Has Keynesian Monetary Policy in India only created Jimmy Carter Stagflation?

Posted by PITHOCRATES - May 19th, 2012

Week in Review

Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.”  This means only government can create inflation by ‘printing’ too much money.  And they ‘print’ money these days by keeping interest rates low to ‘stimulate’ economic activity.  But when you increase the amount of money each unit of that currency becomes worth less.  And therefore takes more if it to buy the same things as it did once before.  Which is why prices rise when you ‘print’ money.  Just like they did in India (see April CPI inflation accelerates to 10.36 pct y/y by Manoj Kumar posted 5/18/2012 on Reuters).

India’s consumer price inflation accelerated in April to 10.36 percent, making life harder for the RBI as it looks to kickstart a flagging economy, government data showed on Friday…

The Reserve Bank of India, which unlike other central banks uses mainly the wholesale price index for monitoring inflation, slashed policy rates by a steeper-than-expected 50 basis points last month to boost a sagging economy.

The Reserve Bank of India (RBI) lowered interest rates in April to stimulate the economy.  At the end of April the consumer price inflation increased to 10.36%.  Just like Milton Friedman said.  Only government can create higher prices with inflationary monetary policy.  A lesson we all need to learn.  Especially the Keynesians whose answer to everything is to lower interest rates and spend money.  So India followed this Keynesian advice.  Now they have a flagging economy and double-digit inflation.  Reminiscent of Jimmy Carter’s stagflation in the Seventies.

Will Keynesians ever learn?

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Destroying the Economy, Destroying Health Care – Obama Trying to Surpass Jimmy Carter in Destruction

Posted by PITHOCRATES - October 16th, 2011

We Need 14 million Jobs to Break Even Now and a 6.8% Growth Rate on 100,237 Green Jobs just ain’t Going to Do It

According to President Obama, this is our future.  Clean energy.  Renewable energy.  Green energy.  These are the high-tech, high-paying jobs of the future.  And look how they are growing (see California has 1 in 4 U.S. solar energy jobs, study says by Marc Lifsher posted 10/17/2011 on the Los Angeles Times).

One in every four solar energy jobs in America is held by a Californian, and growth in the clean-tech industry is burgeoning nationwide, a new study said.

In August, California had an estimated 25,575 solar-related jobs out of 100,237 for all 50 states, according to the National Solar Jobs Census 2011…

Nationally, employment in all parts of the solar industry, including manufacturing, installation, residential, commercial and large-scale power generation, grew 6.8% in the 12 month period ended in August.

Wow.  Imagine that.  There’s a total of 100,237 solar energy jobs in the country.  Of course, that number is not so impressive when you consider there are approximately 14 million people unemployed right now.

So these solar energy jobs represent jobs for approximately 0.716% of the unemployed.  For these clean energy jobs to be in fact our future they are going to have to do better than 6.8% growth.  Just to put these 14 million unemployed back to work they’re going to have to grow that 100,237 by 13,866.7%.  That’s a lot of growth.  And it’s never going to happen.

It’s funny how President Obama is all for a mix when it comes to deficit reduction.  Spending cuts AND tax increases.  Has to be a mix.  Because he says you just can’t cut the deficit by spending cuts alone.  Which is preposterous.  When you’re spending too much spending less ALWAYS works.  But that’s another story for another time.

Clean energy.  Renewable energy.  Green energy.  These aren’t our future.  They may be part of our future.  But they aren’t going to be THE future.  Unless you don’t care to have jobs in that future.  Which, of course, we need.  Desperately need.  So, at best, these clean jobs can only be a small part of the mix.  A very small part.  Because we need 14 million jobs to break even now.  And we’ll need more to handle normal population growth.  And a 6.8% growth on 100,237 just ain’t going to do it.

Nothing ever Good Happens to those Being Enticed by Bait (Entangling Federal Grants)

It would be hard for the Obama economic policies to be any more wrong.  But they can be.  Thanks to Obamacare.  Whose regulatory costs have frozen business growth.  And it gets worse (see Mackinac Center: No rush for legislators to create health insurance exchange by Jack McHugh posted 10/16/2011 on the Detroit Free Press).

Gov. Rick Snyder is urging lawmakers to create a state health insurance exchange, which some supporters soft-pedal as a Travelocity or Orbitz for health care. Simultaneously, the Snyder administration is pursuing strings-attached federal grants that increasingly commit the state to something very different — a full-blown exchange compliant with regulations mandated by the new federal health care law. That means the resulting entity won’t be an exchange at all, but rather the agency through which the federal Patient Protection and Affordable Care Act’s mandates, subsidies and regulations will be administered by the state…

But Heritage itself has exploded claims of kinship with Affordable Care Act exchanges. Heritage scholar Ed Haislmaier wrote recently, “Rather than serving as a mechanism for expanding health insurance choice, variety and competition … Congress has perverted the exchange concept into a bureaucratic tool for federal subsidization, standardization and micromanagement.” Haislmaier recommends that states refuse the entangling federal grants that the Snyder administration is pursuing.

Sigh.  The siren song of federal money.  Can no one resist it?

There’s another word for ‘entangling federal grants’.  Bait.  Ever have a problem with raccoons?  Cute little things.  But not in your backyard.  Because they can do quite the damage.  So you call your friendly trap and release animal control specialist.  To trap these cute little critters and release them in the country where they belong.  And do you know how they get these clever little things into these traps?  Bait.  That’s right, you trick them with something that seems really good to them.  Once they enter the trap the door closes.  And they are then at the mercy of the animal control specialist.  Much like any state that takes these federal grants that come with all those federal strings.

Nothing ever good happens to those being enticed by bait.  Some animals learn to avoid traps.  Being human, it should be easier for us to avoid these traps.  Because we can think.  And should know better.

So it’s Bad on the Jobs Front and it’s no Better on the Health Care Front

The only jobs policies we have are bad policies.  Pouring money into industries that can’t grow fast enough to reduce unemployment.  Meanwhile, we hinder job creation by throwing Obamacare at our job creators.  They have no idea what that thousand-plus-page law will cost.  So they’re doing the only thing they can.  Don’t hire.  Don’t grow.  And sit on cash.  Until the uncertainty goes away.  Or Obamacare is repealed.

So it’s bad on the jobs front.  And it’s no better on the health care front.  Obama is working stealthily to entrench this most unpopular legislation as best as he can.  Whether we want it or not.

Destroying the economy.  Destroying health care.  Looks like he really wants to replace Jimmy Carter in the history books as the worst president of all time.

 

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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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If Taxing the Rich won’t Reduce the Deficit then it’s not Tax Reform, it’s Class Warfare

Posted by PITHOCRATES - September 25th, 2011

The Rich are Paying Far More in Taxes than People like Warren Buffet’s Secretary

It’s tax reform.  It’s not tax reform.  They may not have their story straight.  But this much we know.  Obama’s Warren Buffett tax will do nothing for deficit reduction.  But it sure will fan the flames of class warfare (see WH self-contradicts, admits tax hikes arent reform by Joel Gehrke posted 9/25/2011 on The Washington Examiner).

President Obama and White House Senior Adviser David Plouffe have adopted contradictory rhetoric regarding  President Obama’s proposed tax increases, which the president has touted as “tax reform…”

Plouffe responded that “the president would like to do tax reform . . . But absent tax reform,  the president believes the right way to get our fiscal house in order is to ask the wealthy to pay their fair share.”

So according to Plouffe, raising taxes isn’t tax reform.  It’s to punish the rich.  That’s what making them ‘pay their fair share’ means.  Even though, right now, they’re paying more than their fair share.  Far more.  (More on that later.)  Obama, though, sees it differently.  And the way he sees it punishing the rich is reforming the tax code.

When two people can’t get their story street it typically means one thing.  They’re lying.  And can’t keep their stories straight.

Now, the Republicans say they’re in favor of tax reform.  Let’s go.  Let’s reform this tax code.  And let’s reform it based on a very simple principle:  Warren Buffett’s secretary should not be paying a higher tax rate than Warren Buffett. It’s a simple principle.

Why not?  Warren Buffett is still paying more tax dollars.  The rich are paying far more in taxes than people like Warren Buffet’s secretary.  So why keep saying this?  Can be for only one reason.  To punish the rich.  And to show the people that you want to vote for you that you’re punishing the rich.

Wallace pointed out to Plouffe that “the top 10 percent pay 70 percent of federal income taxes. Meanwhile, 46 percent of households pay no federal income tax at all.” Plouffe countered that “you can manipulate the statistics in any way you want,” and also said that “they are making a ton of money” while “we have inequities,” presumably in the tax code. And then Plouffe offered what would qualify as an argument for tax reform, except that Plouffe is admittedly not pushing for tax reform:

The American people are screaming out saying it’s unfair that the wealthiest, the largest corporations who can afford the best attorneys, the best accountants, take advantage of these special tax treatments that the lobbyist have, along with lawmakers, have cooked in the books here. So, the question is: how are we going to move forward as a country?

Wallace interjected, “Because 70% isn’t enough?”

For tax revenue?  Yes.  That 70% should be enough.  Perhaps too much.  But for class warfare?  No.  Because there’s a lot more money they can take from the rich.  And the more they take the more votes they gain from that 46% that doesn’t pay any federal income taxes.

It’s not that the President is Losing White Independents.  It’s just that Blacks Refuse to Give Up on Obama.

So why the class warfare?  Because it’s election time.  And when you don’t have a good record you don’t win reelections running on that record.  So you don’t.  Instead, you go class warfare.  Pit one group against the other.  Find narrow slices of the population that you can turn against your political opposition.  And, if you get enough of these slivers, you may just have a chance at reelection.  Despite your horrible record while in office (see Obama 2012 campaign’s Operation Vote focuses on ethnic minorities, core liberals by Peter Wallsten posted 9/25/2011 on The Washington Post).

President Obama’s campaign is developing an aggressive new program to expand support from ethnic minority groups and other traditional Democratic voters as his team studies an increasingly narrow path to victory in next year’s reelection effort.

The program, called “Operation Vote,” underscores how the tide has turned for Obama, whose 2008 brand was built on calls to unite “red and blue America.” Then, he presented himself as a politician who could transcend traditional partisan divisions, and many white centrists were drawn to the coalition that helped elect the country’s first black president.

The problem is that Obama is about as partisan as they come.  That’s why the tide has turned against him.  A lot of people hated George W. Bush.  And thought Obama was going to bring in the love.  Make the country as a whole link arms and sing Kumbaya.  But that hasn’t happened.

He spent more than George W. Bush.  Giving us record deficits.  And he keeps blaming his spending on the rich not paying their fair share of taxes.  The people see what’s going on, though.  They’re not blind.  It’s his spending.  Not a lack of taxes.  And all that spending hasn’t done a thing to help the economy.  The economy was, after all, far better under George W. Bush.  So they’re seeing the same old tax and spend liberal.  Not the candidate that was going to get us all to link arms and sing Kumbaya.

But not everyone is turning against this president.  The blacks haven’t turn on him.  They would have but for one reason.  He’s black.  The black community is furious with him.  But they still can’t abandon him.  As the chair of the Congressional Black Caucus, Maxine Waters, said in Detroit.  “If we go after the president too hard, you’re going after us. When you tell us it’s all right and you unleash us and you’re ready to have this conversation, we’re ready to have the conversation,” Waters said.

Today, the political realities of a sputtering economy, a more polarized Washington and fast-sinking presidential job approval ratings, particularly among white independents, are forcing the Obama campaign to adjust its tactics.

Operation Vote will function as a large, centralized department in the Chicago campaign office for reaching ethnic, religious and other voter groups. It will coordinate recruitment of an ethnic volunteer base and push out targeted messages online and through the media to groups such as blacks, Hispanics, Jews, women, seniors, young people, gays and Asian Americans.

It’s not that the president is losing white independents.  It’s just that blacks refuse to give up on Obama and join the exodus from him.

When you’ve been a poor president.  When your policies have made things worse.  There’s only one thing you can do.  You do everything to divide the American people.  Drive wedges.  Find reasons.  Why blacks should hate Republicans.  Why Hispanics should hate Republicans.  Why women should hate Republicans.  Why seniors should hate Republicans.  Why young people should hate Republicans.  Why gays should hate Republicans.  Why Asians should hate Republicans.

When you have failed you become what you said you weren’t.  Or stop pretending to be something you never were.  And you incite hatred.  Fan the fires of class warfare.  You pursue policies that further divide the American people.  Even if those policies hinder the economic recovery.

The campaign officials say they have not given up on wooing independents, and the 2012 presidential election will certainly involve a fierce fight for the college-educated whites and suburbanites who were more likely to back Obama in 2008 than the working-class whites who have always been more skeptical.

By ‘college-educated’ they mean ‘favorably-educated’.  Universities lean left.  Continuing the work of the public school teachers.  Both of who depend on government funding.  And growing tax rates.  So they need government to grow.  And will always vote for the party that will grow government.  And will ‘teach’ their young students to do the same.

Working-class people, on the other hand, have spent more time in the real world.  They’ve had a chance to get deprogrammed from their public school indoctrination.  That’s why it’s harder to fool the working-class.

When you’ve ‘Jimmy Cartered’ the Economy you can’t Run on your Record

It’s election season.  Little more than a year to go before the 2012 election.  So candidate Obama is back.  Running like he wasn’t the president for the last 3 years or so.  Somehow trying to explain to his most loyal base that he’s made things better than his predecessor.  George W. Bush.

But he hasn’t.  However you measure it.  GDP.  Unemployment rate.  Consumer confidence.  Whatever.  And the kicker is that the cause for the Subprime Mortgage Crisis that started under Bush wasn’t caused by Bush.  Putting people into houses they couldn’t afford was a liberal Democrat policy.  So housing wasn’t exclusive to only those who could afford a house.  Policies the Obama administration favors.  And policies that they want to implement again.  Despite having just suffered the Subprime Mortgage Crisis because of those policies.  Why?  Because it gets you more votes at election time.

So when you’ve ‘Jimmy Cartered‘ the economy you can’t run on your record.  The best you can hope for is to paint your political opponent as being everything the slivers of your most loyal base hate.  Attack the rich.  And promise more free stuff to that 46% that doesn’t pay any federal income taxes.

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Looking at the Economic Data it’s getting hard to tell who’s President, Barack Obama or Jimmy Carter

Posted by PITHOCRATES - August 22nd, 2011

Keynesian Economists’ Poor Forecasts suggests their Keynesian Economics doesn’t Work

More bad news for the housing market.  Not that this is a surprise.  That was a pretty big housing bubble that the Fed created.  With their stimulative low interest rates.  And the bigger they are the harder they fall.  Or pop, as it were.  And as the market corrected the Fed’s damage, it threw a slew of people out of work (see Early Mortgage Delinquencies Rise to Highest in Year as U.S. Economy Slows by Kathleen M. Howley posted 8/22/2011 on Bloomberg). 

The percentage of U.S. mortgages overdue by one month rose to the highest level in a year in the second quarter as homeowners who lost jobs were unable to make their payments…

The gain in early delinquencies signals a slowing economy may increase foreclosures, said Jay Brinkmann, chief economist of the trade group. The unemployment rate in the three months ended June 30 rose to 9.1 percent from 8.9 percent, the first quarterly increase since 2009, according to the Labor Department. Jobless claims jumped to an eight-month high in late April, government data show.

For the quarter ending June 30 unemployment was at 9.1 percent.  Ouch.  Remember why it was so urgent to pass the Obama Keynesian stimulus?  To keep the unemployment rate under 8%.  That was in February of 2009.  That’s two years ago.  Guess Keynesian economics doesn’t work.

The world’s largest economy grew at a 1.3 percent annual rate in the second quarter, the Commerce Department said on July 29. That was less than the increase of 1.8 percent forecast by economists surveyed by Bloomberg. A Federal Reserve report last week showed manufacturing in the Philadelphia region contracted in August by the most in more than two years as orders fell and factories fired workers.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. lowered their forecasts for U.S. gross domestic product last week. The U.S. will expand 1.5 percent this year, down from a previous forecast of 1.7 percent, according to Goldman economists in New York. JPMorgan predicts 1 percent growth in U.S. GDP in the fourth quarter, down from an earlier projection of 2.5 percent, the bank said last week.

And the news just keeps getting better.  And by better I mean worse.  Again another record.  This one for manufacturing.  And actual GDP numbers are coming in under economists’ estimates.  The numbers are so bad these economists are revising their future projections down.  It should be noted that the vast majority of mainstream economists are Keynesian economists.  Which suggests their Keynesian economics doesn’t work very well.

Inflation Growing at a Greater Rate than Wages equals Real Pay Cuts

These mainstream economists said the Great Recession ended by July 2009.  Said that the Obama administration followed their Keynesian advice.  Kicked that recession in the behind.  And launched the recovery with a Recovery Summer.  Yay said the Keynesians.  Everything was going to be all right.  And yet two years later here we are.  Where things are still not right (see Survey: US companies say they’re planning another year of small raises for workers in 2012 by the Associated Press posted 8/22/2011 on The Washington Post). 

After increasing salaries by 2.6 percent this year and last year, companies are planning a 2.8 percent bump in 2012, benefits and human resources consultancy Towers Watson reported Monday.

That’s somewhat smaller than raises in the last decade. From 2000 to 2006, the year before the Great Recession began, salaries rose an average 3.9 percent for workers who were not executives.

And the modest bump may not help add much buying power for shoppers. In the 12 months through July, prices for consumers have risen 3.6 percent, according to the government’s latest calculations.

Those lucky enough to have a job are taking real pay cuts to keep those jobs.  Inflation is growing at a greater rate than their wages.  Which means as prices go up their pay checks will buy less.  Despite those raises.  High unemployment.  And rising inflation.  The last time the economy saw numbers this bad was during the Seventies.  When we called it stagflation.  And blamed Jimmy Carter.  Who became a one-term president because of it.

Obama Cares enough about the People to Hide from them on the Golf Course

President Obama is aware of the nation’s woes.  He is even thinking about them while on vacation.  On Martha’s Vineyard.  Playground for the uber rich (see President keeps low profile on Martha’s Vineyard by Mark Shanahan & Meredith Goldstein posted 8/20/2011 on the boston.com).   

But it was later, at the Vineyard Golf Course in Edgartown, where the president’s recalcitrance was most evident. Approaching the eighth tee in a golf cart with friend and frequent golfing buddy Eric Whitaker, the president noticed three TV cameras and a Globe photographer across the street. Rather than stop and be photographed teeing off, the president skipped the hole.

That’s how much he cares.  He’ll skip a hole during a round of golf just so we don’t see him living well during these bad economic times.  Talk about sacrifice.  He’s just not playing 17 holes instead of 18.  Skipping that hole may have an adverse affect on his handicap.  He called for fair-share sacrifice.  And he, too, is sacrificing.  Walking it like he talks it.  So think about this noble act before you start bitching about another tax hike.  He skipped a hole of golf.

Obama bailed out General Motors and Chrysler and put Detroit back to Work

But it’s back to work after Martha’s Vineyards.  Just like the rest of us after our vacations.  Though our vacations are a bit more Spartan these days.  And rarely venture farther than our own backyards (see Obama to join unions’ Labor Day festivities in Detroit by Aaron Kessler posted 8/22/2011 on the Detroit Free Press). 

WASHINGTON – President Barack Obama will join thousands of union members at Labor Day festivities in Detroit, the Free Press has learned,

Obama will deliver remarks at a Labor Day event sponsored by the Metro Detroit Labor Council, according to a White House official with knowledge of the trip.

While no other details were immediately available, it is likely he would again use the opportunity to tout his administration’s role in the rescues in 2009 of General Motors and Chrysler.

So the president is going to Detroit to celebrate Labor Day.  It makes sense.  I mean, he bailed out General Motors and Chrysler, didn’t he?  And put the good people of Detroit back to work.

With 13.7% Unemployment where’s the Summer Recovery in Detroit?

Then again, looking at the U.S. Bureau of Labor Statistics, it would appear that he has not put the good people of Detroit back to work (see Metropolitan Area Employment and Unemployment Summary posted 8/3/2011 on the U.S. Bureau of Labor Statistics). 

Eleven of the most populous metropolitan areas are made up of 34 metropolitan divisions, which are essentially separately identifiable employment centers. In June 2011, Miami-Miami Beach-Kendall, Fla., and Detroit-Livonia-Dearborn, Mich., registered the highest jobless rates among the divisions, 13.9 and 13.7 percent, respectively. Nashua, N.H.-Mass., reported the lowest division rate, 5.4 percent, followed by Bethesda-Rockville-Frederick, Md., 5.8 percent. (See table 2.)

No wonder Maxine Waters is so angry.  He skips Detroit on his ‘listening’ bus tour.  And vacations on the very exclusive Martha’s Vineyards.  While the Detroit area is suffering double-digit unemployment.  If he was listening anywhere, it should have been in Detroit.

The Detroit area unemployment rate is 13.7%.  While the national rate is only 9.1% for the same period.  Yes, the national rate is bad.  But it’s not Detroit bad.  And this after the automotive bailouts.  That put the good people of Detroit back to work.  On top of the Obama stimulus.  So where’s the Summer Recovery in Detroit?  What’s happened to the Motor City? 

So this is what a Second Jimmy Carter Term would have been Like 

In a word, Obamanomics.  His Keynesian policies that were supposed to save jobs have killed jobs.  In Detroit.  And across the nation.  Worse, on top of high unemployment these policies have ignited inflation.  Unemployment plus inflation equals stagnation.  Misery.  And malaise

So this is what a second Jimmy Carter term would have been like.  Makes one want to say, “Welcome back Carter.”  But not in that warm nostalgic way like in that Seventies sitcom (Welcome Back Kotter).  Of course you never saw Jimmy Carter living it up like Obama.  So there are some differences.

This economy will not help Obama in 2012.  Worse, the American people will get no relief until after 2012.  For it’s like Ronald Reagan said in his campaign against Jimmy Carter (see President Ronald Reagan – Liberty State Park [Pt. 1] at 5:26).  A recession is when your neighbor loses his job.  A depression is when you lose yours.  And recovery is when Barack Obama loses his.

I’m paraphrasing, of course.

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LESSONS LEARNED #75: “Lower income tax rates generate more tax revenue by making more rich people who pay more income taxes.” -Old Pithy

Posted by PITHOCRATES - July 21st, 2011

Inflation is a Bitch

The top marginal tax rate during the Eisenhower administration peaked at 92%.  When it wasn’t at 92% it was at 91%.  This was post-war America.  A happy time.  They even named a TV series after this time.  Happy Days.  Life was good.  There were jobs aplenty.  And lots of baby making.  Everyone lived happily ever after.  Until the war-devastated economies rebuilt themselves and didn’t need American manufacturing anymore.

Things started to change in the Sixties.  Sure, a top marginal tax rate of 92% was high.  But few paid it.  Creative accounting and useful tax shelters avoided that punishing rate.  But government was still fat and happy with the money it was collecting.  Until the Vietnam War came along.  Johnson‘s Great Society.  And let’s not forget the Apollo moon program.  With renewed competition for American manufacturing, trouble in the oil-rich Middle East and rising inflation, the Seventies weren’t going to be happy.

And they weren’t.  Oil shockNixon shockStagflationMiseryKeynesian economics says to tax and spend to tweak the economy back to health.  When you can’t tax enough, you borrow.  When you can’t borrow, you print.  Nothing is more important than creating demand where no demand exists.  Give consumers more money to spend and ignore the debt, deficit and inflation.  The problem is, inflation is a bitch.

Reaganomics increased GDP 82.9%

Ronald Reagan routed Jimmy Carter in the 1980 presidential election.  Carter’s economic numbers were some of the worst in history.  Double digit interest rates, unemployment and inflation.  All being flamed by an expansionary Keynesian monetary policy.  Until Paul Volcker took over the Fed during Carter’s last year or so in office.  And there really is only one way to cure a bad inflation.  With a bad recession.  And the Reagan recession of the early 1980s was one of the more severe ones.

Reagan was from the Austrian school of economics.  Supply-side.  His Reaganomics embraced the following tenets: cut spending, cut taxes, cut regulation and cut inflation.  In 1980 the top marginal tax rate was 70%.  When he left office it was 28%.  During his 8 years in office he took GDP from $2,788.1 billion to $5,100.4 billion (an increase of 82.9%).

The Reagan critics will note this explosive economic growth and say, “Yeah, but at what cost?  Record deficits.”  True, Reagan had some of the highest deficits up to his time.  But those deficits had nothing to do with his tax cuts.  For Reagan increased tax revenue from $798.7 billion to $1,502.4 billion (an increase of 88.1%).  Those deficits weren’t from a lack of revenue.  They were from an excess of spending.  And, therefore, not the fault of the Reagan tax cuts.

A Downward Trend in Prices is like an Upward Trend in Wages

And the Reagan critic will counter this with, “Sure, the economy grew.  But the rich got richer and the poor got poorer.”  Yes, his income and capital gains tax cuts made a lot of rich people.  But they also transferred the tax burden from the poor to the rich.  In 1980, the top 1% of earners paid 19.1% of all federal income taxes.  By the time he left office that number grew to 27.6% (an increase of 44.8%).  Meanwhile the bottom 50% of earners paid less.  Their share fell from 7.1% to 5.7% (a decrease of 18.9%).

Of course, the Reagan critic will then note that Reagan slashed domestic spending to pay for his military spending.  Well, yes, Reagan did spend a lot.  He increased spending from $846.5 billion to $1,623.6 billion (or an increase of 91.8%).  But he made a tax deal with Congress.  For every new $1 in taxes Congress would cut $3 in spending.  Those spending cuts never came.  Hence Reagan’s monstrous $200 billion deficits.  That’s a lot of money for both guns and butter.

But the greatest thing he did for low-income people was curbing inflation.  High inflation makes everything cost more, leaving low-income people with less to live on.  In 1980, inflation was at 13.5%.  When Reagan left office he had lowered it to 4.1% (a decrease of 69.6%).  No one benefited more from this reduction in inflation than low-income people.  A downward trend in prices is like an upward trend in wages.

The Reagan Economy was Better than the Clinton Economy

The Reagan critic likes to point to the Clinton years as a better economic period with better economic (and fairer) policies.  The Nineties were a period of economic growth.  But even with the dot-com bubble near the end of that period the Clinton GDP growth of 56.9% was less than Reagan’s 82.9%.   

Whereas Reagan achieved spectacular GDP growth while fighting inflation, the Clinton growth did not have to slay the inflation beast.  In fact, inflation rose from 3.0% to 3.4% during his two terms, indicting the GDP growth was not as real as Reagan’s.  Reagan’s was measured with a strengthening dollar.  Clinton’s was measured with a weakening dollar.  Also, real prices fell under Reagan.  While they rose under Clinton.  Making life more expensive for low-income people under Clinton than under Reagan.

Thanks to the dot-com boom, though, Clinton continued to transfer the tax burden to the rich.  He experienced a wind-fall of capital gains tax revenue when all those rich dot-com people cashed in their stock options.  In 1992, the top 1% of earners paid 27.4% of all federal income taxes.  By the time he left office that number grew to 37.4%.  This was an increase of 35.9% (compared to Reagan’s 44.8%).  Meanwhile the bottom 50% of earners paid less, too.  Their share fell from 5.1% to 3.9%.  This was a decrease of 22.7% (compared to Reagan’s 18.9%). 

Over all, though, Clinton’s policies increased tax revenue 69.8% compared to Reagan’s 88.1%.  And this was with the dot-com boom thrown in.  Had there been no dot-com bubble (that burst after he left office) no doubt his GDP and tax revenue would have been less.  Some of this economic dampening perhaps being caused by his increase of the top marginal tax rate from 31% to 39.6%. 

Both Reagan and Clinton made more Rich People

Reagan’s tax cuts led to an economic boom.  He cut inflation making life more affordable for lower-income people.  And he transferred the tax burden to the rich.

Clinton increased taxes.  His economic boom was good but not great.  A big part of his GDP growth and tax revenue was due more to irrational exuberance than real economic growth. 

But both Reagan and Clinton made more rich people.  And these rich people paid more taxes.  And because they did low-income people paid less.  Which would seem to prove that the best way to increase tax revenue (and make the tax system more progressive) would be to create more rich people.  And yet the very people who want to do this advance policies that work against these objectives.  Why?

Politics.  Sure, the Austrian school of economics has a proven track record over the Keynesian school.  But Austrian school economics has a terrible side affect.  It doesn’t grow government.  And all the economic growth and tax revenue doesn’t mean a thing if you lose your comfy federal job.  At least to a Big Government politician.

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LESSONS LEARNED #62: “The government’s great dilemma is that the middle class has both the money and the votes.” -Old Pithy

Posted by PITHOCRATES - April 21st, 2011

We’re Moving on Up

Those on the Left see the world through zero-sum eyes.  Especially taxes.  For example, let’s look at the taxes of a group of 100 people.  These one hundred can be broken down into three groups.  Poor (20), middle class (79) and rich (1).  With the following annual salaries.  Poor ($15,000), middle class ($50,000) and rich ($1,000,000).  Based on the 2008 tax tables (with a top marginal tax rate of 35%), they each pay $4,600, $17,000 and $454,000, respectfully.  The total each group pays, then, is $91,000 (poor), $1,342,000 (middle class) and $454,000 (rich).  Which is 4.8%, 71% and 24%, respectfully, of the total tax paid.  The largest group of people pays the largest percentage of the total tax burden.  The middle class.  (All numbers are approximate.)

Now, let’s do a little zero-sum analysis.  And figure out how to make the rich pay a larger share of the taxes.  Hmmm.  How about we raise the tax rate on the rich?  If we raise the top marginal tax rate to 45%, the taxes the one rich person pays goes from 24% to 28%.  And the taxes the middle class pay goes from 71% to 68%.  So, to reduce the tax burden on the middle class, we simply have to raise the top marginal tax rates.  Simple, right?  Wrong.  Because what happens in reality is the opposite of what most would think.  As you raise the tax rate on the rich, the total tax burden shifts from the rich to the poor and middle class.  Why?  Because of one fundamental flaw in their analysis.  Which is this.

http://www.youtube.com/watch?v=p9y4iXAso4I

Life is not zero-sum.  People don’t always stay in the same economic class.  They work hard.  Earn money through the years.  Some even save enough money to open a business.  And some of these do become rich.  And when they do, they pay a lot more taxes than they did when they were poor or middle class.  And this is the very thing that high marginal tax rates discourage.  Upward economic movement.  As the poor move into the middle class.  And the middle class move into the rich class.  This is why low, not high, tax rates shifts the tax burden from the poor and middle class to the rich.  Because low tax rates make more rich people to tax.

The Roaring Twenties were Kicked off by Tax Cuts

Andrew Mellon was a rich banker.  Who understood business.  Warren G. Harding tapped him to be his Secretary of the Treasury.  World War I was over.  And there was a huge war debt to pay off.  Taxes were high.  And the progressives wanted to raise them higher.  But Mellon was a conservative.  And he knew that you just didn’t stimulate economic activity with high taxes.  And that’s what paid the bills.  Economic activity.  People gainfully employed and paying taxes.  So he cut taxes.  They cut the top marginal tax rate from 77% to 25% (a cut of 68%).  Which gave us the Roaring Twenties.  Electricity, appliances, radio, you name it, the modern age had come.  Everyone was working.  And buying stuff.  Times were good.

Sure, you’re saying, but at what cost?  The economy took off into the stratosphere but the rich got a free ride.  With their tax rate cut of 200%, the poor and middle class must have been stuck with the tax bill.  Right?  Wrong.  With the lower tax rates, the rich found it cheaper and easier to pay taxes than to shelter it.  Also, the lower rates encouraged innovation (i.e., the modern age).  Lots of people got rich.  There was a lot of upward movement through the economic classes.  So there were more rich people paying taxes.  In 1920, the very rich paid approximately 30% of all federal income taxes.  That number jumped up to 62% by 1929.  That’s an increase of 108%. 

If the name of the game is funding government, you got to like what happened in the Twenties.  Because the government got fat on tax receipts.  And the richest of the rich were paying about twice the amount of taxes they were at the beginning of the decade.  That is a huge transfer of the tax burden from the poor/middle class to the rich.  And the federal debt?  It fell from about $26 billion to $17 billion.  That’s a decrease of about 35%.  Lower tax rates, tax burden transferred to the rich and a lower debt.  Wow.  Mellon was right.  Cutting tax rates on the rich works.  And it works very well.

The Eighties Economic Boom was Kicked off by Tax Cuts

Ronald Reagan was another conservative who understood business.  He defeated Jimmy Carter who was trying to win a second term.  But the malaise and stagflation of the Jimmy Carter years made him a one-term president.  To lift the nation out of recession, Reagan did like Andrew Mellon.  And cut taxes.  The top marginal rate dropped from 70% to 28% (a 60% cut).  And economic activity exploded.  Especially in Silicon Valley.  And the world went high-tech.  Electronics and computers entered our lives.  A new modern age had come.  Everyone was working.  And buying stuff.  Times were good.  Again.

At the beginning of the Reagan years the top 1% paid about 19% of all income taxes.  At the end of his second term they were paying about 27.5%.  That’s an increase of 44%.  Once again, tax cutsfor the rich transferred the tax burden from the poor/middle class to the rich.  As in the Twenties, the rich found it easier to pay their taxes rather than trying to shelter it.  Also, the lower rates encouraged a lot of entrepreneurial innovation.  We used the first cell phones and personal computers in the Eighties.  A lot of this innovation started small in someone’s garage.  And ended in an IPO on Wall Street as they took their companies public.  Lots of people got rich.  Creating a surge of upward movement through the economic classes.  Making many more rich people to tax. 

The Reagan years were an economic juggernaut.  A lot of people got rich.  But at what cost?  The debt exploded under Reagan.  So those on the Left jumped on this.  They say his tax cuts mortgaged our future.  Impoverished our children.  By not paying our bills along the way.  To that I say, “Nice try.”  That debt had nothing to do with the Reagan tax cuts.  It was a spending problem.  Federal tax receipts in 1980 were $517 billion.  After Reagan’s tax rate cuts, they jumped to $909 billion in 1988.  That’s an increase of about 76%.  Lower tax rates, tax burden transferred to the rich and a 75% increase in federal tax receipts?  Wow.  Reagan was right.  Cutting tax rates on the rich works.  And it works very well.

Conservative Policies Favor the Poor and Middle Class

So there are two great economic booms created by tax cuts.  Both periods lifted the country to a new modern age.  People’s standard of living improved across all economic classes.  And a lot people moved up through the economic classes.  Which is key to the success of tax cuts.  And the reason why those on the Left ignore this and focus instead on zero-sum policies.  Why?

Because the Left knows their economic policies don’t work.  But that’s okay with them.  For their policies aren’t about the economy.  Or your well being.  They are about political power.  There are more poor and middle class people than rich.  No matter how far you slash the top marginal tax rate.  So that’s where the votes are.  And a good way to get those votes is with class warfare.  The rich have an unfair advantage.  And with your vote, they will right that wrong.  Sounds good.  Especially if you’re not rich.  Or don’t know the history of high marginal tax rates.  Of how they transfer the tax burden from the rich to the poor and middle class.

Of course, there’s a problem with this strategy.  It transfers more and more of the tax burden to the people you need votes from.  And the more you choke off economic activity by taxing the rich, the more you starve the treasury of tax dollars from the rich.  Which means you have to come up with more and more clever ways to bleed the middle class.  And they don’t have a problem with this either.  What they have a problem with is that the middle class may figure this out one day.  And vote conservative.  Whose policies actually favor the poor/middle class.

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Obama Angers Liberal Base, Obama Record Angers Independents

Posted by PITHOCRATES - April 15th, 2011

Obama is not the Liberal Liberals thought he Was

The liberal base of the Democrat Party isn’t happy with President Obama.  He’s not liberal enough.  Even though he’s the most liberal president to have occupied the White House.  And he’s done a lot.  But not enough.  Sure, he gave them Obamacare.  But he didn’t give them the public option.  And he’s done things that just boggle a liberal’s mind.  He said he would get us out of Iraq and Afghanistan.  Then he bombed Libya.  The base is not amused (see Democrats’ Disgust With Obama by Patricia Murphy posted 4/14/2011 on The Daily Beast).

For many Democrats, the budget bill was only the latest in a string of disappointments served up from the White House since 2009, when Obama swept into office on a tide of goodwill and a platform of base-pleasing promises they say he hasn’t lived up to. On the list are his pledges to close the prison at Guantanamo Bay, pass comprehensive immigration reform, and end the Bush tax cuts for the wealthiest Americans…

Some legislative grumbling is inevitable when a party returns to power after eight years. But a number of Democrats are past protesting the president, discussing among themselves ways to recruit a primary challenger in 2012.

A primary challenger in 2012?  It’s possible.  The latest Gallup poll shows him at a 41% job approval rating.  Worse, with independents, it’s down to 35%.  And this is a problem.  If you keep losing independents, you simply don’t win elections.  So not only is Obama disappointing the liberal base, he’s becoming a liability for the Democratic ticket.  If they can’t win with Obama, why not challenge him in the primary?

The Problem Liberals have is that they’re only 20% of the Population

So independents are abandoning Obama.  Why?  Probably because he lied to them.  He campaigned as a moderate.  But governed as a liberal.  The near trillion dollar stimulus that stimulated nothing.  Obamacare that was fast-tracked through Congress.  And all the job-killing policies.  Unemployment (U-3) is still flirting with 9%.  A more realistic unemployment number (U-6) is closer to 15%.  And gas prices have broken $4 already and the summer driving season isn’t even here yet.  Sure, all good news for liberals.  More problems for Big Government to fix.  But the problem is, most of the people aren’t liberals (see In 2010, Conservatives Still Outnumber Moderates, Liberals by Lydia Saad posted 6/25/2010 on Gallup).

Conservatives have maintained their leading position among U.S. ideological groups in the first half of 2010. Gallup finds 42% of Americans describing themselves as either very conservative or conservative. This is up slightly from the 40% seen for all of 2009 and contrasts with the 20% calling themselves liberal or very liberal.

And this is why independents are abandoning Obama.  Independents aren’t liberals.  Independents and moderates bought into all that hope and change stuff because they really hated George W. Bush.  But there isn’t a George W. Bush to hate anymore.  It’s going on two and a half years.  They gave Obama a chance.  And they don’t like his record.  Or the unemployment.  It’s as simple as that.  All they need is a Reagan-like candidate to ask that question again.  Are you better off now than you were four years ago?  And whoever that candidate is, we will hyphenate his or her name to ‘Democrats’.  And these Democrats will be like the Reagan-Democrats.  Who did to Jimmy Carter what a new batch of Democrats may do to Obama.  Make him a one term president.

Unemployment still High, Inflation and Misery trending Up

And speaking of Jimmy Carter, things are really going Jimmy Carter (see Food and gas costs push consumer prices higher by Christopher S. Rugaber, Associated Press, on 4/14/2011 on USA Today).

The Consumer Price Index rose 0.5% in March, the Labor Department said Friday. That matched February’s increase, the largest since the recession ended in June 2009. In the past 12 months, the index has increased 2.7%, the biggest rise since December 2009.

Hard to read that with a straight face.  The recession ended in June 2009?  Really?  Apparently, a lot of people didn’t get that memo.  Like the 15% who can’t find a job.

Consumers are spending more, but the steep rise in food and gas prices could limit their ability to purchase discretionary goods and services. Consumer spending makes up 70% of economic activity.

Rising inflation has caused many analysts to reduce their estimates for economic growth in the January-March quarter from roughly 3% or higher to as low as 1.5%.

Gasoline jumped 5.6% last month and has risen nearly 28% in the past year. Consumers paid an average price of $3.81 a gallon nationwide on Friday according to the travel group AAA.

Food prices rose 0.8% last month, the largest increase in almost three years. Prices for fruits and vegetables, dairy products, chicken and beef all increased. Coffee costs rose 3.5%.

High unemployment.  And rising prices.  We call this inflation.  If you add the unemployment and inflation rates you get the misery index.  And the last time it was trending like this Jimmy Carter was president.  His stagflation worked magic.  It made a bunch of Democrats vote Republican.  The Reagan-Democrats that made Carter one unhappy former president. 

Farmers do a far better job than Teachers

Have you learned anything reading this?  Have you followed any of the links to learn more?  To fact check?  If you said yes to any of the above you have learned quite a bit with your visit here today.  And I’m guessing that a lot of what you learned is probably new.  You probably learned little of this in the public school system.  Even with your 12 years there.  But after some 15 minutes and a few mouse clicks you have.  Pretty amazing, isn’t it?  And it makes you wonder why your public school didn’t teach you any of this.  I mean, we spend a fortune on public education.  Employ millions of people to teach our kids.  But they keep telling us we don’t spend enough.  So we spend more.  I guess because the public schools aren’t making our kids smart enough.  It’s puzzling.  Because we spend less and employ fewer people on farming.  And farmers feed more people than our public school system educates (see Conventional Education Will Go the Way of Farming by Doug French posted 4/15/2011 on Ludwig von Mises Institute).

We have a wider array of food available to us than ever before. Created by fewer people. The division of labor continues to work wonders. Thank goodness we’re not all stuck on the farm. According to the occupational employment numbers from the Bureau of Labor Statistics, 419,200 were employed in the farming, fishing, and forestry occupations in May of 2009.

The same May 2009 report listed 8,488,740 people employed in education, training, and library occupations. So more than 20 times more people are needed to educate a small portion of the population than to grow food for everyone. But what about serving the food? Yes, food-preparation and food-serving occupations totaled 11,218,260 employees, serving the entire population of over 308 million.

Meanwhile, it takes more than 8 million to educate the 81.5 million that are enrolled in school. History and technology would say this surely can’t last. A proud father recently told me of quizzing his kids about scurvy. And while his young daughter gamely took a wild guess, his crafty teenage son ducked into the next room to google it, quickly emerging to give the correct answer that the disease that killed so many centuries ago is caused by a deficiency of vitamin C.

Public education, then, is a case study of how not to be productive.  But is there anything more sacrosanct than public education?  Public school teachers?  When Wisconsin governor Scott Walker tried to balance the state’s books by restricting public sector workers’ collective bargaining rights, all hell broke out.  Even the president sent some of his people to the state to run interference to stop that legislation.  Why?  Because he was worried about the quality of that education?

This is the information age, yet the ability to communicate is not being taught, or not sinking in. [A] college English instructor…wrote on Boston.com that few of her students had received writing instruction in high school, and that correcting student papers was so time consuming that the task was virtually overwhelming. She quotes Vartan Gregorian, the former president of Brown University, who rightly understands that “the ability to read, comprehend, and write — in other words, to organize information into knowledge — must be viewed as tantamount to a survival skill.”

That doesn’t sound like a very high level of quality from our public schools.  It rather sounds like they’re doing a poor job.  Even though we pay more and more each year.

In a piece questioning the need for colleges offering majors in business, David Glenn writes that employers are looking for “22-year-olds who can write coherently, think creatively and analyze quantitative data, and they’re perfectly happy to hire English or biology majors.”

Yes, the facts and figures are a click away. The ability to use, understand, and communicate those facts is what must be taught and currently is not. And it doesn’t take an army of 8 million and a budget of 1 trillion dollars and counting to do it.

So if the schools are doing such a poor job, why do we protect these public sector workers with such passion?  What other employees that do such a poor job are treated so well?

Well, to understand this you have to look at the money.  For money never lies.  You see, educating our children is not their primary object.  It’s funneling taxpayer money to the Democratic Party via their union dues.  And producing future Democrat voters.  Yes, they may not come out of school with useable job skills.  But a good percentage of them will become moderate/independent voters.  People that a candidate Barack Obama can appeal to.  Especially when there is an incumbent in office that they’ve been taught to hate.

Hate, Fear and Charm

Liberals aren’t happy with Obama.  Because he’s toned down his liberalness.  Because he had to.  Liberals are only 20% of the population.  The voters he fooled last time (moderates and independents) probably won’t get fooled again.  And you just aren’t going to win an election with 20% of the vote.  So he has to move towards the center for the 2012 election.  And hope that the public school system keeps dumbing down our graduates so that they’re still naïve and ignorant enough when they vote for the first time.  Because after four years a lot of people are going to forget to hate George W. Bush.  Or even know who he is (the new voters in 2012 would have only been 14-17 during the last ‘hate’ cycle in 2008.  And you know what 14-17 year olds are thinking about.  That’s right.  Not politics).  And with the misery index trending Jimmy Carter, Obama is going to need all the ignorance and naiveté he can get.

With a record of abject failure, Obama is going to have to bank his reelection chances completely on feelings.  Not fact.  Hate, fear and charm.  No substance.  The platform will be simple.  To hate and fear the Republicans.  And tell charming lies to get people to believe them despite the evidence of the past 4 years.

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Obama Looking less George W. Bush and more Jimmy Carter/LBJ

Posted by PITHOCRATES - April 1st, 2011

Construction Spending down despite all those Shovel-Ready Projects

Some days it just sucks to be Obama (see February construction spending down 1.4% by Steve Goldstein posted 1/1/2011 on MarketWatch).

February construction spending fell 1.4% to a seasonally-adjusted annual rate of $760.6 billion, the lowest level in more than 11 years, the Commerce Department said Friday. January spending was revised lower to a decline of 1.8% from a previous estimate of a 0.7% fall. Economists polled by MarketWatch had forecast a 0.1% rise.

Construction is the last to enter recession.  And it’s the last to emerge from recession.  Because it takes a long time to go from design to completion.  But after all those shovel-ready projects bought and paid for by the stimulus bill back in 2009, construction should not be the worse it has been in 11 years.  That means the economy is still a mess.  And it may very well get messier.

First bad Fiscal and Monetary Policy, then Inflation

Yes, we’re still mired in recession.  But recession may soon be joined with something we haven’t seen since the 1970s.  At least, not during a recession (see Fed Is Likely to Raise Rates By End of the Year: Lacker by CNBC.com and Reuters posted 1/1/2011 on CNBC).

Richmond Federal Reserve President Jeffrey Lacker told CNBC Friday that he “wouldn’t be surprised” if the central bank raised interest rates before the end of the year…

He said his greater concern is rising inflation and controlling it in the next nine months “will be critical for us.”

Jimmy Carter must be smiling.  Many say he was the worst president.  Mainly because of the stagflation of the 1970s.  High unemployment and high inflation.  Normally, you don’t get the two together unless you really managed to make a mess of the economy.  And now it looks like Obama may go all Jimmy Carter on us.  We still have record unemployment.  And the Fed, while they’re still planning to go ahead with more quantitative easing in June:

At its last meeting, the Fed voted unanimously to continue as planned with its $600 billion bond purchase program, designed to lower interest rates and stimulate growth, which is scheduled to end in June.

is already talking about battling the inflation their previous actions have given us.  Which they did in a futile attempt to counter Obama’s job-killing fiscal policies.  No doubt Carter is grateful he has lived to see this day.  When another president has ruined the economy greater than he did.

TARP bails out Libyan Owned Bank

But it gets better.  For Carter, that is (see Libya-Owned Arab Banking Corp. Drew at Least $5 Billion From Fed in Crisis by Donal Griffin and Bob Ivry posted 1/1/2011 on Bloomberg).

Arab Banking Corp., the lender part- owned by the Central Bank of Libya, used a New York branch to get 73 loans from the U.S. Federal Reserve in the 18 months after Lehman Brothers Holdings Inc. collapsed.

The bank, then 29 percent-owned by the Libyan state, had aggregate borrowings in that period of $35 billion — while the largest single loan amount outstanding was $1.2 billion in July 2009, according to Fed data released yesterday. In October 2008, when lending to financial institutions by the central bank’s so- called discount window peaked at $111 billion, Arab Banking took repeated loans totaling more than $2 billion…

Arab Banking reported a loss of $880 million in 2008 as it took a $1.1 billion charge tied to structured investment vehicles and derivative products known as collateralized debt obligations. Arab Banking recovered during the next two years, posting profits totaling $265 million.

So, Arab Banking Corp., part-owned by the Central Bank of Libya, the country we’re currently bombing now to ‘encourage’ regime change, was ‘bailed out’ in our TARP program.  That hurts in so many ways.  Our tax dollars that our Congress authorized to purchase trouble assets (i.e., all those Fannie Mae and Freddie Mac subprime mortgages) not only bailed out Obama’s friends on Wall Street, they bailed out foreign banks.  Even helped a Libyan dictator.  Who we’re now trying to ‘accidentally’ kill.  I mean, you can’t make this stuff up.  Meanwhile, Carter looks like a better president with each day that passes by.  Who’d’ve thunk it?

Liberal Base says Obama is Worse than George W. Bush

And speaking of that Libyan…thing…that’s not a war but has all the bombing and killing of a war…how’s that going?  Not so good with the president’s base (see Liberals outraged by Libya intervention posted 1/1/2011 on UPI).

Liberal Democrats, key to Barack Obama’s election as U.S. president, are some of the loudest critics on his strategy on Libya, a review of reaction indicates…

“In two years we have moved from President [George W.] Bush’s doctrine of preventive war to President Obama’s assertion of the right to go to war without even the pretext of a threat to our nation,” Rep. Dennis Kucinich, D-Ohio, an anti-war liberal, said Thursday during a House floor speech. “This is a clear and arrogant violation of our Constitution. Even a war launched for humanitarian reasons is still a war — and only Congress can declare war.”

Rep. John Conyers, D-Mich., said Congress and the White House have argued for years over the division of power in wartime, but “the Constitution grants sole authority to the Congress to commit the nation to battle in the first instance.”

That sounds like they’re saying that Obama is worse than George W. Bush.  Wow.  At least Bush had the pretext of weapons of mass destruction.  What’s Obama got?  Well, had he not acted, there may have been another civil war in the world.  As bad as that is, it isn’t an imminent risk to American security.  Which means the president did not have the Constitutional authority to do what he did.  Unlike George W. Bush in Iraq.

The Military doesn’t want Obama’s Libyan War

So he’s losing his liberal base.  But he’s still got the military establishment, doesn’t he?  As the Left well knows, they don’t care about right or wrong.  They just like to kill people and blow things up.  Right?  Not exactly.  You see, actually knowing a thing or two about war, they are not all that eager to go to war (see U.S. Military Not Happy Over Libya by Leslie H. Gelb posted 1/31/2011 on The Daily Beast).

Pentagon civilian leaders and the military brass see nothing but trouble looming as the Obama administration takes one step after another into the Libyan morass. The next step appears to be arming the Libyan rebels, a move that would inevitably entail pressures to send U.S. trainers and even more potent arms—and a move that Defense Secretary Robert Gates flat-out rejected in testimony before Congress on Thursday. “What the opposition needs as much as anything right now is some training, some command and control, and some organization,” Gates said. As for providing weapons, that is “not a unique capability for the United States, and as far as I’m concerned, somebody else can do that.”

Libyan morass?  Wow.  That’s some heavy criticism.  That’s the kind of language they used back in the day of the Vietnam War.  Which was an unwinnable morass.  Interesting, too, that liberal presidents with aggressive domestic agendas created both of these morasses.  But can Obama win his war?  Even though LBJ couldn’t win his?  Or will Obama follow LBJ’s example and not seek nor accept his party’s nomination for a second term as president?  Guess time will tell.

U.S. aircraft took the lead in junking a good chunk of the Libyan Air Force and launched devastating attacks against Libyan tanks, artillery, and other ground forces. Despite the severity of these attacks, Libyan forces survived, regained the offensive, and are now moving back toward rebel strongholds in eastern Libya. And the expectation of U.S. intelligence is that without having to face U.S. air power, Gaddafi’s troops will build further momentum. So, U.S. military officials haven’t stopped worrying about being dragged yet again into the air war.

You know, this is a lot like the Vietnam War.  Every time we pulled back the enemy advanced.  Then we’d pound them back with our superior airpower.  Until Congress stopped paying for that superior airpower.  And then you know what happened?  No?  Not familiar with our actions to protect South Vietnam?  Okay.  Look on a current map for South Vietnam to find out how that turned out.  But don’ spend too much time looking for it. Because it’s not there anymore.

The rebels won’t be able to use most arms, even relatively simply ones like anti-tank rockets and rifles, without extensive training…

Remember, underneath everything happening now are the two driving goals that President Obama set: to protect populations and to oust Colonel Gaddafi. In all likelihood, U.S. coalition partners cannot achieve these goals without U.S. jets resuming combat missions. Even with more U.S. air power, it probably won’t be possible to stop Gaddafi without using some coalition ground forces. So, pressures to do more and more will continue to lurk. All the Pentagon can do, then, is to raise tough questions (Who are those rebels we’re determined to help, could they be Muslim extremists?) to diffuse pressures on the U.S. military to do more.

If you ever wondered how Vietnam happened, here’s a good teachable moment.  JFK sent in military advisors to train the Army of the Republic of Vietnam (ARVN).  These were the ‘good guys’ in South Vietnam.  But when the very well trained and well supported North Vietnamese Army (NVA) threw them back we needed more than advisors.  We started supporting the ARVN.  Then the ARVN started supporting us as we took over more and more of the war.  Next thing we knew hundreds of thousands of U.S. ground troops were fighting it out in the jungles of Vietnam.  And the rest is history.

Barack Obama makes Jimmy Carter look Good

The last month or so hasn’t been too good for our president.  The economy is still mired in recession.  Inflation is about to join those high unemployment numbers to give us some good old-fashioned Jimmy Carter misery.  Our taxpayer TARP money found its way to Libya.  Instead of buying our troubled assets.  The Liberal base is abandoning him.  The Libyan war is less Constitutional than Bush’s Iraq War.  And appears about as winnable as the Vietnam War.

Yup.  Sucks to be him.  When he’s not on vacation, that is.

www.PITHOCRATES.com

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Deficits, Debt and Inflation Concern Everyone in the World but the Obama Administration

Posted by PITHOCRATES - March 7th, 2011

Chicago Cuts their Public Sector Budget

Scott Walker in Wisconsin is taking a lot of heat for trying to cut the costs of the public sector.  But he’s not alone.  Even Chicago is trying to cut the cost of its public sector.  By buying bigger, high-tech, trash cans for the central business district (see Chicago trash cans go solar-powered posted 3/7/2011 on UPI).  They’re going to spend $2.5 million for this capital investment to reduce their operating costs (i.e., the cost of people). 

If you use some of the numbers bandied about for public sector pay and benefits in the news today, that $2.5 million could pay for some 25 public sector workers (or more) per year (including health care and pensions).  Now here’s the punch line.  Chicago will uses some federal stimulus funds for this investment.  In other words, money sent to Chicago by Washington to create jobs is being used to cut jobs.  Funny, isn’t it?

This is what you do during bad economic times.  Replace people with technology.  Because people are so expensive.  It’s because of people, after all, that all these states and cities are facing budget crises due to the crushing costs of their public sector health care and pension benefits.  So when times are bad, you make capital investments to increase productivity.  You don’t hire more people.  Even Chicago understands this.

India has a Booming Economy, high Inflation and plans to Increase Social Spending

Once again prosperity leads a nation into dangerous economic waters (see Calling on the gods posted 3/3/2011 on The Economist).

It is tempting to expect the gods to keep smiling. Only China, among big economies, has pipped India’s 8.6% growth in the past year. Mr Mukherjee foresees a rosy period of easing inflation, reviving foreign investment and robust public finances. He may be in for a shock.

Inflation is still a pressing problem. High food prices hurt the urban poor. In December street protests over the price of onions led the government to ban their export. Onion prices have since collapsed, but other causes of inflation remain.

First there’s robust economic growth.  Then inflation.  Then the food riots.  It’s what triggered the French Revolution.  As well as the recent uprisings in the Middle East.  Economic growth is like a drug.  And it’s a good high.  While it lasts.  People are working.  The government is collecting lots of money.  And they can spend it on social programs.  Keeps everyone happy.  And voting for those in power.  Again, for awhile.  It’s when things become rights the trouble starts.  Because people don’t give up their ‘rights’ easily.  Even when the state can’t afford them anymore.  (Incidentally, a true right has no cost.  Freedom of speech is a right.  And no one has to pay for it.  Fat government benefits aren’t rights.  They’re just ways to make people vote for you).

Social spending is set to leap by 17% next year, as the government attempts to encourage “inclusive” growth. Congress’s chief, Sonia Gandhi, next wants a law embodying a universal “right” to food. How this might work (if at all) is unclear. Again, technocrats favour transfers of cash or vouchers over dishing out food through a vast and corrupt state bureaucracy. Either way, the subsidies mean demand for food will soar.

No matter, says Mr Mukherjee breezily. By spending on agriculture, giving farmers credit, easing transport bottlenecks and getting better cold-storage distribution, supply will rise, too. As for other causes of inflation, seven interest-rate rises by the central bank have removed monetary excess, he says. Little can be done about painful world prices for oil and other commodities, but, barring a big shock, Mr Mukherjee guesses annualised inflation will drift down to about 6% in a year’s time, from nearly 10% today.

Chicago as well as other states and cities may be cutting their social spending (i.e., public sector spending), but not India.  Even with 10% inflation.  That’s pretty gutsy.  Or delusional.  And those painful world oil prices?  I think they’re being a little optimistic about peace returning to the Middle East any time soon.  It may very well get worse before it gets better.  However, India has raised interest rates seven times to rein in inflation.  Other than that increase in social spending, India is doing a lot of the right things.  And her economic growth shows it.

China trying to curb Inflation to keep their Economy Booming

Even the IMF think the rise in oil prices is only temporary (see IMF: Signs of overheating in emerging markets by Lesley Wroughton and Chrystia Freeland posted 3/7/2011 on Reuters).

After the global economic slump of 2008 and 2009, the recovery took divergent paths, with emerging markets powering ahead while advanced economies merely trudged along. With growth and interest rates remaining unusually low across the developed world, investors have flocked to emerging markets, bringing much-needed capital but also a risk of inflation.

Rising oil prices have compounded the inflation problem, but Lipsky [the Fund’s first deputy managing director] said the IMF has not cut its growth forecast because it thinks the oil price spike will prove temporary.

All right, let’s say that peace does indeed break out throughout the Middle East.  Will that keep oil prices down?  Well, it didn’t during the last years of the Bush presidency.  The only reason why they fell was due to the worst recession since the Great Depression.  China and India are building cars.  Cars that run on gasoline.  This is what pushed up gas prices before.  And it will push them up again.  Because more and more people are driving cars in those countries.  Even when there was peace in the Middle East.  And when gas goes up everything goes up.  Even food.  Because food has to be transported.

China has made curbing inflation its top policy priority this year. Its finance minister said earlier on Monday China will ensure that spending on social priorities does not fan inflationary fires.

Separately, Zhu Min, special adviser to the IMF’s managing director, said China’s loan growth was too strong and addressing that was key to safely slowing down the economy…

Brazil and some other emerging markets have increased taxes on foreign investors or raised banks’ reserve requirements to try to slow inflows of investment money and ward off inflationary pressures.

China is worried about inflation.  So is Brazil.  And other emerging markets.  Because there is such a thing as too much of a good thing.  If their economies overheat they will create bubbles.  And when bubbles pop they become recessions.  So they’re concerned.  Besides, they have enough on their minds to worry about.  One of their biggest export markets, the United States, is having their own financial problems.  And if they lose their biggest customer, that bubble will come sooner rather than later.

The United States has no Booming Economy but Spends like it Does

So what’s the problem in America?  Well, right now, it’s social spending.  It is out of control.  And there appears little incentive to do anything about it because, unlike Chicago or the other states and cities with financial crises, the federal government can print money.  But when they do they inflate the money supply.  We call this inflation.  And they’re inflating the hell out of the money supply these days.  To pay for record deficits.

So how bad is it?  Pretty bad.  We’ve set a new record.  The largest monthly deficit in history.  A staggering figure of $223 billion (see U.S. sets $223B deficit record by Stephen Dinan posted 3/7/2011 on The Washington Times).  That’s in one month.   That’s about how much the annual deficits were under Ronald Reagan.  And the Democrats pilloried Reagan for his ‘irresponsible’ deficits.  But now?  $223 billion a month ain’t so bad.  Go figure.

Unlike India and China, America has high unemployment.  But like India and China, America has some inflation concerns.  Well, those outside the current administration do.  The Obama administration and the Federal Reserve aren’t all that worried about inflation.  Because they’re Keynesians.  Rational people, though, are very concerned.  And for good reason.  Because when you add unemployment and inflation together do you know what you get?  Stagflation.  And stagflation sucks.  People have less money and everything costs more.  Stagflation made Jimmy Carter a one-term president.  Yeah, it’s that bad.  So knowing our history we must be doing everything within our power to avoid a repeat of the malaise of the Jimmy Carter years, right?  Well, not exactly.

Have Printing Press will Ease

The Fed is planning to print more money (see Oil Shock=More Fed Shock by Douglas French posted 3/7/2011 on Ludwig von Mises Institute).

Atlanta Fed President Dennis Lockhart told a group at that National Association of Business Economics in Arlington, Va. that if the price of oil keeps climbing, the Fed will need to purchase more assets, or QE3.

Of course the men at the Fed don’t believe all of this new liquidity they are creating has anything to do with the prices of oil or food. Oil over a $100 a barrel is an external shock you see. A bolt of lightening out of nowhere. Those crazy kids in Cairo twittering and whatnot.

Ben Bernanke testified last week that inflation will remain tame. And when pressed about oil and food prices, he said “My sense is that the increases we’ve seen so far — while tough for many people — do not yet pose a significant risk to the overall recovery.”

Quantitative Easing 3.  As if QE 1 and 2 wasn’t bad enough.  Neither has helped.  And the inflation lurks out there.  Building.  Just waiting to explode oil and food prices.

The problem with Bernanke is he studied the Great Depression.  But the only thing he apparently learned from it is how the Fed caused the bank runs by tightening the money supply when they should have been helping the banks to stay solvent.  He does not grasp this fundamental: businesses don’t need to borrow money today.  They’re sitting on piles of it.  Why?  Because no one is buying anything.  So they’re not going to hire people and add capacity.  Even if they can borrow money at 0%.

Jimmy Carter’s Second Term

If you weren’t around for the Jimmy Carter years here’s your chance to live history.  While Chicago, India, China and other emerging markets are being responsible, the Obama administration is finally answering that age-old question.  What would a second term of Jimmy Carter have been like?  The answer?  As bad as the first.  Perhaps even worse.  Because we should know better now.  It’s no secret what happened during his presidency.  So there’s no excuse for repeating his mistakes.  And yet we seem to be hell-bent to do exactly that.  Amazing.

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