Lefty Investment writer wants you to know, he could be rich, he just doesn’t want to.
A key fallacy of mainstream economics today is its belief that all economic activity is good activity. Quality doesn’t matter. We must “stimulate” the economy to get those GDP numbers up, and all will be better. It doesn’t matter if we rack up endless debt, only to pay people to dig holes and re-fill them or to re-build cities destroyed in war.
It sounds like I’m exaggerating, doesn’t it? Many economists would scoff that I am. Except I’m not.
For example, Paul Krugman and other neo-Keynesian economists claim often (and wrongly) that the destroy-and-spend of World War II is what pulled the world out of the Great Depression. Krugman has called for housing bubbles and fake alien invasions on more than one occasion, and only half-jokingly at best.
Or we have the recent movement to count illegal activities (drugs and prostitutes) as part of GDP. It got another little boost when Spain signed on. (By counting illegal drugs and prostitution as part of its GDP, Spain can reduce its official debt-to-GDP ratio, making its finances appear sounder than they are.)
I believe that all of this speaks to both the deep Statism and the deep nihilism that have infected modern culture. The implication – that economists never state outright because they know it would sound too crazy, but the implication remains – “Gee, if only the government would spend on destruction, the economy would boom. If only people would buy more meaningless sex and drugs, the financial system would be sound.” As if those are productive activities.
Again, put like that, it sounds like I’m drawing a caricature; but I’m not. A recent example is from the New York Times, a serious opinion pieced titled The Lack of Major Wars May Be Hurting Economic Growth. It begins: (more…)
The US Chamber of Commerce and a bunch of big business want to import millions of cheap foreign workers (a.k.a. “Comprehensive Immigration Reform”) to replace American workers. One of their claims is that there aren’t enough American high-tech workers to meet demand. This false premise can be destroyed by asking one simple Economics 101 Question.
Rutgers University public policy professor Hal Salzman said that current wages in the high-tech and information technology industries do not indicate that there is any shortage because wages are not going up. In fact, wages are the same as they were when Bill Clinton was president, so Salzman asked, “If there is in fact a shortage, why don’t wages go up?“
I have an “inflation update” post coming. Before that one, let’s review what inflation is.
Most people think it’s price increases. People have been trained to think that way (which I’ll address in a bit). But it’s not. Inflation is depreciation of the money, which may then result in price increases.
In olden times, money was physical metal. For example, the UK’s “pound sterling” was once an actual 12 ounces of 92.5% silver metal.
Over the centuries, they made it a paper note, and then they kept diluting the value of the note, until today it’s worth a tiny fraction of a pound of silver. A troy pound of sterling silver today would be worth about £126 (or about $210). In other words, they shaved off 125/126 of the pound’s value, over the centuries. That’s inflation.
Likewise, the U.S. dollar. It was once defined as about 1/20 ounce of gold. To say it another way, gold was fixed at $20.67/ounce until 1933, meaning that the U.S. Treasury would really give you near-an-ounce of gold, if you demanded it in exchange for a $20 paper note. But today, gold is around $1250/ounce. Today, (1) the dollar is NOT a fixed amount of gold, and (2) if you were to exchange it, on today’s date you would find that a dollar gets you about 1/1250 ounce of gold, or about 1/62 as much as before. That’s inflation.
When the money is depreciated like that, it takes more units to represent another value – a loaf of bread, a gallon of gas, a car you want to buy, medical services, etc. So, inflation tends to mean higher prices. People call the higher prices, inflation. Except it’s not; it’s only a symptom of inflation.
Think of it this way. When you have a flu, your temperature may be 102 degrees. That’s a symptom, not a disease. The flu virus is your disease. Likewise, when the government (or central bank) depreciates the money, prices may be seen at higher levels. That’s a symptom, not a disease. The depreciation is the disease.
Why do governments depreciate the money? Because it’s a hidden tax. It means the government can spend more, without having to openly raise taxes. The government is always the number one beneficiary of inflation; always the real reason it’s done.
The government gets the most benefit if people don’t understand inflation, or think clearly about it. If people understood inflation, then everybody would raise the prices of their labor, goods and services, the moment they saw the government (or central bank) depreciating the money. So the government’s added spending would not go as far. The government would still benefit from being able to repay its debts in depreciated money. But overall, the government would get that much less bang for its inflated/depreciated buck.
Thus, the government – and its acolytes in media, Wall Street and academia – have a vested interest in people NOT understanding inflation. And so they spew a lot of crap about it. They muddy the waters with false doctrines – including the one I’m correcting (that inflation-is-about-the-price-increases-and-we-have-not-had-any-price-increases-you-idiot).
Another false doctrine they spew is that we somehow *need* inflation, because deflation (opposite of inflation) is somehow bad for people and scary. Deflation is bad – to the beneficiaries of inflation, namely Big Banking and Big Government. But not to average Americans. I may address that one, in a future post.
Follow-up to V’s post on Seattle, last week the California Senate voted to destroy entry-level jobs:
The state Senate on Thursday approved a measure that would gradually raise the minimum wage in California from the current $8 an hour to $13 in 2017, despite warnings from the California Chamber of Commerce that the bill is a “job killer.”
Warning: Gay Left politicians at work!
Sen. Mark Leno (D-San Francisco) said his bill is necessary to help lift many of the 7.9 million Californians being paid minimum wage out of poverty. “Income inequality has been spoken of by our president as the defining challenge of our time,” Leno told his colleagues.
He said the current minimum wage is so low it allows many who receive it to get public assistance. “It is our tax dollars that are subsidizing the largest corporations paying these poverty wages.” Leno said. No other state has a minimum wage of $13 an hour…
Related: Calif. Senate votes to reduce penalties for sale of crack cocaine
The “Related” was added by the LA Times (when I pasted the text). Fitting, isn’t it? Because the measure would actually keep poor Californians in poverty, increase inequality, and push more people onto public assistance. Is that Leno’s real goal?
And Chicago also wants a $15/hr minimum wage. It’s trendy.
But not trendy enough for the Swiss: in May, they rejected a high minimum wage by a huge margin. (The Swiss proposal would have been $25/hr by exchange rates, or $14 by PPP adjustment.)
Seattle voted to raise its minimum wage to $15 an hour. Despite the misapprehensions of many low information voters, to full wage increase won’t take effect until the start of Hillary’s second term (By which time inflation may have rendered it meaningless. The way the Fed is going, in 2021, $15 will buy you a pack of gum, maybe).
After decades in Seattle, Northwest Caster and Equipment recently made the difficult decision to move the business to unincorporated Lynnwood, according to a report by KOMO news. The owner of the family business blames Seattle’s increasingly difficult business climate for the move: “It just seems like increasingly the city’s become a more difficult place to do business.”
The city’s proposed $15 minimum wage was tops on the list of complaints. “If I’m going to bring someone in on an entry level, I’d prefer to start them out where I’d like to start them out, rather than having that dictated to me.”
A commercial property landlord echoes those concerns about the $15 minimum wage, noting several tenants have signaled they may not renew their leases if it becomes law: “It’s just too expensive to operate in the city.”
They already raised the minimal wage to $15 in one suburb. It ain’t working out too well.
“Are you happy with the $15 wage?” I asked the full-time cleaning lady.
“It sounds good, but it’s not good,” the woman said.
“Why?” I asked.
“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.
The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.
What else? I asked.
“I have to pay for parking,” she said.
I then asked the part-time waitress, who was part of the catering staff.
“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.
Despite trillions in economic “stimulus” which have pushed the stock market to record highs, the U.S. economy officially shrank by 1% in the first quarter.
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 1.0 percent in the first quarter according to the “second” estimate released by the Bureau of Economic Analysis…
The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month.
If second quarter GDP does the same, the economy will officially be in a recession.
But surely the problem isn’t with the economy? Now in its fifth “summer of recovery” – yes fifth, so there! – and with the official unemployment rate dropping, surely the economy is fine?
The problem must be that our government officials aren’t measuring GDP correctly. After all, truth is a social construct, right? Just rig the GDP counting methods until officials produce a number that “proves” the economy is growing, and have President Obama declare it’s true, and it will be true.
They did things that way in 2013. For example, when Obama simply declared that his irresponsible budget proposal was “fiscally responsible”. Or when they suddenly declared the GDP to be $550 billion higher after deciding that GDP should include future government pension promises, money lost on failed movies, and so forth.
Italy gets the idea. Italy will start to count cocaine sales, prostitution and smuggling as part of their GDP.
The UK is also working on it. Contribution of drug dealers and prostitutes to the UK economy boosted GDP by £10bn according to estimates.
For the first time official statisticians are measuring the value to the UK economy of sex work and drug dealing – and they have discovered these unsavoury hidden-economy trades make roughly the same contribution as farming.
You see? In this modern world, when a hooker helps a Kennedy get to sleep at night, she contributes as much to national wealth as a farmer growing food for someone’s table.
Obama needs to get on this (so to speak). That way, The Party can prove that the economy is always growing. /sarc
While China, Russia and Iran may not be natural allies, “the enemy of my enemy is my friend” and they’re getting together to oppose the U.S. I’ve suggested before that President Obama’s efforts to isolate Russia are only goading these countries in their ongoing efforts to create a non-U.S. system for world trade and finance, a system that other countries (Germany, other BRICs, etc.) would come to do business with. Eventually bringing about the decline (or overthrow) of the U.S. dollar as the world’s key currency.
- BRICS countries are still setting up a Development Bank, like the IMF and World Bank but serving their own interests. It “will begin operating as soon as in 2015…The currency reserve pool will assist a member country with resolving problems with its balance of payments” – such problems as, oh, the U.S. trying to undermine Russia’s economy.
- Russia has dumped 20% of its U.S. Treasury bond holdings. (It will be more significant when China does it, but there it begins.)
- China has slammed Obama’s sanctions against Russia.
- China and Russia deepen their ongoing military ties, such as a joint naval drill which they held a few days ago.
- China and Iran announce plans to deepen their military ties. “According to an Iranian news report, [China's Defense Minister] Chang also said that China views Iran as a strategic partner.”
- A top EU Commissioner warned that “Any ‘sensible’ European Union citizen should oppose further sanctions on Russia because of the economic cost for Europe.” More recently, Germany’s Finance minister implies that the U.S. is a poor partner.
- If you believe the Voice of Russia (which tends to spew propaganda), Russia is reviving the GECF (like an OPEC for natural gas) with help from Qatar and other gas-producing countries. Also, Russia intends to use ruble/yuan instead of dollars in its energy trading.
- Putin opens Russia to greater Chinese investment. And large Russian and Chinese banks work out deals to settle payments in ruble and yuan, rather than dollars.
- A huge step forward for Russia and China: They finally sign their big natural gas deal. It’s worth $400 billion over 30 years, took a decade to negotiate and will involve tens of billions of joint capital expenditure by the two countries (e.g., new pipelines).
- “Russia may sign an agreement to build 8 nuclear reactors in Iran.” In other words, Russia views Iran as a strategic partner, and strives to help Iran’s nuclear program.
- In an interview, Putin says the ‘unipolar’ world order has run its course – and much more.
The non-U.S. dominated world: bit by bit, it’s coming.
Hat tip to Zero Hedge, which has long covered this story and furnished several of the above links.
On the WSJ:
“The great irony of the Obama era is that the President’s base voters have disproportionately suffered from a sputtering economy, while the wealthy that Mr. Obama likes to criticize have enjoyed a booming stock market. A new study shows just how difficult this era has been for some of the President’s most loyal supporters.”
Researchers at the Center for Economic and Policy Research, a left-leaning think tank, find that “The Great Recession has been hard on all recent college graduates, but it has been even harder on black recent graduates.”
In 2013, the unemployment rate for black college graduates ages 22-27 was a full 12.4%, more than double the 5.6% rate for all college grads in the same age range.
Now, MSDNC has a theory that opposition to Obama’s policies is based on racism; but if blacks are being hurt disproportionately hard by his policies, shouldn’t racists be happy about that?
Workers in the old Soviet Union used to describe their economic system this way, “We pretend to work, they pretend to pay us.” The Obama Regime has apparently decided to adopt this system as well.
Employees at an ObamaCare processing center in Missouri with a contract worth $1.2 billion are reportedly getting paid to do nothing but sit at their computers.
“Their goals are set to process two applications per month and some people are not even able to do that,” a whistleblower told KMOV-TV, referring to employees hired to process paper applications for ObamaCare enrollees.
The facility in Wentzville is operated by Serco, a company owned by a British firm that was awarded $1.2 billion in part to hire 1,500 workers to handle paper applications for coverage under the law, according to The Washington Post.
The whistleblower employee told the station that weeks can pass without data entry workers receiving even a single application to process. Employees reportedly spend their days staring at their computers, according to a KMOX-TV report.
“They’re told to sit at their computers and hit the refresh button every 10 minutes, no more than every 10 minutes,” the employee said. “They’re monitored, to hopefully look for an application.”
Adding to the hilarity, those Serco employees count as “private sector jobs,” because even though they are doing Government work, they do it under the auspices of a private employer. This lets dim-witted Obama cultists brag about how many private sector jobs the SCOAMF has “created.”
So, under Obamacare, you have data entry workers hired at a cost of billions sitting around doing nothing, while hospitals are laying off nurses.
All because progressives believe the Government is so much smarter about how to spend money than consumers or health care companies.
Meanwhile, Obama could permit real jobs to be created by permitting the construction of the Keystone XL pipeline, but that would be contrary to the financial interests of Democrat financier Tom Steyer. So… no.
In other economic news, the people who perform the dangerous and demanding work of asking if you “would like to try a combo today” are still demanding $15 an hour for a job that can (and will) be performed by a touchscreen. In Switzerland, voters rejected a proposal to raise the minimum wage to the equivalent of $25 an hour; because the Swiss are not low-information voters who embrace idiotic economic policies promoted by socialist dunderheads.
Scenes like this lead one to suspect that the Awesome Obama Economy is perhaps less awesome than we are told. And this is not just a thing in America (where the economy contracted last quarter but since the president isn’t a white Republican, this isn’t a major news story), but around the world. Central banks encourage manufacturers to keep building cars they can’t sell because if they reduced output, they would lay off workers, making the already precarious global unemployment problem much, much worse.
Maybe another “Cash-for-Clunkers,” program. That bit of Obama Economic Genius only cost taxpayers $24,000 per car sold.
Hat Tip: Papa Giorgio
The last piano bar in West Hollywood is closing, it just wasn’t possible to turn a profit while complying with onerous state and local regulations. The Progressive City Government of West Hollywood required the cabaret to comply with a number of perfectly reasonable “common sense” regulations that assuredly existed only to ensure the public’s best interests.
The city did allow DTM to have singing waiters, so long as there were no more than six of them performing at any time. Occasional guest singers, including people from the audience, also were allowed. DTM also was barred from having a cover charge or requiring the purchase of a minimum number of drinks, which are typical revenue sources for cabarets.
Topping Seattle Mayor Ed Murray’s $15-an-hour minimum wage, and even Native American Senator Elizabeth Warren’s $22-an-hour minimum wage, an even more economically illiterate Democrat… California Representative Barbara Lee … thinks the minimum wage should be $26 an hour.
“Let me ask you this question, you’re a good advocate for this,” Gingrich asked Lee. “The mayor of Seattle is proposing that the minimum wage ought to go up to $15 an hour.”
“Good for him,” Lee responded. “In California — more than likely, from what I remembered — a living wage where people could live and take care of their families and move toward achieving the American dream was about $25, $26 an hour.”
“So would you support that as a minimum wage for California?” Gingrich asked.
“Absolutely I would support it for California.”
This economic program should be very popular among voters who ain’t never seen no plant growing out of no toilet
Seattle Mayor Ed Murray announced a plan Thursday that would give the city the highest minimum wage in the United States, $15 an hour.
Now would be a great time to buy stock in companies that make automated Touch Screen ordering machines and in commercial real estate in the Seattle suburbs.
And now that Ed Murray has raised the bar, some other Democrat Mayor or Governor with an even more tenuous grasp on economics is going to have to increase his minimum wage to $17 so he can be the Darling of DailyKos. One wonders where this minimum wage bidding war the left is waging will end.
The Obama Administration… embarrassed by the most recent 0.1% economic growth rate and the abject failure of five years of tax-and-spend economic policy… is proposing more tax-and-spend economic policy.
The Obama administration sent to Congress legislation that would provide $302 billion for road and transit projects over four years, a measure needed to keep the U.S. Highway Trust Fund from running dry.
A transportation proposal sent to Congress by the Obama administration on Tuesday would remove a prohibition on tolls for existing Interstate highways, clearing the way for states to raise revenue on roads that drivers currently use at no cost.
Democrats are literally incapable of conceiving of any other approach to any economic (or other) challenges other than raising taxes and expanding Government.
With splendid “Who, me?” innocence, President Obama declared on April 16:
The good news is our economy is growing again, our businesses are creating jobs…
Here’s the challenge, and a lot of folks here know it. A lot of people don’t feel that progress in their own lives yet. So, the stock market’s doing great. Corporate profits are soaring. Folks at the very, very top are doing better than ever. But too many Americans, if they’re lucky enough to have a job, are working harder and harder just to get by, much less to get ahead.
For too many middle class Americans, it feels as if the same trends that have been going on for decades are continuing. They’re working hard, but wages flatline, incomes flatline, cost of everything else going up.
(For video – and hat tip to Peter Schiff – click here.)
As I mention often (in GP categories such as Economy or Occupy Wall Street), President Obama’s own policies are the cause of the rising inequality, stagnation and poor employment, inflation and rising costs that he decries.
The way he denounces the economy, you’d never know he’s been President for five and a half years.
The Governor of the state with some of the lowest income taxes, pro-business regulatory environment, best economy in the country, and … oh yeah… a $2.6 Billion budget surplus… has challenged the Governor of a sclerotic blue state, with a moribund economy, the highest tax burden in the country… and a $1.7 Billion budget deficit… to a debate on economic policy.
Surprising no one, Governor Cuomo is uninterested in debating Governor Perry.
If this were published in The Onion, people would think; “Ah, once again, those clever Onionistas have adroitly par0died our zeitgeist.” (Some people would think that. Probably) But IRL… Paul Krugman – the New York Times economitician who rails constantly against “income inequality“… is going to be paid $225,000 by a publicly-funded university for… well, no one can really say exactly… but it has something to do with an “Income Inequality Initiative.” (Perhaps, they think there isn’t enough.)
According to a formal offer letter obtained under New York’s Freedom of Information Law, CUNY intends to pay Krugman $225,000, or $25,000 per month (over two semesters), to “play a modest role in our public events” and “contribute to the build-up” of a new “inequality initiative.” It is not clear, and neither CUNY nor Krugman was able to explain, what “contribute to the build-up” entails
Maybe Krugman’s advice to CUNY will help them as much as it helped Enron back in the 2000′s.
FWIW: At 2014 rates, Krugman’s stipend would pay a year’s tuition for 39 CUNY students.
More Sweet Irony: SEIU — one of the Democrats many favorite labor unions — wants to unionize workers at Left-wing FoxNews haters and champions of the proletariat “Media Matters for America.” The good lefties at MMFA have responded by hiring a law firm that specializes in “union-busting.”
We live in a world where the central bank (Fed) *rigs interest rates low, in order to rig debt levels and asset prices high* as they can possibly go.
I know it’s abstract and I comment on it ad nauseum, but I’m not sure it can be over-stressed. It has lots of bad effects.
- You think homes are unaffordable, compared to (say) 20-40 years ago? Guess why home prices aren’t a good deal lower. (There are many reasons – but try guessing the biggest.)
- Feel hopeless about your ever retiring? Take a guess why retirement income is hard to come by.
- Feel like you struggle to make ends meet every month, while wealthy people (having lots of financial assets) keep doing better and better? One more guess why.
- Feel like new, good jobs are impossible to come by? The Obama administration (including Obamacare) is a big drag, there. But the Fed doesn’t exactly help.
- Feel like the stock market is a crazy bubble again? Feel like we learned nothing from the 2008 crisis, and our economy is still much too ‘financialized’ and debt-ridden? Again, many causes – but one guess as to the top cause…
Interest rates are the most important price in the economy. They should be set by the People in free markets. I see no reason to have a Politburo which plans them – and plans them badly, in ways that injure society.
Remember this promise: “We’re going to solve the health care crisis by adding millions and millions of poor people to the health care system. We’re going to force insurers and providers to provide more services to them. But this will result in massive savings, affordability, and lower costs for everyone!”
Well, those same Bizarro-World Economists are making a new promise: “We’re going to solve global warming by putting severe limits on the use of carbon-based fuels. We’re going to put severe limits on industry to force them to emit less carbon. But this will result in “co-benefits” that result in economic growth and prosperity for all!”
How well do you reckon that will work out?
[Is "Co-Benefit" even a word?]