Keynesians blame Austerity not Anti-Business Policies for Poor Economic Growth

Posted by PITHOCRATES - March 24th, 2013

Week in Review

Keynesian economics puts the government into the economy.  This is why politicians love Keynesian economics.  It sanctions government spending.  And government investments to help stimulate economic activity.  No matter how bad the investment is.  For Keynesians have argued that paying people to dig a ditch and to fill it back in with the dirt they just removed will have a positive effect on the economy.  Because these ditch-diggers will spend their earnings in the private sector economy.  Thus stimulating economic activity.  So pulling money out of the economy to pay people to dig worthless ditches has only a positive effect on the economy.

But it doesn’t.  For they don’t see the money in the private sector that people can no longer spend because it was taxed away from them to pay people to dig worthless ditches.  So at best it’s a wash.  But it is never ‘at best’.  Because before people spend their ditch-digging earnings it passes through many hands and many government departments.  All of which take a little off the top to cover their overhead costs.  So government spending is always less than what the private sector would have spent.  But Keynesians conveniently ignore this fact.  Because they like the validation they receive from the government.  And they know they will continue to receive that as long as they tell the government what they want to hear.  The government should spend more money (see WBI: More on the Chicken-and-Egg Deficit-and-Jobs Issue by Michael Tomasky posted 3/22/2013 on The Daily Beast).

Our first WBI [Wonky But Important] is built around a March 8 CBO report brought to my attention this morning by Congressman Chris van Hollen–my very own Mongtomery County Md. representative, I am happy to say–finding that half of this year’s expected budget deficit of around $800 billion–half!–can be laid at the door of the struggling economy.

In other words: When the economy is revved up, it reduces the deficit, because there are more tax revenues from all those employed people and businesses working to capacity (and, concomitantly, fewer government expenditures–there’s no need for stimulus spending or lots of unemployment benefits during a humming economy)…

CBO expects that the budgetary effects of automatic stabilizers will remain large because of the continued weakness in the economy, which is caused in part by the fiscal tightening that is occurring in calendar year 2013 under current law. That tightening includes the reduction in federal spending resulting from the sequestration that went into effect on March 1; the expiration of the payroll tax cut that was in place in 2011 and 2012; and the increase in tax rates on income above certain thresholds starting in 2013.

Can’t get much clearer than that. Austerity. Increases. The. Deficit. Asuterity. Increases. The. Deficit.

This relates to and supports the post I wrote Tuesday about that poll showing a horrifying percentage of Americans thinking balanced budgets lead to jobs. No. It’s the other way around. Now you have the CBO saying it, not just me. The Democrats, as van Hollen made clear at this breakfast I attended at Third Way, are banking on people to grasp this. I hope so.

It is amazing how Keynesians can filter through facts and figures and come to conclusions that always support their position.  Everything is always better when the government spends more money.  And nothing bad happens when government spends more money.  In fact only bad things happen when governments spend less money.  And they still believe this despite the European sovereign debt crisis.  Caused by governments spending too much money.

No Keynesian ever supported this position that prosperous economic times caused by government spending money during the Eighties would reduce the deficit.  That defense spending was nothing but bad.  Giving the government dangerous levels of debt.  But that was then.  Now that the Democrats are spending far greater sums than Ronald Reagan did and are running greater deficits than Reagan ever did deficits are now nothing to worry about.  Funny how that changed.

If today’s deficit spending is good than Reagan’s deficit spending was good.  If Reagan’s deficit spending was bad than today’s deficit spending is bad.  You can’t have it both ways.

If we can grow ourselves out of these deficits with expanding economic activity the question is how do we increase economic activity?  We need to let businesses do what they do without hindering them.  And how do we hinder business?  By increasing the cost of business.  And lowering the rate of return on investment.  Higher regulatory costs increase the cost of business.  Higher taxes lower rates of return on investment capital.  They pass these higher costs on to consumers via higher prices.  Which consumes more of their disposable income.  Reducing the amount of stuff they can buy.  Thus lowering business revenues.  All of which reduces economic activity.  It doesn’t increase it.

The reason why we are in the worse economic recovery since that following the Great Depression is the president’s economic policies.  More government spending won’t change that.  It’s not austerity that is increasing the deficit.  It’s the foolhardy policies of Keynesians who believe that government spending generates real economic activity.  It doesn’t.  It didn’t pull us out of the Great Depression.  It didn’t pull us out of the stagflation of the Seventies.  And it didn’t pull us out of the Great Recession.  But reversing anti-business policies did pull us out of the Great Depression.  It pulled us out of the stagflation of the Seventies.  And it would pull us out of the Great Recession.  If we would only try them.

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France’s New Socialist Policies are pushing France back into Recession

Posted by PITHOCRATES - March 24th, 2013

Week in Review

The French brought back the Socialists to power in France with their election of Francois Hollande.  And they voted for him because he was going to stick it to the rich.  Raising the top marginal tax rate to 75%.  All the Keynesian economists said this would solve all of France’s problems.  It would reduce the deficit.  And increase confidence in the business sector.  Boosting the economy.  When critics of the move said this would drive the wealthy and their money out of France they said pish tosh.  They are patriots.  And will simply whistle a happy tune and pay this new high tax rate.  Time has passed.  And now we can see the economic results of the new Socialist policies (see Recession stalks France as business slump hits crisis levels by Leigh Thomas posted 3/21/2013 on Reuters).

French business activity shrank in March at the fastest pace in four years, defying expectations for an improvement and probably plunging the euro zone’s second-biggest economy into a recession, a survey showed on Thursday…

Separate figures for the services and manufacturing sectors showed that business activity was retreating even faster than economists polled by Reuters had forecast…

That would mean that France, which has already abandoned its 2013 deficit target due to the lack of growth, has entered its third recession since the financial crisis…

The increasingly dire state of French business is all the more alarming as consumers, traditionally a major driver of the economy, are in no place to pick up the slack.

Unemployment is above 10 percent and there is no sign that it will fall any time soon, which is weighing on consumer spending.

It also explains in large measure why President Francois Hollande’s approval ratings are at record lows less than a year into his term in office, which he won on promises to revive growth and boost jobs.

Apparently the Socialists and the Keynesian economists were wrong.

You don’t create economic activity by increasing the cost of business.  And lower the rate of return on investment.  You create economic activity by lowering the cost of business to making it attractive to expand business.  You increase the rate of return on investment capital to encourage investors to take more chances on new startup companies.  It’s not rocket science.  If you increase the price of groceries people buy less groceries.  If you increase the cost of gasoline people by less gasoline.  Because people have limited disposable income.  And the higher the prices are the less that disposable income can buy.

If you increase the cost of business it raises the prices on the goods and services they sell.  The higher prices cause people to buy less.  And if you raise the cost of investment capital by taxing rich people more that will increase the cost of financing for businesses.  Which they will pass on to the consumer in higher prices.  Somehow Keynesian economists just don’t understand this.  But people living under their bad economic policies do.  Because they are always getting by on less because of these rising tax rates.

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The British have included a little Subprime Mortgage Crisis in their 2013 Budget

Posted by PITHOCRATES - March 24th, 2013

Week in Review

Governments like people buying houses.  Because it is the biggest engine of economic activity.  Generated from  building houses.  And then furnishing them.  And they’ll do just about anything to encourage people to buy houses.  No matter the damage it can cause.  As we’ve recently learned.  But that hasn’t stopped government from making the same mistakes (see Budget 2013: The good, the bad and the ugly by Sam Bowman posted 3/20/2013 on Adam Smith Institute).

Bank guarantees to underpin £130bn of new mortgage lending for three years from 2014. Apparently the Treasury has not learned the lesson of 2008: injecting taxpayer money into the housing sector will simply inflate prices, distorting price signals and stoking the housing bubble that already seems to be growing in the housing sector. Houses are expensive because supply is restricted by the planning system. Instead of throwing money at the problem and driving prices up even more, the government should have the courage to liberalize planning to allow more development, including on green belt land.

Government ministers picking winners. Fiddling with tax breaks for specific industries is a mug’s game. There is no way the government can know which industries to promote, and these projects inevitably collapse into a mess of overcomplicated grant schemes and politics-driven bailouts of failing firms. Only consumers can pick winners.

Government spending is still rising. Despite all the talk of cuts, the government will still be spending £761bn this year, nearly £20bn more than last year. By leaving healthcare alone and failing to carry out the big structural reforms needed to reduce social security spending, the government  is not matching its rhetoric on spending with the action needed. We’re still going to be borrowing £108bn this year – that’s £295m a day, every day, with no end to the borrowing in sight.

While those on the Left blame Wall Street and greedy banks for the subprime mortgage crisis the British press knows who was at fault.  The U.S. government.  They’re the ones who kept interest rates artificially low.  Creating a housing bubble.  It was Bill Clinton who pressured lenders to make bad loans (to fix discrimination in lending that was not there).  This is why banks turned to subprime lending.  And the adjustable rate mortgage (ARM).  To qualify the unqualified.  Which they only did because Fannie Mae and Freddie Mac guaranteed those loans.  Even buying them to get them off of the banks’ books.  So the U.S. government caused the subprime mortgage crisis.  Not Wall Street.  Or greedy bankers.

Land use restrictions have long kept housing prices high.  Rich people have used their influence with government to restrict new housing in some very nice areas.  You can’t build new housing in some of the most exclusive neighborhoods.  Which keeps housing availability low.  Housing prices high.  And the ‘undesirables’ out of these rich people’s neighborhoods.  Allowing the rich to stick with their own kind.

Friends of the government get special favors.  Solyndra gets government loans to produce something there is no market for.  They go bankrupt.  Yet the government continues to spend money to pick winners the market passes on.  Some things never change.  No matter where you are.

Wherever you look these days governments give examples of what not to do.  Yet no one ever heeds these warnings.  And they make the same mistakes over and over again.  No matter how bad those mistakes were.  And as far as mistakes go, few were as bad as all the bad policy decisions that led up to the subprime mortgage crisis.  Yet President Obama has already talked about doing more of the same.  As are the British.  Why?  Because of that insatiable desire governments have to spend.  It has toppled empires in the past.  And yet they still spend.  As they will always continue to spend.  Because spending gives them power.  Which trumps everything else.  Even the trust of the people.

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Mayor Bloomberg says Unhidden Cigarettes in Retail Stores encourage People to Start Smoking

Posted by PITHOCRATES - March 24th, 2013

Week in Review

New York City mayor Michael Bloomberg knows what’s best for New Yorkers.  Lucky for New Yorkers that they have Mayor Bloomberg to be their parent.  For apparently, without him, New Yorkers would be just too stupid for their own good (see New York mayor wants to ban stores from displaying cigarettes by Jonathan Allen posted 3/18/2013 on Reuters).

New York Mayor Michael Bloomberg on Monday proposed requiring that cigarettes be hidden from view in retail stores as a means to reduce smoking in what he said would be the first law of its kind in the United States…

Bloomberg, a former smoker, is accustomed to industry opposition from previous measures to improve the health of New Yorkers, including bans on smoking in most offices, restaurants, bars, parks and on beaches.

Bloomberg has also taken steps to curtail the use of trans fats and salt in the city’s restaurants. Last week a court unexpectedly struck down his attempt to limit the size of sugary drinks, in part because it did not go through the City Council. The city is appealing that ruling.

“These laws would protect New Yorkers, especially young and impressionable New Yorkers, from pricing, discounts and exposure to in-store displays that promote tobacco products,” Bloomberg told a news conference at a city hospital.

“Such displays suggest that smoking is a normal activity and they invite young people to experiment with tobacco. This is not a normal activity,” he said…

The proposal would also increase penalties on stores that illegally resell cigarettes smuggled in from states with lower tobacco taxes, which Bloomberg said cost the city $30 million in lost tax revenue every year.

Over the last 18 months, inspectors visiting 1,800 cigarette retailers found 46 percent were selling untaxed or unstamped tobacco products, city officials said. New York City cigarettes are the most expensive in the nation at around $12 or $13 a pack after federal, state and city taxes.

Cigarettes are a funny beast.  People like Mayor Bloomberg hate them and want to make it hard for people to smoke.  But he sure loves taxing them.  And when they find cheaper out-of-state cigarettes in stores what is his concern?  That these cheaper cigarettes will make it easier for poor people to smoke?  No.  It is the lost tax revenue to the city that these poor people aren’t paying.

People aren’t smoking because they see cigarettes for sale and say, “Hmmm, smoking looks irresistibly delightful.  I must try it.”  Kids smoke because their heroes in music, television and Hollywood smoke. They look cool smoking and these kids want to look cool like them.  And grown up.  For smoking is an acquired taste.  You have to work at it before you can stand the discomfort of smoking.  But kids do it.  Because they want to look older than they are.  And cool.  Like Jimmy Page, Eddie Van Halen, Slash, etc., look on stage with a cigarette hanging out of their mouth as they play a low-slung guitar.  That gets them the ladies.  Like the suave movie hero that gets the ladies and ends up in bed with them.  Who both enjoy a satisfying after-sex smoke.  To be cool like womanizing Don Draper.  Who starts his day with a bourbon and a smoke.  And the cool and liberated women who work with him in the Sixties that smoke.  This is why kids start smoking.  To be like the people they want to be like.  Not because they can see cigarettes for sale.

So smoking is not a ‘normal’ activity.  Well, we don’t need smoking to sustain the human race.  For it serves no necessary biological function.  So, yes, smoking is not normal.  But neither is recreational sex.  Or male-to-male sexual contact.  Which provides no biological function whatsoever.  So one would assume Mayor Bloomberg finds male-to-male sexual contact not a normal activity.  Which can result in AIDS.  According to the CDC there were approximately 16,694 adults and adolescent-men who contracted AIDS in 2011 from male-to-male sexual contact.  In the previous year AIDS claimed 15,529 lives.  Is the mayor going to place restrictions on these activities, too?  After all, he has gone after cigarettes, trans fats, salt, sugary drinks.  What’s to stop him from entering the bedroom.  After all, it’s for New Yorkers’ own good.

Now there are those on the Left who support regulating Americans in their personal life.  Because they think average Americans may not be smart enough to know better.  But where does it end?  Something to think about now that the government will be picking up the tab for our health care thanks to Obamacare.  And we will have to do pretty much whatever they tell us to do if we want some of their health care services.  And to cut costs they may try to ban certain unhealthy lifestyle choices.  From smoking.  To excessive sexual activity that can result in sexually transmitted diseases.  After all they’re banning assault rifles that claimed 323 lives in 2011.  Why wouldn’t they try to ban something that kills more people.  Like male-to-male sexual contact.

When you allow the state to ban lifestyle choices it can start with smoking and sugary drinks.  But it can end with activity behind the bedroom door.  Such as the Left is always accusing the Right of wanting to do.  But it isn’t the Right trying to micromanage our private life.  All the hostility to cigarettes and the foods we enjoy is primarily from the Left.  From those in the nanny state.  So it’s just a matter of time before the Left starts regulating our sexual lives.  Which they will claim they have the right to do.  As Obamacare gives them that right.  Because the state will now be paying for the consequences of our lifestyle choices.

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Britain wants Parents to choose Work over Raising their Children

Posted by PITHOCRATES - March 24th, 2013

Week in Review

Once upon a time children didn’t have much of a childhood.  In feudal Europe they were born on the land their parents worked.  And they worked the land, too, as soon as they were physically able.  There were no child-labor laws then.  The landowners’ children no doubt enjoyed their childhoods.  As they didn’t have to work.  The wealthy few enjoyed their lives.  While the masses labored away in physical labor.  With no chance of leaving the land they were born on.  For who your parents were determined your lot in life.  With no way to change that.

Until the British ushered in the modern world.  The rule of law.  Representative government.  The Industrial Revolution.  Laissez-faire capitalism.  Free trade.  The necessary things that allowed a middle class.  The chance of upward mobility.  And the nuclear family.  The working father.  The stay-at-home mother.  And children the parents dedicated their lives to raise.  Where children were wanted and loved.  And not just the pain in the ass they are today (see Parents ‘to be able reclaim up to £1,200 of childcare costs’ posted 3/19/2013 on BBC News UK Politics).

Britain has some of the highest childcare costs in the world, with many people with two or more children saying it does not make financial sense for both parents to work…

To be eligible for the new support both parents will have to work – or the one parent in the case of lone parent families – and each parent must be earning less than £150,000 a year.

In two-parent families where one parent does not work, families will not receive support – which is said to underline the government’s support for making work pay…

Mr Cameron said too many families were finding paying for childcare “tough” and were “often stopped from working the hours they’d like”…

Deputy Prime Minister, Nick Clegg said he wanted to help “every family to get on in life”.

He said: “The rising cost of childcare is one of the biggest challenges parents face and it means many mums and dads simply can’t afford to work.

“This not only hurts them financially, but is bad for the economy too. This announcement of a £1bn investment in childcare will make sure it pays to work.”

Making work pay?  Working the hours they’d like?  Can’t afford to work?  What’s more important in Britain?  Family?  Or paying taxes?

Taxes are so out of hand that parents need childcare because they can’t get by on one income.  Like they did before.  But they can’t now.  Why?  What’s the big difference between now and then?  Taxes.  The government grows.  It gives away more stuff.  A college education.  Health care.  Pensions.  But that generosity costs money.  And with an aging population there is only one way to pay for this generosity.  Raising tax rates.  And adding new taxes.  Creating such a large tax burden it leaves people with less disposable income.

The tax bite grew so much that if you were middle class and wanted children it took two incomes.  Making children more of a nuisance than the pride and joy of parents they used to be.  So we become dumping children off at childcare.  Where they entered a cold, institutional childhood.  Instead of the warmth of a nurturing stay-at-home parent.  Is it any wonder why society has become more violent and crime ridden?  Children who see themselves as a burden.  Perhaps feeling unloved.  Or unable to feel empathy.  Perhaps even a little bit angry.  Put it all together and you get societal decay.  And a disincentive to having children.  Leading to an aging population.  Requiring further tax rate hikes.  And new taxes elsewhere.  Which makes it even more difficult to raise children.  So that additional government spending to address one problem only exasperated the problem they were trying to solve.  No.  To help families the state needs to reduce the tax burden.  Not increase it.  Which means they need to cut government spending.  Not increase it.

This would help families raise children.  Even allow a stay-at-home parent.  Which will allow children to grow up in a warm, nurturing family.  Not a cold, sterile, state childcare system.  Where parents will chose their children over having a second income.  Even if it means less tax revenue for the state.  However much that may displease the state.

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