Black Swans and Ron Paul

 

I am in complete agreement with Taleb here. Ron Paul is the only one talking economic sense in the entire Presidential race. I give Newt some slack because he is the only one that has actually done the seemingly impossible, balanced a Federal Budget. But we don’t need a balanced budget, we need a reduced budget. We don’t need to control the growth of Government, we need to reduce Government. All this Bullshit about contraception is lipstick on a pig. It’s obfuscation to the real and only problem we are facing, fiscal meltdown.

My quibble is not with Taleb, but with this idea that the economic morass is a Black Swan. Black Swans are unpredictable. The mess we are in was/is very predictable.

Romney is a Keynesian

I posted this on a Legal Insurrection thread but thought I’d post it here as well.

Newt can’t say it but everyone else should be saying it. Romney is not a Reagan Republican, he is a Bush Republican. Romney is a progressive, he like all progressives believe that Govt (if run by the right people aka himself) will bring a better society. His tell is when he talks about Regulations. He talks about “smart regulations” like all progressives do. Romney says that the free market needs regulations, which show how good a Keynesian he really is just like Bush.

Govt doesn’t create jobs. It can only give the right environment so that markets can create jobs. I’ve heard Newt talk about that, I’ve never heard Romney say anything like that. Romneynomics = Bushonomics = Obamanomics = Keynesian clap trap that caused this whole mess…the idea that our betters are the ones that should make the decisions. Newt at least is taking the good parts of Paul (Fed, economics (Reagan was an Austrian)) and leaving the bad parts of Paul. Romney would never touch the Fed.

I’m posting this on my Xoom so Ill add some links and videos to add some evidence for me claims later.

Politicians will always try to have it both ways.

“If we recklessly cut taxes for the wealthiest 2 percent, then Obamanomics will look an awful lot like Reaganomics,” Jackson said in a statement.

Jesse Jackson Jr. (D-Ill.) said this to appease his base. That should be obvious. So what happens when the tax extension starts to produce some growth, unsustainable but still some growth. Well he’ll just say it was because all that reckless spending of course, the good Keynesian answer.

This is the problem with economics in general. There is no controlled experiment. The Keynesian approach has been tried and failed to produce any significant results. The CBO’s most recent report says:

• They raised real (inflation-adjusted) gross domestic product by between 1.4 percent and 4.1 percent,
• Lowered the unemployment rate by between 0.8 percentage points and 2.0 percentage points,
• Increased the number of people employed by between 1.4 million and 3.6 million, and
• Increased the number of full-time-equivalent (FTE) jobs by 2.0 million to 5.2 million compared with what would have occurred otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers)

No doubt the Keynesians will say told ya so….of course they won’t read the rest of the post that tells the limitations.

Those reports, however, do not provide a comprehensive estimate of the law’s impact on U.S. employment, which could be higher or lower than the number of FTE jobs reported, for several reasons (in addition to any issues concerning the quality of the reports’ data):

• Some of the jobs included in the reports might have existed even without the stimulus package, with employees working on the same activities or other activities.
• The reports cover employers that received ARRA funding directly and those employers’ immediate subcontractors (the so-called primary and secondary recipients of ARRA funding) but not lower-level subcontractors.
• The reports do not attempt to measure the number of jobs that were created or retained indirectly as a result of recipients’ increased income, and the increased income of their employees, which could boost demand for other products and services as they spent their paychecks.
• The recipients’ reports cover only certain ARRA appropriations, which encompass about one-fifth of the total either spent by the government or conveyed through tax reductions in ARRA; the reports do not measure the effects of other provisions of the stimulus package, such as tax cuts and transfer payments (including unemployment insurance payments) to individual people.

Consequently, estimating the law’s overall effects on employment requires a more comprehensive analysis than the recipients’ reports provide.

Hmmm I wonder if they are using the same models that failed to keep unemployment under 9% with the Stimulus. You know the reason for the Stimulus in the first place?

So now, Obama is going to cave into a non-sustainable tax extension that will produce some growth. Companies will at least know what their tax rates for the next two years and they will plan accordingly. Showing that Higgs’ Regime Uncertainty has some merit. If the economy grows it will be because of investment not consumption.

All that won’t matter to politicians like Jackson Jr. They will pick and choose what ever explanation fits better to their a priori ideals. They want the stimulus to work, it gives them a reason to spend money on things that no sane person would spend money on like Trains to Nowhere. It gives them reason to give out pork to the people who fund their campaigns. Both parties do it, Jackson Jr.  and Bush both really want/wanted stimulus to work.

The reason politicians can get away with all these shenanigans is because economists will never be able to prove one theory over the other. The economy is far too complex for even the most sophisticated mathematical model. With modern economist obsession with math, which I don’t see changing anytime soon. The state of modern economics is much the same as the state of politics, they’ll all just pick and choose which explanation fits their priors better. A Liberal economist will choose the Keynesian answer, because it fits their ideology better. A Conservative will pick a supply-side or monetarist answer and hopefully Independents will pick more of an Austrian answer.

It will be interesting to see that when grow and unemployment start to pick up, as companies start to invest again, what stories differing ideological camps choose to tell.

Obama’s Tax Deal

Democrats are in revolt over Obama cutting a deal on the Bush Tax Cuts.

First let’s head off the notion of that Bush’s Tax Cuts were stimulative. They weren’t. In order for tax cuts to be stimulative, they have to be permanent, which Bush never intended. The Tax cuts were designed to make it look like Bush and Congress were doing something, while in reality, they were just kicking the can to the next poor bastard in office, Obama in this case. The can in this case being the Deficit and long-term tax policy.

There are really two kinds of people, when it comes to taxes. Type I: Those that pay attention to their income and tax rates and try to maximize income and minimize taxes. These people care about deductions, employ accountants and financial advisers, etc. These people typically employ the use of trusts to by-pass the death tax. These people watch the Market and regularly change their asset allocations on their 401k or personal IRAs. From my experience these are mainly independents and Republicans, with some of the Ultra Wealthy Democrats thrown in (Kennedys, Kerry, etc)

Then there are those that don’t think about taxes until April, Type II. They only think about getting that refund check, and care little about taxes in general. They typically don’t save. If they do have a 401k, I doubt that they thought much about it since they initially started it. Since they don’t save, they rarely have much to leave their kids. These are by large Democrats or good little Keynesians that continuously consume and rarely save.

Bush’s tax cuts were mainly stimulative for the latter category. Since they don’t pay much attention to taxes or government spending in general, they see a short-term lowering of taxes as an excuse to spend that extra money on frivolous stuff. That leads to a greater GDP via consumption but it’s not a sustainable growth. Much like the Housing Bubble, it must come to an end, hence the sunset provision in the Bush Tax deal.

When taxes do go back to their previous rates, Type IIs, don’t have that extra cash to spend, but no doubt they still have some extra debt that they might not have had if the tax “cuts” hadn’t been implemented. Why? Because for the last 8 years they have been thinking the tax cuts were, for their purposes, permanent. They didn’t account for the long-term, because they never do. So TVs, cars, other durable goods, going out to eat, movie theaters, etc will all suffer from the lack of type II consumer spending. That is what the real danger of not extending the tax cuts. It will cause a double dip, but the negative growth will be relatively small, I think.

Type I’s knew about all this. They knew that the tax rates were going to go back up. They pulled back investment and spending 2 years ago, after the financial shock of 2008. It makes perfect sense if you think about it. The banks over extend themselves. You as a big company, see this and then see the massive amount of government intervention that goes along with it. You see the new regulations coming down the pipeline and start to wonder what’s going to happen. In short you pull back on investment, the real cause of this recession and do a wait and see approach. As Bush’s tax “cuts” sunset date comes closer, you might do a little early bird spending, to take advantage of the cheaper tax rates, giving the illusion of growth, ala Cash for Clunkers. Overall your hesitant. You don’t know what the Government is going to do, especially with Obama waffling on everything the last year.

This lays out a second case for extending the tax cuts. To give some certainty to companies again. It’s not just big multinationals that are hesitant, but also smaller companies as well.

This post is already too long for my liking but to end I just want to point out that, only through investment can we get sustained economic growth. Long term performance is based on saving not spending. We see the devastation in our economy based on the insane notion that spending is what makes an economy grow. It’s a myth that all Keynesian, including Bush (Yes, we was a Keynesian) employ.

The only way for tax cuts to cause a sustainable growth is if they are permanent, making Type II’s assumptions correct. It also makes Type Is continue their investment, instead of opting for a wait and see approach as sunset provisions start to come into effect. In short Keynesian’s get it all wrong, and Austrians don’t get enough credit.

The Left wants to emulate Europe except….

Except when it comes to monetary policies.

Why is it that, now when Europe wises up and reject Obama’s call for more monetary stimulus, does the left reject our European cousins. The latest G-20 was a disaster for Obama and the failed Keynesian policies of the past. Bush was a Keynesian, so why are we repeating those same failed policies? Oh hope and change, why do you always evade us.

I’m sure the answer lies somewhere that most of the Left like to think they are the smart ones. They constantly appeal to the experts but fail to realize when the expert is wrong or lying. How else can anyone justify continuing to read a Krugman article? The Left learned Keynesianism in school and that’s all they know. Since they won’t admit to being wrong, they bitterly cling to the Keynesian economics they learned from the “experts” in school. For a group of people, who by large, say they are for science, that is about as unscientific a methodology as you can get. Of course, it’s not science but scientism. It’s faith based science, where they take it as an article of faith that their experts, not any differing opinion’s experts, are always and forever right. That we know all that there is and nothing, no new set of evidence can “refudiate” it.

 

You ever wonder why the Left always gets their economic policies wrong?

Here’s a short clip that may hold the answer. Enjoy!

Got to love the British, “Will someone please shut Krugman up!”

It’s nice to see that even across the pond people realize that Krugman doesn’t know what he is talking about.

Sorry, a bit late on this one, but I see old Kruggers, Nobel prize winner and New York Times columnist, is at it again. Not content to lecture his own country’s administration about how they are not spending enough, Professor Krugman lambasts Britain’s coalition government in his latest column for its deficit reduction plan, which he reckons will condemn the UK to a depression.

Here’s a taste: “What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it”.

Good stuff, and who knows? Maybe he’s right. Yet the idea that you can more or less indefinitely keep putting off deficit reduction until the economy is firing on all cylinders again just looks like an excuse to me for continuing to spend at unaffordable levels. He accuses the Tories of being “ideological” in their single minded pursuit of deficit reduction, and of using the crisis to dismantle the welfare state, yet he conveniently skirts around the underlying issue, which is in essence that the country can no longer afford this expenditure.

This is the problem with the welfare state, it can’t afford itself. Hell even the Swedish figured that out.(This is from a far leftist writer)

There is virtually no opposition to this dismantling of the Swedish welfare state in the mainstream Swedish political system. One party in Sweden – The Left Party – has in the past rejected at least some of this path that Sweden is taking. But the Social Democrats have refused to even consider entering into a deal with them unless they water down their principles and accept that Sweden “has to” carry out even more more major public spending cuts – which the Left Party have more or less agreed to. Social Democrat leader Mona Sahlin calls this “responsible economics”. What she means however, is that perpetual large cuts to public spending are responsible to the needs of capital and big business in Sweden, not to the social and economic needs of Swedish people.

Now back to the Brits.

Professor Krugman suggests that Britain has nothing to fear from excessive public debt, which is still as things stand below its long run historical average. He’s technically right about this, but like a lot of statistics used to support a particular, ideological position, it’s completely meaningless. Looking at the path of UK public debt as a percentage of GDP, there have indeed been quite long periods when it has been much higher than it is now, but these periods mainly coincided with prolonged and all embracing war – first the Napoleonic wars, then later the Boer war and the first world war. Britain had barely recovered from the financial consequences of the first world war by the time the second world war hit.

The big point missed by those who think elevated public debt doesn’t matter is that these periods of excessive debt utterly crippled the UK economy. Indeed, Britain’s decline through the twentieth century as an economic superpower directly correlates with increased indebtedness. Fighting wars is not good for economic health

What’s the world comming to, Sweden no longer the liberal paradice?

Sweden has long been the example many Leftists have used to “prove” that their policy proposals will work. Never mind a large Government sector that feeds itself off of “Evil” Oil. Or a population make up that is one of the most uniform in any nation in the world. Those can’t possible have any effect, or at least that’s how the Leftists used to say.

I say used to because that’s all changing now. The global economic crisis messed up those Swedes more than it did anyone in the US. They did something that most Keynesian economists would call irrational. They elected a Center-Right coalition government. For not one, but now two terms.

Sweden’s ruling center-right coalition won re-election Sunday, marking a historic moment as a non-socialist government was elected to a second term for the first time in the country’s political history.

The ruling conservative coalition, which came into power in 2006, imposed a string of austerity measures and managed to turn Sweden’s economy into one of the strongest in Europe, with an expected growth of 4.5 percent this year. The crisis management appears to have impacted many voters.

“I think the economy is the key issue,” said one man at a Stockholm polling station. “I think Sweden has done very well for the last few years during the global financial crisis, and I hope the government will stay on.”

Growth in the absence of Government spending? This kind of news makes Liberals and Keynesians heads spin. They can’t handle it. No doubt you won’t be hearing about Sweden anytime soon.

This is why I love Google!

Have I said how much I love Google lately? This picture shows why.

Krugman meet Hazlitt

Economics in One Lesson is a book by Henry Hazlitt, a self-educated libertarian economist.

Hazlitt wrote for a who’s who of American journals and newspapers; The Wall Street Journal, Newsweek (back before they turned into a Democratic Party propaganda machine), and Krugman’s own The New York Times. Ah if only Hazlitt were writing for the Gray Lady now, instead of Krugman!

The best part about an ad for Hazlitt’s Economics in One Lesson (EiOL) on Krugman’s NYT article is that EiOL is a hallmark of Austrian Economics. It’s pretty much required reading for anyone interested in Austrian economics. By the way you can get EiOL for free as pdf here.

Another irony is that Hazlitt wrote a line by line refutation of Keynes’ General Theory, titled The Failure of the New Economics. (Link is to a free pdf version.) As we know Keynes is the Krugman as Bacon is to the perfect cheeseburger, inseparable! John Chamberlain, editor of the Freeman, notes:

Mr. Hazlitt takes up the General Theory line by line and paragraph by paragraph, discovering scores of errors on almost every page. Not only does he kill Keynes; he cuts the corpse up into little pieces and stamps each little piece into the earth. The performance is awe-inspiring, masterly, irrefutable — and a little grisly. At times one almost feels sorry for the victim. But, since Keynesian doctrines have created so much misery in the world, any sympathy is misplaced. Hazlitt’s job had to be done.

Who at Google did this? Maybe the Machines are conscious and have a sense of humor. I don’t know.

At least this goes to show everyone that I do read Krugman. I feel dirty afterward but I still keep an open mind and I’m willing to read from those, whose views I fundamentally disagree. How often do you think Liberals do the same?

Can Stimulus even work?

Russ Roberts of George Mason University and Econtalk, one of my favorite economists weighs in on the issue his a post at Cafe Hayek.

It starts off with a thought experiment.

Let’s imagine four different scenarios.

1. Everyone in America wakes up to find they have an extra $1000 in cash in their wallet. (This money is printed by the Fed and elves put it in everyone’s wallet without anyone seeing them).

2. The government doubles the amount unemployed people receive. (The extra payments are created by printing money).

3. The government hires a bunch of workers to dig ditches and fill them back in. (The money to pay the workers and to buy the shovels comes from printing money.)

4. The government builds a bunch of bridges that are really useful. The money to pay for the cement and the workers comes from printing money.)

So what do you think will happen?

To the Keynesian, it’s all stimulus. If you think all that money will be spent immediately, then your probably a Keynesian and probably haven’t been reading the latest news on consumer sentiment. Remember extra government money is only stimulus if it is circulated in the economy. So if people don’t spend the extra cash, there isn’t any stimulating effects, there is no multiplier and all your doing is putting upward pressure on prices.

So ask your self what would you do in those four situations.

1. I’d pay off a bill. This would do nothing to stimulate anything but a bank balance sheet. The money stop at the bank, they aren’t making that many loans and the Fed is paying interest on reserves. This is why Bush’s rebates didn’t work as a stimulus, those darn people just didn’t go blow it like the government told them too.

2. If I was unemployed, then I’d spend it frugally. I wouldn’t be buying a house, so those construction workers that are out of work, won’t be getting any of my cash. I’d be buying at Walmart, where the prices are cheaper and I could stretch my dollar, not at the local farmers market where prices are a lot higher (at least here in Little Rock that’s very true). And guess what, that’s exactly what’s happening, have you seen Walmart’s profits lately?

3. Ha ha, uh no….who ever thinks that digging holes and filling them back in is a good idea, needs to read up on the Dark Ages.

4. Japan tried that, it failed there too. One of the biggest problems with this line of reasoning, is that it relies on a labor market that is perfectly able to shift specialization. I’m a chemist, I don’t build bridges. The amount of money wasted on training is enormous. It comes down to this, is that bridge worth the price tag. It just like buying a car. A car is useful. An Audi is a nice car, but everyone has to ask themselves if the price tag is worth the car. If not, the go buy something else, more affordable. Affordability never enters into the Government equation. They don’t have to earn the money they spend, they take it by force.

I encourage you to read the rest of Russ’ post. It’s very very good. Read the comments too. Viking Vista makes some awesome comments and expands on a lot of what Russ and I have to say on this subject.