Abenomics appears to have Failed in Japan just as Keynesian Economics has Failed everywhere it has been Tried

Posted by PITHOCRATES - March 9th, 2014

Week in Review

The Keynesians were applauding Shinzō Abe’s economic plans for Japan.  To end the never-ending deflationary spiral they’ve been in since the late Nineties.  His Abenomics included all the things Keynesians love to do.  And want to do in the United States.  Expand the money supply through inflationary monetary policy.  Devalue the yen to make their exports cheaper.  Lower interest rates into negative territory.  Quantitative easing.  And lots of government spending.  The kinds of things that just makes a Keynesian’s heart go pitter pat.

They kicked off Abenomics in 2013.  And how are things about a year later?  Not good (see Japan’s deficit hits record as economic growth slows posted 3/9/2014 on BBC News Business).

Japan’s current account deficit widened to a record 1.5tn yen ($15bn; £8.7bn) in January, the largest since records began in 1985.

In further bad news, the country’s economic growth figures were also revised downwards…

The sluggish growth and growing deficit come just before a planned sales tax increase, scheduled to take effect in April.

They did weaken the yen.  Making it worth less than other currencies so those currencies could get more yen when they exchanged their currencies to buy those Japanese exports.  Of course, when Japanese exchanged their yen for those other currencies they got less of those other currencies in return.  Requiring more yen to buy those now more expensive imports.  Thus increasing their trade deficit.

Japan is an island with a lot of people.  They have to import a lot of their food, energy and natural resources as they have little on their island.  So the weaker yen just made everything more expensive in Japan.  Which, of course, lowered GDP.  As those higher prices reduced the amount of buying their consumers could do.

Japan’s greatest problem is her aging population.  And they have just about the oldest population in the world.  As the youth have slammed the brakes on having children.  So you have massive waves of people leaving the workforce the government is supporting in retirement.  And fewer people entering the workforce to pay the taxes that support those retirees.  Which, of course, forces higher tax rates on those remaining in the workforce.  Further reducing the amount of buying their consumers can do.  And no amount of Abenomics can change that.

Abenomics did not deliver what the Keynesians thought it would.  Because Keynesian economics (aka demand-side economics) just doesn’t work.  If it did Japan never would have had a Lost Decade to begin with.  For it was Keynesian economics that gave Japan that asset price bubble in the first place.  Which burst and deflated into the Lost Decade.

What Japan needs is a return to classical economic principles.  Focusing more on the supply side.  Lower tax rates and reduce regulation.  Let the market set interest rates.  Restore the policies that introduced ‘Made in Japan’ to the world.  They need to make their capitalism more laissez-faire.  If they do they can create the kind of economic activity that just might be able to support the generation who created the ‘Made in Japan’ label in their retirement.  But you must have robust economic activity.  So robust that lower tax rates can produce greater tax revenue.  The supply-side economics way.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , ,

FT190: “The children are our future. God help us.” —Old Pithy

Posted by PITHOCRATES - October 4th, 2013

Fundamental Truth

Our Universities praise Government Intervention, Vilify Capitalism and Denigrate US History

I recently saw some students on television from our most prestigious universities.  I won’t say who or where they were because it doesn’t matter.  For they all pretty much think the same.  There were liberal Democrats.  And conservative Republicans.  Young people.  Just into their twenties.  They spoke of economics, health care, free markets, investing in education, etc.  Kids too young to have experienced life.  In fact, most were still on their parent’s health insurance policies.  But they knew everything there was to know.  Particularly the liberal Democrats.

In college kids don’t know anything.  That’s why they are there.  So someone can tell them all those things they don’t know.  The problem is this.  The people telling them what to think have a liberal bias.  It’s no secret.  The teachers’ unions demand pay and benefit packages well beyond what most people can get in the private sector.  The government let’s them gouge taxpayers.  And in return they teach our kids in public schools to become Democrat voters.  Then it’s on to college.  Where the anti-capitalist hippies of the Sixties went on to become college professors.  Who talked about the fairness in the former Soviet Union and the former East Germany.  Where they put people before profits.  Admiring their love of people.  And hatred of profits.  While glossing over on their oppressive police states, thought crimes, prisons for political dissidents, torture and wholesale executions.

These radical hippies took over higher education.  And wrote the curriculum.  Which praised government intervention into the free market economy.  Vilified capitalism.  And denigrated the United State’s role in history.  Programming our children to hate whatever they hate.  And to love what they love.  Even when the facts get in the way.  Which they can fix with a little history revisionism.

The Arts did Very Well during the Eighty thanks to the Generosity of Gainfully Employed People

They call the Eighties the decade of greed.  While at the same time calling President Reagan’s economic policies a failure.  Supply-side economics.  Of the Austrian school.  Everyone did well.  Everyone made money.  Which is why they were so materialistic.  Because they had good-paying jobs that allowed them to be materialistic.  Allowing them to buy Sony Walkmans and CD players.  Which everyone had to have.  Even though no one knew what they were before they hit the stores.  Proving Say’s law.

Say’s law is a part of supply-side economics.  In general it states that supply creates its own demand.  No one was clamoring for Sony Walkmans or CD players in the Eighties.  But when these companies explained how great they were all of a sudden we were demanding them.  Supply created demand.  Just as PC supply created PC demand.  PCs were on the market long before they were in everyone’s home.  It was a tough sell in the beginning.  Because no one knew what they would use them for.  But they have them now.  Just like the Internet.  For a generation who had just mastered the recording functions on their VCRs (video cassette recorders—what we used to record TV programs on before DVRs) the Internet was a confusing thing.  And many said “thank you, but no thanks.”  Then people began creating content and putting it on the World Wide Web.  Today, people can’t live without their Internet connection.  Again, supply created demand.

This is Say’s law in action.  Supply creates demand.  You make it easier for people to be creative and bring things to market and they will.  Two ways to do this is to lower tax rates and reduce the regulatory climate.  So people are more willing to take risks.  Which they will do if there is sufficient reward for taking that risk.  Reagan did both during the Eighties.  The economy exploded.  Everybody was working.  The jobs were so good that we had money for material comforts.  And generous donations.  The arts did very well during the Eighties thanks to the generosity of gainfully employed people.

Obamacare will take Money from the Young and Healthy to pay for the Old and Sick

But this isn’t what they’re teaching in our universities.  They say that Reagan did cut taxes and created an economic boom.  But at what cost?  For he had record deficits.  Because of those tax cuts.  Which is where that history revisionism comes in.  Yes, he cut tax rates.  And when he did tax receipts (actual money flowing into the treasury) nearly doubled.  But our universities don’t teach that.  As demonstrated whenever a liberal talks about Reaganomics.  Instead they attack Reagan.  Capitalism.  And Republicans in general.  Because they all believe that limited government is best.  Which threatens a ruling class.

Our universities teach our kids the economics school that benefits the ruling class.  By supporting an ever expanding government.  Keynesian economics.  Which has a proven track record of failure whenever we’ve tried it.  John Maynard Keynes himself advised FDR during the Great Depression.  FDR didn’t think much of Keynes.  But he liked his idea about government spending during times of recession.  Even though it only delayed the correction—and prolonged the recession—by interfering with market forces trying to correct market prices.  Giving us the Great Depression.  Keynesian economics also gave us the stagflation of the Seventies.  Japan’s Lost Decade in the Nineties.  The American dot-com bubble and recession in the Nineties/early 2000s.  The 2008 subprime mortgage crisis.  And the ongoing European sovereign debt crisis.  All of these crises have their roots in Keynesian economics.  The school of economics of the ruling class.  But what do they teach in college?  Free market capitalism is bad.  And Keynesian economics is gospel.

These twenty somethings were anxious to show how smart they were.  How in a mere 2-4 years of college they had learned everything there was to learn.  And could regurgitate the party line.  Rolling their eyes at the idiots around them.  Laughing with all-knowing condescension.  Praising President Obama.  Obamacare.  Believing that it will provide more for less.  When nothing in the world works that way.  More costs more.  Yet they naïvely bleat what they were taught.  These kids who haven’t opened up a letter from their private health insurer advising them that their premiums will rise by 50%, 75%, 100%, or more, to comply with Obamacare.  Because it costs more to have more.  And people now have to pay more even if they don’t want more.  In particular young people.  For Obamacare is a transfer program.  Where Obamacare will take money from the young and healthy (like these college students once they graduate) to pay for the old and sick.

These kids, of course, blame the Republicans for the government shutdown.  And that their concern for our deficits is silly.  For they believe we don’t have a deficit problem.  Yet the smaller Reagan deficits were the end of the world as we knew it.  And they don’t have a problem with members of Congress and their staff getting subsidies to pay for their Obamacare.  As paying for their Cadillac health care plans with their six-figure salaries would have been too much of a burden for them.  And beneath them.  So we should pity them while record numbers of Americans have disappeared from the labor force.  Especially during the government shutdown.  Where the grooms of the stool may not be there for them.  Forcing the ruling class to wipe their own bottoms after they go potty.

This is what government and the political left is turning into.  A ruling class.  The very thing we fought our independence from.  And they are getting away with this because they control education.  And because they do they can revise history.  And change their failures to successes.  And change conservative successes to failures.  All you need are fresh young minds to corrupt.  And corrupt they do.  These kids talk like they know everything.  But they know nothing.  Which is sad.  For the children are our future.  God help us.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The US and UK following Keynesian Policies and Suffering Jobless Recoveries

Posted by PITHOCRATES - April 28th, 2012

Week in Review

The US is not the only country suffering through a ‘jobless’ recovery.  Which is just another way of saying continued recession.  Or double-dip recession.  The UK is having the same problems we’re having.  And using inept government policies to try and fix them.  Just like in the US (see A recession made in Downing Street – but not caused by cuts by ALLISTER HEATH posted 4/26/2012 on City A.M.).

The first problem has been the composition of the austerity package. Much of the tightening has been via tax hikes rather than spending cuts – capital gains, national insurance, stamp duty, value added tax, and now pasties and the rest. That was the wrong choice: lower taxes are good for growth, higher taxes are bad. The trick is to deliver austerity by cutting spending, not by hiking taxes.

The next issue is that the government’s supply-side agenda has failed miserably. By now, developers should have been set free to build new airports and even cities; the labour market should have been liberalised; job-reducing red tape eliminated; the top rate of tax abolished; mad EU rules abolished, and so on and so forth. Britain needed a revolution; it was granted a few over-hyped reforms…

…excessive inflation has slashed real incomes and real wealth; this, rather than cuts, is what has depressed spending the most…

Last but not least, banking rules. It was right to ensure banks held more capital and that credit became priced rationally – but the reforms have spiralled out of control…

What is most depressing is that the double-dip (if that is indeed what it is) will wrongly discredit austerity, even though the state remains incredibly profligate…

President Obama has broken deficit and debt records.  While he chastises the Right for irresponsibly spending beyond their means.  Demanding that they raise taxes to pay for this irresponsible spending.  That somehow higher taxes will fix all of America’s ills.  Or, at the least, address the social injustice of prosperity.  And happiness.

Both the UK and the US are steadfastly following the failed policies of John Maynard Keynes.  Demand-side Keynesian economics.  Tax and spend.  Because they’ve ‘worked so well’ in the past.  Of course they haven’t.  They never have.  And they never will.  What works are supply-side economics.  Those policies embraced by Margaret Thatcher.  And Ronald Reagan.  Who enjoyed real economic recoveries.  The kind that created jobs.

Politics never change.  Politicians dumb down public education so the people never learn the lessons of history.  That all of their policies are tried and failed.  So they make the same arguments every election cycle.  And the young believe in the goodness of these policies.  The fairness of these policies.  Never knowing the lives they have destroyed through the years.  Which is why politicians work so hard to get the youth vote.  Before they learn the truth.  And become conservative.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , ,

Apple Suspends Retail Sales of their iPhone 4S in China due to Crushing Mobs at Retail Stores

Posted by PITHOCRATES - January 14th, 2012

Week in Review

Here is a economics lesson in supply and demand and the role of prices as people in China try to buy the new Apple iPhone 4S (see Apple to halt sales of latest iPhone in China retail stores by Terril Yue Jones and Lucy Hornby posted 1/13/2012 on Reuters).

“We’re suffering from cold and hunger,” a man in his 20s shouted to Reuters Television. “They said they’re not going to sell to us. Why? Why?”

“I got in line around 11 p.m., and beyond the line, the plaza was chock full with people,” said Huang Xiantong, 26, from northeastern Liaoning province.

“Around 5 a.m. the crowds in the plaza broke through and the line disappeared entirely. Everyone was fighting, several people were hurt. The police just started hitting people. They were just brawling.”

Clearly Apple created something that people want.  Which has often been the case with Apple.  Building things people have to have.  Even before the people knew what these things were or that they would one day have to have them.  This is supply-side economics.  This economic activity was generated by supply.  Apple’s new product.  Created by creative human capital and the entrepreneurial spirit.  This is what businesses do.  If we let them.  And not burden them with excessive taxes and regulations.

Of course a Keynesian will point out that Apple did exactly that.  Created their products despite excessive taxes and regulations.  True.  They did that.  But Apple is a giant now.  They can hire lawyers and tax accountants to navigate these excessive taxes and regulations.  The new entrepreneur can’t.  Like other Steve Jobs trying to start out now by creating something new that the people will discover that they must have.  Many of who will not get past the excessive taxes and regulations to get where Steve Jobs did.  Falling along the wayside of ingenuity and possibility because of those excessive taxes and regulations.

Of course, others will point out that if it wasn’t for those excessive taxes and regulations corporations would just put profits before people and charge whatever prices they want.  Selling whatever inferior quality they want.  Well, regarding the quality I refer you to the Reuters article about iPhones going on sale in China.  As regard to prices…

Apple’s latest iPhone, with features including responding to commands with its own voice, was introduced in China and 21 other countries on Friday. Prices ranged from 4,988 to 6,788 yuan ($792 to $1,077).

Apple, in a statement, said its other stores had sold out.

Are prices ranging from $792 to $1,077 fair?  Based on the long lines and stores selling out, I believe the people have spoken.  And they say, yes, these prices are fair.  Perhaps even too fair.  If they were a little more expensive those who truly wanted one and were willing to pay a higher price probably would have been able to buy one before the stores sold out.

This is an example of Say’s law.  Supply creates demand.  These ingenious smartphones were not created in response to demand.  Apple created them and explained why people must have them.  Which they did.  This is how you stimulate economic activity.  Supply-side economics.  You make it as easy as possible for people to bring ingenious things to market.  Not the Keynesian way.  Giving more money to people through tax and spend policies.  Which only allows people to buy what’s on the market now.  It doesn’t stimulate the creativity of entrepreneurs.  Who bring the next great things to market.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , ,

‘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

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Obama Delivers his $447 Billion Political Stimulus Plan to Congress

Posted by PITHOCRATES - September 12th, 2011

Had the $800 Billion Stimulus worked we wouldn’t need the $447 Billion Stimulus

We have a plan. Rather, Congress does. President Obama delivered it today. And he reiterated that they must pass it now. That there was no time for political games. Like he was doing. Saying basically that if the Republicans don’t pass it they don’t want to help the economy. And, by extension, they hate the American people. For only those who hate the American people could deny them jobs (see Obama urges no “political games” on jobs plan by Laura MacInnis and Matt Spetalnick posted 9/12/2011 on Reuters).

President Barack Obama called on Republicans not to play “political games” with his jobs plan as he pressed for swift passage of a $447 billion package he hopes will revive the U.S. economy and boost his re-election prospects…

He took aim at Republicans who have resisted many of his economic initiatives in the past.

“We can’t afford these same political games, not now,” Obama said.

Economic initiatives in the past? Like that $800 billion stimulus? You know, if that had worked we would not need another stimulus. But we apparently need another stimulus. So the previous stimulus must have failed. And, if so, why would this stimulus be any different?

It would appear that the only one playing a game now is the president.

Stimulus Sleight of Hand: Taking from the Private Sector to Stimulate the Private Sector

So let’s take a look at what the president calls stimulus. First of all, where is that $447 billion going to come from (see Obama proposes tax hikes on wealthy to pay for $447B jobs bill by Sam Youngman posted 9/12/2011 on The Hill)?

The White House said Monday that President Obama wants to pay for his $447 billion jobs bill by raising taxes on the wealthy and business.

Oh. He’s going to pay for his jobs bill by raising taxes on the job creators. I mean, let’s face it, poor people don’t create jobs. Rich people do. And businesses. And why aren’t they creating them now? They have no idea what cost this administration is going to levy on them next. Like a tax hike to pay for another stimulus bill.

The stimulus will be temporary. But you can bet those tax hikes won’t be. They’ll be permanent. And a disincentive for rich people and business owners alike to risk their money to create jobs.

The administration would tax the income investment fund managers make, known as “carried interest,” as regular income instead of as capital gains, which has a low 15 percent tax rate. This is another long-standing administration goal that has been resisted by Wall Street as well as some Democrats.

The administration estimates the capital gains change would provide $18 billion in revenue.

In other words, he wants to chase what investment capital we have out of the country.

A lot of people lose money in the stock market. Because it’s risky. It’s like gambling. Where there is no such thing as a sure thing. So those who take big risks often lose big. Even Donald Trump has filed for bankruptcy protection a couple of times. That’s why when they do win they need to win big. To cover all of those times they don’t win. But when you raise the tax rate on those winnings from 15% to 33% (the current top marginal income tax rate), it’s going to make investors think twice. That’s an increase of 120%. They may not just whistle a happy tune and pay it. You see, the funny thing about capital, it’s mobile. You can move it. And park it.

European investors are parking their money in U.S. banks at a negative interest rate while they wait out the European sovereign debt crisis. American investors can just as easily move their money out of the country. And wait for a more favorable investment climate before returning. Which won’t create jobs. Or provide tax revenue.

Another $3 billion would come from changing the way corporate jets depreciate. With a few other revenue raises, Lew indicated the total measures proposed by the administration would bring in $467 billion, $20 billion more than the cost of Obama’s jobs bill.

What is it with him and corporate jets? He sure hates those corporate jets.

So he will pull a half trillion dollars out of the private sector. So he can inject it back into the private sector. Less a small handling fee. And the usual gifts to his political cronies. Resulting in more debt. And very little stimulus. If any.

This is less stimulus. And more political sleight of hand. Taking from the private sector to stimulate the private sector.

The White House dug in on its refusal to say how many jobs the package would create, pointing instead to an estimate from Moody’s that said the bill would create about 1.9 million jobs.

Lew noted that he was not a part of Obama’s economic team when NEC director Christina Roemer and Vice President Biden’s former chief economist Jared Bernstein said that the original stimulus package would reduce unemployment to below 8 percent.

After months of being reminded by Republicans that the recovery act did not cut unemployment, which is now at about 9 percent, Lew said he thinks it is “dangerous to ever predict unemployment rates.”

If Moody’s prediction is accurate, that’s $ 235,263.16 per job. It would be cheaper just to give $30,000 to 1.9 million people. That would only cost $57 billion. And it would probably stimulate more. Of course, they won’t do that. Because that wouldn’t reward any political cronies.

And there’s a good reason why they’re not making any predictions. Because they know this stuff doesn’t work. They only made the unemployment rate prediction because they thought the economy would have fixed itself in short time. It usually does. That’s why they were in such a rush to pass it. They had to pass it before the economy recovered. They had no idea how bad things were. Or how their policies would make things worse. Because they have no idea of how the economy works.

And isn’t the refusal to make unemployment predictions an admission that they have no faith in what they’re doing? Vis-à-vis the economy, that is. For they have full faith and confidence in the political effects. They can predict the campaign donations this will generate. And the likely votes. But they won’t make these predictions public. For it will be admitting the truth of this political stimulus.

Stimulus that Works: Cutting Costs for Business

But someone knows how to create jobs. Not by putting more money into workers’ pockets. But buy cutting a business’ costs (see Detroit Sets Its Future on a Foundation of Two-Tier Wages by Bill Vlasic posted 9/12/2011 on The New York Times).

The newest Chrysler workers earn about $14 an hour, compared with double that amount for longtime employees on the same shift. With the economy slumping and job creation once again a pressing issue in the White House and Congress, the advent of a two-tier wage system in Detroit is spiking employment for one of the country’s most important manufacturing industries…

What was once seen as a desperate move to prop up the struggling auto industry is now considered an integral part of its future. The demand for $14-an-hour manufacturing jobs is providing Detroit’s Big Three automakers with a ready pool of eager new employees. Last year, Chrysler was flooded with inquiries about the jobs here, and it froze the list after receiving 10,000 applications.

So someone understands. American cars weren’t selling because they couldn’t compete in the market place. They couldn’t sell the cars they had. And they certainly weren’t going to expand production. But cut labor costs and look what happens. They can compete in the market place again. And create jobs.

So far, about 12 percent of Chrysler’s 23,000 union workers earn the lower wage, and over all, 4,000 or so of the 112,000 U.A.W. members are second-tier hires. Those numbers are expected to grow — and in fact can increase significantly even under the current contract. The jobs are central to the contract talks now because they are viewed as a critical element of the industry’s continued recovery.

The benefits for the lower-tier workers are scaled back as well. They get a maximum of four weeks paid time off a year, versus five for the longtime workers. And instead of the guaranteed $3,100-a-month pension a full-paid worker receives after age 60, the new hires have to build their own “personal retirement plan” based on contributions from the company of less than $2,000 a year.

This is stimulus that works. Cut costs for business. And business creates jobs. Which is the goal of stimulus.

Raising taxes on business won’t cut costs for business. So it won’t stimulate. Raising taxes on business to pay for a stimulus bill will tap the brakes on the very economy they’re trying to stimulate. And what is government spending that doesn’t stimulate? Pork. Earmarks. Rewarding political cronies.

Keynesian Stimulus Spending stimulates Politics, not Economic Activity

Let the political games begin. And the lying. The latest stimulus is no different from the first stimulus. It will fail. Only it will be less of a failure. The only good thing we can say about it.

Detroit has shown the way. If you want to create jobs. If you want to stimulate the local economy. You cut costs. You don’t raise them. And you do it in a way where there is little uncertainty. The two-tier wage system is here to stay. The automotive companies can plan on this cost certainty.

You know another name for this? Supply-side economics. That’s right. They fixed the car companies on the supply side. Not the demand side. That’s why they won’t take this model and apply it to the rest of the economy. That would go against every Keynesian fiber in their body. But they did in Detroit. Because they had to save the UAW. And things were so bad in the U.S. automotive industry that they had to drop politics this one time. But they will be damned if they’ll concede defeat and stop their Keynesian ways everywhere else. I mean, if they did, how, pray tell, would they reward their political cronies?

Keynesian stimulus spending stimulates politics. Not economic activity. Whereas supply-side economics stimulates economic activity. Not politics. So you can see why those in government are Keynesians. Because spending our money before we can is more important than our economic wellbeing.

 

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Ronald Reagan’s Reaganomics Increased GDP and Tax Revenue, Decreased Unemployment and Tamed Inflation

Posted by PITHOCRATES - August 8th, 2011

Ronald Reagan’s Supply-Side Reaganomics caused an Economic Boom

Politics is a struggle.  Between those on the Left.  And those on the Right.  And nowhere is it more partisan than when it is about one subject.  ReaganomicsRonald Reagan‘s supply-side economics.  Of the Austrian School.  That the Left belittles as trickle-down economics. 

His tax cuts during the Eighties sparked an economic boom.  No one denies this.  In fact, life was very good during the Eighties.  So good that the Left denounce those years as the Decade of Greed.  “Yes, a lot of people got rich,” the Left says.  “But at what cost?”  And then they point to those ‘soaring’ Reagan deficits.  Peaking at about $221.2 billion in 1986.  Or about $358.3 billion adjusted for inflation.  (Pretty tame by today’s standards.  Barack Obama has one in the $1.6 trillion neighborhood.)  But did Reagan cause them with his tax cuts?

To answer this question we look at historical GDP (gross domestic product).  And tax receipts.  From the Seventies and the Eighties.  From the heyday of Keynesian economics.  After the Nixon Shock in 1971. That ended the ‘gold standard‘.  When Nixon said, “I am now a Keynesian in economics.”  And through Reaganomics.  All dollar amounts are constant 2005 dollars (shown in billions).  These are graphed along with the top marginal tax rate, inflation and the unemployment rate.

(Sources: GDP, tax revenue, top marginal tax rate, inflation, unemployment)

Inflation Eroded GDP and Raised Unemployment in the Seventies

There are two relatively flat plateaus on the GDP graph.  Flat or falling GDP growth indicates a recession.  One starting sometime after 1972.  The other one around 1979. 

Both of these correspond to a spike in the inflation rate.  This happens because inflation erodes GDP.  By raising prices.  Higher prices mean we buy less.  Which means less GDP.  And higher prices tend to inflate business profits.  Where profit gains are from inflation.  Not from selling more stuff.  Which means less GDP.

Inflation is one half of the business cycle.  Which is a boom-bust cycle.  A booming economy.  And a busting recession.  Inflation.  And deflation.  Growth.  And recession. 

During growth there’s inflation.  Prices go up as more people want to buy the same things.  Bidding up prices.  The unemployment rate falls.  Because businesses are hiring more people.  To expand.  To meet this demand. 

When they expand too much there’s too much stuff on the market.  People can’t buy it all.  So prices go down.  To encourage people to buy.  And businesses cut back.  Lay people off.  With fewer people working there’s fewer people to buy that excess supply.  So prices fall more.  And businesses lay more people off.  To reflect the falling demand.  Which increases the unemployment rate.

The business cycle, then, corrects prices.  And readjusts supply to demand.  Keynesian economics was going to change this, though.  By removing the recession part.   Through permanent inflation.  At least, that was the plan.  The two plateaus in the GDP graph shows that the business cycle is still here despite their best efforts.   

And the Keynesians only made things worse.  By causing double-digit inflation.  By creating more demand than existed in the market.  People used that easy money.  To buy things they wouldn’t have otherwise bought.  Creating ‘bubbles’ of inflated prices.  Which are corrected by recessions.  And the greater the bubble, the greater the recession.

Easy Monetary Policy (i.e., Printing Money) made Inflation Worse in the Seventies

Government spent a lot during the Seventies.  A lot of that was Keynesian spending paid for with easy monetary policy (i.e., printing money).  Something governments can only do.  They are the only ones that can say, “Use these paper bills as legal tender.  We guarantee it.”

Making fiat money is easy.  But there is a cost.  The more you make the more you devalue your currency.  That’s the cost of inflation.  Money loses some of its purchasing power.  The greater the inflation the greater loss of purchasing power. 

They printed a lot of money during the late Seventies.  So much that the dollar lost a lot of its purchasing power.  Hence the double-digit inflation.

Paul Volcker was a Federal Reserve chairman.  He started in the last year of Jimmy Carter‘s presidency.  And remained chairman for about 8 years.  He raised interest rates severely.  To constrict the money supply.  To pull a lot of those excess dollars out of circulation.  This caused a bad recession for Reagan.  But it killed the double-digit inflation beast.  This sound money policy was a tenet of Reaganomics.  Which was an integral part of the Eighties boom.

Reagan’s Tax Cuts Increased both GDP and Tax Revenue

The hallmark of Reaganomics, of course, is low taxes.  Reagan cut the top marginal tax rate.  He dropped it from 70% to 28% in four cuts.  After the first cut GDP took off.   Because rich people reentered the economy. 

They weren’t parking their money in investments that helped them avoid paying the top marginal tax rate.  They were starting up businesses.  Or buying business.  Creating jobs.  Because the lower tax rates provided an incentive to earn business profits.  And not settle for lower interest income.  Or capital gains. 

For business profits can be far greater than interest earned on ‘income tax avoiding’ investments.  Such as government bonds.  And if we don’t penalize rich people for risk-taking they will take risks.  Create another Microsoft.  Or Apple.  But they are less likely to do that if they know we will penalize them for it.  And that’s what a high marginal tax rate is.  A penalty.  Remove this penalty and they will choose risky profits over safe interest every time.  And make a lot of jobs along the way.

And this is what they did during the Eighties.  Their ‘greed’ created a boom in employment.  A rising GDP.  Accompanied with a falling unemployment rate.  Rich people were pulling their money out of tax shelters.  And putting it into businesses.  Where they could make fat profits.  And making fat profits in business requires employees.  Jobs.  Unlike making money with safe tax-sheltered investments. 

Tax revenue increased.  There were more business profits.  And more business income taxes on those profits.  There were more jobs.  More employees in the workforce.  Paying more payroll taxes.  And more personal income taxes

Successful businesses made more rich people.  And more rich people pay more income taxes than fewer rich people.  A lot more.  The top marginal tax rate was lower.  But there were more businesses and people paying taxes.   Because the lower rates created more taxpayers.  And richer taxpayers to tax.  Which increased overall tax revenue.

Tax Revenue Increased under Reaganomics but Government Spending simply Increased More

So to summarize the data during Reaganomics, GDP grew, tax revenue grew, unemployment fell and inflation was tame.  All the things you want in a healthy economy.  And this all happened when the top marginal tax rate was cut from 70% to 28%. 

So, no, the Reagan deficits were NOT caused by the Reagan tax cuts.  That’s a myth created by the Left to revise history.  To recast the successful policies of Ronald Reagan as failures.  So they can continue in their tax and spend ways.

Those deficits were a spending problem.  Not a revenue problem.  For tax revenue increased after the tax cuts.  So why the deficits?  Because government spending simply increased more.

 www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Reaganomics beats Keynesian Stimulus Spending every Time

Posted by PITHOCRATES - July 6th, 2011

Obama’s Policies Failing because they’re too Ronald Reagan

So President Obama is a supply-sider.  Just like Ronald Reagan.  Who’s a thunk it?  Funny, he doesn’t appear to govern like Ronald Reagan.  In fact, I believe Obama has said that we can’t go back to the failed policies of the past.  I’m pretty sure that meant Reaganomics.  But I could be wrong.  Because apparently the faltering economy is faltering because of supply-side economics (see The final nail in the supply side coffin by Andrew Leonard posted 7/6/2011 on Salon).

Ever since Ronald Reagan first attempted to make supply-side economics a reality and proceeded to inaugurate an era of persistent government deficits and growing income inequality, it has become harder and harder to make the trickle-down argument with a straight face. But we’ve never seen anything quite like the disaster that’s playing out right now.

Those persistent government deficits of Ronald Reagan?  They were about $200 billion.  The deficits under the Obama administration have been in excess of $1,300 billion (or $1.3 trillion).  The current projection for 2012 is $1,600 billion (or $1.6 trillion).  So the Obama deficits are over 5.5 times the Reagan deficits.  Or an increase of approximately 550%.  So deficits are worse under Obama.  Far worse.

As far as income inequality, the gap has grown consistently from Richard Nixon through Barack Obama (see The United States of income inequality by Andrew Leonard posed 9/28/2010 on Salon).  That included the 4 years of Jimmy Carter, the 8 years of Bill Clinton and about a year of Barack Obama.  Three Democrat administrations.  So the gap between the rich and poor is greater under Obama.  Far greater.

During the six quarters since the recession technically ended in the second quarter of 2009, real national income in the U.S. increased by $528 billion. But the vast majority of that income was captured as profit by corporations that failed to pass on their happy fortunes to their workers.

First of all, that’s now how business works.  They are not in business to produce wealth for their employees.  They pay employees to help them create wealth.  And they pay them whatever it takes to keep their employees from quitting to find a higher paying job.  If you think that’s wrong let me ask you something.  When you choose a store to shop at, do you pick the one with the highest prices so that store can pay their employees more?

What makes this “recovery” so different? Perhaps the simplest answer is that labor has been broken as a force that can put pressure on management, so there’s little incentive for employers to turn profits into wage hikes or new jobs. Instead, employers are squeezing more out of the workers that they’ve got, and investing in equipment upgrades and new technology instead of human assets — labor productivity has risen sharply since the end of the recession.

GM and Chrysler did not break labor.  Labor broke them.  Those generous UAW contracts saddled these companies with legacy costs that left them uncompetitive.  And insolvent.  The auto bailout screwed the bond holders and rewarded labor.  By giving them seats on the board of directors and stock to fund their underfunded pension funds.  This is why employers prefer investments in productivity.  They’re less political.  And are less likely to come back and bite you in the ass.

Globalization also plays a potent role — and not just as a source of cheap labor to undermine the bargaining power of American workers. The Journal notes that many companies “are benefiting from demand from emerging markets, where they are deriving an increasing share of their sales.” Job creation is probably following the sources of new demand. If the Chinese and Brazilians and Indians are the ones buying American goods and services, then it makes sense to staff up overseas. But with American consumers still shellshocked by the economic crash and dutifully obsessed with paying down their debts while trying to hold on to their homes, domestic demand is hardly a force to be catered to.

Interestingly, the emerging markets noted are making great strides toward free market capitalism.  Countries that are moving towards supply-side economics.  While the U.S. moves away from it.  Those emerging economies are doing well.  The U.S. is not.  It would appear, then, that a move towards supply-side economics is a move in the right direction.  And yet the pundits on the left continue to belittle the success of Reaganomics.  So you be the judge.  Let’s summarize Reaganomics as follows:

1.  Reduce Growth of Government spending.
2.  Reduce Income Tax and Capital Gains Tax.
3.  Reduce Government regulation.
4.  Control the money supply to reduce inflation.

Which president would you say followed these policies more?  Ronald Reagan?  Or Barack Obama?  The one who did would be the supply-sider.  And the one who didn’t would not.

The answer is clear.  President Obama is neither a conservative nor a student of the Austrian School of Economics (i.e., supply-side).  He’s a Keynesian.  His policies are Keynesians.  And Keynesians spend.  As demonstrated by his massive stimulus spending.  That failed to stimulate.   This economic train-wreck in the U.S. is a lesson in Keynesian economics.  Not supply-side economics. 

Keynesian Stimulus Spending is Wasted Money

Let’s take a closer look at Keynesian economics.  The theory that government can spend the economy into prosperity.  By looking at the Obama’s 2009 Stimulus.  One part of which was to expand broadband Internet into rural areas (see How Effective Was The 2009 Stimulus Program? by Nick Schulz posted 7/5/2011 on Forbes).

In an important and eye-opening new paper, Jeffrey Eisenach and Kevin Caves of Navigant Economics, a consulting firm, recently examined ARRA’s subsidization of rural broadband. The ARRA stimulus funds for broadband constitute “the largest Federal subsidies ever provided for broadband construction in the U.S.” An explicit goal of the program was to extend broadband access to homes currently without it.

Eisenach and Caves looked at three areas that received stimulus funds, in the form of loans and direct grants, to expand broadband access in Southwestern Montana, Northwestern Kansas, and Northeastern Minnesota. The median household income in these areas is between $40,100 and $50,900.  The median home prices are between $94,400 and $189,000.

So how much did it cost per unserved household to get them broadband access?  A whopping $349,234, or many multiples of household income, and significantly more than the cost of a home itself.

That’s a lot of money.  It would have been cheaper to buy these people a satellite Internet connection at their homes.  I’m not sure what it would cost, but I’m guessing it wouldn’t have cost more than their house.   

Sadly, it’s actually worse than that. Take the Montana project. The area is not in any meaningful sense unserved or even underserved. As many as seven broadband providers, including wireless, operate in the area. Only 1.5% of all households in the region had no wireline access. And if you include 3G wireless, there were only seven households in the Montana region that could be considered without access. So the cost of extending access in the Montana case comes to about $7 million for each additional household served.

Back in the 1980s there was an uproar over wasteful Pentagon spending. The Air Force spent $7,622 on a coffee maker and the Navy spent $640 per toilet seat. That’s extremely wasteful, but at least the Pentagon arguably needed coffee makers and toilet seats. The seven households in Montana for whom taxpayers just spent $7 million each to extend broadband access probably don’t even want it.

It just goes to show you that government can’t do anything well.  From buying coffee makers to buying toilet seats to providing broadband Internet access.  It just seems like they spend a whole lot more money than necessary.  Pulling more money out of the private economy.  And saddling the American people with more debt.  And for what?  What exactly did that stimulus do?  Not much.  Except make some broad Internet contractors very wealthy.  Which they no doubt are if they’re charging $7 million per installation.

This is Keynesian economics.  Wasteful government spending.  And a jobless economic recovery.  Which is only a recovery by the greatest stretch of the imagination.

Barbara Boxer Lies about Clinton Economy and Budget Surplus

And yet they still argue for more of the same.  In fact, they even go further.  They rewrite history.  And say that Bill Clinton’s tax hikes stimulated the economy and produced budget surpluses (see Barbara Boxer’s blatant rewriting of history by Glenn Kessler posted 7/1/2011 on The Washington Post).

“I think we ought to go back to the people and the party that was the only party and the only people to balance the budget in 40 years. I hate to break it to my Republican friends, but that is the Democratic Party. We are the ones who did it. We did it when Bill Clinton came into office. We did it after hard work. We did it after painful cuts. We did it with smart investments.”

— Sen. Barbara Boxer (D-Calif.), June 29, 2011

‘Investments’ is code for ‘tax hikes’.  As important as they are they still have to lie about them.  You’d think if tax hikes did everything she said they did that they wouldn’t lie.  They’d call them what they are.  Tax hikes.  And not investments.

Actually, neither Bill Clinton nor the Democrats meant to balance the budget in his 1993 budget deal.  Because before the 1994 midterm elections, he was still a liberal Democrat.  Don’t forget, they were still working on HillaryCare (the plan to nationalize U.S. health care) in 1993.

But here’s the important point: the Clinton plan was never intended to achieve a balanced budget. After the bill’s passage, the Congressional Budget Office estimated that the deficit would decline modestly — from $290 billion in 1992 to $200 billion in 1998. In the phrase of the era, there were still “deficits as far as the eye could see.”

He was still a big time Keynesian at this point.  And Keynesians spend money.  That’s why his projected deficits were as big as the Reagan deficits.  But then came the 1994 midterm elections.

Fast forward to 1995. The Democrats lost control of the House and the Senate, largely because of bruising budget battle. Clinton’s fiscal year 1996 budget again proposes $200 billion deficits every year for the next five years. So, again, the target in 1998 (when surpluses later emerged) was a deficit of $196 billion.

But Republicans immediately set the goal of achieving a balanced budget within seven years. After resisting for a few months, Clinton shocked many fellow Democrats by announcing that he, too, would embrace the idea of a balanced budget.

As The Washington Post editorial page put it at the time, Republicans had forced Clinton’s hand: “Mr. Clinton’s new position on the budget is much better than the old one. He should have taken it six months ago. The Republicans have driven him to say that he too wants, if not to balance the budget, at least to get the deficit into the neutral zone.”

The 1994 midterm elections were a huge vote of no confidence.  Which was a problem with the presidential election only 2 years away.  Enter Dick Morris.  Who pulled Clinton to the center.  Away from Big Government Keynesian spending.  Of course he had little choice with the Republicans in charge of both houses of Congress.  And then something happened.  He fell ass-backwards into some very opportune economic developments.

…the government ended up with a gusher of revenue that had little to do with Clinton’s 1993 budget deal:  capital-gains taxes from the run-up in the stock market, as well as taxes paid on stock options earned by technology executives. 

Clinton, in essence, was lucky to become president just as a revolution in computer and information technologies was unleashed.

From 1992 to 1997, CBO estimated, revenue increased at an annual average of 7.7 percent in nominal terms, or about 2.4 percentage points faster than the growth of the gross domestic product, the broadest measure of the economy. CBO Deputy Director James L. Blum in 1998 attributed only 1 percentage point of that extra tax revenue to the 1993 budget deal. The rest, he said, came from capital gains.

This is a very important point.  Where did that tax revenue come from that produced those surpluses?  Well, 1% came from the Clinton 1993 budget deal.  About 99% came from luck.  And the good luck just kept coming.

There were other factors as well, such as lower than expected health costs that reduced an expected drain on the budget. Clinton’s predecessor also had kicked in motion a huge decline in defense spending (which Clinton accelerated) and also had overseen a painful restructuring of the banking industry. Even a potential shock, such as the Asian financial crisis in 1997, brought the silver lining of lower oil prices that bolstered the U.S. economy.

The stars must have really aligned during the Clinton administration.  Because a lot of things well out of his control happened, giving him an extraordinary economy.  He truly fell ass-backwards into good times.  Which is why the Fact Checker basically calls Barbara Boxer a liar. 

Boxer literally wipes away any Republican contribution to the process — and also claims credit for creating 23 million jobs while ignoring broad historical changes in the U.S. economy that had little to do with inside-the-Beltway sausage-making. This is more than just spin; it is a rewriting of history that borders on the absurd.

Absurd indeed.  So is she lying?  Or is she just stupid?  It has to be one or the other.  As it must be for all of the other Democrats repeating this lie.

Stimulus Spending doesn’t Stimulate

Reagan’s supply-side policies posted some great economic numbers.  Keynesians point to the Clinton years as vindication for their policies.  But his economy had a lot more to do with the Republicans in Congress and dumb luck.  Barack Obama has outspent all Keynesian presidents to date and has the worst economy since the Great Depression

Even though the Great Recession has officially ended, they’re calling the recovery a jobless recovery.   Which should be comforting to those who are still unemployed.  The question is, of course, where are the jobs?  If government stimulus spending creates jobs, where are the jobs?

You can’t find them because they’re not there.  Because stimulus spending doesn’t stimulate.  It just makes a few people rich (like broadband Internet contractors in Montana).  Tax cuts stimulate.  And reducing government regulation stimulates.  Every time it’s tried.  In other words, supply-side economics stimulates.  Every time it’s tried.  And Keynesian economics fails every time it’s tried.  Including its latest failure under Barack Obama.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

LESSONS LEARNED #55: “Liberals are all for trickle-down economics as long as the wealth trickles down from those who support liberals.” -Old Pithy

Posted by PITHOCRATES - March 3rd, 2011

 JFK Governed as a Conservative

We’ve had two ‘trickle-down’ administrations in recent times.  Both JFK and Ronald Reagan were proponents of supply-side economics.  Between these two administrations we had a few Keynesians (LBJ, Nixon, Ford and Carter).  JFK and Reagan cut tax rates.  The Keynesians never lowered the tax rate lower than JFK’s.  Reagan did.  But not the Keynesians.

JFK was a Democrat.  But he governed as a conservative.  He was strong on defense.  Even got us into Vietnam to prevent the dominoes from falling in Southeast Asia.  And he was business friendly.  But that doesn’t stop Democrats from loving him, though.  Most probably don’t know anything about his conservative side.  They think about Camelot.  Jackie.  John John.  “Ich bin ein Berliner” (the big Cold War speech after the Soviet Union built the Berlin Wall).  Landing a man on the moon and returning him safely.  “Ask not what your country can do for you; ask what you can do for your country.”  And the civil rights stuff.  Not that he was a hawk when it came to war (Bay of Pigs-sort of, Cuban Missiles Crisis and Vietnam).  And a tax cutter.

LBJ may have been JFK’s vice president but he was no JFK.  Kennedy wanted to build a strong economy and he believed that started with making a business-friendly environment.  Which he did.  Johnson, on the other hand, was a big, old school, liberal.  To him businesses were just cash piñatas for the government to whack.  He wanted their money.  Because he wanted to spend it.  And boy did he.  He exploded the role of government in our lives.  Increased taxes.  Increased regulation.  And increased the government bureaucracy.  He called it his Great Society.  And he gave FDR‘s New Deal a run for its money.

JFK’s Tax Cuts Stimulated Economic Activity

When Kennedy became president, there was a bit of a recession going on.  Unemployment got as high as 6.7% in his first year.  And the top marginal tax rate was 91%.  When he looked at the two the answer was obvious to him.  With a top marginal tax rate of 91%, there was little incentive to invest.  If your earnings exceed a certain amount, you only kept 9 cents of each additional dollar?  So why bother?  Like Billy Joel said, “You can pay Uncle Sam with the overtime.  Is that all you get for your money?”  Or like George Harrison said, “There’s one for you, nineteen for me.  Cause I’m the taxman.”   

No one likes paying taxes.  Especially confiscatory taxes.  It’s why the Beatles left the UK.  All you need may be love.  But even hippies want to keep their money.  And JFK understood this.  High taxes discouraged investment.  And drove some business away.  So he put together an economic plan that included cuts in the tax rates.  He brought the top marginal rate from 91% to 70%.  And how did that work?  Not too bad.  Based on the numbers.

In the four years following his tax cuts, tax receipts increased 41%.  So he brought more money into Washington by cutting tax rates.  And it gets better.  The unemployment rate went down 33% (from 5.7% to 3.8%).  And GDP increased 35%.  In the technical language of economists, these numbers are awesome.

The LBJ/Nixon Policies End the JFK Economic Expansion

Well, the party wasn’t going to last.  Thanks to Lee Harvey Oswald.  JFK was dead.  Assassinated.  And LBJ took the oath of office in Air Force One before leaving Texas.  Who can forget the image of a grief-stricken Jackie as Johnson took the oath?  Much like with the assassination of Lincoln, the consequences of that action was to forever change the country (we all wonder how Reconstruction would have gone with Lincoln).  JFK was gone.  LBJ was in.  And he was bringing his Great Society with him.  And the size of government would never be the same.

Johnson raised taxes in his last 2 years to pay for the massive federal spending.  Nixon cut them.  He brought the top marginal rate back to the Kennedy level.  But he didn’t cut spending.  And to keep up with the spending he started printing money.  Gold started flying out of the country so he decoupled the dollar from gold, igniting inflation.  The heady days of the JFK economic expansion were over.  Looking at a period that included the last 2 years of LBJ’s term and Nixon’s 6 years, it’s not a pretty picture.

Tax receipts soared 77% to pay for all that government spending.  And, not surprisingly, the unemployment rate soared, too.  It went from 3.8% to 5.6% (an increase of 47%).  GDP shot up an impressive 80%, too.  Landing on the moon, Vietnam and the Great Society created a lot of economic activity.  But that economic activity wasn’t real.  It was a bubble.  Paid for with high taxes and printed dollars.  So prices were high thanks to inflation.  And a lot of us didn’t have a job.  And this is what Carter got when he entered office.  Malaise.  Stagflation (high unemployment and high inflation).  And something we called the misery index (the sum of the unemployment and inflation rates).  Carter was not going into the 1980 election with a lot going for him.  And the Iranian Hostage Crisis didn’t help any either.

Ronald Reagan Cuts Taxes, Stimulates the Economy and Wins the Cold War

Then came Ronald Reagan.  He put Carter out of his misery by winning the 1980 election.  Then rolled up his sleeves.  And got to work.  When he came into office the top marginal tax rate was 69%.  By the time he left it was 28%.  The Left called him reckless and irresponsible.  That he ran high deficits.  And exploded the federal debt.  Well, yes, both of these did increase during the Reagan years.  But it’s not because of the tax rate cuts.  Those were caused by spending more money than the treasury collected.  And, believe you me, the treasury really raked it in during the Reagan presidency.

In 1981, tax receipts were about $600 billion.  In 1990 (adding in the first year of George H.W. Bush), tax receipts were about $1 trillion.  In other words, the Reagan tax rate cuts increased tax receipts by 72%.  The treasury collected more tax dollars at the lower tax rates.  So there is no way no how you can blame deficits and debt on the Reagan tax rate cuts.  And it gets better.

During the Eighties, the unemployment rate fell 26%.  And the GDP rose 86%.  Lower tax rates.  Higher tax revenue.  Lower unemployment.  And a surge in economic activity.  Wow.  Can it get any better?  Why, yes.  Reagan spent the Soviet Union into defeat in the Cold War.  They just couldn’t keep up.  Caused a lot of trouble on the other side of the Iron Curtain.  Long story short, after his presidency, Eastern Europe would be free of Communism.  And the Berlin Wall would be no more. 

Supply-Side Economics Works

The moral of this lesson?  Supply-side (aka, trickle-down) economics works.  It worked for JFK.  And it worked for Reagan.  What doesn’t work is the Keynesian economics of LBJ, Nixon, Ford and Carter.  They grew government.  Increased government spending.  Giving us higher taxes, higher unemployment, higher inflation and malaise.  The only thing that trickled down was their misery.

So if trickle-down can fill the federal coffers why do liberals hate it?  Because those who support supply-side economics are typically in the private sector.  Have jobs.  Don’t belong to a union.  And don’t need any help from government.  You put that all together and the answer is clear.  These people don’t lobby liberals.  So what good is their wealth when no part of it makes its way to liberal pockets?  Like Big Labor?  Or public sector unions?

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

FUNDAMENTAL TRUTH #55: “Liberals are all for trickle-down economics as long as the wealth trickles down from those who support liberals.” -Old Pithy

Posted by PITHOCRATES - March 1st, 2011

 Under Carter it was ‘in Government we Trust’

Mention Ronald Reagan in a room full of liberals and no doubt you’ll hear some derisive comment about trickle-down economics.  You see, liberals don’t like Reagan.  They liked Jimmy Carter.  But hated Ronald Reagan.  Because Reagan dared to say the king was wearing no clothes.  Metaphorically, of course.  But not Carter.  He clung onto the illusion of Big Government as the people’s savior.  Though a practicing Baptist, for Carter it was ‘in government we trust’.

Carter was a one term president.  Liberals may have liked him but the rest of the country didn’t.  Granted, he came into office with some pretty bad economic problems.  He can thank LBJ‘s Great Society for that.  The greatest explosion of government spending since FDR‘s New Deal.  And then Nixon decoupling the dollar from gold didn’t help.  The left doesn’t much care for Nixon, either.  Which is funny.  Because he governed as a liberal.  He spent money and grew government.  And when he decoupled the dollar from gold he called himself a Keynesian (i.e., a Big Government guy when it came to economics).  Carter’s misfortune was to follow all of this financial devastation.  Well, that, and the fact he didn’t have a clue about how to fix things.

Reagan did.  “Government isn’t the solution to our problems, government is the problem,” Reagan said in 1981.  And the warning Klaxons went off throughout liberal-land.   There was imminent danger.  And his name was Ronald Reagan.  You see, Carter did all the right things.  For those on the left.  And what did he get?  High inflation.  High interest rates.  And high unemployment.  They measured the economy with the misery index as we wallowed through the stagflation of the Carter years.  During the 1980 presidential campaign, Reagan asked the simple question heard round the world.  Are you better off now than you were 4 years ago?  Reagan went on to win the election.  So the answer was ‘no’.

Reagan Fixed the Economy and Fired Air Traffic Controllers

Reagan cut tax rates.  And the economy eventually exploded.  We said goodbye to stagflation.  And the misery index.  They were relics of the Carter years.  It was a new morning in America.  People had jobs.  They were happy.  Optimistic.  And this infuriated liberals.  Because Reagan’s conservatism flew into the face of everything they held dear.  And then came PATCO

The Professional Air Traffic Controllers Organization.  A federal government union.  They went on strike in 1981.  Which was against the law.  Government unions could not go on strike.  The strike shut down much of air traffic in the U.S.  This was big.  No business travel.  No sports travel.  No vacations.  No mail.  A small group of some 11,000 controllers shut down air travel.  And greatly disrupted the economy.  Reagan ordered them back to work per the law.  They refused.  He fired them.  And the left howled.

So you can see why liberals hate Reagan.  He was a destroyer and debunker of liberalism.  And the people loved him.  He won reelection with 49 states.  The man was more popular than sliced bread.  Worse, people were happy.  Whistling a happy tune while they went on their merry way.  Which is all well and good if you’re one of the ones whistling.  But when you’re part of that tiny 20% of the population that wants to run the other 80%, there was nothing to whistle about.  Reagan had become liberal enemy number one.

Reaganomics Replaces Failed Keynesian Economic Policies

So they attacked.  Then.  And now.  And they zero in on those tax rate cuts.  Sure, they say, the tax cuts stimulated the economy, but at what cost?  Huge deficits and a skyrocketing debt.  This, of course, is not true.  The cuts in the tax rates nearly doubled tax receipts.  The Democrat House (Tip O’Neil and his fellow Democrats had the power of the purse) just went on a spending spree with all that cash pouring into Washington.  Remember, all spending bills originate in the House of Representatives.  Defense.  Entitlements.  And all discretionary spending.  And when tax receipts nearly doubled with cuts in the tax rates, it proved that Reagan was right.  And liberals were wrong.

But they keep repeating the lie.  Hoping that if people hear it enough people will believe it.  Then they move on to trickle-down economics.  Supply-side economics.  Reaganomics.  They love to disparage this term.  Despite the fact that under Reaganomics, the 1980s was one of the most prosperous periods in American history.  So what is supply-side economics?  Well, think of it this way.  When do you live better?  When you have a job?  Or don’t have a job?  It’s pretty hard to pay your bills if you don’t have a job.  You can’t buy gasoline.  Food.  Clothes.  Electronic toys.  Etc.  So I think most will agree that life is better when we have a job.  And where do jobs come from?  From businesses.  That are pursuing a profit.  If they can make a profit they expand their businesses.  And hire more people.  Thus creating more jobs.  And this is supply-side economics in a nutshell.  They’re economic policies that are business-friendly to encourage their growth.  So they will hire more people.

Makes sense.  To the sensible.  But not to a liberal.  Because liberals are Keynesians.  They want to redistribute the wealth.  Take money from the rich.  And give it to the poor.  They believe that is how you create economic activity.  By giving other people’s money to other people so they can spend it.  And we tried it.  Under LBJ, Nixon, Ford and Carter.  Didn’t work.  Liberals will blame everything under the sun why it didn’t work.  But never the ideology itself.  Which is flawed.  Because higher taxes reduce profits.  Which hinders business expansion.  Which hinders job creation.  Which hinders economic activity.  And this is exactly what happened under LBJ, Nixon, Ford and Carter.  Which is why Carter was a one term president.

Trickle-Down is Okay as long as it Fills Union Coffers

The funny thing is that the left often supports trickle-down economics.  Whenever they are supporting the UAW.  They support high pay and benefits for unskilled labor on the assembly line.  Because it stimulates the economy. Yes, we pay these people a lot.  But they go out and spend that money.  And that pumps a lot of money into the local economy.  We’ve all heard these arguments.  Whenever liberals are defending high union wages and benefits.  Of course, liberals got so greedy that they killed the golden goose.  Assembly plants left the country.  Robots replaced workers on the line.  The few jobs remaining have nice wage and benefit packages.  But at what cost?  Hundreds of thousands of jobs were lost in the deal.  A terrible cost as jobs drive the economy.  The more the better.  While fewer higher-paid jobs just don’t help anyone but the few who have those jobs.

It’s the same thing with public sector workers.  No one has a better salary and benefit package.  For many it’s like getting two paychecks for one job.  For every dollar in pay they get something like $0.75 in benefits.  Mostly health care and pensions.  Teachers are often some of the greatest beneficiaries when you factor in all the time off they get.  There’s a reason why these public sector workers strike and never quit these ‘horrible’ jobs.  Because they can’t find a better job.  So when states and cities have trouble balancing their budgets because of out of control health care and pension costs they raise taxes.  Make the rest of us live on less.  To save these jobs.  For these good people.  Sure, we pay them a lot.  But they go out and spend that money.  And that pumps a lot of money into the local economy.

So that kind of trickle-down economics is okay.  But Reaganomics was nothing but tax breaks for the rich paid for by the working poor.  While fat union pay and benefits stimulated local economies.  A double standard?  Yes.  But there is a difference.  Trickle-down from job creators doesn’t generate a lot of union dues.  Trickle-down from union workers and the public sector do.  That’s why the liberals support unions.  Because liberals get a lot of that dues money.  And loyal foot soldiers to advance their agenda.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

« Previous Entries