
they keep the good stuff here yo... tho its more and more hidden as the glass facades overrun the little interesting shops of just 5 years ago.
From my perspective it's not who we are but who we were.
In the big picture, out society has progressed from piety, thrift, and industry to godlessness, consumption, and sloth.
The house of cards built by debt living includes borrowers and lenders, democrats and republicans, advertisers and consumers, preachers and the choir (in a figurative sense).
Certainly there are true Americans - who we should all be - but too many are newcomers or the entrenched entitlement crowd who have glommed on to the promise without posessing the character of it.
Why yes it is, but these days the internet makes it hard to shove things down the memory hole. Rove may not be smart enough to make this stuff up but he doesn't have to.
http://www.youtube.com/watch?v=_MGT_cSi7Rs
"...Those lies have to be refuted each and every time..."
Yes they do.
http://www.youtube.com/watch?v=ivmL-lXNy64
We will make up our own minds.
"otherwise it will stick..."
Nope can't have that.
"Just like the 40+% of the population who still believe Iraq was involved in 9/11."
Hey, some people still think the moon landings where a hoax.
