The False Choice between “Austerity” and Economic Growth

It is time the Keynesians recognize their failures and spare humanity the prolonged agony of economic malfunctioning

By James C. W. Ahiakpor

Keynesianism, with its emphasis on aggregate demand management to promote economic prosperity, has proven to be an abject failure since 2008 in the United States and elsewhere. President George W. Bush’s tax cuts in 2008 and the subsequent bailout of investment banks before President Barack Obama took office were in the Keynesian mold of promoting spending to sustain economic activity. President Obama’s various forms of stimulus expenditures were similarly motivated, and they have not produced the promised results. Ignoring the evidence, adherents of Lord Keynes’s view of how an economy works have changed their language from touting the virtues of economic stimulus to posing a false choice between austerity budgets and economic growth.

Such change of language apparently was influential in the last presidential election in France, when Nicolas Sarkozy lost to socialist Francois Hollande, who touted the virtue of growth promotion over austerity, or fiscal discipline. The same false choice was touted in the June Greek elections but without a decisive victory for the socialist growth promoters. The contrast between government budgetary discipline and economic growth promotion through increased government spending is sure to become pronounced in the U.S. election campaign. That is why the meaninglessness of the alleged alternatives needs to be exposed: Austerity budgets are the logical means of restoring economic growth; austerity and growth promotion are not alternatives. The failure of governments to promote robust economic recovery since the “Great Recession” will persist if a majority of the voting public is lured into thinking that voting against austerity is a vote for economic growth.

Hegel: The State as God's Will

Hegel: The official philosopher of the state

by Murray N. Rothbard

Typically, determinist schema leave convenient implicit escape hatches for their creators and advocates, who are somehow able to rise above the iron determinism that afflicts the rest of us. Hegel was no different, except that his escape hatches were all too explicit. While God and the absolute refer to man as collective organism rather than to its puny and negligible individual members, every once in a while great individuals arise, "world-historical" men, who are able to embody attributes of the absolute more than others, and act as significant agents in the next big historical Aufhebung — the next great thrust into the man-God or world-soul's advance in its "self-knowledge." Thus, during a time when most patriotic Prussians were reacting violently against Napoleon's imperial conquests, and mobilizing their forces against him, Hegel reacted very differently. Hegel wrote to a friend in ecstasy about having personally seen Napoleon riding down the city street: "The Emperor — this world-soul — riding on horseback through the city to the review of his troops — it is indeed a wonderful feeling to see such a man."[1]

Why good men do not become president

Successful candidates must hide their true beliefs, assuming they have any

By Ryan Young

To hear President Barack Obama’s supporters tell it, his challenger in this year’s presidential contest, former Massachusetts Governor Mitt Romney, is an out-of-touch plutocrat mainly concerned with becoming president. According to Governor Romney’s supporters, the president is an out-of-touch elitist whose main concern is staying in the White House. They’re both right.

After all, what sane person would want a job that destroys your privacy, makes it impossible for you to go out on the street, subjects your family to intrusive media scrutiny, forces you to watch everything you say, and drives some people to want to take a shot at you? Apparently someone who feels that the power that comes with the office is worth the attendant indignities.

“Great men are almost always bad men,” Lord Acton famously said. “There is no worse heresy than that the office sanctifies the holder of it.” Indeed, good men rarely run for president. And when they do, they rarely win. An honest man stands no chance against a Lyndon Johnson or a Richard Nixon. Yes, one slips through the cracks now and then. We could use Grover Cleveland’s restraint in handling the economic crisis today. I have a particular fondness for Calvin Coolidge, who conspicuously lacked the pathological need for attention that characterizes most officeholders.

Drugs: The Good, the Bad, and the Ugly

The FDA is a government a rule-driven bureaucracy, rather than α market-driven institution

by Mark Thornton

The senseless Batman killings in Aurora, Colorado, as well as those that occurred years earlier in Columbine a few miles away, have something in common with the number one cause of overdose deaths in the United States and an important potential cause of teen suicide: prescription drugs approved as safe and effective by the Food and Drug Administration (FDA).

As an Austrian economist, I am not saying that FDA-approved drugs "caused" these problems. The people who took those drugs and did those things are the people who "caused" those bad outcomes. What I am saying is that the FDA is guilty of manipulating information and people's choices and thereby contributes to all these negative outcomes.[1] I am also not saying that all FDA-approved drugs are inherently harmful, ineffective, or should never be used.

Most importantly, FDA-approved drugs and products help to make Americans fatter, weaker, dumber, sicker, poorer, and in general less healthy. We have been lulled into substituting prescription drugs for healthy lifestyles. "You don't need to correct unhealthy conditions in your life, just take this pill everyday for the rest of your life. The experts at the FDA have approved it and your doctor has advised you to take them." Collectively, this process is unconscionable, even though it is now considered normal.

As the pharmaceutical and medical industries pile up cash, the health crisis grows and spreads across the country. This is the irrational world created by the FDA. This powerful government bureaucracy, coupled with massive government monopolies (e.g., the American Medical Association, drug patents, certificates of need for hospitals), direct government subsidies such as Medicare and Medicaid, and indirect subsidies for comprehensive health insurance, etc., have combined to give America the most expensive medical industry and the least healthy population in the advanced world.

Spending Isn’t Production

Economic growth depends on more than just increasing demand

By ROBERT P. MURPHY

A recent NYT column by Paul Krugman showcases exactly what is wrong with mainstream Keynesian economics. Krugman takes a JP Morgan note claiming that the iPhone 5 would boost economic growth, then concludes that the analysis proves that bigger government deficits are a good thing. As we’ll see, the only thing Krugman has proved is that he’s committed a basic error, in confusing actual economic growth with a mere statistical artifact.

Let’s first establish Krugman’s case. After telling his readers that analysts have suggested that the iPhone 5 might provide a “significant boost to the U.S. economy,” Krugman went on to argue:

Do you find this plausible? If so, I have news for you: you are, whether you know it or not, a Keynesian—and you have implicitly accepted the case that the government should spend more, not less, in a depressed economy.

…

A recent research note from JPMorgan argued that the new iPhone might add between a quarter- and a half-percentage point to G.D.P. growth in the last quarter of 2012.…

Last of the Sentimental Stalinists

On the passing of Eric Hobsbawm

BY THEODORE DALRYMPLE

Eric Hobsbawm, who died Monday at 95, was the last of the sentimental Stalinists. He was one of the most famous British historians of the twentieth century, and his books sold worldwide by the hundreds of thousands. In Brazil, for example, he achieved an astonishing celebrity.

He was a gifted prose stylist and very learned. His principal and most significant characteristic, however, was intellectual dishonesty characteristic of the age in which he grew to maturity. He made the choice for Soviet Communism, for perhaps understandable personal reasons, at 14, and remained true to his choice for 81 years, long after there ceased being any possible excuse for doing so. At least no one could accuse him of being a turncoat: he supported a radical form of evil from his early adolescence to his late senescence.

French Economy Implodes

You reap what you sow

Final Markit France Services Activity Index at 45.0 (49.2 in August), 11-month low. 

Final Markit France Composite Output Index at 43.2 (48.0 in August), 42-month low.

by Mike "Mish" Shedlock

As expected, at least in this corner, the French economy has started to implode. Service sector business activity is dropping at fastest rate since October 2011.

More importantly, the Markit Composite PMI sports the steepest rate of contraction since March 2009 with job losses accelerating at the fastest pace in 33 months and output plunging at the fastest rate in 42 months.

Summary:

French service providers reported a steeper decrease in business activity during September. The latest fall in activity reflected a considerable drop in incoming new work. Companies adjusted staffing levels down accordingly, leading to an accelerated drop in employment. Input prices rose at a sharper rate but output charge discounting gathered pace, highlighting a deepening squeeze on companies’ margins. Future expectations meanwhile dipped into negative territory for the first time since February 2009.

Growth By Tax Hikes – Only in France

Curdled Sauce Hollandaise

Mountebank meets steel workers and promises to upend economic laws in their favor.

by Pater Tenebrarum

French president François Hollande continues to fulfill his election promises – promises that in essence amounted to the modern-day equivalent of a rain dance: the expectation to get desirable results from implementing policies that fly into the face of rational thinking.

In Hollande's case, it is all about fixing France's deteriorating deficit and nose-diving economy by blithely ignoring economic laws. In many respects his plans are not much different from those many other European governments have pursued, although his program has proved a good sight more radical.

According to Bloomberg:

“President Francois Hollande’s first annual budget raised taxes on the rich and big companies and included a minimum of spending cuts to reduce the deficit.

The 2013 blueprint relies on 20 billion euros ($26 billion) in tax increases, including a levy of 75 percent on incomes over 1 million euros, and eliminating limits on the wealth tax. Hollande aims to reduce spending by 10 billion euros, bringing the deficit to 3 percent of output from 4.5 percent in 2012. The budget predicts growth of 0.8 percent.

Untold Misery on the Iranian People

Hyperinflation Has Arrived In Iran

by Steve H. Hanke

Since the U.S. and E.U. first enacted sanctions against Iran, in 2010, the value of the Iranian rial (IRR) has plummeted, imposing untold misery on the Iranian people. When a currency collapses, you can be certain that other economic metrics are moving in a negative direction, too. Indeed, using new data from Iran’s foreign-exchange black market, I estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation.

Eric Hobsbawm and the tragedy of the left

Hobsbawm’s 19th century histories were enlivened by his Marxism, his 20th century were corrupted by his Stalinism

by James Heartfield 
Eric Hobsbawm’s great gift was to the written history of the nineteenth century.

Having come to Britain from Vienna, the young communist from a well-to-do Jewish family signed up for service in the British Army, echoing Stalin’s claim that Churchill was fighting for democracy. When the British Empire was restored, communists like Hobsbawm were stung to find that they were targeted as the red menace. While some worked at getting a foothold in the trade unions, a small band of university-educated communists got jobs as teachers, and lecturers if they could.

Among them, an historians’ group started to work, led by AL Morton and Dona Torr, champions of what they called ‘people’s history’, later called ‘history from below’. Morton and Torr were solid Communist Party propagandists who burrowed into the papers and journals of working-class activists to tell a story of the steady progress of the labour movement - from the Corresponding Societies to the Chartists, craft unions and then the new model unions of the industrial working class, with the Communist Party treated as the proper inheritor of that tradition.

The Audacity of Hopelessness

"Government is the only thing we all belong to." 

By Mark Steyn

According to the New York Times, "the magic is gone." According to the New York Post, "the thrill is gone." And yet, according to the polls, he isn't a goner. Even if you shave off two-three-four points for Democrat over-sampling and other pollster malarkey, the unmagical non-thrilling President Obama remains remarkably competitive.

Which means that if he wins we won't have the same excuse as we did last time. In 2008, Senator Obama was lucky, as he has been all his political life: a global downturn, war-weariness, a Republican opponent who even in his better moments gave the strong impression that honor required him to lose . . . These and various other stars all aligned for him. But he himself was the biggest star of all: a history-making candidate, a messianic figure and not merely a national but a planetary healer. Not all of us bought into it even then: I saw him on the stump just the once and thought the silver-tongued orator was a crashing bore. Couldn't see what the fuss was about. But fuss there was. It's one thing if the Republican loses to a thrilling, magical superstar; it's quite another if the Republican loses to a mean, petty, leaden, boring, earthbound hack who hasn't lit up a room in years. In 2008, the American people said: We like this guy. In 2012, they'd be saying: We like these policies. That's far more disturbing.

The Real Reason Behind War

War is the Health of the State

by James E. Miller

To mark the 11 year anniversary of the Afghanistan occupation, the death toll for the U.S. military reached two thousand.  The soldier who had the misfortune of both dying and becoming a stark symbol of America’s longest running war died under unusual circumstances.  Instead of being killed while on patrol, the unnamed soldier was the victim of an “apparent insider attack” that was conducted by American-backed Afghan forces.  This latest incident comes one week after an announcement by NATO that it would scale back its operations with Afghan security forces after a spike in insider attacks.  At the time of the announcement, a total of fifty one NATO troops had been killed by soldiers wearing Afghan uniforms.

This upsurge in violence committed by supposed allies remains a challenge to the U.S. military which is attempting to arm and train a suitable domestic security force to leave behind as the troop drawdown deadline of late 2014 approaches.  As the Associated Press reports, the internal attacks are “undermining the mantra that both sides are fighting the Taliban “shoulder to shoulder.””

Eight Signs The System Is Broken

Interesting little facts

by Simon Black

Here are a few interesting tidbits to chew on:

1) In the land of the free, there are now more than 760 incarcerated inmates for every 100,000 citizens. This is more than 5x the 1980 average, and it far surpasses the number (560 per 100,000) that Stalin threw in the Gulag at the peak of Soviet terror.

2) Apparently, Americans are getting more interested in snitching on each other. According to Google Trends, internet searches for terms such as “IRS reward” (and related keywords) have exploded since 2008, and especially this year.

Eric Hobsbawm and the Totalitarian Double Standard

A remarkable historian has died -- but does it matter that he was a Stalinist?

By PAUL GOTTFRIED

The death of Marxist historian Eric Hobsbawm at the age of 95 two days ago set me down memory lane. The one time I met this illustrious historian was when Gene Genovese (who predeceased Hobsbawm by just a few days) introduced him to me at a meeting of the American Historical Association in Boston in 1969. I had just given a critical rejoinder to a plea for a “humanistic Marx,” who had suffered from 19th-century German anti-Semitism. In my response, I suggested that Marx himself had been virulently anti-Semitic but that if one accepted his historical analysis his personal prejudices should not seem important. After all, Marx was trying to explain the course of human history and planning for a revolutionary future. He was “not competing for the ADL liberal of the year award.” It seems Hobsbawm, who was a dedicated member of the English Communist Party, agreed with my sentiments and expressed concern about “the exotica being produced by idiosyncratic, would-be Marxists.” Thereupon I took a liking to this dignified gentleman in a three-piece suit, who had learned splendid English after growing up in Vienna. He may have been a commie but he was clearly no bleeding-heart leftist.

Whatever Happened to Civil Liberties?

Under Obama, Democrats have embraced the national security state

By JACK HUNTER

During a scene in the 2006 Oscar-winning movie “The Departed,” Martin Sheen’s cop character points at government agents who are working with police during a sting operation and remarks: “All cell phone signals are under surveillance, due to the courtesy of our federal friends over there.” Alec Baldwin’s cop character then slaps the back of a fellow officer in glee, exclaiming: “Patriot Act, Patriot Act! I love it, I love it, I love it!”

I considered this scene to be a Hollywood liberal dig at then-President Bush, whose Patriot Act legislation was considered an assault on civil liberties by the left. At the time, liberals’ greatest beef with Bush was unquestionably on the issues of foreign policy and civil liberties — with the warrantless wiretapping and government eavesdropping permitted by the Patriot Act at the top of the list.

But that was then.

Spain ready for bailout, Germany signals "wait"

The German U-turn has convinced the Spanish they could end up in the same position as Greece

By Julien Toyer

Spain is ready to request a euro zone bailout for its public finances as early as next weekend but Germany has signalled that it should hold off, European officials said on Monday.

The latest twist in the euro zone's three-year-old sovereign debt crisis comes as financial markets and some other European partners are pressuring Madrid to seek a rescue programme that would trigger European Central Bank buying of its bonds.

"The Spanish were a bit hesitant but now they are ready to request aid," a senior European source said. Three other euro zone senior euro zone sources confirmed the shift in the Spanish position, all speaking on condition of anonymity because they were not authorised to discuss the matter.

German Finance Minister Wolfgang Schaeuble has said Spain is taking all the right steps to overcome its fiscal problems and does not need a bailout, arguing that investors will recognise and reward Spanish reforms in due course.

If You Prop Up An Artificial Economy Long Enough, Does It Become Real?

Does carefully nurturing a facade of health actually lead to health? 

by Charles Hugh Smith

The policy of the Status Quo since 2008 boils down to this assumption: if we prop up an artificial economy long enough, it will magically become real. This is an extraordinary assumption: that the process of artifice will result in artifice becoming real.

This is the equivalent of a dysfunctional family presenting an artificial facade of happiness to the external world and expecting that fraud to conjure up real happiness. We all know it doesn't work that way; rather, the dysfunctional family that expends its resources supporting a phony facade is living a lie that only increases its instability.

The U.S. economy is artificial in three important ways:

1. The Federal Reserve has distorted the market for borrowing capital by reducing interest rates to zero. Those holding capital (savings) receive essentially zero interest income while favored borrowers (banks and large corporations) can pursue marginal-return speculations for free (when measured in real terms), creating systemic moral hazard of the most pernicious sort.

To treat your facts with imagination is one thing, but to imagine your facts is another

The ECB: The Missing Assets/Liabilities

By Mark J. Grant

Yesterday I published the assets/liabilities of the European Central Bank as provided by them. I provided some analysis that I thought was relevant as I also asked all of you to look at the numbers yourself. To be quite open; I was stunned by the data they provided and shocked by the implications. I had not seen the data in any other source or commented about by anyone and the subject, while admittedly complex, and perhaps made more complex by design, is a huge wake-up call for anyone investing in Europe.

The ECB lists, as of the end of the 1st quarter of 2012, 16.304 trillion Euros ($ 21.032 trillion) in assets and 17.334 trillion Euros ($22.631 trillion) in liabilities. It is right there in black and white as I showed in the ECB provided data that I presented yesterday. However when you get to their consolidated balance sheet you find the numbers they bandy about in public to be a ledger of 3.240 trillion Euros ($4.00 trillion) and you catch your breath and pause. Utilizing normal American accounting practices this variance would be impossible and yet here it is; staring us all right in the face.

“Europe has put a ‘stop payment’ on our reality check!”

                                                                                        -The Wizard

The US Is A Debt Meth Addict

Unless The Fiscal Gap Is Closed Soon "The Damage Will Be Beyond Repair"

The highlights from Bill Gross' latest monthly piece:

• Armageddon is not around the corner. I don’t believe in the imminent demise of the U.S. economy and its financial markets. But I’m afraid for them.
• The U.S. is no “clean dirty shirt.” The U.S., in fact, is a serial offender, an addict whose habit extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth. Uncle Sam’s habit, say these respected agencies, will be a hard (and dangerous) one to break.
• What the updated IMF, CBO and BIS “Ring” concludes is that the U.S. balance sheet, its deficit (y-axis) and its “fiscal gap” (x-axis), is in flames and that its fire department is apparently asleep at the station house.
• To keep our debt/GDP ratio below the metaphorical combustion point of 212 degrees Fahrenheit, these studies (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. An 11% “fiscal gap” in terms of today’s economy speaks to a combination of spending cuts and taxes of $1.6 trillion per year!
• To put that into perspective, CBO has calculated that the expiration of the Bush tax cuts and other provisions would only reduce the deficit by a little more than $200 million.

The “antiseptic” war

When Drones Decide to Kill on Their Own

By J. Michael Cole

It’s almost impossible nowadays to attend a law-enforcement or defense show that does not feature unmanned vehicles, from aerial surveillance drones to bomb disposal robots, as the main attraction. This is part of a trend that has developed over the years where tasks that were traditionally handled in situ are now operated remotely, thus minimizing the risks of casualties while extending the length of operations.