Free Markets, Free People

Things that should be obvious

Reality is a great test of belief. Sometimes, the things you believe are confirmed by experience. Sometimes they aren’t. And sometimes, reality is so at odds with what people believe, they have to be complete dolts to keep believing it. But, I constantly see people who believe things that simply can’t be true, and it bothers me.

Ultimately, reality tells you whether what you believe is true or not. And if reality conflicts with what you believe, it isn’t reality that’s got it wrong.

The Stimulus Cheerleaders

Basically, it’s the unreconstructed Keynesian crowd. Popularly led by Paul Krugman—who is a Nobel Laureate economist—they continue to argue that the problem with the economy is that the government simply didn’t spend enough to properly stimulate the economy.

There’s so much wrong with that, it’s hard to know where to start.

First, let’s accept that in a range of circumstances, it actually is true that the government can stimulate the economy via deficit spending. As long as there’s not too much debt in the economy as a whole, you can prime the economic pump through deficit spending, especially if you have a fiat currency. We’ve done it lots of times since WWII.

So, up to a point, even if you have a credit bubble that collapses, you can re-inflate it by essentially transferring that debt to the Government via deficit spending.

Up to a point.

As I’ve mentioned previously, the newest ECB research indicates that, in developed economies, once you reach a government debt load of about 100% GDP, it begins to drag on the economy, reducing economic growth by about 1% annually. So, what should be 3% annual GDP growth becomes 2%. And as the debt gets bigger, the drag gets bigger, faster.

Now, ever since Reagan and Congress began serious, constant deficit spending in the 80s, there have been worries that the government debt would begin to crown out private markets, and slow the economy. But it never happened.

Well, until now, as we crossed that 1:1 GDP to debt ratio.

Moreover, the idea that we haven’t spent enough to stimulate the economy is simply farcical. In 2008, the total national debt was less than $10 trillion. Now it’s over $16 trillion. So no matter whether or not we spent X amount of money marked "stimulus", we’ve spent so much money that we’ve added more than $6 Trillion in debt in just 4 years. That’s a lot of stimulus.

Arguing that we needed to spend more is…counterintuitive. If $6+ trillion won’t do it, then it probably can’t be done.

Besides, we already learned there was a fundamental problem with Keynesian economics when we had stagflation in the ’70s, which was supposedly impossible.

The Greeks

Here’s the thing about looting the system. Once you’ve looted it…it’s been looted. The Greeks seem utterly incapable of understanding that the system can’t continue to dole out benefits once you’ve looted it. It’s not the Germans that are making life difficult for the Greeks, by refusing to give them more money. It’s the Greeks that have made life difficult for themselves by spending themselves into a 1.28:1 Debt to GDP ratio.

Austerity, of course, isn’t pleasant—at least not the way they’ve implemented it. What they needed was public sector austerity, i.e., spending cuts, not private sector austerity, i.e., tax increases. Instead, they got both. What they needed were massive spending cuts, and debt repayment.

But, of course, in a country where practically every cop, teacher, and fireman is a unionized employee of the state, and half of the private citizens get some sort of cushy government benefit payment, much public sector austerity was a political non-starter. So they gave themselves a little public austerity and a lot of private austerity…and the economy collapsed. I mean, no matter what they did, they were in for a tough time, but they chose the most destructive path possible, then blamed it on the Germans.

The thing is, the Germans are historically…impatient with foreigners that they find troublesome. But the Greeks have decided that, having looted their economy completely, it’s the Germans’ fault somehow. The Greek position is, "We want to stay in the euro without worrying about our deficits, borrow money from Germany, never pay it back, and tell anyone who questions this to go screw."

The Germans, as are their wont, are unamused.

Californians

The list of odd things Californians believe that are directly contradicted by observable reality is, of course, far to long to be described here. A representative sample, however, includes:

  • Maintaining a permanent class of illegal immigrants in modern-day helotage will not reduce employment among the minority citizenry. Giving them full access to state benefits and education will not strain the schools, medical system, or state budget.
  • California must have the strictest environmental, tax, and employment regulation possible. This will not result slower economic growth, or a business exodus to another state. Similarly, stringent environmental regulation for the benefit of small fish or birds, and significantly reducing the water available for irrigation, will have no effect on farming in the central valley, and, hence, agricultural prices paid by consumers.
  • It is completely possible to allow state employees to retire as young as 50, with an annual pension payment 85% of their highest salary, and fully meet our pension obligations, because the Dow will be at 24,000 by 2009, and 24,000,000 by 2099, thus making the latest round of pension increases perfectly sustainable through investment.
  • If we’re taxing California workers 10% of their income, and we have a $16 billion budget deficit, the problem is that we obviously aren’t taxing enough. We should, therefore, tax higher income earners much more, because they can never leave California and move to Arizona. Or Texas.

California is just Greece with movie stars.

Conclusion

I could go on and on, but, you probably get the point.

The problem with reality is that it doesn’t care what you believe. It just is. The longer you ignore it, the more forceful it is when it re-asserts itself. But if I could point to one thing as the worst modern problem we have today, it would be an absolute refusal to acknowledge reality, accompanied by a steadfast refusal to recognize any of the warning signals it obligingly gives before its assertion becomes horrific, rather than merely unpleasant.

If you make the decision to ride this thing down in flames, reality will be perfectly happy to let you do it.

~
Dale Franks
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16 Responses to Things that should be obvious

  • I blame all of this on what I simply call “living rich.”
    Both California and Greece seem to think that they are rich .. that they can afford any cost that is thrown their way.
    Simply, they aren’t rich .. never have been and most definitely aren’t now.
    This is the same crap I’ve seen on MTV with the million dollar birthday parties and such.  Once somebody acts rich, then everybody has to do it too.  We’ve all seen the stories of the teenage who threw a fit when they didn’t get the new BMW or Maserati on their 16th birthday.  That is California, Greece and most of the US boiled down to one small vignette.
    Well we’ve all spent most of the money .. more than a horde of drunken sailors could ever spend .. and the hangover is a bitch.

  • Realityville is a good place to live.  I recommend it to all the Collective.  C’mon over…there’s plenty of room, and all it will cost is your delusions.  You don’t really want those, anyhow.

    • You don’t really want those, anyhow.

      Oh, yes, they do. They need them desperately, and cannot imagine what life would be without them. Those delusions define who they are as people: brilliant, caring, virtuous – both able and willing to boss the rest of us around because of their goodness and smarts.
      They may not *need* them, and the rest of us certainly wish they could get out from under that warm blanket of delusion they occupy. But they *want* those delusions because without them, they would actually have to look in the mirror and face the reality of who they are as a person. That might mean, for example, facing the reality that someone who is convinced of his brilliance and superiority would have to admit that he’s wrong about everything and is nothing more than a mediocre professor in a mediocre rural college. As I said a few weeks ago, they don’t have the psychic strength to face it.

      I echoed Dale in that entry, though: “OK, let them live in their fantasy world. In the end, reality always wins.”

      • Up to a point, I think we always know what we are doing/using that is self-destructive.  Do we really “want” it?  Surely, part of us does, but up to that point I mentioned, part of us doesn’t.
         
        But then we can cross that point where all doubt…and most chance of redemption…is gone.
         
        There are Collectivists who read this blog who we’ve seen are pretty far across that Rubicon.  Others, perhaps not…yet.

  • So long as you can implement your life style via taking, all good right?  Except now they have to take more and, well, funny thing about that, they’ve encountered Thatcher’s theorem on socialism.
     
    It isn’t totally that some people believe they can continue this life style, the problem is the people in CHARGE believe it, and encourage the common idiots in their beliefs.   Governor MoonBeam is demonstrating that even as we type.

  • You will see elections in Europe swing back and forth with no real solutions until the collapse. That’s because politicians still claim there are easy ways out.
    I recently had some back and forth with people on a Gov. Brown google plus post. They are not living in reality at all. They think California is doing great! Obviously they are state workers – no one else would believe that.
    Its also amazing how fast these supposedly sympathetic liberals are to throw “red parts” of the state under the bus.

  • And Gov. Moonbeam has done some decent stuff, but its all nibbling around the edge and hoping for growth to come back. These statists are like the people in Idiocracy watering the fields with Brawndo – “Taxes and Regulations – its what growth craves”

  • Dale, if you haven’t read it, try Daniel J. Flynn’s “A Conservative History of the American Left.”

    Some books I recommend as thumb-throughs, for skimming, have on the shelf for reference sorts of books. This one I like as a cover-to-cover read. It starts with the original communes circa 1825 and is like a map of a state of mind. In fact, when I’m done with this latest from Goldberg and re-read “1984,” I’m going to run through it again myself.

  • The trouble with Keynesian Economics (besides the fact it does not work) is that it is not falsifiable to its adherents.  Whenever we point out to the Krugman’s their prescription did not work, they tell us that is because we just did not do enough borrowing and spending.  Yet in the past three years, we have borrowed about $6 trillion for a meager couple of billion in GDP increase.  That is failure by any measure.  But not to Krugman.

    • In defense of Keynes, the prescription he offered dealt with very specific circumstances.  Originally it only pertained to the perceived problem of “over saving” — i.e. socking away too much and not spending enough.  That’s fine as far as it goes, but what is being offered nowadays as Keynesianism has nothing to do with what the man actually opined about.   Otherwise, I’m in complete agreement with what you said.  It’s just a shame that a man who actually increased what we know about economics is burdened with the morons who falaciously use his name to advance their discredited agenda.

      • As is so often the case with people of genius, Keynes’ acolytes are the worst enemies of his work.
         
        My main criticism of Keynes is that he was politically naive…which is not really a huge flaw in a economic thinker.  His signature insight considered that government spending would recede after a period of stimulus…which the laws of political reality tell us will NOT happen.
         
        I read a blurb from Keynes where he rhapsodized about the wonders of life brought to his England via market economics.  He would be appalled at the current perversion of his ideas, I think.

  • “Ultimately, reality tells you whether what you believe is true or not. And if reality conflicts with what you believe, it isn’t reality that’s got it wrong.”

    Or as Keynes said, “When the facts change, I change my mind.  What do you do, sir?”

  • Perhaps a more germane Keynes quote: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.