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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FUNDAMENTAL TRUTH #87: “In a democracy you hold the keys to the treasury. So be careful of what you ask for.” -Old Pithy

Posted by PITHOCRATES - October 11th, 2011

The Founding Fathers Purposely made it Difficult for the New Federal Government to Spend Money

Benjamin Franklin knew.  He knew what would happen once the people learned they held the keys to the treasury.  “When the people find they can vote themselves money, that will herald the end of the republic.”  All the Founding Fathers knew this.  This is why they created a representative government.  They put other people between the people and the treasury.  A lot of people.  Responsible people.  People who knew better.  Or should know better.

It started with the separation of powers.  The country needed a leader.  But they didn’t want a king.  They wanted a leader with limited powers.  So they limited the president’s access to money.  The Founding Fathers gave the power of the purse to the House of Representatives.  The president could only spend the money Congress allowed the president to spend.  The president could veto spending.  But Congress could override this veto by a two-thirds majority in both the House and the Senate.  So the president can try to stop spending.  But he simply can’t spend at will.

But neither can the House.  Because the Senate has to approve any spending initiated by the House.  Before it can even get to the president.  The Founding Fathers purposely made it difficult for the new federal government to spend money.  To limit the power and breadth of the federal government.  By limiting its money.  Even after the president signs it into law.  Should any questionable spending pass both houses, and the president approves it, we can still challenge it.  By the third branch of government.  The judiciary.  Which further checks the power of federal government.  On the rare occasion when the federal government passes bad legislation.

As Originally Written in the Constitution the States’ Legislatures Voted for a States’ Senators

Back at the Founding the states were very powerful.  They were nation-states.  Joined together only by a loose and weak confederation.  And very suspect of any distant, centralized power.  Whether it be a king on the far side of the Atlantic.  Or a president on the near side.  To get the new Constitution ratified the Founding Fathers knew they had to appease the states’ concerns.  And they did that with the Senate.  The states’ house.

As they originally wrote the Constitution, we elected the members of the House of Representatives by popular vote.  But not the Senate.  The states’ legislatures voted for their states’ senators.  These state legislators who we elect by popular vote in their states.  This put even more people between the people and the treasury.  And gave the states a way to rein in a federal government that strayed too far from their Constitutional boundaries.

But that all changed with the Seventeenth Amendment (1913).  At the dawn of big, progressive government.  When great amounts of power transferred from the states.  To the growing federal government.  And the spending began.  The states’ legislatures no longer voted for states’ senators.  The people now voted for their senators.  By direct popular vote.  And got closer to the national treasury.

Growing Spending and a Declining Population Growth Rate required Higher Tax Rates and Class Warfare

The federal government grew as we removed these other people from between the people and the treasury.  Responsible people.  People who knew better.  Or should know better.  Now people were closer to the federal treasury.  And they slowly learned what Benjamin Franklin feared.  They learned that they could vote themselves money.  And did.

Responsible, limited government went out the window.  Pandering for votes was in.  Rugged individualism was descendant.  And the nanny state was ascendant.  Federal government spending grew.  Federal taxes grew.  And federal debt grew.  Because you won elections by giving people stuff.  Paid for with other people’s money.  Which was key.  You didn’t win elections by raising people’s taxes.  You won them by raising other people’s taxes.  And the way you do that is with class warfare.

In the beginning class warfare was easy.  Because the federal budget was a lot smaller than it is today.  So you didn’t need very high tax rates.  And the population base was growing.  A lot of families had closer to 10 children than the 2.3 children of today.  So having lots and lots of new taxpayers in subsequent generations would produce a steady and growing stream of federal tax revenue.  But as spending grew and the population growth rate declined, that caused revenue problems.  Requiring higher and higher tax rates.  And more and more bitter class warfare.

The General Trend of Defining ‘Rich’ Downward has Redefined the Middle Class as ‘Rich’

With the higher spending and falling revenue budget crises followed.  Which ramped up the class warfare.  Pitting the ‘rich’ against the poor and the middle class.  Of course they kept redefining ‘rich’ as they needed to raise more and more tax revenue.  First calling the superrich fat-cat industrialists and Wall Street bankers ‘rich’.  The billionaires.  Then they included the millionaires.  But when they could no longer pay for the growing cost of the federal government people earning less and less were lumped in with these super rich.  Until today it’s someone making as little as $250,000 a year.

Anyone who says these people should pay their fair share should understand the general trend of defining ‘rich’ downward.  And that line that defined ‘rich’ has moved a long way down.  Closer and closer to the middle class.  Like those earning $250,000.  Many of these people aren’t rich.  Not by a long shot.  Despite earning $250,000.  They’re small business owners.  People who risk everything to run a restaurant.  Or start a construction business.  The number one and number two type of business that fails.   Because they can’t cover their bills.  And grow their businesses.  Despite having business income of $250,000.

The problem isn’t that the rich aren’t paying their fair share of taxes.  It’s that the government is spending too much.  In their eternal quest to buy votes.  By granting more and more government largess to the poor and middle class.  Courtesy of the rich.  Who will soon be anyone with a job.  Because of that growing federal spending.  And a declining birthrate.

Today’s Benefits are Paid by the Rich and Future Generations

As Benjamin Franklin feared this spending is threatening the health of his republic.  And governments around the world.  Because people learned that they could vote themselves money.  And politicians were only too glad to oblige.  Promising ever more.  In exchange for votes.  By providing ever more generous and growing government benefits.  Confident that they didn’t have to pay for these costs.  Instead, they could simply pass the cost of this largess to future generations.  Who don’t vote today.

So today’s benefits are in fact paid by the rich.  Who are small in numbers.  And future generations.  Who aren’t voting yet.   You see, it’s easy to provide benefits today.  That helps garner votes for today.  When the costs of these benefits will be borne by a subsequent generation.  A generation so far out into the future that they have no say today.  But over time this future generation has gotten closer and closer to the current generation.  So close that people alive today will be paying for benefits of today.  More importantly, this future generation is already voting today.  And that’s a BIG problem for a growing government.  So expect the class warfare to get uglier still.

This could herald the end of the republic.  Unless the current generation learns that they are in fact the future generation.  And that they are the new ‘rich’.  Regardless of how much they earn.  And they’ll learn this fast as they pay for everyone else.  After which they’ll see that there’s nothing left for them.  Then they’ll take notice.   And stop the insanity.  Then, and only then, will they stop voting themselves money.


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