Tuesday, May 17, 2011

The Economy Must Be Broken?!

It’s becoming a common refrain on the left: what’s wrong with the American economy? Why won’t it produce any jobs? We have economic growth, so why aren’t there any jobs? Booo hooo hooo. There must be something wrong with America! Booo hooo hooo! It can’t possibly be that our leftist economic theory is completely wrong?! No, the fault must lie elsewhere.

For two years now, leftists have become increasingly frustrated that the economy isn’t producing any jobs. When Obama took power, they got to implement a Keynesian orgy of spending that their economic theories told them should have resulted in a vast flood of new jobs. It was only a matter of time. But somehow, it hasn’t happened. How can this be?

The answer is pretty obvious to anyone not blinded by ideology. Increased taxation and regulation combined with uncertainty have discouraged companies from hiring. Combine this with unfair trade practices by foreign governments that make it unnaturally cheap to send jobs overseas, and you’ve got a situation where companies just aren’t going to create a lot of new jobs in the US.

But the left can’t stand to hear this because it blows holes in two of their cherished beliefs:

(1) Every dollar spent, no matter what the source, results in five dollars being added to the economy as a whole. This in turn results in jobs being created because every percentage point of economic growth produces 800,000 new jobs a year.

(2) It doesn’t matter what you do to an economy, growth will continue like normal after the shock of your action and the rules of theory one above will be obeyed. So tax away comrade, tax away!
Every leftist economist from moronic oracle (“moronacle”) Paul Krugman to malignant dwarf Robert Rubin to the self-deluded Economist prays at the alter of these theories. In fact, they need to believe this or else they couldn't justify raising taxes on people they don’t like, i.e. companies and “the rich.” Thus, they are stuck struggling for ways to explain Obama's economic failure while carefully denying the obvious -- that higher taxes and more regulations destroy job growth.

The latest theory they've pulled out of their nether-regions is that the link between economic growth and job creation no longer works as it has for thousands of years. In other words, economic growth no longer creates jobs. Naturally, they twist this into a call to tax non-job creators, i.e. corporations and the rich, so that the government can use the tax dollars to somehow create jobs. Apparently, Atlas Shrugged wasn’t fiction after all.

What these leftists are missing, of course, is that their two pillars are laughably stupid. Consider this:

Stupid Theory No. 1: The “Keynesian multiplier” theory works on the assumption that if you add money to an economy, the economy must grow larger. But it forgets to ask where the money comes from. Government spending must be pulled from the economy in the form of taxes before it can be spent. And if the multiplier is true, then every dollar pulled from the economy reduces the economy by $5. Thus, at best you break even -- five dollars out, five dollars in. But the government is an inefficient spender. hence, what you actually get is something like $5 out and $1.4 in. That means every dollar of stimulus spending results in $3.6 lost to the economy.

And if you think about it, this makes sense. Otherwise, we could just spend ourselves to prosperity. Indeed, if this worked, why stop at a trillion dollar stimulus? Wouldn’t a hundred trillion dollars be more responsible? Interestingly, even Keynesians don’t think that works. . . though they can’t explain why the trillion is supposed to work and the hundred trillion would fail. So why can't "brilliant" leftist economists understand this?

Stupid Theory No. 2: The second theory completely misunderstands human nature. Reality is simple: people work because it benefits them. If you tax their earnings/profits, they will work less because it becomes less worthwhile to work, invest or take risks. The same is true of regulations. If you make something harder/more costly to produce, people will produce less of it. Thus, it makes no sense whatsoever to believe that people will continue as if nothing has changed when you increase taxes or regulations -- indeed, if I started punching you every time you went to work, why would this bother you the first couple times but not the 1,000 times after that? Therefore, pillar two is utter nonsense.

What’s more, the Democrats don’t understand the concept of uncertainty. Even where Obama has left taxes as they were or not imposed some regulation, he’s still run around flapping his gums about how he plans to raise taxes or impose regulations as soon as he feels he can. That makes future profits and costs uncertain and causes people to stop spending, investing or working until they get clarity.
The left refuses to accept the obvious because that would discredit their economic theories and interfere with their desire to punish those they don’t like. Indeed, their economic theory makes no sense logically nor has it ever worked in practice, but it gives them the excuse they need to exercise a little self-righteous spite. Thus, moronacles like Krugman and The Economist would rather disgrace themselves with ridiculous theories about the economy having mysteriously failed than admit that the fundamental tenets of their beliefs are completely and utterly wrong. That must suck.


Tennessee Jed said...

a very nice post, Andrew - the one the left struggles with the most, I think, is the notion that after you tax people more, they will continue to behave exactly the way they did even though you are creating a disincentive to do so. It always seemed so obvious to me.

In fact, that is the biggest underlier of why socialism does not work. It makes people dependant on government which directly reduces freedom AND initiative. Still, there are probably at least three or four people who will muck the stalls for free out of a sense of "fairness."

T-Rav said...

I'm not even going to try to figure out how a dollar spent is supposed to add five to the economy--having seen government workings up close before, I have my doubts as to whether it even adds one. Keynesianism is becoming increasingly discredited at this point, even in Europe (heck, maybe especially in Europe).

Also, I'm going to be submitting "moronacle" to Webster's Dictionary, picture of Krugman attached.

Jocelyn said...

Nice post Andrew. I'm pretty sure "logic" and "common sense" are not in the liberals vocabulary. And I also find it amazing that if we are taxed 100%, it would not be enough money for the liberals and all the incoherent things they think up.

Writer X said...

And Obama is under the delusion that he can simply tell companies to hire and, presto, they will hire. What's next? A Ouija board? Or maybe another taxpayer funded commission...

StanH said...

I can envision these dunder- heads sitting in a room slapping themselves on the head with economic text books (JM Keynes “Treatise on Money” amongst others), with spittle flying in a blind rage that belies their ability for comprehension. They could be heard through the door droning on about, “but, it says it right here in the book…”

Barry doesn’t have a clue about business, in fact he once referred to private business as the enemy, the enemy of what?

LL said...

Congress & the Administration can bribe voters with their own tax money. That won't change.

Add BHO's disastrous policies and you have a perfect storm that is not abating.

A NEW administration will need to deal in PAIN and the American people won't like it.

AndrewPrice said...

Thanks Jed. I think this actually does highlight the big difference between left and right. The right understands that people act in ways that benefit themselves with rare moments of altruism. The left thinks that people can be molded to act according to the wishes of the state. That's really at the root of all of our policy differences -- conservatives grasp the concept of incentives, liberals think that just "making it so will make it so."

AndrewPrice said...

T_Rav, That would be hilarious if moronacle became a new word. . . and even more so if Krugman's picture was next to it. We should submit to the Urban Dictionary first! :-)

The Keynesian multiplier is based on how quickly money moves through an economy. In other words, I buy something from you, you buy something from a supplier, they buy something from someone else. If it moves around 5 times in a year, then Keynese's theory says that one dollar spent results in five dollars added to the economy.

That may or may not be true, but it doesn't help the stimulus idea because it doesn't account for the source of dollars. If the government takes the dollar from me in the first place, then it can't be spent, so the economy loses the money before the government tries to spend it to pump up the economy. It's pretty basic thinking that the left can't manage.

AndrewPrice said...

Jocelyn, Thanks! I think you're right, logic is not their strong suit. In fact, what I find so fascinating about liberals is how often they believe things that are entirely contradictory, and yet it never occurs to them.

Even in this instance, liberal economists have discovered that our government is one of the least efficient spenders of money of any Western government. They get that. But then they refuse to see that when they think about their multiplier. And they can see the positive multiplier effects of spending, but somehow are totally blind to the negative effects of taxation. It's really strange that they just can't seem to grasp basic logical concepts.

And you're right, their inability to grasp even basic logic leads them to come up with some incredibly incoherent and short-sighted policies... which is why they are constantly trying to fix the unintended consequences of their own policies.

AndrewPrice said...

Writer X, That's how liberals think -- if I say it, they will do it. So he thinks he just needs to say "everything is ok, start hiring" and people will do it. It never occurs to him that it's his policies (now and those people expect are coming) that matter. Companies hire because they need people, not because they just feel like having them around.

AndrewPrice said...

Utah Mom, I suspect you are spam. Your comment is generic and I don't actually offer any solutions as you mention, the link to your name is to a commercial site, and we get something similar from "Atlanta Roofing" which is actually being posted from the Philippines.

So I'm going to delete your comment. If you are real, then feel free to post again -- something specific and we can talk. If not, good riddance.

AndrewPrice said...

Stan, The enemy of the people, who would live in paradise if it weren't for evil capitalism.

I think you're right, by the way. I truly think they are stunned and frustrated and literally cannot understand why there are no jobs. To them, these theories were as unassailable as gravity. Yet they failed. And this time they can't blame Republicans for somehow interfering -- conditions were perfect for a test of their theories and they got everything they wanted. And yet, it didn't work.

So now they're struggling for answers other than the obvious ones which are that their theories are flawed.... something they should be able to grasp either through basic logic or historical experience.

The problem is that if they give up on this, then they will find themselves having to believe things they don't want to believe and for them it's more important to believe the things they want to believe rather than the things that are true.

patti said...

the left exhausts me, and this is but one more reason why.

and i'm with t-rav: submit moronacle!

AndrewPrice said...

LL, That's the real problem. The Democrats come along promising rainbows and unicorns and handing out money and goodies everywhere. . .. and then things blow up. Then the Republicans need to come along and be the bad guys by taking away the goodies that no one can afford. So the public (at least a certain segment) keeps supporting the Dems because they like the bribes and blame the Republicans for the pain.

Then you get the occasional Republicans (like the last congress) who emulate the Democrats and then the country is in trouble because both parties are acting irresponsibly.

AndrewPrice said...

Patti, Moronacle could be the new cool word! :-)

It is exhausting to hear from the left on these issues because they're like a broken record and they make the same mistakes over and over, and they play politics with it over and over.

It's frustrating and it gets old.

Ed said...

Andrew, Excellent article as always! I've noticed a lot of whining by the left on this, but that's nothing new. You wrote an article a while back about the media writing about the US being "ungovernable" whenever liberals fail and it's the same thing. Their theories fail and they instantly assume that something must be wrong with reality, not that there is anything wrong with their theories.

Unknown said...

The economy is broken - So Mr. Price what is your solution?

AndrewPrice said...

Ed, I'm glad you remembered! That will be on the test! :-)

Just kidding, here's the link: Is America Ungovernable?

I think you're right, I think that liberals would rather believe that something has gone wrong with reality than believe that their theories are wrong.... which tells you a lot about the liberal mind!

AndrewPrice said...

Terry, I see from your comment in the automotive thread that you are on the left... probably the far left.

Your economic theories (to the extent the left has any at this point other than spite) are an utter failure. They have destroyed every economy where they have been put in place and retarded those they've even barely touched. They only place leftism hasn't been discredited is in the classroom and in the hearts of 1960s radicals.

If you want to know what will generate jobs, then read some of the posts I've made at the site, including those linked in the article. Here is some of what I've said:

1. Cut the employment tax to make work more profitable and make workers cheaper.

2. Cut corporate taxes for costs born in the US to make production in the US cheaper.

3. Cut the capital gains tax rates to make it cheaper to replace equipment more quickly.

4. Fix the distortions to free trade that countries like China are doing to make it artificially cheap to move to China, and stop allowing companies to deduct costs of shipping labor overseas.

5. Reduce regulations that reduce labor mobility and make it nearly impossible to open new plants and other heavy industries in the US.

That would be a pretty good start to rebuilding our jobs base and giving the economy a hell of a boost.... but it won't satisfy the left's desires to punish rich people or bankers.

What's your plan?

StanH said...

Dear Stan,

As you may know, earlier this year I created a Presidential Exploratory Committee to "test the waters" for a possible Presidential Campaign. I have been humbled by the response. Thousands have contributed money and volunteered to help. I am extremely grateful.

This coming Saturday, May 21st, I will be sharing my decision with America. I would personally like to invite you to this very special, historic event.

Herman Cain Announcement Rally
Saturday, May 21st
12:00 PM - High Noon
Centennial Olympic Park
285 International Blvd. NW
Atlanta, GA

FYI: Cool!

Unknown said...

Andrew: Another crisis for the left to exploit. Every substantial downturn in the economy in the last hundred years has been proof that capitalism doesn't work and that the government has to step in to fix things. Of course, the government always makes it worse. Each time capitalism has bounced back. But each time there's a larger residue of government interference. If that residue ever becomes large enough, the economy truly will be broken.

This time it's going to be a herculean task just to get us back to where we were in the 80s. When the choice is big government liberalism or big government "conservatism," it's a choice of the lesser of two evils. Right now, the economy is badly bent, but not broken. Obama is doing his best to turn that bend into a big tear. Only small-government ("less-government?") conservatives can undo the damage by letting the market work, free of massive government interference.

AndrewPrice said...

Thanks Stan, Very cool!

AndrewPrice said...

Lawhawk, I actually disagree. I think Obama and his leftist buddies are totally panicked that things are going wrong economically. They know that if they can't produce jobs, voters will throw them out with extreme prejudice, and their theories have failed utterly to produce any jobs. So I think their fear is genuine. I just think they don't have a clue how to fix this because they can't admit that their whole economic theory is garbage.

Unknown said...

Andrew: I don't think we disagree at all. Obama's fear is palpable, he believes he's right, but he doesn't have an inkling of an idea how to explain why he's right. His knowledge of economics is about as good as my knowledge of quantum physics. So he clings to his stubborn belief that creating government jobs creates wealth, pouring government money into private enterprise sustains wealth, and printing money pays for it. The concept of smaller government and a freer market not only terrifies him, but he doesn't understand the concept in a way that would enable him to counter it--which really scares him.

In other words, the Obamists are trying to exploit a crisis but don't understand that they're going about it exactly the wrong way. More Americans every day do understand that. It's his biggest vulnerability. I think we agree entirely on that.

wahsatchmo said...

I agree with you here, Andrew (and LawHawk too). The Democrats clearly assumed that this recession would simply reverse itself just like always, so they could impose whatever economic and taxation burdens they felt like and claim success when things turned around. They never anticipated that their policies would discourage economic growth so they are panicking now that 2012 is around the corner.

For some reason, liberals assume that charity and morality could never exist without government interference, but the economy will simply be unaffected no matter how much the government interferes. For every law and regulation passed by the government, a maximum standard of behavior is created, not a minimum. Once the State codifies charity and morality, there is no longer a need to hold oneself to a higher standard since by law one cannot be held accountable for failure to adhere to a higher standard.

This is the fundamental failure of the liberal philosophy and progressivism as a whole. It fails in regard to social issues and economic issues alike, because it removes the reward for moral and ethical behavior beyond the standards established by the state.

AndrewPrice said...

Lawhawk, We probably do agree. I put it more this way though, they thought they had a create crisis to exploit when everything blew up and they got their chance to spend like no one had ever spent before. They assumed that would work. It didn't. Now they're freaked out because (1) they can't understand why it didn't work and (2) they have no idea how to fix it before the next election. If they can't start producing jobs right away (and they can't because their theories don't work) they know they are doomed.

AndrewPrice said...

watsatchmo, Well put. Human behavior is about balancing risk against reward. Liberals often try to remove the risk (leading to reckless behavior) and eliminate the reward (leading to people refusing to take economic risks ), and they can never understand why their policies suppress good risk taking but lead to reckless behavior -- so they assume it must be some failure of humanity itself rather than the natural consequence of their own actions.

And well said too about their expectations. I think that's 100% right -- they figured that the recession would end as they always do and so they could do whatever they wanted and still get the credit for ending the recession. But their policies destroyed the hiring market. Thus, while corporate profits have bounced back, there are no jobs and now they're struggling to figure out why this recession didn't end like they usually do. In other words, they are looking for something to blame other than their own policies.... and the lengths to which they will go to explain away their failures are pretty shameless.

Unknown said...

Andrew: And your point was well-taken. Others (like Clinton) came into office on the economy, and tinkered at the edges. That let the economy "fix itself" (as wahsatchmo pointed out). I guess the big difference is that when Clinton tried to go big-time socialist with Hillarycare, he got slapped down.

Obama, far more the socialist ideologue, truly meant it when he said he would "fundamentally transform America." He believed (and I think still believes) that his massive interference in the economy was the answer, and he just doesn't know how to get out from under his mistakes. I also think he still believes he was right and that the people's failure to get behind his "transformation" is the real mistake. Only if he takes a page out of Clinton's Triangulation Manifesto does he have a chance of winning the 2012 election. I don't think he will, and I pray that he doesn't.

AndrewPrice said...

Lawhawk, I agree entirely. I think Obama thinks that he's right, the rest of us are wrong, and the real failure isn't the regulatory hammer he took to the economy, but the failure of the rest of us to just accept that things will be better once his brave new future arrives.

I also agree that triangulation is the only thing that can save him, but I don't see him trying it either. For one thing, I think he thinks he's already moved too far to the center and he wants to move left if anything. Also, I think he tried it briefly after the election and only got grief from the left, so he stopped. It never occurred to him that the public didn't come rushing back to him because (1) they could sense his shift to the center wasn't genuine and (2) public opinion doesn't move that fast, i.e. he got too impatient to see if it would work. So now he's kind of the 40%ers and he's hoping the rest of us just don't show up at the polls.

rlaWTX said...

I'm glad you explained that "multiplier" to T-Rav (and the rest of us).

this libonomics gives me a headache...

AndrewPrice said...

rlaWTX, It's one of those concepts that isn't intuitive. In some ways it actually makes sense because money does get used over and over throughout the year. But like all leftist economics, they stretch this idea well beyond the point of what it should be used for.

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