Tag: Keynesian economics

Friday Roundup: Guns, Money and Gag Orders

A few stories to close out your week:

  • Following on Alex’s post on the attempt to squash free speech at Reason, the Best Magazine on the Planet has gotten the gag order lifted and broken their silence. What they relate is appalling. Not only did the USA try to get personal information on Reason’s commenters, they got a gag order to try to prevent Reason from notifying those commenters that the government was seeking their information (Reason had already notified them by the time the order came). It’s a must-read on a government that is determined to shred any semblance of privacy.
  • Earlier this week, Treasury announced that the new $10 bill will have a woman on it, although it’s not clear who that will be or how she will “share” the bill with Alexander Hamilton. As someone who favors a radical overhaul of which faces are on our currency, I’m moderately in favor of this. But I much prefer the idea of putting a woman on the $20 for reasons articulated by Jillian Keenan (namely that Jackson was a racist slaveholding genocidal shredder of the Constitution). Still, there are lots of women we could honor: Harriet Tubman, Harriet Beecher Stowe, Eleanor Roosevelt, Elizabeth Cady Stanton, Susan B. Anthony, Sally Ride, Clara Barton. I would take all of these over Jackson. And I wouldn’t mind if we took all the politicians off our currency.
  • How bad was the security at OPM that led to the huge data breach? Really really bad. And they won’t fix it. Change we can believe in!
  • If you’re having trouble finding delicious barbecue, blame government. They are literally outlawing the kind of slow-cooking methods that make for such deliciousness. And it’s not really clear why other than “because they can”.
  • It will come as no surprise to readers of this blog that Paul Krugman and the Keynesians are full of it again. They are citing Iceland an example of how expansionary fiscal policy can save an economy. The problem? In this thing called reality, Iceland endorsed a severe austerity, with significant spending cuts and tax hikes.
  • The blamestorming for Charleston has already begun. Here is a quick refresher about the media’s desperation to blame horrific acts of violence on the Right Wing.
  • And finally, Reason has a feature on a college student who was busted with pot, turned informant and was murdered. No one is accountable, as usual. I’ll spare you my usual War on Drugs rant, in favor of my other favorite one: when dealing with cops and prosecutors, always get a lawyer. Never negotiate on your own.

Obama, Man of Contradictions

Last week, Alex put up a good takedown of the talking points from Obama’s State of Union Monarchial Address. But I’ve thinking about it for a week and there’s one thing I keep circling back to:

Almost everything that Obama claims credit for has come from policies he opposed.

A list of the things that Obama is claiming credit for it too long for a blog post since I’m pretty sure he’s now claiming credit for the sun continuing to rise. And that’s understandable: a good job description of “President of the United States” would be “someone who takes credit for anything good that happens”. But you can burrow down to several specific things he’s crowing about. And the striking this is that almost all of them are the result of policies he has opposed.

First, Obama took credit for the shrinking budget deficit. Putting aside that it’s easy to shrink a deficit after you’ve exploded it, the progress on the deficit, such as it is, has come from things Obama or his liberal travelers opposed — budget rescissions and the sequester. And it came without the thing they insisted was needed: massive tax hikes on the rich. The reason the deficit is smaller is because Republicans held the line on spending, keeping the level of spending flat for the last four years despite endless and repeated demands from Obama and the Democrats for ever more “stimulus” spending. The Keynesians out there, having caught their breath from screaming about how sequestration would wreck the economy, are now screaming that the 2009 stimulus finally worked, six years down the road. Whatever supports their bias, I guess.

(It should also be noted that the deficit may start rising again as soon as next year because of the failure to address entitlement spending.)

Obama also took credit for falling gas prices and booming oil production. But oil production on Federal land has actually fallen over his tenure. And he has opposed new energy projects like Keystone XL. His party has opposed fracking and just got it suspended in New York on dubious environmental justification. This is the man who, in 2012, specifically said we couldn’t drill our way out of this and that $2 gas was a fantasy. To be fair, I think the low in gas prices is temporary and prices will start rising again. But the overall point remains: increased oil production was not supposed to either be possible or to help with the energy crunch. And how does Obama reconcile this energy boom with his demand for restrictions on fossil fuel exploitation to combat global warming? He doesn’t. He simply talks out of both sides of his mouth.

(Speaking of global warming, Obama touted the agreement with China. But as I pointed out at the time, the CO2 reductions under that agreement are ones we were likely to meet anyway due to things that having nothing to do with Barack Obama: increased fracking and improvements in energy efficiency in the private sector.)

The biggest boast from Obama was about the economy, which had its healthiest quarter in 15 years. Obama is spiking the football on the economy and that’s understandable, given the howling recession he inherited. But the improvement of the economy came not when we got the stimulus, not when we got Obamacare, not when we passed Dodd-Frank but when we stopped persuing Obama’s agenda. Stimulus spending stopped. Subsidies stopped. Keynesian bullshit stopped. And suddenly, we’re doing better.

In fact, we’re just now finding out that a particularly vital piece of liberal received wisdom may have been garbage:

How much did cutting unemployment benefits help the labor market?

Quite a bit. There is a new NBER Working Paper on this topic by Hagedorn, Manovskii, and Mitman, showing (once again) that most supply curves slope upward, here is one key part from the abstract:

In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.

There is an ungated copy here (pdf). Like the sequester, this is another area where the Keynesian analysts simply have not proven a good guide to understanding recent macroeconomic events.

You see that? When the Republicans said that extended unemployment benefits were keeping people out of work, they were pilloried for it as heartless ignorant savages. We were told it was cruel to cut off unemployment benefits based on half-baked theories of labor. Now this is only a working paper, not a refereed one. But the simple fact is that the labor market has surged as unemployment benefits were cut off.

I’m willing to give Obama credit for some things. It’s true that more people are insured. But that tends to happen when you make being uninsured against the law (excuse me, subject to a tax). And the expense of insuring those people has proven as steep as skeptics predicted. And I’ll give him some credit for drawing down our overseas commitments (although the idea that we are out of Afghanistan is laughable). And … um … I’ll even give him credit for part of the achievements above. He did, after all, agree to the sequester. I’ll agree that the stock market is booming. But it wouldn’t be if Obama had gotten his demands for more taxes on capital gains, a financial transactions tax and a push to address income inequality.

But Obama’s biggest achievements are not his … or at least not his alone. The lion’s share of the credit has to go to the Republican Congress for ignoring everything he wanted to do. They didn’t restrict energy exploration, they didn’t pass more dunder-headed stimulus spending, they did hold spending flat, they did cut off unemployment benefits. Every single one of those things was predicted to be a disaster and yet none of those disasters have materialized. And now Obama and his Keynesian allies want to claim credit.

I don’t expect this to matter to the Democrats. Keynesian economics, command-and-control regulation, the wisdom of the welfare state — these things are articles of faith. But the evidence that they work — least of all that they deserve credit for the “Obama economy” — is scant to say the least.

A Recovery About Nothing

As you know, there are signs — tentative ones — that our economy is beginning to recover from Great Depression II. It’s about on schedule — I thought we would need about five years to crawl out of the hole we were in. But we had 5% growth in Q3 and unemployment continues to edge down (although the U6 remains high). Projections for 2015 are cautiously optimistic, barring a major war or something (which, with Obama, is always on the cards).

I have noted, however, that this recovery runs against the dogma we’ve been hearing from the Keynesians and pseudo-Keynesians on the Left Wing. According to them, the “austerity” of the last few years (i.e., flat spending) should have caused us to have a double-dip recession. David Harsanyi expands on this:

But if activist policies really have as big an impact on our economic fortunes as Washington operatives claim, I only have one question: What policy did Barack Obama enact to initiate this astonishing turnaround? We should definitely replicate it.

Because those who’ve been paying attention these past few years may have noticed that the predominant agenda of Washington has been to do nothing. It was only when the tinkering and superfluous stimulus spending wound down that fortunes began to turn around. So it’s perplexing how the same pundits who cautioned us about gridlock’s traumatizing effects now ignore its existence.

For instance, Paul Krugman wrote a column titled “The Obama Recovery.” The problem is that the author failed to justify his headline. It begins like this:

“Suppose that for some reason you decided to start hitting yourself in the head, repeatedly, with a baseball bat. You’d feel pretty bad. Correspondingly, you’d probably feel a lot better if and when you finally stopped. What would that improvement in your condition tell you?”

Suppose you tell us what the bat represents, because spending in current dollars has remained steady since 2010, and spending as a percentage of GDP has gone down. In 2009, 125 bills were enacted into law. In 2010, 258. After that, Congress, year by year, became one of the least productive in history. And the more unproductive Washington became the more the economy began to improve.

Krugman argues that the recession lingered because government hadn’t hired enough people to do taxpayer-funded busywork. The baseball bat. But then he undercuts this notion by pointing out that there was an explosion of public-sector hiring under George W. Bush—the man he claims caused the entire mess in the first place. Krugman also ignores the stimulus, because it screws up his imaginary “austerity” timeline. He then spends most of the column debunking austerity’s success in Britain.

Britain’s “austerity”, incidentally, was called austerity when the UK economy was stagnant. When it began to recover, the exact same budgets were described as having abandoned austerity. With the Keynesians, it’s always heads they win, tails we lose.

This recession was not about a lack of demand or a lack of spending. It was about the huge amount of debt that the American people had dug themselves into. That debt has declined — mortgage debt is down and consumer debt is down. Student and public debts have risen but not as sharply. In short, we’re finally getting out from under the 16,000 pound boulder that was the Housing Bubble. And, who knows? Maybe things would be better if we didn’t have the 10,000 pound boulder of federal debt and the 2,000 pound barbell of student loans.

OK, I’m letting that metaphor get away from me.

Anyway, our gridlocked do-nothing Congress has failed to pass a “jobs” bill, has failed to enact “temporary” stimulus and has cut programs to “build the economy”. And the result is the healthiest economic numbers in a decade.

Funny how well we can do when our government stops “helping” us. Now imagine if we could get them to stop giving us “free” healthcare and regulating our every move.

The Fantasies of Government

I found this story amusing, but not for the reasons Vox intended. In 1939, Franklin Roosevelt moved Thanksgiving back a week in the calendar. Vox goes into the culture war that erupted but I was more interested in his motivation for doing so:

Since the late 19th century, Thanksgiving had traditionally been celebrated on the final Thursday in November. But in 1939, Roosevelt’s seventh year in office, that last Thursday fell on November 30. And that left a mere 24 days of shopping time between Thanksgiving and Christmas.

Retailers believed this would lead to less money spent on holiday gifts, and would therefore hurt the economy (and, of course, their own bottom lines). The solution seemed obvious — the date should be moved one week earlier, to Thursday, November 23. Roosevelt agreed, and announced on August 15, 1939, that he would do just that, with an executive proclamation.

Let your mind boggle. Our President thought that he could help the economy by adding some extra Christmas shopping days to the year. Because, I guess, people do their Christmas shopping until the stores close not until they’ve run out of money or gifts to buy.

The “stimulus” didn’t work for the reason Cash for Clunkers didn’t work. All it did was change when people spent their money, not if. But I want you to marvel at the hubris in FDR’s change to Thanksgiving: a belief that government simply telling people to shop seven more days would make them shop for seven more days. It’s a microcosm of every Keynesian will-o-the-wisp economic salvation that comes down the pipe.

The Latest From the Keynesian Front

A couple of years ago, Japan’s Prime Minister Shinzo Abe instituted a program that made Keynesians everywhere wer their pants with joy. Abenomic consisted of fiscal stimulus (i.e., spending), quantitative easement (aka inflation) and structural reform. The result?

Japan is now in a recession. Oh, and their debt is up 230% of the GDP.

Now doubtless the Keynesians will have explanations for it. Keynesianism can never fail; it can only be failed. The Hoover years didn’t disprove anything. 1946 didn’t. The 1960’s didn’t. The 1970’s didn’t. 1993 didn’t. Like the Communists of old, Keynesians believe their pet theories are proven laws of nature and if the facts don’t fit the theory … well, ignore the facts. Their biggest excuse is that Japan raised sales taxes by 3%. I would submit that if that kind of modest tax hike derails what the Kenyesians themselves labelled as the best test yet of their theories, your theories are bullshit.

Oh, one economy that is starting to grow? Greece’s. This also shouldn’t be happening because of the austerity. Nor, as a matter of fact, should our economy be growing.

At one point does the mere thought begin to speculate about the merest possibility of crossing our minds that Keynesianism doesn’t work?

(All of the above comes with the caveat the most “Keynesians” these days are actually pseudo-Keynesians. They love the part where you spend during a recession. They’re not so keen on cutting spending during growth. Practically, Keynesianism is less an economic theory than an excuse to perpetually grow government.)

Numbers and Narrative

Two economic numbers have come out in the last few days. The first was that the economy grew at an “unexpected” 2.8% rate in the third quarter. The second was that October jobs came in at 204,000, which is almost … not unhealthy? 60,000 jobs were added to previous months. U-6 was up a bit but is still several point down from its peak and labor force participation continues to fall.

Caveat time: even the good numbers will be revised and the smart money is that both will be revised downward. The job numbers, in particular, are very shaky because of the BLS was closed during the shutdown.

That having been said, I am having too much fun watching the Keynesians scramble to explain this. The combination of sequester and government shut down is supposed to be plunging us into a recession. Now maybe they will have effects that are felt months out from here (the last debt ceiling showdown produced a dip in the job creation numbers of a few hundred thousand over several months). But you know that if the GDP and jobs numbers were bad, assholes like Mark Zandi would be running around saying that this proved their theories. Now that the numbers — wrong though they may be — show the opposite of what they predicted, they are going full Dean Chambers on us, claiming that the numbers are skewed for one reason or another.

Because no matter what, we can never question the validity of tax-and-spend economics.

Bush the Keynesian

Veronique de Rugy:

I don’t quite agree with de Rugy here on the efficacy of the later Bush tax cuts, but I think she’s more or less on the money. The Keynesians have yet to explain why the biggest spending President in American history (so far) who ran up the biggest debts (until Obama) and slathered the nation with demand-side tax cuts failed to produce an unending economic boom.

We can’t pretend that Obamanomics started in 2009. A shadowy version was running as early as 2002. And the only complaints were that Bush wasn’t spending enough. So why did we see a lost decade of minimal wage growth? Why did we end the decade poorer than we started it?

Update: The Keynesians are countering that Bush spent during an expansion, not a recession. Several problems with this. First, we were in a recession when Bush started and were in a recession when he ended. Second, the point is that the Bush economy was largely an illusion; a similar Keynesian-fed Obama recovery will also be an illusion. And third, since when have the Keynesians ever called for spending cuts during a healthy economy? I mean, ever? Hell, they constantly talk about 1937, when FDR scaled back some spending, as an example of what we can never ever do?

Make up your minds, guys.

Feelin’ Fine

OK. So yesterday, Obama said this in an economy speech. I’ll give the entire quote so you don’t think it’s out of context:

We’ve created 4.3 million jobs over the past 27 months. The private sector is doing fine. Where we’re seeing problems is with state and local government, often with cuts initiated by governors or mayors who are not getting the kind of help they’re accustomed to from the federal government.

(Aside before I get into this. That’s a pace of 159,000 jobs a month. That’s decent, but barely above population growth. We are still in the slowest recovery since the Depression, no matter how much you manipulate the stats.)

As you would expect, the Right Wing is jumping all over the statement that the private sector is doing fine while various left-wingers try to defend it. The problem is that it’s not the dumbest thing in that sentence. The second half — about the loss of government jobs — is the more disconcerting phrase. Ezra Klein, linked above, explains the numbers and thinking behind the statement:

Since Obama was elected, the public sector has lost about 600,000 jobs. If you put those jobs back, the unemployment rate would be 7.8 percent.

But what if we did more than that? At this point in George W. Bush’s administration, public-sector employment had grown by 3.7 percent. That would be equal to a bit over 800,000 jobs today. If you add those hypothetical jobs, the unemployment rate falls to 7.3 percent.

Both of those numbers, it should be said, are holding all else equal: If more workers had reentered the labor force, the unemployment rate could be higher. And if there were 1.4 million more Americans with jobs, they’d be spending money and creating jobs for other people. So private-sector employment could be higher, too.

Barack Obama continues to push “jobs” legislation that would, in effect, shovel money to the states to encourage them to hire. And according to people like Klein, this would bring the unemployment rate down at least a full point. But I find this thinking dangerous and misinformed for three reasons:

First, as I have sad many times, you should not be using George W. Bush as your standard. The point of the 2000’s was that government grew way too fast and became far too large and bloated. It was a bubble as much as housing was. The contraction in the public sector is necessary; it’s the result of a bubble popping. You do not respond to this by re-inflating the bubble. You do not “help” states that have just gotten their fiscal house in order by giving them money to hire new workers and create massive future obligations.

That’s the thing people forget about stimulus: it becomes part of the baseline. Today’s “shovel ready project” is tomorrow’s continuing support. Today’s hire is tomorrow’s retiree. With states already groaning under the burden of employee benefits, a wave of new hires is not what they need.

Second, the idea that hiring government workers will stimulate the economy and even, in the words of Pelosi, “pay for itself”, requires assumptions even a Keynesian would blush at. Presently, the government collects 15% of GDP. That means you would need an economic multiplier of six for these things to pay off. That’s twice what even the most optimistic Keynesian imagines and almost six times what many economists believe.

Finally — and most importantly — government is not a jobs program. When government creates jobs, it is a side effect of government doing the things that we, the people, have decided government should do. And our goal should be to have government do those things with the minimum number of jobs. If it is using too many people to accomplish its goals, that is simply wasting money and wasting human potential on busy work. It is paying people to, effectively, dig holes and fill them up again.

The purpose of a police department is to enforce the law, not to “create jobs” for cops. The purpose of a fire department is to fight fires, not to “create jobs” for firefighters. The purpose of our military is to fight wars, not to “create jobs” for soldiers. Hell, we could drive the unemployment rate to zero by starting a war and drafting everyone. Does anyone think that’s a good idea? Then why is it a good idea to do it on a smaller scale? It’s fine that people can find careers in government, but that’s incidental to government doing what government does.

We need to stop thinking of government as some kind of gigantic jobs program. Creating jobs is not the purpose of government nor is it something government is particularly good at. It stinks that 600,000 people have lost their jobs. But what stinks more is having hired them in the first place when there was no long-term ability to retain them. And it would be a stench beyond measure to engage in yet another unsustainable wave of hiring.

Argentina and Japan

Wasn’t it just like a week ago that Paul “Wrong Way” Krugman was praising Argentina? And wasn’t it this week that he gushed over Japan’s growth, stimulated by tsunami reconstruction?


Recently, two more countries have felt the bite of Keynesianism. Today, the credit ratings agency Fitch downgraded Japan’s economy and the AP reported that the Argentinian economy is likely to decline sharply. While Japan and Argentina might be different kinds of economies performing differently in different markets, their recent bad news can be attributed in part to a fondness for government spending.

These countries have used two different approaches to Keynesianism, but it amounts to the same thing: gushers of debt, oceans of spending and rivers of “stimulus” producing … bad economies. And that’s ignoring, for the moment, the recent downgrades of all the other economies trying to spend their way into prosperity (the US) or raising taxes and calling it “austerity” (most of Europe). They have not acted as dramatically as Japan and Argentina have, which is probably they aren’t hurting as much. Yet.

Is Keynesianism ever wrong? Really, it’s only a matter of time until they drag out the Phillips Curve again.