Posted by Michael A. Kamperman on October 1, 2010
The Federal Government is our spender-of-last-resort. Because of the sour mood of a confused public we will soon send to Congress memebers who are not spenders. And a clear message has been sent to Republicans that if they spend they will be taken out by Tea Party types in the primaries. Senators and Congressman whose seats were presumed to be safe have discovered they were only safe for the Republican Party and not for them. So you can bank it that there will be no Keynesean style fiscal rescue of the economy for at least the next two years, and possibly for a generation. Sadly, the fault rests not with the public but with the economists. Chief amongst the guilty is the Whitehouse economic team. They totally lost the debate and to this day have not put forward a coherent argument the public can understand for why we need more stimulus. Instead they mistakenly have backed the President into a corner by having him launch a Deficit Cutting Commission. Much pain is coming. Perhaps the best thing that could happen would be for a preacher of the Austrian Economic Gospel to win in 2012. When the people discover the devil they don’t know, namely austerity, is much worse than the devil they do know they will perhaps come their senses and we can then end the depression.
To this day no one on the Obama economic team is explaining to the public that the economic rules that apply to everyone else simply do not apply to the federal government. They do not have to balance the budget and they don’t even need China’s money. The federal government not only has the power to print money, they are printing a little now. Come November 3 the Fed will initially start to print a few hundred billion dollars over the next year. Before this depression is over they will print many trillions. Yet this money will not bring the greatest bang for the buck because politics have paralyzed the federal government from effectively spending it. The 99′ers are getting cut off now. Next year the States will be cut off too. Plus the payroll tax cuts in the stimulus bill will soon end as well. It’s going to get ugly before its all over.
The coming cut spending tsunami is a direct result of the incompetency of the Whitehouse economic team. Summers and Romer are gone and Geithner needs to go. The blame lands squarely at their feet. When it was obvious the stimulus bill was not creating jobs and bringing the unemployment rate down they foolishly argued it was saving jobs rather than that we needed another one. Now 60% of the American public believe if the federal government would cut spending it would create jobs. They have gone around claiming they avoided another depression when we are clearly in the middle of one and the unemployed public knows this. And they have sat on their hands for 18 months without putting forward a single serious job creating idea considering the magnitued of the crisis. In reality what has the Obama Administration actually done? The TARP, the Fannie/Freddie bailout, the auto bailout all happened under the Bush Administration. The Pelosi and Reid led Congress were sending a stimulus bill to the President’s desk no matter who won the 2008 election. The Bernanke led Fed were going to do quantitative easing no matter who won the election. The single biggest contribution from the Obama team was the smoke and mirrors Bank Stress Test which has left us with Zombie Banks that don’t lend, some contribution. After the election the President has an opportunity to clean house and bring in some heavy weights. Instead, the signal he is sending is he plans to stay insular and stick with those he knows. Those who have failed to bring down the unemployment rate and have allowed Keynesean concepts of economics to get trashed in the public’s mind. The reality is we would be in much worse economic shape without the bail-outs and the stimulus. President Obama is a trained lawyer, yet he has failed lawyer 101. When you have the law on your side argue the law, when you have the facts argue the facts, and when the law and the facts are against you just argue like hell. With the laws of economics and the facts on their side they have failed to win the argument. Worse, they are not even out there arguing like hell.
Posted by Michael A. Kamperman on February 18, 2010
It’s chic to be against increases in the federal deficit these days. People on the right are clamoring for spending cuts without tax increases. People on the left are clamoring for raising taxes on the rich to support more social spending. These positions come from natural responses to either the impulse that Washington is taking too much of my money and I don’t want to send them anymore, or the impulse that people in our community are suffering and the federal government needs to step up and help them. I find myself drawn to both positions. I certainly don’t want my taxes raised one more damn dime, and I don’t care what reason they’re wasting way too much of my hard earned money right now. Also, I think it is unconscionable that the federal government is not doing more to help those that are down and out through no fault of their own. For example, the average adult on foods stamps qualifies for $144 per month, which means they have to eat on less than $5 per day. It costs more than $5 to get a Big Mac value pack for lunch at McDonalds. So many who are either sympathetic to both positions, or who want to play chic anti-deficit politics, are talking about the importance of pay as you go rules. Put simply, pay as you go means Congress is not supposed to pass additional spending for a new program unless they either cut spending for some other program, or raise revenue by closing some tax loop-hole. All three of these positions represent a false paradigm. If we were still on the gold standard and couldn’t print money, or if we had a growing mild inflationary economy like the one that existed up until recently in the post World War II era, then yes these simple rules would represent good guidelines. But we are in the midst of a deflationary depression and the federal government can print money. The phrase “you can’t spend your way to prosperity” may apply to micro-economics, but it doesn’t apply to macro-economics. Economic growth by definition is spending. Someone somewhere spends money and those transactions make the world go round. Spending is good. Spending gives people jobs, businesses profits, and governments tax revenues. Being against spending not only places one as opposed to big governemnt, it also places one in oppposition to consumers having jobs and to small businesses having profits. The consumer is tapped out and it is imperative the federal government become the spender of last resort. Otherwise, get used to seeing anemic weekly jobless claims numbers that continue to leave the so called experts scratching their heads.
Don’t just take my word that the consumer is tapped out and home budgets are under pressure. “Customers remain cautious, especially in discretionary spending,” Vice-Chairman of Walmart Mr. Castro-Wright said, adding that sales of discretionary merchandise were softer compared to the period a year ago. “Personal finances remain the top concern facing consumers in our latest monthly research report. Concern about unemployment remains much higher compared to last year, followed by concerns about the cost of living and the economy.” Unfortunately it is about to get a lot worse. Congress cannot get its act together on a job creation bill and unemployment benefits for millions will expire over the next few months. What will spending patterns at Walmart look like then?
A recession has been defined as when your neighbor loses their job and a depression has been defined as when you lose your job. But what do you call it when the one losing their job is your brother, or your mother, or your significant other? The reason Pay as You Go rules represent a false paradigm is because they are based on the concept that the federal government is like you and me. We make so much, we can borrow so much, and therefore we can only spend so much. But the only entity in the world with the capacity to spend more money without impunity is the federal government. Yet the entity entrusted with this magical power acts as though it doesn’t know it is a Genie in the Bottle and can grant us three wishes. The federal government can end the depression by lowering our taxes, by spending more money, and by eliminating the need for Pay as You Go by monetizing the debt. Sadly, that is not the trajectory we are on. Today, President Obama announced a bipartisan commission tasked with the responsibility of finding ways to cut spending, raise taxes, and cut entitlements like Social Security and Medicare. Has anyone in Washington asked themselves why we want people working longer in life when we don’t have enough available jobs now? President Obama’s get tough on the deficit rhetoric will only lead to more than one in eight Americans on food stamps, more than one in seven mortgages delinquent, more than one is six working adults unable to find a full time job, and more than one in five men aged 25 to 55 out of the workforce. Where there is no vision, the people perish.
