Economic Hot Air

self | 08-19-03 | Festa

[KantianBurke]

good essay

[Festa]

correction: the second to last paragraph should read: which is NOT a cause for panic

[AdamSelene235]

Two images for you.

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[Lazamataz]

Perhaps the economist are full of it. I don't doubt that. But what of the hollow recovery we seem to be in, in which corporate profits rise but jobs are not coming on-line?

The jobs appear to be being created in India, in China, and so on... what of the American middle class?

[Lazamataz]

The boom in the economy seems to have coincided with the vast increase in money supply.

[OldFriend]

There are always those so called experts willing to sign on to anything to appease their leftist elitest buddies.

Remember those 'scholars' who objected to the impeachment of the perjurer!

[AdamSelene235]

The economist John Maynard Keynes knew this was going to happen.

Sigh. When will so-called conservatives stop listening to this Fabian Socialist? Bush's economic advisor has even named his dog after this child rapist.

[anniegetyourgun]

An interesting missive, Festa. Looking for a grade? Don't answer that!

BTW, as one who is studying economics, I think you may find this analysis to be of interest.

P.S. Economist joke: Why has astrology been invented? So that economy could be an accurate science.

[Festa]

I am no defender of keynesianism. My article may give the impression that I am a "conservative keynesian." But I am not. I focus on long term growth which necessarily implies lower taxes, lower government spending, and a good well working rule of law

We should not, however, commit the fallacy that because Keynesianism is in general wrong (it is), there is nothing respectable that can be plucked from it. It is clear that during the short term lower taxes and moderate spending help the economy. What Keynes and his followers ignored was the medium to long run impact of such policies as I noted towards the end.

Yet such is the duplicity of the people who signed the petition. They want stimulus but ignore the best way to stimulate. In principle, they are not opposed to increasing the deficit, they just dont like the way the president is doing it. Well, what do you want?

[Dead Dog]

Keynes is a goofnut, but a child rapist?

[Festa]

The unemployment rate is always a lagging indicator. Perhaps the media pundits who are decrying a jobless recovery are forgetting they made the same stupid claims the last recession with the last president Bush. Since unemployment is the last thing to get better, it always lags.

[Gunslingr3]

The jobs appear to be being created in India, in China, and so on... what of the American middle class?

Capital will always seek the best return. If you want money invested in this country we need to reduce burdensome business regulation and slash taxes. Otherwise folks with accounts in the Caymans will send their money to China or anywhere else it can get a better return. America gained economic preminence because of her freedoms (people from all over the world come here and make money, notice they come here because they can't make money at home without it being taken away), take those away and you've killed the golden goose.

[Festa]

Thank you very much for your kind comments...and thanks for the good joke ;)

[Lazamataz]

The unemployment rate is always a lagging indicator. Perhaps the media pundits who are decrying a jobless recovery are forgetting they made the same stupid claims the last recession with the last president Bush. Since unemployment is the last thing to get better, it always lags.

There's one problem with your theory:

"In the 20 months since the last recession officially ended in November 2001, employment has fallen about 1 percent. This stands in stark contrast with past experience, where, at this point in an upturn, payrolls would be some 5 percent fatter." -- Dr. Irwin Kellner, CBS MarketWatch.com

So the lagging indicator is lagging a lot more than normal.

[Gunslingr3]

Herbert Hoover:
Increased federal spending 38 percent (current dollars)
Passed the Agricultural Marketing Act (welfare for farmers)
Passed the Hawley-Smoot Tariff
Waged war on drugs (alcohol)
Passed the Reconstruction Finance Corporation (pork and corporate welfare)
Passed massive tax increases

FDR just continued carrying on his type of policies.

[irish_links]

"...Bush is not doing enough in these areas and is also letting wasteful spending get out of control, which only hurts investment. Yet the signers barely even touch on this. The Bush Tax cut will not destroy Medicare, social security, and the budget. On the contrary, the real worries are wasteful spending and the flawed structures of our two biggest government programs. The media pundits, politicians, and economists ignore this and give citizens nothing but partisan bashing and hot air...."

Your analysis is spot on. What amazes me is the obtuseness of many if not most academic economists. It appears that 500 academic economists, including several Nobel laureates (are you listening Joe Stiglitz) think that wealth is created by consumption rather than investment. Thus the prescription for a stagnant economy is to artificially create demand rather than encourage economic activity and risk taking.

This is a political conclusion, not an economic one. These 500 "economists" really are only interested in achieving full employment, an ever elusive and frankly mythical goal. Conversely, the creation of wealth, a concept that is more than slightly distasteful to them, is the farthest thing from their minds.

One doesn't need to buy the Supply Side argument hook line and sinker to see the fallacy in this conclusion.

[Gunslingr3]

Think about it this way: during a recession do you want the government to stop purchasing fighter jets and constructing roads or do these things actually stimulate private enterprise?

Government spending is 'stimulative' of government figures like GDP, but that doesn't necessarily mean an increase in wealth. Roads to nowhere and fighter jets we don't use don't help anyone, certainly not more than the things they would have bought instead if the money wasn't taken from them in taxes.

[Festa]

There is not a problem with theory, but a further explanation is needed. The economic recovery was also hampered due to the war with Iraq which basically put business investment on a hold. The true recovery is just beginning to take place. Also add on to the fact that businesses are just beginning to see the light and you will realize the economic "funk" we have been in is total and is not limited to jobs. In the next year or so as the economy rebounds, the unemployment rate will drop (definetely under 6% and probably at least to 5.5%)

But note that it is highly unlikely that we will get back down to the 4% we enjoyed for much of the 1990's. Most of that was due to the speculative bubble that was the internet boom and thus we were probably above potential GDP and full employment.

Finally, note two more things: Jobless claims are going down (I believe in July they dipped below 400,000 for the first time in a long time). Also realize that unemployment is a factor of two things 1) The number of people unemployed and 2) the labor force. The labor secretary noted that many people are beginning to re-enter the labor force as the prospects for the economy are getting better

[Festa]

You are right in principle but in the Keynesian scheme of things, as a previous post noted, the goal is full employment and not wealth creation. Thus, in the keynesian framework, the spending does help employ people in the short term. But it does not increase long term wealth. You have hit upon what I think is the failure of Keynesian thinking: its tunnel vision focus on only the short term and its complete lack of engagement into what causes and increases the wealth of the people. Can there be a time when wages get stuck higher than they should be,of course (cough, cough, unions....cough, cough)? Can there ever be a time when we need to cut taxes and increase spending? Yes. But to ignore the long term implications of such tunnel vision is asking for a disaster.