From National Review Online
Secular Stagnation Is a Cover-Up
Failed Keynesian policies have blocked growth.
By Larry Kudlow & Stephen Moore
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.
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?
Kevin Williamson in National Review writes Economics Lessons Unlearnt
More likely, the science writer David H. Freedman is correct when he argues that “economic models are always wrong,” that the process of calibrating models to account for historical and current data renders them very, very precise and very, very useless. This is another example of the mapmakers’ dilemma: In order to be manageable, models must, by definition, be simplified versions of the real world, and the more simplified they are, the less accurate they are. There is no economics version of the all-seeing Laplace’s Demon. Professor Krugman’s demand — “Show Me the Model!” — assumes the usefulness of the model, which cannot, in fact, be assumed.
There is no obvious reason to believe that successful economic policies are transferable from country to country. Indeed, it may be that “successful” policies in the main merely coincide with happy economic outcomes rather than causing them. There is not much reason to believe that they are transferable from year to year, much less from generation to generation, in spite of the moanings of our phantom armies of New Deal romantics. Economic conditions change very quickly and in ways that are impossible to predict.
The first issue of evidence we should consider is whether there is any evidence that large, complex economies such as those of Japan or the United States are in fact manageable through the blunt instrument of politics. If there is a political constituency for a 6.8 percent contraction in the Japanese economy, it is not obvious what it is. If there is a political constituency for the current state of the U.S. economy, especially the stagnation of middle-to-low-income wages, that is equally non-obvious. All the best people were convinced that Shinzō Abe had it figured out — and, by coincidence, he was putting forward policies very similar to the ones they themselves prefer. That’s evidence of something, too: the human capacity for self-delusion, one of the few commodities to which the economic concept of scarcity does not apply.
from Scott Grannis at Calafia Beach Pundit, Taxes Don’t Lie
As a supply sider, I don’t see the logic behind the theory that more government spending is stimulative and less is restrictive. How can taking money from those who are working and giving it to those who aren’t create a bigger economic pie? It creates perverse incentives, for one thing. And it also channels the economy’s scarce resources into the less-productive sectors of the economy. True economic growth only comes about when scarce resources are utilized in a more productive manner. I think the massive amounts of deficit-funded spending we’ve seen since 2008 are one of the main reasons the economy has been so weak. Bigger government is not better. With spending now having shrunk to historic norms relative to GDP, I’m tempted to say that growth has a chance of picking up.
We can increase spending with a tax cut and it would still be considered Keynesian. Kennedy did just that. The big difference is who gets to decide how the money is spent and thus what it gets spent on. It does make a difference how the money is spent. But it also makes a difference where the money comes from. Higher productivity is more sustainable than either debt or inflation.
from Stubborn Things, The Symptoms Are Not The Disease
The difference today is about 2% official inflation (blue) versus about 9% (gray) based on the pre-1982 calculation. Inflation isn’t absent, it’s just been officially “recalculated” and adjusted away. Proof of the adage, if you still need proof, that there are lies, damn lies, and government statistics.
Inflation is not merely rising prices. Prices rise (and fall) for lots of good free market reasons related to supply and demand. The disease of inflation results in rising prices, too, but it reflects not the increasing value of a good or service, but rather the decreasing value of each dollar used to pay for that good or service. Specifically, inflation is the result of the bastardization of the currency due to irresponsible printing of money.
CEO’s are not stupid and don’t believe the official inflation numbers. CEO’s don’t invest where the currency is being bastardized. CEO’s don’t grow the business where growth is being punished by regulators and bureaucrats. Global firms can invest and grow elsewhere in the world, but it’s entrepreneurship in the US that really flounders. Smaller domestic companies just aren’t started, or deliberately remain small.
Because of currency manipulation, bastardized statistics and ‘blood letting’ regulation, we are stricken with weak investment and low growth of GDP and payrolls. It really is just that straightforward.
From Robert Samuelson in The Washington Post, Interest rates and the Fed’s great ‘slack’ debate:
Is it time to consider raising rates to preempt higher inflation? The answer depends heavily on the economy’s slack: its capacity to increase production without triggering price pressures. Although economists are arguing furiously over this, there’s no scientific way to measure slack. Economic policymaking is often an exercise in educated guesswork, built on imperfect statistics, shaky assumptions, incomplete theories and political preferences. This is an instructive case in point.
“Slack” is economics jargon for spare capacity. It means unemployed workers, idle factories, vacant offices and empty stores. Its significance is obvious. If there’s a lot of slack, inflation shouldn’t be a problem. Companies and workers will compete for sales and jobs by holding down prices and wages. By contrast, if there’s little or no slack, government efforts to stimulate the economy through low interest rates or budget deficits may backfire. Excess demand will raise wages and prices. (There are some exceptions to these maxims.)
Samuelson is correct, but I think slack is even harder to measure than he asserts. Our productive capacity is far more than the capacity of buildings and equipment and their potential output. It is the potential of the human mind to find new ways to cut costs, turn luxuries into necessities, and create new luxuries. What happens to demand and output when electric cars like the Tesla reduce our fuel expense from $400 a month in gasoline to $25 a month worth of electricity?
The real cost of our poor fiscal policy is not merely high unemployment, malinvestment, and low investment, but the cap it places on human potential. The ‘slack’ here may be staggering.