>For the modern left John Maynard Keynes is the source of all wisdom on matters of the economy.
Keynes was no dummy and his The General Theory of Employment, Interest and Money is a major piece of work and serves as the economic bible for many economists to this day.
Being a major piece of work doesn’t make it right, though. Marx was an intelligent man but still manage to bring to life The Communist Manifesto, which brought so much suffering to, especially, people in the 20th century. Like Tolkein, Marx and Keynes invented their own reality and then proceeded to solve all of the problems within it.
However, Keynes’s reputation suffered a severe blow in the 1970s when major economies around the world went through a period of stagflation – the combination of high unemployment and high inflation – that Keynes said was impossible.
Due to this failure of Keynesianism, modern economists adjusted his theories and refer to themselves as “New-Keynesian”, which replaced the term “Neo-Keynesian”. As is the way in all branches of economics there are divergent opinions of which Krugman, Mankiw and Stiglitz are three such examples.
But how do they differ from the plain, old, vanilla Keynesian of days of yore?
Anyone who has even the shallowest understanding of economics will have heard of the term “pump priming”, which comes from Keynes’s theory that when economic activity slows the government can “prime the pump” by spending money to stimulate the economy.
“How does that differ from what Krugman is saying?”, I hear you ask.
Here’s the only real difference between Keynes and the Modern Keynesian…
Keynes believed that governments should create a fund into which surpluses would be placed when times were good so that those funds could be used when times were slow.
Saving for a rainy day, as my grandmother used to say.
Instead of using a pool of surplus funds as the source of government stimulus, Modern Keynesians use the next generation of taxpayer in the form of government deficit.
And that’s all there is to it.
Modern Keynesianism is about giving the bill to your kids.
That’s why Keynes has made a comeback; it provides political cover to those governments whose preference is to spend money rather than reduce in size.
Yet another example of the deep immorality of left wing policies and their ruinous effect on the world.
>Need to raise revenue for the government?
That’s easy, simply tax the rich.
The United States, like the majority of Western nations, is spending itself into oblivion at worst and massive civil strife at best.
There is some good economic news. The red ink the US is swimming in is not as bad as projected in February. Yes, at $1.471 trillion, it’s still huge – 10 percent of the nation’s gross domestic product – but an improvement of $84 billion from earlier estimates.
But bad news still looms large. In the next fiscal year, according to the mid-season review released by the White House Office of Management and Budget (OMB) Friday, the US deficit will be $150 billion more than earlier projections. It is expected to come in at $1.416 trillion, or 9.2 percent of GDP.
The White House, which released the change in budget estimates, was careful not to overplay the changing numbers.
“These are not substantial changes and nothing we want to make too big a deal about,” said Peter Orszag, director of the OMB in a press call with reporters. “The economy remains weaker than we would like and the unemployment rate higher than we would like.”
So, how the heck much is 1.4 trillion dollars?
Is it actually possible to increase taxes on the rich and deal with the debt (assuming that there’s no impact on employment or investment)?
I thought, why not simply confiscate all of the wealth that the rich have? That ought to solve all of the problems. Right?
I looked up the Forbes list of world’s billionaires that are domiciled in the United States and are doing business and paying taxes there.
The richest person on the 395 name list is Bill Gates with $53B, followed by Warren Buffett with $47B and a gap back to Larry Ellinson at $28B.
Now, here’s the kicker – and the sobering reality check for the soak-the-rich left – if you confiscated ALL of the wealth of these 395 people in order to fund the debt (which means it would need to be sold to overseas interests, of course, as there’d be nobody rich enough in the US to buy it anymore) then how much would you raise?
1.328 trillion dollars.
You’d still need to find another $143B to break even for the year! And your wealth creators have now got nothing! Good luck with that…
Here’s another way of looking at that $1.471 trillion deficit.
Consider the following: there are 113,146,000 households in the US, which means that in just one year each household now has an extra $13,000 added to its debt. No wonder the Congressional Budget Office describes the debt situation as unsustainable.
Competition from emerging economies in China, India and Brazil, coupled with declining birth rates, undermine the modern Western (immoral) indulgence of giving people money who haven’t earned it while putting the bill onto the next generation…and the one after that…in a gigantic, populate or perish, Ponzi scheme.
2010 is a momentous year in world history, I believe, as history will mark it down as the year that the welfare state, in its current form, ended.
>Every so often a study comes along that so profoundly confirms common sense and the real world that it takes one’s breath away.
Zeljka Buturovic and Daniel Klein of Econ Journal Watch will make no friends on the left with the publication of the results of a 2008 Zogby poll on ‘economic enlightenment’.
From Klein’s article in the Wall Street Journal:
Who is better informed about the policy choices facing the country—liberals, conservatives or libertarians? According to a Zogby International survey that I write about in the May issue of Econ Journal Watch, the answer is unequivocal: The left flunks Econ 101.
Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents’ (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.
Rather than focusing on whether respondents answered a question correctly, we instead looked at whether they answered incorrectly. A response was counted as incorrect only if it was flatly unenlightened.
Consider one of the economic propositions in the December 2008 poll: “Restrictions on housing development make housing less affordable.” People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure.
Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.
Therefore, we counted as incorrect responses of “somewhat disagree” and “strongly disagree.” This treatment gives leeway for those who think the question is ambiguous or half right and half wrong. They would likely answer “not sure,” which we do not count as incorrect.
In this case, percentage of conservatives answering incorrectly was 22.3%, very conservatives 17.6% and libertarians 15.7%. But the percentage of progressive/very liberals answering incorrectly was 67.6% and liberals 60.1%. The pattern was not an anomaly.
The questions were:
1) Mandatory licensing of professional services increases the prices of those services
2) Overall, the standard of living is higher today than it was 30 years ago
3) Rent control leads to housing shortages
4) A company with the largest market share is a monopoly
5) Third World workers working for American companies overseas are being exploited
6) Free trade leads to unemployment
7) Minimum wage laws raise unemployment
8) Restrictions on housing development make housing less affordable
How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.
Americans in the first three categories do reasonably well. But the left has trouble squaring economic thinking with their political psychology, morals and aesthetics.
To be sure, none of the eight questions specifically challenge the political sensibilities of conservatives and libertarians. Still, not all of the eight questions are tied directly to left-wing concerns about inequality and redistribution. In particular, the questions about mandatory licensing, the standard of living, the definition of monopoly, and free trade do not specifically challenge leftist sensibilities.
Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians (21%).
The survey also asked about party affiliation. Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.
Adam Smith described political economy as “a branch of the science of a statesman or legislator.” Governmental power joined with wrongheadedness is something terrible, but all too common. Realizing that many of our leaders and their constituents are economically unenlightened sheds light on the troubles that surround us.
We all have good friends on the left, people that we love, like and respect for their decency and humanity. However, we all know that when it comes to matters of economics they’re dim bulbs. Their views are not only not part of the solution to the world’s problems they are the root cause of most of the issues we face today. Not that the left would ever admit to that basic truth. As Dennis Prager likes to say, being on the left means never having to say you’re sorry.
The full study is available here and makes great reading.
There are some interesting tables in the study. Firstly, correlation between education level and response (and they give some reasons for the results):
Here’s the most amusing table in the whole study:
I must admit that I am truly astonished by the disparity in understanding of economics between the left and right. Given I got all 8 correct – they’re hardly difficult – I also admit to being a bit surprised that the results weren’t a lot better across all groups.
Naturally, the left will deal with this study in its usual manner: criticise the qualifications of those undertaking the research; impugn their motives for doing so; and accuse them of being in the pay of Big Left Wing Enemy du Jour. So much easier than refuting the results.
Seriously, though, wouldn’t it be great if 16 year olds were taught the basics of economics so that they could answer all of these questions correctly? Perhaps the next generation of politicians would be more careful with the nation’s economy than the current lot of left wing incompetents.
As an aside, it’s ironic that in the West left wing governments are only ever elected when they campaign on conservative, ‘responsible’ economic grounds when the reality is that they really don’t understand economics at all well. Once they’re in power, however, the inner Keynesian pops out, they spend whatever surpluses the previous government has left and then make a good, solid attempt to spend the wealth of the next generation, and the one after that, before being turfed out amidst massive financial upheaval, as has just happened in the UK.
I’ll have another post on why 2010 will be marked down in history as one of the most important years in modern history. Needless to say, ignorance of economics will be a major theme.
>It goes without saying that commenting on Michael Moore’s latest assault on truth actually plays into his hands by increasing the publicity he receives.
No matter, sane voices are needed to counter his distortions.
Having told lies about guns, 9/11 and the health system, Moore now takes aim at capitalism in his new falsumentary, “Capitalism: A Love Story”.
Being Moore, he conflates the excesses of Wall Street with capitalism while studiously avoiding the fact that Wall Street gives more money to the Democrats than Republicans.
The film ends with:
“Capitalism is an evil, and you cannot regulate evil.”
Unwittingly, Moore boils down all leftist thought into one line and in the process exposes the intellectual fantasyland the left inhabits.
How does the left explain the rise of China in recent decades? Of India? Of Brazil?
How does the left explain the fact that for the first time ever more than 50% of the world’s population is defined as middle class?
Where are the examples of anything other than capitalism – sheer and naked, as in the examples of China and India – lifting hundreds of millions of people out of poverty?
If that’s evil then we need more of it.
And here’s a key insight that the left doesn’t understand – capitalism is like gravity. It’s an ever present force the effects of which operate in all societies.
It is shackled and suppressed in socialist countries, which is why they have hardly advanced themselves in the last 50-60 years.
Inhibiting capitalism is the reason that California is in such a parlous financial state in spite of all of its advantages.
Putting taxes on it is why so many state and local governments are losing their populations to other, freer jurisdictions.
Calling capitalism evil because a bunch of thieves on Wall Street co-opted government and, effectively, stole hundreds of billions of dollars from ordinary folk is the same as saying that gravity is evil for the negative effect it has on plummeting aircraft from time to time or that the sea is evil for occasionally sending a weak swimmer to a watery grave or that peanuts are evil for having a potentially fatal effect on 0.001% of the population.
I lived in the Soviet Union. I lived in backward Asian countries. I lived in Africa.
Not once did I see a local person who was as fat as Michael Moore.
Now, I’m not having a crack at Moore and his obvious battle with weight.
I’m highlighting that in non-capitalist countries Moore simply wouldn’t have the opportunity to over eat. The food nazis out there might think that’s a great idea but reasonable people believe that everyone should be able to make their own decisions and then live with the consequences of those decision – good or bad.
“Capitalism is evil” might go down well with the usual suspects: university professors; the mainstream media; Chavez, Castro and their ilk; America haters; and the Hollywood set, but anyone with a lick of commonsense understands it to be nonsensical.
>The leading sign that Keynesian economics is alive and well are the ubiquitous references by the Obama administration, parroted by their acolytes in the media, about the effectiveness of the stimulus program and the so-called ‘green shoots’ that are turning the economy around.
The US, and the rest of the world, which is not devoid of Keynesian nonsense itself, will pay a heavy price for the policies currently in place.
New jobs data has been released for August showing yet another decline in employment. How will this information by spun? Probably by saying that the rate of decrease is slowing.
Consider the following from the indespensible Chart of the Day:
Today, the Labor Department reported that nonfarm payrolls (jobs) decreased by 216,000 in August. Today’s chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-2006 (dashed blue line). As today’s chart illustrates, the current job market has suffered losses that are more than six times as much as average (20 months after the beginning of a recession). In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase five months ago.
Does anybody really think that the recession has ended, as has been trumpeted by a number of leading media commentators?
Folks, the US is not out of the woods by any stretch of the imagination.
There is another real estate shock to come in 2010 when commercial property mortgages reset, which at the very least will retard growth.
Then there is the massive issue of banks falsifying their balance sheets by not marking asset values to the market in order to stave off insolvency.
I would be surprised if the majority of banks in the US today are not technically insolvent.
The problem is that the FDIC doesn’t have the funding to deal with a large scale bank collapse.
Into this environment the Obama administration wants to introduce its healthcare bill, which is nothing more than an outrageous takeover of 16% of the US economy, and cap and trade legislation, which will have no effect on global climate – ever – but will definitely transfer wealth from the ordinary, hard working, tax paying folk to enviro-scammers on Wall Street.
We live in interesting times, that’s for sure.
>The healthcare debate currently raging in the United States has produced some terrific comments not least of which was when one wag asked why President Obama was trying to slam healthcare reform through Congress in 3 weeks when he took 6 months to choose a dog for his kids.
On one side of the argument are those who understand that the US provides the highest level of healthcare in the world but accept there are issues that need to be addressed.
On the other are those who think that the moral high ground is achieved through a government provided scheme, which requires tearing down the existing structure and starting again.
Organisations such as the United Nations and The Economist don’t help the argument by coming up with world rankings on healthcare that show the US a long way down the list.
How can this be when it’s the US that all world leaders choose to fly to when they’re ill? The country that has John Hopkins, Mayo Clinic etc etc?
The answer is that these rankings heavily weight whether the healthcare is ‘free’, insofar as anything is when provided by the government. When health outcomes are analysed, how long people live when diagnosed with cancer, diabetes, heart disease etc the US far exceeds the rest of the world.
Time and again we are asked by proponents of Obamacare, and its predecessors, whether it is fair that only the wealthy can afford the best healthcare.
For some reason, the questioners fail to appreciate the truism that wealth means health. One only needs to compare the outcomes in Africa to any halfway advanced country to find the proof.
Here’s another question. Is it fair that only the wealthy can buy $100,000 Mercedes?
If the government provided cars to everyone then do you think everyone would get a Mercedes or, perhaps, something of much, much lower quality?
If there were no wealthy people then there would be no $100,000 Mercedes.
Equally, no wealthy people means no high cost medical procedures.
The fact is that the advancement in the quality of healthcare that has come about due to the remarkable achievements of the pharmaceutical companies in the US – which are responsible for two-thirds of the world’s medicines – can only occur because of the free market system that allows them to spend billions of dollars developing a single drug and getting it to market. Even the large European drug companies can only develop the solutions they do because of the sales they achieve in the US.
Make no mistake about it. Without US drug companies the world will have lower quality medical solutions going foward.
Comparisons with the rest of the world fail to take into account that the rest of the world is sponging off the US health dollar by being able to buy treatments that it couldn’t afford to produce itself.
Do proponents of the government plan think that these drugs will still be developed when it’s the government deciding how much will be spent?
Rationing lowers quality. It increases the length of time to receive treatment including for serious conditions.
Is it fair that people die who otherwise wouldn’t simply because they can afford better healthcare but can’t get access to it?
If the public option was so great then Congress wouldn’t exempt itself from it.
Public kills Private
Most non-Americans don’t understand how the US health insurance system works.
Here in Australia we take out insurance with our preferred insurer and to the level we desire/can afford, pay the premiums for the rest of our lives and receive an OK level of service. With our low population and large area it’s not possible to make a proper comparison with other countries, as we have issue unique to Australia, as do all countries.
Most insurance in the US is provided by a person’s employer. You can look up the history of how that came about but it dates back to World War II and companies’ attempts to attract workers in a low unemployment environment in which salaries were fixed by the government due to the war effort.
A major issue in the US is that when someone leaves a job then they have no health insurance until they start their new job. These people who are between jobs need to take out temporary insurance until they start their new job. Bizarrely, the ten or so million of them are included in the statistics that add up to the “47 million Americans without healthcare”, as do more than that many illegals. The question asked in the health insurance survey is ‘Have you at any time through the year been without health insurance?’ Obviously, if you’ve left your job and haven’t taken out temporary cover, or can’t afford to, then the answer is yes in spite of the fact that it might only be for a week or two.
After taking into account the fact that young people choose not to take out health insurance when they can afford to – preferring to spend their money on clothes, a car or a now upside down home mortgage – there are only 15 or so million who are in genuine need.
Better tear down the system to address the 5% of the population with a problem, then.
So how does the public option kill private health insurance?
Let’s leave aside the fact that Congress has a bottomless pit of money to play with and is not going to be inclined to see it fail thus guaranteeing even further increases in spending into the future.
Consider two companies:
Acme Corporation has 1000 employees involved in the production of a very popular widget. It’s a publicly listed company that turns over $150 million and makes an after tax profit of $3 million.
Acme’s major competitor is Blue Sky Enterprises that, coincidentally, has 1000 employees, makes a competing product to the Acme widget, turns over $150 million and produces a profit of $3 million.
Both companies provide the same health insurance cover to their employees, sourced from the same insurance company. The insurance costs them $5,000 per person.
Now, let’s say that Obamacare enters the market offering $3,000 health cover. It’s not quite the same level as the $5,000 cover but people think it’ll generally be OK unless you get really sick.
The management team at Acme decide to shift all of their employees from the private option to the public option. Blue Sky chooses not to.
So what happens?
After one year with this new health insurance in place, Acme has turned over the same $150 million but due to lower insurance cost has increased its profit to $5 million from $3 million (1000 employees x $2000 saving = $2 million).
Meanwhile, Blue Sky has also had a solid year, posting $150 million in sales and at the expected profit of $3 million.
See the problem?
If you’re an investor then which company are you going to invest in?
Obviously, Acme Corporation.
Therefore, Blue Sky Enterprises is forced to take up the public option, as well. Otherwise its competitor gains a huge advantage.
While this is all happening, private insurance companies are having to raise costs to maintain the same health cover level or reduce the level of cover to compete with the government option.
Thus, private health insurance slowly withers on the vine as more and more companies are forced into the government plan.
Not anybody who gets sick, that’s for sure.
Medicare and Medicaid
No pro-Obamacare proponent has yet explained how the public option will not end up the financial black hole that is Medicare and Medicaid.
The following graph highlights the coming crisis, and when I use the term crisis I use it accurately:
Simple improvements are there for the taking
All Congress needs to do to make a huge improvement is the following:
- Allow healthcare to be portable between health companies and across state lines. This also deals with the situation in which people develop a condition that would inhibit their ability to obtain health insurance if they changed jobs.
- Implement tort reform. This is the biggest single cost in the medical system. Loser pays will stop people bringing frivilous lawsuits. Trial lawyers are the Democrat Party’s second largest donor behind labour unions so don’t look for this any time soon.
These two steps would allow many more Americans to afford health insurance cover.
From President Obama the other day:
“We’ve got some work to do. I don’t mind, by the way, being responsible. I expect to be held responsible for these issues because I’m the president,” Obama said. “But I don’t want the folks that created the mess — I don’t want the folks who created the mess to do a lot of talking. I want them just to get out of the way so we can clean up the mess.
“I don’t mind cleaning up after them, but don’t do a lot of talking,” Obama said.
I wonder whether the President also includes the architects of the current financial crisis – Barney Frank, Chris Dodd, Alan Greenspan, Larry Summer and Ben Bernanke – in the list of those who should shut up and get out of the way?
>Many commentators on the state of the US economy are telling us that the recession is basically over and that while there are still a few jobs to be lost it’s all going to turn out alright shortly, the so-called green shoots are taking bloom so just wait and see.
These are the same economic commentators who didn’t see the mess coming in the first place and they’re going to be shown to be wrong again.
How does Uncle Jack know this?
Because he seems to have a better understanding of what makes up a strong economy than these supposed experts.
How does an economy grow?
People and companies make investments in new opportunities. Some of them succeed and some fail.
In order to make investments people and companies must have savings or earnings.
So how are companies’ earnings going?
From Chart of the day:
Today, several companies (i.e. Ford, eBay and AT&T) reported better than expected earnings and as a result the stock market rallied on the news. While some companies have reported better than expected earnings for Q2 2009, others have struggled. Today’s chart provides some perspective on the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today’s chart illustrates how earnings are expected (38% of S&P 500 companies have reported for Q2 2009) to have declined over 98% since peaking in Q3 2007, making this by far the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.
Can someone please explain to me how the economy is going to pick up in 2010 when earnings have plummeted to their lowest level ever?
People are pointing to the improvement in housing approvals as proof the economy has turned.
All that is happening is that the bubble is being reinflated and the next time it pops it’s going to be even worse than the first time around.
People are taking advantage of fantastically low interest rates and a heap of stimulus-injected cash washing around in the financial system.
Does anyone remember that the housing market is massively over supplied?
That’s one of the reasons things collapsed in the first place.
When commercial real estate loans reset there’s going to be another major market collapse. This is already locked in and can’t be avoided.
Far from being a recovery, 2010 will be even worse than what has gone before.