Sunday, August 7, 2011

S&P Doesn't Tells Us Anything We Didn't Know

All the hubbub this weekend has been about S&P's "surprising" decision to downgrade the United States' credit rating from triple-A to AA+ with a negative outlook. This resulted in both Republicans and Democrats coming out and declaring "I told you so!" Republicans claim they told us so because of excessive spending taken upon by this administration for the last 2+ years. And Democrats claim they told us so because of insistent Tea Party representatives and activists who brought us "to the brink of default." As if Washington would fail to turn an objectively truthful economic statement as powerful as a credit downgrade into political showboating!

Let's look at the facts of S&P's downgrade justification, as shown in their report (available on their website at www.standardandpoors.com) and the crazed reaction by establishment economists and politicians...

Upon reading S&P's report, the reader finds among the main reasons for their downgrade: a lack of real entitlement reform (which cripples the federal budget) in the recent debt ceiling bill (the Budget Control Act of 2011), no prospect of increase in revenue to cover the national debt, and the political brinksmanship illustrated in Washington during the debt ceiling debate.

Now, let's look at these factors individually:

1. A lack of real entitlement reform: Entitlements, especially Medicare and Social Security, have been, and will be if left unchecked, crippling to the federal budget. According to a paper released by the Cato Institute entitled "Deficits, Debt, and Debasement," these entitlements will equal about 18.2% of GDP by 2052. They will absorb all the tax revenue taken in by the government at current tax projections. And yet, progressives, like Nancy Pelosi, refuse to address the issue. S&P even noted that one of the budgets that would have helped averted a downgrade was Representative Paul Ryan's, which addressed entitlements, like Medicare. In truth, Ryan's plan didn't go far enough, but it would have truly been a step in the right direction. Even that, however, truthfully may not have been enough to keep our credit rating unblemished. So, it's truly puzzling when establishment types throw blame upon the Tea Party when it was the establishment liberals who prevented true entitlement reform from taking place, which S&P said would have prevented a downgrade.

2. No prospects of increased revenue: To be fair, the S&P report does seem to be indicating that it's desirable form of revenue raising is tax increases, but it does not say so explicitly. The only clear point is that there is truly a lack of prospective raises in tax revenue. However, as any supply-side economists would point out, tax increases are far from the only way to increase revenue. There are free market actions that the federal government could undertake that would result in higher revenues. For example, through repealing anti-market bills, like the Dodd-Frank Wall Street Reform bill, institutions would have greater ability to higher workers, because of available funds that would have otherwise gone down as compliance costs. Let's say the net result of that is a reduction in the unemployment rate of 1%. That results in about 1 million fewer people taking advantage of government welfare, like unemployment compensation and food stamps, while also increasing the amount being paid in taxes because of newly acquired income. Therefore, rising employment results in less government expenditures and higher revenues. Without even raising a single tax, which would have otherwise have caused the price to hire another worker to increase and cause employers to pass along the increase to their employees and customers, making everyone poorer. But if you think pinhead economists like Larry Summers and Austan Goolsee will realize this anytime soon, you're fatally optimistic. And yet it is their inability to acknowledge this basic economic fact that helped result in the downgrade.

3. Political Brinksmanship: What needs to be said here? Liberals will be first to blame the Tea Party. However, it was liberals who created outrageous ads aimed at inciting fear in the general public in response to Ryan's budget. It was Obama who kept on showing up on TV needlessly to give his nonsensical two cents on the then ongoing debt ceiling deal. And it was the unwillingness from liberals to reform entitlements that resulted in a joke of a debt deal getting passed.

So, taking these factors into account, coupled with continuous economic data that has all the indications of stagflation courtesy of failed political and Federal Reserve policies, why is anyone surprised that S&P downgraded the USA's credit rating?

It seems the standard, uninformed response to S&P's downgrade is something along the lines of, "These are the same people that missed the sub-prime mortgage crisis, why should we believe them now?" Well, if you're going to assume that logic, then why should we believe Fitch or Moody's, other renown credit rating agencies, when they kept us at triple-A? After all, they missed the sub-prime crisis, as well. Why is their word any better than S&P's?

The truth is S&P is the only credit rating agency, among the most well known, that has actually taken a step in vindicating their mistake in missing the sub-prime crisis. This much was also admitted by PIMCO financial manager, Bill Gross. American credit is not as reliable as credit from countries who actually exhibit fiscal responsibility, like Switzerland. Therefore, a downgrade is correct and inherently justifiable.

Anyone who was taken by surprise by the downgrade or disagrees with it is not doing a good job in keeping abreast of the country's economic condition. The term being overused now is "double-dip recession." This is incorrect. A recession requires a period of growth or prosperity to precede it. We have had no true growth or prosperity. Therefore it is a non sequitor to say double dip. We have never recovered from the original recession. Those painfully unaware of this, I beg you to become more properly informed.

The long run is here--it's time to get sober.

Sunday, July 17, 2011

Prediction on Further Quantitative Easing

Last week, Fed Chairman Ben Bernanke admitted in front of Congress that a third round of Quantitative Easing (AKA further devaluing of the dollar) is among the Fed's plans for the future.

This really doesn't surprise anyone who has a clue about the truth of the current propped up economy that is bound to bust sooner rather than later, even though Bernanke backpedaled from that stance the next day.

So, we now know what most of us have know for a while: QE3 is in the works. The only question is when it will be implemented (how it will be implemented is immaterial).

I will now make my first major economic prediction as writer of PoK and it ties in to the ongoing farce of a "debate" on the debt ceiling:

1. A deal will be made, on or before the August 2nd deadline.

2. In that deal, there will be miniscule baseline budget cuts across the board. - What this means is that there won't be real spending cuts, just not as much spending as there would be otherwise. And since it will be across the board, there will hardly be an impact in specific agencies that are ailing the American economy, like Medicare.

3. The deal will also include minimal to negligible tax increases, or as they're now calling it "closing tax loopholes."

So what do all these steps mean? It means we will have continued outlandish spending without any revenue to cover for it because of a lack of large tax increases. This means we will spend more without any money coming in to pay for it.

So, it leads us to the question: How will we cover this continued spending since there is no increase in revenue? The answer? You got it. Quantitative Easing. Quantitative easing, or QE3, will take place as an attempt to boost aggregate demand and cover this increase in federal debt.

The debt deal will take place just in time for the August 9th Federal Open Market Committee (FOMC) meeting. In that meeting they will discuss how they will cover the increased spending with further easing but it won't yet be implemented. Publicly, Bernanke will probably announce that the Fed is awaiting further economic data to see how the economy reacts to the debt deal, or something like that, before taking any action.

Then, by the time the September 20th FOMC meeting takes place, the Fed will have seen enough negative economic data and will then announce QE3.

So, there you have it: my prediction on how the Fed will implement QE3. Am I betting any money on this? Probably not. Please remember I'm only an undergrad. However, this prediction is based on a few things: past Fed behavior, the current and near term state of the American economy, and Washington politics. I believe this bet isn't bad. And if I do get it right, maybe they'll have to have me on CNBC instead of that joke Jared Bernstein.

Saturday, July 9, 2011

American Values Network Epitomizes Ignorance

In a new commercial aimed at calling attention to Ayn Rand's beliefs, especially about God and religion, and how they can be a dangerous influence on conservatives, the American Values Network (AVN) has done a fantastic job in epitomizing the very ignorance many "social conservatives" fall prey to. Instead of summarizing the video and dissecting it point by point, I provide it here and my criticism follows:



First off, I will begin, as I am studying English, by pointing out the obvious intentional fallacy taking place here. Although I am a big fan of Atlas Shrugged and the philosophy that helped made it what it is (one of the greatest novels ever written), there is no escaping the fact that delving into, or putting too much emphasis on, the intention of an author's work is an outright fallacy. More specifically, it is an intentional fallacy. When criticizing a novel specifically, one cannot place primary importance on the author's intent. Ultimately, whatever is written, and how it is written, in a novel is to judged and criticized on its own merits and not subjugated to the underlying intentions. Therefore, in this commercial, to attempt to demagogue a novel not based on its content (plot, character development, etc.) but rather on what its author said in an interview afterward, is fallacious and ultimately irrelevant. Therefore if you want to demonize a book, especially one of such quality as Atlas Shrugged, its best you do so based on its content, and even that would be a foolish task. So, that's the first point underlining AVN's outright ignorance.

Secondly, the most obvious ignorance taking place here is the message that AVN is trying to convey, which is basically that if you agree with someone on one particular aspect, what they believe in every other aspect, if incorrect, invalidates your agreement as their other views nullify any previous perceived correct stance. In this case particularly, what people like Congressman Paul Ryan mean when they say Ayn Rand should be listened to, they generally mean on matters of economics. Rand was an outright free marketeer, no if's, and's or but's about it. So when Ryan and other Republicans praise Rand's philosophy, they are specifically praising her philosophy that emphasizes the individualism that should be the foundation of society; ethically, morally, politically and economically. Last time I checked, there was nothing anti-religion or anti-Christian about individualism. Individualism is the underlying principle to be found in Atlas Shrugged. As a matter of fact, generally understood, religion is all about the individual. When it comes to Christianity, the belief is that when one dies, he or she alone will be judged for his or her actions. Therefore, emphasis on individual actions is of utmost importance.

What any of this has to do with Rand's belief of religion is irrelevant. As a matter of fact, it should be noted that not one of those cited by AVN ever praised Rand's philosophy on God or religion. To AVN, it appears that if you agree with Rand on ethics and economics, you are somehow endorsing her theological, or lack thereof, beliefs. This is, of course, absurd. It's perfectly reasonable for someone to agree with another on one subject but totally disagree with them on another.

If AVN wants to somehow claim that Rand's premises of atheism, or anti-theism, invalidates any preceding conclusions, then they better rethink their policy. After all, the first word in their organization is "American." Let's think about this. The term American refers to the United States of America. The USA was founded upon certain principles that were written in certain documents. Foremost of these documents was the Declaration of Independence. This document was written primarily by Thomas Jefferson. Let's see what Jefferson had to say about religion, Christianity in particular:

"The whole history of these books [the Gospels] is so defective and doubtful that it seems vain to attempt minute enquiry into it: and such tricks have been played with their text, and with the texts of other books relating to them, that we have a right, from that cause, to entertain much doubt what parts of them are genuine. In the New Testament there is internal evidence that parts of it have proceeded from an extraordinary man; and that other parts are of the fabric of very inferior minds. It is as easy to separate those parts, as to pick out diamonds from dunghills."

Not entirely positive, is it? As a matter of fact, Jefferson, himself a Desist, said many disparaging things about religion and Christianity. Seems to invalidate AVN's very usage of the word "American." Does this mean that anyone who claims to be influenced by Jefferson's philosophy is wrong or "anti-Christian?" Obviously, not. But you won't see AVN making this point.

This is, of course, very silly. But this kind of stuff especially infuriates me. If the AVN wants to drive a wedge between libertarians and "social conservatives" then go for it. If only the GOP would wake up and notify these social authoritarians (not conservatives) that limited government means complete limited government. Nowhere in the powers delegated to the federal or state governments is the power to dictate values or religious beliefs. AVN tries to disparage Rand's goal of forming "a morality not based on faith." Is faith now a prerequisite to be an American now? Of course not.

The obvious point that AVN tries to make there is that one has to be religious in order to be moral. This plainly incorrect. Belief in God or adherence to any religion is NOT a prerequisite for being moral. Morals are based on reason. Everything that is moral is rational. I could be an atheist but that doesn't mean that there is nothing stopping me from being immoral. I still have my human capacity for reason and as long as I utilize that, as Rand promotes, then I will live morally. This philosophy is the very foundation of movements that have helped form this country's principles and modern philosophy: the Enlightenment, the Reformation, etc.

Don't be mistaken; I don't agree with Rand on everything. Her reasoning for not believing in God is erroneous itself. God's existence can easily be proven within reason. Also, Rand's belief on American foreign policy was anti-individualist, ironically enough. (That's another thing: Rand was a big supporter of Israel and of America being interventionist in Muslim countries, yet I suspect, as most at AVN probably agree with Rand in that aspect, they won't bother questioning their own premises there as they agree with this "nutcase" Rand)

I could go even more into the inherent contradiction included in social authoritarianism and their general participation in Republican politics. I will save that for another time...

Thursday, June 30, 2011

Mass Exodus Awaits GOP

This the Republican Party's last chance. The 2012 election is going to be one of the most defining events in recent history.

The United States is being taken further down the Road to Serfdom by President Obama, Secretary Geithner, Chairman Bernanke, and company--the foundations of which were laid by George W. Bush, Henry Paulson, etc. with the help of current Tea Party darlings, such as Michelle Bachmann and Rick Santorum.

In a world still fooled by the Left/Right Paradigm that consists of "polar" opposites in Mitt Romney and Barack Obama, it currently seems as though the most plausible way of putting an end to such a catastrophic legacy is via the Republican presidential nomination.

That in and of itself is usually enough cause to worry as Americans have been let down by Republicans time and time again in the last couple of decades. However, with the emergence of the Tea Party in the political environment, it seems not all hope is lost. In 2010, the Tea Party scored some huge victories, most notably Rand Paul's primary victory over the Republican Establishment and Democratic candidate thereafter.

However, when you go beyond the superficial, it seems the Tea Party isn't what it once was even a few months ago. The Tea Party moniker was already a misnomer when it came to numerous candidates during the 2010 cycle. The Tea Party stands for anti-establishment of BOTH parties and an outright rejection of the status quo, economically, militarily, and otherwise.

However, a closer look at some of the so called "Tea Party" candidates in the 2010 races as well as amongst the current crop of GOP presidential candidates. In my home state, the candidate who won this title by the "conservative" media was Marco Rubio. However, looking at his brief stint as US Senator shows little adherence to any type of anti-establishment legislation that would be worthy of a Tea Party label. In fact, Rubio is grossly more characteristic of the neoconservative ideology of the very people who got us in our current mess in the first place: generally a proponent of the free market, (except when it comes to trade, especially Cuba) at least when push doesn't come to shove a la Hank Paulson, and a foreign policy hawk who believes America should impose its "values" on foreign countries regardless of the sentiment of foreign citizens a la Bush. So, here we have a "Tea Party" candidate, now senator, who is basically a mix of Paulson and Bush. What exactly is so non-mainstream about him? Last time I checked, the Tea Party was against the very ideologies that got us in this mess. So, why is Rubio so highly sought after by "conservatives?" It should be noted that Rubio himself was reluctant to take on the moniker directly himself during the campaign, perhaps for the very reason that he didn't want to upset the very Republican establishment he caters to.

When it comes to the current crop of Republican presidential candidates, a lot of the characteristics of Rubio's misnomer can also be attributed to some so-called "Tea Party" candidates. Probably most like Rubio is statist Rick Santorum. Rick Santorum has made no qualms about his social authoritarianism which seeks to impose his beliefs upon the general public, which he refuses to realize is governed by a secular government. Also coupling Santorum's social authoritarianism is a Rubio/Bush/McCain-like love for American imperialism, especially in the Muslim world. It should also be noted that there was absolutely nothing anti-establishment about Santorum's tenure as Senator of Pennsylvania. As a matter of fact, pre-Obamacare, Santorum was one of many Republicans to vote for the largest government-run healthcare bill in history in the Medicare Prescription Drug Benefit plan. So, I ask again, what exactly is Tea Party about Santorum?

It seems that the phrase "Tea Party" candidate is actually more or less applied to neoconservatives, who represent the ideology that sparked the problem, with little-to-no name recognition.

Probably the candidate most identified with the Tea Party moniker, aside from Congressman Ron Paul (who along with Governor Gary Johnson are the only genuine anti-establishment, therefore Tea Party, candidates out there), is Congresswoman Michelle Bachmann. Here's one to fit the bill. She is a Tea Party activist, speaks at Tea Party rallies, and even started a Tea Party Caucus in the House of Representatives. However, Bachmann's record is not completely Tea Party either. Although Bachmann was against the 2008 auto bailouts that were eventually passed, she did favor a different type of government bailout--not a very Tea Party-like position. Bachmann also favored stimulus funds in 2009 that would go to pet projects in Minnesota. How Tea Party is that?

I'll grant it though: Bachmann is one the least ugly candidates compared to others in terms of record and rhetoric, even though her stance on marriage is a little confusing...

So, with all these misnomers abound in the GOP crop of presidential candidates, along with candidates who are so bad they don't even try to go for that label, like Mitt Romney or Jon Hunstman, there are a few outcomes that can benefit the GOP at the end of the presidential nomination process.

In an ideal world, true conservative Tea Party candidates, Gary Johnson or Ron Paul would be the GOP's nominee for president. However, in this current climate, with an ardent media bias against libertarianism as well as an inherent misunderstanding and erroneous caricature of libertarian philosophy, it's tough, though possible, that either champions will come out on top.

If that is not the outcome, then the only candidates that could possibly convince libertarian Republicans and true Tea Partiers to stay with the GOP are those that are Tea Party-esque. In this category, we have Sarah Palin and Michelle Bachmann. Although these candidates are more flawed than the ideal, they are comparatively far less flawed than establishment types. Also, their inherent outsider philosophy is a plus for any true Tea Partier. This anti-establishment, flawed yet willing to learn mentality could be enough to keep the libertarian/Tea Party crowd in line for the GOP.

The third scenario that could keep a mass exodus from the GOP from happening is the nomination of a pragmatic, pure Republican type, like Newt Gingrich, paired with a vice presidential choice of Rand Paul, Gary Johnson, or Jim DeMint--Tea Party/Libertarians deemed to be less extreme and more pragmatic.

However, absent those scenarios, I do not see anything in store for the GOP except a mass exodus of a significant group of libertarians and Tea Partiers, if they go down the most probable road of nominating a talking head, a true politician (which isn't good), someone so intrinsically similar to the Obama and the status quo, like Mitt Romney or Jon Huntsman. Even a Rick Perry nomination would be enough to disenfranchise those who know his true record which is impeccably Bush-esque. Tim Pawlenty is enough to drive the libertarians out as well. And you can bet that any ticket that includes either Marco Rubio or Jeb Bush would be enough to drive the libertarians out.

I believe that going down this most probable route will be the final straw that breaks the camel's back for many libertarian Republicans and true Tea Partiers. Where they choose to go, or not go for that matter, is immaterial. An influx of disenfranchised libertarian Republicans to the Libertarian Party might be enough to siphon enough votes from the GOP ticket, therefore handing a victory to Obama. This is not a good thing of course, but neither is compromising your principles and voting for a lesser of two evils. This a common thread that has allowed Republicans and Democrats to keep hold of their political duopolies: the fact that, when it comes down to it, there is a perception that even the most disenfranchised voter must still pick the lesser of two evils.

This is will not do anymore. Libertarians and true Tea Partiers are well aware of the special significance this time around. There is no more compromising principles and Constitutionality. Because, in that situation where you must choose between a lesser of two evils, in the end, you are still voting for evil.

The GOP better get their act together or face irreparable damage.

Sunday, June 26, 2011

The Fallacies of Protectionism

Calls for legislation, or action, to be taken by the government in the mold of protectionist policies can be heard from a good amount of unions, as well as other prominent talking heads. Former prospective presidential candidate, Donald Trump, proudly advocated for protectionist policies in his campaign-like speeches he gave before his ruling out of a presidential bid. This is a very common practice and is rooted in a lack of basic understanding of some economic principles. I will illustrate.

Firstly, protectionism calls for policies that discourage consumers and businesses from purchasing products, labor, capital from overseas, namely China. These discouragements usually take the form of tariffs on imports. By placing an additional charge, or tax, on imported goods, you discourage producers from making those items available to their consumers, and are therefore signalling to producers to instead look in the United States for its products as to avoid additional charges that they would face if they chose to go with imported goods. Quite simply this is a distortion of signals that the market is otherwise making clear. Market economies have an inherent natural regulatory mechanism: competition. Competition ensures that entrepreneurs and businesses provide goods to consumers at the lowest possible price and quality demanded. However, tariffs, and other protectionist policies, distort what signals the market is trying to illustrate through competition.

For example, the reason Wal-Mart is able to be such a thriving business is that it provides products that consumers demand at both the price and quality they demand. For Wal-Mart to ensure that it keeps the voluntary patronage of its customers, and not lose it to competitors like Target, Wal-Mart must go about finding ways to import products at the lowest possible price which they can then proceed to sell to consumers at a price at least as great as the cost of importing that item to ensure expenses do not exceed revenues. If consumers demand pencils at a price of $1 then Wal-Mart must go about bringing in pencils to meet that demand and sell it at the market clearing price (the price at which producers want to sell exactly the number of units consumers want to purchase). Wal-Mart then shops around for its supply of pencils and finds that China produces and sells pencils for the lowest price and quantity demanded by Wal-Mart. However, once tariffs are set in, Wa-Mart is then discouraged from paying additional costs, or taxes, by means of tariffs and instead looks at the USA for its pencils, where they are sold for a higher price than China.

We are already beginning to see the adverse effects of protectionism. Now, when Wal-Mart then decides to buy these more expensive pencils, they must find a way to defray these additional costs. They can do it any number of ways; all of them detrimental. One way they could defray the costs would be by raising its price of pencils that it sells. This, of course, is bad for the consumer as the consumer is demanding these pencils at a lower price. This then forces consumers to not buy as many pencils they demand, resulting in a decline in the quantity demanded by consumers. Another way Wal-Mart could defray the costs it faces due to tariffs is by making up for those additional expenses by cutting back on its labor force. Therefore, in order to accommodate for the expensive price in pencils, Wal-Mart must fire x number of employees to ensure that the balance of revenues and expenses is kept profitable.

So, we already see two adverse effects of protectionism: rising prices for consumers and rising unemployment due to layoffs by the company incurring new expenses. How could either of these results possibly be good for the economy? Quite simply, they can't.

Then the argument comes up, "How could we (American workers) ever expect to compete with China where their wages are unfairly much less than those here?"

Well, there are a few responses to this:

Firstly, their wages are so much less compared to those in the United States precisely because of policies pursued by the government, mainly minimum wage laws. For example, a company who wants to make shoes wants to hire a low skilled worker. In China, that company could hire a low skilled worker for exactly the amount his labor is worth, say $5 an hour. However, in the United States, thanks to minimum wage laws that distort market salaries, a company cannot hire a low skilled worker for exactly the amount his labor is worth. For example, the market worth of the labor of the worker is only $5 an hour, however, because of minimum wage laws that distort market salaries, that company MUST pay $7.25. The benefit of hiring this worker is less than the cost as his/her salary is $2.25 over market price. What does this company do? Well, it can either move to China and pay workers what their labor is valued at. Or it can stay in the United States and pass along the increased cost to its customers. Either scenario is detrimental to the American economy.

Secondly, there is the principle of comparative advantage. What comparative advantage means is that one person, or entity, has relative superiority when taking other tasks into account. In this case, say the United States' wage rates and prices in a industry like manufacturing are inherently high because we are just that much better than China and that's why Chinese goods are priced lower. Well, then if that were true, then it is in the best interest of the United States to allow China to continue providing lower priced goods. This would then allow the United States to pursue its superiority in a different industry, like the servicing industry. What we would then have is low priced goods coming in from China, while Americans make their money in services provided to other countries. Win-win.

So, it really does seem as though protectionism sounds good on the surface ("Buy American," raise tariffs on Chinese goods) but in actuality, it is detrimental to the American economy as a whole. Think of that the next time you see some ignoramus, like Donald Trump, advocating for an increase in the minimum wage or a tariff on foreign goods.

Wednesday, June 22, 2011

Faber's Take

My favorite investor, Marc Faber, gives his predictions on continuing Quantitative Easing, fall in US stocks, and a Chinese recession. I highly recommend you find about 15 minutes to watch/listen to it.

Bernanke Shows a Little Honesty...But Not Enough

Today, at the Federal Open Market Committee meeting, Ben Bernanke held his second ever press conference. The outlook as presented by the Chairmen, as diluted and unrealistic as it was, caused markets to finish off in the red as even the most bullish traders were given reason to worry.

Probably the most notable acknowledgment on the part of Bernanke was his admission that recent negative economic data may not be temporary which is an extension of admitting that he does not have all the answers. This acknowledgment was supplemented in a downgrade in economic growth forecasts for the rest of 2011 and 2012. As per A.A.: "The first step is admitting you have a problem."

However, given Bernanke and the Fed's track record I doubt they will ever get past that first step. What is more likely in the cards is their stating that the previous admission was erroneous. Indications that lead me to believe this are prevalent in supplemental statements made by the Chairman...

Firstly, the FOMC voted unanimously to keep interest rates at their artificially low rate at 0-.25%. Instinctively, the reason for keeping rates low is to encourage spending and disincentive savings. This is a reversion back to the fallacious Keynensian, demand-side philosophy that believes that spending is the way to revitalize an economy. Bernanke gloated that this policy, coupled with Quantitative Easing (purchases of bank assets resulting in an expansion of money supply), proved successful in combating deflation.

However, this characterizing of deflation as demonic is also in line with demand-side economics that believes an increase in savings is detrimental to the economy. This is obviously wrong as an increase in savings will translate into an increase in funds available for investment which would then send signals to producers and business to provide long-term items. In other words, an increase in savings, coupled with a genuine interest rate, would tell businesses to lessen supplies in items like TVs and concentrate in longer term items like manufacturing and industry. The increase in future income would then generate an increase in future spending, which Keynesians just love so much.

For more on "The Blessings of Deflation" I refer you to this informative article by Lew Rockwell.

Also, despite what the talking heads keep espousing, Bernanke himself has not ruled out future purchasing of securities, or QE3. This is crucial. As the economy continues to deteriorate, underlined by an unstable housing market, the Fed will be under more and more pressure to step in and intervene. This could probably take place later this year when the Fed meets in September, right before the holiday season, to ensure consumer spending during the holidays are somewhat acceptable macroeconomically, to Keynesians at least.

Another reason that would justify further easing is an agreement to raise the debt ceiling that does not include any REAL spending cuts while including notable tax cuts. This combination of same or greater spending by the government and a decrease in revenue can pave the way for further money printing, by way of asset purchasing, to cover the increasing debt.

Also, notable was the lack of acknowledgement of the perpetually struggling housing market. As is common knowledge, housing is a crucial element when taking into account macroeconomic forecasts. The housing crisis was the underlying element that triggered the financial crisis. But you didn't hear Bernanke give it anymore than a minute of his time when he seemed to downplay its concerns in the long run.

Bernanke also doesn't seem to appreciate the fact that there is no solving the ongoing eurozone crisis caused by the PIIGS (Portugal, Italy, Ireland, Greece, Spain). And the effects of a eurozone crisis will undoubtedly be negative globally.

So, as you can see, despite some honesty in admitting a slowdown in the economy, Bernanke still hasn't realized, or doesn't wish to acknowledge, the greater problems that still exist which will inevitably deepen the ongoing Great Recession.

Sunday, June 19, 2011

The Week Ahead in the Markets

All eyes will be on Europe this week, undoubtedly with special emphasis on Greece and the steps they will be taking to restructure their debt. How the markets will react to any perceived positive reports should tend to be positive if last week's weekly gain is any indicator. Meaning that for all the underlying truths that fly in the face of "positive" reports from Europe last week that steps are being taken to avoid financial disaster, the markets still ended on a relative high. So, even though by the admission of many top European economists that all any settlements or agreements that may take place this week will amount to is, in effect, a kicking of the can down the road, the bulls will focus on the positive and probably cause markets to be in the green.

It should be noted that at the time of writing this post, Asian markets have opened positively based on sentiments that Europe is moving closer to settling its debt crisis.

However, there are new pieces of economic data set to be released this week that could undo any positive effects a Greek settlement could have. Existing home sales for the month of May are predicted to drop to 4.8 million, down from the previous 5.05 million. Home prices are also set to be released. Ben Bernanke is set to give a speech on the same day the Federal Open Market Committee is expected to announce it is keeping interest rates in the 0-.25% area. Then, later in the week, comes the latest jobless claims statistic as well as other data such as the latest GDP revision.

With none of these pieces set to be released Monday and fresh off a weekly gain in the markets, as well as growing positive sentiment that Europe is getting its act together (even though it's really not), all signs point to a bullish opening to the week. However, the bears are still coming out and a day in the red would not come off as a total surprise.

Saturday, June 18, 2011

The Inherent Contradiction in Neoconservatism

The staple foundation of modern Republican ideology is an inherent distrust of government when it comes matters economical. Correctly so, the Republican mantra places special emphasis on proof that centrally planned, or mixed, economies always fail by means of government regulation, oversight, cronyism, and other detrimental mechanisms. Where an economical interventionist would claim the financial crisis of '08 was the result of a lack of government regulation, free marketeers (following the mantra of F.A. Hayek, Ludwig Von Mises, Murray Rothbard, and similar economists) rightfully claim that governmental implementations such as the Federal Deposit Insurance Corporation (FDIC) facilitated risky malinvestments and over consumption as banks had no reason to conserve and consumers no reason to discriminate between banks thereby removing the most efficient form of regulation; competition. Of course, other reasons would be the foundations of Fannie Mae and Freddie Mac or artificially low interest rates set by the Fed, but these supplements only underscore the fact that 2008 was a result of government intervention.

In essence, modern Republicanism calls for non interventionism in the American economy as government cannot be relied on to intervene without detrimental consequences.

However, modern Republicanism (at least before the last GOP presidential debate) also consists of a seemingly contradictory stance in terms of foreign policy; completely opposite of its economical stance. When it comes to foreign policy, government CAN be trusted to be reliable and not detrimental. When it comes to intervening in the matters of other countries, like Libya or Iraq, it suddenly appears, from the neoconservative point of view, as though the government can do no wrong. When it comes to homeland security on the domestic front, the government possesses a seemingly divine ability to not doing any wrong in the implementations of such legislation like the PATRIOT Act. This mantra is in complete contradiction to the belief that the government cannot be relied upon when it comes to the economy because of conflicts of interest and bureaucracy.

Therefore, whereas modern Republicanism, or neoconservatism, calls for non interventionism in economics, it also calls for interventionism in foreign policy and international affairs.

Again, this ideology obviously is contradictory in and of itself: The government can be trusted and the government cannot be trusted.

This mantra held by neoconservatives like Bill Kristol and U.S. Senator Marco Rubio from Florida flies in the face of the Law of Noncontradiction.

Quite simply the Law of Noncontradiction states that contradictory statements cannot at the same time be true. If one statement is true then the other cannot be true. One of the statements must be false.

In this case we have the following two statements: The government can be trusted. The government cannot be trusted.

Therefore, following with the Law of Noncontradiction, only one of these statements can be right. Either the government can be trusted or it can't. This is the inherent contradiction in neoconservatism--it's call for government intervention and it's simultaneous derailing of government intervention.

However, you will hardly see any neoconservative fess up to this contradiction. Usually justifications for both premises are attempted to be given, however, in essence these are the premises to which their arguments revert back to.

The next time you come across a free marketeer who is also a foreign policy hawk, present them with this contradiction and explain to them that only one of the premises can be true. And if only one can be true, then ask them which one is true (here's a hint: it's the "government cannot be trusted" premise). Then when they've made their choice, it can than be easy to explain to them the logical conclusion to which each premises leads. For example, if, when faced with this choice, the neoconservative concedes that the government CAN be trusted then the logical conclusion is that a free market is not a prerequisite for economic progress as the government can be trusted to intervene and produce desirable results.

*Please note that this contradiction is not special to neoconservatism. Oftentimes there will be progressives who call for the opposite while still maintaining the same premises. In the case of a progressive the mantra usually is, "the government cannot be trusted in foreign policy or international matters but the government can be trusted in economical matters." As you can see, same premises: The government can be trusted. The government cannot be trusted.

It's rather ironic that I will end this post with a quote by Ayn Rand as her professed ideology was full of contradictions. But that does not affect the correctness or truth of the following statements:

"Contradictions do no exist. Whenever you are facing a contradiction, check your premises. You will find that one of them is wrong." - Ayn Rand

Friday, June 17, 2011

Good Idea/Bad Idea

If you ever watched Animaniacs, they had a quick segment in every episode called Good Idea/Bad Idea. Here's my rendition of that segment:

Bad Idea: Listening to the erroneous wit of Robert Reich.



Good Idea: Listening to the substantial knowledge of Robert Murphy.

Reasons for Positive Market

On Friday, U.S. stocks posted their first weekly gain since April, but just barely. At one point, with about 30 minutes left to go until the market closed, it was uncertain whether the S&P 500 and/or Dow Jones would be able to pull through and post this weekly gain.

Now, there were a few factors that helped push these two indexes over the top today. However, all of the reasons were misnomers and misleading thereby giving no substantial reason to believe that stocks will stay up by next week.

Let's go by every factor that helped facilitate these gains and I will explain why they were fallacious to be acted upon:

Reason #1: Before the market had opened on Friday, French President Nicolas Sarkozy and German Chancellor Angela Merkel said in a joint press conference that they were confident and hopeful that the Greek crisis will be resolved quickly and that they were committed to preserving the euro's stability.

Why Fallacious: Both Sarkozy and Merkel would have been well aware of the economic effects any type of negative, therefore truthful, remarks on the state of the eurozone crisis would have had, especially in the foreign exchange market concerning the euro. Of course, it is in the best interest of Sarkozy and Merkel to prop up the euro in the face of impending catastrophe. It's the same reason why Bernanke refuses to admit that the dollar's devaluation has been a result of quantitative easing. The truth is that there is no solving the Greek crisis in a way that both the long and short term would be positively affected, especially not in the suggested ways that European leaders have urged. Even if by some ingenious way the Greek issue is settled with both bureaucratic and popular support, crises in Ireland and Portugal would not be far behind. And behind those two are Spain and Italy, respectively. So, any belief that the eurozone crisis is anywhere near solved is erroneous. Sarkozy and Merkel should be charged with a Pump N' Dump scheme.

Reason #2: Also before the markets had opened on Friday, there was seemingly good news that the Greek government had reshuffled its cabinet highlighted by the appointment of a new finance minister, Evangelos Venizelos. These were considered positive steps in ensuring that Greece avoids a debt default.

Why Fallacious: As stated before, the chances the Greek government gets their house in order in a way that would subdue the majority of popular protests are slim. Ironically, the markets responded positively to Reason #2 although former Fed Chairman Alan Greenspan had said in a Friday interview with Charlie Rose that a Greek default was "almost certain" and that it would almost certainly cause a double dip recession in the United States.

Reason #3: Out of the two economic data pieces released today, one was the Conference Board's leading indicators that showed a surprising strong growth of .8% for the month of May. This positive data led to a positive response in the markets and led one economist to say that this figure should "squash double-dip fears."

Why Fallacious: As mentioned the leading indicators was only half of the economic data released. Note that its increases took place in the month of May. However, the other economic data released was by the University of Michigan and Thompson Reuters showed that, in June, consumer sentiment has fallen to 71.8, a worse than expected figure. Notice how the bulls, and aforementioned economist, were able to focus solely on the positive data and neglect the more recent, and equally as vital, negative data. I'm not completely sure how a worse than expected drop in consumer sentiment should "squash double dip fears."

Reason #4: Moody's waited until late in the day to announce that it was considering downgrading Italy's credit rating due to structural weaknesses and a likely rise in interest rates.

Why Fallacious: Watching the markets late in the day, it was obvious that this late announcement played a role in the uncertainty as to whether or not the S&P and DJIA would post weekly gains. In the end, the bulls prevailed. However, this ties into Reasons #1 and #2 where I explained that the eurozone crisis is far from resolved and that even a Greek solution would not forestall impending crises in other countries, including possibly Italy. While I do not believe Italy will be in a situation anywhere near comparable to Greece or Portugal, the fact that there are internal uncertainties in yet another European country should have signaled to the markets that the European leaders cannot be trusted to be objective in their sentiments and speeches.

It seems the prevailing wisdom was not so prevailing today. It could have possibly been for confidence reasons that allowed the markets to post a weekly gain for the first time in 6 weeks. Even Wall Street wants some reason to be happy. However, I do not believe these sentiments will last through next week. However if they do, it could simply be attributed to more selective economic readings by the bulls that will crowd out the warnings from the bears.

Thursday, June 16, 2011

Bill Maher and Glenn Beck Agree

You read the title correctly. Bill Maher said on Anderson Cooper's AC360 that if he were forced to vote for a GOP candidate, he'd vote for Ron Paul. That puts Maher and Beck on the same side of the argument for the first, and probably only, time in history.

Quick Thoughts

Been busy recently, so I'm going to have to delay philosophical posts until the weekend.

In the mean time here are some quick thoughts on current events:

Jim Rogers on CNN's American Morning today gave another dismal outlook on the global economy. The man's a genius. One of my favorite investors (along with Marc Faber and Peter Schiff). Reasons he cites are pretty much the universal ones known to non Kool Aid drinkers; inflation, failing European austerity measures, propped up American economy, etc.

However, Rogers makes a key point that I believe was crucial advice to those who believe themselves to be great investors. If you don't know the industry you are investing in, don't bother investing in it. Most people believe themselves to be financial experts because of what they see on CNBC or read on Jim Cramer's blog. Prominent examples would be anyone who bought Pandora stock when it was at $22 or LinkedIn when it was at $122. Rather, Rogers says you are better off saving your money in a bank while accruing negligible interest than losing a lot of money on a stock you did not do your homework on. As Rogers says, "Fast money is a quick way to the poorhouse."

Here's the whole Jim Rogers interview. I highly recommend you watch it:



In other news, Rep. Anthony Weiner resigned today. My thoughts is that it was totally unnecessary and probably against his will. The majority of his constituents said they would still support him throughout all this. Had he told the truth in the first place and not lied, I don't think pressure for him to resign would have existed.

In the markets, there were mixed results from mixed data. Dow Jones and S&P closed in the green while NASDAQ and Global finished in the red. Latest jobless claims report showed a miniscule improvement from the last release. There was some positive, but negligible, data released in respect to the housing industry with construction up 3.5%. Building permits also increased. How much of these improvements can be credited to the notably poor weather devastating areas like North Carolina that caused people to be more vigilant and protective of their property? That remains to be seen.

There is no escaping another tough day on Friday, however. If Greece's Prime Minister fails to form a new government and subdue national protests, you can count on the markets responding very unfavorably.

Wednesday, June 15, 2011

More Trouble in the Markets

It's been a rough few weeks for Wall Street. Aside from bright spots, such as apparently successful IPOs like LinkedIn and Groupon, things have not been going so well. Recent economic data has illustrated a damning indictment of President Obama and Chairman Bernanke's economy. Unemployment has increased, the CPI has increased (one of the indicators of growing inflation), Quantitative Easing is set to wrap up at the end of the month, the eurozone crisis continues to attract attention, the housing bubble can barely stay inflated, and even the Chinese economy is not growing as well as it has been.

Yet, the impression you get from most of the Kool Aid drinking Keynesians whose influence in Washington is notable is that this is a bump in the road to recovery. Jim Cramer is on Mad Money touting Ben Bernanke as our greatest Fed chairman ever. Jared Bernstein, Paul Krugman, and the like are all doing their best to prove to the imbeciles who are bearish that, in the big picture, everything is going swell.

So, the main question for anyone reading this who may not be as well versed in Austrian, or even Chicago, economics and still remains optimistic about the economy in the long run is this: If these same people who were running the show four years ago (Bernanke, Geithner, etc.) could not see the plainly obvious crisis on the horizon (actually discrediting it many times) last time, why should they be given any credence this time around? They haven't learned their mistakes. Their solutions have always been the same. Boost aggregate demand!

Here's a fun video. This is the same guy the mainstream establishment are putting their full faith in:

More Proof that Ron Paul is Winning the Debate

The point that I have been emphasizing, which is useless as it should be obvious to anyone who follows American politics, through my latest posts is that Ron Paul is winning the philosophical debate that has taken place, and will continue to take place, in the Republican party.

Ron Paul is the founder of the Tea Party. The Tea Party's influence through candidates like Michelle Bachmann and (possibly) Sarah Palin on the 2012 Presidential election will be historical. There are twice as many (real) libertarians as there was last time in the GOP primary with the inclusion of Gary Johnson. Establishment types are backtracking their hawkish foreign policy stances in favor of Old Right foreign policy.

And this clip pretty much is the best summation to a redundant point I have been making; it is Glenn Beck, the mother of all neoconservatives in 2008, revealing how he now agrees with Ron Paul more than he did 4 years ago and how the Congressman is the closest thing to our Founding Fathers.

Note: It's not going to be many times I share a Chris Matthews and Glenn Beck clip, let alone on the same day!

When Doves Cry

Good segment on the apparent transformation from hawks to doves in the GOP reminiscent of the Old Right of Robert Taft. One of the few times you will see anything positive associated with Chris Matthews:

Visit msnbc.com for breaking news, world news, and news about the economy

Tuesday, June 14, 2011

Jack Hunter on GOP Debate

Video by Jack Hunter, or Southern Avenger, on how Ron Paul is winning the debate on Republican philosophy. Another insightful and spot on video by Jack. I highly recommend you watch it.

Thoughts on GOP Debate

Last night was the second debate in the race for the Republican nomination for president. And even though the perceived "frontrunners" were in attendance for the first time, the debate was missing an important voice because of an unreasonable exclusion of former New Mexico governor Gary Johnson.

I'll break down what I thought of each candidates (in no particular order) performance followed by an overall summation of the debate:

Rick Santorum: Came off as less brash or hawkish than the last debate, though still probably the most hawkish out of all the candidates on the night. He knows what constituents he is pandering to--the pro lifers, anti gay marriage, Islamaphobic, etc. crowd. Basically, he is going after the Huckabee constituency, which is generally made up of people who believe the government should dictate morals to those over whom it governs. He is a staunch supporter of states' rights, except when it comes to abortion or marriage. At least he's consistent in that respect. But to believe this guy is Tea Party when he was a part of the same Republican coalition that was rejected in '06 by the independents that switched over to the GOP in '10 is laughable. Last time I checked, there was nothing "small government" about voting in favor of a Medicare Prescription Drug Benefit. Thank goodness he can pass that off as a mistake now. Even though the question is then begged, if he made mistakes while in office before, why wouldn't he make some crucial ones as POTUS? Grade: D

Michelle Bachmann: Good performance, I believe. Not many better ways to kickoff a presidential campaign. From a subjective perspective, it was a little disconcerting to hear some of her policy stances. Going into this debate, I must admit that my knowledge of Bachmann's record was limited. For example, her support of a constitutional amendment to define marriage between a man and a woman illustrates to me that her concept of liberty is limited. While Ludwig von Mises (as per the article featured in the Wall Street Journal) may be one of her economic influences (which is great by the way), she is neglectful in extending Mises's, and similar economists', view of liberty even further. Also, it's quite easy now to declare Mises to be one of your influences but when your voting record shows otherwise (notably a vote in favor of TARP and a general 100% Bush voting record), then the truthfulness of her proclamation must be questioned. Another issue that I found irksome was her attacking Obamacare on the basis of its effects on Medicare. This is the major problem for Republicans on Obamacare. If you're going to disagree with it on its constitutionality, mainly the individual mandate, then stick with that. Don't argue that it's endangering one entitlement with another. Entitlements are altogether wrong so arguing that one entitlement is going to be damaged, which by itself isn't a bad thing, and therefore Obamacare should be repealed is fallacious and disingenuous. Grade: B

Newt Gingrich: I think the main focus for Newt going into this debate was damage control. With his blunder concerning the mild and timid Ryan plan a few weeks ago and mass exodus of political consultants last week, I think his main goal was to come off as the same, well spoken statesman that he has always been. In that respect, I believe he succeeded. When it came to addressing that very issue of dubbing Ryan's plan "right wing engineering," I thought he handled himself well by making the point that if the American people aren't with you, you should slow down and explain it better. It's a valid point. Doing otherwise results in a "We have to pass the bill so you can find out what is in it" mentality. Now, Republicans may not like to concede this moral and rational point, but it's a valid one nonetheless. Even a President Ron Paul would take the time to explain to the uneducated why the Departments of Education, Labor, Health and Human Services, etc. must be cut before doing so. Granted he would indeed do so, but he would first take time to explain his actions. I believe that is the same point Gingrich was making. The only real point he made that was probably off base was his apparent defense of Cain's Islamaphobic statement that he would have to test the loyalty of any potential Muslim who might work for him. His general point might have some validity, but the entire premise that you would be interviewing someone for a job who you don't know well enough to totally discount the possibility of him being a terrorist is a little troubling. On foreign policy, like the other establishment candidates, he sounded much more like an Old Right or Howard Taft Republican than the neoconservatives that dominated the debates four years ago. Grade: B-

Mitt Romney: I am not sure how he came out of this debate so unscathed. The amount of times RomneyCare was even mentioned was negligible. How many times were the words "individual mandate" even said? Maybe twice? That's unbelievable for a Republican primary in which the Tea Party will be playing a HUGE role. The entire foundation of the growth of the Tea Party was in opposition to Obamacare, which is founded on the individual mandate. So that was quite perplexing. That aside, I believe Romney handled himself well. On foreign policy he sounded quite different than he did four years ago. Could one imagine Romney saying four years ago next to McCain and Giuliani that we shouldn't be caught up in the civil wars or nation building of other countries? Probably not. When it came to the question as to when/if he would withdraw troops from Afghanistan/Iraq, he basically said he'd leave that up to the generals. Well, I would think he'd know that the entire reason why the executive branch was set up was so that it would act as a civilian counterbalance to the military generals who would otherwise be more likely to go to war. I guess further education in that respect is needed for Romney. Grade: B+

Tim Pawlenty: As if on queue, Pawlenty illustrated the exact lack of gumption I stated was the problem with his economic plan in my previous post. When pressed on his dubbing of "Obamneycare," he backed off and showed a complete lack of resilience in standing up to the attack on Romneycare, on which Obamacare was based. It can be seen as nothing more than a political stunt. I think Pawlenty wants to keep his options open. If he does badly in the early primaries and drops out, he probably wants to keep the possibility of presidential candidate Romney picking him as his Vice President available. An attack on Romneycare would lessen that possibility. Another big problem in his substance was his insistence on everyone knowing that he appointed "conservative" judges to the courts in Minnesota as governor. Oh, dear. Pawlenty should take notes out of the McCain playbook. While running for POTUS, McCain reiterated that he would have no litmus test for his judicial nominees. Now, what he meant by this wasn't that he was leaving open the possibility of nominating a pro choice judge but that positions that are perceived as "conservative" in the mainstream media, like the issue of abortion, are objective truth in the eyes of the law. So, by deeming judicial nominations as "conservative," Pawlenty is basically endorsing activist judges, just not the kind he doesn't like, and saying that his views on legal matters are ideologically grounded instead of legally objectively founded. Grade: F

Ron Paul: Did very well, as expected. Does he come across as "presidential?" Well, that depends on your definition of presidential. If your definition is one in which the person is right on every issue, straight talking but still intellectual, and consistent, then yes. But if your definition is one in which he's not right on every issue but talks well or "looks" like a president, even though his record doesn't match his rhetoric, then no. It's amazing what a difference four years makes. When asked about foreign policy and Paul derailed the failed Bush/neoconservative policies of the last decade, which has continued under Obama, there was almost nothing noteworthy about it as the other candidates accepted his argument civilly and even sounded as if they agreed with him to an extent. But four years ago, he couldn't make statements like the ones he made without being branded an "isolationist" or "appeaser" by hawks like McCain or Giuliani. Also, of note, is that Paul was seemingly the only candidate that understands that he would control the military not the other way around when it comes to withdrawing troops from overseas. Grade: A

Herman Cain: I don't know where to start. I never understood his jump in the polls before and if he doesn't go down to 0% after that performance then people are either (a) extremely disenfranchised or (b) duped by simple rhetoric that lacks substance. Cain supported TARP and chastised free market "purists" while doing so. His racist, Islamaphobic attitude is nothing short of appalling. And his complete lack of substance in foreign policy is startling. Are people really that easily swayed by comparisons of the economy to a car engine? Or are they just making a point in saying they'd rather have a nincompoop as president then the establishment types? Future polls will help make that determination. Grade: F

Verdict: A much more civil debate than I expected. Much more leeway given to Romney and his healthcare package. Much more civility in Paul's stance on foreign policy. The apparent morph from neoconservative foreign policy to more Old Right foreign policy is only a good thing. It's no wonder why Bill Kristol wants the imperial Marco Rubio to run for president; no other candidate seems to be the kind of jump-the-gun hawk that neocons like Kristol prefer.

Mitt Romney and Michelle Bachmann may have been the "winners" of the debate but it is quite clear that when it comes to constitutional stances on economics, foreign policy, and everything else, Ron Paul is winning the debate.

Monday, June 13, 2011

The Problem with Tim Pawlenty's Economic Plan is Tim Pawlenty

Last week, former Minnesota Governor and current GOP presidential candidate Tim Pawlenty unveiled his economic plan to put this country back on the road to prosperity.

(Full text of the speech can be seen here: http://www.nationalreview.com/corner/269021/full-text-tim-pawlentys-economic-speech-nro-staff)

As someone who is paying particular attention to each candidate's economic solutions, as I believe it will be at the forefront of the 2012 general election, I was impressed with the substance of Pawlenty's plan.

Pawlenty starts out the speech by derailing the failed policies of both Bush and Obama, although he does not directly reference Bush. He derails the stimulus, bailouts, and government takeovers---good but nothing special.

He then boasts the guts he possessed in calling for an end to subsidies, particularly ethanol, in Iowa. And he mentions how he came to Florida (my home state) and called for a raising of the retirement age for the next generation and for reform of Social Security. He also cites how he stuck it to the Wall Street execs by going to NYC and calling for an end to the bailouts.

So far, so good.

Pawlenty later makes a simple statement, but the truthfulness of it speaks volumes:

"The truth about our economy isn't hard at all. Markets work. Barack Obama's central planning doesn't."

Straight out of The Road to Serfdom seemingly.

Pawlenty proceeds to talk about how government regulations under the Obama administration has bogged down the private sector and has discouraged investment (You only need to look at my previous post concerning the Fed and the price of oil for proof of this). Pawlenty then says that the current economic growth rate of 2% is not acceptable and as president he would push for a growth rate of 5% as was done under the administrations of both Reagan and Clinton. He says he would accomplish this goal by "creating more economic freedom" by way of tax reform, elimination of subsidies, and reduction, and elimination, of cronyism.

This supply side economics approach is very beneficial as Pawlenty later indicated, in an interview with Larry Kudlow on the Kudlow Report, that this growth in the supply side would not be for the purpose of simply growing government revenue. Rather, a reduction into two simple tax rates (first 50k for individuals and 100k for married couples taxed at 10%, everything greater taxed at 25%) would, in the short term, result in a decrease in government revenue. But, because of an increased incentive for businesses to invest and hire courtesy of simpler tax rates, in the long term, government revenue would increase.

Pawlenty then illustrates the projected result of these policies:

"5% economic growth over 10 years would generate 3.8 trillion dollars in new tax revenues. With that - we would reduce the deficit by 40%. All before we made a single budget cut."

After a speech like this, I wouldn't be surprised to see Art Lafffer come out in support of Tim Pawlenty.

Another highlight of the speech was Pawlenty's proposal of what he dubbed "The Google Test."

It's simple:

"If you can find a good or service on the internet then the government probably doesn't need to be doing it."

This is a GREAT philosophy for ardent free marketeers like myself, as anyone can see that almost everything the government does is available on the internet. Following this philosophy would absolutely do wonders in reducing the size of the Leviathan.

There were other good parts to his economic plan but I will stick with these points. Had this solely been his plan, it would have my ringing endorsement. But it also comes with a derailment of government run healthcare, crony unionization, and promotion of sound monetary policy. Pawlenty was actually against Bernanke's nomination as Fed chairman, that puts him in good company with Ron Paul and Gary Johnson. Pawlenty also coined the term "Obomneycare" to illustrate similarities between Obamacare and Mitt Romney's healthcare plan installed during his tenure as governor of Massachusetts.

Good monetary policy? Check. Supply side economics approach? Check. Market economy rhetoric? Check. Anti centrally planned economy? Check. Entitlement reform? Check.

So, what's the problem? Well, as the title of this post indicates, Tim Pawlenty.

Good on rhetoric Pawlenty is. But that shouldn't come as a surprise. The guy's running for President. Good on record, however, Pawlenty is not.

Despite the rhetoric of the speech, as governor of Minnesota Tim Pawlenty did more than his fair share of flirting with government intervention in the market economy. He was originally a supporter of cap n' trade. Not a free market approach. When dealing with healthcare, he actually gave consideration to an individual mandate. A true free marketeer would not even consider it.

So we can already see a lack of conviction in Pawlenty's economic philosophy. It's this kind of inconsistency that results in situations where supposed free marketeers like Alan Greenspan can be seen calling for the government to save failing companies.

In fact, just days after this speech, Pawlenty appeared on Fox News Sunday distancing himself from his goal of 5% economic growth. He called this "a stretch plan" and more "aspirational."

It's precisely this lack of gumption that is lacking in many politicians. But in this case, it's enough to deter anyone who is really looking for something different and workable in terms of saving the American economy.

That is what leads me to conclude that Pawlenty's economic plan, I support. But supporting Pawlenty himself? That's unlikely.


Power of the Market - The Pencil

This video is based on the "I, Pencil" essay written by Leonard Read in 1958 in The Freeman, which is published by the Foundation for Economic Education. It's a short video (about 2.5 mins) explained by one of my favorite economists, Milton Friedman.


Here is the URL to the actual essay: http://www.thefreemanonline.org/featured/i-pencil/

Twitter Feed

Here is the URL to my twitter account: https://twitter.com/#!/DiegoTPestana

On my twitter account, I usually post articles I read that are particularly relevant or spot on (which means the are usually from the Mises Institute or LewRockwell.com).

Feel free to check it out every now and then as I will post on there when I have a new blog entry.

The Fed and Gas Prices


The above video is of a Congressional Subcommittee entitled, "How Federal Reserve Policies Add to Hard Times at the Pump." I came across it on Dr. Robert Murphy's Free Advice blog as he is one of those giving their expert advice on the effects of Fed policies, especially Quantitative Easing I and II.

Since it is an hour long (and that's only the first part!), and I'm the only person I know who'd actually watch/listen to a video like this, I'll just go over the highlights that stuck out to me:

First thing of note is that all 3 of the academics (Vincent Reinhart of the American Enterprise Institute, Robert Murphy of the Institute for Energy Research, and Dean Baker of the Center for Economic and Policy Research) agree that the Fed has had some effect on the rising prices of gasoline. Obviously the extent of its effects are not unanimous. But the fact that you can get an employee of the Federal Reserve (Reinhart), an Austrian (Murphy), and a Keynesian (Baker) to all acknowledge that Federal Reserve policies have had effects on the rising price of oil is notable. This, of course, should be expected as most Keynesians would admit as much but would argue that the effects have been positive rather than negative, as Baker alludes to later in the clip.

However, what is very notable, I believe, is that Dr. Baker admits that the Federal Reserve's record in keeping an eye on long term effects of its policies is dismal and lacking even by Keynesian standards. This a pretty damning indictment of Fed policies by someone who would tend to be a Fed apologist.

Other aspects of the hearing that are notable is that the two representatives of private sector businesses, Greg Wannemacher, who represents the trucking industry, and Karen Kerrigan of the Small Business Entrepreneurship Council, both cite regulation and governmental uncertainty as the primary causes of a slowdown in their respective areas in addition to adverse effects such as smaller businesses cutting back on shipping and transportation due to the lack of desire to want to burden their customers with the increase in shipping surcharges.

When asked what specific regulations are having negative effects and are stunting job growth, Ms. Kerrigan immediately cites "the healthcare issue" as small businesses only see healthcare prices and costs going up . She also cites tax uncertainty and the Dodd-Frank reform bill and the effects it will have on capital and investment.

Mr. Wannemacher repeatedly mentions the Environmental Protection Agency and the regulations it has imposed on trucking businesses. He specifically cites instances where his costs of complying with EPA standards have increased due to regulations on truck engines. He mentions how his company had to turn to low sulfur fuel, which provides lower fuel milage, and how they had to pass along the increase in the cost of fuel to their customers which resulted in a loss as customers would of course rather not have to pay for an increase in surcharges.

I particularly admire Dr. Murphy's humility while having to listen to the typical Keynesian rhetoric when talking about the Fed and its policies.

Well, this summation of the testimonies of a variation of economic philosophies and representation of the private sector, particularly small business, is damning to anyone who believes that government regulations and policies are omnibenevolent and there are no adverse effects to them or to someone who believes that the government is not stifling an economic recovery. In the economic realm, you will hardly see anyone who doesn't concede that government policies being pursued are having effects like devaluation of the dollar which results in increases in commodities. Where the debate there usually begins is whether dollar devaluation is a good thing (it isn't) because it results in a decrease in the trade deficit. That is a debate, I will save for another time.

Here is the link Dr. Murphy's blog, I highly recommend you check it out: http://consultingbyrpm.com/blog

No Such Thing as Good Government

I would like to follow with the train of thought that can be traced through my previous post regarding government jobs.

In my previous post, I emphasized the point a couple of times that there is no such thing as good government only necessary government. I believe this distinction is crucial as it is the underpinning of realizing the philosophical foundations of the American founding documents and classical liberalism, or modern libertarianism.

This is one of my qualms of GOP presidential candidate and former Governor of New Mexico Gary Johnson--his policy book titled Seven Principles of Good Government (my emphasis). In a recent speech given at the Cato Institute, other GOP candidate Tim Pawlenty also mentioned how he believed there are some aspects of government that are "good." Once you learn the distinction between good and necessary government, you will understand how these proclamations irk me.

Let's take a most basic governmental function enumerated by this country's founding documents and state constitutions; the judicial system.

The whole premise of the judicial system (and this premise is not unique to the American justice system) and reason for its existence is because man possesses the capacity to act irrationally and immorally. Because man is equipped with free will, and with that entails the ability to choose to do immoral things, a system of justice and law is thereby required to ensure the rights of individuals are not infringed by any person or persons. In other words, the only reason that government is given the duty of enforcing justice and laws is because man can be evil. Otherwise put, if all men were angels then there would be no need for the government to set any laws. Already we can see a disparity in deeming a judicial system "good" since its entire premise is founded upon man's capacity for evil.

This example illustrates my underlying point. The judicial system is not good because of its insurance of justice. Pointing to the many instances of corruption in the judicial system or establishment of unjust laws, like slavery, is not even necessary to help support my thesis. Rather the judicial system, traditionally a function of government, is necessary because in a world capable of immorality, the enforcement of natural laws and protection of individuals becomes the basis in forming a free and prosperous society.

Because John possesses the ability to buy a gun and kill his neighbor, a judicial system* is thus necessary to ensure justice and protection. It's not that it is good that government exists because John possesses the ability to buy a gun and kill his neighbor.

Is it good when John then receives justice (like a life-in-prison sentencing) for killing his neighbor? Not necessarily. It is the natural order of things. Is it good when Timmy does the homework that was assigned to him? Or, rather, is Timmy simply doing what he is supposed to and doing otherwise would be bad?

It is easy to see that this underpinning philosophy is repeated throughout civilization. Our Founding Fathers were classical liberals, meaning they wanted individuals as liberated from their governments as possible. If the Founders did have a favorable of view of government (they didn't) then it would make sense to ask why, then, did they want individuals so liberated from it?

However, they could not escape some seemingly* necessary functions of government. I could go on and on about the responsibilities enumerated in the Constitution and how their premises all have the same basis--man's capacity to be irrational and immoral: checks and balances, Congress funding the military, Congress declaring war, judicial review, etc.

You can thus understand my point wherein I state that there is no such thing as good government, only necessary government.

* - These asterisks indicate a philosophical undertone that could in fact be taken further. Being an adherent to the Austrian School of Economics, I am aware of some of the Rothbardian philosophy (which I am a fan of).

For those unaware, Murray Rothbard even takes these arguments even further whereby government is not necessary for justice as it could easily be agreed upon in a just society wherein justice is enforced by use of private entities. For example, I don't need Judge Judy, a government employee, to settle a contract dispute between me and John. This is because a part of that contract would be a clause that states that in an event of a dispute, we agree to seek objective resolution by some third party, which could be a private entity, not necessarily governmental. This is why, where asterisks are used, it should be emphasized that (A) "a judicial system" is required, not necessarily one provided by the government, and (B) "seemingly necessary function of government", as some of these functions could be provided without government. I will spare going into this philosophy further as it is not necessary to support my thesis here. In the future, I could see a "No Such Thing as Necessary Government" article being posted but since I am an American, I adhere to the law of the land and that law establishes a government.

Sunday, June 12, 2011

Sorry, Government Jobs Are Not Real Jobs


This video is perfect to open my blog with as it is a stereotypical argument you will hear from the type of people whose fallacies I will combat. In this case, this stereotypical argument is made by most high school and college teachers. In fact, it is this train of thought that can be found in most high school text books. Let me begin:

Firstly, Hartmann totally discounts the notion that Hoover did not do NOTHING. Look at his inaugural address, in it Hoover talks about all the interventions he took in order to "prevent" worsening. Here's an excerpt:

"[W]e might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action."

One of the interventionist actions Hoover took was that he froze labor wages during his administration in order to combat decreasing income, effectively setting the stage for the Depression as businesses could not adjust to the changes in the market environment.

Hoover's action destroys the falsehood taught everywhere by liberals that free market capitalism caused the Depression. History proves otherwise. If this Hartmann had any clue about economics, he'd realize that bubbles, or booms, are a result of government intervention, which promotes malinvestment and over-consumption, hence the following bust phase which is a self correcting mechanism which really shouldn't be viewed as a destructive force.

Also note, that Eisenhower may have been a Republican but he was no conservative or free marketeer. He was actually courted by the Democratic party before he decided to run as a Republican. Eisenhower was very ignorant of things economical.

Another negligence is the Depression of 1920s, which establishment liberals never acknowledge. In 1920, the unemployment rate jumped from 4% to 12% and Gross National Product declined 17%. President Harding's response was budget and tax cuts resulting in a decrease in national debt of about 33%. Recovery followed this Depression relatively quickly compared to the Great Depression and current crisis thanks to true laissez-faire policies implemented by President Harding. But you hardly ever hear of this. Here's an article about the 1920 depression:http://mises.org/daily/3788

This is no such thing as good government. Yes, government jobs are NOT real jobs. Private sector jobs aren't forcefully subsidized by unwilling citizens, who may themselves be in economic troubles. All private sector transactions that take place are done so voluntarily. If a private sector job underperforms or brings in net loss, then it is cut and corrections are made. This doesn't happen with public sector labor. An obvious example are public school teachers. Because of bureaucracy and curtailing to unions, underperforming teachers are hardly ever punished. Rather they are kept on because of issues like tenure.

So, please, don't be fooled by this typical liberal argument. There is no such thing as good government, only necessary government which is very limited constitutionally.

Introduction

Through my blogging on this site, I will try to dispel common myths, misconceptions, fallacies, and other mistakes concerning Economics, Philosophy, and Politics. I will also add my two cents as to what I think of certain current events from every thing concerning films to the next election. Your comments and feedbacks are most appreciated. Different opinions are valued (even though probably erroneous :p).