LBJ was able to pass JFK’s Tax Cuts resulting in a Long Period of Economic Growth
The official unemployment rate is stuck around 8%. But if you count all the people who can’t find a full-time job the actual unemployment rate is closer to 14%. With every jobs report we hear the positive spin from the government about another down tic in the official unemployment rate. And the hundreds of thousands of new jobs created. But after three years or so of hearing these reports people start questioning the numbers. And the rosy spin. Because despite all the good news they tell us people are disappearing from the civilian labor force. Which is the only reason why the official unemployment rate is falling. Because they’re not counting a lot of unemployed people. So looking at the civilian labor force may be a better indicator of the health of the economy. Or better yet, the civilian labor force participation rate (CLFPR). Which is basically the percent of those who can work that are working. So let’s do that. Starting with the Fifties.
After World War II veterans went to college on the G.I. Bill. These new college graduates with degrees in science, engineering and business management entered the workforce in the Fifties. Helping the United States to develop new technologies. New industries. And a lot of new jobs. American wells were busy pumping domestic oil. Keeping gasoline cheap. Having escaped the damage of war the American economy exported to those countries that didn’t. And consumer spending took off. Thanks to the new advertising industry telling Americans about all the great things to buy. They bought houses and cars with borrowed money. And used the new credit card to spend even more money they didn’t have. Changing the American economy into a consumer-based economy. Making the Fifties one of the most prosperous times in U.S. history. Despite the Korean War. And the Cold War. Which was getting underway in a big way. There was a burst of inflation to help pay for the Korean War. When it ended they contracted the money supply to get rid of that inflation sending the economy into recession. But once the recession ended the economy took off with all that consumerism. Shown by the sharp rise in the CLFPR. To correspond with the very good economic times of the Fifties. Another monetary contraction happened in 1957 to tamp out some price inflation. With a corresponding fall in the CLFPR.
The Sixties started with another recession. After it ended, though, the CLFPR continued to fall. The recession was officially over but the economy was not doing well. The CLFPR fell for almost three years following the recession. Things were different from the Fifties. For one, a lot of those war-torn economies were up and running again. Providing some competition. Especially a little island nation by the name of Japan. Which one day would build all the televisions sold in America. It was because of this fall in economic activity that JFK started talking about tax cuts in 1963. Congress blocked his attempt to cut tax rates. But after his assassination LBJ was able to pass the Revenue Act of 1964. This lowered the top marginal tax rate from 91% to 70%. And lowered the corporate income tax from 52% to 48%. Among other favorable business measures. Resulting in a long period of economic growth. And a long upward trend in the CLFPR.
The Tax Cuts and Deregulation of the Eighties created one of the Longest Periods of Economic Growth
But following the Revenue Act of 1964 came the Great Society. The Vietnam War. And the Apollo moon program. All paid for with a huge surge in federal spending. Deficits began to grow. As the government struggled to pay for everything. And were unwilling to cut anything.
The economy fell into a mild recession in 1970. The CLFPR remained relatively flat. To meet their spending needs they started printing money. Devaluing the dollar. Still part of Bretton Woods the dollar was still pegged to gold at $35/ounce. That is, the U.S. agreed to exchange gold for dollars at $35/ounce. But as they devalued the dollar our trading partners no longer wanted to hold dollars. Because they were losing their purchasing power. They wanted the gold instead. So they began exchanging their dollars for gold. Causing a great outflow of gold from the U.S. Causing a problem for President Nixon. He didn’t want the U.S. to lose all of their gold reserves. But he didn’t want to cut any spending. Which meant he didn’t want to stop printing money. In fact, he wanted to print more money. And the easy way out of his dilemma was by doing the most irresponsible thing. He slammed the gold window shut in 1971. And refused to exchange gold for dollars anymore. And when he did there was no restriction to the amount of money they could print. And they printed it. A lot. Creating double-digit inflation before the Seventies were over. The inflation caused prices to rise. Which Nixon tried to prevent with wage and price controls. Causing a shortage of available rental property as people converted them into condos to get away from the rent control. Gasoline stations ran out of gas as people filled their tanks with below-market priced gas. And meat disappeared from grocery stores. Wage controls kept wages from keeping pace with inflation. So even though people had jobs they lost more and more purchasing power. Or simply found there was nothing to purchase. Throwing the economy into recession in 1973. After the recession the CLFPR grew throughout the remainder of the Seventies. But it wasn’t good growth. It was growth sustained with double-digit inflation. A bubble of artificial economic activity. That would have to crash. As all inflationary periods must crash.
In the Eighties Paul Volcker, Federal Reserve Chairman, raised interest rates to double digits to wring out the double-digit inflation from the economy. To restore people’s purchasing power. And return the nation to real economic growth. The tax cuts and deregulation of the Eighties created one of the longest sustained periods of economic growth in U.S. history. With one of the longest upward trends in the CLFPR ever. Indicating a growing economy. With more and more people who could work finding work. Proving that Reaganomics worked. And worked very well.
If JFK or Ronald Reagan were President Today we wouldn’t be seeing a Freefall of the CLFPR
But it wouldn’t last. Thanks to the government’s interference into the banking industry. They had set a maximum limit on interest rates S&Ls (and banks) could offer. When inflation took off people pulled their money from their savings accounts. Putting it in higher earning instruments. So they didn’t lose their savings to inflation. This bad banking policy begat more bad banking policy. They deregulated the S&Ls and banks. So they could do other things to make up for their lost savings business. And that other thing was primarily real estate. They borrowed short-term money to make long-term loans. Helping to create a housing bubble. And when they began to wring that inflation out of the economy interest rates rose. When those short-term loans came due they had to refinance them at higher interest rates. While the interest they were earning on those long-term loans remained the same. So their interest expense soon exceeded their interest income. Creating the savings and loan crisis. And a severe recession that ended the economic expansion of the Eighties. With a corresponding fall in the CLFPR.
Once the recession ended the CLFPR resumed a general upward growth. But not as good as it was in the Eighties. Also, it would turn out that much of the growth in the Nineties was artificial. Bill Clinton’s Policy Statement on Discrimination in Lending forced lenders to lower their lending requirements. And to qualify the unqualified. Which created a surge in subprime lending. And the beginning of a housing bubble. The Internet entered the economy in the Nineties. Just as the personal computer entered the economy in the Eighties. Making Bill Gates a very rich man. Investors were anxious to find the next Bill Gates. Taking advantage of those low interest rates creating that housing bubble. And poured money into dot-com start-ups. Companies that had no revenues. Or products to sell. Creating a dot-com bubble. And a surge in computer programming jobs. Also, as the century came to a close there was the Y2K scare. Creating another surge in computer programming jobs. To rewrite computer code. Changing 2-digit date codes (i.e., ’78) to 4-digit codes (i.e., 1978).
The Y2K scare proved to be greatly overblown. Which put a lot of computer programmers out of a job in January of 2000. And they wouldn’t find a dot-com job for the dot-com bubble burst in the same year they lost their Y2K job. Throwing the economy into recession in 2001. And then making everything worse came the terrorist attacks on 9/11. Prolonging the recession. As can be seen by the long decline in the CLFPR. Which leveled out after the Bush tax cuts. But then that housing bubble peaked in 2006. And burst in 2007 into the subprime mortgage crisis. Thanks to all those toxic mortgages Bill Clinton’s Policy Statement on Discrimination in Lending forced lenders to make. And because Fannie Mae and Freddie Mac bought these toxic mortgages and had Wall Street package them into collateralized debt obligations this crisis spread worldwide. Selling what they told unsuspecting investors were high yield, low risk investments. Because they were backed by the safest of all loans. Mortgages. What they failed to tell these investors was that these mortgages were not safe 30-year conventional mortgages. But highly risky subprime mortgages. In particular adjustable rate mortgages. Where the monthly payment would increase with an increase in interest rates. And that is what happened. And when it happened the unqualified could not afford the new monthly payment. And defaulted. Kicking off the Great Recession. And because President Obama was more interested in national health care than ending the Great Recession he didn’t cut taxes. Or cut regulations. Instead, he increased taxes and regulations. Making the current recovery one of the worst in U.S. history. As can be seen in the greatest decline in the CLFPR since the Great Depression. If you look at a continuous graph from 1950 to the present you can see just how bad the Obama economic policies are.
The JFK and Reagan tax cuts caused the greatest economic expansions. And the greatest rise in the CLFPR. Also, after most recessions there was a return to a growing CLFPR. Interestingly, the two times that didn’t happen are tied to Bill Clinton. Who created two of the greatest bubbles. The dot-com bubble in the Nineties. And the subprime mortgage bubble that was built in the Nineties and the 2000s. The growth was so artificial in building these bubbles that the CLFPR did not recover following the bursting of these bubbles. It might have following the dot-com bubble if the subprime mortgage crisis didn’t follow so soon after. The current recovery is so bad that it has taken the CLFPR back to levels we haven’t seen since the Seventies. Making the current recovery far worse than the official unemployment rate suggests. And far worse than the government is telling us. So why are they not telling us the truth about the economy? Because the government wants to raise taxes. And if the economy is improving there is no need for recession-ending tax cuts. So they say the economy is improving. As they hate tax cuts that much. Unlike Ronald Reagan. Or JFK. And if either of them were president today we wouldn’t be seeing a freefall of the CLFPR.
Tags: Bill Clinton, civilian labor force, civilian labor force participation rate, CLFPR, consumer spending, deregulation, dot com bubble, dot.com, double digit inflation, Eighties, Fifties, gold, Great Recession, housing bubble, inflation, interest rates, JFK, jobs, jobs report, LBJ, Nineties, Nixon, Policy Statement on Discrimination in Lending, purchasing power, Reagan, recession, Revenue Act of 1964, Ronald Reagan, savings, Seventies, sixties, subprime, subprime lending, subprime mortgage crisis, subprime mortgages, tax cuts, unemployment rate, Y2K
The Policies of Herbert Hoover and FDR caused and prolonged the Great Depression
Franklin Delano Roosevelt (FDR) took Rahm Emanuel’s advice. Long before Rahm Emanuel gave it. FDR did NOT let a good crisis go to waste. And as far as crises go, none were better than the Great Depression. After the government’s bad policies (wage and price controls, higher taxes, Smoot-Hawley Tariff Act, etc.) caused the Great Depression and then their monetary contraction caused the massive bank failures the poverty rate soared for senior citizens. FDR saw that suffering and thought here was a way to forever lock in the senior vote. Give seniors a government pension. And put the fear of God in them that the opposition wants to take it away.
At the turn of the Twentieth century the new thing in politics was progressivism. Smart government people intervening into our private lives to make things better. The size of the federal government exploded during the presidency of Woodrow Wilson. He gave us the Federal Reserve System. America’s central bank. That would prevent anything like the Great Depression from ever happening. Which it failed to do. As the Great Depression happened on their watch. He gave us a permanent federal income tax. He attacked the U.S. Constitution. Making the case for expansive presidential powers. And used the courts to get around Congressional opposition. As well as the U.S. Constitution.
The political opposition fought back against Wilson’s power grab. Defeating the progressive successor in the next election. And returning the country to normalcy. Warren G. Harding and Calvin Coolidge undid much of the anti-business policies of the Wilson administration. Returning the nation to prosperity. And giving us the Roaring Twenties. Where the nation modernized with electric power, the automobile, radio, etc. Unlike the speculative dot-com bubble of the Nineties. Where investors poured money into dot-com companies that never made anything to sell. The Federal Reserve was a little loose with their monetary policy causing some inflation in the Twenties. But the economic activity was so robust that it absorbed that inflation. Then the progressives got back in power. First the Republican Herbert Hoover. Then the Democrat FDR. Whose policies caused and prolonged the Great Depression.
When FDR gave us Social Security it only cost Employer and Employee each 1 Cent of every Dollar up to $3,000
FDR was picking up where Wilson left off. Expanding the federal government. And the power of the presidency. Using the federal courts like Wilson to bypass Congress. And the U.S. Constitution. Marking yet another departure from the free market capitalism that founded the country. And made it the world’s number one economy. It was a creeping socialism. At least, that’s how the political opposition saw. Especially with Social Security. Which helped tip the power from the states to the federal government. Just as Thomas Jefferson feared a strong executive would do.
Of course, the progressives played on our emotions. These were, after all, destitute seniors. We had to take care of these people. Our fathers. Our mothers. Our grandparents. Who sacrificed for us. Now it was time to sacrifice a little for them. And they promised it would be a little. Both employer and employee would only pay 1 cent on every dollar earned up to $3,000 a year. That’s all. Only $30 a year (about $483.58 today). And how could such a small amount be socialism? The problem was that it didn’t stay only 1 cent on every dollar earned up to $3,000 a year. The tax rate went up. As well as the maximum taxable earnings. The government has increased them both. Often.
(source: Historical Social Security Tax Rates)
That low tax rate lasted barely a decade. Then they started raising the maximum taxable earnings. Not much for the first 30 years or so. But once the Seventies arrived that maximum amount grew at an accelerated rate. Despite the increasing tax rate. Thanks to President Nixon decoupling the dollar from gold. And ushering in the era of out of control Keynesian economics. Where the government inflated the money supply like there was no tomorrow. Devaluing the dollar at an alarming rate. Which is why they increased the maximum amount of earnings at an accelerated rate. Because constantly devaluing the dollar reduced what those Social Security checks could buy. So they had to keep making those checks bigger. And that required more tax revenue.
The Social Security Tax Rate held Steady during the Nineties thanks to the Dot-Com Bubble and Japan’s Lost Decade
But it’s worse than that. For it’s just not bad monetary policy forcing the increases in the tax rate as well as in the maximum taxable earnings. Something else happened during the Seventies. Birth rates fell. The baby boom ended in the Sixties. But not the baby making activities. They just continued along without producing new taxpayers. Thanks to birth control and abortion. Also, over the years they expanded the Social Security program to provide for more than just those destitute seniors. So the benefits of the program greatly increases just as the falling birth rate reduce the growth rate of tax revenue. As the number of people leaving the workforce grew at a greater rate than those entering the workforce. Which is why when you convert the dollars into constant dollars the graph doesn’t change much.
We finance most wars with inflation. By printing money to expand the money supply. To give the government all the cash they need to buy the instruments of war. And to pay, feed and clothe their military personnel. We can see this rapid inflation during World War II as the real dollar amount of the maximum taxable earnings fell. That changed in 1951. When they started to increase that maximum amount. That and the higher tax rate stabilized things for awhile. Then the Seventies came along. Where both the tax rate and the maximum taxable earnings amount continued to rise. Even in real dollars. Reflecting the growth in benefits. And the fall in tax revenue. Thanks to the baby bust following the baby boom.
The tax rate held steady during the Nineties thanks to the surpluses of the Clinton administration. Due to that dot-com bubble. And Japan’s Lost Decade. Whose bad economic times helped boost the American economy. Still they had to keep raising the maximum earnings amount. As the baby boomers started retiring. Then Clinton’s dot-com bubble burst. Giving George W. Bush a recession to start his presidency. His tax cuts pulled us out of that recession. Then Bill Clinton’s revamping of the Community Reinvestment Act caught up with us. Giving us the subprime mortgage crisis in 2008. And the Great Recession. Which President Obama tried to ameliorate by reducing the employee’s Social Security tax rate from 6.2% to 4.2% in 2011. For his near trillion dollar stimulus bill failed to end the Great Recession in 2009. As his Social Security tax cut failed to do in 2011. Which was not enough to overcome his anti-business policies (such as Obamacare). All he did was starve Social Security of hundreds of billions in revenue. Making the Social Security funding problem worse in the long run. Requiring even higher tax rates than that once promised 1% (for both employer and employee). On earnings more than that promised $3,000 (about $48,000 today).
Tags: baby boom, baby bust, creeping socialism, devaluing the dollar, dot com bubble, falling birth rate, FDR, federal government, Federal Reserve, Great Depression, Great Recession, Herbert Hoover, inflation, Japan's Lost Decade, lost decade, maximum taxable earnings, money supply, Progressives, progressivism, Roaring Twenties, seniors, Seventies, Social Security, socialism, tax rate, tax revenue, Wilson, Woodrow Wilson
There was Real Economic Activity in the Twenties so the Great Depression should only have been a Recession
The Great Depression began with the Stock Market Crash of 1929. Which led to a period of record unemployment. On average the unemployment rate was 13.46% during the Thirties. Or, if you don’t count all of the make-work government jobs, 18.23%. So what caused this unemployment? Was it the expansionary monetary policy of the Twenties? The Keynesians thought so. Even the economists from the Austrian school of economics thought so. The only ones to have predicted the Great Depression. So were they right? A little bit.
Yes, there was monetary expansion during the Twenties. So a recessionary correction was inevitable. But a depression? When you look at the economic activity of the Twenties, no. The Roaring Twenties were a transformative time. It was when we began to say goodbye to the steam engine. And said hello to electricity. We said goodbye to the horse and buggy. And said hello to the automobile. We said goodbye to the horse and plow. And said hello to the tractor. As well as said hello to radio, motion pictures, air travel, electric lighting and electric appliances in the home, etc. So there was real economic activity in the Twenties. It wasn’t all a bubble. So the Great Depression should have only been a regular recession. But it wasn’t. So what happened?
Government. The government interfered with market forces. Based on Keynesian advice. They said the government needed to increase aggregate demand. As that demand would encourage businesses to expand and hire new workers. Thus lowering the unemployment rate. And part of increasing demand was keeping wages from falling. So people had more money to spend. Of course, if employers were to continue to pay higher wages that meant that prices could not fall. Like they normally do during a recession. So the Keynesian advice was to prevent the market from correcting prices to match supply to demand. Prolonging the inevitable recession. But there was more bad government policy.
The Keynesian Cure for Unemployment is Inflation
The stock market was soaring in the late Twenties. Because of that real economic growth. So what happened to that economic growth? Well, in part, the Smoot Hawley Tariff of 1930. Which was in committee in 1929 before the great crash. But investors saw it coming. And they knew tariffs rising as much as 50% were going to cool those hot earnings they’ve been enjoying. As well as Herbert Hoover’s progressive plans. Who would go on to double income tax rates. When Herbert Hoover won the 1928 election the writing was on the wall. And investors bailed. Especially when the Smoot Hawley Tariff was moving through committee. Because raising the cost of doing business does not help business. So the great earnings ride of the Twenties was ending and the investors sold their stocks to lock in their profits. Precipitating the Stock Market Crash of 1929. And the record unemployment that would follow. And the Great Depression.
So the Keynesians got it wrong during the Thirties. Their next grand experiment would be in the Seventies. As government spending took off thanks to the Vietnam War, the Great Society and the Apollo moon program. There was so much spending that they had to print money to pay for it all. As they did, though, they devalued the dollar. Which became a problem. As the U.S. at the time agreed to exchange gold for dollars at $35/ounce. So when the Americans made their dollar worth less our trading partners decided to take our gold instead. Gold flew out of the gold window. So to stop this gold flow out of the country Nixon did what any Keynesian would do. No, he didn’t cut back spending. He decoupled the dollar from gold. Slamming the gold window shut. Without any advanced warning to the world. So we now call this action he took on August 15, 1971 the Nixon Shock. The Keynesians were thrilled. Because they now had no restraint in printing new money.
The reason Keynesians were happy to be able to print more money was because that was their cure for unemployment. Inflation. When the economy goes into recession it was just a simple matter of expanding the money supply. Which lowers interest rates. Which makes businesses who had no intention to expand their businesses borrow money to expand their businesses. So to pull the economy out of recession they inflated the money supply. And did it work? No. Of course it didn’t. It just raised prices. Increasing the cost of business. As well as leaving consumers with less real income. So, no, the economy didn’t improve. It just stagnated. The average unemployment rate during the Seventies was 6.21%. While the average inflation rate was 7.08%. Also, the top marginal tax rate of 70%. Which didn’t help the anti-business environment.
The Subprime Mortgage Crisis and the Great Recession were Direct Consequences of Bad Monetary Policy
So the Keynesians failed. Again. Their inflationary monetary policy only made things worse during the Seventies. All of that inflation just kept pushing prices ever higher. Ensuring that the inevitable recession to correct those prices would be long and painful. Which it was. In the early Eighties. Then Paul Volcker rang out all of that inflation. And Ronald Reagan began bringing the top marginal tax rate down until it was at 28% by the end of the decade. Making a more favorable business environment. So business grew. And began to hire new workers. Teaching an economic lesson some in government refused to learn. Keynesian inflationary monetary policies did not work.
During the Nineties the Keynesians were back. Inflating the money supply slowly but surely to continue an economic expansion. Making money available to borrow. And borrow it people did. Creating a long and sustained housing boom that would last for about 2 decades. That expansionary monetary policy gave us cheap mortgages. Making it very easy to buy a house. Housing prices rose. And continued to rise during those two decades. Then President Clinton had his Justice Department tell banks to lower their standards for approving mortgages for the unqualified. So everyone could buy a house. Even if they couldn’t afford to pay for it. Ushering in the subprime mortgage industry. Further increasing the demand for houses. And further driving up housing prices. Making the inevitable correction a long and painful one.
Meanwhile, there was something new in the market place in the Nineties. The Internet. And new Internet start-ups (dot-coms) flooded the market. Investors poured money into them. Even though they didn’t have a product to sell. And had no earnings. But investors were exuberant. And irrational. Kids flooded into universities to get degrees in computer science. To staff all of those Internet start-ups. Companies went public. Creating a stock market bubble as investors scrambled to buy their stock. They raised a boatload of money from those IPOs. And spent it all. Many without producing anything to sell. And when that money ran out they went bankrupt. Bursting that stock market bubble. And throwing a lot of computer scientists out of a job. Causing a painful recession in the early 2000s that George Bush helped mitigate with tax cuts.
And low interest rates. People were back buying houses. But this time they were buying McMansions. Because that easy monetary policy gave us cheap mortgage rates. And subprime, no-documentation, zero down loans, etc., made it easier than ever to buy a house. Housing prices soared. And builders flooded the market with more McMansions. Pushing prices ever higher. Fannie Mae and Freddie Mac were buying those toxic subprime mortgages from banks to encourage them to approve more toxic subprime mortgages. Pushing the inevitable correction further and further out. Running up prices so high that their fall would be a long and painful one. Which it was when the subprime mortgage crisis hit. As well as the Great Recession. Direct consequences of bad monetary policy. And the government’s interference into market forces.
Tags: cheap mortgage rates, correction, demand, earnings, economic activity, expansionary monetary policy, gold window, Great Depression, Great Recession, Herbert Hoover, housing boom, housing prices, inflation, interest rates, Internet, Internet start-up, Keynesian, market forces, McMansions, money supply, mortgages, Nineties, Nixon, prices, Reagan, real economic activity, recession, Roaring Twenties, Ronald Reagan, Seventies, Smoot-Hawley Tariff, stock market bubble, stock market crash, subprime mortgage, Thirties, toxic subprime mortgages, Twenties, unemployment, unemployment rate
A High Savings Rate provides Abundant Capital for Banks to Loan to Businesses
Time. It’s what runs our lives. Well, that, and patience. Together they run our lives. For these two things determine the difference between savings. And consumption. Whether we have the patience to wait and save our money to buy something in the future. Like a house. Or if we are too impatient to wait. And choose to spend our money now. On a new car, clothes, jewelry, nice dinners, travel, etc. Choosing current consumption for pleasure now. Or choosing savings for pleasure later.
We call this time preference. And everyone has their own time preference. Even societies have their own time preferences. And it’s that time preference that determines the rate of consumption and the rate of savings. Our parents’ generation had a higher preference to save money. The current generation has a higher preference for current consumption. Which is why a lot of the current generation is now living with their parents. For their parents preference for saving money over consuming money allowed them to buy a house that they own free and clear today. While having savings to live on during these difficult economic times. Unlike their children. Whose consumption of cars, clothes, jewelry, nice dinners, travel, etc., left them with little savings to weather these difficult economic times. And with a house they no longer can afford to pay the mortgage.
A society’s time preference determines the natural rate of interest. A higher savings rate provides abundant capital for banks to loan to businesses. Which lowers the natural rate of interest. A high rate of consumption results with a lower savings rate. Providing less capital for banks to loan to businesses. Which raises the natural interest rate. High interest rates make it more difficult for businesses to borrow money to expand their business than it is with low interest rates. Thus higher interest rates reduce the rate of job creation. Or, restated another way, a low savings rate reduces the rate of job creation.
The Phillips Curve shows the Keynesian Relationship between the Unemployment Rate and the Inflation Rate
Before the era of central banks and fiat money economists understood this relationship between savings and employment very well. But after the advent of central banking and fiat money economists restated this relationship. In particular the Keynesian economists. Who dropped the savings part. And instead focused only on the relationship between interest rates and employment. Advising governments in the 20th century that they had the power to control the economy. If they adopt central banking and fiat money. For they could print their own money and determine the interest rate. Making savings a relic of a bygone era.
The theory was that if a high rate of savings lowered interest rates by creating more capital for banks to loan why not lower interest rates further by just printing money and giving it to the banks to loan? If low interests rates were good lower interest rates must be better. At least this was Keynesian theory. And expanding governments everywhere in the 20th century put this theory to the test. Printing money. A lot of it. Based on the belief that if they kept pumping more money into the economy they could stimulate unending economic growth. Because with a growing amount of money for banks to loan they could keep interest rates low. Encouraging businesses to keep borrowing money to expand their businesses. Hire more people to fill newly created jobs. And expand economic activity.
Economists thought they had found the Holy Grail to ending recessions as we knew them. Whenever unemployment rose all they had to do was print new money. For the economic activity businesses created with this new money would create new jobs to replace the jobs lost due to recession. The Keynesians built on their relationship between interest rates and employment. And developed a relationship between the expansion of the money supply and employment. Particularly, the relationship between the inflation rate (the rate at which they expanded the money supply) and the unemployment rate. What they found was an inverse relationship. When there was a high unemployment rate there was a low inflation rate. When there was a low unemployment rate there was a high inflation rate. They showed this with their Phillips Curve. That graphed the relationship between the inflation rate (shown rising on the y-axis) and the unemployment rate (shown increasing on the x-axis). The Phillips Curve was the answer to ending recessions. For when the unemployment rate went up all the government had to do was create some inflation (i.e., expand the money supply). And as they increased the inflation rate the unemployment rate would, of course, fall. Just like the Phillips Curve showed.
The Seventies Inflationary Damage was So Great that neither Technology nor Productivity Gains could Overcome It
But the Phillips Curve blew up in the Keynesians’ faces during the Seventies. As they tried to reduce the unemployment rate by increasing the inflation rate. When they did, though, the unemployment did not fall. But the inflation rate did rise. In a direct violation of the Phillips Curve. Which said that was impossible. To have a high inflation rate AND a high unemployment rate at the same time. How did this happen? Because the economic activity they created with their inflationary policies was artificial. Lowering the interest rate below the natural interest rate encouraged people to borrow money they had no intention of borrowing earlier. Because they did not see sufficient demand in the market place to expand their businesses to meet. However, business people are human. And they can make mistakes. Such as borrowing money to expand their businesses solely because the money was cheap to borrow.
When you inflate the money supply you depreciate the dollar. Because there are more dollars in circulation chasing the same amount of goods and services. And if the money is worth less what does that do to prices? It increases them. Because it takes more of the devalued dollars to buy what they once bought. So you have a general increase of prices that follows any monetary expansion. Which is what is waiting for those businesses borrowing that new money to expand their businesses. Typically the capital goods businesses. Those businesses higher up in the stages of production. A long way out from retail sales. Where the people are waiting to buy the new products made from their capital goods. Which will take a while to filter down to the consumer level. But by the time they do prices will be rising throughout the economy. Leaving consumers with less money to spend. So by the times those new products built from those capital goods reach the retail level there isn’t an increase in consumption to buy them. Because inflation has by this time raised prices. Especially gas prices. So not only are the consumers not buying these new goods they are cutting back from previous purchasing levels. Leaving all those businesses in the higher stages of production that expanded their businesses (because of the availability of cheap money) with some serious overcapacity. Forcing them to cut back production and lay off workers. Often times to a level below that existing before the inflationary monetary expansion intended to decrease the unemployment rate.
Governments have been practicing Keynesian economics throughout the 20th century. So why did it take until the Seventies for this to happen? Because in the Seventies they did something that made it very easy to expand the money supply. President Nixon decoupled the dollar from gold (the Nixon Shock). Which was the only restraint on the government from expanding the money supply. Which they did greater during the Seventies than they had at any previous time. Under the ‘gold standard’ the U.S. had to maintain the value of the dollar by pegging it to gold. They couldn’t depreciate it much. Without the ‘gold standard’ they could depreciate it all they wanted to. So they did. Prior to the Seventies they inflated the money supply by about 5%. After the Nixon Shock that jumped to about 15-20%. This was the difference. The inflationary damage was so bad that no amount of technological advancement or productivity gains could overcome it. Which exposed the true damage inflationary Keynesian economic policies cause. As well as discrediting the Phillips Curve.
Tags: businesses, capital, capital goods, central banks, consumption, depreciate the dollar, difficult economic times, dollar, economic activity, economic growth, employment, expand the money supply, fiat money, gold standard, high interest rates, inflation, inflation rate, inflationary policies, interest rate, job creation, Keynesian, Keynesian economics, Keynesian economists, low interest rates, monetary expansion, money, money supply, natural rate of interest, new money, Nixon Shock, Phillips Curve, prices, printing money, rate of consumption, rate of savings, recession, Retail sales, savings, savings rate, Seventies, stages of production, time preference, unemployment, unemployment rate
Week in Review
The British Left hates Margaret Thatcher. So much that they are already selling t-shirts celebrating her death. Though she is still alive. For she is the Ronald Reagan of Great Britain. A singularly remarkable person who came along just in time to save a nation in decline. And restore it to greatness (see The Left hates Margaret Thatcher because she reminds them they are wrong about everything by Daniel Hannan posted 9/12/2012 on the Daily Mail).
Now and again, we are reminded of the sheer nastiness of a certain kind of Leftie. Not, let me stress, all Lefties: I have Labour friends who are motivated by a more or less uncomplicated desire to help the disadvantaged.
But they march alongside some committed haters who define their politics not by what they like, but by what they loathe. They also define opponents not as human beings with whom they disagree, but as legitimate targets.
A lack of empathy, bordering almost on sociopathy sits behind their talk of caring and sharing.
Not much different from the American Left. Who hate their political opponents. And attack them personally. With no understanding of the underlying policy in question. For they never say they prefer tax, borrow and print (money) Keynesian economics over a more Austrian approach of sound money and low taxation. The kind of policies that have made great economies great. Instead they say their opponents hate women, hate poor people, hate children, hate seniors, etc. And yet they are the tolerant people. Who tolerate everyone that agrees with them. And hates all those who disagree with them. Making these tolerant some of the most intolerant of people. Which is why they hate Ronald Reagan in America. And they hate Margaret Thatcher in Britain. Even though they both returned their countries to prosperity after a decade of decline and despair.
I am just old enough to remember the end of the Seventies: power cuts, three-day weeks, constant strikes, price and income controls, inflation.
Worst of all, I remember the sense of despair, the conviction that Britain was finished.
I don’t believe you can grasp Margaret Thatcher’s achievement without the context of what she displaced.
Throughout the Sixties and Seventies, this country had been outperformed by every European economy. ‘Britain is a tragedy — it has sunk to borrowing, begging, stealing until North Sea oil comes in,’ said Henry Kissinger.
The Wall Street Journal in 1975 was blunter: ‘Goodbye, Great Britain: it was nice knowing you.’
Margaret Thatcher’s victory in 1979 was like a thaw after the cruellest of winters. Inflation fell, strikes stopped, the latent enterprise of a free people was awakened.
Having lagged behind for a generation, we outgrew every European country in the Eighties except Spain (which was bouncing back from an even lower place). As revenues flowed in, taxes were cut and debt was repaid, while public spending — contrary to almost universal belief — rose.
In America we were mired in stagflation and a record high misery index of the Carter Seventies. Much of which he inherited from LBJ’s Great Society and Richard Milhous Nixon’s abandoning of the quasi gold standard. The Nixon Shock. Because he refused to cut Great Society spending. As did Gerald Ford. As did Jimmy Carter. No one wanted to cut back spending and continued to print money to pay for the Great Society spending causing the record high inflation during the Seventies. Which added to the high unemployment that gave Jimmy Carter that horrible misery index. And malaise. Like Daniel Hannan I’m just old enough to remember how bad it was in the Seventies. And how great Ronald Reagan’s Morning in America was. We were better off after 4 years of Ronald Reagan than we were after 4 years of Jimmy Carter. And the numbers proved it. Lower tax rates increased tax revenue. Allowing even greater government spending. Which was the source of the Reagan deficits. Not the tax cuts.
In the Falklands, Margaret Thatcher showed the world that a great country doesn’t retreat forever.
And by ending the wretched policy of one-sided detente that had allowed the Soviets to march into Europe, Korea and Afghanistan, she set in train the events that would free hundreds of millions of people from what, in crude mathematical terms, must be reckoned the most murderous ideology humanity has known.
Margaret Thatcher and Ronald Reagan stood together against communism. While Jimmy Carter eroded America’s military power so much that the Soviets actually put together a nuclear first-strike doctrine. For unlike the policy of Mutual Assured Destruction (MAD) of previous administrations the Soviets believed they could launch and win a nuclear war against Jimmy Carter. Reagan and Thatcher rebuilt and deployed nuclear and regular military forces to reduce the threat of a Soviet first-strike. And made the enemies of Great Britain and the United States fear and respect our military might. It was peace through strength. For all free and democratic countries. Not the detente of Jimmy Carter that encouraged the Soviets to add a nuclear first-strike doctrine. The beginning of the end of the Cold War began under Thatcher’s and Reagan’s watch.
Why, then, do Lefties loathe her so much..?
No, what Lefties (with honourable exceptions) find hard to forgive is the lady’s very success: the fact that she rescued a country that they had dishonoured and impoverished; that she inherited a Britain that was sclerotic, indebted and declining and left it proud, wealthy and free; that she never lost an election to them.
Their rage, in truth, can never be assuaged, for she reminds them of their own failure.
The same reasons the American Left hates Ronald Reagan. Because he, too, returned his country to greatness.
Tags: American Left, British, British Left, Carter, Cold War, debt, decline, despair, Détente, Great Britain, Great Society, hate, inflation, Jimmy Carter, Left, Lefties, Margaret Thatcher, misery index, Nixon, nuclear first-strike doctrine, Reagan, Ronald Reagan, Seventies, Soviets, stagflation, strikes, tax cuts, taxes, Thatcher, tolerant, unemployment
Americans find Taxes Repugnant and have a Long History of Making this Repugnance Known
American independence began with a tax revolt. The ratification of the U.S. Constitution happened only with safeguards against the new federal government from growing too powerful. And great efforts went to limiting the amount of money it could spend. For a long time all federal tax revenue came from import tariffs. Then from sales of federal lands as the population moved west. It took a civil war for us to impose an income tax. Our first income tax was 3% on incomes over $800 (or about $20,000 today). The first income tax was a flat tax. They passed this income tax to pay for the war. They repealed the income tax following the war. Americans wouldn’t see another federal income tax until 1913 when we ratified the Sixteenth Amendment. And President Woodrow Wilson signed into law the Revenue Act of 1913.
Woodrow Wilson was a progressive. The precursor to today’s liberals. Who thought beyond the limited government of our Founding Fathers. They wanted to expand government. To make it a part of our everyday life. Where the brilliant progressive politicians would make better decisions for us than we ever could. And their changing of society included the funding of the federal government. For their income tax was a progressive tax. Everyone paid a flat tax of 1% on income of $3,000 or more. About $66,100 today. Then the progressive taxes came into play. Adding another percentage to the income tax rate for increasing amounts of income. The thresholds for these increases were as follows: $20,000 (roughly $440,400 today), $50,000 ($1,101,000 today), $75,000 ($1,651,600), $100,000 ($2,202,100), $250,000 ($5,505,300) and $500,000 ($11,010,700). The top marginal tax rate on the super rich (earning $11,010,700) was 7%.
Our second income tax was quite controversial. A lot of people hated it. For Americans find taxes repugnant. And have a long history of making this repugnance well known. But thanks to the American Civil War a generation of men was lost. And a generation of boys grew up without fathers. Tended on by doting mothers. Smothering them with love and affection. And these boys grew up without knowing the manly hardships of life. And they entered politics. Becoming those early progressives. Who wanted to change the government into a great doting mother. And now they could. For they had their income tax.
Few paid the Confiscatory Tax Rates of the Seventies by Hiding their Income in Tax Shelters
The rich paid our first federal income taxes after the Revenue Act of 1913. And these were very small percentages we had them pay. Back then the top marginal tax rate was lower than our lowest income tax rate today. Think about that. The richest of the rich paid only 7% of their income ($11,010,700 or more today) in federal income taxes. While today single people earning the lowest bracket of taxable income (from $0 to $8,700) pay 10% of their income in federal income taxes. Clearly the growth of government exploded thanks to the Sixteenth Amendment. Much as our Founding Fathers feared it would if they had too much money to spend.
Of course, this is ancient history. Few know about this today. For few could even tell you why we fought for our independence. Or even who we fought for our independence from. (We fought for our independence from Great Britain because of their policies to tax us despite our having no representation in Parliament. That’s where the phrase taxation without representation came from). Today high taxes are sadly just an accepted part of life. In fact, we have referred to our paychecks as take-home pay. Our net pay. Because gross pay is a myth. No one sees their gross pay. About a third or more of that disappears in withholding taxes. So gross pay is a meaningless expression for us today. (It wasn’t before the Sixteenth Amendment or before the progressives came to power). Something that we sadly accept. And we now fund our lives on the take-home pay the government allows us to keep. All the while accepting these high tax rates.
Government spending took off in the Sixties and the Seventies. As did our taxes. If we had once thought that a 7% tax on incomes of $11,010,700 or more was an outrage, we didn’t see anything yet. In 1978 the top marginal tax rate was 70% on incomes of $351,712 or more. And there were 25 marginal tax rates. As shown here adjusted for inflation (sources: Tax Rates, Tax Receipts, and Celebrity Incomes).
In this example we calculated the average of some top celebrities. And the top celebrities on average earned about $30,000,000 in 2010. Using the 1978 tax brackets they would have owed $20,936,506 in federal income taxes. Or approximately 69.8% of their total income. Which is pretty much equal to the top marginal tax rate. Of course, few paid these confiscatory tax rates. They hid their income as best as they could in the Seventies. In tax shelters. And you know they did because despite these confiscatory tax rates the federal government still ran budget deficits. Having to print money to pay for their explosion in government spending.
The Low Tax Rates of the Eighties created so much Economic Activity the Opposition called it the Decade of Greed
The heyday of Keynesian economics was in the Seventies. After Richard Nixon decoupled the dollar from gold the Keynesians were free to print money to stimulate the economy. Which was their answer to ending a recession. Stimulus spending. Have the government print money to create economic activity that wasn’t happening in the private sector. Their policy tool to end a recession was inflation. By pouring money into the economy people would borrow it and buy cars and houses and furniture. And everything else under the sun. Creating a surge of economic activity. And creating jobs in the process as businesses must hire new workers to meet that government stimulated demand. With the dollar decoupled from the ‘cross of gold’ the Keynesians were finally able to prove their mettle. And solve all the country’s economic problems. It was the dawn of a brave new world.
And that world sucked. For the implementation of Keynesian economic policy proved those policies did not work. Instead of replacing high unemployment with inflation they just added high inflation to the high unemployment. Something that was impossible to happen in Keynesian textbooks. But it happened. Stagnant economic activity. And inflation. What we called stagflation. We added the unemployment rate to the inflation rate to come up with a new economic indicator. The misery index. The economy was so miserable during Jimmy Carter’s 4 years in office that he lost in a landslide to Ronald Reagan. Who was a proponent not of Keynesian economics but of the Austrian school. Or supply side economics. And the Austrians believed in low tax rates. For low tax rates would stimulate economic activity. And the greater amount of economic activity would generate a greater amount of tax revenue even at lower tax rates. Let’s look at that same celebrity paying taxes a decade later under Ronald Reagan.
Much simpler. And more in keeping with the Founding Fathers. Instead of paying 70% of their earnings in federal income taxes they will only pay 28% (again, equal to the top marginal tax rate. Which is pretty much the only tax rate the rich pay). That’s still a lot of money to give to the federal government. But it’s so much smaller that in many cases it was cheaper and easier to pay Uncle Sam than trying to hide that income. So economic activity took off in the Eighties. It was so great that the opposition called it the Decade of Greed. Out of sour grapes because their policies could never produce anything like it. But what about tax revenue? Those on the Left say this economic activity came at a price. Exploding deficits. Well, the deficits did grow. But it wasn’t because of the cuts in the tax rates.
Higher Tax Rates do not Necessarily Increase Tax Revenue
In 1978 total tax revenue was $1,113.6 billion. In 1988 total tax revenue was $1,421.1 billion. So Reagan’s cuts in the tax rates produced $307.5 billion more in tax revenue. An increase of about 27.6%. Dropping the top marginal tax rate from 70% to 28% actually increased tax revenue. So the cut in tax rates did not cause the deficits. It wasn’t a revenue problem. Revenue went up. Spending just increased more. And it was this excessive government spending that caused the deficits. Not the tax cuts.
The lesson here is that higher tax rates do not necessarily increase tax revenue. Because changes in tax rates changes behavior. Higher tax rates discourage people from investing in businesses. They discourage businesses from expanding. Or hiring new workers. Higher tax rates may decrease the opportunity costs for hiding income. The cost and inconvenience of hiding income in tax shelters and offshore accounts may become less that the cost of paying higher taxes. Like it was during the Seventies. Where despite confiscatory tax rates the government could not generate enough tax revenue to meet their spending obligations.
Income tax rates grew from a very small percentage on only the largest of incomes to high tax rates on very modest incomes. And yet our deficits have never been larger. Proving that our tax rates are either too high and dampen economic activity (as well as encouraging people to avoid paying their taxes). Or that government spending has just grown too large. More than likely it’s a combination of the two. A fact that would shock and dismay the Founding Fathers were they alive to see what we did with the republic they gave us.
Tags: American Independence, Austrian, Civil War, confiscatory tax rates, Constitution, Decade of Greed, deficits, economic activity, federal government, federal income tax, federal income taxes, federal tax revenue, flat tax, Founding Fathers, government spending, gross pay, high inflation, high taxes, high unemployment, income, income tax, income taxes, inflation, Keynesian, Keynesian economics, low tax rates, marginal tax rate, Progressive, progressive tax, Reagan, recession, Revenue Act of 1913, rich, Ronald Reagan, Seventies, Sixteenth Amendment, stimulus spending, take-home pay, tax brackets, tax revenue, tax shelters, taxes, top marginal tax rate, unemployment, Woodrow Wilson
Week in Review
No matter how many times their policies fail those on the left never give up. The free market capitalism that gave us the Industrial Revolution was not as good as the mercantilism it replaced. The free market capitalism that won World War II was not as good as Nazi Germany’s National Socialism. The free market capitalism that won the Cold War was not as good as the Soviet Union’s communism. No, any economic system that doesn’t place smart people in the government (and from our most prestigious universities) in charge is an inferior economic system. At least, according to those on the Left (see There Is No Invisible Hand by Jonathan Schlefer posted 4/10/2012 on the Harvard Business Review).
One of the best-kept secrets in economics is that there is no case for the invisible hand. After more than a century trying to prove the opposite, economic theorists investigating the matter finally concluded in the 1970s that there is no reason to believe markets are led, as if by an invisible hand, to an optimal equilibrium — or any equilibrium at all. But the message never got through to their supposedly practical colleagues who so eagerly push advice about almost anything. Most never even heard what the theorists said, or else resolutely ignored it.
Interesting. Using the economists of the Seventies as the authoritative position for government interventionism into the economy. Why, that would be like having the captain of the Titanic being the authority on how to miss icebergs in the North Atlantic.
The Seventies were the heyday of Keynesian economics. Where the government was aggressively intervening into things economic. And the results of their policies were so bad that we had to create new words to describe it. Like stagflation. A heretofore unheard of phenomenon. And something that just wasn’t supposed to happen when the Keynesians used inflation to lower unemployment. But it did. Even though you weren’t supposed to get inflation and high unemployment at the same time. Stagflation. Like we did. In the Seventies.
Believing far too credulously in an invisible hand, the Federal Reserve failed to see the subprime crisis coming. The principal models it used literally assumed that markets are always in instantaneous equilibrium, so how could a crisis occur? But after the crisis exploded, the Fed dropped its high-tech invisible-hand models and responded with full force to support the economy.
The subprime mortgage crisis was a government-made crisis. Precisely because government refused to allow the Invisible Hand to guide the market place. Instead they stepped in. Forced lenders to make risky subprime loans to people who couldn’t qualify for a mortgage. With tools like the infamous Adjustable Rate Mortgage (ARM). And then they had Fannie Mae and Freddie Mac buy those risky mortgages. To get them off the lenders’ balance sheets so they would make more risky loans. Then Freddie and Fannie chopped up these risky loans and repackaged them into ‘safe’ investments to unload them to unsuspecting investors. Getting these toxic mortgages off of their balance sheets. (In case you don’t know, Fannie and Freddie are Government Sponsored Enterprises (GSE). Which are for all intents and purposes the government.) This house of cards imploded when the Fed raised interest rates. After keeping them below what the Invisible Hand would have set them at for far too long. The government created the real estate bubble. Then blew it up when those higher interest rates reset all the AMR mortgage payments beyond the homeowner’s ability to pay.
There are many economists in the world. And the consensus of economic thought tends to be one that supports large government intervention. Which proves the economic consensus is wrong. For if history supported this consensus the Soviet Union would have won the Cold War. East Germany would have absorbed West Germany. China would not be experimenting in ‘Invisible Hand’ capitalism. And Cuba wouldn’t be experimenting with a little capitalism themselves to fix their broken government command economy.
All these market failures economists like to point to aren’t market failures. They are the unintended consequences of government intervention into the market. As the subprime mortgage crisis clearly proved. Which never would have happened in the first place if the government didn’t try to be smarter than the Invisible Hand.
Tags: ARM, capitalism, Cold War, economists, Fannie, Freddie, free market, free-market capitalism, government intervention, inflation, invisible hand, Keynesian, Keynesian economics, Left, lenders, market failures, mortgage, risky loans, risky mortgages, Seventies, Soviet Union, stagflation, subprime mortgage crisis, unemployment
Week in Review
President Obama attacks rugged individualism. Entrepreneurialism. And the American spirit. What he calls ‘you’re on your own economics’. Lying about what hasn’t worked in the past. For he is either lying or he is incredibly uninformed when it comes to American economic history (see Obama: “You’re On Your Own” Economics Doesn’t Work posted 3/30/2012 on Real Clear Politics).
“It’s been tried in our history and it hasn’t worked,” Obama said. “It didn’t work when we tried it in the decade before the Great Depression. It didn’t work when we tried it in the last decade. We just tried this. What they’re peddling has been tried — it did not work!”
When the government left people alone in the Twenties that decade roared. The ‘leave the people alone’ policies of the Harding (and then the Coolidge) administration gave us the Roaring Twenties. A remarkable decade of technological growth. Both in the cities and on the farms. We mechanized. We electrified. We talked to people all over the country on the new telephones. We went mobile in our new automobiles. We listened to the radio in our homes. We used electric appliances in our homes. We went to theaters to watch the new motion pictures. People flew in airplanes. The Roaring Twenties were a seminal time. It marked the beginning of the modern world we know today. And it was full of real, solid economic growth. Until the progressive Herbert Hoover took over. And after he got rid of ‘you’re on your own economics’ everything went to hell.
The Great Depression was a wholly made government disaster. Massive interventions into the private sector economy. Price supports. A horrendous tariff bill (the Smoot-Hawley Tariff Act). And the resulting trade war. And then in the midst of all of this the Federal Reserve System destroyed the banking system. By NOT being the lender of last resort. Causing a cascade of bank failures.
The Seventies was Keynesian Economics at its pinnacle. It was everything President Obama believes in and wants today. Massive government spending. Paid for by massive taxes, borrowing and printing. The polar opposite of ‘you’re on your own economics’. Which were an abject failure. Even Keynesian Economists have to qualify the Seventies to explain away the stagflation (high unemployment AND high inflation) their policies gave us. Ronald Reagan fixed the Keynesian train wreck with exactly ‘you’re on your own economics’. It was so successful that Keynesians call it the decade of greed. A moniker no one can place on the Seventies.
So why is the president saying things that aren’t true? Because they want those failed Keynesian polices back. They want to tax and spend like there’s no tomorrow. For they like the power. The control. And the ability to buy votes. Which is the only way they can win elections. Because no one will willingly vote for their failed policies of the past.
Tags: economic, economic history, economic Past, government spending, Great Depression, Keynesian economics, Keynesians, not telling the truth, Obama, President Obama, Roaring Twenties, Seventies, Tax and spend, Twenties, you're on your own economics
The Civil War feminized Men and gave us the Nanny State and the Progressive Movement
In all some 2-3 million men left their homes to fight in the Civil War. Leaving mothers to raise their children on their own. With Christian love and nurturing. Especially the boys. Whose fathers their mothers dearly missed. And lived in fear that they would fall in battle. So they smothered these boys with love and affection. Made them feel special. The center of the world. The Civil War would claim some 630,000 lives. A lot of them young fathers. Who left their sons no father. Only a loving and doting mother to raise them. A mother who hated war. And despised manly displays of aggression that led to that god-awful war. Something they would protect their boys from. Instead filling them with kindness and sensitivity. Teaching them not to meet aggression with aggression. But with understanding. Empathy. Kindness. And if someone strikes them to simply turn the other cheek. Like the good Christians they were. Because manly displays of behavior led to nothing but trouble. And war.
The Republicans won the Civil War. And freed the slaves from their Democrat masters. Giving them the franchise to vote. And they, of course, voted for their liberators. The Republican Party. Anxious to keep this vast new Republican voting bloc voting for them the Republicans quickly passed the Fifteenth Amendment (1869), giving the freed slaves the Constitutional right to vote. Forever. And they did. While the Union Army was still in the South after the Civil War to enforce the peace. And protect the newly freed black population. But after Custer’s Last Stand where the Sioux and Cheyenne decimated Custer’s army, that army was needed out West. And when it left the South so did the security of black Republican voters. So they stopped voting. And the Democrats restored things the way they were before the war. Only without the institution of slavery.
So the Civil War provided a couple of powerful lessons. First of all, if a war kills enough men their sons will grow up feminized. Taking on some characteristics of the fairer sex. And shunning their more masculine traits. Also, enfranchising a large group of the population can help you win elections. These two lessons came together in the Progressive movement the late 19th and early 20th century. When these fatherless sons grew up and entered politics. And changed the nature of government. No longer the limited government of our Founding Fathers. But a larger and more active government to mother us. A lesson Woodward Wilson was slow to learn. As he opposed women’s suffrage until protesters made him change his mind. Which may have played a part in the Progressives losing the 1920 election. The Nineteenth Amendment being ratified just months before the elections. Lucky for us he was slow in changing his mind. For had he embraced women’s suffrage his party may have been rewarded at the polls by a lot of happy women. Instead they voted for a Return to Normalcy with Warren G. Harding. Who followed the advice of Andrew Mellon and cut taxes. Igniting economic activity. Giving us one of the greatest decades in U.S. history. The Roaring Twenties. Where limited government and free market capitalism modernized the world. But it wouldn’t last. For the heavy hand of government interfered with those free markets by the end of the decade. Giving us the Great Depression.
As Women Empowered themselves with the Birth Control Pill they made Men Very, Very Happy
FDR exploded the size of government with his New Deal. It was not JFK’s “Ask not what your country can do for you – ask what you can do for your country.” Instead it was what can our new big-ass government do for you? How can we now mother you? And how can we get you to vote for us? So we can continue our orgy of spending. And the women’s vote no doubt helped. Many of who were mothers. With mothering instincts. Who wanted to help and take care of people. Who endorsed FDR’s policies. The product of those feminized Progressive men. Who worked diligently to change limited government into the nanny state. To fill government with understanding. Empathy. And kindness. Creating a new aristocratic class in the process. Allowing these feminized men to achieve great levels of power and wealth. Doing whatever they want. Because they felt special. The center of the world. And superior.
The New Deal programs failed to pull the country out of the Great Depression. World War II came around to do that. Causing another generation to suffer through another horrible war. This time putting some 13 million Americans into uniform. Leaving a lot of mothers to raise their children. Alone. Raising them with a nurturing Christian love. Especially their sons. Whose fathers their mothers dearly missed. And lived in fear that they would fall in battle. So they smothered their sons with love and affection. Made them feel special. The center of the world. To ease the fear and dread of the war. Which killed some 400,000. And wounded a million more. A lot of them young fathers. Leaving more sons with no father in their lives. Only a mother who hated war. And would raise their sons to hate war, too. To love, instead, peace. To be filled with feelings of kindness and sensitivity. And to resist their manly urges. Feminizing another generation of men.
These men came of age in the Sixties. Who said “Make love, not war.” And did. Like their mothers taught them. Well, sort of. It was the age of free love. The sexual revolution. Where men had a lot of sex with lots of different women. And when they weren’t having sex they were attacking the establishment. Protesting the Vietnam War. Capitalism. Old white men. Rich people. Religion. Pretty much anyone. And anything. Filled with rage because they grew up without a daddy. Blaming the world for that. (Don’t think so? Listen to Pink Floyd’s The Wall for a real life example as Roger Waters wrote about growing up without a daddy). Filled with hate. Unable to love. So they just had sex. Lots and lots of sex. With a lot of ready and willing sex partners. Because women in those days weren’t getting married anymore to raise a family. They were empowering themselves. Using the new birth control pill to plan when they were going to have a family. Making these men they were having sex with very, very happy.
Liberals encourage Women to Empower themselves and Explore their Sexuality as long as these Women are not their Daughters
The radicals of the Sixties went on to become university professors in the Seventies. Continuing their antiestablishment and anti-capitalism ways. Putting up pictures of Che Guevara up in their classrooms. Preaching socialism. And communism. Teaching political science and journalism and prelaw students how horrible America was. Itemizing every sin. But glossing over every achievement. Attacking religion and morality. Saying, “Who’s to say what’s right or wrong?” Encouraging more government spending. And more government control of the private sector. To make America the socialist paradise they sang about in the Sixties. While high. And to legalize the drugs they used to get high in the Sixties. Attacking men for marrying women. Making them nothing more than cooks and housekeepers. And whores in the bedroom. Encouraging women to burn their bras and have more consequence-free sex. Which these university professors enjoyed during the Seventies. Getting high and having sex with their students. Doing whatever they want. Because they felt special. The center of the world. And superior.
Life was a party in the Seventies. And we paid dearly for it. All our major cites became crime ridden. Drug use soared. Violent crime increased. Including assaults on women. For we were honoring and cherishing women far less in the Seventies than we used to. Casual sex was in. Making women just sex partners. Again, something the men were really enjoying. Especially those feminized men that went on into politics. Who became liberal Democrats. And feminists. Protectors of women. A handy title. For it made the women look the other way every time these men cheated on their wives. Or were caught in some sex scandal. They were really enjoying life. These men. Running the government in the Seventies. And controlling the news networks. The old-boys club was never better. But then the economy had to go into the toilet. And the people finally said enough. They voted for Ronald Reagan. A conservative. Who represented about 40% of the population. And declared the nanny-state of liberalism a failure. An ideology held by only 20% (approximately) of the population002E
Of course, the liberals weren’t just going to give up their privileged life. Controlling all of that tax money. And having whatever they wanted. Including all that fun with young women. They had to come up with some way to get a lot of people who did not agree with their ideology to vote for them. Or who simply didn’t understand their ideology. So they courted the youth vote. Whose interests rarely went beyond the satisfying of their selfish desires. Those they could so enamor in college. By being cool. What with these liberals being so unlike these kids’ parents. Who said that there is nothing wrong with using drugs. Or having casual sex with someone’s daughter. The two things college students can really enjoy. Especially the sex. Which the liberals provided for them. By exploiting these young women. Showering them with birth control. Even access to abortion. Making a woman’s self-worth based on her attractiveness to men. Or on her ability to sexually satisfy men. They encourage women to think the sexier they were the better and more popular they would be. And the happier they would be. Encouraging them to have fun on spring break. So what if they end up on some DVD having sexually explicit fun? As long as they had fun. And vote Democrat. Because it’s the Democrats who make sure these young women can have fun. And feel good about themselves. By encouraging them to be sex objects for men to enjoy. Especially those old men in politics. The feminists. Who say things like they admire the women’s movement. Especially from behind. They encourage these women to ‘empower’ themselves and explore their sexuality. With them. For fun. Their self-worth. And their vote. And these men don’t care what happens to them once they do. As long as, of course, they’re not their own daughters.
Tags: Big Government, birth control, birth control pill, boys, casual sex, children, Civil War, consequence-free sex, Daddy, daughter, Democrat, doting mother, elections, empathy, exploited women, father, fatherless sons, FDR, feminists, feminized, franchise to vote, Great Depression, hate war, kindness, liberal, Liberal Democrats, love and affection, mother, nanny state, New Deal, political elite, politics, Progressive, Progressive men, Progressive movement, Republican, sensitivity, Seventies, sex partners, sixties, socialism, sons, understanding, using drugs, vote, women, women's vote
Monetarists believe in Laissez-Faire Capitalism and Fiat Money
Keynesian economics supports hands-on government management of the economy. Using fiscal and monetary policy to move the aggregate demand curve at will to end business cycles. The boom bust cycles between inflation and recession. Leaving only the inflationary boom times. Using tax and spend fiscal policies. Or simply printing money for government expenditures. For in Keynesian economics consumption is key. The more of it the better. And when people stop buying things the government should step in and pick up the consumption slack.
The Austrian school is a more hands-off approach. The markets should be free. Laissez-faire capitalism. And the business cycle should remain. For it is a necessary part of the economy. Part of the automatic pricing mechanism that adjusts supply to meet demand. When people demand more prices go up. Encouraging businesses to expand production to sell at these higher prices (inflationary expansion). Then when supply exceeds demand businesses have excessive inventory that they can’t sell anymore at those higher prices. So they cut their prices to sell off this excessive supply (deflationary recession). Also, that hands-off approach means no playing with monetary policy. Austrians prefer a gold standard to prevent central bank mischief that results in inflation.
The Chicago school of economics takes a little from each of these schools. Like the Austrians they believe that government should take a hands-off approach in the economy. Markets should be free with minimum government intervention. But unlike Austrians, they hate gold. And blame the gold standard for causing the Great Depression. Instead, they believe in the flexibility of fiat money. As do the Keynesians. But with a strict monetary policy to minimize inflation (which is why proponents of this school were also called monetarists). Unlike the Keynesians. For monetarists believe only a government’s monetary policy can cause runaway inflation.
(This is a gross simplification of these three schools. A more detailed and comprehensive study would be a bit overwhelming as well as extremely boring. But you get the gist. At least, for the point of this discussion.)
We used Gold and Silver for Money because it was Durable, Portable, Divisible, Fungible, Scarce, Etc.
At the heart of the difference between these schools is money. So a refresher course on money is in order. Money stores wealth temporarily. When we create something of value (a good or a service) we can use that value to trade for something we want. We used to barter with other creative people who made value of their own. But as the economy got more complex it took more and more time to find people to trade with. You had to find someone who had what you wanted who also wanted what you had. If you baked bread and wanted shoes you had to find a shoemaker who wanted bread. Not impossible. But it took a lot of time to find these people to trade with.
Then someone had a brilliant idea. They figured they could trade their good or service NOT for something THEY wanted but something OTHER people would want. Such as tobacco. Whiskey. Or grain. These things were valuable. Other people would want them. So they could easily trade their good or service for one of these things. And then later trade it for what they wanted. And money was born. For various reasons (durable, portable, divisible, fungible, scarce, etc.) we chose gold and silver as our money of choice. Due to the inconvenience and danger of carrying these precious metals around, though, we stored our precious metals in a vault and used ‘receipts’ of that deposit as currency. And the gold standard was born.
To understand the gold standard think of a balance scale. The kind where you put weights on one side to balance the load on the other. When the scale balances the weight of the load equals the sum of the weights needed to make the scale balance. Now imagine a scale like this where the VALUE of all goods and services (created by talented people) are on one side. And all the precious metal in the gold standard are on the other. These must be in balance. And the sum of our currency must equal the amount of precious metal. (Because they are ‘receipts’ for all that gold and silver we have locked up someplace.) This prevents the government from creating inflation. If you want to issue more money you have to put more precious metal onto the scale. You just can’t print money. For when you do and you don’t increase the amount of precious metal on the scale you depreciate the currency. Because more of it equals the same amount of precious metal. For more currency to equal the same amount of precious metal then each unit of currency has to be worth less. And when each unit is worth less it takes more of them to buy the same things they bought before. Thus raising prices. If a government prints more currency without adding more precious metals on the scale they increase the value of that precious metal when MEASURED in that currency. It becomes worth more. In other words, you can trade that precious metal for more of that depreciated currency than before they depreciated it. You do this too much and eventually people will prefer the precious metal over the currency. They’ll lose faith in the currency. And when that happens the economy collapses. As people move back towards a barter system.
Milton Friedman wanted the Responsibility of the Gold Standard without Gold’s Constraint on increasing the Money Supply
A healthy economy needs a stable currency. One that people don’t lose faith in. Imagine trying to shop without money. Instead, taking things to trade for the groceries you need. Not very efficient. So we need a stable currency. And the gold standard gives us that. However, the thing that makes gold or silver a stable currency, its scarcity, creates a liability. Let’s go back to that balance scale. To the side that contains the value of all goods and services. Let’s say it increases. But the precious metal on the other side doesn’t. Which means the value of that precious metal increases. The currency must equal the value of that precious metal. So the value of the currency increases. And prices fall. It takes less of it to buy the same things it bought before. Not a bad thing for consumers. But it plays havoc with those who borrowed money before this appreciation. Because they now have to repay money that is worth more than when what is was worth when they borrowed it. Which hurt farmers during the 1920s. Who borrowed a lot of money to mechanize their farms. Which helped to greatly increase farm yields. And increased food supplies while demand remained unchanged. Which, of course, lowered farm prices. The supply increased on the scale. But the amount of gold didn’t. Thus increasing the value of the gold. And the currency. Making prices fall. Kicking off the deflationary spiral of the Great Depression. Or so say the monetarists.
Now the monetarists wanted to get rid of the gold supply. The Keynesians did, too. But they wanted to do it so they could print and spend money. Which they did during the Seventies. Creating both a high unemployment rate and a high inflation rate. Something that wasn’t supposed to happen in Keynesian economics. For their solution to fix unemployment was to use inflation to stimulate aggregate demand in the economy. Thus reducing unemployment. But when they did this during the Seventies it didn’t work. The Keynesians were befuddled. But not the monetarists. Who understood that the expansion of the money supply (printing money to spend) was responsible for that inflation. People understood this, too. And had rational expectations of how that Keynesian policy was going to end. Higher prices. So they raised prices before the stimulus could impact unemployment. To stay ahead of the coming inflation. So the Keynesian stimulus did nothing to reduce unemployment. It just caused runaway inflation. And raised consumer prices. Which, in turn, decreased economic activity. And further increased unemployment.
Perhaps the most well known economist in the Chicago school was Milton Friedman. Who wanted the responsibility of the gold standard. But without gold’s constraint on increasing the money supply to meet demand. The key to monetarism. To increase the money supply to match the growth in the economy. To keep that scale balanced. But without gold. Instead, putting the money supply directly on the scale. Printing fiat money as needed. Great power. But with great power comes great responsibility. And if you abuse that power (as in printing money irresponsibly) the consequences of that abuse will be swift. Thanks to the rational expectations of the people. Another tenet of the Chicago school.
Tags: aggregate demand, Austrian school, Austrians, barter system, business cycle, capitalism, Chicago school, Chicago school of economics, consumption, currency, deflationary, demand, divisible, durable, economy, fiat money, fiscal, fiscal policy, fungible, gold, gold and silver, gold standard, goods and services, Great Depression, higher prices, inflation, inflationary, Keynesian, Keynesian economics, laissez faire capitalism, laissez-faire, markets, Milton Friedman, monetarists, monetary, monetary policy, money, money supply, portable, precious metals, prices, pricing mechanism, print money, printing money, rational expectations, recession, runaway inflation, scarce, Seventies, silver, stable currency, supply, Tax and spend, trade, unemployment, value
« Previous Entries