Saturday 21 September 2013

Poor Policies; Poor Predictions

The Obama Administration and the Federal Reserve have consistently over-estimated the strength of the US economy.  The Fed has, on no occasion since 2009, had a remotely accurate prediction, constantly and consistently over-estimating economic growth by well over 40 percent on average.  With that record, one wonders why anyone cares what the Fed thinks about the future.  (The Wall Street Journal on Thursday reported, in a graphic, the predictions that the Fed had made over recent years).

Now, economists like Laura d'Andrea Tyson, a Clinton economic advisor, wonders why the poor are getting poorer in the Obama non-recovery since 2009.  After five years of government expansiveness and a Federal Reserve out-of-control, the rich are getting richer and the poor and middle class are losing ground.

Strangely, these results were perfectly predictable.  They follow from the Obama policies.  We have implemented in detail what David Stockman, in his recent book "The Great Deformation," has excoriated as 'crony capitalism' that benefits mainly rich folks.  It is no wonder that Warren Buffett supports all of this.  He does well in an Obama economy.  I doubt that his secretary's income is growing as fast as his personal wealth, regardless of who pays what in taxes.

Buffett, like other rich folks, is a hypocrite.  He knows that Obama's policies mainly benefit folks like him and destroy opportunity for the middle class and reduces them to scrambling for part-time work or applying for food stamps and other subsidies.  For Buffett, that works.  For Obama, that works.  For the poor and middle class, this is disaster.

Obama's only economic initiative this year is to encourage expansion of a law that makes it a criminal offense to hire an employee below a certain wage level.  This means that low-skilled workers that wish to learn a skill on the job are told.....no!  Forget about taking a job, without pay if necessary, to learn a useful skill that will enable you to get a real job.  That kind of apprenticeship, long a staple of growing economies, has been criminalized.  Obama would like to criminalize it further.

You wonder why Obama doesn't just propose a law saying that no one can hire a worker unless they are willing to pay them $ 150,000 and provide them with free health care.  That would pretty much eliminate any opportunity for folks below the top 25 percent in income and wealth.  I feel certain that Buffett could endorse such a proposal.  Then he could fire his secretary and no longer have to worry about what taxes she pays.

The hypocrisy of folks like Obama, Bernanke and Buffett knows no bounds.  They have spent the last five years in a successful effort to shut down the great American economic engine.  They have succeeded.  Expect the rich to get richer and the poor to get poorer.   That's where these folks are taking us.

Wednesday 18 September 2013

A Rose By Any Other Name

The Fed announced today that it would continue it's bond buying binge to the tune of $ 85 billion monthly, a policy that has been in place since the 2008 financial collapse.  This has expanded the once miniscule Fed balance sheet to over $ 4 trillion. 

The Fed, of course, can create money digitally.  That's what it uses to buy the bonds.  It just says:  "let there be money" and there is money.   This massive expansion in the monetary base has created huge excess reserves in the nation's commercial banking system.  Why doesn't anyone loan this money out?

The pitiful loan activity is a result of two factors.  Dodd-Frank and activism in the Justice Department and others has made it a criminal activity to loan money to anyone who doesn't have the very, very best credit.  And people with that kind of credit have lost interest in borrowing to build businesses in the new Obama world of massive regulation and impending soaring health care costs.  So, not too many loans are getting on bank books.  The reserves are simply piling up.

But what happens if, heaven forbid, the economy recovers?  Ah, an outcome not contemplated by the Obama-Bernanke clique.  So far, they have successfully prevented any serious chance of a strong economic recovery that would quickly expand loans and the money supply, bringing on the inevitable out-of-control inflation.  But, that won't happen if you keep the economy from recovering.  I think that I am beginning to understand the Obama-Bernanke plan.  It's working.

Saturday 14 September 2013

Inequality and the Poverty of Economics

The Journal of Economic Perspectives is an academic journal that summarizes the state of research in various fields of Economics.  Perusing this journal shows the extreme political bias of much of modern day economic research.  The Summer 2013 issue was devoted to "income inequality."  The main theme was that rich folks are getting richer, but, of course, the facts actually show just the opposite.  Not deterred by the facts, the various economists that opine in this edition blithely parrot absurdities such as wealthholders ability to "sustain their preeminence.

What is the analysis?  Imagine that you wanted to know if baseball teams created dynasties and "perpetuate" their dominance of baseball.  What facts would you want to assemble to prove this?

Here's the way economists think:  collect data that shows that back in the old days, the baseball teams that won the pennant won 65 percent of their games each year.  Then show that, today, the teams that win the pennant win 70 percent of their games each year.  (Don't bother to check whether the teams that won in the old days are the same teams that win today.  Why would that matter, say economists?)  Would that evidence convince you that certain teams are dominant and "maintain their preeminence?"  That is the precisely the kind of logic that perpetuates the factually incorrect myth that the rich get richer.  Check out the articles in the JEP and you will see.

The truth is that if you list out the 100 richest Americans today and then compare that to the one hundred richest Americans 25 years ago, you will find very little overlap.  The richest folks have more of the wealth (if you totally leave out the huge proportion of wealth transferred by government transfers such as social security, welfare, medicaid, food stamps and on and on), but it is a different set of rich folks as time goes on.  Wealth rises and falls in the US.

The opposite is true in Europe.  The wealthiest families in Europe are the same families that were wealthy 50 years ago.  Contrary to the complete nonsense you read from economists, the chances of improving your lot in Europe are almost non-existent.

Now, in the US, the Obama Administration would like to create the European model, which traps people into whatever economic group that are born in....or, actually reduces the life chances of the folks born into the bottom half of the income distribution.

Notice the data since Obama came into office.  Since mid-2009, long after the bottom of the financial collapse and well after the Obama $ 800 billion stimulus package, the economic position of lower income folks in the US has deteriorated.  The Obama sledgehammer on business has delivered results.  Jobs are scarce and what few jobs there are, are part-time.  (Obamacare, of course, influences this trend toward part-time employment by creating built-in disincentives to businesses to hire full time employees).

The real truth is that the US has historically always been the best place to be born if you want a chance to move up in the income distribution and it remains the best place for that purpose.  Obama is trying to kill off that opportunity, but so far he has not totally succeeded in this strange endeavor.

Economists have done a disservice to the public by presenting facts in a way that is totally misleading and obscuring the real truth about the economy and about the historical dynamism of the US economy.