Friday, August 19, 2011

Say what? Issue more debt to relieve a debt crisis? Only in Wonderland!

The name of this blog came from a commentary I wrote for Forbes nearly three years ago, but I would add that the writers and editors of the New York Times seem to be living in their own Wonderland. This is a newspaper that took the confabulated "evidence" in the Duke Lacrosse Case and insisted that it all made sense when people living in the Reality World saw it and wondered how in the heck a D.A. managed to find a rape case wrapped up on that nonsense.

Unfortunately, the delusion that is the NYT is not limited to imaginary crimes being committed by "young men of privilege." No, the NYT still is insisting that we can and should "spend our way" out of this financial crisis. In today's editorial, we see yet another plea for central banks and governments to unleash another round of debt in order to enable sinking governments to...repay debt.

(Remember that the NYT was all over Karl Rove for his "reality-based world" comments when he was the de facto political officer for the Bush administration. While I agreed with the editors' assessment of Rove's comments then, I only can conclude that Rove Disease has overtaken the NYT editorial offices.)

The editorial is insisting that governments don't cut back on borrowing and spending (and increasing taxes) because if they stop borrowing, then won't be able to repay their debts:
Excessive indebtedness is a real, long-term problem. But Europe’s broad downward trajectory can only be turned around if governments — both those of lenders and debtors — spend more in the near term to put people back to work and get consumers back to spending.
The proper interpretation of those words is as follows: "We need to stop drinking, but in the interim, another round for the house! Let us make a toast to ending the future!"

This is not, of course, what the editors actually seem to believe. Like Hitler's generals in the Berlin bunker who were insisting to the bitter end that they could win World War II, the editors are insisting that another round of borrowing and spending (and more taxation) THIS time will take hold and that economic growth will be just around the corner:
As the crisis quickens, more enlightened voices struggle to be heard. Christine Lagarde, the new managing director of the International Monetary Fund, is calling for balancing long-term debt reduction with “short-term support for growth and jobs.” The financier George Soros this week renewed his pleas for more growth-friendly policies, as has Gordon Brown, the former British prime minister.
What do the editors mean by "growth-friendly policies"? They mean more borrowing, more government spending, more subsidies, higher marginal tax rates, higher fuel taxes, more regulation, destruction of industries such as energy industries that still are profitable, more criminal penalties for normal business transactions, and broader welfare policies.

Yes, I am sure that all of these things will enable the economies of the USA and Europe to grow. Increase burdens upon individuals and businesses, make it easier to throw people into prison, print money, increase government borrowing, increase anti-business rhetoric, and expand the police powers of the state, and out of this is going to come that unicorn known as "economic growth." Create a little boom now and we will figure later how to deal with the inevitable bust.

Only in Wonderland.


Major_Freedom said...

The establishment's cheerleading for more spending, more taxes, more regulations, more subsidies, reminds me of the communists in the old USSR: The leaders refused to admit that they were the problem, and that the economy was in a permanent depression because of them, such that they could only conclude that they just weren't controlling enough.

Anonymous said...

You know, I don't even know how to respond to this stuff anymore. So idiotic and so beyond the pale. I wish I was shocked by it all.

Bob Roddis said...

Take heart in the fact that our opponents are complete freakin' idiots. I really figured that they would have been able to come up with some kind of double-talk BS attack on us, but they haven't and apparently cannot. MMT was a shot at that, but with its claim of the necessity of pertetual deficits, no one is going to buy it except egg-head totalitarians.

Average people do not yet comprehend that this garbage is, in fact, what the establishment "experts" believe and are inflicting upon us. Our job is to teach and alert them. They will be appalled.

Anonymous said...

I do understand Keynesians, MMTs, etc. They've been studying their models for years, even decades. They will probably never admit they are wrong about something, specially because they can always say there has not been enough of their medication. Politicians generally just love them, for obvious reasons. Can you imagine working at a place where people expect you to spend more than you earn? And then, when you actually have to pay the bill, they would just blame the market! Paradise!

sb101 said...

Speaking of wonderland, remember this gem Mr. Anderson

how is someone that has been so wrong, continue to believe they are so right? Frostburg Wonderland

ptwalker said...

The object of the exercise is not a proper policy perscription, it is a political one to meet political ends, gain and maintain power. Facts and data are not needed in this realm. Krugman, Romer, Zandi and the rest simply speak of the unchallengable wisdom of their plan, as if there is no legitimate counterpoint. There are the "smart" people, and everyone else is a racist, paranoid nitwit in a tri-corner hat fearing the black helicopters or a corporate schill looking to help them enslave us all.

William L. Anderson said...

First, those are Guido's comments, not mine. Second, I never have said in this blog that bond interest rates will be going up in the near future.

What is NOT said in the commentary is that the Federal Reserve and the European and Japanese central banks have been actively pushing rates lower than they would be in a normal market setting. Second, the lack of real economic prospects make government bonds one of the few games in town.

What I HAVE said in this blog and will continue to say is that contra Krugman, we cannot subsidize this or any other economy into recovery. Nor can we continue to bail out companies and banks and expect the economy to recover as a result.

Dennis said...

I suspect that one reason that banks are sitting on huge reserves of cash and not trying very hard to lend them is uncertainty over the extent and scope of future inflation. What's the point of lending a dollar today if you may only get 50 cents back five years down the road? You could try charging a higher rate of interest, but who knows how high that needs to be in order to get your capital back? Problems such as this highlight the Austrian view that inflation makes future economic calculation next to impossible. As a result, the drag on the economy can be enormous.

For what it's worth, I think that by the time this inflationary binge exhausts itself, you won't be able to lock in a mortgage rate for more than six months at a time.

Anonymous said...

Why do you never paint any historical context around the Austrian theories? At the time of their development, communism was an imminent threat and any mention of the government's role in economics would lead to certain rejection of a policy, if not worse.

All leading economists today no longer argue whether or not government has a role, but rather what that role should be. The Austrian ideas are not at all considered anymore.

Thus, there are only two options when one is right and everyone else is wrong. Either that one person is a genius, or a fool.

Mike Cheel said...

@Anon 12:55PM

"All leading economists today no longer argue whether or not government has a role, but rather what that role should be."

Are these the same economists that didn't foresee the current economic turmoil? Or perhaps you mean the ones calling for more of the same?

Please clarify WHICH economists you are referring to so we have some context.

Anonymous said...

All leading economists today no longer argue whether or not government has a role, but rather what that role should be. The Austrian ideas are not at all considered anymore.

1) All leading economists are currently failing miserably and finding someone/something to blame for their mistakes.
2) Politicians and people connected to them will always generally hate Austrian ideas. After all, they want to be told that they need to spend so everyone is happy.

ekeyra said...

"The Austrian ideas are not at all considered anymore."

Wait... I thought the reason the economy was going to tank again was because austrian ideas were catching on?

quothe the gospel of krugman:

"there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans(read: tea party)"

Regarding the debt deal reached only weeks ago. He then blames their reckless attitude for the downgrade, as if playing chicken with a deadline that has shifted four previous times in the past year is some daring bravado or insane brinkmanship.

You invoke authority from "leading" economists. Yet their narrative reads that the people you claim are entirely irrelevant are the root cause of all the problems.

Thats a difficult mental juggling act to keep in the air. Im sure you'll manage though.

Bob Roddis said...

"The Austrian ideas are not at all considered anymore."

Oh really? In fact, this week according to Kroogie hisself, the Austrians have acquired a real and really bad influence over monetary policy:

In a way, I really should not spend time debating the Modern Monetary Theory guys. They’re on my side in current policy debates, and it’s unlikely that they’ll ever have the kind of real — and really bad — influence that the Austrians have lately acquired. But I really don’t feel like getting right back to textbook revision, so here’s another shot.

Since Austrians now have such a real and really bad influence on monetary policy, ISN’T IT TIME FOR THE MEDIA AND ANTI-AUSTRIANS TO ACTUALLY LEARN AUSTRIAN ECONOMICS? And openly discuss it with the public?

BTW, Kroogie must attack the MMT lunatics. Kroogie claims that the Keynesian nonsense must only be applied temporarily during recessions. The MMTers claim we need perpetual deficits or their monstrous fiat money system won’t work. If the MMTers are right about that, how is that even possibly a good trait of fiat money?

Mike Cheel said...

Dear Keynesians,

Your ideas are not working:



Bob Roddis said...

The great Ralph Raico has a new book coming out that has the goods on Keynes da man.

bradys bearss said...
This comment has been removed by the author.
bradys bearss said...

All arch economists today no best altercate whether or not government has a role, but rather what that role should be.

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