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.
First the spin via MSNBC:
The U.S. economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to a near three-year low, offering a hopeful sign for hiring in the year ahead.
Employers added a net 243,000 jobs last month, the Labor Department reported Friday — that’s the most since April and far better than economists’ expectations for a gain of only 150,000.
January saw the most jobs added since and April and May 2010, when 277,000 and 458,000 jobs were created. But those months were skewed by massive hiring for the census. Before that, the last month with more job creation was March 2006.
The upbeat tenor of the January jobs report was further strengthened by revisions to November and December payrolls data, which showed 60,000 more jobs created than previously reported. In addition, hiring was widespread across many high-paying industries. And average hourly earnings rose four cents, which should help to support spending.
The continued labor market improvement could be a relief for President Barack Obama who faces a tough re-election campaign this year.
Speaking at an event in Arlington, Va., Friday, Obama welcomed the strong January jobs report. But, he added, there are “still far too many Americans who need a job.”
“The economy is growing stronger. The recovery is speeding up. And we have to do everything in our power to keep it going,” Obama said.
Now let’s look at the numbers via ZeroHedge:
A month ago, we joked when we said that for Obama to get the unemployment rate to negative by election time, all he has to do is to crush the labor force participation rate to about 55%. Looks like the good folks at the BLS heard us: it appears that the people not in the labor force exploded by an unprecedented record 1.2 million. No, that’s not a typo: 1.2 million people dropped out of the labor force in one month! So as the labor force increased from 153.9 million to 154.4 million, the non institutional population increased by 242.3 million meaning, those not in the labor force surged from 86.7 million to 87.9 million. Which means that the civilian labor force tumbled to a fresh 30 year low of 63.7% as the BLS is seriously planning on eliminating nearly half of the available labor pool from the unemployment calculation. As for the quality of jobs, as withholding taxes roll over Year over year, it can only mean that the US is replacing high paying FIRE jobs with low paying construction and manufacturing. So much for the improvement.
If you look at the first graph, you’ll see a huge uptick in the number of people not in the Labor Force. Remember how they calculate unemployment? Unemployment rate = Unemployed workers / Total labor force. It’s easy to see how a huge drop in the labor participation rate, which is the total labor force, can make the numbers look artificially good.
Expect more of this chicken-fuckery as the election cycles gears up. The media will portray the unemployment numbers as “unexpectedly better than forecasts” in an attempt to carry water for their Chosen One.
A lot of people have been talking about what will they do if Mitt Romney is nominated for the GOP Presidential Candidate. I’m not alone in thinking that the GOP establishment is desperately trying to prop up Mitt as their establishment candidate. The establishment GOP media is pushing Mitt and attacking Newt. They have their various reasons, mostly citing “electability,” for pushing Romney but that won’t help Mitt if he should become the nominee.
The level of negative attacks coming from Mitt Romney’s campaign is turning people off. How else can you explain almost a $10 million ad blitz from Team Mitt (with 80% being attack ads) and losing independents nationally (his Raison d’être)? Mitt seriously lacks any Tea Party support as well. The establishment has been openly hostile to the Tea Party, wanting the votes but not the criticism. Rubio is a perfect example, elected by the Tea Party only to shun the Tea Party (TP Caucus and SOPA?) and put himself in Mitt’s camp. Mitt probably think that since Liberals think Tea Partiers are all racists, he better stay away so as to not be guilty by association.
So what does that mean for the Libertarian party?
I would argue that many of the Tea Partiers are libertarian minded voters. I’d challenge anyone to find huge level of disagrement with Tea Party fiscal policy (since there is no central figure for the TP, Wiki is the best source) and CATO’s fiscal policy. Many Tea Partiers are endorsing Ron Paul, an Austrian economic style libertarian. There would be no room for a Paul in a Romney administration, every knows it. So where will all that support go? Dr. Paul has said he will not run as a third party candidate, I believe him.
I think a lot of people that cannot stomach the notion of voting for Romney will instead vote for the Libertarian party candidate, most likely Gov. Gary Johnson. I know a lot of Paulites like Johnson. I like Johnson and I know a lot of Tea Partiers do too. Looking at Gov. Johnson’s fiscal policy aims, they mesh with the Tea Party.
If the GOP primary keeps going like it’s going, with Mitt Romney poisoning the well in his Pyrrhic quest for the nomination, I see the Libertarian Party growing. As Soros said, “There’s not much difference between Obama and Romney.” Where will the people go if faces with two of the same?
Update: Like Mana from heaven comes this great link from Legal Insurrection: The Conversation With a Florida Tea Partier That Should Scare Every Republican
“I see a Romney nomination causing Tea Partiers like me to tune out. We are already disheartened by the congressional leadership. Romney will be the final nail in the coffin. He is completely uninspiring, and is everything we have been working so hard to defeat within the GOP,” Rebecca said. “Don’t even get me started on that Bain Capital picture. Ugh. There is no way he can win. And I don’t want to have to defend him while he tries.”
“I will be voting this Tuesday. I will make it fit into my schedule. I feel like my vote matters right now,” Rebecca said. “But can you see how I might not make it a priority if I feel like either my vote doesn’t matter, or if I don’t feel like the candidate I’m voting for will be much different then what we have? Can you see how life may take precedence over casting an uninspired vote? I can’t be alone in this thought process, and if enough people feel this way (and I think they will) it will be catastrophic for Romney and really very bad down-ticket as well.”
This is exactly the way a lot of people are feeling. It reinforces my point that a Romney nomination will cause a lot of people to just not vote Romney. They won’t vote Obama either, but Romney will be as much of a uniter for the GOP as Obama has been nationally.
Parallels to the 2008 Democratic primary? You betcha! Remember the PUMAs? Remember how they caved and enough HRC dems held their nose to vote for Obama? That turned out great didn’t it? There is little difference between the GOP establishment and Democratic establishment. Do we cave in this time as well, for another empty suit?
I’m not a big fan of Politifact. I think they are subtly biased in favor of Democrats. It’s not as bad as say the New York Times editorial board, but it is noticeable. I saw on my twitter feed, two article from Politifact that peaked my interest. One on Obama’s claim that “For the first time in more than a decade imports accounted for less than half of what we consumed.” The other was on the RNC claim that “2008: Unions Spent $400 Million to Elect Obama.”
Objectively, Politifact notes that neither claim is 100% accurate. So at least they don’t show blatant bias by giving Obama a “True” and RNC a “False.” As I said above, the bias is subtle.
First let’s see what they say about the RNC claim:
The RNC said the unions “spent $400 million to elect Obama.” We do want to acknowledge that independent publications have reported that number to be the case. But when we looked into the sources for that number, we found that it was the unions themselves discussing what they hoped to raise in the 2008 election. Furthermore, the reports said they wanted to raise $300 million, not $400 million, and it was a goal, not something they had yet achieved. When we looked at the public disclosures after the election, we found the unions reported $206.7 million in spending for all Democrats. It’s clear that the unions raised additional money for get-out-the-vote activities, but we don’t know how much more — nor does the RNC. Finally, all that money went to support Obama and other Democrats, not just Obama alone. In short, we don’t see the evidence to support that unions spent $400 million to elect Obama. So we rate the statement False.
They give themselves all sorts of wiggle room but in the end it comes down to a false, since the evidence says no. Seems straight forward and objective to me at least. I have no problems with this analysis.
Now let us look at Obama’s claim:
Looking strictly at the petroleum consumed by the U.S. last year, 61.2 percent of it was imported, according to EIA data. That percentage has been declining for years, but it is nonetheless much higher than the “less than half” figure cited by Obama.
61.2% means that we only produced 38.8% of the oil we consumed. That’s not a hard analysis. So why did they give Obama a “Mostly True?”
But again, Obama’s statistic depends on the way you calculate it. By a mainstream measure of “dependence on foreign oil,” the U.S. produced domestically a quantity of petroleum that was slightly more than half the amount it consumed. But strictly speaking, imports made up 61 percent of the oil actually consumed in the U.S. last year. And so we rate Obama’s statement Half True.
See it’s all about what they think Obama means when he says it. Aww how nice. An objective person would say that both claims; Obama’s and the RNC’s are false, since the data doesn’t support it. The final sentence for Obama’s claim should read; “In short, we don’t see the evidence to support that the US produced half of the oil that it consumed. So we rate the statement False.
A subjective person would give Obama or RNC (depending on their bias) some slack because they really meant was (BS goes here).
Like I said, subtle.
“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.
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.