Wednesday, November 21, 2012
A simple economic truth that's staring Americans in the face
Obama has printed greenbacks by the truckload yet prices in the supermarkets have mostly not risen much. That's not supposed to happen. More money chasing the same amount of goods and services is supposed to devalue the money and send prices rocketing. So what gives? That's a puzzle many economists have addressed. Lags in the system can by now be fairly convincingly dismissed so there is only one possible explanation. People are saving (mainly by paying off debt) at roughly the same rate as Obama is printing money.
So what's going on is not only driven by Keynesian thinking but it is actually working in a Keynsian sort of a way. Public demand is replacing private demand. So as long as Americans lack confidence in the future, Obama can keep printing money and thus seize huge amounts of private output for spending by the government. And it's hard to see him doing anything to boost confidence in the next 4 years. So there is no need for him to cut government spending.
But countries need investment spending to remain prosperous and it is precisely investment spending that is not happening. People are mostly not building new homes and businesses are mostly not building new factories, to put it at its simplest. A large part of the workforce which normally provides investment goods (builders etc) is either not working or has been sucked into unproductive government employment.
But without investment spending the country will not only fail to grow but will even go backwards. Maintenance is a major form of investment spending and without maintenance assets will deteriorate and everyone will be poorer for it.
But, whatever the detail, the crash in private investment is causing a crash in jobs and more and more people are becoming welfare-dependent. America is becoming steadily poorer. And Obama's job numbers are the sort of thing that the guy had in mind who wrote the book "How to lie with statistics". Even many Mexicans are going home for lack of work. As a percentage of the population, the number of people working has not been so low since the Depression.
Is there a way out? Hopefully. Countries can continue to get poorer for many years -- as Britain has. And the solid bloc of minorities that elected Obama may continue to elect equally destructive Democrats for many years to come. But I am guessing here that Americans have got more spunk than that. If the next Democrat presidential candidate is white, even some blacks may get tired of no jobs and vote GOP.
And just the election of a GOP president would probably inspire confidence in the people who make investment decisions. And if he immediately rolled back the previous 8 years of EPA regulations, America would be on a roll. The demand for investment goods and services would roar ahead and all that newly released investment money chasing a fairly fixed supply of goods and services will bid up prices sharply. Everything will cost a lot more and a greenback will buy a lot less. Roaring inflation will have arrived.
A drastic cut in government spending at the same time could in theory prevent much of the inflation but that ain't gonna happen.
So people's savings will be virtually wiped out, which will be keenly felt by many, particularly older Americans who will see a life's hard work and savings go down the drain.
So what should Americans do right now? Roughly the opposite of what they are now mostly doing: Stop saving and stop paying off debt. Maybe even borrow money to buy another house for letting out. Money in the bank won't do you much good in the future but owning real assets will. But don't buy gold. The price of gold is inflated at the moment by uncertainty. Once confidence returns, the demand for gold will drop.
And I know what I am talking about. I have "been there and done that". In the early '70s I bought some condos using mainly borrowed money. Then along came a Leftist government, led by the economically illiterate E.G. Whilam, that went on a spending spree and inflated the currency to do it. So when my loans came up for renewal, the prices of real estate had roughly doubled and by selling one condo I could pay off my debts on all the rest. I thus owe my present economically comfortable circumstances to Leftist folly. You too can do that.
Shares in blue chip companies are another possibility but are risky unless you know what you are doing.
The destruction of savings will of course create great outrage and who will get the blame for that? Unless they have great PR, it will be the next GOP administration. They will be blamed for excesses created by Obama. The GOP administration might even try price-controls to save its skin. Nixon did. But that will just create more chaos.
So a return to Donk destruction can also be foreseen, sadly for America. The long-term future for America is not bright now that a huge slice of the electorate is as thick as a brick. Restricting voting to those who pay income taxes would help but is most unlikely to happen.
Regime Uncertainty: Some Clarifications
by Robert Higgs
Private investment is the most important driver of economic progress. Entrepreneurs need new structures, equipment, and software to produce new products, to produce existing products at lower cost, and to make use of new technology that requires embodiment in machinery, plant layouts, and other aspects of the existing capital stock. When the rate of private investment declines, the rate of growth of real income per capita slackens, and if private investment drops quickly and substantially, a recession or depression occurs.
Such recession or depression is likely to persist until private investment makes a fairly full recovery. In US history, such recovery usually has occurred within a year or two after the trough. Only twice in the past century has a fairly prompt and full recovery of private investment failed to occur — during the Great Depression and during the past five years.
In analyzing data on investment, we must distinguish gross and net investment: the former includes all spending for new structures, equipment, software, and inventory, including the large part aimed at compensating for the wear, tear, and obsolescence of the existing capital stock; the latter includes the gross expenditure in excess of that required simply to maintain the existing stock. Therefore, net investment is the best measure of the private investment expenditure that contributes to economic growth.
As the figure shows, net private domestic fixed investment (a measure that excludes investment in inventories) reached a peak in 2006–2007, declined somewhat in 2008, then plunged in 2009 before reaching a trough in 2010. Although it recovered slightly in 2011, it remained 20 percent below the previous peak, and the pace of its recovery to date implies that another three or four years will be required merely to bring it back to where it was in 2007. With adjustments for changes in the price level, the projected recovery period would be slightly longer. (Using the price index for gross private domestic investment to obtain real values, we find that real net private domestic fixed investment is now at approximately the same level it had attained in the late 1990s.) To understand why the current overall economic recovery has been so anemic, we must understand why net private investment has not recovered more quickly.
In a 1997 article in the Independent Review ("Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed After the War") I argued that a major reason for the incomplete recovery of private investment during the latter half of the 1930s was "regime uncertainty." By this, I mean a pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights. In the original article and in many follow-up articles, I documented that between 1935 and 1940, many investors feared that the government might transform the very nature of the existing economic order, replacing the primarily market-oriented economy with fascism, socialism, or some other government-controlled arrangement in which private-property rights would be greatly curtailed, if they survived at all. Given such fears, many investors regarded new investment projects as too risky to justify their current costs.
During the past several years, I have argued that a similar, if somewhat less extreme fear now pervades the business community, which explains at least in part the sluggish pace of the current economic recovery. Other exponents of this view include such prominent economists as Gary Becker, Allan Meltzer, John Taylor, and Alan Greenspan. (Until recently, Austrian economists were more receptive than mainstream economists to the idea of regime uncertainty; see, for example, the recent Mises Daily by John P. Cochran.) In addition, economists Scott Baker and Nicholas Bloom at Stanford and Steven J. Davis at the University of Chicago have devised an empirical index of policy uncertainty that has remained at extraordinarily high levels since September 2008. However, what most other economists — and all of those in the professional mainstream — have noted is not exactly the same as what I call regime uncertainty, but rather a related, somewhat narrower phenomenon.
Over the years, some economists have urged me to forsake the term "regime uncertainty" and to use instead an expression such as policy uncertainty, rule uncertainty, or regime worsening. I have rejected these suggestions because the idea I seek to convey encompasses more than simply policies or rules. Moreover, regime uncertainly does not necessarily signify only apprehension about potential worsening as a central tendency.
Regime uncertainty pertains to more than the government's laws, regulations, and administrative decisions. For one thing, as the saying goes, "personnel is policy." Two administrations may administer or enforce identical statutes and regulations quite differently. A business-hostile administration such as Franklin D. Roosevelt's or Barack Obama's will provoke more apprehension among investors than a business-friendlier administration such as Dwight D. Eisenhower's or Ronald Reagan's, even if the underlying "rules of the game" are identical on paper. Similar differences between judiciaries create uncertainties about how the courts will rule on contested laws and government actions.
For another thing, seemingly neutral changes in policies or personnel may have major implications for specific types of investment. Even when government changes the rules in a way that seemingly strengthens private-property rights overall, the action's specific form may jeopardize particular types of investment, and apprehension about such a threat may paralyze investors in these areas. Moreover, it may also give pause to investors in other areas, who fear that what the government has done to harm others today, it may do to them tomorrow. In sum, heightened uncertainty in general — a perceived increase in the potential variance of all sorts of relevant government action — may deter investment even if the mean value of expectations shifts toward more secure private-property rights.
Regime uncertainly is a complex matter. No empirical index can capture it fully; some indexes may actually misrepresent it. Only the actors on the scene can appraise it, and their appraisals are intrinsically subjective. However, by assessing a variety of direct and indirect evidence, analysts can better appreciate its contours, direction, and impact on private investment decisions.
Some alternative history
Big Labor killed the Twinkie
By Adam Bitely — The war on profit and success waged by Big Labor has claimed their latest victim: Hostess.
The snack food king announced on Friday that they would immediately cease all production operations at their bakeries and would lay off their more than 18,000 employees and liquidate their assets. Simply put, the company that sells us Ho-Hos, Ding-Dongs and Twinkies is no more.
Hostess had been battling the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union for the better part of the past year. After filing for bankruptcy in January of 2012, Hostess had sought to restructure their labor deal to make the company competitive in the snack food industry again. The labor union, arguing that it was protecting the workers, would not make the necessary concessions to keep the company afloat. Instead, the union, knowing that the company might go under completely, decided to gamble away the employees they purportedly represented.
The union went on strike in early November, severely hampering the production capabilities of Hostess. The strike was the final straw for Hostess ownership who decided that it was better to give up and go home than deal with the two front war that they were dealing with.
Now there is a possibility that those who went on strike and lost their jobs could find themselves receiving taxpayer funded unemployment benefits. After engaging in efforts to destroy their jobs, which they were warned by Hostess was a possibility when they decided to strike, the last thing these people deserve is any sort of compensation to tide them through the hardship created by their own efforts.
The demise of Hostess is just the latest shoe to fall in the war on the producers that is being waged by Big Labor. Convincing people to join their unions because of the supposed protections afforded them by membership, these organizations have instead shown a willingness to destroy the companies of the employees they represent. It is past time that the disastrous effects of labor unions are shown front and center to people around the country.
As Bill Wilson, President of Americans for Limited Government put it, “It is common for parasites to kill their hosts, but it rarely happens in a way where so many people can see it. This union did what many others have done outside of the spotlight, they have forced a company to go out of business directly due to their irresponsible actions.”
And what is most ironic in the downfall of the cupcake king is that Dick Trumka, head of the AFL-CIO which is one of the largest labor organizations in the country, blamed the Hostess closure on Mitt Romney saying, “What’s happening with Hostess Brands is a microcosm of what’s wrong with America, as Bain-style Wall Street vultures make themselves rich by making America poor. Crony capitalism and consistently poor management drove Hostess into the ground, but its workers are paying the price.”
So according to the prinicipal spokesman of Big Labor, companies exist as jobs programs and not to earn a profit for shareholders. But what happened on Friday is that over 18,000 new people were turned over to the Department of Labor for unemployment benefits — proving Trumka’s and Big Labor’s premise for existence is nothing more than a sham to shakedown America’s producers.
Ultimately, they have shown time and again that they don’t care what happens to the employees. They only care about themselves. They are fighting for themselves and against producers to get what the producers have.
Obamacare implementation craters under state objections
The national health care law jumped back into the headlines last week as a deadline for states to decide whether to establish individual state health care exchanges approached and then was extended by the Obama Administration to December 14.
The delay was requested by the Republican Governor’s Association whose members had posed questions of the Obama Administration about the law over the past few months that remained unanswered.
Over the past week, the list of states not participating in the system has grown to nineteen as the states of Wisconsin, Ohio and Nebraska chose to join sixteen others in rejecting the state health insurance exchange that is called for under the Obamacare law.
Governor Scott Walker of Wisconsin announced his choice in a letter to U.S. Health and Human Services Secretary Kathleen Sebelius on Friday writing, “No matter which option is chosen, Wisconsin taxpayers will not have meaningful control over the health care policies and services sold to Wisconsin residents.”
Walker’s letter continued by stating, “If the state option is chosen, however, Wisconsinites face risk from a federal mandate lacking long-term guaranteed funding.” ....
Currently, nineteen states are rejecting the state exchanges, sixteen states are enacting them, three are attempting a state/federal exchange hybrid, and twelve will decide before the new December 14 deadline.
The undecided states are: Arizona, Arkansas, Florida, Iowa, Idaho, Michigan, New Jersey, Oklahoma, Pennsylvania, Tennessee, Utah and West Virginia.
For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena . GUN WATCH is now put together by Dean Weingarten.
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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)
Posted by JR at 12:35 AM