Posts Tagged ‘keynesian’

Double Dip?

The Dow is down 275 points this morning, below 9900 and falling like a safe dropped from a helicopter. It just touched beneath the absolute low hit in the “flash crash” of May 6th. Consumer confidence plunged from 62.7 to 52.9 in one month. Recent polling shows that over 62% of Americans think the nation is on “the wrong track.” Exactly what is this market, supposedly a leading indicator of economic activity, trying to tell us?

The market is telegraphing that there is no confidence in the present government trajectory toward tax increases, more borrowing, and higher deficits. It also dislikes the dead hand of government in the management of financial institutions, automakers, and health care. It deplores the idea of saddling the economy with cap & trade costs, and realizes that “stimulus” spending largely directed toward the public sector is totally non-productive. Investors and businesses have seen this movie before – when the very similar activist policies of FDR failed to cure the Great Depression which lasted well into his 3rd term.

Vice president Joe Biden has said that we “need to spend money to keep from going bankrupt.” Nancy Pelosi has stated about the Health Care Bill that “we have to pass the bill so we can see what’s in it.” Christopher Dodd comments on his financial reform legislation: “No one will know until this is actually in place how it works”. Of course no one can forget candidate Obama’s comments on cap & trade: “electricity rates will necessarily skyrocket,” and on taxes: “it is better for everyone when we spread the wealth around.”

Peter Orszag, the OMB director responsible for planning budget deficits beyond contemplation and cooking the books to make Health Care appear feasible is bailing out. President Obama just got slapped around by the leaders of the G-20 when he floated a trial balloon involving more massive “stimulus” spending. These heads of state are belatedly awakening to the fact that Keynesian economic theories eventually crash, but Obama, Summers, Geithner, and Biden have yet to catch on. Unfortunately, they never will because they are so completely wed to big government along with massive spending, taxing and regulation schemes. Of course, buying votes from SEIU and UAW members is the prime benefit to the administration of the mix.

This administration is stealing from our grandchildren and spending our national future down the drain. The red ink must be staunched, entitlement spending reformed, Health Care repealed, and government cut back. Obama will never consider it, so the only way to begin a reversal is to elect a Congress that will refuse to fund these massive programs.

The next time you see a baby, stop and wonder how he or she will think of our generation in about 50 years. Then promise that baby that you will vote now to stop this insanity before it is too late. No American has the right to live in the present off the future earnings of another.

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The Rerun of History

When FDR took office he faced a deepening depression that had begun a few years earlier. Prior administration acts raising taxes and tightening the money supply had contributed greatly to the misery. The Smoot Hawley tariff legislation had sparked a worldwide strangulation of international trade. Unemployment was around 25% and the lower Midwest was in the throes of a devastating drought. Roosevelt knew he had to do something and quickly.

Unfortunately the cabinet and advisor roles were filled up with eastern intellectual types with little practical business experience and political hacks with even less. The President and his team then embarked on a frenzied search for something – anything – that would renew growth and create jobs. In December, 1933 only months into his administration, Roosevelt received a letter from John Maynard Keynes who was just developing the theories we know today as Keynesian Economics. Below are two quotes from that letter:

Thus as the prime mover in the first stage of the technique of recovery I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure which is financed by Loans and not by taxing present incomes.”

“In the field of domestic policy, I put in the forefront, for the reasons given above, a large volume of Loan-expenditures under Government auspices.”

During the next few years the most common theme among all the programs, bureaus, laws, and plans that came forth was spending heavily by government using borrowed money and higher taxes. The unemployment rate went from 25% to 15% by early 1937. However just when the nation was beginning to feel some improvement, the Depression returned in 1938 with unemployment again at 20%. The national debt had increased by 62% in four years and the economy was tanking into a double dip depression. The beginning of WW II in 1939 with its large defense orders under Lend Lease and sales to allied belligerents was the only thing that pulled the U.S out after over ten years of economic hardship.

Deficit spending and higher taxes – the top marginal rate had been raised to 79% – were only part of the problem. Uncertainty among investors and consumers was rampant. Federal price controls and policing gummed up business planning and profits. Ridiculous programs to kill pigs and burn crops to raise farm prices backfired by making agricultural products unaffordable to millions on limited incomes. Huge public works programs administered by party hacks and unions employed democrats but froze out republican workers. Banks were overwhelmed with repossessions of failed farms, businesses and homes. Fear and uncertainty over what the government might do, or who it would punish next choked off initiative. How and why would anyone even think about starting or expanding a business under conditions such as these?

To quote Yogi Berra, the present administration is “déjà vu all over again. ” Inexperienced intellectual types in charge, a grinding recession, high unemployment, and humongous borrowing and spending look familiar.  The bombastic threats to banks and insurance firms along with the near certainty of higher taxes have a severe chilling effect on business development and future planning. Ersatz nationalization of automobile manufacturers and stimulus cash to states and municipalities mainly benefit the UAW, SEIU, and NEA.  Raising discretionary spending by 20% and jacking the deficit to three times its former amount  with failed stimulus efforts mirror the actions of the ‘30s that obviously failed at that time.

Instead of burning crops and killing piglets, we are threatened with cap & trade, health care, tax increases, draconian regulation, and wasteful government projects.  Trillions will be flushed away on useless boondoggles from light rail to the study of cow manure.  The unholy bill for these expenses will fall upon those yet unborn.

Keynesian deficit spending has failed in the U.S in the ‘30s, the ‘70s, and in Japan yet today.  Such beliefs belong on the ash heap of history.  It is among the universe of ideas so aptly described by George Orwell: “There are some ideas so wrong that only a very intelligent person could believe in them.”  Our leaders are but a cabal of inexperienced, present time oriented elitists who; refusing to learn the lessons of history are doomed to repeat it.  We must slash the spending, lower taxes, roll back regulation, and stop threatening to punish success. 

The American people are beginning to reject this situation.  In their hearts they realize that American Exceptionalism built and sustained this nation for over 200 years.  Americans will bring this economy back if only left to harness their own ideas and entrepreneurship unbound from the leaden hand of huge government and incompetent leadership.  Virginia, New Jersey, and Massachusetts are encouraging signs.

Stealing is Wrong

Stealing is wrong; thieves go to jail for it. We condemn the schoolyard bully who beats up smaller kids for lunch money. Now let us look in the mirror and observe the protagonist in the greatest case if intergenerational theft in history. We baby boomers and our parents – the greatest generation – have stolen trillions from those yet unborn. Most of us will be long gone before our victims are old enough to recognize what we have done and confront us. It is the epitome of cowardice to rob the entire future from later generations and then use our deaths to escape responsibility.

A combination of unfunded entitlement programs, misguided subsidies to unsound businesses and discredited Keynesian economic deficit spending have created a disastrous level of debt.  If you have children, grandchildren, nieces or nephews you sincerely care about, you will be interested to learn the following facts:

If we were to add up the total unfunded liabilities of present “entitlement” programs (Social Security, Medicare, and Medicaid) and add the current national debt as of today, we would get a general figure of $117 TRILLION DOLLARS which our government has promised to pay and has no visible means of support to do so. A $100 bill is 4/1000 of an inch thick. A stack one inch high amounts to $25,000. One foot would be $300,000. One mile would be One Billion, Five Hundred and Eighty Four Million Dollars. $117 TRILLION adds up to a stack of $100 bills 73,863 MILES HIGH. That is three times around the earth, or 336 stacks that would reach the International Space Station! On an individual basis, that works out to only a little over 15 inches par person alive in the US today. Each and every newborn enters this world with about $396,000 in accumulated debt and incurred liabilities. Do you think your little loved ones and their generational fellow travelers will earn enough to pay that off? Apparently Congress and Presidents over the past 75 years have assumed so.

Who EXACTLY is ever going to pay for this irresponsible fiscal lunacy? Well, let’s let the kids pay it off for the rest their lives long after we who spent the dough are gone. They won’t ever be able to remove our dead hands from their pocketbooks. Our children and grandchildren will be condemned to lives of serfdom.  We will be remembered as the ones who crippled our nation with debt, spent the dreams of our children, and sold them into financial servitude.

If you have young ones that you love as I do, and you have one scintilla of self respect and common decency, you will help reverse this disastrous course before it consumes our nation and its people. How do we begin? First we must realize that in nearly all cases, “something for nothing” from the government is just flat wrong. Second, we must elect representatives who will covert the Ponzi scheme nature of entitlement programs into self funded, sustainable entities – exactly as promised when they were first introduced. Third, stop subsidizing utopian failures like ethanol, wind farms, flood insurance, and light rail. Lastly, let’s dump Keynesian economics into the ash heap of history where it has belonged since its failure in the 1930s.

According to Albert Einstein, insanity is doing the same thing over and over and expecting different results. Rebooting the New Deal, subsidizing failure, taxing success, and exposing the general fund to liabilities of poorly planned entitlement programs is folly. We owe our descendants a huge course correction before their lives are ruined by our greed and foolishness.