It’s time to bury supply-side economics

It seems odd that nobody, not Lou Dobbs or Cavuto or Kudlow ever make your point about the consolidated budget.

They talk about how 40 cents of every dollar spent is being borrowed, but in reality, SS revenues are still breaking even and Medicare is only a $100B shortfall. This means the entire deficit is due to non-SS/M expenditures.

Publicly-held companies (including the ones they work for) want the Federal feeding trough to stay open.

Federal spending includes not only Federal employee salaries, but everything purchased by the government, i.e., goods and services.

This is includes everything from soft drinks to shoes to insurance to airplanes.

If Federal spending of this nature is cut, corporate America would lose Sales.

CEO’s of publicly-held companies will always respond that this would devastate the economy if Federal spending is cut too quickly.

In truth, total business sales in the U.S. were $13.5 trillion in 2010. So cutting government spending on purchases of products and services by $1 trillion per year would not even be 10% of all U.S. business sales for one year.

The driving factor in the CEO viewpoint is that most government purchases are made from large companies (theirs) that have strong lobbying.

So it’s the Sales figures for large companies that would be pinched a little; most small companies do not rely very much on sales to the Federal government. While some small businesses would indirectly lose some sales, cutting Federal spending would simply require that businesses both small and large reallocate resources to get into businesses that do not sell the the Federal government. As that was accomplished over the span of a few short years, the problem of relying on the government for sales would be solved and with far less financial pain that imagined.

The news media industry, i.e., the large publicly-held employers of Dobbs, Cavuto, Kudlow, etc., do not want to poo-poo the interests held near and dear by other large corporations.

Healthcare is a classic case of this: everyone knows that the healthcare industry as a whole is way overcharging for their products and services because there is little real competition. But by the same token, no one on the air wants to see the Sales figures for healthcare companies go down, which would make their stock price go down and generate layoffs. The news media likes a rosy economic picture, and they think that big companies make up the important parts of that picture.

My view may sound leftist/anti-capitalist on the surface, but if one thinks for a moment - free enterprise is not founded on the wonderful principles of price gouging with a rigged, non-competitive marketplace. Quite the contrary, competition is supposed to counterbalance efforts to price gouge.

The “powers that be” are completely misguiding everyone in the simple arithmetic of the economy. Taxes are an expenditure made by people and businesses for which they get nothing direct and tangible in return (other than those feeding at the trough, of course). So for the person or business that actually pays taxes, they are purely an overhead burden, part of the cost of operating in a nation protected by a military and served by a system of justice. The optimal arrangement is to have that overhead cost be as low as possible and still have the necessary functions provided.

Government tax and spend redistribution schemes only entice people to stop producing and become part of overhead.

I don’t consider myself a leftist/anti-capitalist and I agree with you wholeheartedly.

There is one more point you haven’t mentioned, and that is inflation. It seems puzzling that automation leads to improvements in productivity, requiring fewer man-hours to produce the same amount of goods that satisfied consumers in the previous iteration, yet we have both wage and price inflation as a given. The Fed actually has 2-3% inflation as a GOAL, when any rational person would want their buying power to increase rather than be eroded by inflation. Yet without inflation, most people would never get a raise after they had mastered their job. They would need to find a more challenging job, a more stressful job, and most people try to minimize stress. Cost of living increases are a sop to workers to keep them from becoming dissatisfied and looking for a different job. Just as employer-provided health insurance locks people into their current employer for fear of pre-existing conditions leaving them uninsured. This would never ben an issue if people were receiving only cash pay for their labor and purchased their own health insurance regardless of employer. Thanks to the expectation of inflation and ever rising prices for their goods, these false incentives to the workers don’t actually cost the business anything.

It is only when the business must compete with goods originating outside the system that they get in trouble. As globalization makes their games uncompetitive, things start to collapse. That is where we are now. I see no signs that people are wising up to the fact they’ve been made serfs or slaves on the plantation, however. Rational free people would question why inflation and cost of living increases and employer-dependent health insurance are desirable.

Actually, the major factor in the economic boom of the 90’s was the buying to avert the failed Millenium bug. When it became obvious to the majority that it was a joke, it caused a deep recession.

The Y2K bug was not a joke, it was very real. Of course, Hollywood and idiots glamorized what the fallout would have been if nothing was done, since it was difficult to predict what repercussions

Programs with 2-digit years would not work correctly once the current date became 01/01/2000.

A lot of date arithmetic or logic performed on 2-digit dates would not produce it’s intended result.

For example, some pseudocode for say doing month-end processing for January 2000, where transactions for the prior period are handled differently than the current period:

This won’t work...

DATE = ‘01/02/00’
PRIOR_PERIOD_END = ‘12/31/99’
IF (DATE > PRIOR_PERIOD_END) THEN
CALL ADD_TO_CURRENT_PERIOD
ELSE
CALL ADD_TO_PRIOR_PERIOD
END-IF

This will...

DATE = ‘01/02/2000’
PRIOR_PERIOD_END = ‘12/31/1999’
IF (DATE > PRIOR_PERIOD_END) THEN
CALL ADD_TO_CURRENT_PERIOD
ELSE
CALL ADD_TO_PRIOR_PERIOD
END-IF

Believe it or not, there were no major problems reported because the workerbee programmers had actually done a fantastic job at making sure software was either rewritten or replaced, tested and then rolled out to live production systems, all before the deadline.

Some systems had earlier deadlines because they handled future dates, but by and large it was systems that had transactional data that needed to have 4-digit years that had to have fixes tested and in place by 1/1/2000.

There is one more point you haven’t mentioned, and that is inflation. It seems puzzling that automation leads to improvements in productivity, requiring fewer man-hours to produce the same amount of goods that satisfied consumers in the previous iteration, yet we have both wage and price inflation as a given.

Automation, or more generally, technological advancements, do increase the production efficiency of what we produce in a theoretical "today". There's a counterbalancing factor, however: technological advancements actually wind up changing "what" we are producing, i.e., we reach higher in our goals in terms of functionality, quality, quantity, etc.

An example of how it's not a straightforward "more technology and efficiency always equals less workers" is the Model T. At the beginning of Ford Motor Company's introduction of the Model T, the production methods Ford employed greatly increased the efficiency of production. But demand for the Model T dramtically increased so production was increased likewise. So it's not like as Model T production increased that it was accomplished with the same set of workers and equipment at the beginning of Model T production. The productivity increase rate slowed from the initial jump realized from the first big changes of integration and scale. But to meet total output demand, more people and capital were needed to be employed using the new, more efficient organization. Another example of the need for workers through the 1920's is plastic molding - it greatly increased as an industry. Workers and capital equipment were redoploying, flowing into that industry. So in the 1920's "boom" period, while farm equipment necessitated less farm workers per unit of farm goods produced, consumer's sights were set higher on owning cars and household goods, creating new jobs. What was key to the huge redeploymet of people and capital during this time was a regulatory environment that presented almost none of the barriers that it does today. There was minimal regulation or laws pertaining to capital, farming, automobiles, manufacturing, etc. And that's really the essence of free enterprise: the planning and decision-making in the constant redeployments of resources that are needed are made most effectively when made without the burden of artificial impediments like a government that simply wants to control when there really is no need for them to control, or a group of employees who, after some goading by a community organizer, want to force more pay out of their employer.

Functionality and quality of goods and services tend to increase in an effectively functioning economy. If there is insufficient creativity - or latitude to employ it - such that increases in functionality and quality cease or greatly decrease, but productive efficiency continues to increase (typically when there are only a few large companies in a given market), then market forces tend to drive down personal income faster than market prices for goods and services as people are forced out of jobs but can't find new ones. As far as economists taking wage and price inflation as a given, I believe this is because their viewpoint has roots that are more observational than experiential and this limits their understanding of productivity to an abstract level.

The Fed actually has 2-3% inflation as a GOAL, when any rational person would want their buying power to increase rather than be eroded by inflation.

The problem with the buying power of money increasing over time (inside a given economy) is that it signals an actual relative shortage of money in the economy. Of every person's and business's total assets, they will want to keep a certain amount in cash so that they can conduct transactions. So as standards of living go up, and people gain wealth, more money is needed on a per-capita basis. Also, population increases mean that more money is needed to satisfy the cash needs of the population. Scarce money tends to produce high interest rates which increase the cost of capital on business, resulting in higher consumer prices for one thing. Also, investments are made to seek a return on cash available for investment. The more the cash appreciates, the less incentive there is for investment, which makes all the aforementioned "progress" grind to a halt. A very low rate of inflation works much better than money becoming so precious that it is hoarded.

The fundamental problem that has developed in the U.S. over the past hundred years or so is the level of corruption of Congress; this corruption is not in terms of minutiae of bribes and graft, but of the very perception of reality. The Congress has, for the most part (not all), been reduced to legislative assistants for lobbyists, and they tell themselves somehow that more government borrowing is ok, the taxpayer can afford it. The Fed is simpy trapped at this point, to being part of the enabling mechanism for deficit government spending and the consequent pile up of Treasury debt. If the Fed were to force the Treasury bubble to pop by refusing to buy debt or increasing interest rates, Congress could always simply nationalize the Fed. As far as I can see, this is the eventuality anyway.

Just as employer-provided health insurance locks people into their current employer for fear of pre-existing conditions leaving them uninsured.

There's simply a waiting period. This weeds out any new insureds who are trying to come into the insurance plan who know that they have huge pending expenses. Not every insured does this, but some do. Actuaries and underwriters know all about the percentages, and historically there have been all kinds of options when health insurance is sold. The underwriters simply would price an option like having no waiting period into a plan; it's up to the plan sponsor/employer to make the choice of what they want to buy. Since premiums keep going up so fast employers typically try to save every way they can. This whole "healthcare" law deal is basically a scam deal between two groups with contradictory purposes, attempting to pass a law that satisfies them both. Government socialists want a state-run health system and no private system except that provided for elites. The healthcare industry, on the other hand, wants the government to mandate that every citizen buy their product.

Inflation is not the key driver in health insurance costs being high. The key factor is that the health insurer is a middleman between the provider and the customer (insured/patient/etc.), and because while insurers compete with each other, they ultimately are fine with health costs going up because they ultimately can pass the higher costs on to their customers in the form of higher premiums. If premiums were paid directly from customer to provider with no middleman, providers would be competing to keep their costs down. Like every other technology-heavy industry, costs would continuously drop at a nice clip. Disability and old age health insurance could be sold, but the payouts should be only to pay premiums to providers, i.e., if you get disabled and can't work, the insurance kicks in and pays the monthly fee to your health provider(s). Insurance based on this model already exists and the premiums for it are very low. The premiums could be billed along with the monthly premium paid directly to providers. All we need to do is switch to such a system and healthcare costs would always be under control and low. No one in the healthcare or insurance industry, and certainly no one in Congress, has the guts to try making any real change, so this simple solution is beyond them.

Thanks to the expectation of inflation and ever rising prices for their goods, these false incentives to the workers don’t actually cost the business anything.

This is only true for business that can easily increase prices, many, mostly smaller ones, can't. Higher health insurance costs, higher costs for raw materials, etc., all are increases that can wipe out a business quickly if they can't pass those higher costs on to their customers.

It is only when the business must compete with goods originating outside the system that they get in trouble. As globalization makes their games uncompetitive, things start to collapse.

International trade is fine if done wisely and legitimately. What's hurting the U.S. now is there is a concerted effort by various elites to export jobs from Western Civilization under the mistaken idea they can turn all the undeveloped nations of the world into wonderful consumer countries like Western countries, that morality will follow prosperity, when it's the other way around, prosperity follows morality.