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2009: Why It Will Affect Everyone's Future For Generations To Come

Econophile's picture




 

From The Daily Capitalist

This has been a phenomenal year for the economy. There have been major, fundamental changes that will affect our lives for many years to come. I don't see these changes as a good thing for the short or long term.

These changes are generational in that they don't occur often and they will radically impact the economy and our well-being for decades. I thought of doing a decade review because it explains so much of why we are where we are today. But so much happened this year that I'm glad the year is over.

1. The Triumph of Keynesian Economics.

Liberals, Progressives, and Democrats were eagerly waiting for an economic crash so they could clip capitalism's wings. They got their wish.

When the crash happened, most people, including most Conservatives, scratched their heads and said, "Yup, it's capitalism. Bad, but necessary system. Got to control it even more." They ran to the Keynesian-New Deal play book.

Very few economists stood against this proposition and when the Democrats acted, it was right out of the Keynesian playbook: keep interest rates low, flood the economy with credit, pass spending bills to implement fiscal stimulus, and adopt more stringent rules to regulate financial institutions.

This is a result of 70 years of Keynesian economics education in America and the rest of the world. Paul Samuelson, who just died, was the father of the Neo-Keynesian econometrics movement in academia, and he and his fellow Keynesians are mostly responsible for this.

My fellow free market Austrian theory economists lost their seat at the policy table, and in fact have been banished to the back room. We need to do something about this. Our well being rides on it.

2. The Failure of Keynesian Economics.

The only problem with Keynesian theory and its policy applications is that it doesn't work.

I am not unaware that many commentators and economists are pointing to recent "Green Shoots" as proof that Keynesian policies work, but it doesn't. By their own admission, at least according to Paul Krugman and many other Keynesians, the fiscal stimulus has been insufficient to bring about a lasting recovery. Krugman worries about a second collapse when the stimulus runs out. He's right.

What we are seeing in the economy that is labeled "recovery" comes from two things:

a. The temporary effect of federal spending from the $787 billion American Recovery and Reinvestment Act of 2009; and

b. Normal recovery behavior that occurs after every crash and that is unrelated to fiscal stimulus.

Much to the chagrin of our Economic Czars there are nagging problems of deep concern. Unemployment. Falling asset values, especially in the real estate market. Lack of bank liquidity and bank failures. Lack of credit. Falling consumer consumption and rising savings. "But, it's supposed to work, dammit!" Keynesian theory was supposed to open the liquidity trap, create jobs, and stoke the economy by taking my money and give it to someone else to spend. It didn't work in Japan and it isn't working here.

The stimulus won't last.

3. New Deal v. 2.0.

The Washington--Wall Street Economics Complex is in full swing.

Too Big To Fail has been the motto of this Administration (as well as the last one). As always there are many political strings tied to economic policy coming out of Washington. While TBTF is not this year's story, the bankruptcy and bailout of GM and Chrysler in 2009 is. It is a bailout of the UAW and other auto industry unions and nothing more.

The bailout of the banks and major financial institutions is just the same. Yes, Citi didn't fail and AIG was taken over, but this temporary relief will just stall a recovery. Bankrupt institutions must fail; otherwise their balance sheets will remain fouled and valuable capital will be lost, mired in unprofitable loans.

The Administration and Congress are now putting forward new legislation to further regulate businesses and financial companies. These new laws are not re-regulations, but are increased regulations that will give the federal government even more control over the economy. By asserting itself further into commerce in order to wield greater power, the center of power has moved farther from the money and commercial centers like NYC, Chicago, and L.A. into Washington, D.C.

These policies are political expediencies and work to undermine the best interests of the American people because they reward the very companies that ought to fail. It will delay economic recovery by propping up essentially bankrupt companies who are now relegated to begging Washington for more money.

It will be a boon for lawyers.

4. Spending Unleashed.

Deficit spending will be a huge burden on our children, grandchildren, and generations of our great-grandchildren. It will be bad for the economy.

As the national debt becomes a greater percentage of GDP, the taxes required to support it will be a permanent drag on the economy. This year alone, the deficit will amount to about $1.8 trillion, depending on how you count it. In ten years, according to the Obama Administration, the national debt will double.

Considering that the debt is being incurred to fund dig-a-hole-and-fill-it programs that result in almost no long-term benefit, the cost to our descendants amounts to inter-generational theft.

5. The Health Care Bill.

This is an economic game changer.

While the bill has not yet been passed by Congress, it will and it will mark the point in history when the U.S. joined the group of countries, mainly European, which blend market economies with the welfare state. These quasi-socialist Nanny-state systems have long-term issues with economic torpor, permanent high unemployment, and a lack of innovation. We will have the same experience.

Comparative economic studies of health care systems similar to the current proposed legislation reveal that even the best of them are running large deficits. More and more, these countries are seeking market-based solutions to bail them out as their citizens reject higher taxes. They are beginning to understand that their problems exist because their tax burdens are too high and their regulations are too rigid.

The rising federal cost of this program will be another huge burden for taxpayers, especially for young workers who will be disproportionately saddled with the cost of supporting their elders.

This bill also marks the beginning of the end of the finest medical system in the world. Just ask Silvio Berlusconi and other wealthy world leaders who come here for medical care.

6. Stock Market Gains.

If 2008 was the Year of the Crash, 2009 was the Year of Recovery. In October, 2007 the Dow hit its high of 14,279. In March 2009 it touched its low of 6,440. Today it closed at 10,548, a rise of about 46% from the low in March.

We can argue about whether the market is properly valued. I tend to agree with David Rosenberg of Gluskin Sheff that the market is overpriced relative to fundamentals as well as macroeconomic trends. Whatever. 

I have two points you may wish to consider:

a. Traders believe that Keynesian fiscal stimulus works; and

b. While market gains have traditionally created a feeling of wealth in the economy, this time is different.

With regard to the recovery based on Keynesian policies, see above.

Normally people feel better about themselves and their fortunes because their stocks have rallied. People with 401Ks feel better about their retirement. Retired people feel better about their portfolios.

I don't think its working that way this time. I sense a feeling of caution, if not dread about the future of the economy.

I live in a very wealthy community, Montecito, California. Money here comes from real estate, business people who have sold their companies, or financial guys (hedge funders, Goldman types). In the last two months our sluggish real estate market has seen a sudden and dramatic rise in listings. You would think that these folks wouldn't have a problem with their housing, but they do.

I think many of them took (and are still taking) big hits to all of their assets: typically, commercial real estate investments, aggressive stock trading programs, and venture capital deals. Combine this with falling incomes and a high debt load and you see homes on the market from $1.5 million (formerly $3 million) to $15 million (formerly $25+ million). Not everyone you think is flush, is.

No offense to the great unwashed out there, but these people are big, big consumers.

If it's not working with the "rich," you can imagine what regular folks feel.

7. Year of the Contrarian Investors.

I get a certain amount of guilty pleasure from the market success of the contrarian investors who made huge market fortunes as a result of economic turmoil. They strayed from the orthodoxy and made huge fortunes.

While this was also a 2008 story, the results of the Harvard University endowment fund is all 2009. I like to pick on Harvard because they are a center of econometric, Keynesian economics. So, you might ask, if they were so smart, why did they take a huge hit? Why did they invest in so many stupid deals at the top of the market? Some say that their portfolio is half of what is was.

Yet you have Universa Investments and John Paulson who made huge fortunes for betting against the crowd. It demonstrates that most economists and investment advisors don't think. They behave sheep-like because they know there is safety in numbers and they won't be criticized if they lose clients' money when everyone else is doing the same thing.

If you want to make money, think, don't copy. You might also want to read anything by Taleb and Mandelbrot.

Good luck in 2010.

8. The Inflation-Deflation Debate.

This is the great debate right now.

Everyone is looking at money base vs. excess bank reserves vs. M1 and are betting that either the Fed can sop up the money and credit or, they can't. This issue has been debated in the blogosphere at great length by all spectra of economists. Krugman sees inflation. Many Austrians are predicting inflation. Most Monetarists are predicting inflation. A few like Mike Shedlock (Mish) are predicting deflation.

The Fed is betting that if it pays interest on banks' excess reserves, that they can prevent the money from hitting the economy.

This is a huge issue. The government and the Fed would love to see inflation. Rising prices would show ephemeral profits, enable debtors to pay off debt with cheaper dollars, and the economy would be back to a growth and boom-bust cycle.

I have been doing a lot of thinking about this lately and I will credit Mish for helping me to crystallize my thoughts. I plan to write an article on this soon. I don't think inflation is imminent, but I think it's coming sooner than Mish thinks, and not for the exact same reasons some of my fellow Austrians think. And I'm not just trying to synthesize the two poles. See No. 9.

Like Mish, I don't see these reserves as being "excess." They are being held by banks because they are unsure of their capital positions and they see too much risk in lending money. So, these reserves serve an economic purpose and aren't excess, just sitting out there because the Fed forced money on them. It won't be that easy to pry them loose from the money.

9. The Great Real Estate Reflation.

The government is trying to reflate the real estate market with fiscal policies.

It is clear that fiscal measures are having an impact on the housing market. The government through tax policy and lending requirements (Freddy, Fannie, and the FHA) are already starting to put a floor under the housing market. New rules related to commercial real estate loans ("extend and pretend") may help stabilize the commercial real estate market.

This is not to say that the real estate market won't have continued weakness, but I believe that these policies will have a positive impact on real estate and it will stabilize the market and banks will be able to account for the risk in their loan portfolios. Remember that 90% of the working population have jobs.

I would expect this impact to take effect by late 2010. Yes I understand the shadow market and the problems in the housing market. But don't underestimate the power of the federal carrot.

Banks, especially the regional banks who finance most of commercial real estate and small business, will be bailed out of massive losses. This is what is holding back credit. 

Combine this with inflation and we will see the beginning of the next boom-bust cycle. It won't end well.

10. Bloggers Are Taking Over the Economic Media.

Anyone can blog. Few get noticed. But great upheaval drives people to find explanations they don't seem to get in the mainstream media. I think the Wall Street Journal, Bloomberg, and The Financial Times are great at reporting the news. But people want more and different analysis than they offer and they also want a forum where they can express their opinions.

It is refreshing to see the bloggers that I admire do well: Calculated Risk, Barry Ritzholz's Big Picture, Mish's Global Economic Trend Analysis, and the Naked Capitalist are now the big dogs in the blogosphere, getting 50,000 to more than 100,000 page views a month. It is also wonderful to see the Mises Institute get 1,000,000 page views per month as people are finding that the Austrians have something to say.

I am also pleased to report that my blog, The Daily Capitalist, continues to grow. I am also proud to be a part of Zero Hedge, which has quickly become a very popular and rising blog star.

Thanks for reading Zero Hedge and The Daily Capitalist. And best wishes for 2010.

 

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Thu, 12/31/2009 - 12:24 | 178933 Anton LaVey
Anton LaVey's picture

Nice article -- I don't agree with everything in it, but it is food for thought, and that's why I love reading ZH.

A few remarks:

  1. Most economists are wrong. Let me repeat this: most economists are wrong. And not just a little bit wrong, but 100% wrong. The reasons they are wrong is (a) because they usually have zero experience working in the real world and (b) because of (a), they believe their models, their numbers and their stats are actually an accurate representation of the reality, while "reality" itself is much more messier and grimier and fast-moving than they think it is. Re-read Taleb's "The Black Swan" for many examples of this.
  2. You cannot fight today's war with the weapons and tactics of the last war. Period. While a lot of people are stuck on a reductive and binary Keynesian/Monetarist-Austrian duopoly, the very fact is that (see above) most economists are wrong. Therefore, as Madcow pointed out, they are using outdated techniques and models to understand something completely new. Circumstances have changed, the world has changed, and the economy of 2009-2010 is not the economy of 1929, or the economy of any other crisis between, say 1945 and 2000. This means that their pathetic little policies will fail miserably. It also means we have to try new things, we have to experiment, use what works, and discard what does not. Instead of doing this, ideologues on both sides are still waving their pathetic little banners and shouting their stupid slogans (Socialism! Capitalism!) instead of looking for solutions pragmatically.
  3. I believe that the number one struggle of the 21st century will be the battle for information. And it will be fought between ordinary citizens on one side, and governements and corporations on the other. Think about it for a minute: big (TBTF?) corporations want to monetize information, governements want to "protect" (meaning: restrict access to) information, and both want to keep the juicier bits for themselves and their buddies. On the other hand, most ordinary citizens want a level playing field, information-wise. Most want everyone to have access to the same infos. If people had known more about Bernie Madoff, would they have invested money with him? If the average Joe had known that Goldman Sachs - and many other banks - had been playing Russian roulette all these years with their derivatives and CDOs scam, do you think it would have gotten all that money from the US Fed? Do you think Goldman boys would now be found at every level in the US Gov? And the examples go on and on: what matters today is the information you have, as well as its quality. Insiders are using information the average Joe does not (and will never) have in order to fleece the public. And all this time the MSM are feeding us mind-numbing slop and cheap entertainment, and call it "information".

Ultimately, these, in my humble opinion, are the challenges we are facing.

The economists who should be helping us make sense of the whole sorry mess (please note that I did not say "formulate policies" - just "making sense") are just as clueless as the average politician. And the average politician is way more dumber than the pair of tits du jour that is paraded by _______ [insert favourite MSM here] to distract us from the fact they are just selling cheap titillation instead of substantive information.

And I am really afraid it is all going to end in tears. We may be facing, not just the Great Recession, not just the New Great Depression, but the Ultimate Depression. Let us hope it is going to give us a better system.

Thu, 12/31/2009 - 13:27 | 179049 Dirtt
Dirtt's picture

Allow me to inject a little acid into the tone.  I prefer to call it the "Perpetrated Depression" since all empirical data to support this notion is there for anyone. And I'll sanitize it this way.

 

Either 'the people' who left their 'fingerprints' at 'the scene' were so inexplicably incompetent, derelict and void of any sense whatsoever OR 'the people' were not so inexplicably incompetent, derelict and void of any sense whatsoever.  And if the latter were true - as I believe - then they knew what they were doing and they knew exactly what the outcomes would be.

 

Corruption has bubbled over. 

 

"And I am really afraid it is all going to end in tears."  Tears yes.  But there is a big difference between an uprising in Iran and an uprising in the USA.  The Executive Order to expand the Expeditionary Force was a sign that this Administration is anticipating the latter.  And like you say "Let us hope it is going to give us a better system."

 

I'm hopeful.

Thu, 12/31/2009 - 13:38 | 179066 WaterWings
WaterWings's picture

"Penetrated Depression"

Thu, 12/31/2009 - 14:34 | 179156 Shiznit Diggity
Shiznit Diggity's picture

A very apt neologism, given its "Bend over, bitches" connotation.

Thu, 12/31/2009 - 13:36 | 179060 Anton LaVey
Anton LaVey's picture

I'm hopeful.

Good for you. I am not.

Thu, 12/31/2009 - 13:06 | 179017 vanderrook
vanderrook's picture

So what is the path, Grasshopper?

I think you are correct:

Most economists are wrong; which are right?

Old weapons don't work with new circumstances; what should the new weapons be?

What info can we trust, and where do we get it?

Economists, politicians and newsmen aren't helping; who is...if anybody?

I don't mean to offend, this isn't a dig at you, Mr. LaVey. All of my questions are unfair, but I ask you, kind sir: what should the "better system" be? I understand that you are under no obligation to offer any possible solutions, our situation is no small matter, and I don't expect anyone to solve the massive problem in a three paragraph post.

I guess I was just curious as to what monetary system or fiscal policy you would apply to our new difficulty. As I have posted previously above, I like the Austrians; I know that philosophy isn't perfect- but which one is? I don't believe the Austrian way is best in special circumstances, but is applicable all the time toward the best outcome.

Let me reiterate: I don't believe it is perfect or would solve all of society's ills, but I just don't see a better, consistent school of thought.

 

Thu, 12/31/2009 - 14:21 | 179122 Anton LaVey
Anton LaVey's picture

OK, I'll bite.

Here are a few hints and ideas:

  • Declare victory in the GWOT and pull all personel out of Iraq and Afghanistan.
  • Slash the Pentagon budget by 50%. Then slash it another 20%.
  • Close down most TLAs. Most of these are useless, anyway.
  • Cancel all (or most) weapons programmes that are late and/or over-budget. Yes, that's probably most of them.
  • Make all new weapon programmes strictly financed by private corporations. In other words, you finance it. We'll buy it if it's good enough.
  • Tax all bank bonuses and stock options at 90%. Make all stock-options mature only 5 years after leaving the company that issued it.
  • Close all tax loopholes and all tax avoidance schemes. Raise taxes on the top 15% of all Americans. Up to punishing levels if that's what's needed.
  • Make personal bankruptcy easier to get, but also a lot more punishing, both for lender and borrower. Make it very clear that people who get into debt, as well as people who lend money recklessly, should not expect any help whatsoever from the government.
  • Re-instate the Glass-Steagall act. Then, reinforce it. Then, enforce it fanatically. Strict separation of banking and investing businesses should be a given. Retail banking should be a (very) boring and conservative business.
  • Strictly forbid all "naked" speculation. Especially in the commodity sector. A bank should not be allowed to buy and sell raw materials or agricultural products.
  • Reinforce all accounting standards. Then, enforce them savagely. And I do mean savagely.
  • Refinance the FDIC.
  • Fire everyone at the SEC. Then, get someone who understands speculation to run that part of the show.
  • Fire everyone at the FED. Make it accountable, to both the Treasury and the Congress and turn it into a 100% government-owned entity.
  • Allow TBTF companies to fail. Especially the crap Detroit companies. And most banks on Wall Street.
  • Close down every credit-card company in America that cannot justify its new tariffs.
  • Invest in infrastructures. Especially public transportation and new forms of energy. The DOE top priority should be to produce clean energy and allow the US to get rid of its oil addiction.
  • Tax the heck out of Chinese crap products, as long as their currency is pegged to the US$.

All of these are good first-step measures. None of them will ever get passed, because they are too politically costly in a capital that has been captured by the financial industry and the militaro-industrial complex.

Please note that these are not "Austrian" or "Keynesian" ideas: I consider them as simply common-sense. Think of it as returning to a level economic field.

Not free-market enough for your taste? Sorry, buddy. You asked for it.

Fri, 01/01/2010 - 12:01 | 179819 Anonymous
Anonymous's picture

Anton for POTUS!

Fri, 01/01/2010 - 14:20 | 179918 Anton LaVey
Anton LaVey's picture

Alas, my dear anonymous, I am like a certain muscular, west-state governor: able to live in the USA, but not to become its President.

Fri, 01/01/2010 - 08:44 | 179760 Nout Wellink
Nout Wellink's picture

Excellent ideas. Some more food for thought:

1. A new money system not based on debt

2. Abolish central banking and take away the bankers privilege to control money supply

3. Audit the derivatives market and clean it up

4. Punish economic and financial fraud in the harshest possible way, make new laws for that

5. Abolish lobbying from large (financial) institutions and their financing of party funds, which is tantamount to a banana republic

6. Get rid of the Reps and the Dems parties, they are corrupt to the bone

 

Fri, 01/01/2010 - 14:36 | 179927 WaterWings
WaterWings's picture

I had to step in after seeing all this Anton-cheerleading for ideas that make sense if you don't forsee the outcome: more of the same, just less freedom each time around. To Anton's credit he wants to end the Warz, bring back our troops, and curtail military spending. Bravo! And actually allowing businesses to fail. Bravissimo! You can't compete when your business rival is funded through the back door with your own tax money. 

Most of the rest is increase taxes, increase taxes, and just more clutter to prevent any real free market. As long as the Fed can create as much money as it wants the only reason to tax the People is to control prices and redistribute wealth, that is, to exercise control. We need the enforcement of current laws more than we need new ones; we need a well-informed public (we have suppression, not freedom of the press these days) to demand prosecution for crimes. Let a jury of 12, fully-informed peers judge the law and the accused.

Abolish the central bank. Yes! Follow the Constitution and let free coinage reign. Yes! You know what the penalty for debasing a currency was back in the day? Death. Because those that debase a currency also deal death through endless wars. Let the Dems and Repubs whither away once we have an informed public.

Any talk of FDIC, putting someone like Ron Paul in the Fed, etc is asking for the same thing, over and over. Ron Paul would never work for the Fed - it is his Nemesis. Anton may be well-meaning, and I am not always correct in my judgment, but we have perpetual corruption because we have no fundamental change. We just vote in new bums each year. 

We don't need to tax any incoming goods or protect any of our industries - we innovate through keeping our nation highly educated and move in new directions. But our education system is more of a scam these days. 

How can we move forward as a nation when knowledge is suppressed and an independent institution can create as much money as it wants? Until these things change it's all talk in the prison yard.

Fri, 01/01/2010 - 15:33 | 179980 Anton LaVey
Anton LaVey's picture

Oh dear, faint praises indeed. I do note you agree with some of my points, though. (snark) Maybe some faint Keynesian radiation from me is leaking through your tin-foil hat? Are you turning to the dark side, perhaps? (end snark)

Now, on to your points:

Most of the rest is increase taxes, increase taxes, and just more clutter to prevent any real free market. As long as the Fed can create as much money as it wants the only reason to tax the People is to control prices and redistribute wealth, that is, to exercise control.

Think about it this way: I am all for raising taxes on the very people who actually created this whole crisis in the first place. I believe they should not be allowed to benefit from their misbehaviour and take home millions of US$ in bonuses. That's all.

In other words, yes, tax the rich. Not the middle class. Just the rich. And this, only temporarily. Are you rich, my dear "Waterwings"? If so, please consider that raising taxes is also a way for you to contribute back to the country that protected you for all those years.

I also happen to believe in a balanced budget. And there are only three ways to balance a budget: (a) reduce expenditures (b) raise taxes and (c) borrow money. The (c) solution is only begging for more and more trouble. The (a) solution is convenient, but very difficult to implement in the middle of a crisis, unless you want to tear your country apart. What's the last solution left to balance a budget?

Informed public. My only retort would be: "You can bring a horse to water, but you can't make it drink". There is good information to be had, everywhere, and ZH is living proof of this. Here is an interesting quote for you: "Freedom of the press is guaranteed only to those who own one. -- Abbott Joseph Liebling". Pretty much sums it all, doesn't it?

I never said anything about price control. As I have pointed out in another response, I believe there are limits to government intervention. Price fixing, insane financial speculation and other market distortions are all clearly within its responsibilities. Once a level playing field has been established, or restored, for all, the rules of the market should apply.

I never said abolish the "Central Bank": I just pointed out the obvious: the Fed should be 100% -owned and -controlled by the Government. This is not the case right now. Here is a link for your reading pleasure: http://en.wikipedia.org/wiki/Federal_Reserve_System ...

Two quotes from that article:

The Federal Reserve System is subject to the Administrative Procedure Act, and so is legally obligated to inform the public about its organization, procedures and rules. In addition, the Act requires the Federal Reserve to establish uniform standards for the conduct of formal rulemaking and adjudication.

Question: if the Fed is obligated to inform the public, how come some news organization had to sue it to obtain information? (Reference : http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKr.oY2YKc2g)

According to the board of governors: "It is not 'owned' by anyone and is 'not a private, profit-making institution'. Instead, it is an independent entity within the government, having both public purposes and private aspects." In particular, neither the Federal Reserve System nor its component banks are owned by the United States Government.

Fair enough, but the same article also says that private banks can hold stocks in the Federal Reserve Banks. Am I the only one to see the conflict of interest in having a "Federal" Central Bank that is owned by private banks?

There are other countries that actually guarantee the independence of their Central Bank, while making sure it has a clear mandate and is not owned by private interests. The same should be done in the USA.

I have never said that Ron Paul should be the head of the Fed. I actually believe - and this started a minor flame war in another ZH discussion - that Ron Paul is batsh*t crazy. The Fed should be given to decent people, who understands the complexities of the financial world. Hard to find, I know.

The FDIC and SEC are existing government agencies: they should be cleaned-up, given a good kick in the pants and put to work. They have the authority, the mandate, all that is needed to kick some sense in the financial world. And turn it into a mostly boring, stable and conservative world, instead of the insane combination of a roller-coaster and a casion, we see these days.

Anton may be well-meaning, and I am not always correct in my judgment, but we have perpetual corruption because we have no fundamental change. We just vote in new bums each year.

You are way down on the path to complacency, aren't you? Everybody is corrupted, everyone is only looking to make a mint (booohooohooo) is exactly the reason you elect bums each year. If you don't like the bums, I say vote them out of office or get involved in politics to kick them out. Don't just stand there, feeling oh-so-superior in your comfortable knowledge that nothing is ever going to change, everyone is mean and evil, all the while lamenting the death of your beloved Constitution. Do something!

How can we move forward as a nation when knowledge is suppressed and an independent institution can create as much money as it wants? Until these things change it's all talk in the prison yard.

See above: you are not a prisoner. You are not a slave. You just need to get off your butt, off your comfort zone and do something. Something as simple as a (well-written, well-informed) blog can be a good start. Getting informed, reading all kinds of points of view (Keynesian, Austrian, or otherwise), challenging your own preconceptions, your own reality models (or tunnels) is good enough. Always challenge yourself, and, once informed, act.

... But something tells me you are not going to do anything. Are you?

Fri, 01/01/2010 - 18:26 | 180125 WaterWings
WaterWings's picture

Well, very interesting response, to say the least. So I thank you.

I'll just respond to my favorite part: Yes, RP is bat-guano crazy.

In an insane world a sane man must appear insane.

Thu, 12/31/2009 - 16:36 | 179314 Anonymous
Anonymous's picture

Bravo.
10/10

Thu, 12/31/2009 - 14:49 | 179187 Anonymous
Anonymous's picture

You forgot to add to your list: go after Big Pharma to give us cheaper healthcare, and sue the tobacco companies some more (but not too much, so govt can keep collecting those taxes) and eliminate all oil companies and insurance companies deemed to be "evil" and never require anyone to be personally responsible for themselves (it takes a global village) and establish a federal commission to set a "fair" price for all goods and services.

Wow, scary dude.

PS - am betting you really don't want to level the economic field on a global basis (just folks in your neck of the woods). Unclear why you wouldn't. And if per chance you do want to level it on a global basis, you can unilaterally take the first step, leading by example, and reduce your standard of living to the global average -- keeping giving assets away until you get there. Best wishes.

Fri, 01/01/2010 - 14:48 | 179946 Anton LaVey
Anton LaVey's picture

Big Pharma? Why not? It's not like HMOs are universally loved and praised. Insurance companies? When insurance becomes a racket, or pure Catch-22 speculation ("head I win, tails you lose") it should be punished like any other illegal activity. Insurance, in my opinion, should be just like retail banking: boring, conservative and safe.

As far as tobacco is concerned, I would just require consistency: if tobacco is legal, IMHO, then pot should also be legalized, as well as some of the mildest psychotropic drugs (MDMA, for instance). Full disclosure: I have never taken any drugs in my life (with the exception of alcohol, always in moderation), I am not an addict, and I consider most legal drugs - especially tobacco - to be a tax on the truly stupid. Like gambling or the lottery.

Giving away assets? Yes, let's all set a good example. You go first.

I am not holding my breath waiting for you to become oh so generous.

"When it comes to money, all men have the same religion" - Voltaire.

The truth of the matter is, if the USA was to set a good example, other nations would follow suit and regulate their own financial industries. Bad money chases good money, but I also believe good behaviour also chases bad behaviour. In that respect, good financial industry behaviour, guaranteed and enforced ruthlessly by government agencies, would go a long way toward reinforcing the international influence of the USA.

And I have never said anything about setting "proper prices" for goods and services. I believe there are limits to government intervention and meddling with the private sector. When someone, or some corporation, starts to abuse the information it has to fleece the public AND the Governement - that's when intervention is required. Again, level playing field for all.

Fri, 01/01/2010 - 16:32 | 180023 Anonymous
Anonymous's picture

Dude -- I am not the one calling for the giant leveling of economic outcomes you are. So I am shocked you have not distributed your assets down to where you have no more than the global average. Wildly hypocritical.

Despite our polar opposite positions on the merits of leveling wealth evenly, I am willing to bet I give more to charity than you on both an absolute basis and a relative (% of income) basis on a multi-decade or 2009 basis -- despite paying a six figure federal income tax bill too. So I am not against helping folks, it just the confiscatory power of government has gone too far and society works best when one is able to succeed and one is able to fail.

Thu, 12/31/2009 - 14:44 | 179176 vanderrook
vanderrook's picture

Good talking points; let's start with them.

Nothing is ever free-market enough for me, but I do recognize why that is...

No need to apologize, sir- I did ask for it. Let's call them attributes of the LaVey School.

Happy New Year.

 

Thu, 12/31/2009 - 14:29 | 179142 WaterWings
WaterWings's picture

Hey, you're not supposed to get high on your own supply.

Fri, 01/01/2010 - 14:27 | 179925 Anton LaVey
Anton LaVey's picture

Spoken like a true pothead.

Fri, 01/01/2010 - 14:42 | 179938 WaterWings
WaterWings's picture

Anton, you have some good ideas, but the real solutions are based on the rule of law that protects natural rights. We don't need economic models to have freedom.

And in reference to pot, or any other substance, I say let any adult decide for themselves what they will put into their own bodies. With true freedom to do as one pleases there are many that would destroy themselves. But once we step in and force them to make choices based on our views of what they should do we have restricted their freedom.

You should check out LewRockwell.com

Thu, 12/31/2009 - 13:46 | 179079 Anton LaVey
Anton LaVey's picture

Learn to think for yourself.

Thu, 12/31/2009 - 14:07 | 179109 vanderrook
vanderrook's picture

I stand corrected sir,

Learn to think for yourself.

I guess that makes me Grasshopper.

Thu, 12/31/2009 - 13:06 | 178985 WaterWings
WaterWings's picture

Instead of doing this, ideologues on both sides are still waving their pathetic little banners and shouting their stupid slogans (Socialism! Capitalism!) instead of looking for solutions pragmatically.

And? Waiting...

If people had known more about Bernie Madoff, would they have invested money with him?

I can summarize your third point: corruption. Get rid of that and we can all sit around watching Rainbow Brite instead of actually having to work.

Okay, so I'm not trying to be rude, but you're right. Economists are wrong. Why are they wrong? Because they are mostly paid cheerleaders. That is: mainstream economists that have jobs as an economist. If you are an 'Austrian' you probably aren't being paid to explain economic theory - most people don't like to hear the truth everyday.

Okay, so economics is about human choice, which isn't necessary when you are explaining math, as in, we can't f****** afford our lifestyle anymore! No need to create a model. We just need a reset. And resets are always painful. The longer we let zeitgeist economists keep their jobs, the more painful the reset will be.

But I won't leave my potentially useless post just hanging here without the proposal of a solution:

Vigilantly! guard against psychopaths (ENFORCING EXISTING law) by returning to the spirit and letter of the Constitution. The only honest monetary system is already in the Constitution: coin gold and silver with a standard weight and purity. 

The founding fathers didn't make fiat currency illegal because it went without saying. They gave specific powers to the three branches - instead of wasting time telling them what each branch couldn't do they explained what they could only do. Once those limits were breached we, as a freedom-loving people, should have cried for blood! But no, we sit around

shouting ... stupid slogans

instead of returning to what makes sense. What is constitutional makes sense. Ain't it funny that our Commander-in-Chief is a supposed constitutional scholar? Yet we can't view his academic records. Joke's on you (US)!

Thu, 12/31/2009 - 13:45 | 179075 Anton LaVey
Anton LaVey's picture

I can summarize your third point: corruption.

And what part of "keeping the juicy bits for themselves" don't you understand? "Power corrupts. Absolute power corrupts absolutely", etc.

If you are an 'Austrian' you probably aren't being paid to explain economic theory - most people don't like to hear the truth everyday. [...] Vigilantly! guard against psychopaths (ENFORCING EXISTING law) by returning to the spirit and letter of the Constitution.

Can I ask you a personal question? Do you also believe in Santa Claus?

FACT: The US Constitution is just a piece of paper. The very fact that your, oh so great Constitution is being trampled and torn by your own Government is proof enough of that fact. And if you still don't believe me, here are a couple more proofs for you: "warantless wiretaps" and "extra-ordinary rendition" (google these terms). Need I say more?

And Austrian economics have these very cushy jobs in big corporation-sponsored think tanks and others. Maybe not quite as cushy as academia, but plenty cushy, thank you very much.

Thu, 12/31/2009 - 13:58 | 179097 WaterWings
WaterWings's picture

Yes, Vigilant Citizens still tell their children about Santa because it makes it so much more exiting if the parent still gets to give a gift indirectly.

So when bureau-rats step over their limits they need to be jailed. It's just snowballed at this point. It's a bonanza of take-all-you-can-carry. The piece of paper called the Constitution is simply a contract. It only matters when someone breaks the deal. At this point it's null and void, but our fellow non-citizens (you can't call a slave a citizen) keep singing and dancing with their fingers in their ears.

Thu, 12/31/2009 - 14:23 | 179129 Anton LaVey
Anton LaVey's picture

The piece of paper called the Constitution is simply a contract. It only matters when someone breaks the deal. At this point it's null and void

Precisely.

but our fellow non-citizens (you can't call a slave a citizen) keep singing and dancing with their fingers in their ears.

Feeling just a bit superior to your fellow human being, maybe?

Thu, 12/31/2009 - 14:34 | 179155 WaterWings
WaterWings's picture

Nothing wrong with feeling superior - just don't exploit others.

Okay, but really, once you say a word such as, 'unconsitutional', the slaves in every compass direction take that as the signal to nod their head and really just think about how they are going to get rid of their kids, disappear the spouse-thingy, get into the audience of Dancing with the Stars - and then jump on stage.

Exiting stuff.

Thu, 12/31/2009 - 11:01 | 178784 vanderrook
vanderrook's picture

Great analysis! fucking spot on. Long live the Austrians!

Thu, 12/31/2009 - 12:24 | 178935 WaterWings
WaterWings's picture

In these times it just might get you shot. That's how good that Austrian stuff is. People just don't like to hear they're not getting free Skittles anymore.

Thu, 12/31/2009 - 18:58 | 179456 Implosion Therapy
Implosion Therapy's picture

Skittles..a rainbow of bailouts

Thu, 12/31/2009 - 12:35 | 178960 Anton LaVey
Anton LaVey's picture

If defending stupid ideas would result in your untimely demise, then most universities would be packed to the rafters with the dead bodies of economists.

We are not at the scapegoat-hunting stage of the crises, I believe.

Thu, 12/31/2009 - 13:31 | 179037 WaterWings
WaterWings's picture

Stupid. Okay, I'll concede that I've never taken an economics class from a public university where they teach you that up is down and right is your other left - so I am a minority. Even a contrarian, although not for the sake of being so. 

But lets get to the point: the founding fathers didn't expound their views of economics in the Constitution because it was a waste of time. They understood very well that free exchange and travel adapts quickly enough to satisfy demand. Everything else is central planning.

 

Thu, 12/31/2009 - 10:55 | 178780 Madcow
Madcow's picture

Keynesian economic theory is a good idea - in certain circumstances.

It is NOT a good idea - and will not work - against present conditions. But its easy to get behind and to defend because "heck, it worked last time."

Our political leaders - like the vast majority of the American (and European) public - do not understand what is happening at an economic level. We're just not patient enough to sit down and understand the math.

A Keynesian response can only work if: a) there is spare capacity to borrow from the future via increased debt and tax service; b) there's a need to increase production capacity to satisfy aggregate demand; c) there are no entrenched crime syndicates in charge of collecting money from the future and spending it in the present.

Its not that Keynesian theory is bunk - its just not applicable today. 

Its like trying to carve a turkey with a toothpick. Or brushing your teeth with a chain saw.  or trying to stop a hurricane with a bb gun. 

 

Thu, 12/31/2009 - 12:15 | 178911 Daedal
Daedal's picture

Keynesian economic theory is a good idea - in certain circumstances.

Are you George W. Bush?

Thu, 12/31/2009 - 10:37 | 178766 Leo Kolivakis
Leo Kolivakis's picture

Your analysis shows great disdain for Keynesian economics, yet if you look just north of the border, Canada did not suffer as bad of a recession as the U.S. You should take the time to read a recent speech by Eric Siegel, President & CEO of Export Development Canada, titled  Making the Most of the Credit Crisis: How Canada has Positioned for Recovery.

I quote the following:

The bottom line is this:  Canada has a unique model of public and private sector cooperation, which lessened the credit crunch and subsequent recession and is now playing a major role in positioning Canadian companies for recovery. 

 

As a result of this model, we fared better than those countries that did not have this infrastructure in place. It’s that simple.

 

I, for one, am immensely proud, at this moment in history, to be the president of a Canadian public financial institution, because I believe that Canada has shown the world a clear path to a more stable and secure financial sector through our Crowns. 

 

I realize it’s a bit “un-Canadian” of me to make such a boastful statement in a public forum, but I think there’s a lesson to be learned here.

And whether you look at it from Bay Street or Main Street, it’s one of which we should all be proud.

 

It’s not that Canada’s hybrid financial model hasn’t seen its share of criticism.   When economic times were sunnier, some raised concerns that Canada’s public-sector institutions could crowd out private credit activity.

 

But this credit crisis has shown us that if we let these institutions atrophy as the private sector takes over the market during times of strong growth, it’s awfully difficult – if not impossible – to get them back when we need them again. 

Food for thought. Sometimes the hybrid model works much better than one based purely on private interests.

Fri, 01/01/2010 - 12:00 | 179818 Anonymous
Anonymous's picture

Canada has been doing OK for a couple of reasons.

Our government was more careful but they threw all reason out the window in the last 3 years.

Canadians now have just as much debt as Americans: 140% debt to income. I am so sick of my smug fellow Canadians telling us they are so much better than Americans.

When real estate drops, we'll see who will be laughing. In the last 3 years, instead of sitting tight, 40 year, o down mortgage were being offered and now 40% of Canadians are making real astate decisions on 1.5% variable interest rate.

Another variable that has helped Canadian households is the currency which gained 40%. We gained 40% purchasing power in just a couple of years.

There is a lag and we will suffer.

Fri, 01/01/2010 - 11:43 | 179805 Anonymous
Anonymous's picture

Siegel's boasting is premature and ill-considered. Just because we've got a system that's designed to absorb more financial risk via public-sector institutions without using 'bailouts' (per se), ultimately the risk ends up falling on the shoulders of the taxpayer in either case. We're not anywhere close to being out of the woods yet, not even close.

Thu, 12/31/2009 - 19:01 | 179459 KevinB
KevinB's picture

Leo,

As I've posted many times here, Canada didn't get into the trouble the US did, and so it was easier for us to get out of the hole. (No NINA mortgages, very few MBS, more stringent mortgage standards, banks hold their own mortgages, etc.) The problem with the US's "Keynesian" response is it had nothing to do with Keynes. There is no way Lord Keynes would have recommended bailing out a few private bankers. Keynes said you had to restore aggregate demand; how does ensuring a few thousand bankers get to keep their Hampton estates and Bentleys restore demand? Only if you believe in trickle down theory in the extreme.

Contrast Bambam's actions with those of Canada's Harper. A great deal of stimulus is being put into domestic infrastructure - roads, bridges, transit. Lots of construction jobs, lots of local spending, long term benefits for the economy, and very little import leakage. What was the next big program? The Home Renovation credit - again, encourages local spending, employs construction workers laid off from home building, and again, very little import leakage. Education credits, creating a better educated work force for the upturn. All of these actions created an increase in domestic spending, with very little going to the purchase of HD TV's or foreign cars. But that's what happens when you elect an economist as opposed to a community organizer.

Fri, 01/01/2010 - 11:46 | 179809 SteveNYC
SteveNYC's picture

You make a good point Kevin, and the same could be said for the Australian economy in comparison to Canada.

However, Canadian house prices are a bubble. Australian house prices are a bubble. The bubbles in Canada, Australia, and the USA are similar yet different in nature, in that the US housing bubble was underwritten by cheap financing and sheep/herd behaviour, with nothing aside from this supporting it. Canadian and Australian housing bubbles are underwritten by resource exports, and in Australia's case, primarily to a communist country. As we know, resources have been soaked up by China's growth through 2007 (remember, the Aussie economy is only 1/4 to 1/5 that of China's size, so they don't have to do too much to move the needle down under) and of late, China's massive fiscal stimulus and bubble economy.

If resource demand dries up, say good bye to house prices in Australia and Canada. No, not to the degree of the US collapse as Aussie and Canadian lending standards are stricter, more money is required to be put "down", and rates were / are higher to begin with.

But the argument of a bubble or not is simple. The answer is yes, they are both bubbles, just underwritten by different fundamentals than the US bubble. All bubbles will come to an end.

Thu, 12/31/2009 - 18:57 | 179455 alien-IQ
alien-IQ's picture

Canada, unlike the U.S., does not have a military budget of world conquest proportions. Thus proving once again their superior wisdom.

The roughly 1 trillion dollars a year the U.S. spends on military conquests could go a long way towards repairing this soon to be failed state.

Fri, 01/01/2010 - 14:42 | 179939 Anonymous
Anonymous's picture

Having 1/10 the population of the US helps too.

Thu, 12/31/2009 - 12:37 | 178964 Gwynplaine (not verified)
Gwynplaine's picture

Leo, we have had a hybrid model in the US since the Roosevelt administration.  At that time, government intervention was meant to prevent any future collapse.   How is it possible then, with these basic ideas still in place, that we face the current depression?

If Keynesian economics was right, should we not have incredible prosperity due to the mountain of government spending in the 2000's? 

If you are right, we have nothing to worry about in 2010 due to the massive stimulus and low rates.  Let's hope that happens, but I am not confident.

Thu, 12/31/2009 - 13:52 | 179086 Anton LaVey
Anton LaVey's picture

If Keynesian economics was right, should we not have incredible prosperity due to the mountain of government spending in the 2000's?

Except, of course, that Keynesianism, in the USA, has been mostly focused on the militaro-industrial complex, and not on productive infrastructure, which is one of the basic tenets of Keynesianism: invest for the future.

Here is a little link to help you: http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

Let me give you a hint: USA military expenditures: 600 Billion dollars. All other countries on the list linked above: 472 billion dollars.

Fri, 01/01/2010 - 11:54 | 179814 Anonymous
Anonymous's picture

When Keynesians start to face into failure, they will have no choice but to make that previous militaro-industrial complex productive (i.e. via war). That is the essence of Keynesianism in a nutshell.

Fri, 01/01/2010 - 14:23 | 179922 Anton LaVey
Anton LaVey's picture

Oh. I suppose currently running two wars at the same time does not count, then? Now, that did a lot of good to the US economy, as we all know.

Fri, 01/01/2010 - 14:09 | 179910 WaterWings
WaterWings's picture

+gold coin

Thu, 12/31/2009 - 12:42 | 178971 Daedal
Daedal's picture

+666. Excellent point.

Thu, 12/31/2009 - 13:27 | 179047 WaterWings
WaterWings's picture

+666.

I thought you were saving that one for Anton when he actually proposed a viable solution!

Thu, 12/31/2009 - 13:46 | 179078 Daedal
Daedal's picture

I thought you were saving that one for Anton when he actually proposed a viable solution!

For that, I would give him a +(666-597)

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