Obama is Actively Holding Back the Economy

In order to secure reelection, Obama will have to argue that the economy would’ve been worse without his policies. He will argue extensively that no matter how bad things are, they would’ve been worse without him. However, that’s not what the data shows.

As you can see, the natural growth of the economy normally results in a strong growth trajectory following a big crash. This can be attributed to the fact that no technology is lost, and the efficient market hypothesis should lead to oscillation around a constant exponential growth trajectory, as shown in the first graph. This pattern even appears throughout the Great Depression.

However, in our current economic depression, we haven’t had that bounce-back they way we naturally should. You’ll notice in the second graph that recovery began in 1st Quarter, FY2009 (which is actually Oct. 1st 2008 through Dec. 31st 2008). A strong growth curve continues through 4th Quarter FY2009 (ending in September 2009). But then it stops. What happened?

Was it because the stimulus ended? Well, no, the majority of the stimulus money was spent throughout 2010. Yet, growth was stagnant throughout 2010. So the argument that “the stimulus just wasn’t big enough” really doesn’t match the data.

With the worst economic recovery in the history of the country upon us, this data makes it very clear that Obama’s economic policies have actively hindered economic growth to an extent never seen before under any previous president. No Republican or Democrat has held back economic growth as severely as Obama. He must be removed from office and his policies must be repealed if we want to see economic growth return to this country. Think about this when it comes time to vote in the 2012 elections.

The Dangers of Debt

The central theory of Keynesian economics is that markets can be stabilized by borrowing and spending heavily during recessions and paying it off during boom periods. However, one of the major problems with this idea is that it completely ignores the risk associated with credit.

According to a new analysis of the Great Recession, the countries that were hit the hardest were those with the most aggregate debt (private + public debt).

Maybe this should be obvious, considering how this economic crash was termed a “credit crisis,” but now we have a definitive picture linking the collapse of the mortgage market (which I’ve already explained in great detail, countless times) to the collapse of the rest of the economy.

Basically, the CRA created a housing and mortgage bubble, which was popped by the Federal Reserve spiking lending interest rates. Normally, such a pop would be dissipated by the strength of the rest of the economy, and this is what Alan Greenspan has admitted he was counting on when he deliberately popped that bubble. However, it turns out there was another, more pervasive weakness in the economy: excessive debt due to at least 7 years of Keynesian stimulus. During the 2001 recession, Bush started a comprehensive Keynesian stimulus plan, including tax credits, stimulus spending, and lowered Fed rates. Even though actual economic recovery didn’t begin until the 2003 tax cuts were implemented, the debt-feeding Keynesian machine continued until 2006.

This is important, because it’s an example of Keynesian policy being implemented exactly as Keynes intended: inflationary stimulus during recessions, with deflationary debt-paying during bubbles. But rather than leveling out the booms and the busts, this policy merely resulted in a new bust being primed by excessive debt, hitting us even harder and faster than the last one.

Suppose you’re trying to walk while holding a glass of water. Keynesian stimulus is like trying to run exactly as fast as the oscillation of the water, so that you can move faster while your rhythm cancels out the waves in your cup. It doesn’t work. You just end up with water all over you.

With this in mind, we should be very worried about the economy in the near future. We’ve now racked up more debt than ever before with the latest round of unprecedentedly large Keynesian stimulus. We even bailed out a lot of the companies that failed last time, so that they’ll be around to fail next time too. It is absolute insanity that we’ve set ourselves up for yet another major recession like this.

Tinkering around with the economy through debt the way Keynes suggested is never safe, and therefore not a responsible approach for a national economy. We need to undo the damage that has been done and reduce our spending and debt levels, or suffer further economic collapse in the very near future.

Paul Krugman on the Economy

His message: Even after everything we’ve been doing to help the economy over the past 3 years, the economy is still suffering. The recovery isn’t working so well. So, let’s keep doing exactly what we’ve been doing.

In other words, we’re not out of the hole we’ve dug for ourselves yet, so let’s keep digging deeper.

Thus is demonstrated the cognitive disconnect of this so-highly cited economist. Remember this the next time someone cites Krugman in defense of government control over the economy.

The CBO Claims ARRA Stimulus is Driving Recovery

The CBO director claims it on his blog.

However, there’s an important qualifier on all of that data:

Although CBO has examined data on output and employment during the period since ARRA’s enactment, those data are not as helpful in determining ARRA’s economic effects as might be supposed because isolating the effects would require knowing what path the economy would have taken in the absence of the law. Because that path cannot be observed, the new data add only limited information about ARRA’s impact.

Now, I’m just going to go out on a limb here and suggest that in the absence of the law, our economy would’ve taken a path similar to that which the economies of Europe, Japan, and Southeast Asia took, considering they all abandoned the idea of stimulus after the Greek crisis.

To claim that the ARRA “increased the GDP by 1.7%-4.3% in the second quarter” is absolutely absurd, considering the 2nd quarter GDP growth was 1.6%. They’re basically claiming that no recovery occurred, except that which was brought on by the ARRA, and without the ARRA we would have been back in a recession, possibly to the tune of -2.7%. I cannot express in words how absurd it is to think that without this president’s policies, we’d still be in recession. Economies naturally recover from recessions much faster than that, and the evidence is plastered all over our history and the current outlook of countries around the world who chose not to use Keynesian stimulus.

To describe the effect of a stimulus, consider this example (I’m in the market for an espresso machine, so espresso machines get to be the product in question):

We’re in the middle of a recession, and consumer spending is down. You have $150 in the bank (after taking some hard losses), and are looking for an espresso machine. Company A has an espresso machine selling for $100, but after reading the reviews on Amazon and considering your own financial situation, you decide this espresso machine is only worth $70 to you. However, the government comes to the rescue and offers a stimulus to the company of $60 for every espresso machine they sell. With the government paying for part of every machine, the company lowers the price to $40. Suddenly, that machine is worth buying!

You pay $40 for it, and end up with a final value of $110 in the bank and an espresso machine (worth $70 to you) = $180. A transaction has occurred, so consumer buying increased, and the stimulus is a success!

However, the government can’t just create value out of nothing (they can create money out of nothing, but that merely means each unit of currency has less value- inflation is effectively a regressive tax). So they are now in debt for that $60. In order to recoup their losses, they have to raise taxes in some way. So, using some combination of complicated legal maneuvers and lots of obscure redefinitions of the word “tax,” they extract $60 out of you to pay their debt.

Now, you’re left with $50 in the bank + an espresso machine worth $70 = $120 in value. That means $30 in value has been destroyed by this transaction. You now feel poorer and less happy than you would have if the government had done nothing.

So, if they want to say the stimulus directly created enough jobs to lower the unemployment rate by 1%, fine, there’s no arguing that. But the CBO specifically points out that they’re ignoring indirect effects on employment. So that 1% is the part in my previous example where the $70-valued espresso machine is bought for $40, and we call the stimulus a success. But then, the the government has to pay for the stimulus. That’s why Obama wants to let the Bush tax cuts expire, and that’s why the Democrats included so many new taxes in Obamacare, and that’s why the Federal Reserve is deliberately inflating the currency. Those, coupled with the new costs to business associated with the regulatory framework of Obamacare have completely destroyed all incentive to hire right now. So great, we created enough jobs to lower the unemployment rate by 1%, but we probably destroyed enough jobs to raise the unemployment rate by 2-3% from what it would’ve been in a natural recovery curve. This is why unemployment is still so high.

And of course, all of this has an indirect effect on the GDP. We had a temporary GDP spike as the stimulus money was spent, and now we’re in the middle of an even bigger GDP growth slump as the impending taxes to pay for the stimulus result in an economic hangover. This is the natural effect of Keynesian economic policy, as Friedrich von Hayek explained. As Hayek would say, the GDP spike we had last spring was the Boom from the Keynesian stimulus. Now we’re in the middle of the Bust that inevitably results, hence the stagnated growth, high unemployment, and attempts by the Federal Reserve to devalue the currency.

Hayek has been dead for 18 years, and yet, his description of the effects of Keynesian policy predict our current situation beautifully. There’s nothing “unexpected” about it.

UPDATE: A comparison between the “stimulated” U.S. economy and the financial-austerity-focused German economy. Germany also had a little spike in September 2009 from their much smaller stimulus, followed by a crash. It’s not until they adopted their financial austerity measures that their economy rallied. A government trying to stimulate the economy is like a passerby trying to move someone who just broke their neck before the ambulance can get there. Good things come to those who wait…

The Teacher Bailouts

I’ve been meaning to write a full piece on the Teacher’s Bailouts for awhile now, because of the clarity with which this scenario demonstrates the corruption of our democratic system. Unfortunately, I just haven’t had the time for it. On the other hand, I have found occasional time to debate the issue on the DeviantArt Politics forum, building up my full argument bit-by-bit in a discussion with one forum-goer who frequently finds reason to disagree with me. In the interest of preserving this content at minimum cost of time, I will reprint a transcript (edited for format only) of the debate here.

Tristan 1: I think you need to study systems of incentives a bit more. You complain about the profit motive of businesses, but what do you think the incentives are for career politicians? If you keep a constant flow of money going from your opponent’s constituency to your own constituency, reelection can be quite easy. This is why special interests are so prominent in our political system. Politicians are literally buying votes with taxpayer money. That’s what the “teacher bailout” was about. Teacher employment had barely dropped at all, but union support for the Democrats had been wavering after a number of failed deals at the beginning of the summer. So the Democrats pass a new bailout bill in a sector that’s seen little hurt in this Depression to bribe back the teacher’s union vote.

Doesn’t that sort of bribery offend you? I mean, with corporations, at least they’re only using their own money, acquired through voluntary exchanges, to promote their agendas. With the government, they’re prying that money out of your hands under the threat of violent force. That right there is the difference between legitimate business and organized crime.

JupiterWave 1: You mean…in a democratic system where voters elect someone who they think will support their interests, the elected official will make attempts to promote those interests? I am shocked! Seriously, this is kind of how democracy works, and here you are treating it as some sort of sinister conspiracy. I really don’t know what to tell you. You’re basically arguing that politicians shouldn’t represent the interests of their constituents, except if those interests are ones you find ideologically acceptable, then it’s a crime not to promote those interests. As far as I’m concerned, this is totalitarian thinking. Tell me-you’re always making these criticisms of democracy as leading to corruption. What sort of system do you have in mind that would prevent such “corruption”? I suspect that the answer is something that will elevate your views on public policy above those of others. That’s what I really hate about you libertarians, you know: you claim to be fighting for freedom, but you have no intentions other than seeing a set of very specific and hopefully immutable policy edicts put into place that coincide with your personal views.

An`d beyond that, I think it’s ridiculous to characterize education as a “special interest.” Special interests are things that benefit a small group of people, often at the expense of others. Educating the next generation of leaders to run the country in upcoming years is about as “public” an interest as I can think of. It serves a massive group of people, and it benefits a massive group of people. This is not to say that our education system never needs reform, even radical reform, but we’re talking about a situation where hundreds thousands of teachers could just be out of a job. It won’t help the cause of reform in any way if school districts go bankrupt. They need to be functioning before they can be reformed. But thanks to plutocrats like Charles Koch and his band of useful idiots like you, we’ve gotten to a point in this country where trying to prevent massive job loss in the middle of a recession is a “bailout”, and politicians looking out for the interests of people that elected them is a “bribe.” It’s depressing. I don’t even know why I’m telling you this, you’re so deep into right-wing propaganda. A fish never notices the water he swims in, I guess.

I mean, as far as I can tell, you just hate teachers. You sure bitch about them a lot. In this post, you’re positively angry at the fact that teacher employment hasn’t dropped much. Any rational person would be happy that a group of people isn’t losing their jobs, as that helps the efforts towards recovery, but you’re just resentful and spiteful. See, here’s the thing: public-sector employees aren’t really getting special treatment. Private sector employee are often getting worse treatment from their employers who have cut labor and benefit costs in pursuit of greater profits. The government hasn’t seen a need to do that, so its employees are treated more humanely. And there was a time when lots more jobs in this country were more similar to public sector jobs in terms of benefits, pensions, etc. But the idea of what a middle-class job should consist of has continually been defined down to the point where public jobs merely look better by comparison. Quite frankly, the way you talk, it’s like you’re mad that not everyone is suffering equally. It’s like you’re involved in a capsized ship, and instead of trying to swim to shore, you’re saying we should go around poking holes in people’s life preservers. Who is helped by this blustery nihilism? What are you trying to accomplish? Making people feel miserable about their job status for the sake of fairness? It’s funny how many of these traits are present in the stereotypical success-hating communist you accuse everyone else of being. I think you’re due for some self-reflection.

This “bribery” doesn’t offend me because it’s not bribery, and you’re stupid to characterize it as such. And it’s not “prying” anything, but you’ve proven yourself too stupid to understand what a social contract is and how it operates, so unless you can show me otherwise I don’t have the patience to start that discussion again.

Tristan 2: I suppose I should provide evidence for my suggestion that this latest round of bailouts was completely unnecessary. This should do it. There is no incentive for this beyond bribery.

JupiterWave 2: I’m not going to look at a defense of an idea that I already consider wrongheaded. It’s not bribery, and you’re wrong to call it that.

Tristan 3: Maybe if you look at the evidence, you won’t consider the arguments based in that evidence wrongheaded…

JupiterWave 3: My opinion isn’t hinging on who gave money to who and when. It’s that this action, giving money to school districts in order to prevent mass layoffs, is fundamentally not a bribe, but a sensible economic action and part of what it means to be a democratically-governed society. It’s not a question of facts, but opinions, and my mind is made up.

Tristan 4: …except no mass layoffs were pending, as you’d know if you looked at the evidence I linked to.

JupiterWave 4: Goddamn dude, just do a search on “teacher layoffs”. You’ll find hundreds of stories. I don’t know how Hot Air tried to twist the facts, nor do I care, but teachers are getting laid off all over the place.

Tristan 5: Those “hundreds” apparently add up to very little, considering how little public school employment has changed. And once again, I ask, why are we even so interested in keeping public school employment so high? Does it help the children, or does it help the unions? The graphs here suggest only the latter.

JupiterWave 5: Source? [in reference to the first part of "Tristan 5"]

We as a society are interested in keeping general employment high because it helps the economy, especially during recessionary periods. I really shouldn’t have to explain this. It’s funny how when a billionaire businessman stubbornly stands his ground on what he considers to be his self-interest, you laud him for fighting the evil government, but when working-class Americans do it, you can’t wait to put them down and accuse them of wrongdoing. And don’t tell me it’s because you’re only paying for the second one. In some way, you’re probably paying for both. I think you just hate poor people.

Tristan 6: Source: Figure 3
The cumulative loss in local government education employment since the start of the recession is a stunning…0.5%.

High employment is useful if it creates value. Usually, we don’t have to consider that “if,” because private employment tends to create value. However, government employment is an entirely different story. As I’ve shown with those other charts, the increase in public education employment has failed to improve the efficiency of production of education. Any business would see this as an indication of the need to downsize, or split the company into separate entities. But not the government. Whereas private enterprise creates jobs where jobs will increase value, government just creates jobs. And the jobs that government creates are at the expense of tax-paying investors, meaning a net loss in value-creating investment.

You see, the mistake that demand-side economists (i.e. Keynesians) make in their models is assuming that high consumer spending creates the most economic growth. Nothing could be further from the truth. Consumer spending is usually an indicator of economic growth (in free-market economies), but the extent to which it causes economic growth is minuscule compared to the effects of the supply-side forces of capital investment. Right now, we have a strong demand market, and yet, the demand is being satisfied mostly through imports because our domestic production economy is still in shock over the new regulations and taxes that will go into effect over the next year. This is what happens when we have a national economic policy of “fuck the supply-side to feed the demand-side.” We will not see employment recover until our domestic production recovers- and don’t even try to suggest protectionist tariffs, because that’s just asking for a second Great Depression. If domestic producers aren’t making anything because of the uncertainty of upcoming regulations, and then we go and try to cut off consumers from imports, then all we’re doing is creating a situation with overwhelmingly high levels of unsatisfied demand. Instead, we need to fix the problems at the source, and undo those regulations if we want to get back on the track of economic recovery.

Paul Krugman

Nobel-prize winning economist Paul Krugman is popularly known for the New York Times columns he writes, using his economics knowledge to lambast spending cuts and attempts to decrease the government’s share in the economy. As such, his writings have become a favorite tool of authoritarians and statists.

However, as of late, Krugman hasn’t been making many friends in the economics community. The supply-side economists who dominate the field today have long-since abandoned the Keynesian theories that Krugman seeks to resurrect. And they don’t take too kindly to his less-than-intellectual dismissal of empirical arguments as “fraud.”

Perplexed by Krugman’s deviation from empirical economics, I decided to do a little research to try to figure out what, exactly, leads him to adhere so passionately to theoretical arguments that are so maligned by his opponents. Here is what I found:

Paul Krugman won his Nobel Prize in 2008 “for his analysis of trade patterns and location of economic activity,” particularly pertaining to the increasing returns to scale and its effect on trade. Basically, he [re]discovered the idea that countries specialize their industries (exporting one thing and importing everything else) primarily because one big entity can provide a product more efficiently than lots of independent small entities. Essentially, he likes monopolies, because they’re efficient.

Krugman has taken his economic theory and allowed it to shape his entire belief system, favoring the government-monopoly systems that are capable of greater efficiency of production than any free-market system. And he’s entirely correct- government monopolies are capable of far more efficiency than free, decentralized markets. But to say so is like saying a gas is “capable” of localizing all in one corner of the room without any force guiding it. Technically true- but it will never happen.

Like the physicist who disregards entropy, Paul Krugman’s entire belief system ignores the eternally disruptive force of human incentive. You see, monopolies have the potential to be efficient, but never are, because all incentive to do what’s good for the customer is lifted. In market economies, that generally means prices rise as customers cannot turn to competitors for a better deal. In government economies, that means costs rise and economies stagnate, as there is no incentive to improve services. Efficiency is thrown out the window, because, even though it’s achievable, there’s no reason to invest the time and effort into pursuing it on a fundamental level. In government, this means greater corruption, higher debts, and failed services resulting in extensive squalor.

In this context, it really makes sense why Krugman would toss out any empiricism that his opponents try to bring into discussions. The effects of human incentive are inherent in every economics experiment. This is why economists (and the governments that rely on them) are so bad at prediction- you need to know something about human psychology (and have a good feel for it) before you can understand how a market will react to an impulse. This is something which Krugman’s machine-like theories just don’t address.

And that is why Nobel Prize-winning economist Paul Krugman is wrong…again (and again, and again, and again…).