If the economy is getting better, why do so many people feel they’re struggling?

On the positive side: The official data say that we’ve had some growth in jobs. And, while the federal deficit is still high, it has begun to drop (due both to rising tax receipts, and the GOP’s insistence that we have at least some fiscal discipline). And the stock market is making new highs.

On the negative side: The growth in jobs is so anemic that if a Republican were president, the media would be screeching nonstop about the “jobless recovery”. And the stock market’s rise flies in the face of weakening fundamentals, suggesting that the rise is just a “bubble” process (or a process of inflation).

Moreover, as Peter Schiff writes, imports are dropping while real consumer costs rise, which fits a pattern of declining living standards (people having to spend more on necessities). His argument is long, but worth considering:

Tyson Foods…announced that although their top line sales revenue increased by almost 2% (roughly in line with U.S. GDP growth), operating margins collapsed by almost 50%, leading to a 43% decline in profit. Consumer shifts away from relatively higher priced/higher margin beef and pork products to lower cost/lower margin chicken products were to blame….

According to government statisticians, the Tyson announcement would reveal modest growth and low inflation. After all, revenue at the company grew and spending on their products had increased modestly. But rising prices were obscured by consumers purchasing lower quality products. Not only are consumers avoiding the beef and pork that they otherwise may have preferred, but they are opting out of the convenience of prepared foods…This is known as getting poorer.

The trend corresponds with the steady increase in the share of income that Americans devote to food and energy…in 2002 Americans spent about 17.8% of income on food and energy. In the first quarter of 2013 the share had risen…to 21.3% of income…In the poorest countries almost all of income is devoted to such things.

…[A sharp drop in imports has meant that] our trade deficit with China in March dropped by a whopping 23.6%…[but overall] personal spending [still rose] in March. If we are buying less stuff from abroad, where are Americans spending the extra money? …Americans are buying fewer Chinese products because they are spending more money on food, rent, utilities, healthcare, insurance, and other necessities that can’t be imported. Again, this is consistent with a falling standard of living…

The combination of these symptoms suggests that the extent to which people are being impoverished by accelerating inflation is not reflected in official government measurements. This explains why unemployment remains high even as GDP appears to rise…the unprecedented expansion of the money supply under the current Fed leadership is pushing up prices for stocks, bonds, real estate, and consumer goods. Market indices neatly capture the price increases for all of these categories except for the latter, which has been concealed by an overly adjusted CPI.

If consumer inflation data were reported more accurately, it would be revealed that much of the apparent growth is an illusion.

Some days ago, cnbc.com ran an article called $2 Trillion Underground Economy May Be Recovery’s Savior. It uses quotes from experts:

The shadow economy is a system composed of those who can’t find a full-time or regular job…

“You normally see underground economies in places like Brazil or in southern Europe,”…

Estimates are that underground activity last year totaled as much as $2 trillion…double the amount in 2009, according to a study… “The jobs are in service industries from small food establishments to landscaping.”…

A report from ADP Research Institute states that many employers, especially in low-wage businesses such as retail and food service, plan to reduce workers’ hours to less than 30 a week to avoid having to offer health benefits through Obamacare…

“The result is less tax money paid to the various levels of government.” “Those working and not paying the taxes puts the burden on those who pay the tax,”…

Workers who aren’t on the books don’t get Social Security or health benefits…

Several points here leap out at me.

1. How Obamacare destroys full-time jobs, as predicted by many on the Right before it passed.
2. How ‘normal’ taxation creates Second or Third World conditions in the economy.
3. How people can at least survive, when taxes are lower (or absent).
4. The experts’ and media’s cluelessness about all this. Despite the information presented by the article, its unspoken perspective remains that government is robbed, when people avoid taxes. Umm… how about people being robbed, when an excessively large and redistributive government taxes them so heavily that they (or their potential employers / trading partners) are forced into the underground economy?

In other words: Shouldn’t we shrink government and lower taxes enough that people won’t need to be in the underground economy?

That’s the question these articles never ask; the one you’re supposed to never think about. They are always written from an assumption that people do something illegitimate, when they avoid the government’s tax man; never from an assumption that the government does something illegitimate, when it charges people enough to drive them to it.

Something strange happened with the latest jobs report.  A few lamestream press outlets woke up from their Obama-induced daze long enough to recognize that although the unemployment figure is purportedly lower than it was in March, and lower than it has been in some time, things don’t seem quite right with the numbers.   Just seeing them grapple with the data and begin to recognize its implications has brought on my latest instance of Obamacare Schadenfreude.

Let’s begin with the National Journal.  Today its website ran a story entitled “Forget the Unemployment Rate: The Alarming Stat Is the Number of ‘Missing Workers.’”  The story begins by summarizing the “unexpected” state of affairs:

The federal government’s latest snapshot of the unemployment rate offered few bright spots Friday. The economy added 165,000 jobs in April—slightly better than March’s revised number of 138,000 jobs. Unemployment went down one-tenth of a percentage point to 7.5 percent; and health care, retail trade, and the food-services industry added positions.

The glaring caveat to this jobs report is the huge number of Americans who remain out of the workforce. Called the “labor force participation rate” in wonkspeak, that number held steady in April at 63.3 percent—the lowest level since 1979.

The story goes on to speculate about the causes behind the decreased labor force participation rate, explaining that some of the number–but by no means all–can be explained by the fact that the first of the baby boomers have now reached retirement age.  The article says that beyond retirees, “Roughly 3 million to 5 million of them left because they could not find jobs, economists estimate.”

But the article doesn’t stop there.  It recognizes that decreased labor force participation has serious economic implications for government because it decreases revenues coming in from taxes.  Suddenly, in other words, the decreasing labor force in the United States is much more of a matter of concern than it was a year ago when Obama was facing re-election, because it doesn’t bode well for the future of the economy or the budget (something that conservatives have been pointing out for years):

If these workers do not return to the labor market, their absence may alter the country’s budget picture. “One of the biggest problems we face with the baby-boomer bulge in retirement is having enough workers behind them to pay their bills,” says Harry Holzer, a professor at Georgetown University’s Public Policy Institute.

Missing workers can translate to a decrease in tax revenue, coupled with an increase in the use of government benefits, such as food stamps and disability insurance. The number of Americans collecting food stamps hit a high of 47.8 million people in December 2012. A similar spike has occurred in enrollments for the Social Security disability payments.

Since the start of 2007, the percentage of Americans in the labor market has dropped from 66.4 percent to 63.3 percent. In the 1970s and 1980s, the number of working Americans grew—because of the dramatic increase in women holding jobs outside of the home.

Nancy Cook ends her article by quoting a very optimistic prediction that unemployment will eventually fall to around 5.5% by 2017, but then she notes, ominously, “Only then can economists gauge if people have left the workforce because of the downturn in the economy, or if they’ve left forever because the economy fundamentally changed. If that’s the case, the U.S. officially will become a place where the labor market has little use for millions of Americans.”

The National Journal article, though, isn’t the only such piece by a lamestream press outlet today.  None other than the Gray Lady herself suddenly woke up and noticed the missing workers: (more…)

Here’s a fun chart. (Source: Gluskin-Sheff. Hat tip, Zero Hedge.)

What does it mean? It means that, starting around 2008 or so, the stock market has been strongly linked to the Federal Reserve Bank’s “Quantitative Easing” (QE) policy.

We’ve seen that point before; this chart shows it another way. Since the second half of 2008, the market moves up if the Fed is growing its balance sheet; the market stops (or declines) if the Fed stops; which means that the ratio of them (shown above) has kept fairly level.

In other news (and also hat tipping Zero Hedge), a Chinese woman wants to sue the Fed over its QE policy:

A woman in Kunming, Yunnan province, is trying to sue the United States central bank after discovering that the real value of the US$250 she put in an account in 2006 had shrunk by 30 per cent.

She claims it was a result of the Federal Reserve issuing too much money.

Her attorney, her son Li Zhen , called the lawsuit “litigation for the public good” which aimed to stop the Fed from continuing its quantitive easing policy…

He filed the lawsuit alleging “the abuse of monopoly in issuing currency” last month at the Kunming Intermediate People’s Court…but the court has yet to decide whether to officially place the case on file.

Why didn’t I think of that? The woman gets the issue: that the Fed has been debauching the dollar. Whether her suit succeeds is another question, but God bless her!

Finally, I want to mention the recent controversy over Reinhart-Rogoff’s work. It might be boring, so further discussion is beneath the following ‘fold’.

(now with updates) (more…)

And that settles the question, right? Because, in the new world’s glorious Declarative style of governing, what Obama says he’s doing is what counts; never mind the facts.

Well, let’s try on a few facts:

• Obama’s budget proposes a further 2.5% increase in federal spending, after some years of increases.[**]
• Despite all the talk about budget cuts this year, we have not seen a year-on-year reduction in federal spending.[**]
• “The budget projects a deficit for the current year of $973 billion, falling to $744 billion in 2014. Those would be the first deficits below $1 trillion since 2008.”
• But in FY2008, when Bush ran a budget deficit of $438 billion, Obama called that “unpatriotic”.

Don’t get me wrong: Obama had kind of a point, in 2008. A point which should be applied doubly now, to him.

Hypocrisy alert level Red (Severe): Obama also declared that “Our economy is poised for progress as long as Washington doesn’t get in the way.”

Hmm… What law could Obama be implementing right now that puts businesses in a quandary, making it tougher for them both to plan and to hire people? What could it be?

[**] NB: These points were overstated in the original version of this post; I regret the error. Actual federal spending grew through the 2000s, peaked in 2009 (the Obama “stimulus” budget – thank you, RH at comment #9), declined in 2010, and has increased again since 2010. The increases have been smaller than GDP growth, so that federal spending has declined since 2009 as a percentage of GDP; while still remaining, at 22% of GDP, higher than in the Clinton-Bush era.

Just saw this on Zero Hedge.

You can view it in just a few minutes, but here’s the gist.

• Government is great at creating ‘make-work’ (jobs which are a net economic loss).
• Government is terrible at creating real jobs (jobs which are a net economic gain[1]).
• People need to understand that having a free enterprise system, which eliminates jobs by economizing on human labor, and which then creates new jobs (if allowed to) in unforeseen new areas, is what raises a country’s living standards.

I often hear left-wingers argue that it doesn’t matter if government ‘jobs’ are unproductive, because the recipients will spend the money on something else which is more productive. So let’s even pay people to do nothing at all: benefits for the unemployed, for street addicts, adult babies, nepotism/graft, etc.

Their argument is deeply wrong. It’s a recipe for a society where corruption, laziness and incompetence are rewarded, and a recipe also for a de-valued currency, leading over time to hyperinflation. Were it otherwise, then government spending would lead inexorably to prosperity, and Zimbabwe would be the wealthiest of nations. Neither is so.

([1] A subset of government jobs are, of course, necessary – and thus ‘real’ – even though they are ‘overhead’ to the rest of the economy. Example: police, courts, military.)

From the comments: A pingback from Religio-Political Talk puts us onto this video, wherein Prof. Lee Ohanian explains how FDR worsened the Great Depression:

Here, the point is not about FDR’s make-work policies (which also inhibited recovery), but about his efforts to fix prices and wages at artificially high levels (which prolonged the high unemployment).

This is a pretty good website to illustrate how awesome it is that King Barack I is taking a whopping 5% pay cut.

SHEESH.

-Bruce (@GayPatriot)

In the New York Times on Sunday, David Stockman made some points that I’ve been making on this blog: that America has lost its way in a decades-long orgy of government spending, deficits and money-printing, creating a “bubble economy” where the real prosperity is rather less than the statistics claim, and each bubble’s burst is greater than the last, meaning that we’ve got a doozy coming.

Stockman’s piece speaks for itself, encasing relevant facts in very sharp rhetoric. I won’t quote it here, just recommend it to your interest.

His piece isn’t perfect; it contradicts itself in a few places. For example, Stockman rips (rightly) on Keynesian economic theory, but also affirms (wrongly) the neo-Keynesian story for why the Great Depression ended (that it was somehow due to WW2 spending). Or Stockman characterizes the last several decades both as rough times, and times of living “high on the hog”; that could seem contradictory if you don’t fill in the missing context yourself (that it’s been “higher” for the politically-connected and a little rougher for the rest of us).

And, while I agree with Stockman’s knocks on Alan Greenspan, I find him unfair in his treatment of such figures as Milton Friedman, Ronald Reagan and Paul Ryan. But Stockman’s piece is a polemic, and no polemic is ever perfect. It’s a good one if it manages to get a lot right, and Stockman’s does.

UPDATE: John Tamny at Forbes critiques Stockman’s piece in more detail, from a perspective that I respect. (Non-Keynesian; perhaps Supply-side or even Austrian?) Like I did, he acknowledges large areas of agreement.

(NB: As often happens with my posts, I’ve tweaked a couple phrases since publication to better fit what I really had in mind.)

France’s President Hollande is determined to confiscate wealth; mere constitutions and courts can’t stop him:

French President Francois Hollande declared on Thursday that companies would have to pay a 75 percent tax on salaries over a million euros after his plan for a “super-tax” on individuals was knocked down by the constitutional court…

Irony alert:

On the defensive, with his approval ratings in tatters, Hollande acknowledged he had failed to anticipate the crisis dragging on for so long…

Gee, I anticipated it, from 6,000 miles away. I’m not very smart, I just understand that no country can tax its way to prosperity.

Moving along – It seems that in the wake of Cyprus, a top European official accidentally told the truth:

Monday March 25 – Markets took fright after the head of the group of eurozone finance ministers indicated that the Cyprus rescue could be a template for similar situations…

…Jeroen Dijsselbloem, the Dutch finance minister, told Reuters…”If the bank can’t [survive], then we’ll talk to the shareholders and the bondholders…and if necessary the uninsured deposit holders”…

“Talk to” means “take from”, of course. A chorus of other top officials swiftly denied it was true and said, “Because, shut up.” Which means they’d do it again in a heartbeat; after all, one of their top bankers once confessed that lying to the public was part of his job.

UPDATE April 4: A top Italian banker says yes, actually, taking from the depositors is acceptable.

Over the summer of 2012 and during the last few months of the presidential campaign, a number of us watched the changing employment numbers and labor statistics with an increasing sense of skepticism.  The lamestream press would dutifully report the administration’s numbers and note that the unemployment number was going down slightly, but anyone who looked into the numbers quickly realized that the only reason the numbers ever went down was that with each successive report, the number of people in the workforce kept shrinking.  And so things have continued throughout the first few months of 2013.

Tuesday on his Twitter feed, Bruce linked to this article by Mortimer Zuckerman in the Wall Street Journal, which once again confirms what many of us have come to believe about the Obama economy:

The Great Recession is an apt name for America’s current stagnation, but the present phase might also be called the Grand Illusion—because the happy talk and statistics that go with it, especially regarding jobs, give a rosier picture than the facts justify.

The country isn’t really advancing. By comparison with earlier recessions, it is going backward. Despite the most stimulative fiscal policy in American history and a trillion-dollar expansion to the money supply, the economy over the last three years has been declining. After 2.4% annual growth rates in gross domestic product in 2010 and 2011, the economy slowed to 1.5% growth in 2012. Cumulative growth for the past 12 quarters was just 6.3%, the slowest of all 11 recessions since World War II.

And last year’s anemic growth looks likely to continue. Sequestration will take $600 billion of government expenditures out of the economy over the next 10 years, including $85 billion this year alone. The 2% increase in payroll taxes will hit about 160 million workers and drain $110 billion from their disposable incomes. The Obama health-care tax will be a drag of more than $30 billion. The recent 50-cent surge in gasoline prices represents another $65 billion drag on consumer cash flow.

And that’s just the beginning of the article.  Read the whole thing if you want to feel even more depressed about the state of the economy than you felt already.

But that’s not even the whole story.  Tuesday when I was driving to lunch, I heard Tom Sullivan discussing “America’s Disability Scam Crisis.”  The facts of the disability crisis are alarming enough as it is, but even more surprising was that the facts which inspired the discussion on the Tom Sullivan show were first reported by NPR.   Scott Johnson at Powerline noticed and wrote up a post about it entitled “NPR goes Rogue.”

The NPR story linked above is quite long, but it focuses largely on the fact that since Clinton signed “welfare reform” into law, more and more people have been going on to disability and the disability rolls have grown to unsustainable levels.  It also mentions  the fact that many lawyers and doctors have found a lucrative business focusing on disability cases.

And it gets even worse.  As the NPR story reports: “signing up for disability benefits is an excellent way to stay hidden in one key way: People on disability are not counted among the unemployed.”  The story continues: (more…)

“Cyprus in your Heart” is the tourism slogan of the small Mediterranean nation of Cyprus. It is a member of the Eurozone. Perhaps you’ve seen headlines, the last couple of weeks, about its banking crisis. This post is to sum up a few points about it.

• The Europeans plan to resolve the crisis with yet another bank bailout.
• This bailout is different. For the first time, bank customers (depositors) will be hit with losses. “Small” or “insured” depositors under 100,000 Euro will be left alone; but over that amount, depositors could lose 20%, 40% or more of their money in the bank.
• That’s important. It’s a dangerous precedent. It means that “money in the bank” isn’t all that safe. Not in Europe; and if you believe a similar crisis could happen in the U.S. eventually, then not here.
• They were originally going to hit even the depositors under 100,000 Euro. That would have been an even more dangerous precedent. Thank God, the Cypriot parliament refused.
• The Russians are quietly furious with Europe, over all this. Cyprus had been sort of the Russians’ Cayman Islands or Switzerland; the Russians’ banking haven. Russian depositors may be hard hit (although some say that the clever Russians had already withdrawn their money).
• Also, Cyprus has a strategic location near Turkey and Israel, and important natural gas fields. So Russia and the EU both want it as their satellite. The Europeans were determined to keep Cyprus from withdrawing from the Euro.
• *IF* this outcome means that Cyprus stays with the Europeans (rather than the Russians – and I’m not sure if it does mean that, in the long run), it’s probably good for Israel.
• But for now, Cyprus will be hit with a severe depression, as its “Russian banking tourist” industry is gone, probably forever.

These developments have the Cypriots up in arms, feeling like their futures have been stolen. A few pictures here.

This all goes to the importance of money as a social contract. People put their trust in money as the basis for trading with each other, in all kinds of ways. If people’s bank accounts are violated – and/or, if the value of money is violated – then people feel hurt and disoriented, because a key social contract has been violated. I may say more about that in a future post.

This is a nice illustration of the point that a large government debt and a sluggish economy go together:

Hat tip, David Houle at Seeking Alpha. The “EM” means, a whole bunch of Emerging Markets economies.

The picture shows that the higher-debt countries tend to have lower growth; the lower-debt countries tend to have higher growth. I would argue that the direction of causation is mostly that policies of high government spending, high deficit and high debt will burden an economy, slowing its growth.

But one could argue for at least some causation in the other direction: if a country is low-growth to begin with, it will be higher-debt, just because it can’t grow out of its debts as easily. My counter-argument is that it almost doesn’t matter: The picture suggests that, once your country is stuck in a high debt / low growth mode, adding more debt (or Keynesian “stimulus”) just makes you Greece.

Lately I’ve noticed more and more posts from people on Facebook about how to do a, b, or c yourself or to make your own x, y, or z.  It could be that my personal social network overlaps more with the “crunchy” demographic which shops at the local food co-op and Whole Foods, but it could be a larger social trend.  I think it is a little of both, but I’m curious to see if other GayPatriot readers have noticed the same thing.

In the past three years or so, I’ve started learning to make many more kinds of things for myself than I had in the past.  Most of the stuff I make for myself has been foods that I used to buy at the store, and the transition originally occurred because I wanted to have a healthier diet.    I was a tolerable cook before, but I depended on lots of store-bought staples.  But the more I’ve learned to do for myself, the more I’ve wanted to learn how to do, as well.  I’d say that while I was originally motivated by a concern for health, as time has gone on, I’ve also been motivated by the increased sense of independence in learning how to make things I used to buy, by the ability to control my own ingredients, and by the opportunity to be able to make better quality foods than I would have bought in the past and still have a cost savings.

Although I started with food, I’ve also made some of my own household cleaning products, and I’ve considered making my own personal care items, as well.   I have a friend who makes and sells her own deodorant and is thinking of making other products, as well. But there’s no need to stop there.  When television stations switched from analog to digital broadcasting, I built my own digital TV antenna using coat hangers and a 1×4 using plans I had found online.

One of my favorite websites to browse in the last few years has been Ana-White.com which contains hundreds of build-your-own plans for furniture.  The site, which is maintained by a self-described “homemaker” in Alaska, was originally called “Knock Off Wood” because it started with home-built knock-offs of items found at stores and in catalogs.  I’ve not attempted building any furniture yet, but I would like to try doing so at some point in time.

I haven’t taken the time to research this topic yet in depth, but it’s my belief that part of what we’re seeing with this trend is a reaction to the Obama economy.  As people worry more about their finances, frugality and independence become more important–at least for a certain segment of the population.  During the Great Depression, these kinds of household arts were quite common, partly out of necessity and frugality, but also partly because the population wasn’t quite as urbanized.   Store-bought items were  both a rarity and a luxury.  I don’t see it as a coincidence that make-your-own and do-it-yourself projects are proliferating these days, much as they did during the Depression years.

What do other people think?  Have you noticed this trend, as well?  Have you made such changes personally?  Are there items that you used to buy at the store that you’ve started making for yourself?

As a GP commentor once put it, “The stock market relies on confidence, and the stock market has done incredibly well since Obama took over. How do you explain that?”

A picture is worth a thousand words:

But here’s the summary. Fed pumping gobs of money into Wall Street? Market drifts upward. Fed stops pumping? Market doesn’t. The so-called “confidence” is drug-induced.

Hat tip: Zero Hedge

UPDATE: This is your town, on food stamps. Once per month, the town of Woonsocket, RI springs to life as residents receive (and spend) their benefits. The Obama administration has more people on food stamps than any in U.S. history:

Spending on SNAP has doubled in the past four years and tripled in the past decade, surpassing $78 billion last year. A record 47 million Americans receive the benefit — including 13,752 in Woonsocket, one-third of the town’s population…

I must hat-tip John M. Mason at Seeking Alpha for inspiring this post. He weaves some recent news articles into a story which I shall sharpen, with my own viewpoint and commentary.

First, consider that “Recovery in U.S. is lifting profits, but not adding jobs” (says the New York Times). As percentages of national income, corporate profits today are they highest they’ve been since the 1950s, and employee income is the lowest it’s been since the 1960s.

So what are companies doing with their profits?

• “More U.S. Profits Parked Abroad, Saving on Taxes” (says the Wall Street Journal).
• “U.S. Firms Send Record Cash Back to Investors” as dividends, share buybacks and mergers (says the Wall Street Journal).

In other words: Companies just don’t feel that they have many productive opportunities / uses for their money, in the U.S. And do feel that they face unpredictable, yet ever-growing regulation – as well as relatively high taxes. So, they don’t hire (in the U.S.). Instead, they dispose of their profits in ways that accomplish little but to reward their shareholders, thus raising the stock market.

Connect that, folks, to the market’s recent highs. But what does a rising stock market accomplish? Little but to make the wealthiest households feel wealthier.

And so, to the extent that rising consumer spending has contributed something to U.S. recovery, that spending has come more from the wealthier households. “Wealthier Households Carry the Spending Load”, says the Wall Street Journal. Meanwhile, Wal-Mart and Target, who serve less-wealthy households, have reported slower sales.

This is an economy suffering from the anti-market, anti-growth policies of the Obama administration. Not surprisingly, it is also an economy skewed to the wealthy.

I say “not surprisingly”, because I know that the two things are connected. It is precisely the middle and working classes which (more…)

Faster, please.

House Republicans unveiled an ambitious cost-cutting plan Tuesday that would balance the budget in 10 years without raising taxes, while repealing ObamaCare and overhauling entitlements — a document Democrats are sure to reject but could be used as a negotiating tool in talks with President Obama.

Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, is sticking by controversial proposals, including one to give future Medicare retirees the option of using government payments for private health care plans.

Taxes are the vehicle that the Federal Government uses to strip power and freedom from its citizens. That immense power is sapping the private sector right now.

Here is the full text of the Ryan Budget Plan.  Read it for yourself.  No filters.

-Bruce (@GayPatriot)

Some make the case for how well things are going, in the U.S. economy. The statistics say that GDP has been edging up, and unemployment ticked down to 7.7%. One GP commentor recently put it like this:

…the stock market is reaching all time highs, the real estate market is bouncing back and the unemployment rate is going down. Yes, the unemployment rate needs to go down lower but overall, things seems to be really improving.

But I say, look at how we’ve gotten here: not in any way that can end well.

Last week, I mentioned that the markets are most likely up because the Federal Reserve Bank is pumping out $85 billion per month in new money. That’s a rate of about $1 trillion per year. By no coincidence, the government’s FY2013 deficit is projected to be around $1 trillion.

Please let me borrow, print-n-spend $1 trillion a year (or more), and I will also get you higher GDP numbers, along with financial market bubbles, $4.50 gas, and job growth that is positive, only after several years (and with a lot of part-time jobs). But, how much real wealth?

Analogy: Say your spouse is out of work. You have a family business. You create a job paying your spouse $50,000. The job doesn’t really produce much. You created it so your spouse will feel good. Paying for it tips your business into a loss, that you make up by borrowing. Has your household gained? Your tax return says that your household income is $50,000 higher. Is it?

The income isn’t an economic gain, if all you did was borrow money to simulate earned income. That’s what the government does. It borrows money, spends it on un-economic jobs (e.g., bureaucrats, bailouts, or paying the unemployed to do nothing), and says “Look – the national income (GDP) is up!” (^^)

I’ve said for a couple of years that GDP is not a number we should care about. We should look at GDP net of new debt.

According to this chart, in the four years of Obama’s reign so far, the U.S. has added around $1.1 trillion to its GDP level, and around $2 trillion in cumulative GDP (giving Obama credit for all amounts above the deep-recession GDP level that he inherited). In the same calendar period, the U.S. added $5-6 trillion in debt.

That’s a disaster. In the name of government deficits to “stimulate” the economy, we have, over several years, added much more in debt than we’ve gotten in GDP increases.

It’s not all Obama’s fault. But he’s captain of the ship, (more…)

When I put up my first post on social liberalism several weeks ago, I envisioned a series of posts that would discuss many of the implications of the fact that modern liberalism is more a social phenomenon than an intellectual one.  I’ve done that in part, but have until now neglected to mention one of the largest implications of all, namely that most modern liberals make easy targets for propagandists of all stripes because their political identity is driven more by their feelings than by the facts, and so they rarely exert critical judgement over the memes and narratives of the moment.

Quite to the contrary:  to exert critical judgement is automatically to invite suspicion, because it means asking difficult questions, seeking facts, pointing out fallacies, noting inconsistencies, all of which make modern liberals profoundly uncomfortable because those sorts of activities advertise the questioner’s willingness to dissent from the orthodoxy.

Neo-Neocon wrote a great post many years ago where she quoted Milan Kundera’s Book of Laughter and Forgetting on the power of “Circle Dancing”:

Circle dancing is magic. It speaks to us through the millennia from the depths of human memory. Madame Raphael had cut the picture out of the magazine and would stare at it and dream. She too longed to dance in a ring. All her life she had looked for a group of people she could hold hands with and dance with in a ring. First she looked for them in the Methodist Church (her father was a religious fanatic), then in the Communist Party, then among the Trotskyites, then in the anti-abortion movement (A child has a right to life!), then in the pro-abortion movement (A woman has a right to her body!); she looked for them among the Marxists, the psychoanalysts, and the structuralists; she looked for them in Lenin, Zen Buddhism, Mao Tse-tung, yogis, the nouveau roman, Brechtian theater, the theater of panic; and finally she hoped she could at least become one with her students, which meant she always forced them to think and say exactly what she thought and said, and together they formed a single body and a single soul, a single ring and a single dance.

To question is to step outside the  circle, to resist the lure of the dance.  And so the memes and narratives proliferate, pushed on by those who “feel moved” by them and are too afraid to question them.

Among the many liberals I know, this week’s meme is a viral video about “the wealth gap.”  I first noticed a college acquaintance (and an enthusiastic Elizabeth Warren supporter) mention it on Facebook on Sunday, and have noticed at least three other references to it by others since then.  The video is only 6 minutes and 24 seconds long, but if you’re like me, after about three minutes, it will seem like it is going on forever.

I’ve recorded some of my thoughts below the fold.

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Good article from Michael Boskin. Since it mostly speaks for itself (and since I’ve pounded the table on some of these ideas before), I’ll just quote a few highlights.

President Obama’s most recent prescription for economic growth—more government stimulus spending, new social programs, higher taxes on upper-income earners, subsidies for some industries and increased regulation for all of them—is likely to have the same anemic results as in his first administration…

Standard Keynesian models that claim a quick boost from higher government spending show the effect quickly turns negative. So the spending needs to be repeated over and over, like a drug, to keep this hypothetical positive effect going. Japan tried that to little effect, starting in the 1990s. It now has [ultra-high] debt-to-GDP…

Since World War II, OECD countries that stabilized their budgets without recession averaged $5-$6 of actual spending cuts per dollar of tax hikes…In a paper last year…Stanford’s John Cogan and John Taylor…show that a reduction in federal spending over several years amounting to 3% of GDPbringing noninterest spending down to pre-financial-crisis levels——will increase short-term GDP.

Why? Because expectations of lower future taxes and debt, and therefore higher incomes, increase private spending…

An economically “balanced” deficit-reduction program today would mean $5 of actual, not hypothetical, spending cuts per dollar of tax hikes…

…the demand by Mr. Obama and Senate Democrats that any dollar of spending cuts in budget agreements this spring (to fund the government for the rest of the fiscal year and when the debt limit again approaches) be matched by an additional dollar of tax hikes is economically unbalanced in the extreme…

Emphases added. Read the whole thing. Boskin backs his claims with examples, which I’ve omitted, to give you a reason to go there.

I’ve titled this “A start on fixing the economy” because we need additional steps to reduce government’s crushing, depressing burden on the economy. Spending cuts alone will not be enough. Repealing Obamacare would also help a lot, as would some other sort of measures to make clear to people that the Obama administration’s nonstop, unpredictable interference in business is over.

Today the stock market, as measured by the Dow Jones Industrial Average, hit an all-time high of 14,283 (intraday basis; closing at 14,253). A broader measure of stocks, the S&P 500 index, also seems to be doing well as it closed at 1539, nearing its all-time high.

So all is well in Obama’s economy, right? People are confident, great time to invest in stocks, right? Not necessarily.

The economy’s fundamentals remain poor. I believe that the Federal Reserve Bank’s “Quantitative Easing” program, which pumps around $85 billion per month of newly-printed money into the financial markets, causes the stock market to go up irrationally.

People know that America’s economic fundamentals are poor; but if the Fed is pumping so much money into the markets, then the markets are going to do well ‘no matter what’, at least for awhile. Realizing this, people feel a pull to join the party – after all, everyone else is doing it – and that makes markets go up even more.

I don’t see how it can end well. I see it as another market bubble. When the Fed stops QE – and it will have to, eventually – the stock market seems more than likely to crash. Bubbles are terrific fun, while they last. That is the phase we’re in now: the drug-QE-induced euphoria.

Moreover, what’s really going on here is (I believe) a process of inflation. I’ll explain. (more…)