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Francois Hollande and the French economy both down the drain

April 27, 2013

Francois Hollande is down and out in Paris, his popularity rating as President having fallen faster and further than that of any other president since the Fifth Republic began in 1958.

The reason for his decline and fall is the progressive socialist agenda that he touted during the election campaign and that he has attempted clumsily to pursue since gaining office. The French economy has seized up in response to his anti-business rhetoric, unemployment now stands at 11 per cent, and the targeted reduction in the budget deficit to 3 per cent of gross domestic product by the end of 2013 has already been abandoned. That target will not be achieved during a progressive’s presidency.

The 75 percent top marginal income tax rate that he imposed immediately upon accessing the Elysee Palace succeeded in driving a number of top companies and a number of top celebrities into exile in other grateful European Union countries. The increased tax rate failed to generate any net revenue as tax avoidance and tax exile escalated in response to what is widely considered to be government theft.

In December 2012, France’s constitutional council provided Francois Hollande with a second chance when it ruled that the 75 per cent tax rate was unconstitutional and noted that no individual tax should exceed 66.6 per cent. Alas! progressives are not to be deterred by such rulings. Caught between political betrayal and folly, Mr. Hollande naturally chose folly.

On March 28, 2013, Hollande announced that the 75 per cent tax rate would still be imposed on incomes in excess of E1 million, but that they would be paid for by firms rather than their employees. Clearly this stupid man has no understanding of the nature of tax incidence, in particular of the conditions required for an income tax increase imposed on an employer not to be passed on in a salary reduction to an employee.

Why are progressives always so ignorant of basic economics? My former colleague Gordon Tullock explained the lacuna by noting that no good economist could ever be a progressive.

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Posted in economics of John Maynard Keynes, Personality Disorders Among Politicians, political philosophy, pro-union policies, progressive socialism, redistributive politics, relevance of economic knowledge, Uncategorized | 2 Comments »

Larry Summers emits methane gas across Harvard Yard

February 11, 2013

In one matter we can be quite sure. Larry Summers is the most loyal Obama-sycophant of them all. He is, if you like, Heinrich Himmler to Adolf Hitler, loyal at least to the point in time when the Russian tanks were right outside the Berlin Reichstag.

Unsurprisingly, therefore, one day prior to his Master’s State of the Union Address, Loyal Larry’s syndicated column emits some vintage methane gas across Harvard Yard. There are only two ways to interpret Larry’s message: either the man is a seriously poorly-educated hydraulic Keynesian has-been, or he is a mendacious purveyor of White House snake oil.The two interpretations ultimately are entirely consistent. So I am not accusing Larry of outright hypocrisy.

Here in a nutshell is Larry’s message:

1. The U.S deficit is not a near-term priority. The debt problem should be kicked well down the road yet another time.

2. Budget-cuts implicit in the fiscal sequester due to take effect on March 1 should be thinned out over a much longer period of time. We simply cannot afford $85 billion in spending cuts when the 2013 budget deficit is running at a mere $1 trillion.

3. Fannie Mae and Freddie Mac should be right back in the mortgage market-place subsidizing lenders to support the housing market. House price bubble and junk mortgage bonds? The more the merrier. Government-agency bail-outs? Sure, since the government can always ensure that they are too big to fail.

4. The transformation of the North American energy sector must be accelerated.In particular,let us accelerate the obsolescence of all coal-fired sources of energy.

5. Unlike deficit reduction, where all the choices are painful, government measures to spur growth can benefit all Americans. There is such a thing as a free Keynesian lunch.

Readers may remember that Larry emitted an earlier vintage of methane gas in 2009. That vintage ended up as Stimulus I, quickly dissipating on the Massachusetts wind. Perhaps this time, Larry Summers, like Adolf Hitler, has gone vegetarian, in the hope that denser gas particulates find there way through the wind to a safe Keynesian harbor.

Hat Tip: Lawrence Summers, ‘There must be more to US policy than the deficit’, Financial Times, February 11, 2013

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Posted in economics of John Maynard Keynes, Housing market economics, mortgage crisis, political philosophy, progressive socialism, relevance of economic knowledge, Uncategorized | 1 Comment »

Roofs or ceilings?: two Nobel Prize winners offer a lesson to the Federal Reserve

January 29, 2013

In 1945, when millions of Americans returned home after service during World War II, the San Francisco housing market manifested a massive shortage of available housing. The reason for this apparent market dislocation, however, had nothing to do with a failure of market forces. It had everything to do with the socialization of the housing market. The City had imposed a tight ceiling on the rents that could be charged by those who owned the housing stock.

In a 1946 essay, with the catchy title of “Roofs or Ceilings”, two future Nobel Prize winning economists, Milton Friedman and George Stigler exposed the true nature of the problem. If a city desires to secure more roofs over the heads of returning veterans, the best route to do so is to remove the ceiling on rentals. Eventually, San Francisco government saw the light, and the housing shortage immediately disappeared.

Since the 2008 financial crisis, the Federal Reserve has blindly followed the immediate postwar example of the City of San Francisco. It has essentially socialized the market for bank loans by imposing a ceiling on the interest rates that banks can effectively charge when making business loans. As a direct consequence, borrowers desire more loans than in a true market (because interest is too low) and lenders supply fewer loans than in a true market (because interest is too low). The short end of the market always rules. So too few loans are consummated. The economically uneducated (Paul Krugman is a prime example) then rant that the economy is in a liquidity trap.

In reality, the Federal Reserve has chosen ceilings over roofs, thereby imposing severe harm on the economy.It has done so by maintaining a near-zero federal funds rate while ratcheting up its purchases of mortgage-backed and U.S. Treasury securities in order to hold short and long-term rates well below market levels. Effectively the Fed is imposing an interest-rate ceiling on the longer-term market by saying it will keep the short rate unusually low.

There is little economic incentive for lenders to extend credit, especially to risky borrowers, at that rate. The decline in credit availability reduces aggregate demand, which tends to increase the rate of unemployment. This is a classic unintended consequence of such a policy. The policy is a classic form of behavior on the part of Keynesian economists such as Paul Krugman and Ben Bernanke.

Hat Tip: John B. Taylor, ‘Fed Policy is a Drag on the Economy’, The Wall Street Journal, January 29, 2013

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Posted in economics of John Maynard Keynes, monetary policy, politicization of the Fed, relevance of economic knowledge, Uncategorized | 2 Comments »

The Second Coming

January 22, 2013

The crowd was smaller, the cheers more muted, the media less adulatory. Nevertheless, many of the true believers gathered for a second occasion on the Mall yesterday,to glimpse their Messiah, even to touch his hand, or to reach out for his robe, in expectation of deliverance from all mortal afflictions, and the promise of eternal paradise. By His words, the Messiah lived up to all their expectations. They will know fours year on, whether those words were true promises or whether they were false rhetoric floating on the frosty midday air, whether indeed this was the true liberal Messiah, or just another in a long legion of false, self-seeking prophets.

‘I am the government, and I am here to command you’ was the message to the gathered multitude. ‘I promise you, my subjects, that I shall deliver ever more government throughout the coming quadrennium. I warn all those skeptical of my authority, or careless of my commands, that I shall not hesitate to dispatch you, as I dispatched Cain before you, to the land of Nod, on the East of Eden.’

Barack Obama’s inaugural address, as I expected, reflected personal hubris intermingled with disdain for the political opponents whom he had decided to bait. His words were not those of a unifying leader of a divided nation, but rather those of a spokesman for a minimum winning coalition of 51 per cent of the electorate. Almost as surely as the sun rises in the east, hubris is followed by nemesis and that vision is outlined in the column that I posted on the day of the Second Coming. Americans of all views must now brace themselves for four bitter years as the vision of the Founding Fathers will be tested again, as it was tested throughout the second disastrous term of FDR – 1937-1940.

“Democratic government has the innate capacity to protect its people against disasters once considered inevitable, to solve problems once considered unsolvable.” FDR Inaugural Address, January 1937

There then followed four years of indiscriminate government intervention and a consequential collapse of market confidence, that extended the Great Depression in the United States years beyond that suffered by any other nation on the planet.

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Posted in economics and public choice, economics of John Maynard Keynes, global warming, health care legislation, immigration policy, political philosophy, progressive socialism, Uncategorized | Leave a Comment »

Economic report card on Obama’s first term

January 20, 2013

There can be no doubt that Barack Obama started his first term under seriously adverse economic conditions. The financial crisis of September 2008 had hit the U.S. economy very hard. The new president confronted an uphill task. Unfortunately, Obama was ill-suited to that role, utterly ignorant himself of economics and loading himself with a team of socialist, hydraulic Keynesian, economic advisers – Larry Summers, Christina Romer and Timothy Geithner – who would have led any administration straight downhill.

So let us now set out a report card four years on, which allows sufficient time to make a sensible assessment of economic performance during Obama’s four year incumbency.

At Obama’s first inaugural, 134.379 million Americans were working and unemployment was 7.3 per cent. Four years later, 134.01 million are working and unemployment is 7.8 per cent.

In January 2009, 32.2 million Americans were on food stamps and 13.2 million Americans lived in poverty, with the poverty rate at 13.2 per cent. Four years on, 47.5 million Americans are on food stamps and the rate of poverty has risen to 15 per cent.

In January 2009, Social Security’s trustees forecast that the trust fund would run dry in 2041. Four years on, the forecast date is 2037. Medicare’s trust fund has experienced a similar rate of decline. It will go bust in 2024, if not earlier, instead of 2030 as predicted in 2009.

On January 20, 2009, the national debt stood at $10.627 trillion, or $34,782 for every individual in the United States. Four years later, it stands at $16.435 trillion, or $$52,139 for every individual in the United States.

In January 2009, the median household income was $51,190. In 2011, it had fallen to $50,054. Household income actually fell more after the recession officially ended in June 2009, than it did during the recession itself. This is a first ever such phenomenon for the United States.

In fiscal year 2008, the federal government took in $$2.524 trillion in revenues and outlayed $2.983 trillion in expenditures. In fiscal year 2012, revenues are expected to reach $2,913 trillion (more than four years ago), while outlays will explode to $3.554 trillion. There is the debt problem in a nutshell. And it is not driven by any fall in tax revenues.

Allowing for the magnitude of the initial task, and for the inexperience of Barack Obama, the economic report card for his first term comes in at a generous D grade. If it is repeated for his second term, a resounding F will be recorded, and this president will go down as the worst in the history of the republic in terms of economic failure.

Hat Tip: Karl Rove, ‘After Four Bleak Obama Years, an Opportunity’, The Wall Street Journal, January 20, 2013

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Posted in economics and public choice, economics of John Maynard Keynes, Personality Disorders Among Politicians, political philosophy, pro-union policies, progressive socialism, relevance of economic knowledge, Uncategorized | 1 Comment »

Jeffrey Sachs is born again: rejects Keynes and embraces Hayek

December 18, 2012

In a remarkable column published in today’s Financial Times, Jeffrey Sachs exhibits a fundamental reversal of his economic thinking. Until now, one of the foremost disciples of John Maynard Keynes, he  openly and categorically rejects that doctrine. As one of the foremost skeptics of Austrian economics, he now openly embraces the economic thought of Friedrich von Hayek.  I choked on my morning orange juice as I took in the magnitude of this rebirth.

1. Sachs on Keynes

“The rebound of Keynesianism, led in the US by Lawrence Summers…Paul Krugman…and… Ben Bernanke…came with the belief that short-term fiscal and monetary expansion was needed to offset the collapse of the housing market…The US policy choice has been fours years of structural (cyclically adjusted) budget deficits of general government of 7 per cent of gross domestic product or more; interest rates near zero; another call by the White House for stimulus in 2013; and the Fed’s new policy to keep rates near zero until unemployment returns to 6.6 per cent…We can’t know how successful (or otherwise) these policies have been because of the lack of convincing counterfactuals.  But we should have serious doubts.   The promised jobs recovery has not arrived.  Growth has remained sluggish. The US debt-GDP ratio has almost doubled, from about 36 per cent in 2007 to 72 per cent this year. Jeffrey Sachs, ‘We must look beyond Keynes to fix our problems’, Financial Times, December 19, 2012

2. Sachs on Hayek

“the zero interest rate policy has a risk not acknowledged by the Fed: the creation of another bubble.  The Fed failed to appreciate that the 2008 bubble was partly caused by its own easy liquidity policies in the preceding six years.  Friedrich Hayek was prescient:  a surge of excessive liquidity can misdirect investments that lead to boom followed by bust.” Jeffrey Sachs, ‘We must look beyond Keynes to fix our problems’, Financial Times, December 19, 2012

I have no doubt that many readers of this column will also choke on their beverage of choice as they read these born again words of revelation from this former sinner:

Amazing grace, how sweet the sound

That saved a wretch like me.

I once was lost, but now am found.

Was blind, but now, I see.”

 

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Posted in economics of John Maynard Keynes, monetary policy, relevance of economic knowledge, Uncategorized | 3 Comments »

Free bread and circuses are destroying the United States republic

December 17, 2012

The Roman Empire famously destroyed itself from within by cultivating the support of its citizens by showering them with  free bread and indulging them with diversionary circuses. Little did the population realize that each time that the Emperor raised his thumb (yes, popular legend has the direction wrong) to signal that a losing barbarian should be killed, that  same weak ruler was killing the Empire  itself.

For too long,  emperors, patricians and consuls of the United States have pursued similar profligacy in order to attract the popular vote. With 41 million Americans now on food stamps, and with a flagrantly wasteful Inaugural spectacle about to swamp the nation’s capital, think Rome at the end of the sixth century A.D.  Think Rome  during the rule of the Emperor Romulus Augustulus, the last Emperor of the Western Roman Empire ever to wear the imperial purple.

In 2013, the United States government is scheduled to run a deficit in excess of $1 trillion. This does not constitute news because the United States has run deficits similar in magnitude throughout the first term of its own Romulus Augustulus.  Indeed the ‘Praetorian Guard’  has confirmed Romulus Augustulus in his position on the basis of the indulgences that he has  already extended.

Now, the nascent opposition has an opportunity to strike back. And it surely must do so if the barbarians are to be held outside the gates.  Fiscal measures signed into law by the hand of the Emperor are scheduled to take effect at the end of 2012.  Crude though they are, they constitute a first offering towards closing the relentless line of huge deficits that track the future of a doomed republic.

The fiscal cliff has been built up by the media as a disaster for the United States. Sadly, it is a parsimonious first offering. If the GOP allows the law to take effect, only $160 billion will be clawed back from that $1 trillion plus annual deficit. On that basis it will take five years just to expunge the 2009 stimulus package.  If Romulus Augustulus has his way, the savings will fall perhaps only to $40 billion per annum.  In twenty years time, the 2009 stimulus package would barely be retrieved.

Take it as the best that you will obtain, GOP. At least the  past beneficiaries of free bread and circuses will bear their own (fair) share of the debt reduction that is achieved.

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Posted in budget deficits, economics of John Maynard Keynes, political philosophy, pro-union policies, progressive socialism, relevance of economic knowledge, Uncategorized | 1 Comment »

David Cameron and George Osborne hold the high ground

December 5, 2012

Politics is an area of activity that lends itself to the gutter. Most short term incentives are for politicians to lie and cheat, in order to attract special interest support, by imposing bad  policies that will hurt freedom and mar prosperity. In too many instances – the United States is a current example – this is the road to Hell.

So it is very refreshing today to read that Britain’s two top politicians – Prime Minister David Cameron and Chancellor of the Exchequer, George Osborne – each in his own way is holding to the high ground and paving the way for a better future for their countrymen.

David Cameron today announced his opposition to the key recommendation of the Report on the Press by Lord Leveson, an enemy of individual liberty if there ever was one. Any one who recommends that press freedom should be regulated by government is a progressive promoter of serfdom. And Leveson does so with a fervor that indicates a seriously deranged, meddlesome mind.

David Cameron’s principled stand on this issue reflects the very best of statesmanship. for he confronts enemies of freedom on both sides of the aisle. Far right Tories and far left Progressives ache to shut down free speech and impose their own bigotries on society.  Their’s is the  road to Stalin’s mis-named  USSR,  Mao’s mis-named People’s Republic of China and Hitler’s correctly named Third Reich. God damn them all.

George Osborne today announced that his austerity battle to end Britain’s debt crisis will continue despite the sea of enemies that confronts his austerity program.  Of course, a government that insists on rolling back the state in the middle of a world recession will impose short-term job losses.  Most of those job losses have a zero if not a negative marginal product, and for that reason alone, are to be applauded. Tough medicine in the short-term will bring huge benefits in the longer-term, and by the longer-term, I do not mean a time frame in which we are all dead.

In the wake of the 2008 financial crisis many British economists and financial reporters clearly have taken a turn to the hydraulic Keynesian, progressive left. I read the Financial Times daily to remind myself what Pravda used to be like before the Evil Empire disintegrated from within. Ironically, Pravda now infringes copyright in order to make my monograph on the 2008 financial crisis available for free across Russia.  With supposed friends like the FT, capitalism needs no enemies.

Well capitalism and freedom – and I surely do not extend the nouns to embrace their crony parasites – have a good friend in George Osborne.

Bravo! David Cameron and George Osborne.

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Posted in budget deficits, do well while doing good, economics and public choice, economics of John Maynard Keynes, liberty and classical liberalism, political philosophy, property rights, relevance of economic knowledge, Uncategorized | 1 Comment »

Obama reprises partisan scorched earth into second term

December 2, 2012

Just three days after his 2009 Inauguration, President Obama invited House Republicans to the White House to talk about how he might incorporate their ideas into the then-unwritten stimulus bill.  At that meeting, Minority Whip, Eric Cantor, distributed a five-point  stimulus plan that included tax cuts for the poorest Americans, tax cuts for small businesses, no taxes on unemployment benefits, and a new home-owner tax credit.  These policies were not unlike those implemented by Chancellor Angela Merckel as part of Germany’s successful response to the recession.

According to Bob Woodward’s book, The Price of  Politics, Eric Cantor’s proposals met a scorched earth partisan black-out from the Oval office:

Obama told Cantor, ‘I can go it alone…Look at the polls. The polls are pretty good for me right now.  Elections have consequences, And, Eric, I won.’  Obama’s chief of staff,  Rahm Emanuel, was even more frank: ‘We have the votes. F–k ‘em.’  As a result, Obama’s final stimulus bill had zero Republican ideas in it.  Not surprisingly, it also got zero Republican votes.  The tone for Obama’s presidency had been set: all partisan scorched earth all the time. And its been that way ever since.” Conn Carroll, ‘The two defining moments of Obama’s presidency’, Sunday Examiner, December 2, 2012

Obama then received a second chance. He won re-election.  For the first time since 2009, Republicans on Capitol Hill were willing to work with him.  President Obama, as I suggested in yesterday’s column, is not an intellectually gifted man.  Like many individuals struggling out of their depth, they fall back on old tricks, whether those tricks worked before or not.

So Obama fell back on an old trick: partisan scorched earth.  He no longer had Rahm Emanuel at his side to deliver the message in the language of the gutter.  So he turned to Timothy Geithner – a man whose intellectual ability just about matches his own – to stamp aggressively on those Republican fingers desperately holding on to the top of the fiscal cliff.

“Not only did Geithner’s offer ask for $1.6 trillion in tax hikes (double what Obama campaigned on); not only did Geithner ask for new stimulus spending; not only did Geithner ask for an extension of ‘emergency’  unemployment benefits; but he also asked for an infinite increase in the debt limit.  That was the last piece of leverage Republicans had. ”  Conn Carroll, ibid.

So there we have it folks. Scorched earth all over again, albeit this time from a President who does not have all the votes. History tells us that unintelligent leaders do not bargain. They pursue their own will to the bitter end. King James II of England was such a one; and things ended badly for him. By all accounts King Louis XVI of France was another; with a yet worse outcome.

If Barack Obama refuses to bargain, and forces the GOP to choose between the fiscal cliff and imposing higher taxes on the most productive members of society, there will be no revolution. Heads will surely not roll. But the United States will suffer from a further four years of gridlock:

“that is all Obama will get.  He’ll get no entitlement reform now, No individual or corporate tax reform either. the rest of the second-term Obama agenda is also DOA.  It is going to be all partisan scorched earth all the time, again, for four more years. Obama will have changed Washington. But for the worse.” Conn Carroll, ibid.

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Posted in economics of John Maynard Keynes, Personality Disorders Among Politicians, progressive socialism, relevance of economic knowledge, Uncategorized | 1 Comment »

Dominique Strauss-Kahn nails himself as a scumbag

November 30, 2012

Le Monde today announces that Dominique Strauss-Kahn has agreed to settle the civil case brought by the New York chamber maid for rape and sexual assault by paying her $6 million in damages. Behind the settlement is alleged evidence accumulated by the plaintiff that DSK is a serial predator on hotel maid prey.

Sadly, the scumbag will not pay this sum, at least for now, out of his own  empty pockets. He is to borrow half from unnamed sources and the other half from his pathetic wife, Anne Sinclair, who is in the process, not before time,  of divorcing him.

It is a sad commentary on the world that we inhabit that such a predator is likely to recoup his outlays on the lecture circuit. Even in morally degraded  France, that is a sorry indicator of continuing decline and fall.

The fact that DSK was once trained as a professional economist would embarrass me were it not for the additional fact that he was  badly educated as a Keynesian economist. Socialists and progressives of the world, hang down your heads and cry. He is one of yours’!

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Posted in economics of John Maynard Keynes, Personality Disorders Among Politicians, political corruption, political philosophy, progressive socialism, Uncategorized | 1 Comment »

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