Keynesian politics

It’s almost always a choice between bad and worse when it comes to managing the economy. I understand how little a modern economist understands about how an economy works, but there you have it. They still can’t work out why real wages are falling and why we have never fully recovered from the GFC, which was more than ten years ago. You might, if you’re interested, have a look at my Dangerous Persistence of Keynesian Economics which was only published in March. But what brings it to mind was the front page of The Oz today: Double rates cut looms as property primed for rebound.

The nation’s housing market is set to be reignited with a stimulus package focused on winding back lending restrictions and lower ­interest rates fuelling economic growth, in tandem with tax cuts and increased infrastructure spending.

A stimulus package filled with government-directed infrastructure plus lower official rates of interest aimed at raising house prices. I can only hope they really do also mean to eliminate the deficit and cut taxes. Keynesian economics is junk science, but unfortunately Keynesian politics is what most people now expect.

“For his friends, no explanation was ever necessary; for his enemies, none would ever have sufficed.”

Conrad Black receives A Full Presidential Pardon. I paid close attention to the case at the time, partly because we are almost contemporaries and even remember him – not personally – from my university days in Canada. Also because Mark Steyn was covering the story so closely. And if ever you have seen an example of injustice meted out by some leftist judge, that was it. This is from his article, up to the moment when the President comes on the line.

The two counts for which I have just received a presidential pardon, and of which I was “convicted” in 2011, after the U.S. Supreme Court unanimously vacated them, only to have a self-serving appellate judge reinstate them, were for wire fraud and obstruction of justice.

The alleged fraud was reception of $285,000 in my office in Toronto while I was in England, from our American company, which was approved by independent directors, referred to in public filings of the corporation, but which the company secretary had not completely formalized, in what the trial judge correctly regarded, in the secretary’s case, as a clerical error. The reinvention of this crime enabled the appellate panel—to whom the Supreme Court remanded the vacated counts “to assess the gravity of their own errors”—to resuscitate a count of obstruction of justice against me. This consisted of my removal of boxes of personal papers and material that already had been furnished to the Securities and Exchange Commission—which I took out under security cameras I had had installed, with the approval of the acting president of the company and the principal member present of the court-appointed inspector—as I vacated my office of 27 years from a building I chiefly owned, on an unjust local court order of a publicity-seeking judge.

The local jurisdiction found no cause of action nor any violation of a document retention order. I was always presumptively innocent in the initial jurisdiction. It was nonsense, all of it; there was never a word of truth to any of it. And now it is over, after 16 years, including three years and two weeks in U.S. federal prisons.

Only once before, 18 years ago, had I received a telephone call from an incumbent president of the United States, prior to Monday of last week, and I had not spoken to the current president since he took office. When my assistant said there was a call from the White House, I picked up, said “Hello” and started to ask if this was a prank, (suspecting my friends in the British tabloid media), but the caller spoke politely over me: “Please hold for the president,” and two seconds later probably the best known voice in the world said “Is that the great Lord Black?” I said “Mr. President, you do me great honor telephoning me.”

Now do read on. And then this, unrelated in any way to the above other than it is the same person writing: Conrad Black on Democrats Start To Perceive Debacle They Face, being how almost impregnable PDT’s current election prospects are. But of particular interest are Black’s comments on China-US trade.

In the trade dispute with China, where even the Democratic Senate leader, Chuck Schumer, sides with the president, the United States cannot lose. China’s tremendous economic progress is based on debt-financed infrastructure, dumping cheap goods abroad, especially in the United States, and requiring industrial-intelligence disclosure from sophisticated foreign companies that seek access to Chinese markets.

Everyone agrees that China cheats and ignores World Trade Organization rulings, and practically every trading nation in the world applauds the U.S. president’s stance in this dispute. Eighty percent of the U.S. GDP is domestic commerce, and with a year to reorient itself, it could practically end all imports. China is a debt-ridden house of cards built on what is still a 40% command economy, rotten with official corruption in a country with few natural resources and 300 million people who still live as their ancestors did a thousand years ago.

One more example showing how centralised economies do not and cannot work. The kinds of things perhaps only those who have run large businesses can really understand.

“Everyone agrees China cheats and ignores WTO rulings”

Conrad Black on Democrats Start To Perceive Debacle They Face, being how almost impregnable PDT’s current election prospects are. But of particular interest are Black’s comments on China-US trade.

In the trade dispute with China, where even the Democratic Senate leader, Chuck Schumer, sides with the president, the United States cannot lose. China’s tremendous economic progress is based on debt-financed infrastructure, dumping cheap goods abroad, especially in the United States, and requiring industrial-intelligence disclosure from sophisticated foreign companies that seek access to Chinese markets.

Everyone agrees that China cheats and ignores World Trade Organization rulings, and practically every trading nation in the world applauds the U.S. president’s stance in this dispute. Eighty percent of the U.S. GDP is domestic commerce, and with a year to reorient itself, it could practically end all imports. China is a debt-ridden house of cards built on what is still a 40% command economy, rotten with official corruption in a country with few natural resources and 300 million people who still live as their ancestors did a thousand years ago.

One more example showing how centralised economies do not and cannot work.

Soak the poor

The astonishing part about modern macroeconomics is how those whose wealth is most comprehensively plundered through public spending and crony capitalism are the ones who are told that everything is being done on their behalf. Governments spend trillions hiring their friends and colleagues through moneys syphoned off from a proportion of the taxpaying public, but the reality is that everyone who is not on the receiving end is on the paying end, whether one pays taxes or not.

An economy during any relatively short period of time – say over the course of a decade – has only so many goods and services along with only so much physical capital. Those who receive payments from the government, whether public servants or government contractors, get to spend well beyond any productive contributions they make to the economy. Everyone else ends up with less.

It’s how Keynesian economics works. A massive Ponzi scheme, where the poor and middle class are made to subsidise the relatively well off as well as the rich.

You think you are getting free this and free that. But the ones who are creaming off the system are the ones the government is paying on your behalf. Even if you don’t pay a cent in tax, you are paying an enormous cost in allowing others to get rich while you struggle to get by.

And if you think it’s bad now, wait till Modern Monetary Theory becomes the go-to means to finance governments. And we are just one election away from a full roll out in Australia.

“Economic Theory ten years after the crisis”

That’s the title of the paper: Economic Theory ten years after the crisis, written by Droucopoulos Vassilis, Emeritus Professor of Industrial Economics in the Department of Economics at the University of Athens. There must be other such articles around, but this is one of the few I have come across. The abstract:

It is my intention to address, primarily within the scope of mainstream macroeconomic theory, three of the questions making up the main theme of the conference, namely: “How a very problematic theory continues to survive and dominate both the policy and the academic scene. What are the processes in the economy and the society that sustain its dominance? What is the condition of the economic Orthodoxy (particularly under its current form of the New Macroeconomic Consensus, that is the hybrid of mild neoliberalism with conservative New Keynesianism)?”. A good many orthodox economists hold the view that there is no necessity for a paradigm shift. On the contrary, a mere “evolution towards a more pluralistic discipline” would suffice. Hence the title of my talk.

They still don’t get it since variants of Keynesian economics remain as embedded as ever. But what a laugh to see New Keynesian economics described as “conservative”. It must be the modern fashion, and they wonder why nothing works.

Global stocks have tumbled to a six-week low

taming_the_dragon

It’s the American president being quoted: ‘THEY BROKE THE DEAL’.

He pledged to hike tariffs on $200 billion of Chinese goods from Friday – rocking equity markets across the world.

US negotiators also want China to clamp down on the alleged theft of US technology.

“For 10 months, China has been paying tariffs to the USA of 25% on 50 billion dollars of high tech, and 10% on 200 billion dollars of other goods,” Mr Trump said in his tweet.

“These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 billions dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%.

“The tariffs paid to the USA have had little impact on product cost, mostly borne by China. The trade deal with China continues, but too slowly, as they attempt to renegotiate. No!”

Analysts have now pointed out that the President’s message cost the markets more than $13bn for each of the 102 words in the tweet.

Global stocks have tumbled to a six-week low.

A six-week low. Not quite the end of the world. Free trade must work on both sides, not just on one. That’s what the WTO is there to remind us of. And while you consider the above, you might add this into the equation: China’s Communist Dictatorship Targets American Creativity. And no doubt all of the above is related to this.


ROCKETMAN

 

So you will know when they lower rates that it was a serious economic mistake

From America, a conclusion which applies here with even more force than there since rates in the US have been rising: Trump’s Keynesian Monetary Policy.

The New York Times reported today on Trump’s advocacy of easy-money Keynesianism.

President Trump on Friday called on the Federal Reserve to cut interest rates and take additional steps to stimulate economic growth… On Friday, he escalated his previous critiques of the Fed by pressing for it to resume the type of stimulus campaign it undertook after the recession to jump-start economic growth. That program, known as quantitative easing, resulted in the Fed buying more than $4 trillion worth of Treasury bonds and mortgage-backed securities as a way to increase the supply of money in the financial system.

criticized these policies under Obama, over and over and over again….

Regardless of whether a politician is a Republican or a Democrat, I don’t like Keynesian fiscal policy and I don’t like Keynesian monetary policy.

Simply stated, the Keynesians are all about artificially boosting consumption, but sustainable growth is only possible with policies that boost production.

Why raising rates is good for production is to modern ears a complete conundrum. Think of this from The ABC:

The RBA concedes it is puzzled by the “tension” between strong jobs growth and a weak economy.

If the jobs data is right, then everything is OK and unemployment will fall, wages will rise and it will be high-fives back in the RBA’s Martin Place redoubt.

If GDP data is right and things are slowing — remember GDP grew at an annualised pace of just 1 per cent in the second half of last year — then a cut is order.

Absolutely incomprehensible to a modern economist is the absence of any relationship between the rate of growth and unemployment. Just as incomprehensible is the possibility that lowering interest rates from the low rates they are presently at might actually do harm and do no good whatsoever at all.

The great mystery is why they are so clueless

If you are wondering why you should never go to a mainstream economist to solve our economic problems, you should read through this: A Rare Prize for an Economist Looking at the Big Picture. That is, he has won the John Bates Prize awarded to economists under 40. “New” Keynesian Economics is not actually new; more like the far-left wing of modern macro.

Nakamura is one of the leaders in the field of New Keynesian economics. This school of thought, which has become the dominant paradigm at central banks around the world, holds that recessions happen because companies are unable to adjust their prices in response to events like a financial crisis or a big rise in interest rates. Without the ability to adjust prices, the theory goes, companies cut their output and lay off workers instead. In a 2008 paper with frequent co-author and husband Jon Steinsson, Nakamura showed that even very small amounts of this so-called price stickiness can generate large recessions, and make the economy very sensitive to changes in monetary policy.

“Not able to adjust their prices”? Surely they can put their prices down. Who would stop them? Surely they could raise their prices as well if they saw fit. But the problem is that at the prevailing prices and other prices as well, these firms cannot make a profit. As noted in the article:

Exactly why companies can’t adjust prices, however, remains something of a mystery. Nakamura’s research has helped to shed light on this question. Another 2008 paper with Steinsson helped to establish that price stickiness probably results from multiple factors.

The other word for it being a “mystery” is that they are “clueless”. I wonder if there are any lessons to be learned from the United States.

ENVY OF THE WORLD
UNEMPLOYMENT 49-YEAR LOW
WAGE HITS $27.77/HOUR
STOCK MARKET ENDLESS RALLY
TRUMP APPROVAL 50%

And speaking about clueless, think about the other 50% of Americans who do not approve of Donald Trump.

[My thanks to Nathan for sending me the news of the JB Clark medal.]

A thief walks into a store

Here is a question from Quora I have slightly changed which I leave for you to work out for yourself:

A thief walks into a store and steals $350. The thief then buys $350 worth of goods at the store. In the end, did the store lose any money and if so, how much?

To help you along, let me add in this quote from John Stuart Mill’s 1844 Essay, “Of the Influence of Production on Consumption”.

“The man who steals money out of a shop, provided he expends it all again at the same shop, is a benefactor to the tradesman whom he robs, and that the same operation, repeated sufficiently often, would make the tradesman’s fortune.”

I need hardly add that Mill thought he was being fantastically ironic. But there is then this, the third iteration.

A government who taxes you to the hilt but then spends the money it took from you on whatever the government chooses to buy, provides a benefit to you and everyone else since it adds to the level of demand and therefore helps maintain full employment.

This is modern economic theory and practice to the back teeth. In looking at this third iteration, bear in mind the money spent on all of the various unproductive forms of stimulus spending that occurred following the GFC.

[My thanks to Tony for bringing this Quora question to my attention.]

Where the cure is not only worse than the disease it is the disease

Front page story in The Oz today: Shorten unveils tax and spend ‘cure’.

Bill Shorten will claim the most significant reforms to Medicare since it was created by Bob Hawke in 1984, with a $2.3 billion expansion of bulk billing to cut out-of-pocket expenses and provide free services for cancer patients.

Outlining a big-spending ­agenda, the Opposition Leader also promised to restore $1bn in TAFE funding to meet critical skills shortages while revealing he would match the Coalition’s tax cuts for 10 million people and ­provide bigger tax refunds for a further 3.6 million workers earning less than $48,000 a year.

The government seized on Mr Shorten’s budget reply speech last night, claiming Labor could not be trusted to deliver on its promise because of a record of financial and economic mismanagement.

Whatever Labor promises, they will do, and then some. They will steal from everyone to the maximum extent, and then wonder why real wages and household incomes are falling. This is what I wrote back in 2009 about Kevin Rudd, as he launched Labor’s last venture in tax and spend.

It is quite astonishing to come across the economic and political philosophy of a prime minister and find that a self-described economic conservative turns out to be anything but. After years of seeing the phenomenal success of market-based economies in comparison with all other varieties of economic organisation, and having watched the fall of the Berlin Wall not all that long ago, there is a frightening recognition that amongst some people, nothing much at all has been learned. The same ideas that have populated and driven the Left for the past two hundred years just seem to come out of the woodwork at the first sign of an economy in trouble.

It was a long article from Quadrant – where the photo above is from. It should be a reminder of the mentality that lies behind whatever the ALP might like to pretend on the surface.

Near on forgotten as well are the Costello years of budget surpluses and ZERO debt. Labor thereafter drove us into our present predicament since they have never understood how an economy works, only how to squeeze whatever they can from out of the productive to finance idiocies like school halls, pink batts and the NBN.

ECONOMIC INCOHERENCE ALERT: There I was, minding my own business, quietly eating my lunch while reading the paper, when what should I come upon was this: Negative bond yields revive fears of secular stagnation. From The Financial Times in London reprinted by our own AFR.

All of the world’s largest economies now face problems with slower growth. The lesson of post-crisis economic management is that only large-scale fiscal stimulus will provide an effective remedy.

It is astonishing how economically ignorant our present generation is. Having watched the stimulus provided around the world after the GFC create only additional harm, these morons continue to plough the same furrow since they know nothing else, and cannot learn from what is right before their eyes.