Almost Classical

Repeatedly, I have written that "austerity" is not the source of problems in parts of Europe, since there hasn't been any real reduction in spending, no thoughtful labor reforms, and no general political reforms. Tax increases have certainly hurt in some nations, but overall the lack of serious change is the problem. Also consider Japan, where stimulus in the form of spending and monetary easing hasn't worked — though it is the "solution" proposed by many progressives. I'm not an absolutist, as the real solutions to economic stagnation are likely beyond simplistic and ideological adherence to any school of thought. Everything the Keynesians argue for, is and has been done. Yet, there is stagnation. The following article from Forbes  supports my views: 'Austerity' To Blame? But Where's The Austerity? http://www.forbes.com/sites/paulroderickgregory/2013/05/26/austerity-to-blame-but-wheres-the-austerity/ by Paul Roderick Gregory D...

And now we see the Broken Windows Fallacy taken to an extreme — on CNBC of all websites. Damage From Sandy? What About Potential Economic Boost? - Asia Business News - CNBC The positive multiplier effect of reconstruction after Sandy could be as much as five times, according to Frank Holmes, CEO and CIO of money manager U.S. Global Investors. If the cost of the damages comes up to $20 billion, the economic boost in terms of spending and activity could be $100 billion, he said. Hurricane Sandy might appear to create economic activity, but such activity is not going to have the multiplier effect some theorize. At least, not based on the experiences of previous disasters. By this twisted logic, the horrible events of Sept. 11, 2001, should have been an economic boost: buildings and transit lines had to be rebuilt. Instead, the economic effects linger for many families and businesses. Sandy is just one more thing New York and New Jersey didn't need. There are many, many probl...

Stimulus — oh, that's right, we now call it "growth policies — will not save Europe. How do we know? Because the countries in the greatest trouble were spending… and spending and spending some more. Spare the rod, spoil the child | TribLIVE : Johan Norberg, a senior fellow at the Cato Institute, summarizes the results: "From 1997 to 2007, government expenditures increased by around 6 percent annually in Spain, Portugal and Greece, while population remained mostly stable. Spending increased by 4 percent a year in Italy -- even while the economy shrank."  Consequently, "Between 2000 and 2010, Portugal increased its public debt as a share of GDP from 49 percent to 93 percent, France from 57 percent to 82 percent, Italy from 109 percent to 118 percent, and Greece from 103 percent to 145 percent," reports Norberg. How hard is this to figure out? There was no "austerity" even under conservatives in Europe, as I wrote in a previous blog entry. The U...

In the last few days, various economists and experts have been quoted declaring "Austerity in Europe has failed." For some examples of this see the following on CNBC: Spain Downgrade Proof Austerity Not Working Published: Friday, 27 Apr 2012 http://www.cnbc.com/id/47200362 The problem with this argument is that neither "austerity" nor "stimulus" will help Europe recover until the real problem with the EU national economies can be addressed: they are anti-business, anti-innovation, and anti-growth. You can spend all the money (stimulus) imaginable, but if national policies dissuade or punish private innovation and job creation, the stimulus cannot and will not create permanent growth. When the stimulus ends, job losses and declines will resume. Likewise, you cannot cut (austerity) your way to prosperity if you do nothing to revitalize industry and job creation. Cutting government is good, but pointless if you aren't also encouraging busines...

When Paul Krugman and other progressives talk about the risks of austerity in Europe, they are forgetting a basic fact: Europe and Japan are getting grayer and grayer. There are more retirees than young people, and that means lower and lower rates of productivity. I often cite two authors willing to confront this truth: Megan McArdle and Robert Samuelson. In the April 2012 issue of The Atlantic, McArdle bluntly assesses the issue of a graying population in the Western nations. It is a problem the United States will soon experience, too. First, a few paragraphs from the lengthy McArdle piece. You absolutely should read the entire article. (If you don't read The Atlantic, you should.) Europe's Real Crisis The Continent's problems are as much demographic as financial. They won't go away soon. By MEGAN MACROCELL  http://www.theatlantic.com/magazine/archive/2012/04/europe-8217-s-real-crisis/8915/   Italy's fertility rate has actually been inching up from it...

Political wisdom, fiscal malpractice. That would be my description for the much ballyhooed "payroll tax cut" supported by a bipartisan chorus of political leaders. The cut is good politics — and fiscal malpractice. Let's begin with some basic facts on the payroll "tax" situation: Most of us with 401K or similar retirement plans invest between 3% to 6% and employers match some portion of this contribution. That's basically how Social Security is also structured: the employee and employer contribute to the fund. The previous and supposedly standard payroll deduction for Social Security is 6.2% of your first $110,100 of income. With the "temporary" reduction, workers are contributing only 4.2% of that income to Social Security. If you are self-employed, you normally pay 12.4% to Social Security, but with the "reduction" you are paying "only" 10.4% (the employer's 6.2% plus the employee's 4.2% rates). The so-called ...

Some of my friends and colleagues in the "orthodox economics" camps have tried to make the case that debt is necessary at times for growth, or at least stability. While there is merit to this line of reasoning, it is also a risky simplification of economic realities. To argue their point, these traditionalists point to household spending. One friend, a left-leaning political scientist with solid economics knowledge, described it thusly: All of us assume debt to improve our lives, and government is no different. We take out loans on homes, cars, our educations, and to finance our businesses. Government has to do the same. You've taken on debt, I've taken on debt, and we did it for better futures. Arguments for a larger stimulus and more investment in some projects would have made sense ten years ago, but today those arguments ignore the experiences of Japan and southern Europe, where "investments" by the government did not revive flagging economies. I do...

This week, a CNN/Opinion Research poll found only 43 percent of potential voters favor Obama's jobs plan. That means 57 percent aren't convinced this plan will do much. In another poll, 51 percent of likely voters said the plan was likely to have no effect on unemployment. "But… but… but…" the President's people stammer. "Economists like Moody's Analytics Chief Economist Mark Zandi says it will create 1.9 million jobs!" That's the problem. The public is starting to realize that economists are "unexpectedly" useless when it comes to forecasting the economy. If you want evidence, do a search on the word "unexpectedly" and any combination of "unemployment," "housing," "prices," "wages," or "inflation." Today's top story on CNBC: The weekly jobless claims number, which is closely watched as an indicator for employment trends, unexpectedly rose 11,000 to 428,000, well ahe...

I have written in the past that I doubt the "multiplier" effect some economists and politicians cite when promoting federal spending. I believe this column makes several good points: The Myth of the Multiplier - Reason Magazine There are "indirect" multipliers, which I do believe are real — though not perfect. Money spent on roads and highways, for example, enables transportation of goods. The problem is, even spending on transit systems is seldom wisely managed. Government is not efficient. Even what it should do, such as providing for the national defense, it does inefficiently. I admire the military, but it isn't efficient. Any "multiplier" effect from military spending is long, long term and often hard to quantify versus the waste. NASA has created technologies that do provide economic benefits, certainly, but the NASA of today cannot even replace the space shuttle program in a timely fashion. The private contractors linked to NASA ...

I support spending, wisely, to both maintain and upgrade the infrastructure of the United States. There is little room for debate that our infrastructure is dated, crumbling, and often inadequate for the current century. Yet we should be skeptical of politicians suggesting "public works" to rebuild our transportation, power, and facilities will somehow reduce unemployment and lead to a nearly immediate economic boom. The reality is improving our infrastructure would, at best, keep us even with other nations and would merely prevent further economic decline. Any improvement to our economy would be slight, if quantifiable at all. The reason for this is simple: The American Society of Civil Engineers estimates that as of 2011, deferred maintenance of U.S. infrastructure would cost at least $2.2 trillion to perform. In other words, for $2.2 trillion we would only maintain current service levels. A few extra cars or trucks might be able to use a road or bridge, but overall the eff...

I suggest reading this article: Politicians Cause Downsizing “It was an enormous surprise, at least to us, to learn that the average firm in the chairman’s state did not benefit at all from the increase in spending,” says Coval. “Indeed, the firms significantly cut physical and R&D spending, reduced employment, and experienced lower sales.” -- Let's hear it for stimulus spending… The fact scholars were surprised that government spending does not result in improvements to a local economy is pretty sad. Most business owners could have explained this basic of Econ 101: government takes resources from the private sector, whether it is money (taxes) or intellectual capital (employees). Governments compete against the private sector and when the government is losing it can change the rules. Consider the U.S. Postal Service. Each employee of the postal service is also a potential UPS or FedEx employee. But, laws prevent private competition in standard mail delivery. You can buy a m...

There is little doubt that the last two years are the result of lax SEC enforcement under Chairman Cox (R) and the Bush (R) administration took far too long to react to such nonsense as credit default swaps. Add to this the Democratic Congress' refusal to control Freddie and Fannie... here are the results: January 3, 2007 - Democratic Congress seated - DOW = 12,398 November 4, 2008 - Barack Obama elected - DOW = 9,625 (down 22.3%) January 20, 2009 - Barack Obama sworn in - DOW = 8,228 (down 14.5%) February 18, 2009 - Barack Obama signs "stimulus package" into law - DOW = 7,556 (down 8.2%) Close on Thursday February 26, 2009 - DOW = 7,182 (down 5.0%) In terms of decline alone: Total market collapse since Democrats took control of Congress - DOW down 42.0% Total market collapse since Obama elected - DOW down 25.4% Total market collapse since Obama sworn in - DOW down 12.7% And today, the GSEs announce that they need more taxpayer...