Economics

May 15, 2013

All That Is Golden Does Not Glitter

By Don Kirk in Economics

For the second time this half-year, the price of gold today dropped below $1,400 an ounce. Gold prices have increased each of the past four years, but early 2013 looks as if the ride is at the crest and now is falling.

There are plenty of theories about why gold prices are down in 2013, with the dramatic surge in U.S. domestic oil production from fracking being the top reason. With Europe in recession and U.S. oil production up, look for gold to keep falling during the second half of 2013.

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May 8, 2013

Sex Has Nothing To Do With Economics

By Don Kirk in Conservatism, Economics, Keynesian Myth-Math, Left-Liberalism

In the “kerfuffle” over linking John Maynard Keynes’s sexuality with his famous focus on short-term fiscal policies, Bruce Bartlett has a piece in The New York Times. In Mr. Bartlett’s view, the kerfuffle misses what is more important: Keynes’s recommended stimulus of aggregate demand by government spending is needed now more than ever, because the stagnant American economy is in Keynes’s “liquidity trap.”

Although Keynes is identified with the political Left, there have been a large number of Keynesians–such as Mr. Bartlett–who are from the political Right. Three of the top six Keynesian presidents were Republicans, and they would be vociferous in denying that they support Fabian socialism. Yet Keynesianism is the intellectual force behind Fabian socialism’s incremental attempt to institute socialism without a violent socialist revolution (found on page 375 of Keynes’s General Theory).

It does not matter what Keynes’s sexuality was, and it does not matter whether the call for fiscal stimulus comes from a socialist or a capitalist. What matters is that the RETURN on the taxpayer’s money in the stimulus is greater than the cost. There is no example of the dollar benefit from the many Keynesian stimuli attempted over the past decades being in excess of the dollar cost. Therefore, Keynesian fiscal stimuli are identified as “death spiral” economics, where every dollar spent on stimulus returns less than a dollar to the taxpayer.

Keynes’s Fabian socialism ‘toilet-flushes’ an economy, completely counter to its intent to stimulate an economy. Taxpayers receiving back only 95, 90, 80 cents back on every tax dollar spent in fiscal stimulus means the taxpayer is steadily going Keynesian broke.

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April 30, 2013

Two Perspectives But Same Conclusion

By Don Kirk in Economics, Keynesian Myth-Math

Social-Left and conservative-Right economists are embroiled over a major research paper out of Harvard which found that economic growth was negative for major countries with larger amounts of debt. Using numbers not available to the original authors and correcting for a slight Excel error (very slight!), these are charts of the comparative results.

The conclusion is the same. At around 90% of GDP, debt becomes a drag upon economic performance. The corrected data note the drag drops GDP to around 2% from the original report’s -1%, enabling social-Left economists to crow about the error and issue calls for more debt, while leaving conservative-Right economists arguing against more debt when it reaches 90% of GDP.

They both miss the point, don’t they. If the benefit from the debt (increased profit) is greater than the cost of the debt (the interest rate), then it does not matter how much debt one incurs so long as the growth in profit is sustainable. Similarly, if the cost is greater than the benefit, then it matters a great deal how much debt one has incurred, regardless of however small the amount might be, because the greater-cost-than-benefit debt is toilet-flushing the economy’s capital.

Bottom line: The 1.4T total ‘cost’ of the 2009 stimulus of 787 billions was greater than the ’benefit’ of approximately 900 billions (other research suggests less than 600 billions), so the huge 2009 stimulus actually became a drag upon the economy, the complete opposite of its intent. The U.S. is at now 105% debt to GDP and the debt load is steadily growing worse, putting us in the anemic gray bar of the graphs above.

It’s an old saw but very true: ‘One cannot borrow their way out of debt and one cannot spend their way into prosperity.’ Someone needs to re-tell the taxpayers and voters.

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April 29, 2013

Carmen, Carmen…

By Don Kirk in Free Markets Myth, Keynesian Myth-Math, Prosperity vs. Poverty, Socialism's "intellectual suicide"

Spanish unemployment. Past 25%, and still rising, after five years of both Leftist and Rightist governments promising they knew how to end the economic debacle. Well, they created the problem so one would think they know how to solve the problem, but if a country is going to base its economic policies according to ideology, then we shouldn’t be surprised when they fail.

Currently, yields on Spanish bonds trade at 4.16%. Debt is at 110% of GDP (more than the entire economy), which means the cost of the debt has to be financed out of annual economic growth.

Oops. Spanish GDP growth is 1.5%, on a good day and after drinking plenty of Spanada wine. So, 4.16 – 1.5 = -3.66. Conclusion? Spain is being toilet-flushed by more than 3% per year by ideological economics of Leftists and Rightists, both of which are utopian and laden with myths. Watch for Spanish youth to be migrating to Latin American economies to escape the toilet-flushing at home.

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April 25, 2013

Weber Redux

By Don Kirk in Economics, Prosperity vs. Poverty, Social Regress & Social Progress

According to this 15-year chart of Europe’s economy, Europe has now double-dipped into recession. Leftists blame ‘austerity’ cutbacks on government spending for the recession; conservatives blame rising taxes choking off private investment.

Recessions are caused by a collapse in bank lending. To find the true cause of an economic recession–and how to solve the decline–determine why banks are reluctant to lend. In Europe’s case, the banks are so badly broken that they have to borrow to stay afloat, instead of lending to grow their profits.

Scary whispers from Europe suggest that the banks in France are next to need bailouts. If France fails, the Euro fails. Perhaps the idea of two Euro currencies is best: one for the productive northern nations, and one for the southern insolvent nations. Or even better, one Euro for the thrifty nations with healthy banks, and all of the spendthrift, borrowing nations with broken banks each have their own currency.

More and more, as in Weber’s analysis, it looks like there is something about prosperity in Protestantism which is missing in Catholicism, and it looks like whatever is missing in Catholicism is an economic drag upon all of Europe. France, Spain, Italy, Portugal, and Ireland, by the way, are largely Catholic. Greece is Orthodox, a form of catholic.

So, a philosopher’s question is, How do the different religions affect bank lending?

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April 21, 2013

There was a Crooked Man…

By Don Kirk in Crony Capitalism Insidious Socialism, Democratic Capitalism/Democratic Socialism

Why is crony socialism always known as crony capitalism? When socialist elites and insiders profit personally from market institutions, why is this only called, ‘crony capitalism,’ and not ‘crony socialism’? Why are only capitalists “greedy,” when actually socialists are just as opportunistic and ‘greedy’?

Slovenia is a case in point. Formerly part of soviet Yugoslavia, Slovenia is the prosperous country which divides the impoverished formerly socialist nations of the soviet bloc from the wealthy Western nations to its north and west. What distinguishes Slovenia from other former soviet countries is that it had not dismantled its socialist institutions–such as the national banks–and turned them into competitive private institutions. Fully half of institutional Slovenia is state-owned, which means they are state-subsidized, and subsidy means taxpayers pay for unproductive and uncompetitive enterprises that would otherwise fail. Always, always, always, state-subsidized enterprises are repositories of either incompetent or corrupt privileged elites; insiders who pocket taxpayers’ monies in the name of ‘national pride’ or ‘socialist solidarity’ or ‘public investment.’

Slovenia’s banks are in trouble. No kidding. What a surprise. The government has already bailed them out once, and now it appears the first bailout did not come with reforms, so still another bailout is necessary. But so long as the banks are state-controlled enterprises, the taxpayers of Slovenia will find that bailing out their nationalized/socialized banks will never end. Too understandably, calls for privatizing the banks are bitterly opposed by large companies whose management benefits personally by banks being state-owned, instead of competitive.

Whether capitalist or socialist, monopolies are marked by rising costs and falling value, and Slovenia’s banks are no exception. So why are crooked socialist companies and corrupt socialist managers known as ‘greedy capitalists’?

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April 15, 2013

When Flat Means Falling Behind

By Don Kirk in Economics, Philosophy of Freedom, Prosperity vs. Poverty

From Stanford Professor John Taylor’s blog, Economics One, his chart showing the disparity of income growth between the bottom 90% and the top 10% in the American economy over the past 65 years. Note that the bottom 90% of American workers have stagnant income growth for the past 45 years.

In those 45 years, 1968-2013, 18 years are under Keynesian (Fabian socialism) presidents: five years of Republican Richard Nixon, eight years of Republican George Bush II, and the past five years of Democrat Barack Obama. Now 40% does not mean causation, and the boom of the Great Moderation under Presidents Reagan and Clinton shows that far more is wrong in stagnating incomes for the middle class than simply implementing Keynesian suicidal economics. What is missing is a comparable graph of changes in productivity for the past 45 years, for both the 10% and 90%.

A structural problem is likely the cause of income stagnation in the American middle class (the 10% probably have dramatic improvements in productivity since the end of the 1982 recession, while the 90% likely do not), and the very last institution capable of correcting structural problems is the United States Congress. Perhaps as great as the increase in productivity from personal computers has been for the bottom 90% since 1982 (the year IBM introduced the PC), the increase in productivity from personal computers for the top 10% has been far greater.

If so, the separation of income growth rates between the American prosperous and the American middle class since 1982 is explained, because income follows productivity.

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April 8, 2013

Socialism’s Sociopathy

By Don Kirk in Life-Flourishing vs Life-Extinguishing, Socialism's "intellectual suicide"

Mr. Obama’s proposed budget calls for tax-deferred retirement accounts to be capped at $3 million in assets, suggesting that accumulated savings in excess of $3 million are not “reasonable.” Much of the political impetus for this plan to limit the amount of savings working people can sock away to become millionaires in their retirement apparently is Mr. Romney’s personal retirement account that holds well in excess of $3 million.

Mr. Romney’s conservative Right decries the proposed limits with an argument that once a person reaches the limit, they’ll stop being thrifty. Hmm. Maybe, but also, maybe not. More likely, someone who has maxed out on tax-deferred savings will concentrate upon savings at reduced capital gains tax rates, meaning that they’ll continue to buy stocks but outside of their retirement accounts.

Actually, the math works in their favor. Distributions from an I.R.A. are taxed at ordinary income tax rates, while capital gains are given preferred lower tax rates. Literally, Mr. Romney’s investments in his I.R.A. will pay more in taxes than he would if he simply made those savings outside of his I.R.A. Why pay 40% tax on distributions from your I.R.A. instead of paying 15% tax on capital gains on stocks sold?

There are so few $3 million I.R.A. accounts in the country that one suspects this idea of Mr. Obama’s is simply vicious partisan politics posing as policy. Mr. Obama simply wants to punish the wealthy, and this anti-Romney policy does nothing to benefit the country. This is nothing more than sociopathic socialism’s hate-filled desire to punish, to dominate, to control individual personal success.

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March 30, 2013

Oops. A Chart of Unintended Conclusion

By Don Kirk in Free Markets Myth, Philosophy of Freedom, Prosperity vs. Poverty

From the Mercatus Center at George Mason University, the relationship in the fifty United States between levels of freedom, both personal and economic, and the two major political parties. A better chart would include corresponding state income growth rates, tax levels, and unemployment relative to the two political parties. By this chart, two of the top three wealthiest States are the least free of all fifty, yielding a narrow conclusion that the least amount of freedom gives the greatest amount of prosperity.

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March 24, 2013

Scrooge Banks

By Don Kirk in Economics

The gray vertical bar is the Great Recession. The blue line is the explosive growth of money in the economy from the Fed trying to cure the recession’s high unemployment with massive amounts of cheap money (low interest rates). The red line is the amount of monetary reserves that banks are holding in excess of their regulated requirements.

What this chart tells us, is that the banks are socking away the sea of cash the Fed is printing. They are NOT lending the money; they are ‘banking’ the money, earning low interest themselves from the Fed on money they are not lending to corporate America.

Said it before and should say it again: Recessions are government-made. So long as the Fed pays interest on held reserves, banks will hold reserves during economic uncertainty. So if the money held by banks is not being circulated in the economy, the economy suffers at the same time that the banks are doing well by not lending. As ever, the government policies are having the complete opposite effect of what they intend. If the Fed actually wanted to bring down unemployment they would encourage bank lending, and to encourage bank lending the Fed would stop paying interest to banks on reserves frozen in their underground vaults. This is very confused thinking, and tens of millions of Americans out of work are paying for it…as the banks get rich taking no risk.

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