The stock market roared on Friday, relieved, one supposes, that the onset of a new depression has not yet begun. A paltry 156,000 new jobs were created in April, which, normally, would be bad news. But previous month's revisions gave 2013 a monthly average of over 200,000 jobs created per month. That was better than previously thought, but is dismal and inadequate to reduce unemployment unless folks simply quit looking for work.
Since Obama took office, 9.5 million Americans have given up looking for work. Why bother, when there are alternatives? Besides, the Obama Administration and the Congress have made it almost un-American for businesses to hire anyone, so why not go with the flow.
It's pretty amazing that the pitiful record of the Obama Administration on the economic front has now become acceptable. Europe has gotten use to the spectacle of double digit unemployment and widespread economic stagnation. It looks like America is following suit.
Sabtu, 04 Mei 2013
Kamis, 02 Mei 2013
Keynes was right: rate cuts don't work
Today the ECB lowered their lending rate. They are moving toward the US Federal Reserve effective target of zero interest rates. It's done nothing for the US, why should it offer any hope for Europe.
Keynes argued persuasively in the 'General Theory' that, absent the 'animal spirits' of entrepreneurs, lowering interest rates may have little or no effect on a stagnant economy. He was right.
Lower rates don't make an employee that is paid $ 50,000 in wage and salary but costs $100,000 to hire (because of government) worth doing. You can subsidize rates --make them negative -- and it won't matter.
An economic policy that confiscates profits from businesses, pushes labor costs to a multiple of what the employee actually receives in income, arbitrarily outlaws important free-market economic initiatives (Keystone), and rewards political cronies (Solyndra) is not likely to produce economic growth quite apart from the level of interest rates.
Tinkering with Fed policy might matter if the other economic policies were not in place. But, the other policies are in place and they matter.
With an Administration fighting a daily war against free markets, the economy is not going to go anywhere. The economy needs a return of 'animal spirits' in the business community, as Keynes argued. Absent that, expect more of the same dismal economic news.
Keynes argued persuasively in the 'General Theory' that, absent the 'animal spirits' of entrepreneurs, lowering interest rates may have little or no effect on a stagnant economy. He was right.
Lower rates don't make an employee that is paid $ 50,000 in wage and salary but costs $100,000 to hire (because of government) worth doing. You can subsidize rates --make them negative -- and it won't matter.
An economic policy that confiscates profits from businesses, pushes labor costs to a multiple of what the employee actually receives in income, arbitrarily outlaws important free-market economic initiatives (Keystone), and rewards political cronies (Solyndra) is not likely to produce economic growth quite apart from the level of interest rates.
Tinkering with Fed policy might matter if the other economic policies were not in place. But, the other policies are in place and they matter.
With an Administration fighting a daily war against free markets, the economy is not going to go anywhere. The economy needs a return of 'animal spirits' in the business community, as Keynes argued. Absent that, expect more of the same dismal economic news.
Rabu, 01 Mei 2013
From the European Front
While yields on Italian debt are lower, the rest of the economic news continues to get worse. Unemployment in the Eurozone reached 12.1 percent on average according to figures released this week, while major strikes and employee walk outs plague Greece, Spain, and France according to today's NY Times. The European economy is still in free fall.
Surprisingly, you hear almost no news about the European economy other than self-serving statements from Euro-officials about how the crisis is over. The crisis is not over; it is deepening.
Politically, Europe is moving toward the extremists on the right and on the left. The European center, devoted to big government and the welfare state, is losing credibility with voters. The great European experiment has run out of (other people's) money. Now the day of reckoning is at hand.
Americans traveling in Europe report increasing street crime, especially in frequently-visited tourist areas. Life is changing in Europe and it is not getting better.
Americans should pay attention. We are on the same path. The next shoe to drop in the US will be Obamacare. When Americans realize that they are paying for insurance and health care that they cannot afford, do not want and do not need, the rebellion will begin here. US debt is on an unsustainable path and the economy is weakening. The stock market and improving home prices are about the only bright spots. Employment gains have corroded and GDP growth is disappearing from view.
The American media does not tell this story and glosses over the hard facts on the ground. But the media will become irrelevant as the facts on the ground will eventually overwhelm a fawning media. The American economy is getting worse and Europe is headed for a depression.
Surprisingly, you hear almost no news about the European economy other than self-serving statements from Euro-officials about how the crisis is over. The crisis is not over; it is deepening.
Politically, Europe is moving toward the extremists on the right and on the left. The European center, devoted to big government and the welfare state, is losing credibility with voters. The great European experiment has run out of (other people's) money. Now the day of reckoning is at hand.
Americans traveling in Europe report increasing street crime, especially in frequently-visited tourist areas. Life is changing in Europe and it is not getting better.
Americans should pay attention. We are on the same path. The next shoe to drop in the US will be Obamacare. When Americans realize that they are paying for insurance and health care that they cannot afford, do not want and do not need, the rebellion will begin here. US debt is on an unsustainable path and the economy is weakening. The stock market and improving home prices are about the only bright spots. Employment gains have corroded and GDP growth is disappearing from view.
The American media does not tell this story and glosses over the hard facts on the ground. But the media will become irrelevant as the facts on the ground will eventually overwhelm a fawning media. The American economy is getting worse and Europe is headed for a depression.
Jumat, 26 April 2013
This Is As Good As It Gets
The GDP announcement this morning for the first quarter of 2013 was 2.5 percent, well below the 3 plus estimates that economists were expecting. This will not be the first disappointment. Folks like Jim Cramer on CNBC can't understand why businessmen are reluctant to expand capital equipment and hire employees. That's because Cramer is a media celebrity not a businessman.
If Cramer were even remotely aware of the actual business climate that ordinary folks have to contend with, he would know what the problem is -- over regulation, absurd tax levels, Obamacare, EPA regulations, Dodd-Frank. It is almost as if the Obama Administration has declared war on the US economy. Anything that smacks of business success is viewed suspiciously by the Administration (and by Jim Cramer, I might note).
The talking heads can't figure it out, but the economics are simple. If hiring an employee at a $ 35,000 salary means it costs you $ 75,000 per year, you are not going to make that hire. End of subject.
Why the simple economics of hiring and firing eludes people like Jim Cramer is amazing.
There is no reason that health care costs should be borne by employers. None....no reason at all. But one thing is certain, if employer bears the cost of health care, they are going to be reluctant to make new hires and anxious to reduce their existing work force. Why is that hard for the Obama fans like Jim Cramer to figure out?
Citizens should finance their own health care. That would keep costs down and make the market efficient, as in the provision of anything else in a market economy. The only way to get health care costs to spiral out of control is to get the government involved.
There is so much double talk in an attempt to circumvent the obvious facts on the ground. The economy is grinding to a halt in Europe and in the US. The West is in deep, deep trouble. They have drunk the nectar of socialism and wealth redistribution. All of that feels good for a while until the economy begins to fall apart. We are now witnessing the collapse of the West.
This is not going to get better. It is going to get worse. Economic policies in Europe and in the US are not designed to make economies grow. They are designed to make economies fair, according to the fairness whims of the political elite. That kills economic growth.
So, get used to it. This is as good as it gets.
If Cramer were even remotely aware of the actual business climate that ordinary folks have to contend with, he would know what the problem is -- over regulation, absurd tax levels, Obamacare, EPA regulations, Dodd-Frank. It is almost as if the Obama Administration has declared war on the US economy. Anything that smacks of business success is viewed suspiciously by the Administration (and by Jim Cramer, I might note).
The talking heads can't figure it out, but the economics are simple. If hiring an employee at a $ 35,000 salary means it costs you $ 75,000 per year, you are not going to make that hire. End of subject.
Why the simple economics of hiring and firing eludes people like Jim Cramer is amazing.
There is no reason that health care costs should be borne by employers. None....no reason at all. But one thing is certain, if employer bears the cost of health care, they are going to be reluctant to make new hires and anxious to reduce their existing work force. Why is that hard for the Obama fans like Jim Cramer to figure out?
Citizens should finance their own health care. That would keep costs down and make the market efficient, as in the provision of anything else in a market economy. The only way to get health care costs to spiral out of control is to get the government involved.
There is so much double talk in an attempt to circumvent the obvious facts on the ground. The economy is grinding to a halt in Europe and in the US. The West is in deep, deep trouble. They have drunk the nectar of socialism and wealth redistribution. All of that feels good for a while until the economy begins to fall apart. We are now witnessing the collapse of the West.
This is not going to get better. It is going to get worse. Economic policies in Europe and in the US are not designed to make economies grow. They are designed to make economies fair, according to the fairness whims of the political elite. That kills economic growth.
So, get used to it. This is as good as it gets.
Rabu, 24 April 2013
Ignorance and the NY Times
Eduardo Porter, an "economics" columnist with the NY Times, has penned an article this morning in the NY Times that purports to address the lack of solutions to today's economic stagnation. Porter reports on a recent IMF sponsored conference of economists that was supposed to address problems posed by the "financial crisis of 2008."
According to Porter, the 2008 collapse discredited policies of lower taxes and de-regulation. You have to wonder what world Porter lives in. Was Sarbanes-Oxley an example of the deregulation? Were the Congressionally-imposed strengthening and rule-making for Fannie and Freddie examples of de-regulation? Exactly what is Porter referring to? Or do facts matter anymore when you have a convenient agenda ready?
Here is an example of the absurd conclusions that Porter draws in his article: "One lesson from the crisis -- first learned in the 1930s and corroborated in several contemporary analyses -- is that when interest rates lose their power to stimulate the economy, additional government spending can help generate real growth." Really? Could have fooled me!
Government spending in the US has exploded since 2008, as well as the national debt. And what have we gotten for this explosion in government spending? Economic stagnation -- the worst economic recovery since? Guess what -- the 1930s. Yes, the last time government spending was tried as a solution was the last time the economy failed, for a genertion, to recover from an economic downturn.
The way out of our current quagmire is easy and historically established. Go back to the early 1980s. Drastic tight money, high interest rates, major tax cuts and de-regulation spurred the most dramatic economic recovery in world history. All of this took place in the US under President Reagan in the bad old 1980s. The Clinton years benefitted from these policies, but Clinton couldn't handle prosperity. He and a Republican Congress raised taxes which began to produce economic contraction by mid-2000. Further regulatory nightmares, led by Sarbanes-Oxley, the dramatic push by Congress to expand Fannie and Freddie set the stage for the 2008 disaster.
What has been discredited is the idea that expansive monetary and fiscal policy can substitute for free market capitalism. The facts have turned naive Keynesiasm on its head. Free markets produce economic growth. Governments produce economic stagnation. The IMF wasted its time holding their conference last week. They would have been better served reading some economic history and learning the facts.
According to Porter, the 2008 collapse discredited policies of lower taxes and de-regulation. You have to wonder what world Porter lives in. Was Sarbanes-Oxley an example of the deregulation? Were the Congressionally-imposed strengthening and rule-making for Fannie and Freddie examples of de-regulation? Exactly what is Porter referring to? Or do facts matter anymore when you have a convenient agenda ready?
Here is an example of the absurd conclusions that Porter draws in his article: "One lesson from the crisis -- first learned in the 1930s and corroborated in several contemporary analyses -- is that when interest rates lose their power to stimulate the economy, additional government spending can help generate real growth." Really? Could have fooled me!
Government spending in the US has exploded since 2008, as well as the national debt. And what have we gotten for this explosion in government spending? Economic stagnation -- the worst economic recovery since? Guess what -- the 1930s. Yes, the last time government spending was tried as a solution was the last time the economy failed, for a genertion, to recover from an economic downturn.
The way out of our current quagmire is easy and historically established. Go back to the early 1980s. Drastic tight money, high interest rates, major tax cuts and de-regulation spurred the most dramatic economic recovery in world history. All of this took place in the US under President Reagan in the bad old 1980s. The Clinton years benefitted from these policies, but Clinton couldn't handle prosperity. He and a Republican Congress raised taxes which began to produce economic contraction by mid-2000. Further regulatory nightmares, led by Sarbanes-Oxley, the dramatic push by Congress to expand Fannie and Freddie set the stage for the 2008 disaster.
What has been discredited is the idea that expansive monetary and fiscal policy can substitute for free market capitalism. The facts have turned naive Keynesiasm on its head. Free markets produce economic growth. Governments produce economic stagnation. The IMF wasted its time holding their conference last week. They would have been better served reading some economic history and learning the facts.
Minggu, 21 April 2013
Even the WSJournal Doesn't Get It
David Wessel has a lengthy article in this morning's Wall Street Journal about the future direction of the world's economies. He begins with Europe and then walks the reader through the US, Japan, China, and the rest of the world. In every case, Wessel's discussion is about government policy.
The overall theme is that economic recovery depends upon government policy, discretionary policy at that. He discusses the twists and turns of policymakers as they, according to his story line, attempt to guide their economies to the promised land.
But, that is exactly the problem. Once government policy becomes the determinant of the economy's future, the economy no longer has a future. The proper role of government in a free market is to lay down the rules of the road and then to get out of the way. Increasingly, a government of rules is not to be found.
Instead we watch daily as policy makers, who frequently have a very limited knowledge of economics, move this way and that in a vain attempt to get economic growth going. Such things cannot work. They never have worked and they never will.
Economic growth occurs when businesses make capital expenditures and hire workers to create product. They aren't going to do that if they have to spend their time wondering what the next move is going to be by their government. Government action is detrimental to an economy's future. Government inaction and consistent application of the rules of the road is the ticket to prosperity, not frenetic political activity and polarizing rhetoric.
If Obama had played more golf and forgotten about the stimulus, Obamacare and Dodd-Frank, we would probably be looking at 4 - 5 percent unemployment today and economic growth rates of 3 1/2 to 4 percent. Unfortunately, Obama thought he had something to contribute. So, we stagnate. that's the price of a responsive government.
The overall theme is that economic recovery depends upon government policy, discretionary policy at that. He discusses the twists and turns of policymakers as they, according to his story line, attempt to guide their economies to the promised land.
But, that is exactly the problem. Once government policy becomes the determinant of the economy's future, the economy no longer has a future. The proper role of government in a free market is to lay down the rules of the road and then to get out of the way. Increasingly, a government of rules is not to be found.
Instead we watch daily as policy makers, who frequently have a very limited knowledge of economics, move this way and that in a vain attempt to get economic growth going. Such things cannot work. They never have worked and they never will.
Economic growth occurs when businesses make capital expenditures and hire workers to create product. They aren't going to do that if they have to spend their time wondering what the next move is going to be by their government. Government action is detrimental to an economy's future. Government inaction and consistent application of the rules of the road is the ticket to prosperity, not frenetic political activity and polarizing rhetoric.
If Obama had played more golf and forgotten about the stimulus, Obamacare and Dodd-Frank, we would probably be looking at 4 - 5 percent unemployment today and economic growth rates of 3 1/2 to 4 percent. Unfortunately, Obama thought he had something to contribute. So, we stagnate. that's the price of a responsive government.
Rabu, 17 April 2013
Taming the Beast
When an economy collapses, usually with the financial sector leading the way, everyone fears that it will not soon recover. But, history tells us otherwise. The numerous financial and economic collapses from the end of the civil war in the US up to the start of World War I took place during the fastest spurt of economic growth in US history. The US economy had no central bank during this period and the government was so tiny that fiscal policy was largely non-existent. Absent modern policy tools, what happened?
What happens, when government is not around to step in, is that economies recover on their own. That's what the period from 1865 to 1914 teaches us. It was during that period that the US overtook other economic power houses to become, by the end of the first World War, the most powerful economic engine in the world. That is the outcome one can expect if the central bank is non-existent and if government fiscal policy is non-existent.
But what happens when government attempts to "tame the beast?" and "reform" the economy and the markets. After the 2008 collapse, an unprecedented effort by central banks and governments took place throughout the Western economies. Combined with aggressive "regulatory reform" to prevent future financial collapses, political actions by western economies have attempted to "tame the beast" of modern capitalism for the past 4 1/2 years.
And what is the outcome of all of this government action? -- economic stagnation and distress. Economies that chugged along with 3 - 3 1/2 percent real GDP growth and 4 - 6 percent unemployment, now face zero real GDP growth and unemployment rates between 7 1/2 percent and 30 percent (Spain, Greece).
What next? The beast has been tamed. The furious fires of capitalism have been successfully tapped down by government policy. Now, policy makers have abandoned any serious effort to get free markets going again and are focused on taxing rich folks. That is the new agenda -- move more and more activities from the private to the public sector (think health care) and go after the wealth of anyone who played by the old rules.
We now have new rules. Bond indentures (think GM, think Stockton) can be rewritten by the judiciary and by politicians. Raiding government protected checking accounts are now policy tools for dealing with excessive sovereign debt (think IMF recommendations on Cyprus). Nothing is safe from the wandering policy eyes of the Obama administrations and European politicans. Even IRA accounts in the US have now become targets of the new political elite.
The beast has been tamed. Look for the economies in Europe and the US to roll over. In the US, the imposition of massive tax increases, major new hikes in employee costs (Obamacare), an onslaught of new EPA regulations, and blurring of the legal status of ordinary financial contracts (GM) is enough to snuff out the tepid recovery in the US. Absurd policies designed to increase sovereign debt in heavily indebted Europe will put the nail in the coffin for Europe. The future is not bright.
What happens, when government is not around to step in, is that economies recover on their own. That's what the period from 1865 to 1914 teaches us. It was during that period that the US overtook other economic power houses to become, by the end of the first World War, the most powerful economic engine in the world. That is the outcome one can expect if the central bank is non-existent and if government fiscal policy is non-existent.
But what happens when government attempts to "tame the beast?" and "reform" the economy and the markets. After the 2008 collapse, an unprecedented effort by central banks and governments took place throughout the Western economies. Combined with aggressive "regulatory reform" to prevent future financial collapses, political actions by western economies have attempted to "tame the beast" of modern capitalism for the past 4 1/2 years.
And what is the outcome of all of this government action? -- economic stagnation and distress. Economies that chugged along with 3 - 3 1/2 percent real GDP growth and 4 - 6 percent unemployment, now face zero real GDP growth and unemployment rates between 7 1/2 percent and 30 percent (Spain, Greece).
What next? The beast has been tamed. The furious fires of capitalism have been successfully tapped down by government policy. Now, policy makers have abandoned any serious effort to get free markets going again and are focused on taxing rich folks. That is the new agenda -- move more and more activities from the private to the public sector (think health care) and go after the wealth of anyone who played by the old rules.
We now have new rules. Bond indentures (think GM, think Stockton) can be rewritten by the judiciary and by politicians. Raiding government protected checking accounts are now policy tools for dealing with excessive sovereign debt (think IMF recommendations on Cyprus). Nothing is safe from the wandering policy eyes of the Obama administrations and European politicans. Even IRA accounts in the US have now become targets of the new political elite.
The beast has been tamed. Look for the economies in Europe and the US to roll over. In the US, the imposition of massive tax increases, major new hikes in employee costs (Obamacare), an onslaught of new EPA regulations, and blurring of the legal status of ordinary financial contracts (GM) is enough to snuff out the tepid recovery in the US. Absurd policies designed to increase sovereign debt in heavily indebted Europe will put the nail in the coffin for Europe. The future is not bright.
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