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Say's Law And The Permanent Recession

Tyler Durden's picture




 

Submitted by Robert Blumen via the Ludwig von Mises Institute,

Mainstream media discussion of the macro economic picture goes something like this: “When there is a recession, the Fed should stimulate. We know from history the recovery comes about 12-18 months after stimulus. We stimulated, we printed a lot of money, we waited 18 months. So the economy ipso facto has recovered. Or it’s just about to recover, any time now.”

But to quote the comedian Richard Pryor, “Who ya gonna believe? Me or your lying eyes?” A Martian economist arriving on earth would have to admit the following: the US economy has experienced zero real growth since 2000. This is what I call the permanent recession. Permanent, because, unlike past downturns — there will be no recovery. To make the case for this view, I will rely on the ideas of several classical and Austrian economists: J.B. Say, James Mill, Mises, Rothbard, W.H. Hutt and Robert Higgs.

I will begin with the J.B. Say, who is known for the eponymous Say’s Law. To explain I will quote from Say’s Treatise on Political Economy:

[A] product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. ... Thus the mere circumstance of creation of one product immediately opens a vent for other products.

Say’s Law can be explained in the following terms:

1. The way that a buyer demands a good is by supplying a different good.

 

2. The supply of one type of good constitutes the demand for other, different goods.

 

3. The source of demand is production, not money. Money is only a temporary parking place for past production.

In the modern economy with division of labor, most of us demand goods when we supply our labor. I work as a software engineer. I supply my labor writing computer software. And from that supply I am able to demand other goods, such as coffee.

Say’s ideas were used to settle a debate between the British economists David Ricardo and Thomas Malthus who believed recessions were caused by a general glut. The concept of a glut for a single good is easy enough to understand: there is more supply on the market than demand at the offered price. A glut can be alleviated by a fall in the price of that good. The producers of the good may take a loss if the market price is below their costs, but the market can always clear at some price.

The idea of a general glut is that all markets for all goods are in surplus. And for some reason, prices are unable to fix the problem. Ricardo opposed Malthus, arguing that the concept of general glut violates sound economics and clear thinking. He argued this point using Say’s Law: because demand is constituted by supply, aggregate demand, meaning the demand for all goods on the market, consists exactly of all things supplied. Aggregate demand is not only equal to, but identical to, aggregate supply. The two can never be out of balance. And if a general glut is a logical impossibility, then it cannot be the cause of a recession.

The idea of aggregate supply and demand in getting out of balance has appeared many times in the history of economic thought. The same idea is either called overproduction or underconsumption, depending on whether the problem is too many goods or not enough purchasing power. Keynesian economics is a form of underconsumption theory. The overproduction/underconsumption theory has been debunked by sound economists, but like a zombie, it refuses to die.

It is acknowledged by both sides that, if Say’s Law is true, then Keynes’s entire system is wrong. Keynes knew this, so he took upon himself the task of refuting Say’s Law as the very first thing in his General Theory. Keynes’s argument was that Say’s Law is only valid under the conditions of full employment, but that it does not hold when there are unemployed resources; in that case we are in the Keynesian Zone where the laws of economics are turned upside down.

But, as Stephen Kates explains in his book Say’s Law and the Keynesian Revolution (subtitled How Economics Lost its Way), Keynes failed in his attempt to overturn Say’s Law. Kates shows beyond any dispute that Say and his fellow classical economists were well aware that there could be unemployed resources, and that Say’s Law was still valid in that case.

To summarize, there is no such thing as a general glut or a demand deficiency, we can have idle resources, and Say’s Law is still valid. So how did classical economists explain recessions? Producer error. Producers had produced the wrong mix of goods. James Mill in his essay “Commerce Defended” explains the meaning of producer error:

What indeed is meant by a commodity’s exceeding the market? Is it not that there is a portion of it for which there is nothing that can be had in exchange. But of those other things then the proportion is too small. A part of the means of production which had been applied to the preparation of this superabundant commodity should have been applied to the preparation of those other commodities till the balance between them had been established.

Kates and Gerard Jackson have argued that the classical economist had a theory of producer error much like the one later developed by Mises. Mises developed existing ideas and integrated Austrian capital theory and time preference theory to provide an explanation of why many producer errors occur at the same time. We know this as the Austrian theory of the business cycle.

Mises called the production errors malinvestment. These errors happen systemically because of fractional reserve banks loan money into existence that is not backed by savings. That misleads producers into thinking that there are more real savings available than society wishes to save. Producers then make both the wrong mix of capital goods of different orders, and the wrong proportion of capital goods in relation to consumption goods.

When there is malinvestment there must be a recession, for the following reason: there were never enough real resources to complete all of the capital projects that were started during the boom. The firms that started these projects either over-estimated the demand for their output, or, under-estimated their costs. Somewhere along the way, firms will discover that they cannot obtain all of the factors they need at a price below their costs. They cannot make profits. Many of them fail.

I will give an example of how malinvestment leads to a recession. I worked in San Francisco during the tech bubble. There were many tech startups. Each one assumed that they would be able to grow by hiring more employees at the prevailing wage rates. But the prevailing wages did not reflect the true scarcity of skilled technical people because all of these businesses planned to hire more workers over the same time frame. But the number of skilled engineers could not possibly grow that fast. If you think of a software engineer as a form of human capital, a software engineer has a long period of production and requires many inputs (mostly coffee, but some other things as well).

And there just weren’t enough engineers to build all of these web sites. One firm could have hired more engineers by paying double the prevailing wage, but it wasn’t in the economics of their business to do so. And in any case, most of the compensation was in imputed value of the stock options, which could be any number that you want if you assumed that the bubble will keep blowing up forever.

What this shows is that, while you can fund a new venture with money printing, you cannot print skilled workers or office space. At some point, real factors become the bottleneck, so their price has to rise. And when that happens, some producers get squeezed out because they cannot raise prices. If they over-estimated demand for their output from the start, they would have needed lower, not higher, costs to make profits. And that is the start of the recession.

Mises’s theory explains why the boom starts and why it comes to an end. Production errors cannot continue indefinitely because they result in losses. But why do we have a lasting recession? Why doesn’t everyone find a new job tomorrow? To explain, I will turn to the great English Austrian, W.H. Hutt.

Hutt used Say’s Law to explain the recession. Hutt observed that when one person becomes unemployed, he stops producing — and supplying. And from Say’s Law he loses his power to demand. Also from Say’s Law, his demand constituted the means for others to supply, and for those others to demand, so the prosperity of others is diminished. The malinvestments are the first ledge in the waterfall. Then, other businesses will see the impact, even those that were not originally part of the malinvestment.

Keynes said something like this in his model of the circular flow of spending. Keynes was right that there is an interdependence of all economic activity. But Keynes was wrong about consumption being the driving force of this: it is producing, not consuming. According to Say, the interdependence is constituted by the relationship of all production, not of expenditure. Expenditure of money is only the culmination of the process that began with production:

That each individual is interested in the general prosperity of all, and that the success of one branch of industry promotes that of all the others. In fact, whatever profession or line of business a man may devote himself to, he is the better paid and the more readily finds employment, in proportion as he sees others thriving equally around him.

I will here give another example. When I worked in San Francisco during the tech bubble, I got coffee every day at a café near my office. When the tech bubble burst, this café failed as well. Was that because they made bad coffee? Or because software engineers got tired of drinking coffee? I can assure you that did not happen. It was because customers at the café were part of the bubble. The difference between pets.com and the café is that, had there not been a bubble, the same café would have existed at the same spot, serving coffee to different people working at different jobs producing different things that were demanded by a balanced market, because people who go to work still want their coffee.

Hutt also had an economic explanation of how the economy recovers from a recession. He emphasized that any useful good or service can be integrated into the price system, somewhere, and at some price. Once someone is again producing, he can supply, and then he can demand, and by demanding, he creates a market for the supply of other producers. And so on. But that requires two things: time and flexibility.

It takes time for entrepreneurs to sort through the broken shards of the boom to figure out what is really in demand, and what the supplies of factors are. But the recovery will occur because eventually entrepreneurs see all of those unemployed resources as a bargain. Productive assets and labor won’t stay on sale forever. When prices of some factors get low enough, then the people who held on to some cash will see attractive yields.

Either people will move around, or just take the best job that they can in order to get by until things improve. The empty offices will get leased out. The key is that profit margins must open up. Hutt argued that can happen even in a depression if prices are flexible because there is always some way to combine inputs into outputs at a profit, if prices will cooperate. When confidence is low, entrepreneurs will make more conservative estimates of the market for their outputs, and they may require wider profit margins. You can think of it as a risk premium. And that means that the prices for some types of labor and capital must fall considerably not only from their bubble values, but in relation to other prices.

During the tech bubble, many small companies were formed. Every one of them required a director of engineering, a CEO, a CFO, and several other key management positions. People got hired into these jobs who lacked the experience to get such a job in an established company, or people at established companies were hired away and less experienced people were promoted. This process could be described as job title inflation: high level job titles were debased. When the recession hit, a lot of these positions simply went away, and the people who held them had to seek new jobs. Some of these people rose to the level of their new responsibilities and advanced their career, but others had to take a step back and accept a lower paying job with a less important-sounding title. And if they were unwilling to do so, then that prolonged the duration of their unemployment.

When there is no recovery, or it is long in coming, what got in the way? Hutt had an answer to this: the price system is blocked from working. Hutt emphasized wage rigidities caused by labor unions. Unions are cartels that attempt to create a monopolistic price by legally raising wages above labor’s marginal value product. When the price of something increases we move along the demand curve to a lower quantity demanded. Less quantity means less labor is hired into those jobs, and the displaced workers must find some other work, which is by definition lower paid or otherwise less preferable.

Hutt explained why labor unions decrease aggregate demand rather than increase it. When workers shift from a higher-valued occupation to a lower-valued one, they produce less, and therefore supply less, and by Say’s Law, demand less. And as Hutt showed, by demanding less, they diminish the market for the supply of others.

Anything that prevents wages or asset prices or capital market prices from falling moves markets away from clearing. In the modern world, one of the main barriers to recovery is Keynesian stimulus. Stimulus tries to create more demand without creating more supply. We know from Say’s Law that this is doomed to fail because supply and only supply constitutes the demand for other goods. What stimulus is really trying to do is to inflate the fake price system of the boom so that more expenditures can occur at the fake prices producing more of the wrong things for which there was never a real demand in the first place. And that cannot work because it was the breakdown of production under the fake prices that caused the boom to end. For a real recovery to occur, production must be reorganized along the lines of consumer demand.

Now I am going to turn to the Great Depression and show the relevance of Hutt’s thinking to that time.

Prior to the 1930s, recoveries from a panic, as they were called, took about 12-18 months. The great depression of 1920 (the one that you’ve probably never heard of) lasted about that long. Why? As historian Thomas Woods wrote, “Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.”

The Great Depression also began with a stock market crash followed by a downturn. As the price system began to work, a normal recovery had begun by the early 30s. Then the New Deal kicked in, which created a depression within a depression that lasted until the mid-1940s. Ten years later, what could have kept the US economy underwater for 15 years? The price system was blocked, especially in labor markets.

Herbert Hoover held to a variation of underconsumption theory called the purchasing power theory of wages[1] According to this theory, high wages in themselves created more purchasing power. And by “high” he meant, above market values. Low wages, thought Hoover, were the cause of the depression because labor did not have enough purchasing power to buy back its own output. Hoover exhorted business leaders not to lower wages, and many of them believed him and followed his advice, or did so because they were clear enough that regulation would follow had they not complied. As explained by standard price theory, Hoover’s policies produced unemployment on a massive scale.

Hoover also believed in a strange class warfare doctrine. He thought that by preventing wages from falling, that all of the burden of the adjustment of production could be shifted from labor as a class to capital as a class. In America’s Great Depression, Rothbard quotes Hoover as follows:

For the first time in the history of depression, dividends, profits, and the cost of living have been reduced before wages have suffered. ... They have maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.

Following Hoover was FDR, who made things even worse. One of the New Deal agencies, the National Recovery Administration, employed agents to scour the country looking for stores that were lowering their prices. From Jim Powell’s FDR’s Folly: How Roosevelt and his New Deal Prolonged the Great Depression:

There were some 1,400 NRA compliance enforcers at fifty-four state and branch offices. They were empowered to recommend fines up to $500 and imprisonment for up to six months for each violation. On December 11, 1933, for instance, the NRA launched its biggest crackdown summoning about 150 dry cleaners to Washington for alleged discounting.

In addition to problems with prices, there was a deeper problem with the New Deal. For that, I will turn to the contemporary economic historian Robert Higgs.

Higgs has noted that the Great Depression was characterized by a collapse in capital spending. Austrians know that capital accumulation is what increases real wages. And capital consumption means lower real wages. We also know that a large volume of gross capital investment is required to offset capital simply wearing out from use every year. Net capital investment begins only when gross investment more than offsets capital consumption. And there is nothing to ensure that any volume of gross investment at all must occur during any given year. If investors stop investing, then the capital stock shrinks, and real wages, even under conditions of full employment will fall.

The reason for the collapse in investment was, says Higgs, “a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns.” Higgs calls this regime uncertainty. This rational fear was based on the ideology of the New Dealers. The New Deal brain trust was full of anti-market ideologues who wanted to restructure the US economy from a free enterprise system to a socialistic-fascistic centrally planned system.

Higgs gives several pieces of evidence in support of the regime uncertainty hypothesis. One, qualitative, was the writings of business leaders in which they explained their reasons for lacking the confidence to invest. Second, opinion polls showing the same thing. And the third was the sharp rise in the term premium of corporate bond yields at maturities beyond one year. While we can only guess at the reasons for this, Higgs points out that it was not the usual yield curve that we are accustomed to in bond markets. Higgs attributes this heightened risk premium to the extreme levels of uncertainty investors had about the future of property rights in equity and debt, which are long time horizon assets.

And now I am at the point that I promised in the title. It is my view that we have been in a recession since 2000, that the economy has not recovered, and will not recover. I will first provide some supporting evidence that the economy is in a recession, and then explain why.

John Williams, an economic statistician and the proprietor of the web site Shadowstats, has produced a version of the real GDP based on the government’s nominal GDP deflated by his own GDP deflator. (The GDP deflator is sort of like the CPI, a price index that is used to convert nominal GDP into real GDP. For some reason they don’t use the same price index for both consumer prices and for this.) Like Williams’s own CPI, his GDP deflator is computed with older rules from before the time when the BLS began cooking the books to hide inflation. Williams’s measure of real GDP shows low to negative growth over the period since 2000.

Another way of measuring the economy is through the capital stock. The US economy requires about a trillion dollars per year of gross investment just to replace capital consumption. Higgs has written that real net private investment for 2012 was at an indexed level of 60 compared to a baseline of 100 for 2007. Corporate America is sitting on huge piles of cash rather than investing it. American non-financial corporations hold more cash than they have for 50 years.

Many measures of labor markets show zero to negative wage growth. While this is to some extent due to problems in labor markets themselves, a shrinking capital stock should show up as lower wages. Look at the labor force participation rate: it is now at the lowest level in decades and is plummeting rapidly. Also check out the trend in median household income. Analyst Jeff Peshut at RealForecasts publishes some similar graphs showing the negative trends in the volume of employment in labor markets.

Anecdotally, the media frequently reports that new college graduates cannot find career path entry level jobs, so they are forced to enter the labor force on a low wage track doing relatively unskilled work.

Another way of looking at the size of the economy is through the rate of time preference. Higher time preference means less saving, less investment, and less capital accumulation. But how do we measure it? Interest rates and yields generally of all kinds of assets, both financial and corporate balance sheets, are a measure of this.

Profit margins reflecting internal yields on US corporate assets have increased in the last few years. According to what Andrew Smithers disparagingly refers to as “stock broker economics,” high rates of profit are good for stocks. The Austrian economist Jesús Huerta de Soto makes an under-appreciated point about profit margins and stock prices.[2] Pervasively high or increasing rates of profit may show that the rate of time preference is increasing, implying that the capital stock is shrinking. If not time preference, then the perception of risk may be increasing, which would have a similar depressing effect on investment.

Given the work of Hutt and Higgs in explaining why a recession persists with no recovery, here is a list of factors causing price inflexibility and regime uncertain in today’s economy:

1) Capital market price floors, like the Greenspan-Bernanke put and QE which prevent the markets for capital goods from clearing.

 

2) Bailouts of Wall Street, which are another form of price floors, and keep the incompetent management teams in place.

 

3) The nationalization of the mortgage market, another form of capital market price floors and house price floors, which removes the largest sector of credit markets from the domain of economic calculation.

 

4) Obamacare. Besides the direct costs for taxpayers, the bill introduces massive incentive changes in labor markets, the implications of which are still not clear.

 

5) Economist Casey Mulligan documents extensive changes in labor market incentives in his book The Redistribution Recession. He argues that these changes have created a huge implicit tax on income for the unemployed contemplating an offer of paid work.

 

6) The pending default of most pension plans including Social Security, the medical welfare state, US states, counties, and cities. How the default will be paid for is creating great uncertainty.

 

7) Uncertainty created by the threat of wealth taxation and bail-ins, as outlined in an IMF paper.

 

8) The surveillance of all financial transactions and expanded reporting requirements for the assets of wealthy investors

As Hayek said, the more the state centrally plans, the more difficult it becomes for the individual to plan. Economic growth is not something that just happens. It requires saving. It requires investment and capital accumulation. And it requires the real market process. It is not a delicate flower but it requires some degree of legal stability and property rights. And when you get in the way of these things, the capital accumulation stops and the economy stagnates.

 

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Tue, 03/04/2014 - 22:56 | 4510280 zionhead101
zionhead101's picture

Wow two von-mises papers in one day....

Most telling is they're quoting the IMF to prove their assertions, this is like using AIPAC 'talking points' to prove assertions.

IMHO this Von-Mises ain't Austrian, its Keynes in Drag.

It's like Obama put on a dress, and announced to the world he has gone "Austrian".

*

In summary the IMF is the enemy, if the IMF is best and only way that this Von-Mises Poster can find to justify his position then I call this this POST bullshit.

*

Lastly, "SAYS LAW", says that "BAD MONEY, DRIVES OUT GOOD MONEY", ... the title mentions Say's Law, but it no where to be found in the article, WTF?

It is not easy to say what exactly Say's law says about the role of money - wiki

Yep, wiki gets it right, ... Say's Law is a name dropper, dropped frequently by the ignorant.

BAD MONEY, CHASES OUT GOOD MONEY. End of Story.

*

Look at Mt-GOX (KARPELES DUAL CITIZEN ) BITCOIN, ... lots of BTC, but no fucking CASH or GOLD at redemption time.  BITCOIN to the ceiling, but not a nickel of wealth.

Tue, 03/04/2014 - 23:09 | 4510324 Harry Dong
Harry Dong's picture

I see way too many logical assumptions in this article too. But I need to read this after my 90 proof gin wears off

Have you supported your local coin shop today? I have a quote of 17x face for junk ssilver here...that's good I think.

Wed, 03/05/2014 - 02:04 | 4510717 DoChenRollingBearing
DoChenRollingBearing's picture

17 times face value was the latest price for me at my LCS.

Wed, 03/05/2014 - 02:53 | 4510780 zionhead101
zionhead101's picture

Shit my drinking hours does not start another 4 hours, ... I can deal with it, ... not :(

 

Wed, 03/05/2014 - 10:32 | 4511378 Harry Dong
Harry Dong's picture

OK, I reread it. I give it a c-. 

When you write code and you have to keep writing correction algos to debug, then maybe you need to go back and look for a better original program! This article is goal seeking. 

Economics = soft science. Proof is never quite possible.

Tue, 03/04/2014 - 23:14 | 4510338 Harry Dong
Harry Dong's picture

Point of order. Gresham's law...or did say say the same?

Tue, 03/04/2014 - 23:36 | 4510407 NotApplicable
NotApplicable's picture

No. It seems that the ziotroll couldn't be bothered with an intelligent rebuttal.

Say's Law can be condensed to "Markets Clear." (which, of course, what this entire article was about)

Wed, 03/05/2014 - 02:51 | 4510778 zionhead101
zionhead101's picture

Some say that Say's says the same thing others attribute Gresham, wiki seems to be unclear whether Say ever said anything about money.

*

My point is that the POST is worthless.

Even if we follow Say's point, which is about 'production' its irrelevant to the USA we live in, as the JOB's were exported in the last century, and Say' was in the 1800's.

My fucking god.

WIKI sums it up best "When you hear somebody mention "SAY's Law", there is good chance you have found a blow hard or a wannabe economist"

 

Wed, 03/05/2014 - 03:37 | 4510830 merizobeach
merizobeach's picture

Shut up, asshole.  Nobody here cares what you think anymore, and you have long since lost all semblances of credibility.  Now go back to your hillybilly drinking friends and retell to them for the hundredth time how half the boys in your high school wore eyepatches, you goddamned liar.  Maybe they'll believe your bullshit, or at least tolerate your stupid ass.  But not here--GET THE FUCK OUT.

Tue, 03/04/2014 - 23:54 | 4510438 Vint Slugs
Vint Slugs's picture

Actually, Zionh, Say's Law says nothing about money.  The author stated Say's Law and you are totally ignoring or mis-interpreting him.  Your ill-formed quote about bad money is actually a failed attribution to Gresham.  Why don't you try to get a little intellligence before you try to articulate such BS as above? 

I can't believe the abysmal depth of the ignorance that we are recently seeing from posters here at ZH.

End of story.

Wed, 03/05/2014 - 00:30 | 4510540 zionhead101
zionhead101's picture

Jean-Baptiste Say (1767–1832), who stated that "products are paid for with products"[1] and "a glut can take place only when there are too many means of production applied to one kind of product and not enough to another".[1]:178–9 In Say's view, a rational businessman will never hoard money; he will promptly spend any money he gets "for the value of money is also perishable."[

*

Well lets do it then, let's see what the HELL does the USA produce? NADA nothing, ...

So it's irrevelant to even discuss production in an economy that has no production, a pure consumer economy.

Say would call the USA a failure.


Wed, 03/05/2014 - 01:20 | 4510643 HisNameIsRP
HisNameIsRP's picture

We produce paper and bullets

Wed, 03/05/2014 - 02:06 | 4510719 DoChenRollingBearing
DoChenRollingBearing's picture

Well, yes re bullets.  But, a lot of the bullets I buy are made in Korea, Hungary and Russia.  USA too.

Wed, 03/05/2014 - 02:48 | 4510770 zionhead101
zionhead101's picture

Well most of the FIAT that the USA creates is virtual, thus that's hardly producing.

Lastly, for all us Gunny's, the day's of LAKE-CITY ammo are long over, and all my ammos say' MADE in Some where other than USA.

 

Wed, 03/05/2014 - 09:40 | 4511210 N2OJoe
N2OJoe's picture

Sadly, most of the bullets USA produces are bought by .gov for (near)future use against it's own citizens

Wed, 03/05/2014 - 01:39 | 4510667 Capitalist
Capitalist's picture

lol the US produces nothing?

 

Please stop with the hyperbole or you will lose what little credibility you have left.

Wed, 03/05/2014 - 02:46 | 4510769 merizobeach
merizobeach's picture

Say, Satoshi, you fucking drunken sock-puppet, how many handles do you have to spam us with your brainless ramblings?

Tue, 03/04/2014 - 22:56 | 4510289 I Write Code
I Write Code's picture

You sure talk a lot.

All of this stuff is obsolete today, and the new laws have not been written yet.

This part is great:

as Hayek said, the more the state centrally plans, the more difficult it becomes for the individual to plan.

But it doesn't really relate to the long screed posted here.

Tue, 03/04/2014 - 22:59 | 4510299 zionhead101
zionhead101's picture

It can be said in just a few words ...

Jean-Baptiste Say (1767–1832), who stated that "products are paid for with products"[1] and "a glut can take place only when there are too many means of production applied to one kind of product and not enough to another".[1]:178–9 In Say's view, a rational businessman will never hoard money; he will promptly spend any money he gets "for the value of money is also perishable."[1]:138–9

So, why in the fucking hell does the ZH bot's have to dump 2 Von-Mises 'talking points' in one day?

I can only think they want to push something down on the front page.

 

Tue, 03/04/2014 - 23:01 | 4510304 zionhead101
zionhead101's picture

If you look at face value here, this is what they want, everyone to be a consumer and run out and spend their  money,... they don't want savers, they want spenders.

But here's the deal, if you spend all your money as advocated, then you have to become a government beggar on the dole, ... aka FSA.

This is the fucking the ENEMY talking folks.

 

Wed, 03/05/2014 - 02:48 | 4510772 merizobeach
merizobeach's picture

Satoshi, you're a fucking spammer.  How long will it take for you to get banned again this time?

Tue, 03/04/2014 - 23:57 | 4510449 Vint Slugs
Vint Slugs's picture

So you can cut and paste from wikipedia.  Have you ever had an original thought or revelation in you life? 

Tue, 03/04/2014 - 22:57 | 4510293 Carl Popper
Carl Popper's picture

It is too bad you are preaching to the choir here.  There are a lot of statists on both teams who believe in central planning, but they don't even recognize their proposals as central planning. 

 

One should be required to run a business for a while and meet payroll before being allowed to run for office, even having run a business that failed would qualify. 

Tue, 03/04/2014 - 23:31 | 4510388 Son of Captain Nemo
Son of Captain Nemo's picture

One should be required to run a business for a while and meet payroll before being allowed to run for office, even having run a business that failed would qualify.

CP you shot the lights out with that one!

How many of those have we had in public office at "any" level?  This is our whole systemic problem.  They've never failed because they've never understood the challenges of running a business "failing" and learning how to succeed from that failure.  This is what living an entire life inside "ivy covered walls" does.  It rewards nothing else but obedience and imprinting, and if you are lucky enough in the caste system the teacher that also never left the collegiate yard becomes your mentor (in our system) if you are lucky!

I use to think that if you wanted to be the President of the United States you had to have as your conditional prerequisite an understanding and service in the military which should be compulsory on any Commander-in-Chief's resume.  I was wrong.

Give me a fortune 500 executive with integrity that didn't get rewarded for his/her selling out the Company to offshore it, or that merged like companies together cut the workforce, took the moeny then ran...

Trouble is how many of those types are even left today???!

Wed, 03/05/2014 - 01:10 | 4510621 Future Jim
Future Jim's picture
 
The Honest Labor Amendment

The Honest Labor Amendment would disqualify candidates like Bill Clinton, George Bush, and Barack Obama because only those candidates who had performed sufficient honest labor would qualify.

Let’s first define what we are calling honest labor. Honest labor complies with honest laws, competes with other honest labor, and is voluntarily exchanged with another individual who voluntarily traded the fruits of his own honest labor.

Now let’s explore what is not honest labor.

By definition, governments spend money they either borrowed, printed out of thin air, or collected from other people by force. Governments also tend to forbid competition with their services. Governments ban the fruits of some labor, subsidize other labor, and even force us to buy some products and services. Governments even compel people to serve in their military. Therefore, any labor performed for a government is not honest labor.

The legal profession is a special case. Everyone knows it has a dishonest reputation and is intimately dependent on government, but perhaps more important is that about 90% of Congress has a law degree, and Congress has an approval rating of 11%, and our goal is to improve Congress …

Even work done by private sector doctors is not honest labor because doctors are protected from competition.

Volunteer work is also not honest labor because even those rare volunteer jobs that avoid the taint of government are not a two-way trade.

Therefore, very few people actually perform honest labor, but we don’t have to be purists to make an effective amendment. The Honest Labor Amendment merely needs to be fair, effective, and enforceable.

The Honest Labor Amendment

No one shall qualify for the Congress or for the office of the President of these United States without having first performed 10 years of labor separate from government and independent of individuals and organizations receiving government funding.

Wed, 03/05/2014 - 11:44 | 4511371 Ident 7777 economy
Ident 7777 economy's picture

Why George Bush?

 

Put your ass in a jet fighter or go out chasing down land titles and their owners for a few years; don't tell met that ain't work! And managing a baseball team, on-site and being there before anybody else? Give me a fricken break!!!!!!

 


 


Wed, 03/05/2014 - 01:09 | 4510617 Future Jim
Future Jim's picture
 
Progressive Epiphany Forgotten

At a time when the President is trying to revive old-school progressivism, he would be wise to remember the 1992 epiphany by old school progressive George McGovern. Like the current President, Senator McGovern had been making rules for businesses while having never worked in the real business world nor having owned a real business. Then McGovern, the former Presidential nominee for the Democratic party, spent 12 years collecting nice lecture fees around the world as he taught us all the wisdom of regulating business.

Then, in a beautiful act of Karma, he took all his capital and invested it in a business – The Stratford Inn. Only after suffering under the very rules he created and promoted, did he finally have something to teach us:

A Politician's Dream Is a Businessman's Nightmare

(BY GEORGE MCGOVERN)

“Wisdom too often never comes, and so one ought not to reject it merely because it comes late.” --Justice Felix Frankfurter.

The Stratford Inn promised the realization of a longtime dream to own a combination hotel, restaurant and public conference facility--complete with an experienced manager and staff.

In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn's 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.

We intuitively know that to create job opportunities we need entrepreneurs who will risk their capital against an expected payoff. Too often, however, public policy does not consider whether we are choking off those opportunities.

My own business perspective has been limited to that small hotel and restaurant in Stratford, Conn., with an especially difficult lease and a severe recession. But my business associates and I also lived with federal, state and local rules that were all passed with the objective of helping employees, protecting the environment, raising tax dollars for schools, protecting our customers from fire hazards, etc. While I never doubted the worthiness of any of these goals, the concept that most often eludes legislators is: `Can we make consumers pay the higher prices for the increased operating costs that accompany public regulation and government reporting requirements with reams of red tape.' It is a simple concern that is nonetheless often ignored by legislators.

For example, the papers today are filled with stories about businesses dropping health coverage for employees. We provided a substantial package for our staff at the Stratford Inn. However, were we operating today, those costs would exceed $150,000 a year for health care on top of salaries and other benefits. There would have been no reasonably way for us to absorb or pass on these costs.

Some of the escalation in the cost of health care is attributed to patients suing doctors. While one cannot assess the merit of all these claims, I've also witnessed firsthand the explosion in blame-shifting and scapegoating for every negative experience in life.

Today, despite bankruptcy, we are still dealing with litigation from individuals who fell in or near our restaurant. Despite these injuries, not every misstep is the fault of someone else. Not every such incident should be viewed as a lawsuit instead of an unfortunate accident. And while the business owner may prevail in the end, the endless exposure to frivolous claims and high legal fees is frightening.

Our Connecticut hotel, along with many others, went bankrupt for a variety of reasons, the general economy in the Northeast being a significant cause. But that reason masks the variety of other challenges we faced that drive operating costs and financing charges beyond what a small business can handle.

It is clear that some businesses have products that can be priced at almost any level. The price of raw materials (e.g., steel and glass) and life-saving drugs and medical care are not easily substituted by consumers. It is only competition or antitrust that tempers price increases. Consumers may delay purchases, but they have little choice when faced with higher prices.

In services, however, consumers do have a choice when faced with higher prices. You may have to stay in a hotel while on vacation, but you can stay fewer days. You can eat in restaurants fewer times per month, or forgo a number of services from car washes to shoeshines. Every such decision eventually results in job losses for someone. And often these are the people without the skills to help themselves--the people I've spent a lifetime trying to help.

In short, `one-size-fits-all' rules for business ignore the reality of the market place. And setting thresholds for regulatory guidelines at artificial levels--e.g., 50 employees or more, $500,000 in sales--takes no account of other realities, such as profit margins, labor intensive vs. capital intensive businesses, and local market economics.

Wed, 03/05/2014 - 08:21 | 4511058 Element
Element's picture

We are lead by over-rated vegetables who have no idea why ins must at least equal outs, just to keep the doors open, adn even then its often far from enough to make it worth it.

If they ran a business for a few years they would understand what banking actually does a bit better, in the real world.

They might also realize that if businesses are subject to bankruptcy, then ALL banks must be 100% subject to it too,

The fact that politicians either don't know that, or else simply pretend to not know it (i.e. the truth), is one of many reasons why I'll never vote in nor support this sick depraved twisted evil scum-sucking fuck of system that undermined and bridled by thieves and parasites, for thieves and parasites.

Wed, 03/05/2014 - 10:32 | 4511379 Ident 7777 economy
Ident 7777 economy's picture

Surprisingly rational post ... shocked does not describe how I took that ...

Tue, 03/04/2014 - 22:58 | 4510297 TheRideNeverEnds
TheRideNeverEnds's picture

But I am told there have been several sightings of green shoots in the vicinity, what about that? 

Tue, 03/04/2014 - 23:00 | 4510302 blindman
blindman's picture

what of first good, nature?
.
EDDIE & THE HOT RODS ON SKYDOG TV / 3

http://www.youtube.com/watch?v=Kcwr6rIfKkE

Tue, 03/04/2014 - 23:02 | 4510308 Greenskeeper_Carl
Greenskeeper_Carl's picture

when you havent had real growth in 14 years, i believe that called a depression, not a recession. Papering over it has worked so far, but its requiring more and more bullshit, which is returning less and less

Tue, 03/04/2014 - 23:24 | 4510350 tickhound
tickhound's picture

"A Martian economist arriving on earth would have to admit the following: the US economy has experienced zero real growth since 2000."

??????

A Martian would fucking LAUGH at our waste, inefficiency, parasitic nature, and suicidal addiction to infinite growth

"This is what I call the permanent recession. Permanent, because, unlike past downturns — there will be no recovery."

GOOD. Cuz what human should want this reverse Darwinian Birthing Consumption 'economy' to recover?

"Economic growth requires saving"

Funny how the only time words like 'saving' or balance or preservation
are used it's to pimp more growth.

It's really as if people think AliENS are gonna land and the first thing they'll show us is the FOOD COURT on the ship.

Tue, 03/04/2014 - 23:26 | 4510381 monad
Wed, 03/05/2014 - 00:02 | 4510469 besnook
besnook's picture

economic growth is shaving pennies and dollars off the wealth effect market then spending the proceeds in your local community to support the poor working stiffs who still think they have to work to make a living. the only thing better is selling pot.

Wed, 03/05/2014 - 00:13 | 4510491 GooseShtepping Moron
GooseShtepping Moron's picture

This is actually a very good article. I'm not sure what there is to complain about.

Wed, 03/05/2014 - 01:13 | 4510623 HisNameIsRP
HisNameIsRP's picture

Very good indeed, But I can see how fucked we are, when even ZH'ers are crapping all over it. 

It's basic econ 101, I would like to add

Paying productive labor to stay home, unemployment, foodstamps, wellfare of all kinds

Not allowing the market to "clear" means entrepreneurs will not provide jobs and the result is college educated busboys displacing unskilled workers trying to enter the lower rungs of the workforce.

We should tatoo JB Say's law on the Bernanke's and Yellen's foreheads 

Wed, 03/05/2014 - 10:40 | 4511417 Ident 7777 economy
Ident 7777 economy's picture

Hear hear!

Wed, 03/05/2014 - 00:18 | 4510506 highwaytoserfdom
highwaytoserfdom's picture

Lets see if this circular logic makes any sense we print up a billion give it to Ukraine to pay there debtors ahhhh Russia. In the mean time Russia parks money in Cyprus ahhhhh....   Umm Germany funds EURO hmmmm   Wait  China bought our debt?   Hmmm Jamie  is not giving Germany its gold back?      

 

I got it  moral hazard....    and I don't even live in Colorado...........Can I short the TBTF Bank?

Ben the helicopter said it was  "overconfidence"   Austrians  can be just  as tempted by wrath, greed, sloth, pride, lust, envy, and gluttony..

http://www.youtube.com/watch?v=DVG1q49yPaY

 

 

 

Wed, 03/05/2014 - 01:30 | 4510657 HisNameIsRP
HisNameIsRP's picture

Upvote for Sgt Schultz

Wed, 03/05/2014 - 02:02 | 4510709 One of We
One of We's picture

I thought it went like this:


Print $some billions, give them to Ukraine, Ukraine buys various shit worth $some billions from US MIC and viola! Moar GDB (gross domestic bull shit) and adoring dependents around the globe!!!

 

Wed, 03/05/2014 - 00:45 | 4510577 Element
Element's picture

 

 

"the US economy has experienced zero real growth since 2000. This is what I call the permanent recession."

 

British Empire  --> debt  -->  Stasis  -->  Where are they now?

 

Japan 1988 was set to overtake US economy  --> debt  -->  Stasis  -->  Where are they now?

Wed, 03/05/2014 - 10:33 | 4511383 Ident 7777 economy
Ident 7777 economy's picture

Care to continue that series?

Wed, 03/05/2014 - 01:15 | 4510631 blindman
blindman's picture

http://www.youtube.com/watch?v=cjWTFlg2Er0
George Harrison - The Last Performance (John Fugelsang)

Wed, 03/05/2014 - 01:39 | 4510666 I Write Code
I Write Code's picture

Look, Say's Law is just way too simplistic.  He's trying to capture the idea that work, any work, produces value and in general Producing Value Is A Good Thing.  But if everyone decides to make artificial flowers, it turns out you're not really producing value at the macroeconomic level.  And if there's a robot over here producing artificial flowers about 1000x faster than any individual can, then even with massive demand for artificial flowers YOU aren't going to do well, making them yourself.

If you see what I mean.

Wed, 03/05/2014 - 02:36 | 4510756 besnook
besnook's picture

swing and a miss

Wed, 03/05/2014 - 21:46 | 4514371 Amagnonx
Amagnonx's picture

Say's law is talking about AGGREGATE production - you have completely missed the entire idea, and are trying to apply an aggregate theory to a specific good. An analogy of what you are doing is lighting a match with a known energy - and because temperature of the matchstick doesnt increase by enough to contain all the energy, you claim that first law of thermodynamics is completely wrong - but you just ignored the heat convected away by the air, and the radiated heat.

 

Additionally; you will notice the existence of the word 'value' in the statement. This is a very specific meaning - if you produce a good with zero or negative demand, then the value is zero or less - and you either create no value, or you destroy capital.

 

"[A] product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. ... Thus the mere circumstance of creation of one product immediately opens a vent for other products."

 

Say's law is talking about aggregate production - within this aggregate some production is happening below cost, and is consuming capital - but this cant be sustained - so overall production must be profitable, or it wouldnt exist - you cant go on making a loss forever.

Wed, 03/05/2014 - 03:55 | 4510845 damicol
damicol's picture

It is precisely  the reason why our business is succeeding.

The reason is very simple and very easy to understand if you can accept one simple premise.

The growth in bureaucracy is nothing more than the parasitic theft of your labor to feed the incompetent, the retarded, the degenerate, and the sociapathic  mobs of hangers on  sanctimonious official type self important  and self aggrandizing bottom feeders who can and will do everything they can to extend and draw more blood from the host even as the host is dying.

The parasites in short, in the form of the unutterably feeble minded keynsian cretins and their retarded  blood sucking pond scum like krugman who will post their smarty crocks of horseshit knowing full well that they are the queen parisites.

I will give you one example of the feeble minded cretins this state of affairs  engenders.

Look no further than the police forces.

Now peopled with  talentless  cowardly self serving self important faggots that have just found the gym and have become muscle marys.

Looking like Arnold Schwartzeneggor dolls  pumped up muscles and crouching like they have a bad dose of crabs and clad all in black bristling with an armoury of toys and trying to sound tough, they give them selves away.

Real men only need a jacket and tie and know they have the courage  confidence and understanding of the situation to deal with it.

Without looking like some form of alien ninja.

Strip away the helmets stun guns rifles revolvers night sticks and tazers cudgels  and the rest of the toys adorning these fairies and you soon see them for what they are,

faggots who found the gym and thought that made them tough now like real men.

So now they need more and more of them to reinforce themselves and more and more of your money to feed these cretins  and more and more these  faggots become bullies  financed by you through their half wit masters in Congress.

But they are still faggots. and cowards when stripped of the fallacy of toys

The way to go is simple.

 Evade bureacracy, get whatever you can off-shore and run your business from there.

It is not hard to do, and once you understand it, it becomes easy to acheive.

I do not deal with bureacrats, period. I do not pay US taxes, period. Business is good. period

 

 

Wed, 03/05/2014 - 07:25 | 4511003 kurt
kurt's picture

Face it. You want to be held down by one of those "Marys" and ravished to the point of inflammation.

Wed, 03/05/2014 - 05:57 | 4510932 smacker
smacker's picture

"...the US economy has experienced zero real growth since 2000."

 

True, but the zero real growth era began years before 2000. I estimate a generation earlier.

The widening gap between 'real growth' -vs- 'voter expectations' - driven by political promises - was filled with debt at all levels of society. Until that became unsustainable. Add rising energy prices and the rest is history.

There is no discernible recovery and the ruling elites don't know what to do. So they've resorted to lying, manipulating monetary policy, central planning, manipulating economic statistics and more lying. Rinse and repeat.

Wed, 03/05/2014 - 06:25 | 4510958 kurt
kurt's picture

I was following until I got to the poison pill: unions are bad for demand.

 

Bullshit. The middle class developed because of union efforts. It is being destroyed by dilution of all that was accomplished. 

 

As wages went up, consumption went up. It is still the case but the Long Conspiricy has decided they don't like middle classes anymore and they are happy beating that horse to death.

Wed, 03/05/2014 - 10:38 | 4511408 Ident 7777 economy
Ident 7777 economy's picture

Because of unions? You need to review your history vis-a-vis Henry Ford decding (at the outset of Ford) to pay a wage that would allow THE PURCHASE of his products .. THIS WAS DONE through the use of the 'mass production assembly line', which allowed economical production of automobiles (and other good eventually) ...

 

 

Wed, 03/05/2014 - 06:47 | 4510971 AnAnonymous
AnAnonymous's picture

In 'american' economics, growth requires savings, savings made by others that 'americans' thieve to spur their growth.

Hard to find those Indians to sponsor the 'american' growth these days.

For 'americans', the world is shrinking.

Wed, 03/05/2014 - 07:04 | 4510982 Ralph Spoilsport
Ralph Spoilsport's picture

Is there any truth to the latest report from Beijing that Xi Jinping is a fluffer?

Wed, 03/05/2014 - 07:23 | 4511001 esum
esum's picture

REAL USSA ECONOMICS

half+  sit on their useless azz and demand EVERYTHING

how can an economy "recover" with such an albatross dragging it down... and how can it compete in a global economy... 

 

Wed, 03/05/2014 - 08:13 | 4511055 Cloud9.5
Cloud9.5's picture

 

This is an interesting perspective. I like the idea that production spurs other production.  In a reasonable world, a person would have to produce something of value to barter for something he wants.  In the world of government largess/confiscation, not so much.  I think in today’s market we suffer from a surplus of labor.  We live in a world where because of fossil fuels one percent can feed the rest of us.  That surplus marginal labor is placated with bread and circuses.  At the moment, producers cannot compete with government subsidies for the low end of the labor market.  We have to import Mexicans to pick our fruit because the entitled population is not about to give up its air conditioning and remote for menial labor.

 

If peak oil is correct, this entitled population is going to present us with a host of problems as more cheap energy drains out of the system.

 

Wed, 03/05/2014 - 08:26 | 4511068 gmak
gmak's picture

In summary: We are what we produce. And, we had better damn well save some of that production for when we are no longer capable of producing it.

Wed, 03/05/2014 - 10:39 | 4511412 shovelhead
shovelhead's picture

No problem.

Social Security is doing that for you. INVEST NOW, RELAX LATER...

HAHAHAHAHA.

Wed, 03/05/2014 - 09:34 | 4511114 kenezen
kenezen's picture

Historically, we've had a pretty good run. We're kinda like China who had good runs then went down. Rome who had a really good run then went down. great religious empires have fought for centuries with empires that covered the Earth then got less powerful.  Now we have globalization and instantaneous communication. 

These past decades,  When a government gets Governmental-crazy, capital immediately flees and transforms to a more substantial and durable form elsewhere. The government then has to create through any means available currency to distribute maintaining some semblance of coherence Does that ring true here?

Removed converted capital now houses in places that may survive the chosen disaster. Examples are, Bermuda Re-Insurance, Singapore and others with trillions to other places with consolidated holdings of converted wealth. It's generally because a government has become inefficient as a practical economy. Politics, power accumulation, favoritism to a specific social practice rather than commerce, all cause this erosion of sustainability. Capitalism modified from its original intent and purpose destroys business sustainability. 

And Here We are! 

Wed, 03/05/2014 - 16:53 | 4513407 mumbo_jumbo
mumbo_jumbo's picture

LOL, I've only read a few lines and i can explain the problem easily.

MOST AMERICANS DON'T EARN ENOUGH MONEY TO SUPPLY DEMAND FOR THE AMERICAN ECONOMY,

that about sums it up.

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