“Our practical choice is not between a tax-cut deficit and budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve . . . a budget surplus.” John F. Kennedy


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Aug 31 2011

Krugman and Irene

C.M. Phippen

Two weeks ago, Paul Krugman was calling for a fake alien invasion to stimulate our economy. I think he’s almost gotten his wish.

Estimates of damage from Hurricane Irene range anywhere from $13 billion to $45 billion. Think of all the jobs that will need to be filled. Better yet, much of the work that needs to be done will be paid for with borrowed government funds – it’s a Keynesian’s dream.

Rebuilding should keep people busy for a little while, and when they’re done up North they can head down to Mississippi and help the rebuilding effort still going on down there, six short years after Hurricane Katrina.

Of course, this is the same Paul Krugman who suggested that in order to replace the Nasdaq bubble of the late 1990s, “Alan Greenspan needs to create a housing bubble.” He saw this as the solution to the lack of corporate spending; “soaring household spending” was, to him, the answer. In other words, moving money around in the economy by creating artificial growth.

In fact, the White House is now defending the idea that government transfers through extended unemployment insurance actually lead to growth. The assumption is that without those transfers, no money would be spent by unemployed individuals and with the transfers, no incentives for less productive behavior are taking place. If both of those things were true, the Obama economic policy might be preferable to nothing. Unfortunately for Team Obama, they’re not.

According to Alan Krueger, Obama’s newly-appointed economic advisor, extended unemployment benefits (wealth transfers) increase length of unemployment and can lead to more layoffs. Studies have shown that the closer one is to the cut-off point for benefits, the longer time spent actually looking for a job.

As far as the White House’s claim that each dollar in unemployment benefits spending leads to $1.73 in short-term economic growth, false assumptions are made which equate each dollar in benefits with one dollar spent. For every dollar in additional unemployment benefits, only $.55 actually makes it into the economy because individuals tend to reduce their reliance on their own savings if the government will pay them and for married individuals, spouses tend to reduce hours worked when benefits are increased.

The past three years have shown us Paul Krugman and the left’s version of economic growth – government jobs, government “investment” and government wealth transfers with weak economic growth and stubbornly high unemployment (but hey, we’ll all have that “free” healthcare soon!). Forget business investment, product development, innovation, increased efficiency; no, this moving money around thing is just working so well.

Aug 31 2011

President Obama’s Bank of China

See my article about the national debt published in August 2011′s edition of Smart Girl Nation, entitled President Obama’s Bank of China.

Aug 10 2011

Riots and Rhetoric

C.M. Phippen

“It’s the rich people, the people that got businesses, and that’s why all of this is happening, because of rich people. So we’re just showing the rich people we can do what we want.”

Oh, the dangerous rhetoric of . . . our president?! Oops, maybe it’s not such a smart idea to demand an end to “dangerous” speech when yours sounds just the same as so many mayhem seekers around the world. I’m racking my brain, just trying to come up with a time when I heard rioters say that they were destroying other people’s property and causing utter chaos because the government wouldn’t stop its out of control spending. Anyone? . . . Anyone? . . .

Aug 6 2011

Household Debt, Washington Debt

Here’s the explanation of Dave Ramsey – the guy who’s built a business helping people get their finances under control – putting the Washington debt debate in terms the average guy can understand:

If their household income was $55,000 per year, they’d actually be spending $96,500—$41,500 more than they made! That means they’re spending 175% of their annual income! So, in 2011 they’d add $41,500 of debt to their current credit card debt of $366,000!

And S&P was the only one of the three rating agencies to downgrade our debt?

Aug 4 2011

Obama and the Never-Ending Recession

C.M. Phippen

With the debt ceiling debate finally over in Washington, it’s time to take a serious look at where our economy is headed and what are realistic expectations for job creation and growth.

The US federal government has borrowed $4.5 trillion, most likely the biggest Keynesian experiment in the history of the world in a peacetime economy, and economic growth apparently hasn’t been much stimulated. Stephen Moore made this point on The Kudlow Report recently. The response of Dean Baker, echoing once again the tired excuse for failure that has become the mantra of the left, was that things would have been much worse without all that “stimulus.”

Baker makes the assumption that the alternative to borrowing and spending (moving around) $4.5 trillion would have been to do nothing. He then went on to say that the current slowdown in the economy is precisely because government spending has slowed down.

Maybe I’m confused, but I thought the purpose of stimulus was to actually trigger growth, not to simply keep money moving around in the economy. The problem is, that’s all Keynesian economic stimulus actually does.

The theory is based on the idea that deficit-financed funds injected into the economy by government (after being taken out through the purchase of government bonds in the first place) will stimulate growth down the line. In tough economic times, individuals horde money just like the left is accusing large corporations of doing. The US savings rate is at its highest point since the late 1990s, even with high inflation. (Nearly 30 percent from 2010 – 2011). The effect then remains the same as if the original investor had simply placed his money in a bank account; only now our government has new, massive amounts of debt we all get to pay back.

Here’s a hint for Baker: There are other alternatives. A relatively straightforward comparison can be made between Ronald Reagan and Barack Obama. The policy differences between these presidents couldn’t be more stark, nor could the effects of their policies on the growth of the US economy.

Reagan began his presidential term with high unemployment (10.8 percent in 1982), double-digit inflation, a poverty rate that rose significantly (33 percent) through the late 1970s into the early 1980s, a 10 percent drop in real-median family income during that same period, and a Dow Industrial Average that was down 70 percent from 1968.

During the seven year Reagan recovery, the economy grew by nearly a third, private sector employment increased 20 percent, real per capita disposable income grew by 18 percent, the poverty rate declined every year from 1984 through 1989, and the stock market more than tripled from 1980 to 1990.

If we compare the first seven quarters of recovery under Obama with those of Reagan, here is what we find, from Peter Ferrara:

…While the Reagan recovery averaged 7.1% economic growth over the first seven quarters, the Obama recovery has produced less than half that at 2.8%, with the last quarter at a dismal 1.8%. After seven quarters of the Reagan recovery, unemployment had fallen 3.3 percentage points from its peak to 7.5%, with only 18% unemployed long-term for 27 weeks or more. After seven quarters of the Obama recovery, unemployment has fallen only 1.3 percentage points from its peak, with a postwar record 45% long-term unemployed.

One more illustration: