Category Archives: Economy

Bernanke Not Bullish

Economy, Free Markets, Government

Federal Reserve Chairman Ben Bernanke testified today before the House Budget Committee. Afterwards there was some grilling as to the real size of the federal budget deficit. Also discussed in casual passing were the fishy accounting practices galvanized to reduce said deficit — raiding social security and Medicare, for example. The kind of fraud that if committed in the private sector would net the perp serious jail time.
More crucially, Bernanke had some dire economic forecasts about “the evolution of national debt” and the “high rates of government borrowing.” As libertarian writers never tire of reminding their readers, the national debt and government borrowing will “drain funds away from private capital formation and thus slow the growth of real incomes and living standards over time. i the necessity of paying interest on the foreign-held debt would leave a smaller portion of -ur nation’s future output available for domestic consumption. Moreover, uncertainty about the ultimate resolution of the fiscal imbalances would reduce the confidence of consumers, businesses, and investors in the U.S. economy, with adverse implications for investment and growth.”
If current trends in government spending continue, the forecast for the proverbial children caring conservatives and Democrats so love to invoke is particularly grim. Said Bernanke:

According to the CBO projection that I have been discussing, interest payments on the government’s debt will reach 4-1/2% of GDP in 2030, nearly three times their current size relative to national output. Under this scenario, the ratio of federal debt held by the public to GDP would climb from 37% currently to roughly 100% in 2030 and would continue to grow exponentially after that. The only time in U.S. history that the debt-to-GDP ratio has been in the neighborhood of 100% was during World War II. People at that time understood the situation to be temporary and expected deficits and the debt-to-GDP ratio to fall rapidly after the war, as in fact they did. In contrast, under the scenario I have been discussing, the debt-to-GDP ratio would rise far into the future at an accelerating rate. Ultimately, this expansion of debt would spark a fiscal crisis, which could be addressed only by very sharp spending cuts or tax increases, or both.

Updated: The ‘Stock Scare’: Connecting the Dots

Economy, Free Markets, Government, Media

Jeffrey Tucker of the Mises Institute connects the dots:

“Ah, nothing focuses the mind that a good ol’ fashioned stock market sell-off. Nothing is more likely to cause people to decide that Bush is a really bad president, or inspire pessimism about the future. One might think that a war in Iraq and US equity valuations have politically nothing to do with each other, but when portfolios show declining cash value, blame flies in unexpected ways. Depending on how long this lasts, we might find that brutal criticism of all this president’s policies will become even more ubiquitous.
Meanwhile, looking through my email archive from yesterday, I see this alert from Frank Shostak: ‘The central bank of China’s tighter stance runs the risk of creating a financial accident, which could have serious effects on US real economic activity.’
So let us make another prediction: Republicans will blame China for its reckless monetary policy. And while the data seem to suggest that there is merit to the idea, Frank himself says that we must distinguish between the bullet (bubble in the US) and a trigger (China’s inflation).”
[End Quote]

I listened to Kudlow and Friends, but they seemed more interested in justifying their abiding political faith in Bush, deficit spending, and the miracle of tax cuts. Sure, on the face of it, returning stolen goods to their owners is a good thing for the robbed and the economy in general. The problem lies in what is unseen: the hidden theft/tax of inflation, which finances deficit spending. Congress, as you know, is spending so much more than the treasury collects in revenues. Could this malpractice possibly have (gasp) wider repercussions?!

Some “Texas Straight Talk” will help complete the picture.

Update: Wouldn’t you know it, “his Holiness Alan Greenspan, who can’t stand not being in the spotlight” (as a friend put it), shot his gob off about a recession on Sunday, and voila: the market reacted. Greenspan’s Delphic pronouncement contributed to a stock-market decline. The man should be muzzled!

Updated: ‘Inflation 101 for Women Pundits & Other Tyrants’

Economy, Media, The Zeitgeist

“Libertarians have a keen appreciation of how governments monkey with the money supply. This is but one of the reasons principled libertarians abhor the optional war pursued in Iraq. By and large, the war accounts for the $9 trillion in national debt. It’s a debt that has been increasing ‘average of $1.47 billion per day since September 29, 2006.’ At the time of writing, every one of us owes $28,921.”

“Yet, never once have the war harpies and their hombres in the ideological trenches indicated they comprehend how and WHO is paying for all this. I know they believe we’re not being taxed in lieu of the debt, a faith they base on Bush’s promise not to raise taxes…”

Here’s hoping that “Inflation 101 for Women Pundits & Other Tyrants” —a primer about inflation at home and hyperinflation in Zimbabwe—will persuade ‘the distaff side of the commentariat,’ especially, to stop whooping it up for war.

Update: Related reading: “Lethal Weapons: Neocon Groupies“

Bush Babbles About Government Job Creation

Bush, Economy, Government

From last Night:

The Iraqi government will spend $10 billion of its own money on reconstruction and infrastructure projects that will create new jobs.

Question: The Iraqi government has its own money? $10 billion of it?

In any event, government job creation schemes are predicated on government taxing, borrowing or inflating the money supply. Such programs are politically popular because they are visible. However, for every job “created” by government, an unidentifiable job will, tit-for-tat, be destroyed in the private sector.

Fox News, keen to hype this good-news story, may broadcast images of earnest Iraqi men and women put to work by Nuri Kamal al-Maliki (read the American taxpayer). Invisible will be those thrown out of work because private economic activity has been crowded out by taxing or borrowing to finance these job programs. Government borrowing (and Iraq is all about borrowing: American borrowing) serves to reduce capital available to the private sector (Iraqi, American—your choice, whoever you believe is really funding this latest scheme). A further diminution of assets occurs when government expands the money supply and causes inflation in order to finance job creation schemes.

Creating good, long-lasting employment lies in producing goods or services for which there is a legitimate consumer demand. A rise in consumer demand for a product, reflected in relative higher prices, galvanizes business to hire more workers and produce more of the commodity. Hence jobs in the private sector are real jobs because they are sustained by consumer preferences. Unsustainable government make-work schemes merely usurp the wishes and needs of consumers, and substitute them with the fancies of bureaucrats, who, in turn, are beholden to their political masters.

Sustainable jobs in Iraq will be created by the private sector. For that, ordinary Iraqis require peace and the rule of law. These preconditions are unlikely in the chaos of a civil war, created by Bush’s adventure in the region.

Bush remains oblivious to an immutable principle, once understood by conservatives: Top-down central planning—economic or political—is doomed to fail.