Macro Tsimmis

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Posts Tagged ‘tea party’

Krugman Incinerates a Straw Man

Posted by intelledgement on Tue, 20 Dec 11

[T]here has, indeed, been a huge expansion of the monetary base. After Lehman Brothers fell, the Fed began lending large sums to banks as well as buying a wide range of other assets, in a (successful) attempt to stabilize financial markets, in the process adding large amounts to bank reserves. In the fall of 2010, the Fed began another round of purchases, in a less successful attempt to boost economic growth. The combined effect of these actions was that the monetary base more than tripled in size. Austrians, and for that matter many right-leaning economists, were sure about what would happen as a result: There would be devastating inflation…. So here we are, three years later. How’s it going? Inflation has fluctuated, but, at the end of the day, consumer prices have risen just 4.5 percent, meaning an average annual inflation rate of only 1.5 percent. Who could have predicted that printing so much money would cause so little inflation? Well, I could. And did. And so did others who understood…Keynesian economics.…

Paul Krugman

Both: We’ve been going back and forth for a century.

Keynes: I want to steer markets!

Hayek: I want them set free!

“Fear the Boom and Bust,” a Hayek vs. Keynes Rap Anthem

Keynesian economist Paul Krugman is big on predictions. He loves to make them, and he most particularly loves to crow about how accurate his predictions are…and how wrong the predictions of anyone who disagrees with him invariably (or so it seems) turn out to be.

In point of fact, it is not news that Dr. Krugman’s economic analysis tends to be colored by his political leanings. When he retired as ombudsman for the NY Times—the host of Dr. Krugman’s “Conscience of a Liberal” weblog—Daniel Okrent noted in his farewell column that “Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults.” Basically the same point has been made by The Economist and Richard A. Posner writing in The Atlantic (as well as legions of conservative pundits and bloggers, of course).

But in criticizing Austrian School economists for bad short-term predictions, Dr. Krugman has ratcheted the chutzpah level up a notch or two.

Arguably, the single most significant point of contention between Keynesians and the Austrian School concerns the feasibility and utility of managing markets. The Keynesians claim not only that it is eminently doable but that to eschew their advice is both dumb and potentially immoral…because left to their own devices, markets will gyrate madly causing economic turmoil and human suffering. Austrian School economists profess that it is dangerously presumptive to believe that we are smart enough to “manage” markets and that attempts to do so are both dumb and potentially immoral…because misguided controls inevitably distort markets and engender malinvestment—mispriced goods and services—that leads to bubbles and boom-and-bust cycles that in turn cause economic turmoil and human suffering.

Manifestly, if it is possible to reliably predict the effect of control “x” or “y” on economic activity, then the Keynesians are right. But the Austrians’ contention is that this is not possible, in the short run, to reliably make such predictions. For Dr. Krugman to criticize them for failing to accomplish what they say is impossible is pure sophistry.

Austrian School economists would indeed argue that debasing a fiat currency eventually leads to its collapse, but there are too many independent variables in the equation to specifically predict when that will happen or, in the interim, what the particular effect of any given attempt to steer things might be. Dr. Krugman cites the average rate of inflation since 2008 as being “only” 1.5%. But we are discussing macroeconomics here, and looking at just three years does not tell you much. In fact, one of those three years was 2009, when the inflation rate was -0.4%…the first year with deflation since 1955 (when it was also -0.4%). During the first decade of the 21st Century, the inflation rate averaged 2.4%—and at the end of 2010, the dollar was worth 79 cents in 2000-dollars. If we go back to 1955—the other deflationary year—the inflation rate has averaged 3.8%.

Let’s take the middle number—2.4% average inflation, as we have experienced over the last decade—and project forward. By 2020, the dollar would be worth 63 cents in year-2000 dollars. By 2030, it would be worth 49 cents. Taking a longer and more data-rich perspective, with the average 3.8% inflation since 1955, at the end of 2010, the dollar was worth 11 year-1955 cents. Presuming 3.8% average inflation going forward, by the end of 2030 the dollar would be worth a 1955 nickel. (If annual inflation between now and then averages “only” 2.4%, make that seven cents.)

Hmm…now the Austrian School fiat-money-collapse scenario is not looking so far-fetched.

The whole Keynesian-inspired notion that “low” inflation is a normal and acceptable condition is bizarre. If I borrowed $100 dollars from you and then wanted to pay you back just $50, you would likely—and justifiably—be pretty upset and may well consider me a thief. When Keynesian-inspired central bankers do it to us, however, it’s like the weather: everyone complains about it but it’s no one’s fault.

Any inflation has the undesirable effects of distorting market values, encouraging malinvestments—which lead to potentially dangerous bubbles—and destroying the value of savings, thus discouraging people from taking a long-term view. Deliberately stoking inflation, therefore, is a dubious and problematic policy.

Which is not to say there is a lack of good reasons to be critical of Austrian School economics and their potential application to policy: for example just looking at the financial markets, if we eschew regulation, would we be better off going forward with an unregulated market for credit default swaps and other derivatives (as we had in 2008…and is still the case)? What would prevent unscrupulous naked short sellers from ganging up on vulnerable early-stage startup companies and making it hard for them to raise capital via the public markets? Would rolling back Regulation FD—as some Tea Partiers have advocated—be a good thing for investors?

But setting up straw men and incinerating them, as Dr. Krugman does here, is not advancing the ball.

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I Say “Tea Party,” You Say “Z Party”

Posted by intelledgement on Mon, 21 Nov 11

…But We Know We Need Each Other

“All of the Occupy movements start with the premise that we all owe them everything. They take over a public park they didn’t pay for, to go nearby to use bathrooms they didn’t pay for, to beg for food from places they don’t want to pay for, to obstruct those who are going to work to pay the taxes to sustain the bathrooms and sustain the park so they can self-righteously explain that they are the paragons of virtue to which we owe everything. Now that is a pretty good symptom of how much the left has collapsed as a moral system in this country, and why you need to reassert something as simple as saying to them,  ‘Go get a job, right after you take a bath!‘”

—Newt Gingrich, Thanksgiving Family Forum (skip to 1:10)

“…[T]he Tea Party Movement leveraged all of middle America’s greatest fears to fuel a movement that whispered a little too loudly about the POTUS’ being a black man for the racists among us; gave rise to ‘birther’ claims for the paranoid conspiracy lovers out there; shouted threats of retribution for immigrants stealing our plush jobs flipping burgers and trimming hedges to satisfy the anti-immigration set; and called for punishment at the alter and in the law for those with alternative lifestyles to the delight of the religiously righteous and homophobes alike.  Some sensed that this new movement was less about government spending and frustration with ineffective government, and more about racism and white anger at losing power and preference. Others charged that it was yet another example of rich, educated and powerful forces manipulating populist anger and fears so average Americans would do their dirty work, even if it was contrary to their own self-interests….”

— E Gray, Blogger

Yeah, yeah…and then there are the charts detailing the differences, such as this one lambasting the OWS crowd and this one which is putatively even-handed but subtly leans against the Tea Party (utilizing a color scheme that favors the OWS folks and overstating public support for OWS).

So, yes, there are discernable and material differences between Tea Partiers and the denizens of Zuccotti Park. The “Z Partiers” are younger; the Tea Partiers are richer. The Z Partiers are likely to favor increased taxes on the rich; the Tea Partiers overwhelmingly want to cut taxes. The Z Partiers are more likely to be unemployed…but because so many Tea Partiers are retired, fewer of them actually have a job.

But all these differences pale in comparison to the huge, critical areas of agreement between Tea Partiers and Z Partiers:

  1. They’ve played the game by the rules
  2. The deck is stacked against them
  3. They are motivated to actively work to fix/change things
  4. The Powers That Be employ undue influence to misappropriate public wealth/resources (e.g., the bailouts)

Consider this tweet of potential interest:

CSFB_elevator Credit Suisse First Boston elevator gossip

#1 Hate the subway; all those rubes reading the Daily News. #2 Yeah? You have more in common with them than the ones not reading ANY paper!

Point being, the Tea Partiers and Z Partiers have both attained a higher level of consciousness than, say, their fellow citizens focused on the antics of Kim Kardashian. They may not be able to explicate the precise whys and wherefores, but they know that somehow, things are not right and they are being ripped off. They both decry the “corporate socialism” that allocates public wealth to benefit private companies (at least in most cases). They both perceive that regulators and elected officials are beholden to special interests to the point that national interests are neglected if not actually violated.

Granted, there is more agreement on the diagnosis of the disease than on what the most efficacious cure should be. Tea Partiers generally believe that there is too much power centralized in Big Government and that weakening the Feds and adopting a more laissez faire approach is the best prescription. Z Partiers are more likely to see government power as critical to leveling the playing field. There is validity to both points of view.

Critics frequently cite the desire to hamstring the Federal government as proof that Tea Partiers are shills or dupes for The Powers That Be, who presumably would benefit from a less effective umpire. But those critics fail to address the insight of the Tea Partiers that the Federal government has essentially been captured by special interests, who invariably twist the rules to come out in their favor. Logically, affording that same government more power and resources—regardless of how many new rules are imposed to mandate “fairness”—is likely to make matters worse.

For their part, the Z Partiers are often castigated for making the central focus of their protest Wall Street instead of Washington. The most vociferous voices tend to belong to apologists for the banks, who blame Federal policies for the financial crisis in general and the housing bubble/mortgage mess in particular, but there are plenty of Big Energy, Big Insurance, and “Defense” associated critics complaining that, for example, our dependence on Middle East oil is purely a function of EPA policy. This criticism ignores the insight of Z Partiers that it is The Powers That Be who spend billions of dollars annually manipulating government to obtain special favors. Protesting against the government in this circumstance is akin to treating the symptoms and ignoring the disease.

You like potato and I like potahto; you like tomato and I like tomahto.

Potato, potahto, tomato, tomahto—let’s call the whole thing off.

But oh, if we call the whole thing off, then we must part.

And oh, if we ever part, then that might break my heart.

So if you like pyjamas and I like pyjahmas, I’ll wear pyjamas and give up pyajahmas.

For we know we need each other so we better call the whole off off.

Let’s call the whole thing off.

—George & Ira Gershwin

The Tea Partiers and the Z Partiers may not be aware of it, but they are all singing from the same hymnal. They are, however, most definitely not on the same page…and it would help them both if they could get there. How hard this is to accomplish remains to be seen…but if they can, it would likely go a long way towards persuading a majority of their fellow citizens to join the party and sing along.

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The Debt Ceiling Debate and the Tea Partiers

Posted by intelledgement on Thu, 28 Jul 11

Maybe I need to get out more. I am one of 3000+ fans of the semi-official Rick Santelli group on Facebook, but so far as I know, none of my actual friends—on Facebook or otherwise—is a tea partier. So the narrative I keep hearing about the debt ceiling debate from pretty much everyone I know is:

25 Jul 11 comic from (highly recommended)

There are variations on this theme. Some are focused on the supposed damage the tea partiers are doing to the GOP (shades of Newt and 1994) by refusing to compromise. Some are focused on the damage the GOP is doing to the nation (imperiling our credit rating) by refusing to compromise. Some are focused on the seeming unfairness of insisting on reducing the deficit via all cuts, with no tax increases. But the consensus is, it seems to me, well articulated by one of my Facebook friends:

WITH ALL DUE RESPECT to my Republican family and friends, I cannot abide what GOP politicians are trying to do in Congress right now. I think it’s reckless and irresponsible. It’s economic blackmail. It’s a mean-spirited attempt to undermine the sitting President for political reasons while causing immense human suffering both at home and abroad. This madness must be stopped.

My take on this situation is a bit different.

First of all, the whole concept of having a debt limit is kind of loony. I believe the only other nation that has anything similar is Denmark. It is loony because it makes possible a scenario we have now, where our elected leaders undertake obligations at our behest and then—habitually—potentially refuse to honor them, at our behest. This strikes me as a pretty irrational way to run our affairs.

Having said that, however, there is also something to be said for the unreasoning anger that drives the tea partiers: it beats apathy. Americans in general have been too preoccupied with reality TV, too busy collecting and organizing music on their iPods, too complacent, and too ignorant for the past decade. During that time, The-Powers-That-Be (“TPTB”) have:

  • Swindled us in a massive real estate fraud
  • Aided and abetted the development of emerging market countries via tax, accounting, and trading rules that provided economic incentives to move jobs and production offshore
  • Devalued the value of the dollar—and every American’s savings—by 21%
  • Dragged us into three (so far) costly wars of aggression that have left us fiscally and morally—if not militarily—weakened at the behest of Big Oil and the military-industrial complex
  • Constricted our liberty and ratcheted up government control over us in the name of “security”
  • Looted trillions of dollars of our wealth to prop up their bankrupt criminal financial “services” enterprises in the wake of the 2008 debacle
  • Foisted “reforms” on us—Dodd-Frank and Obamacare—that serve principally to make the rules more complex and—thus—deepening the moat protecting established corporate interests

The banksters and their political trained seals hoodwinked us into bailing out the “too big to fail” institutions in 2008 with their predictions of financial Armageddon and we are being treated to a repeat performance this time around. Thanks to this Big Lie, most Americans are confused about who their true friends are…and who their real enemies are. TPTB and their agents are driving the car, and we are headed straight for a cliff. If and when we go over it, the carnage will make the consequences of not raising the debt ceiling seem like an inconsequential food fight in comparison. Our currency, people’s lifetime savings, the future of our children, and possibly our very republic will have been sacrificed, all so that the banksters at Goldman Sachs, Citibank, National Commercial Bank, et al, and the corporate titans at Haliburton, Caterpillar, and Exxon, etcetera can (best case) keep their positions of power indefinitely and (worst case) squeeze a few more years of lining their safety deposit boxes with gold bars and silver coins before the metaphorical excrement hits the air velocity accelerator.

Actually, this is not a Republican-Democratic divide. Most of the so-called “Republican elite” are dancing to the banksters’ tune, and working assiduously for a “compromise” that will cut perhaps few hundreds of billions in spending over the next ten years…which is next-to-nothing for a debt that, when you count the money we owe the Social Security trust fund plus the projected Medicaid/Medicare obligations is in excess of $14 TRILLION…and once—as is inevitable—interest rates on the debt begin to rise from the artificially low rates the Fed has engineered for now, the total will balloon even higher.

The truth is that TPTB have both parties in their pocket. Under Bush, we started two wars, increased entitlements obligations, curtailed civil liberties in the name of security, cut taxes for the fat cats, and bailed out the banksters. Under Obama we escalated one of the existing wars and started a third one, increased entitlements obligations, curtailed civil liberties in the name of security, extended the tax cuts for the fat cats, and continued the bailouts…even blatantly using some of the same guys to implement them.

The ultimate objective of TPTB is not to “solve” the problem, because that would entail disassembling the broken and corrupt institutions that afford them their perks and privileges…which, of course, is a non-starter. Their objective is to kick the can down the road to provide them with another year or two (at least) to continue stealing your money. It is the Tea Party stalwarts plus a few courageous mavericks such as independent Senator Bernie Saunders who oppose doing business/thievery-as-usual​. They will lose this battle, and—as they have yet to raise the consciousness of enough Americans about the need to throw the moneychangers out of the Temple—they will remain marginalized and ridiculed by the mainstream…for now.

Throughout the 1930s, most folks in the UK considered Winston Churchill to be essentially a boring old crank, always carrying on tiresomely about the threat of the Nazis. But in 1940, when his worst predictions came true, he was there to save England’s bacon.

So insisting that we turn the car violently away from our present course even at the cost of some severe jostling may appear to be “madness” now. But when things really start to get bad here—the value of the dollar plummets, there are food shortages, power and water system reliability becomes dicey—it will be the then-validated tea partiers, with their unwavering commitment to the principles of the founding fathers—government should be protecting our liberties, providing for the national defense, and maintaining a strong currency—who are our best hope to steer away from some dystopian nightmare of corporate fascism.

I’m betting the opinion of my friends—and that of most Americans—will be different then.

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