stimulus

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Why We Should Build The Death Star

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In January 2012, Zero Hedge made a sarcastic proposal to boost US GDP by $852 quadrillion — building the Death Star, a fictional moon-sized space station from the Star Wars film series:

Building a massive space weapon is all very well, but you have to find the materials to build it with. It’s easy to say that “sure, the Death Star would be expensive” but is there actually enough iron in the Earth to make the first Death Star? Centives decided to find out.

We began by loo king at how big the Death Star is. The first one is reported to be 140km in diameter and it sure looks like it’s made of steel. But how much steel? We decided to model the Death Star as having a similar density in steel as a modern warship. After all, they’re both essentially floating weapons platforms so that seems reasonable.

Scaling up to the Death Star, this is about 1.08×1015 tonnes of steel. 1 with fifteen zeros.

Which seems like a colossal mass but we’ve calculated that from the iron in the earth, you could make just over 2 billion Death Stars. You see the Earth’s crust may have a limited amount of iron, but the core is mostly our favourite metal and is both very big and very dense, and it’s from here that most of our death-star iron would come.

But, before you go off to start building your apocalyptic weapon, do bear in mind two things. Firstly, the two billion death stars is mostly from the Earth’s core which we would all really rather you didn’t remove. And secondly, at today’s rate of steel production (1.3 billion tonnes annually), it would take 833,315 years to produce enough steel to begin work. So once someone notices what you’re up to, you have to fend them off for 800 millennia before you have a chance to fight back. In context, it takes under an hour to get the steel for HMS Illustrious.

Oh, and the cost of the steel alone? At 2012 prices, about $852,000,000,000,000,000. Or roughly 13,000 times the world’s GDP.

The point was one against fiscal stimulus — while it may be possible to boost GDP by any amount through government spending, there is no guarantee whatever that that government spending will do anything productive. After all the toil and effort of building a Death Star what is an economy left with? On the surface of things, a giant metallic orb in space and very little else. In Misesian terms, this would be seen as a massive misallocation of capital, resources, labour and technology, building something that nobody in the market demanded and which could be ostensibly used to oppress people (“do what we say or we’ll fire our laser cannon at you!”).

Yet, I am going to try to defend it. I think that building the Death Star, or something similar is a very good idea and would have massive beneficial economic effects for employment, output, science, technology and so forth. And furthermore, I think it is possible in the very, very long run for a government to build the Death Star or something similar of a smaller scale without misallocating any capital, labour, technology or resources whatever.

First, I think that right now humanity is sitting in dangerous territory. There are over seven billion of us, yet we are all concentrated on one ecosystem — the Earth, with one tiny totally-dependent off-planet colony (the International Space Station) that houses less than ten people at a time. Simply, in our current predicament we are incredibly exposed. A single mass viral pandemic, asteroid strike or other cataclysm could completely wipe our species out. With humanity spread throughout the solar system (and preferably, the galaxy and the universe) our species is far less fragile to random extinction events. The Death Star itself — a giant space weapon — would be a safeguard against a particular kind of cataclysmic risk, that of hostile alien attack. If there are other advanced lifeforms populating our universe, they may see life on Earth and especially humans as an existential threat. Having a large, powerful weapon like a Death Star could be a strong safeguard against our own destruction by other species.

Zero Hedge’s mock proposal is actually quite thin, only taking into account the resource cost of the steel, and not the cost of getting the steel into space, building a moon-sized steel satellite in space, presumably including the development of laser cannon technology, some kind of propulsion system, the feeding and housing of a large permanent crew including oxygen and water recycling facilities, hydroponics and artificial food technologies, a transport system to get people and things between the Earth and the Death Star, etc. Nor does it take into account the cost of the labour in employing scientists and technologists to develop and prototype the technologies, employing engineers to deploy the technology, and employing labourers or automated robots to produce components and parts and to assemble the finished article. Simply, the cost would far exceed even what Zero Hedge projects, possibly by many times over.

So why the hell would I think that committing to spend vastly more than global GDP on a single project that nobody in the market is demanding is a good idea? Have I completely lost my mind, and any concept of sound economics that I once had? Well, on a potentially infinite timeline, such a huge figure (let’s say the necessary figure is ten times what Zero Hedge estimated, which could still be rather low in my honest opinion) pales into insignificance as we go further along the timeline. Building the Death Star is not currently a short term project that could be done to boost GDP in a single year to make up an output gap, deploy idle capital or reduce unemployment. In fact even if we committed to building the Death Star today, it is highly unlikely that we would actually even begin work on it in the next 100 or even 200 years. There would be vast technological, social and organisational challenges ahead before we could even begin to think seriously about commencing production. What we would begin work on are challenges far more modest and far closer to our present capabilities — sending a human to Mars, setting up a permanent base on the moon, setting up a permanent base on Mars, and developing technologies for those purposes — specifically multi-use lifters, a space elevator, improved solar energy collection and storage, improved nuclear batteries, improved 3-D printing technologies, higher energy particle accelerators, space mining technologies, robots, machine learning, computing, life support systems and things as mundane as increased science and science education spending.

Those kinds of tasks are much, much, much lower cost than actually committing to building the Death Star in one go, and can relatively easily be funded from presently idle resources (thus not misallocating any resources) as measured by the output gap which currently sits at around $856 billion (5.8% of potential GDP). The United States (alongside like-minded countries with similarly large output gaps) could fund a manned mission to Mars ($6 billion), build a new high energy particle accelerator ($12 billion), give ten-thousand million-dollar basic research grants ($10 billion), build a base on the Moon ($35 billion) and invest $20 billion more in science education for less than 10% of the current output gap. Better still, NASA and space-related spending historically has a relatively high multiplier of at least $2 (and possibly as much as $14 for certain projects, as well as a multiplier of 2.8 jobs for every job directly created) of extra economic activity generated per dollar spent. Given that space-spending yields new technologies like global positioning systems, satellite broadcasting, 3-D printers and memory foam that lead to new products, this is unsurprising. It also means that such spending is likely to get the economy back to full employment more quickly. Once this round of projects is completed, we will have a better idea of where we need to go technologically to be able to build a Death Star. The next time the economy has a negative output gap and unemployment, a new series of large-scale projects can commence. Eventually, with the growth of technology, automation and knowledge, a project on the scale of the Death Star may become not only economically viable but a valuable contribution to human capacity.

Many free market purists will wonder what the point of all of this is. Didn’t the Soviet economy collapse under the weight of huge misallocation of capital to large-scale grandiose projects that nobody wanted? What about all the projects that could have been undertaken by the free market in the absence of such a grandiose project?  My answer to this is twofold — first of all, I am only proposing deploying idle resources that the market has chosen to allow to sit idle and unproductive for a long time. Second, there are some projects that are actually important but which are not currently viable in the market. Space technology is probably the most obvious example. While I greatly admire the new generation of space entrepreneurs, and while I concede that long-term space colonisation will be undertaken be private individuals and groups (in the manner of the Pilgrim Fathers who colonised America — people seeking the ability to live by their own rules, instead of those of established Earth-based jurisdictions) the private space industry is still a long way behind where states were forty or fifty years ago. The Apollo program that put human beings on the Moon has still not been matched by private enterprise.

Ultimately, the Death Star itself is far beyond current human capacities, and far beyond the capacity of the idle capital, labour and resources that we have the option of using up through public initiatives. This I must concede. But, as a super-long-term goal, the capacity to build such things is what our civilisation ought to aspire to. And getting to such super-long-term objectives requires investment and investigation today.

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Paying For Our Past Sins

Michael Kinsley’s argument for immediate austerity is about “paying for our past sins”:

Krugman also is on to something when he talks about paying a price for past sins. I don’t think suffering is good, but I do believe that we have to pay a price for past sins, and the longer we put it off, the higher the price will be. And future sufferers are not necessarily different people than the past and present sinners. That’s too easy. Sure let’s raise taxes on the rich. But that’s not going to solve the problem. The problem is the great, deluded middle class—subsidized by government and coddled by politicians. In other words, they are you and me. If you make less than $250,000 a year, Obama has assured us, you are officially entitled to feel put-upon and resentful. And to be immune from further imposition.

Austerians don’t get off on other people’s suffering. They, for the most part, honestly believe that theirs is the quickest way through the suffering. They may be right or they may be wrong. When Krugman says he’s only worried about “premature” fiscal discipline, it becomes largely a question of emphasis anyway. But the austerians deserve credit: They at least are talking about the spinach, while the Krugmanites are only talking about dessert.

To Kinsley, austerity is the necessary spinach. I don’t really understand this. In the United States a crisis in shadow finance spread into the banking industry leading to a default cascade throughout the financial system, which resulted in a wider crisis throughout the economy, and ever since 2008 even after the banking sector was propped-up, unemployment throughout the wider economy has been rife, economic output has fallen far below its long-term trend line, and bank deposits are soaring as the weak economy has damaged confidence and convinced possessors of money to save and not spend or invest.

So many activities in the boom — from home speculation, to NINJA loans, to subprime securitisation, and ultimately the 40-year cycle of total credit growth that led to the Minsky Moment in 2008 — proved unsustainable. But a huge cost has already been paid for those unsustainable activities in the form of the initial crash, and depressed growth, and unemployment, etc. The structure of production has been irrevocably changed by the bust. But are the people suffering the unemployment, the depressed real wage growth, etc, the people who created the total debt growth? No, of course not. Any connection is arbitrary — the people creating the credit default swaps and structured securitised products (ABS, MBS, etc) and NINJA loans that triggered the banking crises in many cases have kept their jobs and been promoted. Certainly, some bankers like Dick Fuld who were involved in creating the crisis lost their jobs, but while people who had nothing whatever to do with the banking crisis have lost their jobs or worse have never even got a job.

So who does Kinsley want to consume the spinach? The people who take the hit to their purchasing power in an austerity program aren’t the ones who caused the financial crisis. Perhaps financial regulators and central bankers were to some degree responsible, but the overwhelming majority of people dependent on government income had nothing whatever to do with financial regulation. Though certainly one side-effect of the crisis has been falling tax revenues, which has meant bigger deficits. But structural deficits are actually relatively low, and nominal deficits are rapidly falling. And the actual interest rate cost of servicing the deficits are at record lows and with current soaring savings levels, unlikely to start rising anytime soon. So any appearance of a deficit problem is a side-effect of a depressed economy. Ultimately, austerity will reduce the government’s use of resources — capital, and labour. And what is the problem with the economy at the moment? Slack resources in capital and labour to such an extent that interest rates are at record lows and unemployment is very high. Kinsley’s “spinach” has nothing whatever to do with the problem. In the long run, once the economy is at full-employment and businesses are booming, and interest rates have risen some austerity will be helpful, not least to take the edge off the boom. But why now? Immediate austerity is iatrogenic medicine — misidentifying the problem, and prescribing a cure that harms the patient.

In my view a bust after an economic boom may be to some degree be unavoidable as an artefact of human psychology. Ultimately, we should remember that a credit-driven boom isn’t a sign of overproduction of goods and services, or a society living beyond its means. After all, the demand for goods and services really existed, and the capacity for the production and use of goods and services really existed. Humans are excitable animals, prone to strange twinges  of spirit both in mania and depression. The business cycle delivers the dessert and the spinach in recurrent cycles. Actions have consequences, and the actions leading into the slump have had huge consequences. But what about our present sins? Having the government force more spinach onto a society already suffering from massive unemployment of people, resources and capital is a strange and cruel prescription. We have already had our spinach in the crash of 2008 and the following slump. Huge numbers of people are unemployed, or have dropped out of the labour force, or have not had the chance to enter the labour force. That is the spinach. If the economy was a man, spinach would be coming out of his ears. Michael Kinsley and his intellectual cousins want to offset spinach with more spinach. Yet the economy has much the same or higher pre-slump capacity for ice cream, and pizza and milkshakes and marshmallows. In the long run, society will rediscover its taste for economic growth, for income growth, and all the slack resources will be used up to produce things that people actually want and need. Yet that does not help the unemployed who have eaten plateful after plateful of spinach as a consequence of actions for which they were mostly not responsible. What could help the unemployed? Job creation and putting slack resources to use.

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When Is Austerity Necessary At The Treasury?

I have made clear in the past that I believe that the time for austerity at the Treasury is the boom, not the slump.

However this is a very general and non-specific definition. I want to be a little clearer and more specific.

First, I think it is important to define austerity. Government is a two-way street. It sucks in money through taxation, and it pushes out money into incomes through spending. Net government spending is the net of these two figures. Austerity in a technical sense happens when the change in net government spending turns negative either through spending cuts, or through tax hikes, or a combination of the two.

Second, I think it is important to specify that this is not a debate about the ideal size of government. This is a debate about the short-term government spending and taxation trajectory, which is a very different subject to one’s ideal size of government. It is possible to favour very small government in principle, but at times oppose austerity. It is also possible to favour large and expansive government, and at times support austerity.

Now, to be very clear: the time for austerity at the treasury is the time when government activity is crowding out the private sector. When does this occur? Well, the clearest example that I can think of are World War I and World War II. It is easy to imagine how government can smother the private sector in times of war; resources are centrally controlled and directed to the war effort, labour and capital are directed away from productive activities and toward fighting, toward building bombs and weapons to destroy things. There is little slack in the economy, as in total war the state commandeers as much of society as it possibly can toward the war effort. Notably, austerity programs that massively reduced the size of government following the two world wars were successful, and did not have a long-term downward impact on growth.

In peacetime, it is also possible for the government to crowd the private sector out of the economy, in a similar way. By commandeering large quantities of resources, labour and capital, governments can leave little for the private sector to use to create, build and invent.

The two most important parameters to determine whether a government is crowding out the private sector are labour markets and capital markets. In the broadest sense, the specific parameters are interest rates and the unemployment level. When the private sector is being crowded out in labour markets, unemployment falls to a low level, as the government is utilising all the slack. When the private sector is being crowded out in capital markets, interest rates rise to a high level, as the government is utilising all the slack.

Today, both in Britain and the United States unemployment is elevated (meaning labour is freely and readily available) and interest rates are very low (meaning capital is freely and readily available). First, Britain:

UKAusterityParameters

Second, the United States:

USAusterityParameters

What this means is that in a technical sense — and irrespective of one’s preconceived notions of the ideal size of government — government is not crowding out the private sector. There is plenty of slack in the economy in both labour and capital markets.

Yet in another sense — unrelated to spending — governments may be slowing private activity. By imposing high legal and regulatory barriers to entry, governments can slow business investment and prevent new businesses from forming, and the unemployed from becoming self-employed. Given the massive growth of legal and regulatory burdens in certain industries favouring only large and old competitors who can hire lots and lots of expensive lawyers, it is extremely likely the case that there are some negative effects. The OECD noted in 2006 that “administrative simplification and reducing administrative burdens are a very high priority for OECD member countries”, and red tape levels have grown in both sides of the Atlantic since then. I have repeatedly suggested that in the current economic environment governments ease the regulatory and legal burden for small and new businesses in particular to foster competition and lower unemployment.

However cutting back on red tape is a totally separate matter to fiscal austerity, which in the current environment by definition takes an economy with significant capital and labour slack, and creates even more slack.

The time for fiscal austerity at the treasury is a time of high or rising interest rates and low or falling unemployment, and especially when interest rates are higher than the unemployment rate. The reality is that most of the Western world has the opposite of that right now.

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Economists vs the Public

They don’t agree:

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My responses:

Question 1 — Agree

Economists in Sapienza and Zingales’ study resolutely agreed that it is hard to predict stock prices. A majority of the public agreed with the statement, but not so resolutely. Stock prices are the culmination of transactions between humans, and human behaviour is hard to predict because it is often irrational and informed by cognitive fallacies.

Question 2 — Agree, with a bitter taste in my mouth.

Economists were vastly more bullish on the stimulus’ effect on unemployment than the general public. And the data is actually quite unkind toward the economists’ view — the real unemployment path was far worse than the path projected by those in the Obama administration who promoted the stimulus. However, this is more of a symptom of the stimulus’ designers underestimating the depth of the economic contraction that the financial crisis caused. There is no doubt that the stimulus created jobs and lowered the unemployment rate in the immediate term. Whether the jobs created were really useful and beneficial — and to what extent the stimulus was a malinvestment of capital  — is another question entirely, and one which can only be answered in the long run.

Question 3 — Agree

Economists overwhelmingly agreed that market factors are the chief cause behind variation in petrol prices. The public agreed, but to a lesser extent. Presumably, the dissenting public and dissenting economists see government intervention as a more significant force? Certainly, the present global oil market is a precarious pyramid of supply chains balanced on the back of the petrodollar empire. But the market reflects these factors.  When governments start a war, that is reflected in the oil price. That’s a force that the market responds to. If a central planner was directly setting the oil price (rather than merely influencing it) — as is the case in communist countries — that would be a price determined by non-market forces.

Question 4 — Uncertain

Economists were broadly certain that a carbon tax is less costly than mileage standards. I think this is far too general a question. Without nuts-and-bolts policy proposals, it is not really possible to assess which would be more costly.

Question 5 — Uncertain, leaning toward Disagree.

This was the only question where economists and the public were largely agreeable — and economists were largely split. As I stated above, the “success” of the stimulus package can only really be assessed in the longer run, and even then there are difficulties with measurement. Generally, I suspect very much that the various interventions in 2008 onward have preserved and supported economically unsustainable and inefficient sectors and industries that ought to have been liquidated and rebuilt (especially the financial industry, but also other sectors, e.g. Detroit). Had the government in 2008 followed the liquidationary trend in the market, the slump would have been much deeper, unemployment would have risen much higher, but the eventual rebound may have been much quicker and stronger.

Question 6 — Agree

This is where economists and the public disagree the most. It is the point on which the public was the most bullish, and economists almost unanimously bearish. Economists in general seem to believe that what they define as free trade is best, even when it destroys domestic supply chains and drastically decreases manufacturing employment. To economists, this means that the American government should not discriminate against foreign products but buy for the best product and the best price. This ignores some important externalities. Buying American certainly supports American jobs, because money goes to American companies, and toward American salaries. This might foster inefficient and otherwise-unsustainable industries, but if the American public chooses to favour American products for their government, that is their right. And a strong domestic manufacturing base is no bad thing, either.

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Latvia Is No Success

Anders Aslund of the Peterson Institute is fairly certain that austerity during depressions works:

After five years of financial crisis, the European record is in: Northern Europe is sound, thanks to austerity, while southern Europe is hurting because of half- hearted austerity or, worse, fiscal stimulus. The predominant Keynesian thinking has been tested, and it has failed spectacularly.

The starkest contrasts are Latvia and Greece, two small countries hit the worst by the crisis. They have pursued different policies, Latvia strict austerity, and Greece late and limited austerity. Latvia saw a sharp gross domestic product decline of 24 percent for two years, which was caused by an almost complete liquidity freeze in 2008. This necessitated the austerity that followed.

Yet Latvia’s economy grew by 5.5 percent in 2011, and in 2012 it probably expanded by 5.3 percent, the highest growth in Europe, with a budget deficit of only 1.5 percent of GDP. Meanwhile, Greece will suffer from at least seven meager years, having endured five years of recession already. So far, its GDP has fallen by 18 percent. In 2008 and 2009, the financial crisis actually looked far worse in Latvia than Greece, but then they chose opposite policies. The lessons are clear.

The notion that Latvia is somehow a success story is just absurd.  Latvia has shed some ten percent of its workforce during the economic turmoil — that would be like more than 20 million people emigrating out of the USA, or 4 million people emigrating from Britain. This is why the unemployment rate has fallen somewhat.  And Latvia’s economy is still deeply depressed, far, far below its pre-crisis peak. Would we be calling Britain and America success stories if millions and millions of people were leaving and output was still far, far, far below its pre-crisis peak?

This video from last year shreds the notion of Latvia as some kind of austerity-driven paradise:

The truth is that the binary choice between stimulus and austerity is false. The real decision is how best to produce productivity, creativity, entrepreneurship and growth. It is possible to do this without any debt-fuelled stimulus, and without any immediate fiscal contraction, by (for example) attracting more foreign investment, using bailed-out banks to provide business finance to the unemployed, and deregulating small businesses and entrepreneurs.

The fiscal trick is in learning to cut spending during the boom — something which very few governments have ever mastered, but which is necessary for long-term fiscal sustainability. In the United States during the mid-2000s, tax revenues were high, and growth was moderately strong. This gave the Bush administration a false sense of leeway that allowed them to embark on massive debt-fuelled spending at precisely the wrong time, starting two wars, and creating large-scale domestic spending programs like Medicare Part D and No Child Left Behind. If the Bush administration had cut spending during the boom, not only would it have offset some of the potential for bubbles in housing and stocks, but it would have left the American government in a much stronger financial position come the downturn.

Yesterday’s prosperity didn’t last forever (leaving us with collapsed tax revenues, and massive budget deficits) and today’s depression doesn’t have to last forever either, so long as we have the courage to create the environment for small business and entrepreneurs to thrive, and then to cut, cut, cut during the next boom. Trying to balance the budget in the way Anders Aslund seems to endorse is a road to deeper depression, extreme unemployment, and potentially to millions and millions of people leaving to look for work elsewhere.

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The Unstimulus

If your predictions are wildly out-of-whack with reality, you need to change your approach.

Here’s a 2009 Obama administration graph authored by Jared Bernstein and Christy Romer showing their calculations for future unemployment levels with and without the Obama stimulus, updated by James Pethikoukis to show the actual figures:

These predictions have been an unmitigated disaster. Not only did the real figures not match up to the advertised ones, but they are also much worse than the baseline expectations. Romer and Bernstein appear to have both severely under-estimated the depth of the crisis, and over-estimated the effectiveness of the stimulus package.

The stimulus is a large and complex piece of legislation, and it sent lots of money to lots of different places. Money went both to projects like building roads and bridges, as well as to projects like Solyndra, and to many other kinds of projects. Here’s a rough breakdown (a deeper breakdown is available here):

To get the full picture, we need to look at the broad outcomes. So, who benefited in the wake of the stimulus?

Wages and salaries as a percentage-of-GDP in blue, corporate profits after tax as a percentage-of-GDP in red:

Obama might talk about spreading the wealth around, but the aggregate effect of the policies pursued during his administration have squarely benefited large corporations and the financial sector, and not the middle class or small business. Is reinflating financial bubbles and pumping up corporate profits Obama’s idea of recovery? The money isn’t trickling down, and small businesses and the middle class are more in debt than they were before the crisis started. Income inequality is soaring. The financial sector is richer than ever. American infrastructure is still crumbling. Housing starts are still deeply depressed, even as homelessness rises. And of course, employment is still deeply, deeply depressed. The stimulus didn’t get America working again. With a monstrous and broken financial sector still totally failing to provide adequate capital to Main Street, totally broken algorithm-driven markets that have alienated retail investors, and budget deficits that remain persistently high, this should surprise precisely nobody.

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Bubbling Up

We’re getting dangerously close to a head and shoulders pattern in both manufacturing output, and the S&P500:


What does this graph tell us? Well in the last ten years we have seen little net gain in either. Each of the two slowdowns has been preceded by a blowout top in the S&P. This is symptomatic of excessive credit creation in the financial sector. The resultant credit crunches coming out of these bubbles would seem to have dampened industrial production. Is that a result of the credit bubble damaging the economy? No; the aftermath of a bubble (so long as it is not accompanied by war, and riots, and famine — in other words, the explicit destruction of capital stock) does not necessarily damage anything other than lending and confidence.

Was it a case then that industrial production — which climbed significantly in the preceding decade — got ahead of itself, and that we were simply producing more than we could consume? It would seem so, and that would certainly explain why the exuberant first attempt to reinflate the bubble failed, and we were drawn into a slump. This brings my thoughts back to this:

Who needs 5 TVs? Well, nobody, and that is the level of consumptive, home-equity-fuelled demand that we were (and are) trying to sustain (and expand upon). For the record, I have 2 TVs, which in itself is probably excessive, especially considering that I rarely watch them.

Then again, there are millions of people in America who need healthcare who aren’t getting it, mostly because (for whatever reason) they can’t afford it. There are homeless kids whose parents have taken to eating rats. Surely that kind of demand would be more sustainable than another speculative stock bubble, another boom in consumption fuelled by home equity, and more TVs, McMansions, iThingies and vacations for urbanites and exurbanites?

I suppose it is that logic that leads well-meaning liberal politicians down the avenues of reflation: economic stimulus, as well as condoning the Fed’s money printing escapades. The problem is that the money always seems to end up in more speculative equity bubbles. I have shown empirically that the more money America has printed (both in terms of expanding the monetary base as well as in terms of fractional credit creation), the more unequal America has become.

This graph highlights the real outcome of all the Obama-Bush-Bernanke economic interventionism:


Corporate profits bounced back right away, while unemployment and underemployment are just as high as when the contraction “finished”. I have made a habit while writing this blog of badmouthing John Maynard Keynes, but at least under a genuinely Keynesian scheme the unemployed people are given jobs (albeit on borrowed money, and albeit not necessarily productive ones) and the unemployment rate falls. All we get today is platitudes about the unemployment rate being sticky; more hopium, more promises that if we just wait long enough and hope hard enough things will get better.

So all that the Obama-Bush-Bernanke interventionism has really produced is more slush for the corporatocracy. It’s just corporate socialism hidden behind a facade of pithy egalitarianism. There is no recovery, only superficial reflation bubbling over a stew of hurt.

And — like most head and shoulders patterns — this third top is even more unsustainable than the last two.

Want proof?


Credit creation has continued to expand above and beyond the productive capacity of the economy. That is a bubble, if ever I saw one.

So what next? Well — like most head and shoulder patterns — the final “shoulder” tends to be followed by a crash. Now, I recognise we are not dealing with an equity, so the crash may not be in terms of price level. It may be geopolitical, or inflationary, or ecological, or some black swan. It may be this year (moderately unlikely, but plausible) or sometime down the line. Who knows?

Hold onto your seats.

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The Cost of Obama’s Stimulus

The cost of Obama’s latest jobs program is in — and it’s costly.


From the Daily Bail Zero Hedge:

The report was written by the White House’s Council of Economic Advisors, a group of three economists who were all handpicked by Obama, and it chronicles the alleged success of the “stimulus” in adding or saving jobs. The council reports that, using “mainstream estimates of economic multipliers for the effects of fiscal stimulus” (which it describes as a “natural way to estimate the effects of” the legislation), the “stimulus” has added or saved just under 2.4 million jobs — whether private or public — at a cost (to date) of $666 billion. That’s a cost to taxpayers of $278,000 per job.

So that’s $250,000 per job, before interest expense.  Wouldn’t it be better just to have a free national lottery and mail $200,000 checks to a lucky 1.9 million people?  

Those workers aren’t going to be getting $250,000 in wages. So where’s the money going? My estimate is bureaucracy, overheads, “administration”, and Obama’s cadillac.

Continue reading →

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Gibson Guitars: A Great American Company

Is over-regulation killing American industry? From NPR:

In the hottest part of an August Tennessee day last Thursday, Gibson Guitar CEO Henry Juszkiewicz stood out in the full sun for 30 minutes and vented to the press about the events of the day before.

“We had a raid,” he said, “with federal marshals that were armed, that came in, evacuated our factory, shut down production, sent our employees home and confiscated wood.”

The raids at two Nashville facilities and one in Memphis recalled a similar raid in Nashville in November 2009, when agents seized a shipment of ebony from Madagascar. They were enforcing the Lacey Act, a century-old endangered species law that was amended in 2008 to include plants as well as animals. But Juszkiewicz says the government won’t tell him exactly how — or if — his company has violated that law.

Continue reading →