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Flushed Down the Keynesian Drain

down_the_drain22

from Scott Grannis in his blog The Calafia Beach Pundit, What happened to all the profits?

excerpts:

Here’s the failure in a nutshell: The government can’t stimulate the economy by borrowing from Peter and sending a check to Paul, because that doesn’t create any new demand—it’s like taking a bucket of water from one end of the pool and pouring it into the other end; the level of the water doesn’t change. And the government can’t stimulate the economy by spending more, because the government is notoriously inefficient (not to mention the fraud, waste, and incompetence that surround most major public initiatives); the private sector is far more likely to spend its money wisely and productively than the government is. Growth only happens when an economy produces more from a given amount of resources—when productivity rises. And productivity only rises when people work more, smarter, and more efficiently, and that takes hard work and risk. You can’t just dial up productivity, you have to work for it. We can’t “spend our way to prosperity,” as the late and great Jude Wanniski told us.

The past six years in effect have been a laboratory experiment to determine whether Keynesian economic theory is valid. The result? Keynesian economic theory is (or should be) officially dead. It doesn’t work. Government can’t boost the economy by borrowing or spending more money. Politicians will be unhappy to hear this, of course, since they would prefer that we think they can dispense growth and prosperity on demand. Those who insist in perpetrating this myth should be voted out of office.

Here’s my interpretation of what really happened in a nutshell: the private sector generated $8.9 trillion of profits in the past six years, and the federal government borrowed 83% of those profits to fund a massive increase in transfer payments, income redistribution, bailouts, subsidies, and a modest increase in infrastructure spending (as I noted here, only 8% of the 2009 American Recovery and Reinvestment Act went to transportation and infrastructure). Update: we recently learned that $5 billion was spent by the USDA on “questionable or unsupported costs.”

What happened to all the profits? Almost all of the most incredible surge in profits in modern times was squandered by our government, flushed down the Keynesian drain.

HKO

And that, my friends, is how you can report record corporate profits and still have a shitty economy.

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Liberal Trickle Down

kevin williamson

Kevin Williamson writes Blue Voodoo in National Review.

Excerpts:

The point of rehearsing this history is not to determine whether traditional supply-side thinking on economic policy is true or false, but rather to show that it is something fundamentally different from the trickle-down caricature offered by the progressives and others generally hostile to the idea of a smaller federal financial footprint. But that is not to say that “trickle-down” is an idea without adherents, a banner without partisans marching under it. Perversely, those advancing trickle-down ideas are mostly the same ideologues who denounce “trickle-down.” But they do not call it trickle-down — they call it “stimulus.”

The important point here is this: The argument that the government should spend on infrastructure because a certain piece of infrastructure is needed is one kind of argument; the argument that government should spend on infrastructure because doing so is good for the economy is a different kind of argument — specifically, it is a trickle-down argument.

If you doubt that, ask yourself: What kind of firms get federal contracts? Do you think any of those unhappy people in Ferguson, Mo., own firms that are in line for Department of Defense or Department of Energy contracts? Do you think impoverished Appalachian pillbillies are in the running for upgrading Treasury’s computer networks? If so, I have a bridge I’d like to build you at a very reasonable price.

Federal contracting is dominated, as one would expect, by large firms, often the dreaded multinational corporations of angsty soy-latte-liberal legend. Call the roll: In first place, we have Lockheed Martin, followed by those poor, Dickensian waifs at Boeing, who would be bereft without the support of the Export-Import Bank. Then we have the plucky upstarts at Northrop Grumman, General Dynamics, and Raytheon. And, lest Wall Street feel left out, Cerberus Capital Management comes in at No. 11. Deloitte, Rolls-Royce, and our friends at the Kuwait Petroleum Corporation all make the list — because federal spending is all about Main Street, albeit Main Street in Abu Dhabi, where the national oil company does nearly $2 billion a year in business as a federal contractor.

But that is a big, hairy Gordian knot of an issue if your argument is that infrastructure spending, and other federal project outlays, are a desirable form of economic stimulus in and of themselves. If the latter is your argument, then you have to believe something far stronger than even the cartoon trickle-down version of supply-side tax cuts: You have to believe that having the federal government literally write enormous checks to gigantic international conglomerates and the rich guys who own and operate them will create prosperity by, forgive me for noticing, trickling down through the economy to the guys who spread asphalt and the guys who sell those guys work boots and burritos and bass boats. “Deep voodoo,” as Paul Krugman would put it in another context.

HKO

Trickle Down is largely a myth perpetuated by supply side opponents.  But the current idea that giving cash direct to big companies is stimulative but giving tax cuts is not is irrational.  The political benefit of direct subsidies and contracts is to be able to control the money, which broad based tax cuts would not allow.

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Relativity of Wealth

Jonah Goldberg writes Mr. Piketty’s Big Book of Marxiness in the July issue of Commentary.

Excerpt:

Well, no. In fact, the Billy Zane character was an entirely fictional creation of James Cameron’s imagination (and the proper spelling of his name is Hockley; Cameron invented Caledon Hockley’s name by joining the names of two towns in Ontario, where he spent some time in his youth). Still, let us concede that there were some rich jerks on the actual Titanic. So what? Many of the richest people on earth were passengers on the Titanic, including Isidor and Ida Strauss (owners of Macy’s), mining heir Benjamin Guggenheim, and John Jacob Astor IV (the wealthiest man on the ship). They, and numerous others, refused to get in lifeboats until all the women and children, including the poor women and children, got on first (Ida Strauss refused to leave her husband, preferring to die in his arms). After helping other passengers escape, Guggenheim and his secretary changed into their evening wear, saying they were “prepared to go down like gentlemen.” Meanwhile the most famous real-life cad on the ship was George Symons, a crewman who refused to let anyone else on his lifeboat even though there were 28 empty seats. Money, it seems, doesn’t tell you everything about a man.

This Titanic business on its own is trivial, but it demonstrates how Piketty sees the super rich as an undifferentiated agglomeration—a single static class bent on protecting its own collective self-interests. But the rich are not a static class, any more than capital can be reduced to a homogenous blob. Fewer than 1 in 10 of the 400 wealthiest Americans on the Forbes list in 1982 were still there in 2012. (Lawrence Summers notes that if Piketty was right about the stable return on capital, they should have all stayed on the list.) Of the 20 biggest fortunes on the Forbes list in 2013, 17 (85 percent) were self-made. Of the three remaining entries, only one—the Mars candy family—goes back three generations. The Koch brothers inherited the business their father created, but they also greatly expanded it through their own entrepreneurial zeal. The Waltons of Walmart fame inherited the family business from Sam Walton, a self-made billionaire from quite humble origins.

This distinction between objective, or absolute, poverty and subjective, or relative, poverty doesn’t matter very much to Piketty. In real life, however, it matters a great deal. There’s a significant difference between not being able to feed your family and not being able to feed your family as well as a wealthier man might. A millionaire might be poor in a world of billionaires, but he would not be a pauper.

 

HKO

Wealth is dynamic, not static as Piketty and so many others assume.  This comes from addressing people not as the dynamic individuals that they are but as soul less and amorphous groups.
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A Disguised Dictator

from Carpe Diem

…. are from Ludwig von Mises, writing in Human Action.

1. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.

2. Every socialist is a disguised dictator.

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The End of Excuses

From National Review Online

Secular Stagnation Is a Cover-Up
Failed Keynesian policies have blocked growth.
By Larry Kudlow & Stephen Moore

Excerpts:

The blame falls on the White House and the Fed, and the discredited Keynesian model that government spending, debt, and cheap money are the way to restore growth. Ideas have consequences, and bad ideas have bad consequences. We’re still waiting for the government-spending multipliers and the Fed’s escape-velocity rebound to kick in.

Amazingly, the architects of this colossal policy failure are the same people who promised they would rebuild the U.S. economy “for the long term,” as Barack Obama put it in 2009. But they’re now blaming the stagnant economy on structural problems beyond their control. Oh, we get it. Consumers and businesses are wrong because they didn’t adhere to Keynesian economic models.

We have paid people not to work by raising eligibility and time limits for various benefit plans, substantially raised marginal tax penalties when people move from welfare to work, disincentivized employers from hiring more workers (Obamacare, minimum wage), raised taxes on investment, passed new regulations to strangle our energy industry, unionized even when workers don’t want it, continued corporate-welfare cronyism, and refused to fix a corporate tax system that sends jobs abroad. And then we wonder why the economy won’t shift into a higher gear.

And sadly enough, this is all happening when the potential for growth, productivity, and wealth are at an all-time high.

HKO

The arrogance of this administration is absolutely stunning.  They passed endless destructive policies and take no responsibility for their outcome. The strength of this economy in the face of these destructive policies is amazing, but how long will it last?

At what point are excuses exhausted and accountability expected?