Right Thinking From The Left Coast
If everything seems under control, you're not going fast enough. - Mario Andretti

Europe Leads the Way

It’s a sad day when the European Socialist States (TM) are exercising more fiscal responsibility than we are:

Europe will push for a swift exit from fiscal stimulus programs and a focus on budget consolidation at the G20 meeting next week, German Chancellor Angela Merkel said on Saturday.

“European participants are of the opinion that this is urgently necessary to prevent such crises from happening again in the future,” Merkel said in her weekly podcast.

...

Merkel’s stance contrasted with that of U.S. President Barack Obama, who this week said public finance problems should be addressed “in the medium term”—a warning that clamping down budgets should not be done at the expense of recovery.

European governments have been launching austerity measures to head off a spread of the debt crisis begun in Greece.

Merkel’s cabinet earlier this month unveiled Germany’s biggest post-war austerity drive, with planned budget cuts and taxes amounting to 80 billion euros over the next four years.

This will prove an interest test of Keynesian theories.  According to every screeching Leftist on the pages of the New York Times, this should plunge Europe into a depression while America soars to new heights on the wings of the Stimulus.  Of course, it’s not like the Keynesians ever let reality constrain their imaginations anyway.

Still, we’re in the sad position now of having a President who isn’t as free-spending as Europe.

Posted by Hal_10000 on 06/19/10 at 09:01 AM (Discuss this in the forums)

Comments


Posted by on 06/19/10 at 10:31 AM from United States

This is embarrassing. 

I mean it makes sense, they’re farther along that road to socialism so they are going to experience the consequences first.  Ie, they will crash before us and have to make economy-saving reforms first.

But still, we ought to be leading the world on this sort of thing. 

I wonder if europe will love us again once we are where they are at currently and they’ve restructured for a free-market economy?

Posted by on 06/19/10 at 11:11 AM from Germany

Keynesian economics have worked exactly zero times they’ve been implemented, so I’m sure this will be the time that water flows uphill, people act against their nature, and elves come out of hiding.

Keynesian economics should be taught as a “failed model”, much like early attempts to confirm the existence of the “luminiferous aether”.  Repeated application of Keynes “theories” have never produced the predicted result, so why anyone continues to have faith in them is a mystery.

Posted by on 06/20/10 at 11:19 AM from United States

I don’t know Keynes theory seems to make sense to me.  And the evidence seems to support it.

Both times we crashed our economy (The Great Depression and the Great Recession) we had Republicans in charge for a long time. Their policies resulted in concentrated wealth for those on top and stagnant wages and increasing debt for the rest. Both crashes were followed by increased government spending and increases in GDP.

Productivity vs wages

Inequality leads to crash

Acouple of questions;

How does cutting government spending and thus increasing unemployment make things better? Especially when the private sector is not investing. Where’s the demand going to come from?

Finally, some one tell me how having 400 people (the Forbes 400) accumulate $1.5 trillion dollars amongst themselves helps our economy?  The presumption is they earned that money… but it’s BS no one is worth that much. It’s just a system that is set up in such a way so as to allow it to happen. And a philosophy that is pushed to make it taboo to speak out against great wealth. Basically the wealthy people controlling the masses with media , “think tanks”, politicians ect..

Even if they had only $0.5 trillion amongst themselves they’d be pretty well off and if the other trillion was back in the economy in the forms of improved infrastructure, increased wages and jobs being spent over and over by middle class people you’d see this economy booming. instead it sits in offshore accounts doing nothing while aggregate demand suffers and calls for cuts in spending as a panic solution take hold being pushed from the control of the message by these overly wealthy thugs.

But yeah you are right if they tighten their belts real hard we will get to see the results. But off course the Supply siders will figure out something else to blame it on

Posted by on 06/20/10 at 11:59 AM from Germany

How do they make sense?

Keynes predicted that people would act in ways that are completely opposite of how they act in reality.  Also, Keynes sees the government as the primary driver of the economy, when the government is the primary brake of the economy.  Government’s don’t produce anything - they take and redistribute.  Think of government as entropy and capitalism as the opposite.

As for economies crashing, don’t forget that Carter was in charge for the last one in the mid 70’s.  The thing to remember is that all of them are the result of massive government interference in the free markets, and that continued or deepening interference does not ever “fix” them. 

Indeed, all they ever do is say, well, it’s fucked now, but we spent a shitload of money to “stimulate” things, so it would be even more fucked if we hadn’t.  There is absolutely no way to can prove that, but actual results never come close to predictions.  I’d have to go with “you’re talking out of your ass”.

Also, your graphs don’t really mean anything.  So things get more productive in relationship to wages.  So the fuck what?  Are you saying that now you run a machine that produces ten times of what the old machine produced you should get paid ten times as much?  You’re still doing the same job. 

Inequality doesn’t lead to crashes - all you’ve done is show that when times are good those with money do even better.  There are a large variety of reasons for this, none of them evil or mysterious.  Now, think for a moment if nobody was rich.  Who is going to finance ventures that require large amounts of capital?  The government?  We’ve seen several decades worth of planned government economics - they all fail.

Here’s the main difference between Keynes and Free Market economics.  When things head south, as they always do, they tend to be very similar (misery levels are approximately the same).  However, when things are good, free market economies do much, much better for everyone than those that engage in Keynes “theories”.

In other words, they stifle economies from growing and they stagnate.  Examples of this would be Hong Kong and Singapore, two of the most unregulated economies in the world.  They are literally shitty little rocks with no natural resources, yet they are economic wonders that are thoroughly modern.  Compare them with most of Europe - places with massive amounts of government regulation of their economies, natural resources out the ass, and thoroughly lagging behind in opportunity, standard of living, and falling apart at the seams.

Posted by on 06/20/10 at 12:22 PM from United States

Ok so here are the economic indicators that seem pertinent;

GDP + 4.1% from - 5.4%

Dow UP 30% down 30% during Bushes 8 years

Employment
+250,000 jobs per month ( 3 month average) was -850,000 at start of administration

Industrial production + 5% was - 12%

National income + 1.7% was down -1.7%

So why should I vote for a Republican?

The last 20 of 28 years we had a Republican President and economic policy guided by the Washington Census.

In that time we accumulated $12 trillion dollars of debt, median wages have stagnated, our manufacturing base is destroyed, tax burden (not just federal) has been shifted onto the middle class, our government is now owned by corporate lobbyist, deregulation is destroying our country (BP, spill, mountain top removal and gas fracking) and neutral trade balance has gone severely negative with a communist country as our biggest trade partner.

Posted by on 06/20/10 at 03:35 PM from Germany

I wouldn’t vote republican either except for the fact that they tend to pay at least lip service to the concept of free markets.

Republican = regulation and spending with a big dose of religious assholes

Democrat = regulation and spending with a big dose of condescending assholes

You seem to be confusing the parties as actually being any different from each other when it comes to passing asinine regulations that fuck up the natural functioning of the economy.  Also, economies go in cycles, and always have. 
To say “this is the fault of X because X was in office at the time it happened” is retarded.  You need to look at the root cause of the particular bubble that crashed, which typically goes back decades.  In this the root cause goes back to the Carter administration and the decision to fuck with lending rules to make them more “fair” to people that were unable to actually qualify for a loan.

In that time we accumulated $12 trillion dollars of debt

And how much of that in the past two years?

median wages have stagnated

And yet we buy more shit than ever.  Your actual standard of living has risen in the last 28 years.  I know, I’ve been working for longer than that.

our manufacturing base is destroyed

Except that we manufacture all sorts of stuff.  Sure, the rust belt is fucked and textiles have all moved offshore, but you can blame unions for a large portion of that.  Also, trying to gauge our economic base by a measure that is 50 years out of date is ineffective.  If all you do is manufacture, then you are behind compared to economies that also create intellectual property.

tax burden (not just federal) has been shifted onto the middle class

Blatantly not true.  Actually, the tax burden keeps getting shifted more and more onto “the rich”.  Try looking up actual data instead of repeated talking points puked out by others.

our government is now owned by corporate lobbyist

You mean, just like it always has been?  It isn’t any worse or better now than it has ever been.

deregulation is destroying our country (BP, spill, mountain top removal and gas fracking)

In your world “deregulation” must mean “increasing regulation”, because as a general rule almost nothing has been deregulated.  Lax enforcement of regulations is another matter. 

Also, your complaints are actually talking points of the environmental lobby, which are businesses themselves - did you not just bitch about the government being owned by business lobbyists?

and neutral trade balance has gone severely negative with a communist country as our biggest trade partner

This really just points to your total ignorance of two things:  1) politics, and 2) economics and how they go together.  First of all, China isn’t really communist so much as it is authoritarian.  Second, I’d much rather have China sewn to our ass economically that have them aiming nukes at us in the manner of the former USSR.  China has gone from Stalinist to “hey, let’s go buy a new car” in 30 years.  Just imagine where they’ll be in another 30 years…

Posted by on 06/20/10 at 10:12 PM from United States

Try to study the numbers a little bit better.

We have fewer people working in an industry that continues to produce more with fewer people every year.

It’s called automation. I know. It’s what I do.

Try to compare Mfg. output vs Mfg. Jobs over the past several decades.

Posted by on 06/20/10 at 10:16 PM from United States

And here is the only stat that most americans care about.

8 years of bush and unemployment is <5%

2 years of obama and unemployment is >10%

Posted by on 06/20/10 at 10:31 PM from United States

We were losing 850,000 jobs the month Obama took over for Bush and you’ve convinced yourself the now 9.7% (not >10%) unemployment up from Bush’s 7.7% (not <5%) is due to Obama’s 17 months in office (not 24 months).

You’re simply fooling yourself into supporting the Republican party for some other reason unrelated to the facts.

The republican party has destroyed our country and our democracy by selling it off to multi-national corporations with allegiance to no one.

As for manufacturing output the numbers are distorted as production overseas is counted in the total even thought it does nothing for our economy or for jobs. By your logic we should reach a point were machines are so productive NO ONE will have a job.... we’ll all work for Skynet I guess.

Posted by on 06/20/10 at 10:57 PM from United States

SCHHOOOOOOLLLL’SSS OUT FOR SUMMER!!!!!!
Woo-hooo so now it’s time to slam me some Keynesian crap.

Muirgeo1, there is so so much wring with what you posted.  SO alluded to it, but I will state it explicitly (sometimes, SO ya’ gotta talk real slow to these types). 
So, pay attention here Muirgeo1, ‘cause this is important: Republican presidents can be, and generally are, Keynesians. 

You with me?  Good.  So, you cited the Great Depression and the “Great Recession” (is that name official?). Let’s look at the first.  After the stock market crash of 1929, the unemployment rate went up a bit and then started shrinking, until, under Republican President Hoover, the Smoot-Hawley Tariff Act was passed in 1930 (pretty much every economist in the US signed a letter saying this was a REALLY bad idea, but they were ignored).  Now, Hoover might have also thought it was a bad idea, but he signed it.  This is when unemployment started climbing again.  You great Keynesian hero, FDR was elected in 1932.  He immediately started Keynesian the hell out every damn thing he could; borrowing like crazy, taxing like crazy and spending like crazy.  What was the result?  In 1938, the unemployment rate was about 20%.  Great results for years of Keynes inspired policy. 

How about the second example?  Well, we had ourselves a bubble, didn’t we?  This here bubble in real estate was caused or exacerbated by what, I ask (if SO were next to me he would be shouting in my ear” Government intervention in the economy stupid!!”).  Yes, oh fictional SO, you are correct.  See, the Fed, whose primary and really only job should be securing the value of the dollar, got seduced into thinking it should run the economy.  So the Fed kept interest rate super duper low for a really long time.  When you lower the cost of something, you get more of it (that’s why income tax cuts tend to increase work and thus boost the economy).  The Fed really lowered the cost of borrowing and WOW SURPRISE, people borrowed a shitload.  You coupled this with two pseudo government organizations, Fannie and Freddie, that pushed for lots of mortgages.  See they could take huge risks of things because, in the end, they just knew the government would bail them out if they screwed the pooch (here’s an experiment.  Go to Vegas, Tell a gambler that you will make up any losses they have a craps but they get to keep the winnings.  See what happens to their risk aversion.).  So Fannie and Freddie bought up just about every super risky mortgage they could inspiring banks and such to make more such loans because they could make a quick buck writing them and then sell them off to Fannie and Freddie.  Well, we have forgotten about social engineering.  You see, the government decided that not enough of the right people were getting mortgages.  In the 1970s, they wanted to look into the problem, so they passed the Community reinvestment act, which issued report cards on banks and the people to whom they lent.  In the 1990s the government decided to give the Act teeth, and penalized banks that didn’t lend to the right people.  Well, the banks had to figure out a way to lend to these people so they developed products so that they could give loans to these poor underrepresented people.  Problem was, you couldn’t come up with a loan and say “no middle class white people can use this” in the fine print, so lots and lots of people started getting mortgages with no money down, or ARMS or stated income loans. 

Note that all the above were government interventions.  All, could be said to be Keynesian.

Posted by on 06/20/10 at 10:59 PM from United States

OK, now to answer your questions. 

How does cutting government spending and thus increasing unemployment make things better? Especially when the private sector is not investing. Where’s the demand going to come from?

There is only so much money.  When the government takes it, someone else doesn’t get it.  When the government borrows 2 trillion dollars, then that is 2 trillion less that will be invested in the private economy.  Since the Chinese aren’t going to hide 2 trillion under a really big mattress, they are going to invest it somewhere.  Absent government bonds, they will invest it in the private sector where it will be used to create jobs.  Generally much more efficiently that if it was used by government.  So, the private sector is not investing in part because the government is spending so much.  Because, again. The government can’t just wish money into existence-it has to come from somewhere. 
Answer number two to your demand question: Certainty.  Demand will rise when there is less uncertainty in the market.  FDR’s biggest philosophical mistake was “bold, persistent experimentation.” It was his governing philosophy.  He just kept trying different things.  Business hated this.  Why would you invest a bunch of money into something when the New Deal might nationalize it next year.  Or impose price controls on it.  We are facing that today.  President Obama keeps trying shit.  He just needs to stop.  He has harangued private companies, extorted deals from them and increased their costs.  All of this make people less likely to invest in business and more likely to buy gold (seen its price lately?) and do other safe things with their money.  Why take a risk when the rules are likely to change, several times, before you gamble can pay off?

Finally, some one tell me how having 400 people (the Forbes 400) accumulate $1.5 trillion dollars amongst themselves helps our economy? 

Concentrations of wealth create efficiencies in investments.  One of the reasons that Britain was home to the Industrial Revolution were the customs of Primogeniture and Entail which concentrated wealth.  France allowed its great fortunes to be diluted among many heirs, so their wealth was spread out and couldn’t be invested efficiently. 

And a philosophy that is pushed to make it taboo to speak out against great wealth. Basically the wealthy people controlling the masses with media , “think tanks”, politicians ect..

First of all, its “Etc.” for et cetera.  It can also be abbreviated “&c;” if you are feeling archaic. Sorry if that was a typo, it’s an error that bugs me (don’t get me started about using apostrophes to make plurals). 
Secondly, Hahahahahaha.  It’s “taboo to speak out against great wealth.”?  Really?  In what country do you live?  One of our two major political parties greatest campaign slogans are all about “speak[ing] out against great wealth.”?  Ever hear of (multi millionaire) Michael Moore?  How about, oh what’s the guy’s name, tall guy, lives in a big White House, cute kids, oh yeah, Barack Obama? 

Even if they had only $0.5 trillion amongst themselves they’d be pretty well off and if the other trillion was back in the economy in the forms of improved infrastructure, increased wages and jobs being spent over and over by middle class people you’d see this economy booming. instead it sits in offshore accounts doing nothing while aggregate demand suffers and calls for cuts in spending as a panic solution take hold being pushed from the control of the message by these overly wealthy thugs

So, ummm, you really do think that they hide their trillions under really big mattresses, don’t you?  Most billionaires in the US are invested in the US.  Really, I would love you to do some research and name me, oh, 5 of the Forbes top 40 who have the majority of their money overseas (might be that many, I don’t actually know).  Even if you do, here’s the rub.  Their money isn’t under mattresses over there, either.  It may be invested in foreign controlled funds, many of which invest in the US.  It may also be solely invested in foreign countries, in which case it is boosting wages and such and therefore demand in those countries, increasing demand which includes demand for American shit.  See, the big error the Smoot and Hawley (remember those guys?) made was in not knowing that the world economy was interconnected-by damaging the foreigners’ economies, they damaged ours. 

Well, I think I’m done for now, the wife wants to watch 24 on Netflix so I gotta stop with the computer geeking.

Posted by Hal_10000 on 06/21/10 at 07:14 AM from United States

Hey muirgeo1.  Nice to have someone who will argue the other side!

I’m not going to defend Bush’s policies.  However, I would point out that these policies involved

1) massive spending
2) economic stimulus in the way of tax cuts to encourage private consumption.
3) steel tarrifs, increased regulation (especially Sarbanes-Oxley)
4) artificially low interest rates, which encourage investment bubbles.

I would also take some issue with your use of statistics. Obama came in right at the nadir of the recession.  His policies did not take effect for several months.  And the current economic behavior is well south of his “do nothing” projection.  Moreover, the CBOs jobs numbers come from models, not data.

As for your general point, I went into this last week.  But Keynesian economic investment was tried from the very beginning of the Great Depression by Hoover and later by FDR.  It failed.  Keynesians economics was tried throughout the 1970’s by Nixon and later Carter.  It failed.

On the other side, shrinking government was tried by Harding, Coolidge, Truman, Kennedy, Reagan, Clinton and Thatcher.  In all case, the result was a broad-based economic boom.

Posted by on 06/21/10 at 09:11 AM from United States

As for manufacturing output the numbers are distorted as production overseas is counted in the total even thought it does nothing for our economy or for jobs. By your logic we should reach a point were machines are so productive NO ONE will have a job.... we’ll all work for Skynet I guess.

Yeah, well I suppose you’ve never heard of Lean Manufacturing. We produce parts in fewer operations with an end goal of Raw Material in and finished goods out in one operation. This is accomplished thru automation and process refinement. I have developed manufacturing cells that have displaced 30 people and dozens of operations, increased through put and improved quality.

The only way to compete in the global marketplace is either to work cheaper or to work smarter.

I’m not a bean counter but I’m sure, if your worth your salt, you’ll be able to find real data for mfg. output....if you wanted to.

As for your snarky shit on Unemployment....Perception is reality, and the majority of people percieve that things have gotten worse since obama took office. It really doesn’t matter where you place the blame. If Obama doesn’t change the situation he will be a one term president. HNIC becomes the Black Jimmy Carter.

Republican/Democrat doesn’t seem to make much difference to me. Dems spend and borrow more than we have a chance of repaying and raise taxes. Reps spend and borrow more money than we have a chance of repaying and cut taxes.

Bottome Line Obama has spent more money in less than two years than bush did in 8 years.

Posted by on 06/21/10 at 10:16 AM from United States

By your logic we should reach a point were machines are so productive NO ONE will have a job.... we’ll all work for Skynet I guess.

Someone still has to design, build, program and maintain all that automated equipment.  This is where a economy based on a higher technology means that those people previously employed doing chimp-level labor for union wages (vastly overpriced) are now employed at higher skill levels and are actually more productive (and typically better paid).

Go ahead, let China take over manufacturing toasters, blue jeans, and sneakers - the only reason they are doing it is so they can springboard to a high-tech economy of their own and then pass off the labor-based manufacturing to someone else.  In the meantime they all go from being peasant farmers to better educated factory workers that buy cars, microwave ovens, fast food, and cell phones.

Posted by on 06/21/10 at 11:06 AM from United States

Now, think for a moment if nobody was rich.  Who is going to finance ventures that require large amounts of capital?

This is on of my favorite thought experiments - the commies win and give everyone the exact same amount of money after first taking it all away from everybody.  The world is now broke, but hey, nobody has an “unfair” amount of money in comparison to everybody else.  So what happens next?  Things still need to happen, so how does it happen.

You have two options:

A) The government decides to run the entire show.  Everybody gets paid exactly the same no matter what they do; the guy digging ditches gets paid the the same as the guy programming computers who gets paid the same as the guy doing NOTHING AT ALL.

B) People pool their limited money together in order to create a large enough sum to start a project on their own.

The results of Plan A are known - total economic collapse.  Plan B is known as the stock market.  The problem today is that idiots want Plan B to subsidize Plan A - essentially theft from those that have risked their money to support those that risk nothing.

Posted by on 06/22/10 at 07:12 AM from United States

"Hey muirgeo1.  Nice to have someone who will argue the other side!”

Hey I love the debate. I’ve always liked this blog as it’s one of the more intellectual right wing blogs. You guys don’t hesitate to criticize hypocrisy even when it comes from the right.

My perspective is one of some one who voted for Reagan, Bush and even the libertarian candidates running against Clinton. I was an environmentalist and an atheist voting for republicans. I think the distortions from the right on climate change and other environmental issues pushed me over the edge along with the religious BS and the bizarreness of them being economic conservatives but wanting to regulate all sorts of social issues.

It’s a weird perspective going from a supporter of Rush Limbaugh and vehemently hating people like Barbara Boxers to flipping on my feelings for them.

I didn’t have time to address all the replies to my post. I would summarize that the big picture to me is the same as it has been through all of history and that is a struggle for control of power between an elite ruling minority and the masses.

What made this country great IMO was its ability to diffuse power via democracy and I see the Republicans ( and many Democratic leaders) giving it all away by selling out democracy for corporate dollars.

Today the historic struggle is represented as the struggle between corporate dominance and an actual “people run democracy”. The corporatist are clearly winning and getting their way and that’s a scary thing. They have little interest in free or efficient markets and less interest in democracy.

Some how people like me are labeled anti-business for siding with the gulf coast shrimper and not some Mega-multinational corporation that’s taking our natural resources and charging us for it while destroying our environment and jobs with it.

I just think the best solution is a truly representative government of the people. I think that would likely be a little more along the lines of the social democracies in Europe but I don’t think that’s a bad thing and I’d bet a lot of Republicans would agree if they understood the facts better and could be assured that the “government would keep it’s hands off their Medicare.”

Posted by on 06/22/10 at 02:47 PM from United States

Today the historic struggle is represented as the struggle between corporate dominance and an actual “people run democracy”. The corporatist are clearly winning and getting their way and that’s a scary thing. They have little interest in free or efficient markets and less interest in democracy.

I agree with this statement. The problem is that “the corpratists” have over run both political parties.

I think you’ll find more fiscal conservatives today keep an arms length from repubilcans and are more aligned to libertarians than in past years.

The Social conservatives are all still happy republicans.

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