Keynesian Economics and Job Creation just don’t go Together

Posted by PITHOCRATES - October 12th, 2011

It’s Competition between Intel and AMD pushing Chip Technology to New Heights, not Government Investment

With Solyndra going belly up after that half billion dollar government investment people have been asking questions.  One of which is how government should invest into the private economy.  Well, here’s one example (see AMD’s Bulldozer Fails To Meet Expectations by Devin Coldewey posted 10/12/2011 on TechCrunch).

The Intel-AMD war has been going on a long time, and I hope it will be going on longer. The last few years have been hard on the underdog, however, with huge growth by Intel in both the low-power and high-performance sectors. The Core 2 Duos excelled, as did the Core i* series, and its most recent consumer series, the Sandy Bridge update to the i*s, is a monster. AMD has consistently lagged behind, though from the other side of the table you might say they’ve been nipping at Intel’s heels quite effectively for years…

Unfortunately, despite the new architecture and insane transistor count (the 8-core 8150 has around 2 billion), performance and efficiency per core just plain isn’t that good. There are a few tests on which Bulldozer takes on Sandy Bridge well, such as those truly optimized for high core counts, but on single-core tasks it gets destroyed.

In other words, government shouldn’t invest in the private economy.  Because, when they don’t, the private economy does very well.

Does any of that techno-speak make sense to you?  If you’re not in the hi-tech industry, or a kid, the answer is probably ‘no’.  But the beautiful thing is that we can enjoy the end product of putting 2 billion transistors on a chip.  That we can understand.  And that it is competition between Intel and AMD pushing chip technology to incredible new heights.  Not government investments.

Obama wants to Raise Taxes on Small Business Owners, the Number One Job Creators in the Country

The most successful companies out there making the things we all want and must have need help from government.  The kind of help only government can give.  That thing only government can do.  Cut tax rates (see Business groups push for business-friendly tax reform by Bernie Becker posted 10/12/2011 on The Hill).

The National Federation of Independent Business, the Independent Community Bankers of America and more than 40 other groups are calling on key policymakers to tackle both the individual and the corporate tax codes together and to end double taxation on corporations.

“By embracing these broad concepts, Congress can move the taxation of business income in a direction that helps ensure that all employers, regardless of how they are organized, continue to invest and create jobs here in America,” the groups wrote to the top Democrat and Republican on both the Senate Finance and House Ways and Means panels.

The Left keep saying businesses don’t object to high taxes and costly regulations.  The Keynesian economists like to cite poll after poll that business owners’ only concern is the lack of demand.  And then interpreting that as meaning that they want government to invest and stimulate the private economy.  But these businesses are saying otherwise.  They’re saying it is the high taxes.

The Obama administration also has, so far at least, spent more time pushing for corporate tax reform, while Republicans like Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee, want a more comprehensive approach.

Camp has taken that stance in large part because many small businesses, called pass-through entities, pay their taxes through the individual code and would be left behind in any corporate-only reform.

And it’s worse than that.  Obama wants to raise taxes on these ‘pass-through’ entities.  To make them pay their ‘fair share’.  Those so called rich people earning $250,000 or more.  These small business owners whose business incomes ‘pass through’ to their private tax returns.  These same people that have risked everything they own to create a business.  And create jobs.  Who are, in fact, the number one job creators in the country.  But many fail.  And lose everything.  These are the rich people that Obama wants to raise the tax rates on.

Public School Education is Bad because Dumbing Down of our Kids is Necessary to Fool our Young Voters

Which calls into question the bedrock of all their policy.  Tax and spend Keynesian economics (see SCHOLAR COMMENTARY by Matthew Mitchell posted 10/10/2011 on Mercatus Center).

Sargent and Sims’s work is particularly relevant today as it explains the way that peoples’ expectations of the future can impact their current behavior. This is reflected in every economics story today that uses the phrase “policy uncertainty.”

Their work came along at a time when Keynesian economic models were facing challenges: There were theoretical challenges by economists like Milton Friedman and Robert Lucas, both of whom have previously won Nobel Prizes, but there were also empirical challenges. Keynesian economics didn’t seem to make much sense of the 1970s when the economy experienced high unemployment and high inflation, whereas it had worked pretty well in explaining macroeconomic trends in the 1960s.

The problem with the faux science Keynesian economics (a social science not a real science) is that it tries to quantify human behavior.  Which is something many people believe we can’t do.  Those in the Austrian school of economics.  Ronald ReaganMargaret Thatcher.  And most economists not wedded to their governments.

The 1970s were the heyday of Keynesian economics.  Even Republican Richard Nixon adopted Keynesian policy and declared he was a Keynesian, too.  Then Jimmy Carter continued many of these same policies.  And how did that work?  You can ask Jimmy Carter.  Who lost to Ronald Reagan in a landslide.  By asking a simple question during a presidential debate.  Are you better off than you were four years ago?

Part of these failures had to do with the fact that these earlier Keynesian models relied on people’s naiveté. They worked so long as people could be fooled by government. For example, government-induced inflation might boost the economy if enough producers are fooled into thinking that higher prices are the result of increased demand for their products. Sargent’s work explains how people’s beliefs about the future impact their behavior. He found that if you make modest assumptions about peoples’ ability to understand how policy will affect their future, Keynesian policy prescriptions like short-term fiscal or monetary stimulus don’t work very well.

And there’s your answer to why the quality of our public school education is lagging other countries.  It’s not the money.  It’s the curriculum.  And the dumbing down of our kids.  So government can fool them.  To make them believe bad economic policies are good.  So these young voters keep voting for them.  Which is important to them.  Because once people wise up, they lose their votes.

As Long as there is a Democrat Politician Somewhere there will be a Vote to Buy

The best government policy for investing in the private sector is no policy.  Successful companies don’t need help.  They just need to be left alone.  So they can do what they do best.  Create great things.  And jobs.

Higher taxes do not create jobs.  They destroys jobs.  At least according to those who create jobs.

And the tax and spend Keynesian myth of active government participation has been debunked once again.  By real economists.  This time by the Nobel in Economics winners.  Sargent and Sims.  Thus proving once again that you can’t quantify human behavior.  And that people consider more than the interest rate before spending their money.

So you’d think this would put an end to any further stimulus spending.  But no.  Because stimulus spending isn’t about stimulus.  It’s about getting votes.  And as long as there is a Democrat politician somewhere there will be a vote to buy.

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