Noted Progressive Calls Second-Great-Depression-Excuse For TARP "Crap"

Dean Baker, here:

[T]he commonly claimed "second Great Depression" scenario is, to use a technical economic term, "crap."  The first Great Depression, by which I mean a decade of double-digit unemployment was not locked in stone by the mistakes made at its onset. There was nothing that would have prevented the government from having the sort of massive stimulus spending that eventually got us back to full employment (a.k.a. World War II) in 1931 instead of 1941 and without the war. The fact that we remained in a depression for more than a decade was due to inadequate policy response.

Don't you see? There are no problems which Keynesian monetarism cannot solve, it's just that FDR didn't practice them then,  and that Obama is not practicing them now.

Otherwise Baker makes the case for clearing the system the quick and dirty way, the way free markets are supposed to work:

The place to look for insight on this question is Argentina, which went the financial collapse route in December of 2001. This was the real deal. Banks shut, no access to ATMs, no one knowing when they could get their money out of their bank, if they ever could.

This collapse led to a plunge in GDP for three months, followed by three months in which the economy stabilized and then six years of robust growth. It took the country a year and a half to make up the output lost following the crisis.

While there is no guarantee that the Bernanke-Geithner team would be as competent as Argentina's crew, if we assume for the moment they are, then the relevant question would be if it is worth this sort of downturn to clean up the financial sector once and for all. I'm inclined to say yes, but I certainly could understand that others may view the situation differently.


Once again, the domestic analogy would be 1920, but that's so, I don't know, modern.

Rep. Amash, Other Opponents Of Spending, Cave To Avoid A Government Shutdown Crisis

 

 

The Tea Party in Congress is dead, if it were ever alive.

 

Its most ardent wannabes in the Congress have been now fully and completely co-opted by the Republican Party, which couldn't use a crisis to get what it wants if a Democrat spelled it out in an instruction manual. Republicans not only have no principles, they have no skills.

Republican opponents of increased government spending have caved in to a plan to avoid a government shutdown crisis and accept a continuing resolution of at least six months, enshrining spending at the high levels they formerly opposed.

The mood is not dissimilar to the banking panic period around the election of 2008, when Republicans caved in to TARP in order to get past the crisis. They got past it alright, and deservedly lost everything in the process.

The whole point now, they say, is to get past the danger the upcoming election represents, and the lame duck session, periods when government is most responsive to, and most dismissive of, politics, and it is politics which the so-called conservatives now fear. It doesn't occur to them that one of the rewards of an election is the free hand given to the winners to do the will of the people. Gov. Scott Walker's victories on behalf of the people of Wisconsin evidently mean nothing to them. Fear of a lame duck session is simply proof that so-called Tea Partiers in Congress don't have the courage of their convictions.

The election, on the contrary, is the perfect opportunity to crucify the Democrats on the issue of spending, and especially their intransigence on it. Nothing focuses the mind like when your job is on the line.

Well guess what, Republicans? Your job is on the line, too. And I have a keyboard, and an internet connection.

Instead of postponing the issue to next March, outrageous spending should be front and center in October when Americans spend a few days paying attention to it for once. Republicans obviously have no stomach for such fighting. But Democrats do, which is why they win.

Making Democrats take the fall for increased spending and taxes may be difficult work, but if you can't figure out how to do that, then quit, but don't piss down our necks and tell us it's rainin'.

The truth appears to be that the so-called conservatives can see the handwriting on the wall. They have a candidate for president who won't cut spending if elected because that candidate, Gov. Mitt Romney, thinks cutting spending would put the country into depression. So-called Tea Partiers in Congress evidently agree with this Keynesian analysis. They'd rather look like they support this absurdity for political ends than do the right thing for the country. They don't want to continue in lonely isolation under a Romney administration. And they certainly don't want to be held responsible for a depression.

In taking this step, the conservatives no longer deserve our support, or our respect.

It's just one more reason why alliance with the Republican Party is the kiss of death for conservatism.

The Christian Science Monitor has the story, including these excerpts, here:

In a bid to avoid a potential government shutdown, several of the House’s most conservative Republicans say they would be willing to go along with a six-month extension of government funding, which is currently set to run out at the end of September, at levels they’ve voted against in the past. ...

The idea is spearheaded by Sens. Jim DeMint (R) of South Carolina, the most prominent tea party figure in Congress, and Lindsey Graham (R), South Carolina's senior senator. It was laid out in a letter signed by 20 Republicans to House and Senate GOP leaders on Wednesday. But support for the move is wider than the initial signatories: Even Rep. Justin Amash (R) of Michigan, who voted against the Republican budget proposal in March because he said it cut too little from government spending, said he would vote in favor.

And here's a little news flash for you: Lindsey Graham is not now, nor has he ever been, a member of the Tea Party, or a conservative.

As for Rep. Amash, I guess your precious "consistency" has its limits, eh Justin?

I'm Shocked: George W. Bush Warns Against Spending Cuts Same As Romney

The Keynesian grip on the Republican Party continues apace, which is why it is no match for the real Keynesian deal in the form of the Democrats:

[W]hile warning of the consequences of spiraling federal debt, the book cautions against deficit reduction as an immediate goal, saying tax increases and spending cuts in the short term could strangle growth.

Read all about it here.

The reason these clowns are against spending cuts is they don't have enough confidence in their growth measures. Without the GDP gained from government spending, their policies look weak.

Because they are.

Remember People! Only An Ultra-Conservative Losing Would Be A GOP Debacle!

A Mitt Romney loss? Well, that wouldn't be a debacle; that would be just a loss.

So said David Frum, spokesman for the non-Tea-Party-type Republican, last October, here:

Back-to-back losses under John McCain in 2008 and Mitt Romney in 2012 will open the way to an ultra-conservative nominee in 2016 -- and a true party debacle.

It's just like Keynesianism, see. If massive spending doesn't succeed, it's because we didn't spend enough. How do we know that? Well, we failed, so we didn't spend enough.

Faith is by definition not falsifiable.

Rep. Waxman Botches Unemployment Facts, Claims We're In A Depression

Leave it to Democrat politicians to botch the facts about the economy, as Rep. Waxman here.

Unemployment surged to over 10 percent under Obama, not when he took office as Waxman says. When Obama took office in late January 2009 unemployment was 7.6 percent. It climbed to 10.2 percent for the first time in October 2009, nine months after Obama took office.

As for economic depression, Democrats have been saying all along that Obama's policies prevented a depression from occurring. But they didn't prevent one. Plausibly they ended one!

A depression occurred in fact in 2008 and 2009 when GDP declined two years in a row. For a Democrat to say we're in a depression now is insane, given the fact that GDP stills prints positive and has been doing so since 2010, when the depression ended. The growth is pathetic, but it's still growth.

If Democrats had been smart, they'd have admitted it was a depression right away after the 2008 election and really played that up. It could plausibly have been laid at the feet of President George W. Bush. The Keynesian-like stimulus passed in 2009 under Obama could also have been plausibly credited with ending the depression, since GDP rebounded in 2010.

How come Democrats are so stupid?

Sweden's Economic Miracle Partly Due To Cutting Spending By 20 Percent Of GDP

So says Anders Aslund for Bloomberg.com:

Not so long ago, Sweden could claim world leadership in unmitigated Keynesian economics, with a 90 percent marginal tax rate and a welfare state second to none.

Now Swedes look at the conflict between the U.S. and German examples over whether more spending or more austerity is the key to financial salvation, and for them the choice is easy: Germany was right. Northern Europe harbors no sympathy for the spendthrifts of Southern Europe.

Americans still think of Sweden as a tightly regulated social-welfare state, but in the last two decades the country has been reformed. Public spending has fallen by no less than one-fifth of gross domestic product, taxes have dropped and markets have opened up.

The situation is similar in the other Scandinavian countries, the Baltic nations and Poland. But no turnabout has been as dramatic as Sweden’s.

Read the rest, here.

Historical Real GDP From BEA, Recent Quarterly, and Annual Data 1996-2011

From the most recent release, Friday, January 27, 2012, here:

The 2011 GDP advance over 2010 of 1.7 percent represents a decline in the pace of recovery of 43 percent, a huge fall-off. The money borrowed (!) to stimulate the economy has done nothing to re-ignite growth, as critics of Keynesianism predicted.

Post-WW2 GDP growth averaged 3.5 percent per annum.

The period from 2001 through 2007 averaged only 2.4 percent.

The back-to-back declines in 2008 and 2009 represent a small depression.

The 2010-11 recovery period so far is averaging only 2.4 percent, a return to the unimpressive growth pattern under one George W. Bush, whose best year in 2004 merely equaled the post-war average.

Real recovery would look more like 6 percent real GDP growth or even higher for a number of years back-to-back.

2010's 3.0 is shaping up to be just a one-off.

Can No One Tell The Truth, Even About The Great Depression?

Seen here:

Between 1929 and 1933, U.S. gross domestic product contracted by around 30%.

Where the hell does that come from?

In 1929 GDP was $103.6 billion. By the end of 1933 GDP had declined to $56.4 billion. That's a decline of over 45 percent, not "around 30 percent."

Matthew Lynn for Marketwatch.com is talking about "the buying opportunity of a lifetime" at the link.

Really? With the Shiller price-to-earnings ratio at 20.43?

The buying opportunity of my lifetime was between 1973 and 1983, when the Shiller p/e ratio rattled around 10, fifty percent lower than it is today. And it just so happens that I didn't have any money to invest in those years like I do today because of a lifetime of saving.

Not even March 2009 was the buying opportunity of a lifetime, when the Shiller p/e fell to around 15.

If you are wise you will keep your powder dry until you see the whites in their eyes, so to speak, when we get to 10. But even then, can you live with yourself if you pull the trigger and then a total market collapse like 1929 brings the p/e closer to 5?

Well, can ya?

Remember the one true thing of Keynesianism: markets can stay irrational longer than you can stay solvent. A decline from 10 to 5 can wipe out 50 percent of what you have.

There is nothing which cannot repeat itself, because human nature does not change.

Daniel Gross: "To Spend Money We Don't Have is Vital"

Ah, no, but for some Americans there is no choice.

Daniel Gross for The New York Times here protests that he's witnessed a "frugality" kick twice in America and has lived to see us shake it off both times. He points to signs which he thinks show that Americans may be doing that once again because total debt is up, and boy is he happy about it.

What he won't say honestly, however, is that total debt continues its inexorable rise because while consumers have in fact cut back, government has stepped into the breach to make up for it. A good little Keynesian that Daniel Gross.

Unfortunately, it's the poorest Americans who are spending more, and it's because they must.

Sara Murray for The Wall Street Journal here points out that for the poorest quintile, spending rose 5.6% in 2009 from 2007 while experiencing at the same time a 5.5% drop in their after-tax income. Food spending alone for this group went up 15.4% in 2009 from 2007, because of rising prices. To make ends meet, they are using up what little savings they have left, and . . . tapping credit!

Meanwhile the middle quintile's spending in 2009 is down 3.5% from 2008, and 3.1% from 2007. Overall, Americans are spending 2.8% less in 2009 than in 2008, including the rich.

Many of these statistics are "firsts". And if the Bush tax cuts are allowed to expire, another first will be inflicted on the poorest Americans by benevolent, compassionate liberalism: a 50% tax increase when the 10% bracket disappears and reverts to 15%.

The Keynesian Stake in the Term "Depression"

The Keynesians need it to be a depression as much as the Austrians, and John Judis of The New Republic explains the former's point of view, here:

In its basic contours, the current downturn is much more similar to the depressions of the 1890s and the 1930s than to the post-World War II recessions. 

George Will, National Treasure, Font of American Wisdom

Some excerpts from his address to The CATO Institute in May:

We are not Europeans. We are not, in Orwell's phrase, a "state-broken people."

It is a principle of liberal social legislation that a program for the poor is a poor program.

[D]ependency is the agenda of the other side.

I believe that today, as has been the case for 100 years, and as will be the case for the foreseeable future, the American political argument is an argument between two Princetonians: James Madison of the class of 1771, and Thomas Woodrow Wilson of the class of 1879.

The very virtue of a constitution is that it's not changeable. It exists to prevent change, to embed certain rights so that they cannot easily be taken away.

Madison said rights pre-exist government. Wilson said government exists to dispense whatever agenda of rights suits its fancy, and to annihilate, regulate, attenuate, or dilute others.

We are going to come to a time when America is going to have to revisit Madison's Federalist Paper no. 45, and his statement, "The powers delegated by the proposed Constitution to the federal government are few and defined."

Gridlock is not an American problem, it is an American achievement!

[W]e always have more to fear from government speed than government tardiness.

We are told that one must not be a "Party of No." To "No," I say an emphatic "Yes!"

[T]he most beautiful five words in the English language are the first five words of the First Amendment, "Congress shall make no law."

The Bill of Rights is a litany of "No's."

The American people are, I think, healthier than they are given credit for. They have only one defect. They have nothing to fear, right now, but an insufficiency of their fear itself. It is time for a wholesome fear of what people with a dependency agenda are trying to do. We have few allies. We don't have Hollywood, we don't have academia, and we don't have the mainstream media. But we have two things. First, we have arithmetic. The numbers do not add up, and cannot be made to do so. Second, we have the Cato Institute. The people in this room are what the Keynesians call "a multiplier." And, for once, they are right!

Don't miss the rest at the link!

Epic Warning Signals Echo 1931

The "Keynesian" prescription aside, the depth of appreciation for the problem posed by mounting debt stands in stark contrast to much American reporting on the subject. The whole country is starting to resemble Illinois. What a shock.

The article, "Don't Go Wobbly On Us Now, Ben Bernanke" by Ambrose Evans-Pritchard, originally appeared here, appended by vigorous and juicy comments, many of which recognize the need for governments to slash, not cut, spending, meaning, for starters, fat public sector union employees must take a haircut just like the rest of us.

Some excerpts follow:

Barack Obama's home state of Illinois is near the point of fiscal disintegration. "The state is in utter crisis," said Representative Suzie Bassi. "We are next to bankruptcy. We have a $13bn hole in a $28bn budget." ...

The Economic Policy Institute says states face a shortfall of $156bn in fiscal 2010. Most are banned by law from running deficits, so they must retrench. Washington has provided $68bn in federal aid, but that depletes the Obama stimulus package. ...

Bank loans in the US have fallen at a 14pc rate this year, caused in part by Basel III rules pushing banks to raise capital ratios.

The M3 money supply has fallen at a 5.6pc rate since September. The Fed's Monetary Multiplier dropped to an all-time low of 0.809 last week.

The contraction of eurozone bank credit to firms accelerated to 2.7pc in January, while M3 fell by a further €55bn. Japan's GDP deflator has dropped to a record low of -3pc.

These are epic warning signals, with echoes of 1931. ...

Don't go wobbly on us now, Ben. If the governments of America, Europe, and Japan are to retrench – as they must – their central banks must stay super-loose to cushion the blow.

Otherwise we will all sink into deflationary quicksand.

Follow the link for more.

Barack "Fabius" Obama Can Still Be Stopped

Among other things, Bill Flax shows why expunging the study of classical antiquity from the public schools was a priority of the radicals of the 1960's: its stories, repeated and memorized through the study of Latin, stood in the way of their program to subvert our country and destroy our liberty. If you read nothing else this year, read this, which was posted here:

February 13, 2010

We Picked the Wrong Roman Dictator

By Bill Flax

From Government Square in Cincinnati, I often sit surrounded by impressive displays of federal invasiveness, and muse that we picked the wrong Roman dictator.

The Federal Building across the street, serving primarily to dispense largesse confiscated from the workers packed into the square below. The brilliantly marbled Federal Reserve branch where regulators seek enhanced power to oversee commerce while recoiling vigorously against any attempt to be scrutinized themselves. And the block long Federal Court House, which unlike the others, has constitutional legitimacy even as its reach and depth far surpass anything our founders would have tolerated.

Taking nothing away from the many hard-working and honorable souls inhabiting these structures, but America has lost its way. My hometown was named for the Society of the Cincinnati. In ancient Rome, citizen-general Cincinnatus put down his plow to save his nation. When the battle was won, he declined a crown and returned to his farm. His self-restraint in the face of overwhelming temptation bequeathed to Rome several centuries of limited, republican government.

George Washington exhibited similar virtue after our independence. He too could have been king, but his self-denial enabled the rule of law to triumph over the rule of men. Our revolution was largely fought to settle the timeless question of whether government is answerable to the law protecting the rights of its constituents - or - are the people subject to government with a malleable Constitution bending to political pleasure.

America once enjoyed a constitutional republic where property rights were sacrosanct, contracts were conscientiously enforced and markets prevailed. Secure property rights channeled our energies into productive enterprise via the profit motive. An impartial application of the law encouraged market development which enhanced specialization and America's hallmark: an innovative spirit propelling higher living standards for all.

Freedom and prosperity are inexorably linked. Government constrained by law and limited by checks and balances, between both branches and levels of government, birthed an economic juggernaut. Yet, another Roman general has indirectly put a more pronounced stamp on our economy.

Fabius was called to confront Hannibal after the Carthaginian warlord destroyed several Roman armies. Recognizing Hannibal was too strong to confront directly, Fabius conducted a masterful war of attrition. When Hannibal advanced, Fabius retreated. When Hannibal retreated, Fabius advanced always staying safely distant, but close enough to harass the invader. Several times the citizenry grew impatient only for a replacement to hurl the Roman army headlong into calamity.

These "Fabian" tactics became the archetype for a group of sophisticates in late Victorian England. The Fabian Society believed in socialism, not coming by revolution as Marx envisioned, but by evolution. Bored by leisure and rebelling against the strict mores of the time, they sought not to directly confront the existent order, but to undermine it from within.

As prominent Fabian George Bernard Shaw explained, "The Fabian Society succeeded because it ... set about doing the necessary brain work of planning Socialist organization for all classes, meanwhile accepting, instead of trying to supersede, the existing political organizations which it intended to permeate with the Socialist conception of human society."

These ungrateful children of wealth advocated redistribution of other's property while they resided in luxury. Similar to many intellectuals today, they thought they knew better than we how to live our lives. Unfortunately, Fabians and their ilk became the dominant force in our media and educational establishments, indoctrinating generations of Americans to a perverted view of economics and "social justice."

The Fabian movement spawned John Maynard Keynes, an advocate of central economic planning. The overriding focus of Keynes' theory was Aggregate Demand. Loosely defined, aggregate demand reflects the total amount of goods and services consumed at a stable price. Borrowing and spending supplanted classical economic focus on production and savings as the building blocks of prosperity.

Keynesianism was described by Zygmund Dobbs in the illuminating expose, Keynes at Harvard, "The great virtue is consumption, extravagance, improvidence. The great vice is saving, thrift and ‘financial prudence'" because, "If there are no savings there is no private money for investment. Without private investors the government must provide investment capital. If the government provides for investment it has the power to dictate the conduct and processes of those who need investment capital."

Americans wanting to mollify temporary hardship in the throes of recession resurrected Keynes. Rather than endure uncomfortable surgery guided by the market, government injects cortisone to offset the recession's corrective reallocations. Subsidies replace efficiency. Bailouts replace business revitalization. Entitlements replace personal savings. Statism replaces self-reliance. All these government proffered "solutions" may ease our immediate discomfort, but perpetuate economic weakness and come at the price of liberty.

Not only is it immoral to confiscate private property through coercion to redistribute to political favorites, it's also ineffective. Market distortions inevitably harm the economy. The more control we retain over our time, resources and abilities the more closely our efforts will be aligned with productive enterprise. A far-off central planner has no ability to effectively steer this process.

We have witnessed Washington assume greater control with each injection of dubious capital. As Henry Hazlitt warned, "Keynes's plan for 'the socialization of investment' would inevitably entail socialism and state planning. Keynes, in brief, recommended de facto socialism under the guise of 'reforming' and 'preserving' capitalism."

In the closing months of his presidency, Bush crossed the Rubicon authoring vast intrusions "to save" capitalism. Bush quickened what had been a long, painstaking march to socialism. Then a new Caesar immediately began to sprint. We elected not "change," but acceleration.

Only eunuchs were permitted to guard the harem. Entrusting power to the ambitious personalities attracted to government inevitably augments the state to our detriment. Keynes admitted his theories, "can be much easier adapted to the conditions of a totalitarian state than ... a large degree of laissez-faire." We must never abjure our God-given rights to the arbitrary whim of professional politicians in exchange for economic safety-nets.

Incessantly higher spending and increasingly burdensome regulatory controls proved too much. Americans now fear this headlong rush into government expansion. Poor Obama misread the signs and awakened the masses. We weren't yet so effete to be bought by bread and circuses.

The Fabians underestimated the resiliency of free markets and Obama over-estimated his demagoguery. Cincinnatus might be forever gone, but Fabius can still be stopped.

The Pyramids of John Maynard Keynes

Caroline Baum notices that President Obama's fiscal 2011 budget contains money for everything, it seems, except pyramid building:

No longer will President Barack Obama be content to cite specious numbers about “jobs saved or created” as a result of last year’s $787 billion fiscal stimulus. Now he’s proposing $100 billion of new spending to “jumpstart job creation,” according to White House Budget Director Peter Orszag. It’s part of a $3.8 trillion budget for fiscal 2011, unveiled Monday, that projects a $1.3 trillion deficit next year, following a $1.6 trillion deficit this year.

Spend money to save money. Spending dressed up as a jump- starter is still spending by another name.

The only thing missing from the energy-cleansing, rural- community-assisting, climate-change-mitigating, health-food- promoting blueprint is money for pyramid building. In Chapter 10, Section VI of “The General Theory of Employment, Interest, and Money,” John Maynard Keynes advocated building pyramids as a cure for unemployment.

In fact, “Two pyramids, two masses for the dead, are twice as good as one,” he wrote in his 1936 treatise.

The reason Obama avoids mentioning pyramid building, however, has to do with the fact that Obama has political power, whereas Keynes did not have political power and did not therefore feel constrained.

"What's that?" you say. "What does that have to do with it?"

Because of what Aristotle said:

It is also advantageous for a tyranny that all those who are under it should be oppressed with poverty, that they may not be able to compose a guard; and that, being employed in procuring their daily bread, they may have no leisure to conspire against their tyrants. The Pyramids of Egypt are a proof of this, and the votive edifices of the Cyposelidse, and the temple of Jupiter Olympus, built by the Pisistratidae, and the works of Polycrates at Samos; for all these produced one end, the keeping the people poor.

Obama wouldn't want to put any strange ideas in anyone's mind, now, would he?

The Keynesian Moment: "Markets Can Stay Irrational Far Longer Than You Can Stay Solvent"

Very thoughtful and wise words of warning today, making sense of the nonsense, from Barry Ritholtz over at The Big Picture. For the original as it appeared go here.

What Does the Economy Have to Do with the Market?

Posted By Barry Ritholtz On October 6, 2009 @ 7:33 am

“There’s a lot of risk going ahead of some big bumps. There’s a very big risk that markets have been irrationally exuberant.”

-Nobel Prize-winning economist Joseph Stiglitz

Far be it from me to challenge the 2001 economics Nobel prize winner, but sometimes, indeed, quite often, markets decouple from the economic fundamentals.

I can show you many eras in history when the economy was awful, and nonetheless markets rallied strongly.

There have also been times when earnings did not matter, and profitability was irrelevant. There are times when animal spirits run the show, when irrational exuberance was in charge.

Such is the result of giving two million primates lots of money and keyboards and a belief they can make a living based on numbers and letters moving around — on a screen, in a futures pit, on an exchange floor, or even under a buttonwood tree.

Most mainstream economists — with notable exceptions like John Maynard Keynes, Richard Thaler, and Robert Shiller — have traditionally paid little attention to this reality. To a trader or investor, rationality matters far less than what the tape was doing.

Indeed, prices matter a great deal more to traders than theories or annoying things like “Objective Reality." To a trader, prices ARE the objective reality; to them economic theorists are peripheral players trying to rationalize reality.

I believe you can describe and explain what the market is doing, but in doing so, we must acknowledge Keynes' terribly accurate observation that “Markets can stay irrational far longer than you can stay solvent.”

I’ll have more on this later in the week . . .