Why We’re Fucked

Stephen Stanley, who gets paid (no doubt handsomely) to write stuff.

 

I came across an interesting, if a little depressing, missive today, one which was ironically tagged at Democratic Underground.  It serves as a grim reminder that the dismal state of not just the US economy, but our collective grasp on reality, is not only under assault by obvious dimwits like Sarah Palin, but by purported “experts” who are even less informed.  Behold, what bought and paid for Reagan-sodden martinets are encouraged to print, evidently unencumbered by editors, fact-checkers, or anything else:

STAMFORD, Conn. (MarketWatch) — I do not subscribe to the conventional economics view of how the world works. If there are two theories that animate the Powers That Be when it comes to defining Economics, they are the Output Gap theory of inflation and Keynesianism (the idea that putting cash in consumers’ pockets will generate a huge spending response).

Yes, and other nincompoops believe that Adam and Eve rode around on dinosaurs, but they aren’t published as “experts” on economics.

I have contended repeatedly over the last few years that if there is one good thing that may come out of the economic mess we have suffered through over the last several years, it might be a once-and-for-all discrediting of these two hoary 1960s mantras. Both were all but killed in the 1980s after they had contributed mightily to the stagflationary debacle of the 1970s but in the last decade both have been resurrected with a vengeance, much like a serial horror film character, to terrorize a new generation of victims.

You see, the vaulting inequality, horrendous deficits, and declining standard of living that began in the 1980′s for all but the richest “proved” that, in the immortal words of that preeminent economist, Dick Cheney, “deficits don’t matter.”  Contend what you will but, Keynesian Economics did produce widespread prosperity throughout the capitalist world in the 1940′s and 1950′s (he died in 1946)…   This bozo, who apparently has never heard of Wikipedia, just goes on and on with his absurd fantasies, shamelessly:

Both of these theories have one important thing in common: they assume that all that matters in the economy is determined on the demand side. Supply-side considerations are all but irrelevant to economic performance in the world of a Keynesian Output Gapper. Putting an extra dollar of cash in the pocket of a consumer will generate a multiplier as the first person buys something, creating income for someone else, who in turn spends, etc., etc.

As Reagan said, “Facts are stupid things.”  And these days, they certainly don’t pay the bills.

Similarly, the output gap model suggests that inflation is mostly a function of whether households have money to spend. If unemployment is high (i.e. an output gap exists), then wages are constrained and consumers will refuse to tolerate higher prices. There is no room for the supply side in either case.

There’s a reason for that; mainly, that “Supply Side” is utter horseshit.  Ask Reagan’s budget director, David Stockman, and many others.  Better yet…  READ A NEWSPAPER!  Supply side has been tried, and failed rather spectacularly.

Administration officials are finally willing to own up to the fact that Keynesian prescriptions have been a) a dismal failure and b) a massive waste of money.

A) They were never tried.  B) Who’s talking about wasting money?

Under Keynesianism, fiscal policy can be defined by how much cash is being thrust at the economy, via one-off tax breaks, transfer payments, or direct spending. Throwing cash out of helicopters, paying people to dig ditches with spoons, or propping up unsustainably expensive state and local government budgets all get you to the same place — adding cash to the demand side of the economy kicks off the Keynesian multiplier and gets the economy moving.

Money was indeed thrown out helicopters, literally, but under Bush, and only in Iraq, and only to the grabby rich, who bought yachts and make-work jobs for craven propagandists like this character.  On the other hand, we are still living off the giant public investments made from the 30′s to the 50′s, when we had, for the first time, a middle class and first world infrastructure.

This theory is of course most fervently revered on the political left, but it has been a bipartisan conceit for the past decade, from the 2001, 2003, and 2008 rebate checks to temporary business tax breaks to the home buyers’ tax credit to cash for clunkers to the unprecedented $830 billion stimulus package in 2009.

Unprecedented?  Maybe if you were born yesterday, which it seems all Republicans were, but Bush’s wasteful profligacy can hardly be compared to the New Deal.

At every turn, attempts at jumpstarting the economy by throwing cash at households and businesses has proven disappointing. Economic decision makers respond to incentives, most notably marginal tax rates, and one-off tax breaks tend to do little more than shift the timing of activity around a bit as well as encourage households to save most of whatever temporary windfall the government offers (so they can pay the bill when it inevitably comes due at some later date).

Evidence?  There is plenty, pointing to the opposite.  How can someone type such crap?

One of the few effective steps that the current administration has taken on fiscal policy was one that was thrust upon it last year, when President Barack Obama swallowed hard and reluctantly (bitterly might be a better word!) and accepted a two-year extension of the Bush income tax rates. However, the administration extracted two Keynesian provisions as their price for allowing such a move: extending unemployment benefits by another year and a one-year temporary break on the payroll taxes paid by employees.

At the time, I noted that the payroll tax break was doomed to failure. The stated objective was to incentivize businesses to hire workers, but the break was granted to employees rather than employers. Sure enough, almost halfway through the year, we haven’t heard the first example of a firm hiring anyone due to the tax break.

Ah, money is good for the rich, but bad for the poor.  Marie Antoinette would probably agree, but not so much anyone capable of arithmetic.

Now that the administration fears that hiring may be flagging again, a recent newswire story indicated that Obama’s advisers are considering, among other things, providing a temporary tax break on the employer half of the payroll tax break. David Rosenberg thinks it’s a lousy idea.

So does Fred Finkbinder.  This matters how?

To be clear, this would not be my favorite prescription for encouraging hiring, but, hey, at least it might provide some added reason at the margin for businesses to add workers. The more important implication of this story is that it suggests that administration officials are finally willing to own up to the fact that Keynesian prescriptions have been a) a dismal failure and b) a massive waste of money.

A lie, repeated often enough, becomes true, especially if you’re a simpleton.

Of course, the federal government could have saved itself $100 billion if they had come to that conclusion six months ago, and trimmed the employer rather than the employee side of the payroll tax last December. In any case, if the administration and Congress finally give up on trying to resurrect the economy with Keynesian prescriptions, then we have taken a giant leap forward, both in terms of the prospects for economic growth and for creating a more sustainable fiscal policy.

Somalia, here we come.  Whee!

Of course, the problem in my mind with all of this is that fiscal policy operates most forcefully on the supply side, by creating the conditions that will encourage businesses and households to be confident enough to go out and spend and invest. A one-off tax break for businesses might entice a few fence sitters to hire workers now that they might have waited on otherwise, shifting around the timing of hiring a bit (a la the home buyers’ tax credit or cash for clunkers) without permanently boosting the trajectory of employment.

Again, no evidence.  This ass spends less time on research than I do, and I have a day job and a drinking habit to occupy me.

A modest cash enticement to hire will be of little use at the same time that the administration has terrified businesses with health-care reform, Dodd-Frank, hyperactive agencies from the NLRB to the EPA to the soon-to-be-live Consumer Financial Protection Bureau as well as threatening to put in place punitively higher marginal tax rates.

Incentives matter. And the tone of the public discourse matters.

Ah, it’s the “tone” again….  When will they stop riding that hobby horse?  Is he aware that no civilized country taxes its rich less than we do?  And does he really think that big banks and polluting industries are so harried, when their profits are unprecedented?

Demagoguing businesses and trying to punish the rich via tax hikes played a major role in extending the Great Depression in the late 1930s. We don’t need to go down that dead-end street again. The most effective course of action on the fiscal side is pretty simple, but adopting it would probably require a politically untenable about-face from the administration.

Uh, if anyone need punishing, it’s the rich, not that Obama has even tried to do so.  Who’s writing this, Rip Van Winkle?

Nonetheless, an abandonment of Keynesianism by the administration would be a hopeful step, both from a practical standpoint and in terms of my crusade to debunk the resurrected monsters from the 1960s.

Like all “crusaders,” this ignoramus is living on nothing but faith, and once again places Keynesianism a few decades off from when it actually happened.  Kennedy began the first round of tax cuts for the rich, for those of us who have read books and maybe lived in the real world.

Stephen Stanley is chief economist for Pierpont Securities and a eight-time winner of MarketWatch’s Forecaster of the Month award.

If he was forecasting, say, the weather, he would have been run out of town on a rail long ago.  But he’s won eight, count ‘em, awards of some sort.  I’d hate to see the runners-up.

15 Comments

  1. mikeinportc says:

    We got what we wanted (tax cuts*) and it didn’t work. That proves conclusively that what we didn’t want, and didn’t get, doesn’t work . ;)

    *$1 in tax cuts = $1.02 in stimulus
    ” ” infrasructure spending = $1.53 ” ”
    ” ” food stamps = $1.77 ” “

    • cocktailhag says:

      Wait a minute…. You’re using facts, which have a well-known liberal bias. Don’t you know that rich people’s feelings (and those of their heirs) can make or break a country? What about the Supply Side?

  2. mikeinportc says:

    Not just Iraq, the whole thing . ~ $1.3T/yr , but these economic geniuses never seemed to have heard of the Law of Diminishing Returns .

  3. Dick Cheney says:

    I’ve been a professional politician my entire working life, except for a little interlude as a token at Halliburton. I got my money, just like the rest of the pols, including the beloved Clinton, Cuomo, Barney Frank, you pick one, they’re all in it for the money and power. But when it comes to taxes, who decides how much is enough? If you Commies are right, why not just nationalize everything? Just give folks enough for a daily bowl of gruel and maybe a flagon of weak beer. Wouldn’t that make for a vibrant economy? Wait a minute, somebody already tried that. Tried it with bells on. And they’re not around in that form anymore, ’cause it didn’t work. But you nitwits will go to your graves believing in the drunken malarkey that Marx put out because you can’t stand the fact that somebody has more than you do. Actually, Marx makes a lot of sense, Groucho, not Karl.

    • cocktailhag says:

      Interesting that you would use the handle you use to make your argument; since there is no bigger freeloader of taxpayer funds than ol’ Dick. What did you do with that $6.6 billion that disappeared in Iraq? Spend it on toys for Mary and the Park Ranger’s little ones? That’ll buy an awful lot of tool belts and baseball mitts…..
      That sort of blatant crony capitalism has indeed been tried by your administration, and look how it turned out.
      It’s fine, really, that people have more than me; although by merely working honestly, I’m not exactly hurting. What frosts me is when people have so much that three generations of their worthless offspring will never have to work, so they spend their leftover piles of money buying the government, and preventing everyone else from even voting.
      You ought to read a newspaper once in a while or perhaps do business with a bank, utility, or other monopoly; what you’d find is that, just like Marx said, the rich and well-connected don’t do anything worthwhile except rip people off, usually with the help of a fawning and compliant government.
      Maybe there was a time when the so-called “private sector” was vaguely worthwhile, but now it’s grown so fat, entitled, and uncompetitive that it’s nothing but a grabby welfare queen.
      If you disagree, please find me an example, any example, that proves otherwise. I’ll wait, since it will take you a very long time.

  4. mikeinportc says:

    …. you pick one, they’re all in it for the money and power.
    Pretty much. Including their mouthpieces, such as Mr. Stanley.

    Just give folks enough for a daily bowl of gruel and maybe a flagon of weak beer.
    That does seem to be the plan, minus the beer, of Mr. Stanley’s sponsors and fellow travelers,
    Wouldn’t that make for a vibrant economy? Wait a minute, somebody already tried that. Tried it with bells on. And they’re not around in that form anymore, ’cause it didn’t work.

    Yeah, I believe it was called the Robber Baron Era. The current income distribution #s are approaching that, if not surpassing them.

    But you nitwits will go to your graves believing in the drunken malarkey that Marx put out
    Even “nitwits” , such as Mr. Stanley believe Marx’s basic diagnosis, just not his prescription for it.

    because you can’t stand the fact that somebody has more than you do.

    …and trying to get even more by getting something ( more work) for nothing (nothing), or less than nothing ( we give them more.) Also , by paying them to provide the supplies to slaughter other poor bastards, and steal their resources & labor, to sell to us.

    Meanwhile, back at the actual topic of this post, Mr Stanley ( & you, Dick) writes as if the historical record doesn’t exist. It does, and he is arguing against what has worked , historically, arguing in favor of what hasn’t , all while pretending ( or delusionally believing?) it’s the reverse.

  5. I’m not an economist, nor do I play one on TV (I play a lawyer on TV), but I have raised a family on a shoestring, helped launch several start-up companies, and produced a play, and written a book, and have been self-employed, and worked for various devils, and live in the suburb of a dying rust-belt city, so I do know a little something about MONEY & JOBS.

    First, you idiots, we need JOBS. That would solve a big chunk of the problem, here. If people had JOBS, they could afford crappy health insurance, they could afford to buy stuff, and they’d pay (wait for it…) TAXES.

    The reason we don’t have jobs is NOT because of all the worthless BS excuses this idiot makes, but because most of the halfway decent jobs that used to exist when we were kids (and later), are GONE, BABY, GONE. And they ain’t coming back unless Japan nukes itself, we go to war with China, or the principals of the major corporations in this company decide to manufacture in the USA.

    One of those things could happen. My money is on war with China. When we go to war with China (via proxy war with Pakistan), we will write off our debt to them and start building things in the USA. Who will be around when that’s over? Who knows. But, absent some kind of major spiritual and patriotic awakening by the major manufacturing companies, there is no solution to the jobs problem except World War Three.

    Incidentally, I changed my blog to lorettadillon dot com, so y’all can come visit me again. Retzilian expired and I didn’t feel like renewing it.

    • cocktailhag says:

      I’m in Seattle, in just moments going to a wedding, but I’ll drop on over when I get back. No doubt the Heel will show up too, as a member (npi) of your fan club.
      War with China? Hmmmm. Stranger things have happened…..