Liberals sometime just lose track of reality. Unemployment benefits were originally set up for a 3 month period, but the Democrats have extended it to almost two years!! What will be the result?
I don’t now why I bothered spending all that time perusing the writings of Paul Krugman and Larry Summers in order to produce my previous blog post when this Michael Ramirez cartoon makes the same point in a much simpler way.
Now the federal government spends over 25% of our total GDP. It seems everybody is getting money from the federal government except me. Boo Who!!!! Sometimes you just have to laugh at it all.
Only days after the president declared, “No more bailouts, no more handoutss,” I see that Arlo Guthrie is touring the South in February and March. What’s the connection? If you have the good fortune to see him, be sure to ask for “I’m Changing My Name to Fannie Mae.” That 2008 song was itself a new version of Tom Paxton’s classic song “I’m Changing My Name to Chrysler,” sung here by Arlo: “When they hand a million grand out, I’ll be standing with my hand out….If you’re a corporate titanic and your failure is gigantic, Down in Congress there’s a safety net for you.”
The 2008 version is sung here by Arlo and here by Paxton. Besides the name of the company, they had to make a few other changes in the lyrics, like “When they hand a trillion grand out, I’ll be standing with my hand out.”
But that was October 2008. By the end of December, I was noting that it was a Merry Christmas for GMAC, which learned on Christmas Eve that the Federal Reserve had approved its application to become a bank holding company. That gave GMAC “access to new sources of funding, including a potential infusion of taxpayer dollars from the Treasury Department and loans from the Fed itself,” as the Washington Post explained. GMAC wasn’t the only company that suddenly became a “bank holding company” in order to cash in on the $700 billion financial bailout. Late one night in November, American Express was granted the same privilege, along with Morgan Stanley, Goldman Sachs, and CIT. Which was why I suggested then that Tom and Arlo needed a new version: “I’m Changing My Name to Bank Holding Company.”
For now, enjoy “I’m Changing My Name to Fannie Mae”:
Arlo “updates” Tom Paxton’s “I’m Changing My Name To Chrysler” for these times. Live at The Guthrie Center!
When Arlo performed “Fannie Mae” at Farm Aid, I got tons of requests to post it…
BTW,this is without drummer, Terry a la Berry. He had a gig in Texas.
Abe Guthrie, keyboards,
The Burns Sisters, (Marie, Annie & Jeannie),vocals, Jody Lampro, bass & Bobby Sweet, guitar!
Live at The Guthrie Center Church October 11, 2008.
Arlo is on tour now, titled “Lost World Tour” with this band and Terry a la Berry! Terry has played drums for Arlo for decades. For more information go to:
States that are cutting taxes are getting a lot of population growth because people will seek to open up their businesses in low tax states versus high ones. Why can’t the federal government learn from this states and lower federal taxes in order to encourage business creation?
The fiscal nightmare in Europe should be all the proof that’s needed about the dangers of wasteful spending and punitive tax rates. Unfortunately, if his proposals for bigger government and class-warfare tax policy are any indication, President Obama still seems to think those policies would be good for America.
“Let’s mimic California and France!”
American states also are a laboratory, showing that states with better tax policy create more jobs and grow much faster. And many state policy makers have learned the right lesson.
Last week Governor Sam Brownback continued the post-2010 reform trend among GOP Governors by signing the biggest tax cut in Kansas history. The plan chops the state income tax rate to 4.9% from 6.45% and eliminates income taxes on about 190,000 Kansas small businesses. …Mr. Brownback says the income tax cut will put Kansas “on a road to faster growth.” Although no one in Europe or the White House agrees with the philosophy, tax-cut initiatives have been spreading in the states. Already this year Tennessee has eliminated its gift and estate tax, Arizona has cut its capital gains tax (to 3.4% from 4.54%), and Idaho and Nebraska have cut income tax rates. Oklahoma is expected to cut tax rates. The tax cutting Governors all say they hope to be more like no-income-tax Texas, which has far outpaced other states in job creation.
Sadly, the folks in the White House aren’t hopping on the tax cut bandwagon.
Instead, they want America to be more like the President’s home state of Illinois, a fiscal basket case. But it’s not just Illinois that’s in trouble because of a bloated and expensive public sector.
It turns out that millions of Americans are voting with their feet to escape states with excessive taxes.
New York State accounted for the biggest migration exodus of any state in the nation between 2000 and 2010, with 3.4 million residents leaving over that period, according to the Tax Foundation. Over that decade the state gained 2.1 million, so net migration amounted to 1.3 million, representing a loss of $45.6 billion in income. Where are they escaping to? The Tax Foundation found that more than 600,000 New York residents moved to Florida over the decade – opting perhaps for the Sunshine State’s more lenient tax system – taking nearly $20 billion in adjusted gross income with them. Over that same time period, 208,794 Pennsylvanians moved to Florida, taking $8 billion in income. …California is also known for more onerous taxes and regulations, and the foundation shows similar trends of migration from there to other states like Texas and Arizona. The Tax Foundation ranked the Golden State sixth highest in the nation for state and local tax burden in 2009. Between 2000 and 2010, the most recent data available, 551,914 people left California for Texas, taking $14.3 billion in income. Texas has no state income tax or estate tax. …Another 28,088 from California relocated to Nevada and 30,663 to Arizona, a loss of $699.1 million and $707.8 million in income respectively.
While these are remarkable numbers, they shouldn’t be a surprise. I’ve written about the failures of New York and California, and I’ve also commented on the success of Texas.
This doesn’t mean that fiscal policy is a silver bullet. There are reasonably successful nations with big governments, but they compensate with ultra-free markets in other areas. And there are also low-tax nations that languish because of mistakes such as excessive regulation and failure to protect property rights.
But all other things being equal, big government and high tax rates are a recipe for decline. Yet that’s the only item on the White House menu.
P.S. If you think people should have the right to lower their tax burdens by moving from California to Nevada, shouldn’t they also have the right to do the same thing by moving from the United States to Singapore?
The Center for Freedom and Prosperity has released another “Economics 101″ video, and this one has a very powerful message about the federal government’s so-called War on Poverty.
As explained by Hadley Heath of the Independent Women’s Forum, the various income redistribution schemes being imposed by Washington are bad for taxpayers — and bad for poor people.
Free Markets, Not Redistribution, Is Best Way to Reduce Poverty
The so-called War on Poverty has failed. Making government bigger and creating more federal redistribution programs has been bad news for taxpayers. But the welfare state also has been a disaster for the less fortunate, creating a flypaper effect that makes it difficult for people to lead independent and self-reliant lives. This Center for Freedom and Prosperity Foundation video shows how the poverty rate was falling after World War II — but then stagnated once the federal government got involved. www.freedomandprosperity.org
Another remarkable finding in the video is that poor people in America rarely suffer from material deprivation. Indeed, they have wide access to consumer goods that used to be considered luxuries – and they also have more housing space than the average European (and with Europe falling apart, the comparisons presumably will become even more noteworthy).
The most important message of the video, however, is that small government and economic freedom are the best answers for poverty. As Hadley explains, poor people can be liberated to live meaningful, self-reliant lives if we can reduce the heavy burden of the federal government.
Last but not least, the video doesn’t address every issue in great detail, and there are three additional points that should be added to any discussion of poverty.
This last point is worth emphasizing because it is also one of the core messages of the video. The federal government has done a terrible job dealing with poverty. The time has come to get Washington out of the racket of income redistribution.
Friedman Friday” Free to Choose by Milton Friedman: Episode “Created Equal” (Part 3 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other […]
Free to Choose by Milton Friedman: Episode “Created Equal” (Part 2 of transcript and video) Liberals like President Obama want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 4 of 7 The massive growth of central government that started after the depression has continued ever since. If anything, it has even speeded up in recent years. Each year there […]
If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]
Ep. 9 – How to Cure Inflation [1/7]. Milton Friedman’s Free to Choose (1980) Cochrane’s Kinky Curves Posted by Jim Powell The doctrine that inflation can cure unemployment, implicit in the Obama administration’s spending blowout, goes way back. The modern version originated with William Phillips, a New Zealand-born economist who, in 1958, wrote a paper […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. PART 3 OF 7 Worse still, America’s depression was to become worldwide because of what lies behind these doors. This is the vault of the Federal Reserve Bank of New York. Inside […]
Milton Friedman and Ronald Reagan Liberals like President Obama (and John Brummett) want to shoot for an equality of outcome. That system does not work. In fact, our free society allows for the closest gap between the wealthy and the poor. Unlike other countries where free enterprise and other freedoms are not present. This is a seven part series. […]
The third monthly luncheon with featured speaker Ernest Istook was excellent. First, we got to hear from Dave Elswick of KARN who came up with the idea of this luncheon, and then from Teresa Crossland of Americans for Prosperity. Below is a portion of Istook’s biography from the Heritage Foundation: Ernest Istook Distinguished Fellow Government Studies Ernest […]
I am currently going through his film series “Free to Choose” which is one the most powerful film series I have ever seen. For the past 7 years Maureen Ramsey has had to buy food and clothes for her family out of a government handout. For the whole of that time, her husband, Steve, hasn’t […]
I love Milton Friedman’s film series “Free to Choose.” In that film series over and over it is shown that the ability to move from poor to rich is more abundant here than any other country in the world. This article below reminded me of that that. Are Poor Really Helpless Without Government? By Michael […]
I’m not quite ready to trade places with Canada, but it may just be a matter of time. Like Germany and Sweden, they seem to be slowly but surely trying to move in the right direction.
But I’ve just been skating along the surface. My Cato colleague Chris Edwards (a Canadian transplant) has just written up a report with some of the key details.
Two decades ago Canada suffered a deep recession and teetered on the brink of a debt crisis caused by rising government spending. The Wall Street Journalsaid that growing debt was making Canada an “honorary member of the third world” with the “northern peso” as its currency. But Canada reversed course and cut spending, balanced its budget, and enacted various pro-market reforms. The economy boomed, unemployment plunged, and the formerly weak Canadian dollar soared to reach parity with the U.S. dollar. …[In] the early 1990s combined federal, provincial, and local spending peaked at more than half of gross domestic product (GDP). In the 1993 elections, Prime Minister Jean Chretien’s Liberals gained power promising fiscal restraint, but this was the party of Trudeau, and so major reforms seemed unlikely. In the first Liberal budget in 1994, Finance Minister Paul Martin provided some modest spending restraint. But in his second budget in 1995, he began serious cutting. In just two years, total noninterest spending fell by 10 percent, which would be like the U.S. Congress chopping $340 billion from this year’s noninterest federal spending of $3.4 trillion. When U.S. policymakers talk about “cutting” spending, they usually mean reducing spending growth rates, but the Canadians actually spent less when they reformed their budget in the 1990s. The Canadian government cut defense, unemployment insurance, transportation, business subsidies, aid to provincial governments, and many other items. After the first two years of cuts, the government held spending growth to about 2 percent for the next three years. With this restraint, federal spending as a share of GDP plunged from 22 percent in 1995 to 17 percent by 2000. The spending share kept falling during the 2000s to reach 15 percent by 2006, which was the lowest level since the 1940s. …The spending reforms of the 1990s allowed the Canadian federal government to balance its budget every year between 1998 and 2008. The government’s debt plunged from 68 percent of GDP in 1995 to just 34 percent today.
Total government spending, including sub-national units such as states and provinces, is still slightly higher in Canada than in the United States. But I suspect that will change within the next five years.
Not surprisingly, good spending policy leads to good tax policy, as Chris explains.
a slimmed-down Canadian government under the Liberals enjoyed large budget surpluses and pursued an array of tax cuts. The Conservatives continued cutting after they assumed power in 2006. During the 2000s the top capital gains tax rate was cut to 14.5 percent, special “capital taxes” on businesses were mainly abolished, income taxes were trimmed, and income tax brackets were fully indexed for inflation. Another reform was the creation of Tax-Free Savings Accounts, which are like Roth IRAs in the United States, except more flexible. The most dramatic cuts were to corporate taxes. The federal corporate tax rate was cut from 29 percent in 2000 to 15 percent in 2012. Most provinces also trimmed their corporate taxes, so that the overall average rate in Canada is just 27 percent today. By contrast, the average U.S. federal-state rate is 40 percent. …Canada’s federal corporate tax rate has been cut from 38 percent in the early 1980s to just 15 percent today. Despite the much lower rate, tax revenues have not declined. Indeed, corporate tax revenues averaged 2.1 percent of GDP during the 1980s and a slightly higher 2.3 percent during the 2000s.
The Laffer Curve effect of higher tax revenue shouldn’t be surprising, though American policymakers still operate in a fantasy world where taxes are assumed to have no impact on the economy and no impact on taxable income.
But that’s a secondary point. The main lesson of this research by Chris is that it is both possible and desirable to shrink the burden of government spending.
And it’s not just Canada that has done the right thing. This video outlines past reforms in Ireland, Slovakia, and New Zealand as well.
P.P.S. The Canadians aren’t know for having a sense of humor, but the person who wrote this parody about emigrating American leftists definitely has a good sense of humor.
In the debate of job creation and how best to pursue it as a policy goal, one point is forgotten: Government doesn’t create jobs. Government only diverts resources from one use to another, which doesn’t create new employment.
Video produced by Caleb Brown and Austin Bragg.
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Keynesian Catastrophe: Big Money, Big Government & Big Lies
Based on a theory known as Keynesianism, politicians are resuscitating the notion that more government spending can stimulate an economy. This mini-documentary produced by the Center for Freedom and Prosperity Foundation examines both theory and evidence and finds that allowing politicians to spend more money is not a recipe for better economic performance.
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Obama’s So-Called Stimulus: Good For Government, Bad For the Economy
President Obama wants Congress to dramatically expand the burden of government spending. This CF&P Foundation mini-documentary explains why such a policy, based on the discredited Keynesian theory of economics, will not be successful. Indeed, the video demonstrates that Obama is proposing – for all intents and purposes – to repeat Bush’s mistakes. Government will be bigger, even though global evidence shows that nations with small governments are more prosperous.
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Big Government Is Not Stimulus: Why Keynes Was Wrong (The Condensed Version)
The CF&P Foundation has released a condensed version of our successful mini-documentary explaining why so-called stimulus schemes do not work. Based on a theory known as Keynesianism, politicians are resuscitating the notion that more government spending can stimulate an economy. This mini-documentary produced by the Center for Freedom and Prosperity Foundation examines both theory and evidence and finds that allowing politicians to spend more money is not a recipe for better economic performance.
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Eight Reasons Why Big Government Hurts Economic Growth
This Center for Freedom and Prosperity Foundation video analyzes how excessive government spending undermines economic performance. While acknowledging that a very modest level of government spending on things such as “public goods” can facilitate growth, the video outlines eight different ways that that big government hinders prosperity. This video focuses on theory and will be augmented by a second video looking at the empirical evidence favoring smaller government.
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Keynesian Economics Is Wrong: Economic Growth Causes Consumer Spending, Not the Other Way
Politicians and journalists who fixate on consumer spending are putting the cart before the horse. Consumer spending generally is a consequence of growth, not the cause of growth. This Center for Freedom and Prosperity video helps explain how to achieve more prosperity by looking at the differences between gross domestic product and gross domestic income. www.freedomandprosperity.org
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Deficits, Debts and Unfunded Liabilities: The Consequences of Excessive Government Spending
Huge budget deficits and record levels of national debt are getting a lot of attention, but this video explains that unfunded liabilities for entitlement programs are Americas real red-ink challenge. More important, this CF&P mini-documentary reveals that deficits and debt are symptoms of the real problem of an excessive burden of government spending. www.freedomandprosperity.org
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Now that I have been critical of the Democrat President, I wanted to show that I am not concerned about taking up for Republicans but looking at the facts. President Clinton did increase government spending at a slower rate than many other presidents. Here are two videos that praise both Reagan and Clinton for both accomplished this feat.
Spending Restraint, Part I: Lessons from Ronald Reagan and Bill Clinton
Ronald Reagan and Bill Clinton both reduced the relative burden of government, largely because they were able to restrain the growth of domestic spending. The mini-documentary from the Center for Freedom and Prosperity uses data from the Historical Tables of the Budget to show how Reagan and Clinton succeeded and compares their record to the fiscal profligacy of the Bush-Obama years.
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Spending Restraint, Part II: Lessons from Canada, Ireland, Slovakia, and New Zealand
Nations can make remarkable fiscal progress if policy makers simply limit the growth of government spending. This video, which is Part II of a series, uses examples from recent history in Canada, Ireland, Slovakia, and New Zealand to demonstrate how it is possible to achieve rapid improvements in fiscal policy by restraining the burden of government spending. Part I of the series examined how Ronald Reagan and Bill Clinton were successful in controlling government outlays — particularly the burden of domestic spending programs. www.freedomandprosperity.org
Lawmakers are considering extending temporary payroll tax cuts. But the policy is based on faulty Keynesian theories and misplaced confidence in the government’s ability to micromanage short-run growth.
In textbook Keynesian terms, federal deficits stimulate growth by goosing “aggregate demand,” or consumer spending. Since the recession began, we’ve had a lot of goosing — deficits were $459 billion in 2008, $1.4 trillion in 2009, $1.3 trillion in 2010, and $1.3 trillion in 2011. Despite that huge supposed stimulus, unemployment remains remarkably high and the recovery has been the slowest since World War II.
Policymakers should ignore the Keynesians and their faulty models, and instead focus on reforms to aid long-run growth…
Yet supporters of extending payroll tax cuts think that adding another $265 billion to the deficit next year will somehow spur growth. That “stimulus” would be on top of the $1 trillion in deficit spending that is already expected in 2012. Far from helping the economy, all this deficit spending is destabilizing financial markets, scaring businesses away from investing, and imposing crushing debt burdens on young people.
For three years, policymakers have tried to manipulate short-run economic growth, and they have failed. They have put too much trust in macroeconomists, who are frankly lousy at modeling the complex workings of the short-run economy. In early 2008, the Congressional Budget Office projected that economic growth would strengthen in subsequent years, and thus completely missed the deep recession that had already begun. And then there was the infamously bad projection by Obama’s macroeconomists that unemployment would peak at 8 percent and then fall steadily if the 2009 stimulus plan was passed.
Some of the same Keynesian macroeconomists who got it wrong on the recession and stimulus are now claiming that a temporary payroll tax break would boost growth. But as Stanford University economist John Taylor has argued, the supposed benefits of government stimulus have been “built in” or predetermined by the underlying assumptions of the Keynesian models.
Policymakers should ignore the Keynesians and their faulty models, and instead focus on reforms to aid long-run growth, which economists know a lot more about. Cutting the corporate tax rate, for example, is an overdue reform with bipartisan support that would enhance America’s long-run productivity and competitiveness.
If Congress is intent on cutting payroll taxes, it should do so within the context of long-run fiscal reforms. One idea is to allow workers to steer a portion of their payroll taxes into personal retirement accounts, as Chile and other nations have done. That reform would feel like a tax cut to workers because they would retain ownership of the funds, and it would begin solving the long-term budget crisis that looms over the economy.
Dan Mitchell discusses the effectiveness of the stimulus Uploaded by catoinstitutevideo on Nov 3, 2009 11-2-09 When I think of all our hard earned money that has been wasted on stimulus programs it makes me sad. It has never worked and will not in the future too. Take a look at a few thoughts from […]
Government Spending Doesn’t Create Jobs Uploaded by catoinstitutevideo on Sep 7, 2011 Share this on Facebook: http://on.fb.me/qnjkn9 Tweet it: http://tiny.cc/o9v9t In the debate of job creation and how best to pursue it as a policy goal, one point is forgotten: Government doesn’t create jobs. Government only diverts resources from one use to another, which doesn’t […]
In his recent article Ernie Dumas sticks to his guns that we should balance the budget without being forced to with a “Balanced Budget Amendment,” but I wonder how well that has worked so far? I have made this a key issue for this blog in the past as you can tell below: Dear Senator […]
(Picture from Arkansas Times Blog) When I think about all the anger and hate coming from the Occupy Wall Street crowd, I wonder if they have read this story below? Solyndra: Crooked Politics or Just Bad Economics? Posted by David Boaz Amy Harder has a good take on the Solyndra issue in National Journal Daily […]
Dear Senator Pryor, why not pass the Balanced Budget Amendment? (Part 13 Thirsty Thursday, Open letter to Senator Pryor) Office of the Majority Whip | Balanced Budget Amendment Video In 1995, Congress nearly passed a constitutional amendment mandating a balanced budget. The Balanced Budget Amendment would have forced the federal government to live within its […]
Andrew Demillo pointed this out and also Jason Tolbert noted: PRYOR OPPOSES THE OBAMA JOBS BILL THAT HE VOTED TO ADVANCE Sen. Mark Pryor has been traveling around the state touting a six-part jobs plan that he says “includes a number of bipartisan initiatives, is aimed at creating jobs by setting the table for growth, encouraging new […]
Is a lack of money the problem for our public schools? Everything You Need to Know About Public School Spending in Less Than 2½ Minutes Posted by Adam Schaeffer Neal McCluskey gutted the President’s new “Save the Teachers” American Jobs Act sales pitch a good while back, as did Andrew Coulson here. Thankfully, it seems […]
We need some austerity in the USA and I don’t mean tax increases. That never helps. However, just like many of the European countries we have run away federal government spending that needs to be cut. Why can’t we learn from others mistakes?
The Italian economy contracted for a third quarter in a row, deepening the country’s recession and adding to the fire of the euro crisis. Italy is the third largest economy in the Eurozone, and many view it as the endgame of an eventual collapse of the common currency because it is too big to fail. Neither the EU nor the IMF have enough cash to rescue it. If the country defaults, that would probably spell the end of the euro.
Austerity is being blamed for Italy’s economic troubles. Chiara Corsa, an economist at UniCredit, wrote that “The key factor is austerity, which is weighing heavily on consumption and investment.” Recent local elections saw the rise of anti-austerity parties. Paul Krugman warned about this back in December when he described the austerity push of Prime Minister Mario Monti as “self-defeating” and “delusional.”
However, as is the case for Britain, France and Greece, commentators are unclear about what austerity means for Italy, although many seem to imply spending cuts. For example, if Krugman’s criticism about Italian austerity is consistent with his critiques about austerity elsewhere in Europe, we know he means spending cuts. So let’s take a look and see if there has been any:
* Using GDP deflator.
Source: European Commission, Economic and Financial Affairs.
Spending in nominal terms increased by a yearly average of 4.1% between 2000 and 2009, and then fell slightly the following year. In 2011 government spending was just 0.14% below its 2009 level. As for spending in real terms, there’s no cut whatsoever. And as a share of the economy, total spending reached a peak in 2009 at 51.6% of GDP, and it fell to 49.6% last year, a decline far from significant.
So what’s austerity all about in Italy so far? According to The Financial Times, the “government’s €30 billion austerity package, passed in December, was heavily oriented towards tax increases rather than spending cuts, an emphasis that is now widely recognized by ministers as having driven Italy deeper into recession.” The FT adds that the Monti administration is facing “intense pressure from business, politicians and the public to shift the burden of austerity away from heavy taxation towards cuts in public spending.” As a result, the Italian Prime Minister announced €4.2 billion in spending cuts starting in June, still less than 1% of total public spending. That doesn’t sound savage to me.
But it’s quite fascinating to see the hysteria surrounding non existent spending cuts and its supposedly negative impact on economic growth. For example, last December The Economistwarned:
“But too great an emphasis on austerity in the short run risks sending the continent’s economy into a deep recession; the latest data on Italian industrial production showed an annual fall of 4.1% in October, even before budget cuts were introduced by the new government.”
Interestingly, according to The Economist, spending cuts were somehow responsible for a decline in economic output in Italy even before being implemented!
If austerity is to blame for Italy’s recession, we need to be clear that by austerity we mean mostly tax increases with almost no reduction in government spending.
Max Brantley and Paul Krugman are constantly being critical of the austerity in Europe but in most cases in Europe what we have is tax increases and fake spending cuts. Instead of destroying economic growth with tax increases the right method would be real spending cuts. We need some austerity in the USA and I […]
Uploaded by danmitchellcato on Feb 26, 2012 I wish we would put in real spending cuts in the USA instead of fake ones like the ones in the United Kingdom. Looking at ‘Austerity’ in Britain Posted by Juan Carlos Hidalgo I’m going to jump into the debate about austerity in Europe because it is being […]
Dan Mitchell on Soaking the Rich There are many economic approaches out there but the one that works best is the free market approach of low taxes and low amounts of government spending and intervention. Daniel in the Lion’s Den: Fighting for Liberty at the United Nations May 18, 2012 by Dan Mitchell I posted yesterday […]
Dan Mitchell on Austerity in Europe 2012 In order to balance the budget we must make deep cuts. Take a look at the study refers to below by Dan Mitchell of the Cato Institute in his fine article on the French mess. Raising taxes has not worked in the thirty countries studied. Some French Economic Humor […]
1,000 Days Without A Budget Uploaded by HeritageFoundation on Jan 24, 2012 http://blog.heritage.org | Today marks the 1,000th day since the United States Senate has passed a budget. While the House has put forth (and passed) its own budget, the Senate has failed to do the same. To help illustrate how extraordinary this failure has […]
U.S. President Barack Obama (R) waves as French President Francois Hollande looks on following their bilateral meeting in the Oval Office of the White House in Washington May 18, 2012. Hollande is in the United States to join other leaders of the major industrial economies and meet for a G8 Summit at Camp David this […]
The liberals in France do not want austerity but more spending but who will pay for their party? Morning Bell: Socialism Rises Again Mike Brownfield May 8, 2012 at 8:55 am Last weekend, the people of France took a sharp turn to the left, and the rest of Europe may be on the brink of […]
The medicine for the sickness of spending is real budget cuts but no one in liberal europe wants to hear that. Sadly we are on the same road in the USA. Liberals (like my blogger opponent “the Outlier” and others) love to say that austerity has been tried in Europe and it doesn’t work but the truth […]
The doctrine that inflation can cure unemployment, implicit in the Obama administration’s spending blowout, goes way back.
The modern version originated with William Phillips, a New Zealand-born economist who, in 1958, wrote a paper modestly titled “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861‑1957.” Phillips suggested that when inflation went up, unemployment went down. Keynesian economists Paul Samuelson and Robert Solow popularized Phillips’ idea as a reason to ratchet up government spending and inflate the money supply. That’s what the Kennedy and Johnson administrations did during the 1960s.
In 1967, Milton Friedman expressed a skeptical view about what had come to be known as the Phillips Curve, launching an extended debate. Then in 1973, President Richard Nixon, who had famously declared “I am now a Keynesian,” leaned hard on Fed Chairman Arthur Burns to inflate the money supply and drive down unemployment, hopefully to improve Nixon’s prospects for re-election. Well, as those of us who were around back then recall, both inflation and unemployment went up! This was a bit of a problem for Phillips Curve aficionados.
As if the stubborn stagflation of the 1970s wasn’t bad enough, subsequent efforts by new Fed Chairman Paul Volcker and President Ronald Reagan to stop inflation cold delivered another hammer blow against the Phillips Curve: both inflation and unemployment went down!
Now fast-forward to January 2009: President Obama levitated the Phillips Curve from the dead when he repeatedly declared that it was urgent to enact his $825 billion stimulus bill so unemployment would go down. But both spending and unemployment went up! It became harder to deny that the stimulus spending flopped, though the New York Times’ Keynesian columnist Paul Krugman tried valiantly. He claimed stimulus spending flopped because Obama didn’t spend enough. Accordingly, several weeks ago, Obama proposed still more stimulus spending to fight unemployment, and he begged people to support it: “If you love me, pass this bill!”
There shouldn’t have been any surprise about Obama’s flop, since the underlying idea – the Phillips Curve – proved to be a dud long ago. This would be a good time to review experience with the Phillips Curve.
Thankfully, Cato Adjunct Scholar John H. Cochrane, the AQR Capital Management Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, has done just that. He focused on the period from 1966 to the present. That year, President Lyndon Johnson was going full bore, promoting runaway spending on new entitlement programs and on the Vietnam war simultaneously, and inflation reared its ugly head.
Cochrane charted what happened year-by-year to inflation and unemployment. The result wasn’t a nice smooth curve dreamed about by Keynesians. Rather, there was a kinky curve. One year, inflation went up, and unemployment went down. Next year, inflation went up again, and unemployment went up. Then when inflation went down, unemployment went up again. On and on as if we followed a drunk stumbling around a street. Since a single chart would have become an unreadable tangle if it tried to cover the entire 45-year period, Cochrane developed two charts, 1966-1984 and 1985-2011. Clearly, what we see is a random relationship between inflation and unemployment, that makes the Phillips Curve worthless as a policy tool.
The charts appear in an insightful article Cochrane wrote, published in the Fall 2011 National Affairs. The article is important quite apart from the Phillips Curve charts. Although the prevailing view seems to be that high inflation is most likely to occur if and when the Fed increases the money supply, Cochrane warns high inflation could occur as a consequence of soaring government debt. Such inflation would amount to a default. It would be triggered by a run on dollar-denominated assets, if and when investors conclude that the government cannot pay its debts. Runs occur without warning, often after a succession of events have undermined investor confidence.
Dan Mitchell explains in the above video that Europe can grow and prosper, but only if politicians are willing to reduce the burden of government spending and lower tax rates.
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I have a lot of respect for Tea Party heroes like Tim Huelskamp and Justin Amash who are willing to propose deep spending cuts so we can eventually balance our budget. Nevertheless there are some liberals like John Brummett that want us to think that President Obama did right by doing that stimulus spending and he has not been a big spender. I will straighten that out later in this post.
John Brummett wrote in the online addition of the Arkansas Democrat-Gazette on May 30, 2012:
Obama did indeed run up the deficit with a stimulus measure to keep the economy from collapsing as he entered office…But in regard to budgets that he actually has proposed as president, beginning with the one for the fiscal year starting nearly a year after his election, Obama has raised spending at a slower rate than Clinton…
Republicans simply are more effective than Democrats at declaring a simple untruth loudly and repetitively through a pliable and powerful echo chamber of talk radio and cable news, thus embedding that untruth beneath the superficial consciousness of people otherwise disengaged.
__________
Now the truth of the matter is that Obama has spent around 25% of GDP when Clinton and most of the other presidents spent 20% or less. This fact allow disproves Brummett’s assertions listed above.
Dan Mitchell of the Cato Institute sets the record straight concerning Obama’s spending:
Last week, I jumped into the surreal debate about whether Obama has been the most fiscally conservative president in recent history.
I sliced the historical data from the Office of Management and Budget a couple of ways, showing that overall spending has grown at a relatively slow rate during the Obama years. Adjusted for inflation, both total spending and primary spending (total spending minus interest payments) have been restrained.
So does this make Obama a fiscal conservative?
And how can these numbers make sense when the President saddled the nation with the faux stimulus and Obamacare?
Good questions. It turns out that Obama supposed frugality is largely the result of how TARP is measured in the federal budget. To put it simply, TARP pushed spending up in Bush’s final fiscal year (FY2009, which began October 1, 2008) and then repayments from the banks (which count as “negative spending”) artificially reduced spending in subsequent years.
The combination of those two factors made a big difference in the numbers. Here’s another table from my prior post, looking at how the presidents rank when you subtract both defense and the fiscal impact of deposit insurance and TARP.
All of a sudden, Obama drops down to the second-to-last position, sandwiched between two of the worst presidents in American history. Not exactly a ringing endorsement.
But this ranking is incomplete. At that point, I was trying to gauge Obama’s record on domestic spending, and the numbers certainly provide some evidence that he is a stereotypical big-spending liberal.
But the main debate is about which president was the biggest overall spender. So I’ve run through the numbers again, and here’s a new table looking at the rankings based on average annual changes in inflation-adjusted primary spending, minus the distorting impact of deposit insurance and TARP.
Obama is still in the second-to-last position, but spending is increasing by “only” 5.5 percent per year rather than 7.0 percent annually. This is obviously because defense spending is not growing as fast as domestic spending.
Reagan remains in first place, though his score drops now that his defense buildup is part of the calculations. Clinton, conversely, stays in second place but his score jumps because he benefited from the peace dividend after Reagan’s policies led to the collapse of the Soviet Empire.
Let’s now look at these numbers from a policy perspective. Rahn Curve research shows that government is far too big today, so the goal of fiscal policy should be to restrain the burden of government spending relative to economic output.
But if government spending is growing faster than the productive sector of the economy, as has been the case during the Bush-Obama years, then a nation eventually will become Greece.
The Daily Hatch 