Armageddon's Armageddon

How many times can one claim pending Armageddon, nothing subsequently occurs, and yet claim pending Armageddon again? Once, twice, three times, even four times?

You see, Armageddon was pending with the bail out, the stimulus plan, ObamaCare, and the financial reform bill. These four horsemen of the apocalypse needed passed post haste or else "Armageddon"!

Now cometh the fifth horsemen of Armageddon. Wait a minute, there is only four horsemen of the apocalypse?!? Exactly. Four Armageddons that never occurred and now appears the fifth horsemen of the apocalypse. However, this time around the fifth horsemen is Armageddon's Armageddon.

Yes, the end of the ends.


'House Republicans are starting to rally behind a strategy on the debt ceiling called "cut, cap and balance." This is the condition for an agreement to raise the $14.3 trillion debt ceiling that was recently laid out by House Republican Whip Kevin McCarthy of California.

"What this means is we want an iron clad cut in spending over the next five years; an enforceable cap on outlays with automatic sequestration if the caps aren't met; and a balanced-budget requirement," said Mr. McCarthy.

The strategy is also being pushed by conservatives on the House Republican Study Committee. According to sources there, RSC Chairman Jim Jordan of Ohio will unveil a plan in the days to come that will require a balanced-budget agreement plus a cap on spending that brings federal outlays down to "around 18% of GDP after 10 years." Several RSC members are still smarting over the fact that the spending cuts in the 2010 continuing resolution were much smaller than promised, and this has only emboldened conservatives to take a harder line on the debt ceiling.

That could be bad news for the White House and Treasury Secretary Tim Geithner, who continues to talk about "Armageddon" if the debt bill is not passed. The scare tactic doesn't appear to be working. This week Mr. Geithner sent a letter to congressional leaders once again urging "timely action to increase the debt limit in order to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens." Rep. Todd Akin of Missouri echoed the sentiment of a large majority of his House Republican colleagues when he responded, "We just can't fold like we did on the CR, because the real financial crisis happens if we don't solve this debt problem." ' (1)

Some say Washington D.C. is the end of the earth, while others say it is not the end of the earth but you can certainly see the end of the earth from Washington D.C.. Maybe. Or is it that folks in Washington D.C. fancy themselves as the beginning of all and the end of all.

Then again, maybe their only friend is the end.


Notes:

(1) Political Diary, Wall Street Journal, 05/20/2011, Stephen Moore.

The Keynesian bucket diagram of “spending”: an economic theory or a political theory?

At the blog Our Dinner Table a recent post is entitled Keynesian Stimulus in One Sentence. The proposed definition is: We’re not sure why you are not spending your money, but we don’t like it, so we are going to spend it for you. (1)

That’s a most excellent definition!

Moreover, the proposed definition might lead one to say John Maynard Keynes economic propositions morphed, through neo-Keynesian and new-Keynesian followers, supporters, and advocates into a political proposition. That Keynesianism is no longer an economic proposition but a political proposition.

How so?

Keynesian deficit spending aka stimulus

Keynesian supporters love to refer to deficit spending by the politico-title "stimulus". That deficit spending by politicos [politicos through the mechanism of government] will somehow, some way [generally the lack of agregate demand argument] "jump start the economy". That government deficit spending will jump start the private sector and hence bring an economy out of recession. -Or- We’re not sure why you are not spending your money, but we don’t like it, so we are going to spend it for you.

Politicos in the candy shop

Many politicos love Keynesianism. Why? If we are going to spend more money it creates the perfect environment for political constituency building activities by politicos. Politicos through the mechanism of government can then satisfy rent seekers (special interests), expand existing entitlement programs or propose new entitlement programs, and to some extent offer up good old pork barrel spending to those voters in the home district. That is, the politico is handed the golden opportunity to exercise political constituency building through the mechanism of government by creating dependency groups, rewarding existing dependency groups, and spending other peoples‘ money on the electorate in the home district.

The lovely diagram of the "bucket"

The jump start stimulus theory always comes with the lovely diagram of the "bucket". The bucket represents demand. The bucket's content is household, business, and government demand for goods and services. A recession is a bucket that is not full to the brim. The bucket is no longer full as the demand components of households and businesses have shrunk and hence its the government's responsibility to increase its expenditures (increase its component of the bucket) in order to bring the bucket back to full.

Seems like common sense. However, the increased government expenditures that attempt to fill the bucket is really draining the bucket simultaneously. Its counterintuitive. As the government increases spending, private capital formation leaks out of the bucket [private sector capital formation being the main driver of private sector employment growth]. Hence you try and try to fill the bucket but it remains below the brim.

Once you stop filling the bucket with government deficit spending, you now must pay for the deficit spending. Hence Keynesians raise taxes. The taxes then create another leak in the bucket. Hence the bucket goes right back to the level that you began with before you started this wasted exercise.

Economics or politics?

Keynesians can never stop spending. This is the point of metamorphosis where an economic proposition becomes a political proposition. You see, each time you attempt to fill the bucket with deficit government spending, the size and scope of government increases. That is, a residual amount of government is added, an additional increment of size and scope of government, an entitlement here a rent seeker there, is added to the existing layers. A political constituency layer is added to the great pyramid scheme of political constituency building through: other people (politico) spending other peoples' money (tax payer) on other people (recipient class). -Or- Maybe its the fourth category of spending and a fifth category of spending: other people, borrowing other peoples' money, and spending borrowed money on other people. (2)


Paying back the deficit spending?

Wait! It gets better. When Keynesians raise taxes to pay for the deficit spending, part of the tax is to pay for the new permanent incremental layer of government aka political constituency enhanced or increased. That is, a permo-tax for the new permo-layer of political constituency.

Then as any good chocolate sundae of spend and tax/tax and spend would have it, a cherry must be added atop. The new tax level merely allows politicos additional revenue to spend. Rather than paying back the deficit spending, politicos through the mechanism of government merely spend more on government size and scope aka political constituency building.


Keynesians should wear the bucket over their political constituency building heads.


(1) http://ourdinnertable.wordpress.com/2011/03/14/keynesian-stimulus-in-one-sentence/

(2)http://www.youtube.com/watch?v=5RDMdc5r5z8

Unemployment Part 3: Reading the Stitches on a Fast Ball

The Council of Economic Advisors, which is headed by Summers, Romer, Bernstein and Goolsbee......with the help of Congress, have apparently discovered an old economic theory: Unemployment.


Let us review:


(1) Simultaneously deploying the theory of Keynesian Deficit Government Spending and the theory of Quantitative Easing, in a current environment of High Existing Government Debt (remember both theories were developed in an environment of zero or low government debt), it becomes a very dicey project (Japan 2001-2006). Japan is experiencing a 20 year down turn/recession,


(2) It would be extremely important, if deploying Keynesian Deficit spending:

(a) never base the plan on Political-Political, rather base the plan on Political-Economy,

(b) use the historical format of Infrastructure Spending rather than Social Engineering,

(3) If one deploys Keynesian Deficit Government spending, then at the very least understand what Keynes said: Deficit Government Spending is temporary until the Private Sector Recovers.

(4) Exactly what policies exist to create incentives for Private Capital Formation which leads to Private Sector Jobs? Would that be the specter of much higher Federal and State personal and business taxes? Tax and Trade (energy tax)? Socialized Medicine (tax)? Over Regulation (reduce profits at the margin)?

(5) The Unemployment Statistic published from the Department of Labor does not include the Self Employed nor Contract Labor which make up 40% of the Workforce. Hence the Unemployment rate is North of 15%.

(6) Remember Capital is Unemployed too. Capacity Utilization is at 65%.

You decide. Are (1) - (6) job creators?