FT152: “Liberals who expand the welfare state tell us not to feed wild animals because it makes them dependent on handouts.” —Old Pithy

Posted by PITHOCRATES - January 11th, 2013

Fundamental Truth

Before there was Money People Traded Things they made with their Human Capital

Which came first?  Money?  Or stuff to buy?  Was there stuff in a store before someone walked in with money to buy it?  Or without anyone having any money to buy stuff would a store owner stock his or her shelves with stuff no one could buy?  It’s a regular chicken and egg question.  Liberal Democrats would say money came first.  Because they believe in Keynesian stimulus spending.  Put more money into people’s hands and they will buy more stuff.  Thus stimulating economic activity.

But if money was all that we needed to stimulate economic activity the government could just print money and hand it out to the people.  Who will take that money and go to the stores to buy stuff.  But here is where the illusion of money creating economic activity ends.  If the government just printed money and gave it to the people no one would have to work.  Which is everyone’s earnest desire.  This is why people buy lotto tickets.  To get money to spend without having to work anymore.  But if no one worked anymore because they could get money from the government printing presses instead of getting it in a paycheck in exchange for work what would these people buy?  If no one had to work anymore who would make the stuff we find on store shelves to buy?  Of course no one would.  So those store shelves would be empty.  And with nothing to buy all the money in the world would be worthless.

So this isn’t a chicken and egg question.  Stuff to buy came long before money appeared on the scene.  Before money people bartered.  They traded things for other things.  Meaning that if you wanted something that you didn’t have you had to create something yourself to trade.  This is barter.  People with human capital (talent and ability) create something they are good at.  They create more than they need.  And take their surplus to meet other people to trade with to get those other things they want.  Things other people made using their human capital.

Search Costs made the Barter System Costly and Inefficient

Money was a solution to a problem.  As the economy got more complex with more things to trade it got more difficult to find people to trade with.  If you made product A and wanted product B you had to find someone who made product B who wanted product A.  Imagine you make vacuum cleaners.  And you want a television.  You go to market looking for people to trade with.  Let’s say you find 3 people who make televisions.  But none of them want a vacuum cleaner.  So you would have to go to another market.  And find other people who made televisions.  Until you found one that wanted a vacuum cleaner.

This time spent trying to find someone to trade with is called search costs.  Which made the barter system costly and inefficient.  For all of that time spent looking for someone to trade with was time not spent making vacuum cleaners.  Giving you less to trade with.  Allowing you to trade for fewer things.  One way to reduce search costs was to bring a third trader into the picture.  Someone that wanted a vacuum cleaner but made smartphones.  Not televisions.  If a television maker wanted a smartphone you could trade a vacuum cleaner for a smartphone.  Then trade the smartphone for a television.  Making barter a little more efficient.  By reducing search costs.  But it could still be very difficult to find three people to trade with.

This is where money comes in.  It serves as that third trader.  You would simply trade your vacuum cleaner for money.  Then trade your money for that television.  Greatly simplifying trade.  By removing half of the trade equation.  All you had to do was to find what you wanted.  And then trade your money for it.  You didn’t have to worry about what the other person wanted.  Because once they got your money they could go and trade it for whatever they wanted.  Money makes trade easier.  As long as it was something that could hold value.  A handful of dirt was not good money because anyone could scoop it up from the ground.  Gold, on the other hand, was very good money.  Because it was very difficult to get gold out of the ground.  Thus it was scarce.  As well as being durable, divisible, fungible, etc.

People Today share their Every Thought on Social Media for Validation that they Matter

Based on this let me ask you another question.  Does Keynesian stimulus spending end recessions?  No.  Because giving people money to spend allows them to spend that money without creating something of value first.  And creating more money out of nothing makes money less scarce.  And less valuable.  Like picking up a scoop of dirt from the ground.  You create too much money and people will return to the barter system.  Because something they create with their human capital will have far more value than a continuously devalued dollar.  Best of all, in a barter system there can be no Keynesian stimulus spending.  Because there is no money.  And no inflation.  Making Keynesian stimulus spending impossible.  For there will only be people creating things with their human capital to trade with other people doing the same.

Those in government, though, don’t give up their Keynesian ways.  For they like spending money.  And being able to create it out of nothing allows them to spend a lot.  Which gives them a lot of power.  By getting people dependent on government benefits.  For once they are they keep voting for those who promise to give more.  And for those who promise not to reduce their current level of benefits.  Allowing a lot of people to withdraw from half of the economic equation.  Instead of using their human capital to bring value to market to trade for other value they let their human capital wither away.  Giving them little reason to get out of bed in the morning.  For when it comes down to it, people want to have a purpose.  They want to matter.  Which is why people today share their every thought on social media.  For validation that they matter.  For others to acknowledge that what they think and say is smart, funny, witty, insightful.

Wild animals are beautiful creatures.  We are attracted to them.  And would like to approach them in the wild.  To gain their trust.  We sometimes feed them because we want to help them.  Because life in the wild is no picnic.  It’s hard.  Brutal.  And these animals are just too cute to suffer.  But the Left frowns on this.  They don’t want us to feed the animals.  For if we make them dependent on us they will never be able to return to a normal life in the wild.  They won’t be able to live without those handouts.  The Left understands this.  Yet they have no problem with making people dependent on government benefits.  Giving them no reason to get out of bed.  Destroying the economy in the process.  Making it ever harder for these benefit recipients to return to the workforce.  Leaving them no purpose in life.  Save one.  To vote Democrat.

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The Chinese Communists may approve Keynesian Stimulus Spending but they Censor Art

Posted by PITHOCRATES - December 22nd, 2012

Week in Review

Those on the Left who want the federal government to take over ever more of the economy, such as Obamacare, look at communist China and sigh.  “Why can’t we have those kinds of government powers here?” they say.  They want to spend a few billions on Keynesian stimulus spending and they just do it.  Without the bickering of a two-party system, a bicameral legislature or a separation of powers.  For the Chinese, they say, are blessed without having a Constitution weakening the powers of the executive branch of government.  And with their absolute power they can do great things (see Beijing Bans Warhol’s Mao Portraits from China Exhibition by Frederik Balfour posted 12/17/2012 on Bloomberg).

Andy Warhol’s famous images of Chairman Mao won’t be part of the biggest ever traveling exhibition of his works when they go to China next year, an organizer said.

The show includes more than 300 paintings, photographs and films, featuring Warhol’s iconic Campbell’s Soup cans, Jackie Kennedy and Marilyn Monroe as well as 10 Mao paintings which Chinese authorities have decided to exclude…

A person familiar with the show, who asked not to be named because of the political sensitivity of the issue, confirmed the Mao works had been rejected by the Ministry of Culture. The Ministry of Culture and the Ministry of Foreign Affairs didn’t immediately respond to faxed questions seeking comment today…

According to the Christie’s auction website, Warhol chose Mao as “the ultimate star”, using an image of him taken from the portrait photograph reproduced in the Chairman’s so-called Little Red Book.

“He wasn’t being disrespectful,” Shiner said [director of The Andy Warhol Museum in Pittsburgh].

The Chinese communists censored art that was not disrespectful.  Imagine how such a policy of art censorship would upset the Left in this country.  Because a lot of the art the Left likes is very disrespectful to someone.  Such as Piss Christ.  By Andres Serrano.  A photograph of a plastic crucifix in a glass of his own urine.  Which won the Southeastern Center for Contemporary Art’s “Awards in the Visual Arts” competition.  Thanks to a couple of grants from the National Endowment for the Arts.  Funded by taxpayers.

China also censors pornography.  Well, not censor so much as has an outright ban on it.  Even on the kind over the Internet.  Something else the Left would have a problem with.  Even though they admire China’s absolute power over the economy and would love to have some of that over here.  They would not like that absolute power infringing on their liberties.  Much like business owners don’t like an out of control government infringing on their liberties in running their businesses.

If we give the government absolute power over the economy you have to give them absolute power over everything else.  Including the cultural stuff.  For absolute power is absolute.  Which means they can reject art, ban pornography, censor movies and music, limit the size of the soda we drink, ban smoking, outlaw the internal combustion engine, etc.  Whatever they want to do.  Because that’s what absolute power means.  It’s not just a means to attack capitalism.

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President Obama’s Economic Recovery is worse than Ronald Reagan’s and George W. Bush’s Combined

Posted by PITHOCRATES - December 8th, 2012

Week in Review

President Obama has said time and again that we can’t go back to the failed policies of the past.  Referring to Ronald Reagan and George W. Bush and their tax cutting ways that stimulated real job creation.  Not the Obama administration Keynesian stimulus spending which has the absolute worst record of job creation in post-war America (see THE SCARIEST JOBS CHART EVER by Joe Weisenthal posted 12/7/2012 on Business Insider).

Despite the strong jobs report, the employment situation in America remains depressing.

Once again, we go back to Calculated Risk, which compares the trajectory of this recovery (red line) with all other post-WWII recoveries.

As you can see, the pace of the downturn was far more severe than anything in previous recessions, and the long march back to pre-recession levels remains incredibly slow.

The chart tells a dismal story.  Ronald Reagan chose tax cuts to pull us out of the 1981 recession.  That recession saw a peak job loss of just over 3%.  And a duration of just over 27 months to recover ALL the jobs that we lost in that recession.

George W. Bush chose tax cuts to pull us out of the 2001 recession following the bursting of Bill Clinton’s dot-com bubble.  That recession saw a peak job loss of just over 2%.  And a duration of about 46 months to recover ALL the jobs lost in that recession.

Bill Clinton’s Policy Statement on Discrimination in Lending basically created subprime lending.  As the Clinton administration pressured lenders to find a way to qualify the unqualified for mortgages.  And the real estate market boomed in the 2000s.  But much like the economic boom in the 1990s it was just a bubble.  That inflated to dangerous heights thanks to Fannie Mae and Freddie Mac buying those toxic subprime mortgages from lenders so they could approve more of them.  Unloading those toxic mortgages on unsuspecting investors.  Sending this toxic contagion throughout the world.  The resulting 2007 recession saw a peak job loss of about 6.5%.  And a duration of about 58 months AND counting to recover all those  jobs lost in the current recession.  We still have another 3% to go.

This postwar recession is the worst by whatever metric you measure it by.  But the singular aspect of it that makes this recession much longer and deeper in job losses is the Obama administration’s choice of using Keynesian stimulus to try to end it.  Instead of tax cuts.  Which is why the Obama recovery is far worse and more long-lasting in misery than both the Reagan and Bush recoveries added together.  Proving the current economic disaster is an Obama disaster.  For his insistence on using the failed policies of Keynesian stimulus spending instead of the time proven policies of tax cuts.

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Four Trillion Yuan of Keynesian Stimulus Spending provided an Economic Recovery in China that lasted about 2 Years

Posted by PITHOCRATES - September 22nd, 2012

Week in Review

Before the early 20th century we looked at economics differently.  We looked at it correctly.  We understand the importance of savings to capital formation.  And we understood the stages of production.  How economic recovery didn’t happen until it reached the higher stages.  Those stages the farthest away from retail sales.  The raw material industry.  The manufacturing industry.  Who make the components the assembly plants use to build consumer goods.  When these higher stages businesses recover then there is an economic recovery.  Because it takes time for those higher stages goods to make it down to the retail level.  So they don’t invest until they know there is a real economic recovery.

This is why Keynesian stimulus spending doesn’t work.  When central banks increase the monetary base it can create a surge of economic activity.  But it also depreciates the currency.  And raises prices.  Higher prices lead to an economic slowdown.  It’s just a matter of time.  Which is why the higher stages of production don’t respond to economic stimulus because by the time their new goods reach the retail level the higher prices will already be slowing down economic activity.  Meaning there will be no demand for their expanded production.  So they will have to lay off employees and shutter facilities.  Resulting in another recession.  Or just a resumption of the previous one.  Only worse.  Because the depreciated currency leaves consumers with less purchasing power.  So they can’t buy as much as they once did.  Creating further excess capacity.  Further layoffs.  And a worsening of the recession they tried to end with that Keynesian stimulus spending.

The Chinese are all Keynesians when it comes to economic policy.  So when their economic activity slowed they went to the go-to Keynesian solution.  Expand the monetary base (see China Slowdown Seen Longer Than 2009 by Government Researcher by Bloomberg News posted 9/20/2012 on Bloomberg).

With the 2008 crisis, China enacted a 4 trillion yuan ($586 billion at the time) stimulus and opened up bank lending to revive expansion. Year-over-year growth, after decelerating for seven quarters, bottomed at 6.2 percent in the first quarter of 2009 and accelerated to 11.9 percent a year later…

Chinese Premier Wen Jiabao, who pledged last week to employ monetary and fiscal policies to spur growth, has accelerated infrastructure-project approvals while refraining from introducing a stimulus package on the scale of the one during the financial crisis.

There was a burst of economic activity following the stimulus.  Something all Keynesians in the United States point to.  Saying the reason why the American stimulus didn’t work was because it wasn’t big enough.  Like it was in China.  (They say this even though the Chinese spent less than the Americans.)  Where it worked so well that they need to spur growth with new monetary and fiscal policies this year.  After the new economic growth that began about 2 years ago fizzled out.  Which was far better than the American stimulus that provided no economic growth.  Even though they spent more.  Proving that Keynesian stimulus policies don’t end recessions.  They just offer false hope.

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Keynesian Multiplier

Posted by PITHOCRATES - September 3rd, 2012

Economics 101

At the Heart of Keynesian Stimulus Spending is the Keynesian Multiplier

Key to Keynesian economics is spending.  That’s the reason why governments everywhere embrace it.  Because Keynesian economics say government MUST spend money.  And that’s the kind of economics politicians like.  “I must spend?  Well, okay.  If you say so.  Forgive me, my constituents, for spending money I don’t have.  But it’s not me.  It’s our Keynesian economists saying we must spend.  And they’re smart.  Real smart.  They even have Ivy League degrees.  So who are we to question them?”

And it’s not just any kind of spending.  Well, actually, it is.  There’s nothing special about it.  You could pass a trillion dollar stimulus bill to pay people to dig holes with a shovel.  Fill them back in with the dirt they just shoveled out.  And then repeat.  Again and again.  Accomplishing nothing beneficial with these efforts.  But a Keynesian economist will approve of this spending and call it a good thing.  Why?  Because of trickle-down economics.  But of the Keynesian kind.

At the heart of Keynesian stimulus spending is the Keynesian multiplier.  That’s the ‘trickle down’ part.  But before we get to that we must discuss one other thing.  Savings.  Keynesians hate it.  They call money that leaks out of the economy into savings accounts wasted money.  Just as if you flushed it down the toilet.  This brings up another Keynesian concept.  The marginal propensity to consume (MPC).  Note the word ‘consume’.  This is what all that government spending is about.  Consumption.  Consumer spending.  Which is why Keynesians hate savings.  Because if people save their money they’re not spending it.  And not creating economic activity.

Politicians prefer Government Spending over Tax Cuts because People may Save Part of a Tax Cut

Now back to the multiplier.  When people receive money they do two things.  They save some of it.  And spend what they don’t save.  This is where the MPC comes in.  An MPC 0f 80% means that people will spend 80% of an amount of money they receive (paycheck, government benefit, etc.) and save 20% of it.  So they use 80% of that money to generate economic activity.  By spending it.  But it doesn’t end there.  Because what they spend other people receive as money.  And these people then save some of it.  And spend what they don’t save.  And so on.  At a MPC of 80% if a person receives $100 they will spend $80 and save $20.  Those who receive that $80 will spend $64 and save $16.  Those who receive $64 will spend $51.20 and save $12.80.  And on and on until people are only spending pennies.  In the end that original $100 will create a total of $500 in new economic activity.  Or five times the original amount.  So the Keynesian multiplier is five.  Or, mathematically, 1/(1-MPC) where MPC = 0.80.

Think of the multiplier as a pyramid of champagne glasses at a wedding.  As you pour champagne in the top glass it overflows into the next layer of glasses down.  When these glasses fill they overflow into the next layer of glasses below them.  The multiplier is kind of like that.  Starting by pouring into one glass.  By the time the champagne bottle is empty champagne fills many glasses.  And spilt champagne represents savings.  Or leakage.  That’s how the multiplier works.  Trickle down.  And the less champagne spilled the more champagne fills glasses.  As shown by the multiplier formula.  The larger the MPC is (as in the more people spend) the larger the multiplier.  In fact if they spent all of their money (an MPC = 1) the formula reduces to 1/0.  And what happens when you divide by zero?  You get infinity.  That’s right, according to the Keynesian multiplier equation if everybody spent all of their money and saved none there would be an infinite amount of economic activity.

In the Keynesian world it doesn’t matter what the money is spent on as long as it’s spent.  Even digging worthless holes is good enough to make this miracle of economic activity out of nothing work.  That’s why their advice is always for the government to tax, borrow or print money to spend.  Because spending is good.  And they prefer government spending over tax cuts to stimulate private spending.  Why?  When the government spends money that top champagne glass will have an MPC of 1.  The government will spend it all.  Less the administrative costs, of course.  Whereas an equivalent amount of money given to the people via a tax cut (letting them keep more of their earnings to spend) will not have an MPC of 1.  Because these people may do something foolish like save their money.  Or pay down debt.  Which is leakage.  Leakage reduces the multiplier.  And a lower multiplier reduces economic activity.

Governments Embrace Keynesian economics because it tells them to Always Spend More Money

It all seems too good to be true.  And there’s a reason for that.  Because it IS too good to be true.  And the proof is in the pudding.  The Seventies was the decade of unrestrained Keynesian economics.  And it didn’t work.  They spent like there was no tomorrow in the Seventies.  But all that Keynesian spending failed to pull the economy out of recession.  All it did was create high inflation.  So there was high unemployment AND high inflation.  Something that was impossible in the Keynesian universe.  But it happened.  Why?  Because they make a lot of assumptions to make their formulas work.  Like that MPC.  And their war on savings.  Their thinking is flawed.  Because savings ARE spending.  Someone’s savings is someone else’s investment.  And investments are spending.  Ever see It’s a Wonderful Life when the people were asking for their deposits back?  The savings and loans had some money.  But they didn’t have everyone’s money.  Then George Bailey (Jimmy Stewart) told his depositors where their money was.  And he ran down a list of all the new houses their savings built.  Thanks to their loans to those new homeowners.  Building those houses generated a lot of economic activity.  So savings are good.  They’re not leakage.  They cause real economic activity.

Let’s return to that pyramid of champagne glasses.  Let’s say it takes 3 bottles of champagne to fill all the glasses in the pyramid.  If you pour the champagne back from the glasses into the bottles you will not have three full bottles of champagne.  Because of all that spillage.  Or leakage.  This is the same with Keynesian stimulus spending.  Stimulus money has to come from somewhere.  Whether government raises it with taxes, borrows it or prints it.  And like that champagne it just moves from one place in the economy to another.  With no net change in economic activity.  Higher taxes mean we have less money to spend.  If they borrow money they reduce private investment.  Because investors are buying government bonds instead if investing in businesses or entrepreneurs.  If they print money they cause inflation.  Which makes our money worth less and prices higher.  Which buys us less after the inflation than before it.  So whatever government spends there is a corresponding reduction in economic activity elsewhere in the economy.  Worse, when the government redistributes this money there is leakage.  Like the spillage of champagne.  For administrative costs.  Because politicians and government bureaucrats don’t work for free.

Printing money is especially harmful to the economy.  For it can cause a short-term boom in economic activity.  But by the time that new money works its way through the economy prices begin to rise.  Raising the cost of businesses.  Who have to raise their prices.  As they do their sales fall.  And they have to lay people off.  So the Keynesian stimulus spending to end a recession results in a new recession.  Which tends to be more painful than the first one.  So eventually a recessionary bust follows the artificial boom in economic activity.  Which brings those artificially high prices back down to normal market prices.  The greater the stimulus spending the higher those prices go.  The farther they have to fall.  And the more painful the recession.  Making the multiplier nothing but smoke and mirrors.  But governments still embrace Keynesian economics.  Because it is the only economic system that tells them to spend more money.  And they are always looking for something to justify more spending.

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The Murtha Airport is another Monument to the Folly of Keynesian Stimulus Spending

Posted by PITHOCRATES - April 7th, 2012

Week in Review

Keynesian economists, and the current administration, strongly believe in the power of government stimulus spending.  Keynesian theory is all about the importance of consumer spending.  And everything about Keynesian stimulus should put more money into consumers’ pockets so they can spend money in the private sector economy.   For even the Keynesian will acknowledge that consumer spending in the private sector economy is the only thing that matters for real economic growth.  And anything that helps in this endeavor can and should be done.  Even if it means having the government pay people to dig a ditch.  Then fill it back in.  And then dig it out again.  And so on.  Because those people the government pays to do something completely worthless will take their paychecks and spend them in the private sector.  Thus stimulating the private sector economy.

Of course you can only pay so many people to dig a ditch.  But an airport, now that’s some real government spending (see Murtha Airport, brought to you by American taxpayers by Jonathan Karl, Richard Coolidge & Sherisse Pham posted 4/3/2012 on Yahoo! News).

Three years ago, we first visited the tiny airport, and found a monument to pork barrel spending: An airport with a $7 million air traffic control tower, $14 million hanger, and $18 million runway big enough to land any airplane in North America. For most of the day, the only thing this airport doesn’t have is airplanes.

We flew there on one of three flights that arrive there daily, all of them from Washington D.C. About half the cost of every ticket, $100, is paid by American taxpayers, a subsidy Congress voted to renew just this past February.

The place had a shiny new luggage carousel, a state of the art tower, and some very bored air traffic controllers — but very few passengers. The place is a tribute to the power of its namesake; everything from the reinforced runway to the radar facility to the new terminal, are all thanks to Democratic Congressman John Murtha, who died more than a year.

You see, that’s the problem of paying people to do something worthless.  Building this airport cost a lot of taxpayer money.  Those who built the airport did well.  While they were building the airport.  But now that the work is done that airport is one expensive filled in ditch.  For it’s as useful as a filled in ditch.  But even more costly.  For a filled in ditch at least doesn’t need employees to stand around waiting for something to do.  It doesn’t consume electricity and natural gas utilities.  And it doesn’t have to be maintained.  Unlike a runway.  Even if it’s not being used.

The government went into debt paying for this.  It’s part of the reason the debt ceiling has to be increased so often.  Because of all the John Murtha pork barrel spending out there.  Worse, the airport cannot generate enough revenue to support itself.  And requires government subsidies to keep it open so people can stand around waiting for something to do.  This and all other pork barrel spending adds up to be a terrible drag on the economy as it sucks money out of the private sector (where they don’t build airports where there are no airplanes to use them).  Where the only spending that counts for real economic growth is reduced by the amount of the stimulus taxed out of it.  And servicing the debt created by this stimulus spending further reduces economic activity in the private sector.  As the interest on the debt grows to a larger and larger line item in the U.S. budget.  Forcing the government to borrow money to pay the interest on the money they borrowed previously.

The worst thing about this is that those on the Left, the Keynesians, don’t see a problem in this.  For they have no fundamental understanding of economics and believe their Keynesian follies actually help the economy.  Despite having a failing track record for close to a century.  They believe.  They have faith.  And don’t need to see results.  For their faith is enough.  Yet they won’t stand for the irresponsible ‘spending’ of a tax cut that actually stimulates economic activity in the private sector.  That place where the only spending that counts for real economic growth takes place.  And has a very successful track record of success.  As Harding/Coolidge proved.  As JFK proved.  As Reagan proved.  And as George W. Bush proved.

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FT92: “If government spending stimulates economic activity and tax cuts are government spending then tax cuts stimulate economic activity.” -Old Pithy

Posted by PITHOCRATES - November 18th, 2011

Fundamental Truth

The Keynesian School says when in Recession the Government should step in and Spend Money

Politicians lie.  Because they can’t do the things they want to do if they tell the truth.  And what do they want to do?  Accumulate money.  Our money.  To tax.  And spend.  To reward friends and cronies.  To make people dependent on government benefits.  To buy votes.  To secure their power.  And to live very comfortably on the taxpayer’s dime.

This comes at a cost.  The U.S. has accumulated a debt greater than most countries’ GDP.  And the deficit has surpassed the trillion dollar mark.  This irresponsible spending has caused Standard and Poor’s to downgrade the U.S. sovereign debt rating for the first time in U.S. history.  And the loose monetary policy to help put people into houses they couldn’t afford (to buy more votes) created the mother of all housing bubbles.  Leading to the Subprime Mortgage Crisis.  And the worst recession since the Great Depression.  The Great Recession.  That lingers on despite officially ending in 2009.  Economists no doubt fudged the numbers so they could call the Obama stimulus a success.  Which they did in the premature Recovery Summer.

Obama’s economic policies are Keynesian economic policies.  And the Keynesian school says when the economy goes into recession the government should step in and spend money.  To replace the economic activity that isn’t happening in the private sector.  This is supposed to prime the economic pump.  And restore the economy to good times.  But it doesn’t work.  It never has.  And it never will.  So why are they so insistent on Keynesian economic policies?  Because they empower the government to tax.  And spend.  And that’s what government wants to do.  Tax and spend.

If Keynesian Stimulus Spending Stimulates Economic Activity then so must Tax Cuts

Of course, this spending runs up massive deficits.  And debt.  As noted above.  And what do they want to do?  Well, they want to do the responsible thing.  And live within our means.  By cutting spending?  No.  By raising taxes.  To pay for this orgy of spending.  Because cutting spending would be irresponsible.  And hurt the economy.

Cutting taxes gives people more money to spend.  Which is good.  Because that is what stimulus spending does.  Gives people more money to spend.  But they oppose tax cuts.  Because the money doesn’t pass through their sticky fingers.  So they attack tax cuts.  Play with the meaning of words.  They call ‘tax cuts’ government spending.  Because spending reduces the amount of money in the national treasury.  Just like tax cuts.  Ergo tax cuts equal government spending.  And the only way to pay for government spending is, wait for it, with taxes.  That’s right.  The only responsible way to pay for tax cuts is with more taxes.  Circular logic of the first order.  But they use it.  And get away with it.

I say fine.  Let’s give them this perversion of the English language.  Tax cuts are government spending.  Just like Keynesian stimulus spending is government spending.  And if Keynesian stimulus spending stimulates economic activity then so must tax cuts.  Because they’re the same thing.  According to them.

100% of Tax-Cut Stimulus Stimulates Economic Activity

If spending and tax cuts are both spending then they’re both stimulative.  Given the choice I say choose tax cuts.  At least the bureaucrats won’t create the resulting debt by buying votes.  The private sector will.  As it generates more economic activity.  Which will create new jobs.  And new taxpayers.  Ultimately resulting in new tax revenue for the government.

Which is something Keynesian stimulus spending just won’t do.  For 100% of tax-cut stimulus stimulates economic activity.  And not a dime of it passes through a politician’s hand to a friend or crony to buy a single vote.

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‘More Taxes, Regulations, Uncertainty and Spending’ is the Mantra of the Obama Administration

Posted by PITHOCRATES - September 21st, 2011

Obama’s Proposed Aviation Fees will Fall Predominantly on the People who can Least Afford It

In Obama‘s deficit reduction plan he plans to tax the rich.  Those who can most afford it.  Rich people.  And by rich people he means anyone who has any money to spend (see Airline groups attack Obama proposals to boost fees for aviation security, air traffic control by Associated Press posted 9/21/2011 on The Washington Post).

The aviation fees are part of Obama’s deficit-cutting plan that was released Tuesday. The plan would:

— raise the passenger security fee — now $5 to $10 per round trip — to $15 by 2017 and give the Homeland Security Department the power to push it higher.

— impose a surcharge of $100 per flight to help pay for air traffic control.

But college students fly.  Middle class families fly on vacation.  Non-rich people everywhere fly to visit family members that have moved away.  A lot of people fly.  And an interesting tidbit about the flying public?  They’re not all rich.

The rich people that Obama wants to tax?  Because they can most afford it?  Those well-to-do folk who fly those private jets?  Well, a lot of them do just that.  Fly private jets.  And, therefore, do NOT fly on commercial planes.  So they won’t be paying these new taxes/fees.  So these taxes/fees will fall predominantly on the people who can least afford it.  Imagine that.

The Air Transport Association, which represents large airlines, said it’s unfair for airlines and passengers to pay for security against terror attacks that target the U.S. and not the airlines themselves. The trade group says a typical $300 round-trip ticket already includes $60 in taxes and fees.

The Regional Airline Association, a group of smaller carriers, said the fees could lead to a loss of flights to smaller cities. The group’s president, Roger Cohen, said the $100 surcharge would cost more than regional airlines earned last year, threatening service to smaller cities.

The groups also complained that some of the money raised from airlines and passengers would be used to pay down the federal budget deficit and not to improve the air-travel system.

The airlines have a vested interest in protecting their planes.  Because they bought them.  And planes that blow up or crash in terrorist attacks don’t help the bottom line.  There’s the loss of an expensive airplane.  And the future revenue from that airplane.  The cost of replacing that airplane.  And the lost business from passengers who tend to shy away from an airline whose planes are easy pickings for terrorists.

So let them hire a security contractor to secure their planes.  Using the Israeli model.  Ask very pointed questions and observe people’s responses.  It works well for the Israelis.  Couldn’t be any worse than what the TSA is doing.  I mean, what passengers are going to complain about being groped less?

The administration estimated that boosting passenger security fees will raise $24.9 billion over 10 years. It proposed to spend $15 billion of that to reduce federal debt.

This is telling.  The airlines did not run up that federal debt. So there’s something really troubling about this.  Taking $15 billion from the airlines under the auspices of national security.  Just so they can continue their irresponsible spending ways in Washington.  This is no different than an addict stealing from his mother’s purse to support his habit.

This is Washington’s problem.  Not the airlines.  Washington has a spending problem.  And they can’t stop spending.  Or simply choose not to.  Instead they look for other people to steal from.  Like an addict.  While denying that they have a problem.  And always blaming others.  Like the rich who don’t pay their fair share.  And by rich they mean anyone that has any money to spend.

Tax Cuts Stimulate, not Keynesian Stimulus Spending Funded by Taxes

So how bad is this spending?  How much of a debt problem has it given us?  That the president is shaking down the airlines for $15 billion (see Committee Searches for Economic ‘Tipping Point’; Prefer Not to Find It by Jim Angle posted 9/20/2011 on Fox News)?

“We know that the debt is now 100 percent — approximately 100 percent of (gross domestic product),” said Allan Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh. “That doesn’t include the unfunded liabilities. It doesn’t include (mortgage lenders)Fannie Mae and Freddie Mac. It doesn’t include a number of other things.”

By unfunded liabilities, Meltzer means entitlement programs. Social Security and Medicare alone have $46 trillion in unfunded liabilities, meaning that much more is promised in benefits than the government — and taxpayers — have as a plan to pay for them.

Oh.  It’s that bad.  We owe a dollar for every dollar our economy produces.  But it’s even worse than this.  All of those unfunded liabilities that don’t appear in the official budget.  Fannie and Freddie.  And let’s not forget the Social Security and Medicare trust funds.  Which are filled only with IOUs from Uncle Sam.  Because Uncle Sam spent our money.  That money we put aside with each paycheck.  Those FICA and Medicare withholdings.  That money they forced us to save.  Because we were untrustworthy with our own money.  As they apparently are, too.

Chris Edwards, Director of Tax Policy Studies at the Cato Institute, a libertarian think tank in Washington, argues that U.S. debt is so far out of control that it must be contained soon.

“We’ve had five trillion (in) deficit spending since 2008, the most enormous sort of Keynesian stimulus you can imagine, and yet we’ve had slower growth than any time since World War II. So I don’t think spending helps.”

So the government owes more money than taxpayers can fund.  And yet that didn’t stop them from spending $5 trillion more.  For stimulus.  Which is just code for throwing money at political cronies.  I mean, it’s obvious that it didn’t stimulate anything.  Because the economy is still in the toilet.

And there’s a very good reason for that.  Because tax cuts stimulate.  Not Keynesian stimulus spending funded by taxes.

Meltzer pointed to three “fiscal changes that really did enormous good.” One was the tax cuts from the Kennedy and Johnson administrations, the most effective part of which were business tax cuts.

“They got the biggest bang for the buck,” he said.

The second were the Reagan-era tax cuts which came in two rounds and boosted a flagging economy. Meltzer said a completely different option worked well too.

“(The) third policy that gave people confidence were the Clinton tax increases, which assured people that their future tax rates were not going to go up, that they had seen what they were going to have to take, and there wouldn’t be anymore.”

Meltzer said the increases gave people certainty about what tax rates would be, which reassured businesses they wouldn’t go higher, allowing employers to plan and create jobs with confidence.

The Clinton tax increases?  That’s not why the Nineties were booming.  It was because of greedy capitalists.  Looking to strike it rich in the dot-com boom.  The economy was smoking hot because of irrational exuberance.  Not higher taxes.  And the budget went into surplus when all those dot-com people cashed in their stock options.  And they paid a boatload of capital gains taxes.  Before the dot-com bubble burst.  And threw the economy into recession.

But he’s right on the Kennedy and Reagan tax cuts.  Both used good Austrian supply-side economics.  Which exploded economic activity.  And similar policies could do that again.  If we would just stop with the Keynesian nonsense.  And the belief that crippling regulations will spur economic growth.

Business Owners Hate Uncertainty because, Unlike Uncle Sam, they can’t Print Money

And speaking of regulation, remember the Dodd-Frank act?  Have you read it?  Probably not.  For I doubt anyone in Congress has read it in its entirety (see Dodd-Frank and Uncertainty by Veronique de Rugy posted 9/20/2011 on National Review).

Remember how President Obama promised that the Dodd-Frank bill would provide certainty, stability and growth…?

It’s 1,623 pages long. It is very heavy. If it could fit it in my purse, I could use it as a protective weapon. Whatever else this will do, however, it will not make lending cheaper or credit more readily available, and it will not protect us from another financial crisis. And it will not protect consumers or taxpayers.

What it will do, and already does, is continue injecting gigantic uncertainty into the economy, paralyzing entrepreneurship and job creation. Imagine how long it will take for all the rules to be written and for U.S. businesses to figure out how they are supposed to operate from now on. The vagueness of the law as written means that even business owners and consumers who have the courage to pick up this book and try to figure out what’s in their future won’t get the answers they are looking for.

Really, is there any doubt that some of the $2 trillion in cash that companies are sitting on is a direct result of this uncertainty?

That’s right.  If you don’t know what tomorrow may bring you save your money.  You deleverage.  Pay down debt.  And hoard cash.  Because cash is king.  It’s the only thing you can pay your employees with.  The only thing you can pay your suppliers with.  The only thing you can pay for your insurance with.  And it’s the only thing you can pay Uncle Sam with.  So if you don’t have enough of it around during bad times you may not be around for the good times.  When they return.  If they return.

Business owners hate uncertainty.  Because, unlike Uncle Sam, they can’t print money.  So they have to be very careful with what they have.  To survive things like recessions.  Depressions.  And Dodd-Frank.

In these Tough Economic Times, it is the People that are Suffering, not Rich Liberals

‘More taxes, more regulations and more uncertainty’ is the mantra of the Obama administration.  And, of course, more spending.  Always more spending.  Is it any surprise the economy is not responding well to Obama’s policies?

There is no way businesses will grow in this environment.  Or create jobs.  And without new jobs the economy will never recover.  People understand this.  That’s why Democrats are losing elections.  Even in New York.  It’s a repudiation of Obama.  And the liberal Democrat agenda.

For though the mainstream media has been a loyal propaganda outlet for the liberal elite, the people aren’t buying it anymore.  For in these tough economic times, it is the people that are suffering.  Because of Obama’s policies.  While rich liberal elitists are living well everywhere.  And continue to fly on their private jets.  While the common people will be paying Obama’s new aviation fees.

www.PITHOCRATES.com

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