Category Archives: Economics

Miscellaneous economy stuff

The Obama Economy on the World Stage

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The World Economic Forum puts out annual reports reflecting the quality and freedom of the world’s national economies; their 2012 report is here, and Fox News has a brief summary here.

Here are some of those…highlights…reflective of the performance of the Obama administration’s economic policies.

  • Since 2008, the United States has slid from No 1 in the world in “global competitiveness” to No 7 this year.  Out-ranking us are Switzerland, Singapore, Finland, Sweden, the Netherlands and Germany.
  • We’ve slid from 41st to 54th in “public trust in politicians.”
  • We’ve fallen from 50th to 76th on government regulation.
  • On government debt, though, we’ve not fallen so far; we already were near the bottom: from 97th to 140th.

James Gwartney, Economics Professor at Florida State University has the right of it:

The slide in the global competitiveness report is almost certainly due to … policy-related factors[.]

Yet Democratic Presidential Candidate Barack Obama objects to serious reform.  He and his surrogates spent all of last week castigating those evil Republicans for their proposals that would address this slide, all while proposing nothing of his own.  Other than another cynically nebulous “promise” to cut our deficit [sic] by $4 trillion over the next four years.

Americans Are Just Too Stupid

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That’s what Democratic Presidential Candidate Barack Obama is telling us.  We’re too stupid to manage our own fiscal affairs, so we need Know Betters in Big Government to do for us.

He’s using this argument on Social Security, in particular.  As you know, Social Security will be out of money in just a few short years, dependent solely on cash flow—incoming payroll tax revenue from current workers—to pay current retirees, and that cash flow is only sufficient (barely) to pay around 75% of the current benefits.  That’s how well the Know Betters in Big Government have done for us so far.

Obama’s solution? He promises to fight the privatization of Medicare and Social Security:

We’re going to keep the promise of Social Security by taking the responsible steps to strengthen it.  And that’s not by turning it over to Wall Street.

There are two insults to our intelligence here.  One is that he actually thinks we believe that any plan to privatize either of these does so by “turning them over to Wall Street.”  The other is, as I said, that we cannot manage our own affairs—we must rely on Know Betters to take care of us.

Now, before going further into Obama’s contempt for our intelligence, it’s useful to summarize the actual plans put forward by the Republican ticket and thereby expose the dishonestly presented red herring that is Obama’s straw man.  With regard to Social Security itself, Romney/Ryan are looking to gradually increase the retirement age and to slow the growth in benefits for higher income future retirees—the changes would not affect current or medium-term future (those already 55 years old) retirees.

For the Medicare aspect of the Social Security system, they propose fixed payments to future retirees (i.e., those younger than 55; there would be no change here, either, for current or medium-term future retirees), initially set equal to current Medicare payouts.  These folks then could use these funds to shop around for their own health insurance coverage and keep the money they save if they buy a policy that costs less than these payments.  The resulting competition also will bring down the cost of such coverage and improve the quality of the policies offered (magnifying future savings) since these folks, now with skin in the game, will shop aggressively.  Or they could stay in the existing Medicare program, which would remain unchanged.

There’s very little privatization here; certainly, there’s not enough to suit me.

But why does Obama object even to this little bit?  After all, private accounts (to take an earlier suggestion from Republican Vice Presidential Candidate Paul Ryan, but which is not in the proposal actually on the table today), created from a diversion of one-third of a worker’s current payroll tax payment, would let these workers earn a greater rate of return on those tax payments than Social Security provides them.  This would achieve a number of things: for one, it would give the workers a considerable measure of responsibility for their own futures, and this would let them shop around for the best investments—driving costs down through competition.  For another, it would let those workers set aside money for their own future (and ultimately for their own families’ future) and not have it all diverted for the current retirement of utter strangers.  For a third, it would allow these workers to satisfy their own moral obligation to “seek their own happiness” and to not be burdens on strangers, except temporarily and in the most dire conditions.

Opponents—Obama—object to this individual responsibility and freedom.   He says private accounts would make then-retirees dependent on volatile stock and bond markets.  And the move to private accounts would incur large transition costs, because tax payments diverted to the accounts are needed to pay benefits for current retirees.

The last is just a crude sophistry.  Transition costs are, by their nature, temporary—they are not permanent like, for instance, the cost of a failed, bankrupt social security system.  Moreover, the transition costs, while large (every dishonesty has a measure of truth in it, in order to achieve an appearance of plausibility) actually are easily borne.  A flatter (I say flat) and broader-based income tax system will bring in more revenue for the government through that broader base, fewer (I say no) deductions, credits, and the like, and through sharply increased economic activity which will generate increased income to be taxed.  This excess [sic] revenue can be used both to cover the transition costs and to pay down the debt (and exclusively to pay that debt once the transition is complete).

But more than this, a population that isn’t beholden to—isn’t dependent on—the incumbents aren’t a power base for those incumbents.  Obama’s Social Security and Medicare plans are just crass bread and circus vote pandering.  And they won’t solve the impending failures of Social Security and Medicare.

But Obama thinks we’re just too stupid.  Too stupid to manage our own affairs and too stupid to see through his empty rhetoric to the lie underneath.

Jobs

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The latest Labor Department jobs report, as James Pethokoukis of AEIdeas noted, was especially dismal.  For one thing, there’s this:

The Labor Department also said that 41,000 fewer jobs were created in June and July than previously reported.  The change in total nonfarm payroll employment for June was revised from 64,000 to 45,000, and the change for July was revised from 163,000 to 141,000.

These are very sharp downward corrections of initially erroneous (it turns out) numbers.  In fact, this initial coarse overestimation of job creation by Labor has become pretty commonplace this year.  Some might say that Democratic Presidential Candidate Barack Obama’s Labor Department is trying to cook the books for their boss’ benefit.  I’m not convinced of that.  It seems more likely to me that our economic situation simply is so dismal that it’s much harder today for the government to collect reasonably accurate near-real time data than it was in past times.

Here are some ugly graphs that further illustrate the depths of our economic woes three and a half years on, and three years after the nominal end of this recession.

This graph, from Pethokoukis’ article, shows the sharp fall-off (I hesitate, so far, to call it a collapse) in labor force participation over the last dozen years.

Notice that.  The recession formally ended in spring 2009, yet, as The Wall Street Journal noted, participation has kept right on falling during these three years of recovery—an unprecedented decline in our history.  And to put a bit more perspective on this decline, see the next graph, from the same WSJ link:

We haven’t had so low a per centage of Americans trying to find work in 30 years.  And it took the last three years—three years during which we’re “recovering,” we’re “on the right path,” and “it just takes a bit more time,” as some have lately insisted—to sink to such a depth.

One more ugly picture.  Pethokoukis also cited a graph from The Hamilton Project that illustrates the “jobs gap” in our current economy.  (It’s an interactive graph at the Project; go over and play with it).  This gap, according to the Project, is the monthly number of jobs that the US economy needs to create in order to return to pre-recession employment levels while also absorbing the people who enter the labor force each month.

The 96,000 jobs in this graph is the increase the latest Labor report says we had for the month of August.  The other three lines represent, in decreasing order, the effect of steady increases of 472,000 jobs/mo (from the highest single month in this century), 321,000 jobs/mo (the average of the best year in the ’90s), and 208,000 jobs/mo (the average of the best year in the 2000s).

We’re not even keeping up.  To paraphrase Anderson Cooper, those insisting we’re “making progress” are in an alternate universe.

There He Goes Again

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Alan Blinder had another one in The Wall Street Journal the other day.  This time he’s bellyachingtalking about the Romney/Ryan ticket and averring that it’s from too deep in right field.  He supports this with three main points grounded in an FDR-ian…consensus:

  • a modest social safety net to protect vulnerable Americans from some of the downsides of unfettered markets,
  • Keynesian-style policies to shorten recessions, and
  • a progressive tax-transfer system to mitigate income inequality

It continues to amaze me that he can say those things with a straight face.  He didn’t make deep right field this time, either.  He fanned.  Struck out in three pitches.

There’s nothing modest about today’s “safety net.”  Far from FDR’s original supplemental income design for social security, with retirees expected to look to their own families for any needed additional support, today’s social security is intended to be replacement income, funded not by themselves and their own families, but solely by direct transfer payments from strangers—at immediate cost to those strangers’ ability to see to their own and their own parents’ financial futures.

Those highly touted, wholly unsuccessful Keynesian policies didn’t shorten the Great Depression, they prolonged it.  By putting floors under food and labor prices, Keynesianism made it far more difficult for companies to resume hiring and for the out-of-work (among too many others) to buy their food (and so were created food stamps).  On top of that, FDR’s Keynesian spending crowded out of the economy that already straitened private sector.  FDR’s own Treasury Secretary confessed the utter failure of these policies.  Henry Morgenthau confided to his diary:

We have tried spending money.  We are spending more than we have ever spent before and it does not work.  I want to see this country prosper.  I want to see people get a job.  I want to see people get enough to eat.  We have never made good on our promises.  I say after eight years of this administration, we have just as much unemployment as when we started.  And enormous debt to boot.

Obama’s Keynesian stimulus spending has been a similarly dismal failure.  Unemployment remains above 8% (and underemployment above 14.5%) nearly four years after he began his spending spree.  Fewer people are working today than at the end of the Panic of 2008, even with the 4 million “new” jobs that the economy has created despite his policies.  Obama today has spent “more than we have ever spent before,” it still “does not work,” and he has “never made good on [his] promises.”

To see what does work, review the actions taken by President Ronald Reagan in response to the Carter Recession.  Then go back to the FDR era—just a decade prior to FDR himself—and review the actions taken by President Warren Harding in response to the Depression of 1920-1921, still in progress when he took office (and begun from the policies of another Progressive President).

Mitigate income inequality?  This is the wrong goal, and separately, it’s immoral.  It’s the wrong goal because everyone’s economic prosperity flows from supporting opportunity equality, not income equality, so that every man can show the best that there is in him, so that  every man can seek to the fullest of his ability (in John Adams’ terms) his own happiness.  This also allows—and actively facilitates—every man to maximize his ability to satisfy his duties to himself, his family, and those less well off than he by maximizing his ability to accumulate the resources with which to achieve that satisfaction.  Working toward income equality necessarily caps the ability of a man to maximize the outcomes of his own potential, and it disincentivizes both the man redistributed from and the recipient.  Here, then, is the immorality of forced income equality: it denies every man his opportunity to honor his own obligations.

There are a couple of lesser points in Blinder’s piece.

Any piece of legislation running 2,319 pages will have flaws.

There’s a hint there.  And

For people now under age 55, the Republicans would like to replace Medicare by vouchers that will almost certainly fall short of covering future insurance costs.

There are two small things about this.  First, it’s a carefully static analysis that ignores free market responses to the competition that flows from letting people exercise responsibility for their own medical costs.  But, then, how free would our market be after four more years of Progressive central planning?  The other thing is that this is of a piece with the Progressives’ general refusal to allow any part of today’s Social Security to be privatized.  Americans, you see, are just too grindingly stupid to be able to manage our own fiscal affairs.  We need our Progressive Betters in government to “guide” us.

Factual Errors

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Democratic Vice Presidential Candidate Joe Biden had a stirring speech at last Thursday’s Democratic Party convention, touting his running mate’s strong nerves in dealing with our economy.  And it was full of…errors.  Fox News‘ Elizabeth MacDonald has a scorecard; here’s just one item, though.

On the Auto Bailout: “Conviction. Resolve. Barack Obama. That’s what saved the automobile industry.”

Rebuttal: And lots of taxpayer money, $80 billion  to start. GM and its financing arm still owes  US taxpayers $25.1 billion, and taxpayers still own just under a third of GM, or 500 million shares, which remain underwater.  The stock must trade at around $53 a share for taxpayers to breakeven; they currently trade at around $21.  This past August, the Treasury Dept. revised higher the cost of the auto bailout by $3.4 billion, up from the prior estimate of $21.7 billion, an old estimate that had been revised higher over the past year.  GM continues to struggle, as the White House has pressured it to manufacture fuel efficient Chevy Volts, a line of cars GM has pulled the plug on.

Not mentioned in the Vice President’s speech, either, was the Administration’s pressure to pull the plug on car dealerships.  The Obama Administration pressured GM and Chrysler to halt relations with about 2,200 dealers—each one with roughly 50 employees.  That equals to about 110,000 jobs lost.

Notice that careful elision.  That’s 110,000 jobs, wholly unrelated to GM’s bad leadership, that steely-eyed Obama tossed into the can.  Because Big Government knows better than private enterprise—even one like GM—how that private enterprise should run its business.

RTWT.