A Winter of Discontent - My Christmas List

While we decorate the Christmas tree or light the Menorah those of us that remain in our homes can be thankful we have this recession survived thus far. Unless you work for Goldman Sachs there is little to be optimistic about. Millions remain out of work with little chance of ever finding work. This year's college graduates can look forward to coming home to their parents house - if they still have one. Something fundamental has to change.

Our politicians have their solutions, a new health care program followed by enacting cap and trade legislation that will increase energy costs for everyone. In this surreal atmosphere we are lectured by Chinese finance ministers that point out that there is no way the world can continue to keep buying US government debt to keep Washington and the USA a going concern.

The political class is much more relaxed and confident that the economy has stabilized and starting a slow and steady recovery. In reality it seems much more like 1937 when in the midst of the Great Depression the economy once again went off a cliff. This double dip had several causes.

First, the growing uncertainty in business and elsewhere about where the government was headed caused business leaders to sit on the sidelines and not invest or grow their business. Washington was giving business leaders lectures and prodding to do their bidding and these business leaders wanted to stay out of harm's way until the dust settled. In one memorable exchange between Eleanor Roosevelt and FDR, the President asked why business leaders failed to make new investments and seemed to lack confidence in the economy. Eleanor's retort: "Because they fear you".

Today business leaders are afraid about a lot of things. How much will it cost to provide health care to its workers under the new plan? What will energy costs be under this new cap and trade plan. Lobbyists will certainly be involved in how the carbon credits are allocated to special favorites. What will be the impact on those less favored by the politicians. Then there is fear of the ballooning government debts. Are interest rates going to spike to pay for all this government activity? Seems safer to just wait it out.

The other big millstone around FDR's neck was caused by his own pride and joy, the brand new Social Security system. The new SS taxes had come to pass and 2% of the wage income was sucked into it but benefits were not yet being paid out. This took 1% of the wages of each employee and 1% from the - well still from the same employee. You can weigh the benefits of Social Security all you want but that was not a propitious moment to enact such legislation.

Today, we are being led to believe that all these people will suddenly be insured and that government by fiat will declare costs to be reduced. How they can make these claims with a straight face, I do not know. The new cap and trade deal will certainly suck more money out of everybody. Meanwhile we are being asked to fund other countries attempts to lessen their greenhouse gas emissions.

It sounds like we are in store for another downward roller coaster ride.

With the air of gloom and doom around us all I want to make out my Christmas wish list.

1. I wish our elected politicians had a clue about economics, finance and human nature. I wish they were not a bunch of narcissistic, windbags who only care to further their own interests and not those of the American people.
2. I wish our President would demonstrate some leadership and less talk while not handing over the task of crafting policies and legislation to hoards of K-street lobbyists and a Congressional leadership that deserves to be committed to a loony farm.
3. I wish our companies were competitive again and could start to hire workers. Even if the we may never attain wage parity with country like China, the unique feature of the American system punishes them by making them primarily responsible for health insurance driving up the costs of their products and encouraging them to move jobs overseas. Our high corporate tax should be recognized for what it is, a job destroyer that also encourages moving operations overseas.
4. I wish the stranglehold the teacher's unions have over education could be broken. That pay for performance and other incentives would attract and hold a better quality of teacher that this current system which rewards nothing but seniority and in fact discourages more qualified people from joining it.
5. I wish the unions would recognize that they are part of team and that the companies they work for can and will go out of business if they are not successful. That providing rewards solely based on seniority is not fair to younger workers, the companies they work nor for the United States. I wish they understood that feather bedding, working slow and hindering output is a sure road to oblivion.
6. I wish corporate executives were not mainly interested in their bonuses and perks and more interested in developing new products and services that people would want to buy. I wish they understood that while off shoring American labor and American technology to China has the allure of raking in immediate profits, in the long term their country and their children will be impoverished by handing over our crown jewels to a foreign country that is intent on shoving America down the stairs.
7. I wish the American people themselves were more interested in the major issues of the day not the trivialities we see in the popular media. I wish they were more intelligent and not as easily lead or distracted by scheming politicians and other charlatans.
   

I guess its time for a good stiff drink for I doubt any of this will come about any time soon.

False Prophets - Krugman 2012

2009 - With the real economy resting firmly on the bottom of the ocean, 10% plus unemployment, non-government jobs a fantasy to behold the reality dawns that we are still stuck in the muck of recession and we are not getting out any time soon - no matter what the stock market does. Into this maelstrom come the prophets with their prescriptions for revival, with the easy solutions for our salvation - just spend more money. With the private sector stressed out, households up to their eyeballs in debt, small business on the ropes and everyone in fear of losing their job these soothsayers suggest the easy way out of our difficulties is for government to borrow more and more and spend more and more and thereby make up for the lack of private sector spending.

Since the economic debacle these neo-Keynesians have returned to center stage and their "high priest" is Paul Krugman a Nobel Prize winner and familiar figure on the Sunday morning talk shows that few Americans bother to watch. To Krugman Obama's stimulus plan was "wrong" because it was dramatically smaller than what was needed to revive the economy. These people believe that government bureaucrats have the expertise and knowledge to run an economy the size of the United States indicating a startling amount of hubris not unlike that exhibited by former President George Bush in the early days of his administration. Yet when you start to examine where the first stimulus went, it was mostly squandered or merely absorbed by local governments. It is no surprise that Washington DC is enjoying boom times.

Krugman believes that since the United States held similar levels of debt at the end of WWII we can certainly handle taking on much more debt now. It must be remembered that, in 1945 the United States possessed about 45% of world manufacturing output, had the most skilled work forces in the word, was self-sufficient in many raw materials and was the creditor for most of the world - much of which lay in ruins. Today, with the United States propped up with over $3 billion a day in foreign lending to support our spendthrift government, indebted to foreigners for trillions of dollars, dependent on foreigners for much of our energy and vital resources including our intellectual capacity and "American know-how" these people remain convinced that we have the capacity to surmount any obstacle.

George Bush and his cronies viewed the world the through WWII shaded glasses also, expecting the Iraqi's to come out and greet us like Paris in 1944 and to ride on with god's blessings to lead the world, never expecting that fundamentally things have changed. The neo-Keynesians are no better, expecting something inherent in the spirit of the American people to lead us out of our difficulty despite all indicators pointing to long term secular decline under a ruinous debt burden.

The big fly in Krugman's thinking is that the great expansion in the government debts must be met every few weeks with another round of Treasury bond auctions as old debt must be recycled and new ones piled on. Buyers for these instruments are becoming harder to find, especially with the Chinese losing their appetite for the American debt and fearing for the safety for their assets that are already denominated in US dollars.

During Obama's recent trip to China, this point was driven home as he was queried at length about his plans for expanding health care in the US and how that would be paid for. The humiliations for this government and its spendthrift people are only going to get worse as attempts are made to borrow more and more. Currently, deficits are expected to remain above $1 Trillion a year as far as the eye can see.

The government is already on a well worn path to ruin. Krugman and his Keynesian friends offer the solution as dramatically spending and borrowing more money. Perhaps, they can inflate yet another bubble and we can all ride this one out for all its worth. In reality we are nearly total bankruptcy and can look forward to a much reduced lifestyle in the future for both us and our children.

This sorry future has befallen many a great empire and it only wishful thinking to think that we Americans are exceptional and can somehow avoid it. I have turned my eye towards Rome and Britain in my former posts. I have taken my old Paul Kennedy book "The Rise and Fall of the Great Powers" down from its shelf and marveled at how the Spanish and the French serially ruined themselves.

Recently I have read several articles by Niall Ferguson who also approaches this from a historical perspective and also who also draws the many of the same conclusions as I do. I much enjoyed his recent lambasting of Krugman and his plans for spending our way out of the recession. Yes, Krugman must be hopping mad at the last Newsweek piece (here is the link: Empire at Risk ). Krugman can be a prickly character.

One minor flaw with Ferguson's last article is that while he points out that the USA will inevitably be forced to scale back its military commitments, it will probably have to scale back its other vital services as well - including any new health care initiative.

Oh, well I'll bet Krugman would answer "No sweat, we'll borrow more money". Where will Paul be in 2012?