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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Tuesday, April 26, 2011

The greatness of the presidency of the Obamessiah....

I have to say that one definitely has to look at the Presidency of the Obamessiah as some kind of watershed event. His election, not so much popularly historic since it marks the first time (we think... Warren Harding?) that a mixed race non-white man has been elected as the nation's President but more importantly in that massive government economic economic intervention programs failed miserably in achieving what they were designed and sold to the public as to what they will do.

Let's have a look at the various massive and wasteful government fiscal and monetary stimulus programs that have failed:
1. Fiscal stimulus: We have had 2 different programs over the past few years....
a. The Economic Stimulus Act of 2008 (enacted February 13, 2008) The total cost of this bill was projected at $152 billion for 2008. This gave funds in the form of government checks directly to people (excluding the 'rich' since it was means tested) with the express intent on bolstering economic growth. It obviously did not work.

b. The American Recovery and Reinvestment Act of 2009 (enacted by the 111th United States Congress in February 2009). The measures are nominally worth $787 billion, much larger than the previous one since it was argued that previous one was too small. It was designed to funnel government funds into the various hands of people that would spend, invest or preserve current jobs and this was to have the effect of employing more people. It was a complete and total failure. I think it would be difficult to argue that it had any impact at all.
2. Monetary stimulus: Massive pumping in of monetary stimulus through the creation of high powered banking reserves known as Quantitative Easing or QE1 and QE2 in television journalism vernacular. The stated goal was to pump cash into the economy (largely since fiscal policy rarely works since fiscal policy only redirects spending and investment) where excess funds are shoved into the banking system and banks will be forced to lend these funds into the economy. From a functional perspective, the central bank buys government securities from the market an this cash fins its way into the banking system. See, as we have discussed before, fiscal spending only shifts spending around, monetary policy monetizes debt and actually creates new money that is then dropped directly into the economic engine.


However, what has happened is that some of this excess money is being sold for foreign currencies and people are investing overseas since they are relatively more attractive. As a result of this shift, we can observe that the US dollar has declined and that prices of goods, particularity imported ones such as fuel, have risen dramatically in price inside of the US. The central bank is only shifting the tax burden from tax payers to consumers through higher prices. If monetary policy prescriptions such as this were an intelligent approach to solving a nation's problems, then Zimbabwe, that embarked on this path recently an whose currency went to trillions to the currency got canceled (no one accepts the currency anywhere including in Zimbabwe), would be an economic powerhouse.

Both of these programs were complete and total failures in their objectives.

So, can one argue, with a straight face, that fiscal spending and profligate monetary policy works? Is there a difference between reckless, somewhat reckless and perfectly targeted central government intervention? I argue no. Government intervention in the theater of economics rarely works and I argue that many times, that this intervention actually has a negative impact.

Considering this, the simple thought comes to mind is can the government actually deploy resources that are more effective than the market place can particularly in very short-term time frames. If one argues that fiscal stimulus is a policy that is designed just to increase confidence, a fairly weak premise, why doesn't the government say that they will intervene and then actually never do so? Get the positive benfits without ever doing the wasteful spending part of the transaction.

Does fiscal stimulus actually work or is it a feckless government trying to prove their economic worth? I think that the government actually uses fiscal stimulus measures as false proof of their economic relevance. Generally, economies turn around on their own. Economies adjust to changes and this takes some time. And considering that if an economy naturally turns around, then the government does intervene, and no matter how useless the intervention, they can claim that their 'stimulus' was the driving force behind this economic improvement. Nice trick.

But lets look at what this guy says and how truly idiotic this whole stimulus stuff is......
Most of my arguments come from simply asking where the money is going to come from, simple arithmetic. Why are so many economists said to support fiscal stimulus? Am I some sort of radical? No. In fact economics, as written in professional journals, taught to graduate students and summarized in their textbooks, abandoned fiscal stimulus long ago.
So, most economists argue that fiscal stimulus doesn't work but still support it? Huh? Is this science or some kind of religious faith? Religious faith in government intervention? Idiotic.

He goes on further to describe the fallacies behind feckless government intervention. And it truly amazes me to read this material....
the net effect of fiscal stimulus is exactly zero, except to raise future tax distortions. The classic arguments for fiscal stimulus presume that the government can systematically fool people
No one can be less surprised by this statement than me. Government's job is to "fool people." So, should the government be in business in trying to assist the economy at all? Fiscal stimulus as he argues is based on the following fallacies..........
Most fiscal stimulus arguments are based on fallacies, because they ignore three basic facts.

First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both1 . This form of “crowding out” is just accounting, and doesn't rest on any perceptions or behavioral assumptions.

Second, investment is “spending” every bit as much as is consumption. Keynesian fiscal stimulus advocates want money spent on consumption, not saved. They evaluate past stimulus programs by whether people who got stimulus money spent it on consumption goods rather than save it. But the economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift.

Third, people must ignore the fact that the government will raise future taxes to pay back the debt. If you know your taxes will go up in the future, the right thing to do with a stimulus check is to buy government bonds so you can pay those higher taxes. Now the net effect of fiscal stimulus is exactly zero, except to raise future tax distortions. The classic arguments for fiscal stimulus presume that the government can systematically fool people.
Good luck USA. As long as you look to government to solve your economic problems, you will be disappointed. So, this is why i like the Obamessiah who has taken extraordinary economic intervention measures that have failed miserably. Maybe now, people in the US will realize that socialism even an American socialism just will not work. It won't work in China either.

http://faculty.chicagobooth.edu/john.cochrane/research/papers/fiscal2.htm

1 Comments:

At 11:28 AM, Anonymous Anonymous said...

It was this too big to fail nonsense that people were led to believe. That money was just plain stolen and given to cronies.
There is enough capacity in the world to purchase these things and turn them around. But that's not what happened. What happened was a money grab and it used US taxpayers not even born yet as security. They will be born to repay a scam
And it continues.

 

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