For years, the rock star economist for the political left was Nobel Prize winner Paul Krugman. His endorsement of taxing wealth and encouraging massive government spending -- as a means of driving the economy -- has been music to the ears of all those who love and worship big government. Now, the left has found a new leader to follow. He is a French economist by the name of Thomas Piketty. The recently released English language version of his book -- Capital in the Twenty-First Century -- has every socialist-minded politician and media type going gaga over his proposed solution to income inequality.
Essentially, Piketty believes that capitalism -- and democracy -- is doomed to collapse because it creates an ever increasing disparity between the rich and the poor. It does this because, over time, capitalism spawns a faster growth rate in the return on capital investment versus any real growth in wages. Thus, the rich, by using their wealth as investment, are able to grow their status much quicker than the majority of citizens. So, Piketty's solution to this fatal flaw of capitalism is to force the rich out of existence by imposing an 80% tax on incomes above $500,000 and a 50-60% tax on those with incomes between $200,000 and $500,000. This way there will be no rich and our democracy will be saved.
But, then there's this: What if society is actually able to eliminate all of that rich class? What then?
Well, first of all, all those people who had careers that support the rich would lose their jobs. Jobs such as the staff of upscale restauranteurs, landscapers, caterers, housekeepers, expensive fine artists and craftsmen, boat and private airplane builders, and so many others. Then, too, high taxation of the so-called "rich" will only reduce overall spending. Since our economy is 70% driven by consumer spending, we would be sure to fall into a recession. Additionally, the $200,000-and-above crowd are givers. Not necessarily in direct charitable giving, but as the primary supporters of the arts and culture in America. They are a dominant source of non-Pell grant college scholarships and fellowships. Most private colleges and hospital expansions would not happen if it weren't because of their generosity. Without outside donations, does anyone think that a religious college or university would receive a grant from the federal government? Not with the ALCU jumping in to cite the separation of Church and State.
More importantly, the rich provide an essential economic benefit to society by providing the seed money to promote the development of inventions, new products and new businesses; all of which create new jobs. Under Piketty's flawed beliefs, the concept of wealth investment would simply cease to exist. And, don't think for one minute that the government, with all that new found money is going to pick up the torch and act as America's new Venture Capitalists. All it would do is fuel more crony capitalism so that we wind up with endless failed ventures like Solyndra.
The problem I have will people like Piketty is that they never once have a solution that elevates people out of poverty. Their answer is to always attack the rich; as if they are somehow the wealth takers and not the wealth creators. Economists aren't sociologists; but, they should be. Only then would they understand what the real reasons are for income inequality. Totally missing in most left-wing proposals is the concept of income mobility where 80% of the of the rich, today, are first generation millionaires; and, in as little two generations, much of that wealth (60%) will be gone. At the same time, nearly 85% of all Americans have wealth greater than their parents. Studies have also shown that between 86% and 95% of all those who were once living in poverty would shed that condition in as little as 15 years. The bottom line is that people, whether they be rich or poor, are likely to reverse that status, through their own initiative, in just a few years. Because of capitalism, poverty is not necessarily a permanent condition.
If Mr. Piketty is so sure of his beliefs, he should implement them in his home country of France and then we'll see what that country looks like in, say, 5 or 10 years. Lastly, Picketty's book is so hot that 80,000 copies were sold in just two months and it is now back-ordered. Apparently, it is a must read among all socialist Democrats. At a list price of $39.95, it's pretty pricey. So, I guess it's Mr. Piketty's goal to get rich before anyone can impose that 80% tax on his rich-guy income.
References:
Thomas Piketty Revives Marx for the 21st Century: http://online.wsj.com/news/articles/SB10001424052702303825604579515452952131592
Piketty's 'Capital': A Hit That Was, Wasn't, Then Was Again How the French tome has rocked the tiny Harvard University Press : http://www.newrepublic.com/article/117498/pikettys-capital-sold-out-harvard-press-scrambling
The Facts About Income Mobility: https://www.youtube.com/watch?feature=player_embedded&v=vDhcqua3_W8
29 Valuable Facts About Millionaires and Billionaires: http://facts.randomhistory.com/millionaires-facts.html
Showing posts with label Paul Krugman. Show all posts
Showing posts with label Paul Krugman. Show all posts
Monday, April 28, 2014
Wednesday, November 21, 2012
To Paul Krugman's Twinkie Manifesto: Meet The Reality Of The 1950's
Once again, Paul Krugman is using his certification as a Nobel Prize winner in economics to help support President Obama's push for tax increases on the rich. In his November 18th op-ed titled the 'The Twinkie Manifesto', this liberal economist harkens back to the days of prosperity of the 1950's when tax rates on the rich were as high as 91% and corporate taxes were double that of today's rates; thus proving that high taxes on the nation's wealthy and big businesses failed to hurt our economy. In fact, in reading Krugman's piece, you almost feel as if he's arguing that high tax rates caused the economic boom of the 1950's.
What Krugman fails to tell his readers is the "why" America was so prosperous during those years and why those high taxes failed to thwart that prosperity.
You see, unlike the rest of the industrialized world, America came out of World War II physically and economically unscathed. We didn't have to rebuild our burned-out and bombed-out cities. We didn't have to spend billions rebuilding our infrastructure; and, we didn't have to spend years clearing land mines and unexploded bombs. In many cases, full recovery for those other countries wasn't reached until the 70's. In fact, Germany was still rebuilding into the 1980's. As a result, we became the manufacturer to the world; providing much of what the rest of the world was unable to make for themselves. As a country, we accounted for more than 60% of the world's manufacturing in those years that Krugman calls the 'The Twinkie Era' (the 1950's). America was, in fact, a net exporter with a very positive balance of trade.
Over time, those war-injured countries regained their manufacturing capabilities and our trade balances went negative as we began importing more and more foreign-made goods. The importation of lower cost products forced our own manufacturers to compete with lower prices. To achieve this, American companies sought wage concessions from the unions and from non-union labor. If the concessions weren't achieved these companies had no other choice but to move their manufacturing operations offshore. As a consequence, union membership fell from 36% of the labor force in the 1950's to about 12% today. Over time, various U.S. Congresses and Presidents were forced to lower tax rates in order keep us cost competitive and create jobs; starting with JFK, a Democrat, in 1963 when he proposed and achieved a lowering of tax rates from the then-current 20-91% rates to rates of 14-65%.
Lastly, there's something I like to call the Ross Perot Effect to counter Mr. Krugman's Twinkie Manifesto. In 1962, Ross Perot started a computer software company known as EDS (Electronic Data Systems). By 1984, that company had become so successful that General Motors paid Perot $2.5 billion to acquire it. By 2008, EDS employed more than 139,000 taxable jobs and generated billions of dollars in taxable profits. In 1985, Perot then used his wealth to partner with Steve Jobs -- then on the outs from Apple -- to start another company called NeXT computer. Thus creating more jobs and more tax revenues for our government. Then, in 1988, he started another company, Perot Systems, which grew to employ another 23,000 highly-paid and tax-paying workers. Additionally, over the lifetime of Perot Systems billions more in profits were taxed by our government.
The bottom line is that if we had the high tax rates of the 1950's, a guy like Ross Perot wouldn't have created as many taxable jobs and taxable profits in such a short amount of time. In fact, if he was taxed 91% on his sale of EDS -- as Krugman seems to suggest -- NeXT Computer and Perot Systems may never have happened. Ross Perot is just one of many wealthy who have been able to use their earned wealth to create more wealth; more jobs; and, ultimately, more taxes for the federal government. In fact, many companies wouldn't have even gotten started if it hadn't been for wealthy, venture capitalists taking an initial investment in them.
Liberals, like Krugman, just don't seem to understand that old and simple axiom: It takes money to make money. Taking money away from the wealth creators is just plain stupid, and actually reduces tax revenues in the long run.
--- New York Times: The Twinkie Manifesto: http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html?ref=opinion
--- JFK Presidential Library: JFK on the Economy and Taxes: http://www.jfklibrary.org/JFK/JFK-in-History/JFK-on-the-Economy-and-Taxes.aspx
What Krugman fails to tell his readers is the "why" America was so prosperous during those years and why those high taxes failed to thwart that prosperity.
You see, unlike the rest of the industrialized world, America came out of World War II physically and economically unscathed. We didn't have to rebuild our burned-out and bombed-out cities. We didn't have to spend billions rebuilding our infrastructure; and, we didn't have to spend years clearing land mines and unexploded bombs. In many cases, full recovery for those other countries wasn't reached until the 70's. In fact, Germany was still rebuilding into the 1980's. As a result, we became the manufacturer to the world; providing much of what the rest of the world was unable to make for themselves. As a country, we accounted for more than 60% of the world's manufacturing in those years that Krugman calls the 'The Twinkie Era' (the 1950's). America was, in fact, a net exporter with a very positive balance of trade.
Over time, those war-injured countries regained their manufacturing capabilities and our trade balances went negative as we began importing more and more foreign-made goods. The importation of lower cost products forced our own manufacturers to compete with lower prices. To achieve this, American companies sought wage concessions from the unions and from non-union labor. If the concessions weren't achieved these companies had no other choice but to move their manufacturing operations offshore. As a consequence, union membership fell from 36% of the labor force in the 1950's to about 12% today. Over time, various U.S. Congresses and Presidents were forced to lower tax rates in order keep us cost competitive and create jobs; starting with JFK, a Democrat, in 1963 when he proposed and achieved a lowering of tax rates from the then-current 20-91% rates to rates of 14-65%.
Lastly, there's something I like to call the Ross Perot Effect to counter Mr. Krugman's Twinkie Manifesto. In 1962, Ross Perot started a computer software company known as EDS (Electronic Data Systems). By 1984, that company had become so successful that General Motors paid Perot $2.5 billion to acquire it. By 2008, EDS employed more than 139,000 taxable jobs and generated billions of dollars in taxable profits. In 1985, Perot then used his wealth to partner with Steve Jobs -- then on the outs from Apple -- to start another company called NeXT computer. Thus creating more jobs and more tax revenues for our government. Then, in 1988, he started another company, Perot Systems, which grew to employ another 23,000 highly-paid and tax-paying workers. Additionally, over the lifetime of Perot Systems billions more in profits were taxed by our government.
The bottom line is that if we had the high tax rates of the 1950's, a guy like Ross Perot wouldn't have created as many taxable jobs and taxable profits in such a short amount of time. In fact, if he was taxed 91% on his sale of EDS -- as Krugman seems to suggest -- NeXT Computer and Perot Systems may never have happened. Ross Perot is just one of many wealthy who have been able to use their earned wealth to create more wealth; more jobs; and, ultimately, more taxes for the federal government. In fact, many companies wouldn't have even gotten started if it hadn't been for wealthy, venture capitalists taking an initial investment in them.
Liberals, like Krugman, just don't seem to understand that old and simple axiom: It takes money to make money. Taking money away from the wealth creators is just plain stupid, and actually reduces tax revenues in the long run.
--- New York Times: The Twinkie Manifesto: http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html?ref=opinion
--- JFK Presidential Library: JFK on the Economy and Taxes: http://www.jfklibrary.org/JFK/JFK-in-History/JFK-on-the-Economy-and-Taxes.aspx
Saturday, August 25, 2012
The Debt As A Percentage Of GDP Argument
Liberal economists like Paul Krugman continue to argue that the current debt, as percentage of GDP, is still lower than it was following World War II. And, yes it is. But, not by much. However, in making this argument, these left-wing economists seem to feel that there's room for more stimulus spending because, after all, we recovered quite nicely from all the debt that was accumulated during the Great Depression and the war years.
Well things have changed a lot since WWII. For one thing, nearly half the population, today, pays zero taxes. In the years following the war, only about a quarter of the population paid no taxes; reaching a low of 16% by 1969. In other words, we now have a huge debt with a lot less people available to pay it off. At the same time, those who did paid taxes, back then, paid their taxes at a higher rate. The lowest tax rate in 1945 was 22% on $2,000 of income; and, the top wage earners paid 91% on incomes in excess of $200,000. Today, the bottom rate is only 10% and the top rate is 35%.
The bottom line is that the country was better able to pay off its debts following the war. Today, liberal tax policies have created a situation where we have too few people paying too little in taxes to adequately address our deficit spending; which has gone up 57% under Obama. This year alone, the "interest" on the federal debt will be in excess of $430 billion dollars. Next year, it will be closer to $500 billion. Obama's solution? Raise the taxes on the rich. Not cut spending. But raising taxes on the rich will only result in a about $85 billion more in tax revenues next year. That increase in revenues won't even pay off 20% of the interest payments on our debt. Meanwhile, the debt will only continue to increase at a rapid rate.
To me, its like having $10,000 in credit card debt and, all you do every month is pay the minimum amount. While doing this might avoid penalties, the compounding of interest and continued use of that credit card will eventually send you to bankruptcy court. And that appears to be something that the Krugmans of the world and Obama don't seem to understand. Or, sadly, maybe they do!
References:
1945 Federal Tax Instructions: http://www.irs.gov/pub/irs-prior/i1040--1945.pdf
Percentage of Population Paying Taxes: http://blog.heritage.org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/
Debt as a Percentage of GDP: http://www.usgovernmentspending.com/federal_debt_chart.html
Well things have changed a lot since WWII. For one thing, nearly half the population, today, pays zero taxes. In the years following the war, only about a quarter of the population paid no taxes; reaching a low of 16% by 1969. In other words, we now have a huge debt with a lot less people available to pay it off. At the same time, those who did paid taxes, back then, paid their taxes at a higher rate. The lowest tax rate in 1945 was 22% on $2,000 of income; and, the top wage earners paid 91% on incomes in excess of $200,000. Today, the bottom rate is only 10% and the top rate is 35%.
The bottom line is that the country was better able to pay off its debts following the war. Today, liberal tax policies have created a situation where we have too few people paying too little in taxes to adequately address our deficit spending; which has gone up 57% under Obama. This year alone, the "interest" on the federal debt will be in excess of $430 billion dollars. Next year, it will be closer to $500 billion. Obama's solution? Raise the taxes on the rich. Not cut spending. But raising taxes on the rich will only result in a about $85 billion more in tax revenues next year. That increase in revenues won't even pay off 20% of the interest payments on our debt. Meanwhile, the debt will only continue to increase at a rapid rate.
To me, its like having $10,000 in credit card debt and, all you do every month is pay the minimum amount. While doing this might avoid penalties, the compounding of interest and continued use of that credit card will eventually send you to bankruptcy court. And that appears to be something that the Krugmans of the world and Obama don't seem to understand. Or, sadly, maybe they do!
References:
1945 Federal Tax Instructions: http://www.irs.gov/pub/irs-prior/i1040--1945.pdf
Percentage of Population Paying Taxes: http://blog.heritage.org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/
Debt as a Percentage of GDP: http://www.usgovernmentspending.com/federal_debt_chart.html
Monday, May 7, 2012
Krugman Decries Austerity, Again!
On Sunday, in the article: Austerity Is So Wrong!, New York Times economic columnist, Paul Krugman. once again argued that government spending, not austerity, will "easily and quickly" cause an economy to grow. But, the best example of why Krugman is "so wrong" is to merely look at Germany as part of the EuroZone. In 2008, when the recession hit most of the world, Germany suffered greatly because 1/3 of its economy was dependent on exports and the export market had weakened significantly. Within months however, the economy snapped back quickly. Today, Germany is the only shining spot in all the EuroZone. Most of the rest of the countries are either in the throws of recession or teetering on bankruptcy.
Germany flourished when others were still struggling because of the economic recovery programs of Angela Merkel. While it is true that she spent $72 billion dollars in stimulus, it is also true that she cut government spending by nearly twice that amount -- $123 billion -- in austerity programs. She also convinced labor unions to give up or reduce benefits in what can only be defined as even more austerity.
Germany is now in better shape because they didn't buy into the Keynesian belief that you can simply spend yourself out of a recession. Something that the likes of Paul Krugman can't get through their heads.
Germany flourished when others were still struggling because of the economic recovery programs of Angela Merkel. While it is true that she spent $72 billion dollars in stimulus, it is also true that she cut government spending by nearly twice that amount -- $123 billion -- in austerity programs. She also convinced labor unions to give up or reduce benefits in what can only be defined as even more austerity.
Germany is now in better shape because they didn't buy into the Keynesian belief that you can simply spend yourself out of a recession. Something that the likes of Paul Krugman can't get through their heads.
Monday, September 12, 2011
Paul Krugman's Shameful Political Attack And Rewrite of History
By now, most of the readers of yesterday's Drudge Report are aware that a columnist for the New York Times, Paul Krugman, wrote the following blog entry and published it just prior to the time of day when the first World Trade Center tower was attacked on 9/11/2011:
Aside from the fact that this criticism of Bush, Giuliani, and Kerik are so politically motivated and so shamefully out of place on a day of solemn remembrance, it is also factually wrong. Krugman would have you believe that the events of 9/11 were something that Bush and other neocons had just been eagerly awaiting: An excuse to go to war. But, this is a pure rewrite of history. Simply, the Afghanistan War would have never happened if the Taliban had complied with George W. Bush's demand that they turn over Osama Bin Laden and stop harboring Al Qaeda. That's the reality that Krugman's blog entry seems to have conveniently and so "liberal-mindedly" forgotten.
As far as being fake heroes, I think Bush, Giuliani, or Kerik would "all" admit that the heroes of that day were those who lost their lives and those who saved the lives of others; and, not themselves. What these men did, following 9/11, was to simply do their jobs to protect the citizens of this country. Each was an extremely strong and competent leader at a time of intensely wrenching turmoil in our history. A fact that we can all be thankful for and a fact that, apparently, Krugman doesn't seem to comprehend.
The Years of ShameIs it just me, or are the 9/11 commemorations oddly subdued?
Actually, I don’t think it’s me, and it’s not really that odd.
What happened after 9/11 — and I think even people on the right know this, whether they admit it or not — was deeply shameful. Te atrocity should have been a unifying event, but instead it became a wedge issue. Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush raced to cash in on the horror. And then the attack was used to justify an unrelated war the neocons wanted to fight, for all the wrong reasons.
A lot of other people behaved badly. How many of our professional pundits — people who should have understood very well what was happening — took the easy way out, turning a blind eye to the corruption and lending their support to the hijacking of the atrocity?
The memory of 9/11 has been irrevocably poisoned; it has become an occasion for shame. And in its heart, the nation knows it.
I’m not going to allow comments on this post, for obvious reasons.
Aside from the fact that this criticism of Bush, Giuliani, and Kerik are so politically motivated and so shamefully out of place on a day of solemn remembrance, it is also factually wrong. Krugman would have you believe that the events of 9/11 were something that Bush and other neocons had just been eagerly awaiting: An excuse to go to war. But, this is a pure rewrite of history. Simply, the Afghanistan War would have never happened if the Taliban had complied with George W. Bush's demand that they turn over Osama Bin Laden and stop harboring Al Qaeda. That's the reality that Krugman's blog entry seems to have conveniently and so "liberal-mindedly" forgotten.
As far as being fake heroes, I think Bush, Giuliani, or Kerik would "all" admit that the heroes of that day were those who lost their lives and those who saved the lives of others; and, not themselves. What these men did, following 9/11, was to simply do their jobs to protect the citizens of this country. Each was an extremely strong and competent leader at a time of intensely wrenching turmoil in our history. A fact that we can all be thankful for and a fact that, apparently, Krugman doesn't seem to comprehend.
Tuesday, June 29, 2010
Keynesian Economics Is Like A Drug Addiction
In the 1930's, FDR used excessive Federal spending, a cornerstone of Keynesian Economics, in an attempt to revive the U. S. economy during the Great Depression. It failed. At the same time, Europe recovered much quicker without the spend-thrift precepts of Keynes insanity. In retrospect and in a futile attempt to save Keynesian Economics from the trash heap of economic theory, those "apostles of John Maynard Keynes" have concluded that Federal spending during the Great Depression didn't produce the intended results because FDR didn't spend enough; and, because he tried to cut spending at the same time.
In the 1970's, the same Keynesian spending programs were attempted by the Democrats and Jimmy Carter; though much more limited than all the spending that took place during the Depression. But the Keynesian practices of that era, too, failed and, once again, the Keynesian economists claimed it was a failure of not spending enough and not a failure in the soundness of their philosophy. However, and in complete contrast to Keynes, Reagan took the reins and applied tax cuts, not spending, and the country righted itself economically.
Also in contrast to Keynes debt deepening beliefs, both JFK and Bill Clinton spurred their economies on through tax cuts; even though the Clinton tax cuts were primarily driven by a Republican Congress and the implementation of Newt Gingrich's Contract with America. Today, Democrats constantly refer to Clinton-economics as being the powerful engine that created a surplus that George W. Bush completely erased. However, in doing so, the Democrats seem to forget that Bush, like so many other Presidents, inherited a recession at the tail-end of the Clinton Presidency and, then, only 9-months into his Presidency, he was hit with the economy killing effects of 9/11. If the Democrats would simply put ideology aside, they would have to truthfully agree that it was the Bush tax cuts that produced a gradual erasure of the deficits for each year following 2003 until the housing bust and recession that started in 2008. This was despite all the spending for two Wars and the dumb excessive spending by the then Republican-controlled Congress.
Now, we have Obama and his economic team. Once again, the principals of Keynesian economics are being applied with all kinds of Federal spending; from the TARP to the Stimulus Package. And, as had been the case in the application of all Keynesian economic spending in the past, our economy seems to be stalling out after only 16 months since the Stimulus was implemented. Now, as before, there are calls for even more spending.
The trouble with Keynesian economics is that all those massive infusions of cash have only a small and temporary impact on the economy. To sustain the benefits, you have to keep repeating the programs until, literally, you go broke doing it. Much the same way a drug addict keeps needing more and more "fixes" to satisfy their habit.
Two perfect examples of this were the "Cash for Clunkers" program and the first-time home buyers tax credit. Both programs created increased buying in their respective areas of the economy. But, once these programs ran their course, the buying not only stopped but, it fell far below the buying that had been seen prior to the implementation of either of these two programs. Of course, this fact, as in all the cases of all other applications of Keynesian economics, resulted in calls by the auto and home industries and some Democrats to extend the spending. And, so, the parallels to drug addiction.
The problem with Keynesian economics is that the effects are always short-term. They focus too much on growing the government when it is the private sector that actually grows the economy. The government, through taxing, only saps our economy. That's why tax cuts and not government spending have always produced better results. Proof of the addictive behavior of Keynesian spending comes from the likes of lefties like Paul Krugman and Robert Reich who are screaming that we need more and more spending. Obama, too, being a good little Keynesian, has warned the G20 member heads of state to keep the spending going to save the world's economies. However, history has proven this to be a flawed belief and most of those G20 members have seen the light. In a direct slap at Obama, most will now cut spending and, maybe, some taxes to save their economies from completely collapsing under the failure of Keynesian spending. Mr. Obama would be wise to follow their lead and dump his head-strong big government philosophy; unless, of course, his true intent is something other than saving our economy from a deep recession.
In the 1970's, the same Keynesian spending programs were attempted by the Democrats and Jimmy Carter; though much more limited than all the spending that took place during the Depression. But the Keynesian practices of that era, too, failed and, once again, the Keynesian economists claimed it was a failure of not spending enough and not a failure in the soundness of their philosophy. However, and in complete contrast to Keynes, Reagan took the reins and applied tax cuts, not spending, and the country righted itself economically.
Also in contrast to Keynes debt deepening beliefs, both JFK and Bill Clinton spurred their economies on through tax cuts; even though the Clinton tax cuts were primarily driven by a Republican Congress and the implementation of Newt Gingrich's Contract with America. Today, Democrats constantly refer to Clinton-economics as being the powerful engine that created a surplus that George W. Bush completely erased. However, in doing so, the Democrats seem to forget that Bush, like so many other Presidents, inherited a recession at the tail-end of the Clinton Presidency and, then, only 9-months into his Presidency, he was hit with the economy killing effects of 9/11. If the Democrats would simply put ideology aside, they would have to truthfully agree that it was the Bush tax cuts that produced a gradual erasure of the deficits for each year following 2003 until the housing bust and recession that started in 2008. This was despite all the spending for two Wars and the dumb excessive spending by the then Republican-controlled Congress.
Now, we have Obama and his economic team. Once again, the principals of Keynesian economics are being applied with all kinds of Federal spending; from the TARP to the Stimulus Package. And, as had been the case in the application of all Keynesian economic spending in the past, our economy seems to be stalling out after only 16 months since the Stimulus was implemented. Now, as before, there are calls for even more spending.
The trouble with Keynesian economics is that all those massive infusions of cash have only a small and temporary impact on the economy. To sustain the benefits, you have to keep repeating the programs until, literally, you go broke doing it. Much the same way a drug addict keeps needing more and more "fixes" to satisfy their habit.
Two perfect examples of this were the "Cash for Clunkers" program and the first-time home buyers tax credit. Both programs created increased buying in their respective areas of the economy. But, once these programs ran their course, the buying not only stopped but, it fell far below the buying that had been seen prior to the implementation of either of these two programs. Of course, this fact, as in all the cases of all other applications of Keynesian economics, resulted in calls by the auto and home industries and some Democrats to extend the spending. And, so, the parallels to drug addiction.
The problem with Keynesian economics is that the effects are always short-term. They focus too much on growing the government when it is the private sector that actually grows the economy. The government, through taxing, only saps our economy. That's why tax cuts and not government spending have always produced better results. Proof of the addictive behavior of Keynesian spending comes from the likes of lefties like Paul Krugman and Robert Reich who are screaming that we need more and more spending. Obama, too, being a good little Keynesian, has warned the G20 member heads of state to keep the spending going to save the world's economies. However, history has proven this to be a flawed belief and most of those G20 members have seen the light. In a direct slap at Obama, most will now cut spending and, maybe, some taxes to save their economies from completely collapsing under the failure of Keynesian spending. Mr. Obama would be wise to follow their lead and dump his head-strong big government philosophy; unless, of course, his true intent is something other than saving our economy from a deep recession.
Tuesday, December 29, 2009
I Think Krugman Has It Right
Rarely would I agree with the New York Times columnist and Nobel winning economist Paul Krugman. But, I have to agree with what he expressed this weekend, which was his belief that there is a possibility of a double dip recession in 2010:
I, however, am more certain that this will happen than Krugman. I personally don't see any depth to this recovery. What little growth that does exist is due to some smatterings of an artificial stimulus which are not organic or widespread. That can only create a short-lived recovery. The original Stimulus Package is well off it's target in creating jobs. In fact, the first package was specifically targeted to help state governments to grow which will ultimately get those governments in trouble. Those state's will continue to lose revenues and the already bloated deficits will only get bigger because they didn't make the hard choices needed to reduce spending. In addition, the new stimulus package -- nicknamed Cash for Caulkers -- will be another fruitless program.
Expect bank failures to rise next year to a level that is well above this year's 150 banks. Foreclosures are expected to be double this year's rate. The new and more disastrous bomb to hit the economy will be the default on commercial mortgages as the number of small business go under.
The important thing to note is that Paul Krugman is as far left and Democratic as they come. For him to predict another dip in the economy is more than just small talk. It's a big thing!
I, however, am more certain that this will happen than Krugman. I personally don't see any depth to this recovery. What little growth that does exist is due to some smatterings of an artificial stimulus which are not organic or widespread. That can only create a short-lived recovery. The original Stimulus Package is well off it's target in creating jobs. In fact, the first package was specifically targeted to help state governments to grow which will ultimately get those governments in trouble. Those state's will continue to lose revenues and the already bloated deficits will only get bigger because they didn't make the hard choices needed to reduce spending. In addition, the new stimulus package -- nicknamed Cash for Caulkers -- will be another fruitless program.
Expect bank failures to rise next year to a level that is well above this year's 150 banks. Foreclosures are expected to be double this year's rate. The new and more disastrous bomb to hit the economy will be the default on commercial mortgages as the number of small business go under.
The important thing to note is that Paul Krugman is as far left and Democratic as they come. For him to predict another dip in the economy is more than just small talk. It's a big thing!
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