Truth is, neither party 'gets' the economy

An exchange I had at Daily Beast. Meghan McCain had written an article Why Republicans Don't Get The Internet.

carouzer

Meghan, Honey, it has become pretty apparent over the last eight years that Republicans not only don't get the internet, they don't get the economy, they don't get taking responsibility for their actions, they don't get critical thinking and they don't get having respect for others--even those who disagree with them.

What they do get is talking points, spewing dysfunctional right wing dogma, evangelicals, padding the pocketbooks of the rich, the joys of deregulation (a la Bernie Madoff) and pandering to the "base," which, thank God, seems to be rapidly shrinking.

liviapeacock

Carouzer, you're pretty much spot on. No matter how intelligent and reasonable Miss McCain is, she just represent the typical out of touch Republican. They will have to wait a generation at least.
Keep at it, Meghan, you are a voice of reason that this democrat can at least stomach reading (unlike that awful Nicole Wallace whose snarkiness turns me off within two sentences)

Servius

@carouzer Truth is, neither party 'gets' the economy. You keep going on about deregulation when we've been engaging in an orgy of Keynesianism. Then the new administration prescribes more Keynesianism to get us out of the mess caused by Keynesianism.

You can't stimulate the economy by taking money from the economy and putting it back in the economy.

And it's rich you going on about "having respect for others - even those who disagree with them" when you disrespect the author by calling her honey.

PurpleHerman

Servius, at the end of the day, stimulus funding isn't taken from our economy but rather is bankrolled by the Chinese (among others) via the sale of Treasury bills and other government debt instruments. The only portion that is immediately "taken" from the economy is the interest on those bills, which can be deferred by the issuing of more bills, ad infinitum - so long as other countries are willing to fund our debt.

This situation is of course a problem in its own right, but the premise that stimulus removes money from the current economy simple isn't true. In fact, because stimulus funding doesn't have to be supported from current tax revenue, its positive effects now on a faltering economy should more than outweight its future costs in a more robust economy that it would hopefully foster.

Servius

@PurpleHerman When government spends money it must raise the money from somewhere.

If by taxes, it removes the money directly from the producers which stifles the economy.

If by borrowing, it competes for capital with the producers raising their costs and stifling the economy. Even if the money comes from China.

If by printing the money, it devalues the money used to acquire capital which stifles the economy.

Furthermore, the debt that's piled up must be paid back by raising taxes, borrowing, or printing money which stifles the economy in the future. Besides, after taking the money from the producers government then uses it to bid capital away from the producers once again stifling the economy.

As they say, "There ain't no such thing as a free lunch."

like-mind

Greetings, Ms. McCain, it's a pleasure to read your Post. [just wanted to put some distance between me and the 'Honey' guy or gal, up there...]

imho, as long as the GOP gathers around hate, they can have Ethernet cables up the wahzoo and they still won't explode onto the Web. The free exchange of ideas on the Web requires a tolerance simply not demonstrated by the majority of die-hard Republicans. Just as the twit-tweet example about the person on the tarmac, when new technology provides an avenue for the same ol' thing, it does not 'spread' online. The online audience for GOP misinformation ("a true bipartisan Stimulus Bill would mean half Republican"), self-righteous opinions ("support everything we say or you're not patriotic"), and insults ("he's a Muslim - kill him!") resides on hate-sites which are and will always be on the fringe of the Web. Novelty is self-generating online, but novelty is the enemy of the conformism and the restricted thinking that is demanded by the rigid neo-cons. It's the thoughtful conservatives who ran over to Obama - those in march-step were busy agreeing with each other and hating everyone else.

And look at Steele - we all looked him over, hoping he might bring a fresh start to the GOP, and what does he do? He begins with a cheap put-down (the Stimulus Bill's Bling).

As long as the message is negative, it will never sustain enough continued interest to go viral. When Limbaugh /O-Reilly /Hannity /[hater's name goes here] lose their grip on the Party, the GOP might have a chance. When Statesmen and women lead the GOP with respect for the other sides, then their message will burst the seams of any media available, including online.

Servius

@like-mind Who's gathering around hate? Who spent 8 years calling President Bush a chimp? Who is hunting people who supported Proposition 8 in California? Who threw cement bags at buses at the other party's convention?

You're own post decrying negativity and crying for tolerance was intolerant and full of name calling. "GOP misinformation ... self-righteous opinions ... he's a Muslim - kill him! ... hate sites ...". If you want a real hate site check out Kos or DU. If you want reason and thoughtfulness come have a discussion at #tcot and check the snarkiness at the door.

PurpleHerman

@servius

But isn't the point that, currently, there is NO competition for borrowed capital because the banks don't trust each other and no individual/company in their right mind would expand their business in the current climate, hence the need for government to sop up the execess capital sloshing around the world in order kick-start our economy?

Servius

@PurpleHerman

I think it's important to distinguish between capital and money. Capital is the means of production such as factories, computers, and people. Money is used to acquire capital.

As the bubble pops, money is vanishing because it was created by loaning it into existence. The banks created out of thin air the money they are now losing. Once the bubble is completely deflated and the money supply is back in line with the actual wealth of the country we will begin to grow again.

With this massive amount of borrowing the government is trying to reinflate the bubble.

At this point I should give you a couple links that explain better than I can here.

http://mises.org/story/3329 Describes the complete business cycle.

http://tinyurl.com/2n3sg9 Talks about how money is created. Money is Debt.

The Path To Opportunity?

I've sent a few emails to my Senator (Klobuchar - D,MN) regarding Porkulus. The other day I received a response and responded in kind. Her response is below mine. Notice the Appeal to Pity common to almost all left wing arguments.

I'm not saying we shouldn't have compassion on people but I can come up with equally compelling vignettes decrying their policies. The question is, "What really is the best policy?" I really don't believe government is competent to manage the economy. I should do a post on why this is.

Senator,

1. The bridge didn't fall because there wasn't enough money. We spend enough money on roads every year to plate them all in gold. There was a design flaw with the bridge and to imply otherwise is dishonest.


2. In the last 8 years, we spent more money than ever on our schools. Money is not the answer.


3. The problem with government investing is it has to take the money from the market to put back in the market. This either comes from taxes which deprive people of capital directly; from borrowing in which the government competes with the capital markets again depriving business of the capital necessary to create jobs; or from inflation which diminishes the value of cash and deprives the market of capital. None of this can possibly "stimulate" the economy. The only real stimulus government can give is to spend less money and take less out of the economy.


4. Since you mention the Great Depression I'll quote Henry Morgenthau who was FDR's Treasury Secretary on their stimulus packages. "We have tried spending money. We are spending more than we have ever spent before, and it does not work... I say after eight years of this administration, we have just as much unemployment as when we started -- and an enormous debt to boot."


5. Investing in "Renewable Energy" by the government is a waste of money. If there is a cheaper form of energy out there, the market is incented to find it. If government has to subsidize it, by definition it is less efficient.


6. I wish you would do "do what's needed to get our economy back on track and restore our footing on the path to opportunity" but you have a poor start so far. If you would head down a path toward free markets and not the Keynesian slope we're on towards complete government control of the economy, we could be out of this and growing again in 6 months to a year. As it is Congress and the President are going to lengthen and deepen this into the Great Depression of the 21st Century.

Servius

Dear Servius,

For years our country has been adrift, with bridges falling, schools decaying, and science lagging.

We all know now is the time to invest. As the President noted the other evening when he addressed the nation, in January alone our country lost 598,000 jobs--that's the equivalent of all the jobs in the state of Maine. And these are not just statistics. These are real people, living in the state of Minnesota-- the couple who writes and tells me that every night after they put their daughters to bed, they sit at the kitchen table with their heads in their hands wondering how they are going to make ends meet, the woman who inherited a small amount of money she was going to use for her daughter's wedding but is now using it for her retirement because she lost so much of her savings.

The American Recovery and Reinvestment Act will give our economy the jolt it needs in the near term while also building the foundation for longer-term prosperity.

This legislation provides economic assistance aimed directly at Main Street. It provides economic relief to working families, small businesses and seniors, including a tax cut for more than 2 million working families in Minnesota. It also gives critical support to states and communities so they can ensure a safety net for families hurt by the economic downturn. And it is estimated to save or create 3.5 million jobs, including an estimated 66,000 jobs in Minnesota.

At the core of this legislation is jobs. Just as we built back our economy after the Great Depression with WPA projects that are still with us today, this plan will put Americans back to work by rebuilding our roads, bridges and schools, by investing in homegrown renewable energy, and by expanding our high-speed Internet infrastructure.

I'm proud to have championed infrastructure, Internet and police funding in the bill. I led the charge in the Senate to make sure Minnesota and other states which had seen recent increases in unemployment got their fair share of Medicaid funding. I also pushed for more investment in our schools.

No one considers this a perfect bill. I don't agree with everything that's in it and everything that came out, but I knew we had to act.

Over the coming months, I will continue to do what's needed to get our economy back on track and restore our footing on the path to opportunity.

It is good to be back in Minnesota this week. I hope to see you soon.

Sincerely,

Amy Klobuchar

How about some real solutions?

Obama Makes Stimulus Law: "But today does mark the beginning of the end".

Posted the following in the comments.

Wrong again O'President. This is the end of the beginning. We're going down much the same path as we took in the '30s. Japan did this as well in the '90s and they called the result the "Lost Decade".

This plan is unadulterated Keynesianism and can't work for much the same reason Socialism and Communism can't work. Socialism and Communism can't work because they do away with price signals when governments take over industries and without price signals you cannot have rational calculation in an economy.

Keynesianism fiddles with the price signals which also prevents rational calculation in the economy. Of course, by preventing rational calculation you ensure companies and industries getting into trouble and create the environment for government to take over the industries. So Keynesianism is a slippery slope towards Socialism which history has proven to be a failure.

Now, many say, "The last eight years prove that unfettered free markets are a failure." I ask you when the markets were free and unfettered in the last eight years. In fact, it was Keynesian manipulation of the markets and interest rates that got us into this situation.

It was the constant cutting of interest rates and the rampant inflation (inflation is an expansion of the money supply not the rise in prices that often results from inflation and has come to be called inflation) that caused the bubble. The bubble showed up in the housing market because the politicians coerced banks and mortgage companies to push home ownership to people who couldn't afford it. (Thank Acorn for their intensive lobbying efforts.)

The cutting of interest rates causes inflation because money is debt. This is important. Money Is Debt. In most cases, when the bank loans money it doesn't loan money it already has. The bank creates money in order to loan it. It actually loans money into existence. Lower interest rates encourage more borrowing. More borrowing means more money creation which means more inflation.

Well, interest rates are at 0 now. The fed can't cut rates anymore so the whole thing stalls, the bubble pops, money starts to vanish, there's not enough money to pay off the loans, people and companies start to go bankrupt, causing unemployment which causes more people to go bankrupt...

If we want out of this, and not to get back into this we need a monetary system that is not based on debt, where in order to loan or borrow money it must first be saved.

To that end, we need to end fractional reserve banking. This is the policy that allows a bank to create money from thin air.

We need to remove the Fed's and the Government's ability to manipulate interest rates. In fact, without fractional reserve banking there would be no need for a Federal Reserve Bank.

This is a fundamental change. For one thing, we would need a new money. Since the banks would no longer be able to loan money into existence we would need some mechanism to replace this money creation. The market has generally chosen gold if gold is available. Although our free market system should be allowed to choose what it will, I'd expect it to choose gold and or silver but there could be several competing currencies.

Servius
iamservius.blogspot.com

My note regarding Porkulus to my Democrat Senator

You passed Porkulus!

Congratulations. You get to take credit for the recession deepening into Depression.

I don't understand how you think taking money out of the economy to spend on less productive things will stimulate the economy.
Japan tried this. They called the result the Lost Decade.

* Make the Bush tax cuts permanent.
* Cut Spending. Really cut it.
* Cut taxes. Specifically, remove corporate tax rates and make Social Security & Medicare optional.
* Allow interest rates to return to natural levels. This will hurt but the pain should be offset somewhat by the tax cuts.

From Reagan to Business Cycle Theory

A conversation from Twitter.

Servius: @CraigMayhem I need to go now. I'm not an economist, I just read the best ones I can. The article I shared a bit ago is by one. #tcot

Servius: @CraigMayhem I'll modify that a bit. There's nothing wrong with earning money. It's when you MAKE it that you cause problems. #tcot

CraigMayhem: @Servius Nothing wrong with making money. Making it at the expense/detriment of others is the problem. Thus regulation.

Servius: @CraigMayhem http://mises.org/story/672 Here's a brief introduction to why inflation and cutting interest rates is the problem. #tcot

Servius: @CraigMayhem People will always try to make a much money as possible. Without gt manipulation we can do that without booms and busts.

hankracette: @jmp5329 @Servius "I believe that ... I'm going to buy gold coins and hide them ! #tcot" -- Let me hide them for you. Safer that way....

jmp5329: @Servius I believe that ... I'm going to buy gold coins and hide them ! #tcot

CraigMayhem: @Servius The point is that people wil exploit the system, high or low inflation

Servius: @CraigMayhem That if everybody withdrew their money the bank couldn't pay them back?

Servius: @CraigMayhem Do you know that all the money you put in the bank is not there? #tcot

CraigMayhem: @Servius Even people who should know better are greedy. i.e. anyone taken in by Madoff

CraigMayhem: @Servius Are you nuts? Greed causes investments such as fractional reserve banking.

Servius: @CraigMayhem Inflation is driven in large part by the Fed cutting interest rates and the banks practicing Fractional Reserve Banking #tcot

Servius: @CraigMayhem It's when inflation ends, and it always must, that we feel these busts. #tcot

Servius: @CraigMayhem See, the problem is inflation. It's inflation that causes investments that depend on more inflation. #tcot

CraigMayhem: @Servius So wait - does the govt. regulate that?

Servius: @CraigMayhem Better would be one simple regulation. No more fractional reserve banking. And no more manipulation interest rates by Fed #tcot

CraigMayhem: @Servius The opposite has already been proven. So what's YOUR suggestion?

Servius: @CraigMayhem You're also assuming people in government won't abuse their power to control these traders. #tcot

Servius: @CraigMayhem But you're presuming government is competent to keep the excess in check while allowing innovation that drives economy #tcot

CraigMayhem: @Servius Good question. Allowing banks/traders to run rampant unchecked didn't seem to work - so something different

Servius: @billstreeter http://mises.org/story/2810 Here's an article about interest rates & inflation. Same site has more. #tcot

Servius: @CraigMayhem Yes regulation to ensure bubble doesn't happen. But what regulation? #tcot

CraigMayhem: @Servius I'm all for tax reform. And regulation ensuring bubble don't happen again

Servius: @CraigMayhem I doubt any have easy time w/ 15% payroll taxes increasing inflation & underwater mortgages due to inflated housing value #tcot

Servius: @CraigMayhem re: "smaller, richer class" you're wrong about that. But I'll have to find the figures. #tcot

CraigMayhem: @Servius I doubt your financial situation reflects the vast majority of middle class.

Servius: @CraigMayhem I am a one income middle class family. My only real problems are rising inflation. #tcot

CraigMayhem: @Servius Instead we have a smaller, richer class

CraigMayhem: @Servius If supply-side economics worked for m.c. there would be leess poor and middle class.

CraigMayhem: @Servius AGAIN: middle class wages fell in the 80's and have been falling ever since. Remember 1-income middle-class families? sheesh

Servius: @CraigMayhem What huge minuses? #tcot

CraigMayhem: @Servius It STILL doesn't make up for the decline of the middle class? It's a tiny plus amongst huge minues

Servius: @billstreeter Put another way. Raising inflation causes natural interest rate to rise. Keeping interest rates below this is inflationa #tcot

Servius: @CraigMayhem Excuse me? If I can get better goods for less money or for less work I'm better off. #tcot

Servius: @billstreeter Oh please. Cutting interest rates is inflationary. Raising them is deflationary. Floating them on the market is stable. #tcot

CraigMayhem: @Servius Availability and cost of goods doesn't equate to decline of wages/lifestyle.

billstreeter: @Servius BTW high interest rates cause inflation

CraigMayhem: @Servius Maybe it's because those goods aren't made in America anymore.

Servius: @billstreeter Watch the money supply. Today, interest rates need to go up and government needs to stop spending so much. #tcot

billstreeter: @Servius who said anything about hyperinflation? WTF are you talking about?

Servius: @CraigMayhem you said middle class was worse off than before Reagan. What I can buy today vs then suggest otherwise. #tcot

Servius: @billstreeter So the answer is Zimbabwe style inflation? No. The answer is stable monetary policy and returning rates to natural levels ...

CraigMayhem: @Servius Waht does that have to do with anything?

billstreeter: @Servius we are about to enter a deflationary spiral unless something is done do you know how bad that will be?ever seen an empty store?

Servius: @CraigMayhem That's simply not true. Check out an old Sears or Penneys catalog. You can get more and better goods for your money now. #tcot

billstreeter: @Servius real wages for middle class workers fell under Reagan and never grew again

Servius: @billstreeter Right. That's what killed inflation. #tcot

CraigMayhem: @Servius RT@billstreeter middle class wages fell in the 80's and have been falling ever since

billstreeter: @Servius wtf are you talking about? Remember 20% interest rates on Mortgages? That was Reagan!

Servius: @CraigMayhem He & Volker raised interest rates which drive inflation. We've been cutting interest rates below natural level for years #tcot

CraigMayhem: @Servius You're an economist now? I could find jsut as many economists that say his policies cause the Bubble/Bust economy.

Servius: @CraigMayhem He killed inflation in the early 80s. We've restored inflation and caused a world of trouble. #tcot

CraigMayhem: @Servius "better than the 70's" doesn't mean it was a win for the middle class.

Servius: @CraigMayhem I also remember how Reagan impacted the middle class and it was a sight better than the 70s #tcot

Servius: @CraigMayhem Bush 41 never believed in cutting taxes. Bush 43 wasted chances spent his capital spending on ED & not reforming SS/MCare #tcot

CraigMayhem: @Servius The Republican party looks back with the rosiest of glasses at Reagan - probably because Bush 1 and 2 were fairly awful.

CraigMayhem: @Servius I remember Reagan, too and his financial policies and how they impacted the middle class.

CraigMayhem: @Servius Just because I think Reagan was awful doesn't mean I think Carter was great.

Servius: @CraigMayhem I also remember the '70s and the malaise of the Carter years. #tcot

Servius: @CraigMayhem Except that I remember Reagan. The first time I voted I voted for Reagan in 1984. #tcot

CraigMayhem: @Servius It's also easy to attribute great things to a mediochre president after the fact.

Servius: @CraigMayhem It's easy to predict the Soviet collapse after the fact. Reagan predicted it before. #tcot

CraigMayhem: @Servius Sure, and the Soviet Union's financial collapse had nothing to do with ending the cold war (among MANY other factors), but sure.

Servius: @CraigMayhem The wisdom to win the cold war, restore American respect, and lift the country from malaise and stagflation. I remember. #tcot

CraigMayhem: @Servius yeah, the wisdom to destroy the middle class, have an Iran / Conrta scandal and go senile.

Servius: RT @calebhays: Happy Birthday, Mr. President.... today is Pres. Ronald Reagan's birthday. Oh, how we could use your wisdom now. #tcot (v ...

Lots of stuff about Porkulus

Servius: @MissFabBeth #tcot http://tinyurl.com/aazse4 I hear you. Here's Bastiat on protectionism.
Thursday, February 05, 2009 7:15:51 PM

MissFabBeth: @Servius I can say one thing- stimulus pkg encourages the buying of American goods- does ANYONE remember the results of Smoot-Hawley?
Thursday, February 05, 2009 2:50:11 PM

Servius: http://bit.ly/MKFk Obama losing stimulus message war - Jeanne Cummings - Politico.com The sheer size of it — hovering at about $900 bi...
Thursday, February 05, 2009 2:47:15 PM

Servius: @Servius will have 2,003 followers in 85 days according to TwitterCounter: http://twittercounter.com/Servius&p=85
Thursday, February 05, 2009 2:05:04 PM

Servius: #tcot Kill the Bill: The Democrats' pork bill is scheduled for a vote in the Senate later today. Public sup.. http://tinyurl.com/cadzvx
Thursday, February 05, 2009 1:16:47 PM

Servius: #tcot Socialism: Yesterday, while tag surfing, I read a post on some blog which basically questioned the no.. http://tinyurl.com/blrgho
Thursday, February 05, 2009 11:46:43 AM