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More Spending Is Not The Answer To A Slow Economy

Tyler Durden's picture




 

Submitted by Dr. Richard Ebeling via The Cobden Centre blog,

Old fallacies never seem to die, they just fad away to reemerge once again later on. One such fallacy is that if there is significant unemployment and slow economic growth it must be due to not enough consumers’ spending in the economy, what Keynesian economists call a “failure of aggregate demand.”

This fallacy has been voiced, once more, in a recent interview with Joseph Stiglitz, professor of economics at Columbia University and the 2001 recipient of the Nobel Prize in Economics.

In an interview that appears in the British “Globe and Mail” on May 8, 2015, Stiglitz blames the sluggish economic growth in the U.S. and around the world, with accompanying unemployment, on weak market demand due to income inequality.

“You are not going to have robust growth without adequate demand,” says Stiglitz. “The people at the top who have seen big income gains are saving large portions of their income, on average 35 percent. Those at the very top are not spending their money. People at the bottom, on the other hand, have no choice. To just get by, they have to spend all their income.”

Stiglitz goes on to say, “The contention that people at the top are the job creators and, if you tax them at higher rates, they won’t create jobs is nonsense. The fact is there is talented entrepreneurs at all levels of the U.S. economy. Whenever there is demand, jobs get created and entrepreneurship flourishes. Our big corporations are sitting on upwards of $2-trillion. The reason they are not investing it is there’s no demand for their goods.”

Stiglitz argues that what is needed is to “get the economy growing by more equitably sharing income gains and investing in our future.”

Taxing or Deficit Spending Do Not Create Jobs

First, if the government attempts to “stimulate” the economy through more of its own spending, the question has to be asked: From where will come the financial means for the government to increase its expenditures?

If the government taxes the citizenry to finance its increased spending, then every dollar more that the government spends by necessity reduces taxpayers’ spending by an equivalent amount. The net change in overall or total spending in the economy would be zero.

If the government runs a budget deficit, it must borrow the dollars it wishes to spend above what it takes in, in taxes. Every dollar borrowed by the government in the loan and financial markets is one dollar less of people’s savings available for someone in the private sector to borrow for some investment or consumer purchase. Again, the net change in overall or total spending in the economy would be zero.

If it is argued that the government need not siphon away a dollar from a private-sector borrower because it can offer a higher rate of interest to attract more savings, the net result will still tend to be the same. Why?

If income earners decide to save more due to an attractively higher rate of interest the government offers to pay for some of those borrowed dollars, it means that that saver is spending fewer dollars, himself, on consumption or some other spending.

In addition, pushing up market interest rates to attract savers to lend to the government also raises the cost of borrowing for private businesses. The higher the rates of interest the more likely that some businessmen “at the margin” will find that the cost of borrowing is now greater than the anticipated rate of profit from investing a borrowed sum.

Economists call this the “crowding-out effect.” Part of the cost of funding the government’s budget deficit comes from a reduction in private sector borrowing and spending due to the higher interest costs. Thus, again, the net effect on total spending in the economy tends towards zero.

Save or Invest cartoon

Good Ideas Need Savings and Investment

Joseph Stiglitz is certainly correct that there are potentially talented entrepreneurs in all walks of life and levels of income in the United States and around the world. But having a good idea and even willingness to take a chance and start or expand an enterprise is not enough.

In most instances, you need capital to begin and operate a business over a period of time before you have anything ready to sell. You need sufficient funds to cover some of the losses that often will occur before you find a niche and attract enough consumer interest and demand to defray the costs of doing business.

In other words, there first has to be the savings that facilitates the time-consuming production that will eventually generate the product or services that can earn consumer dollars at some point in the future.

The Simple Logic of Saving, Investing and Capital Formation

Let take a simple example first. Imagine Robinson Crusoe alone on his island. If he is to escape from extremely primitive conditions of existence of mere “survival” by picking berries and attempting to catch fish in a stream with his bare hands, Crusoe must invest in the manufacture of “capital,” – tools – to assist in improving and increasing the productivity derivable from his human labor.

But to do so Crusoe must “save,” that is, he must out of his daily efforts to have enough for survival set aside a sufficient amount of berries and fish as a “store” of goods to live off to free up his time and resources that would otherwise go into immediate production for his present consumption.

He uses that freed up time and resources to, perhaps, make a bow and arrows, or a canoe and fishing net, so that after the requisite “period of investment” during which he has lived off his “savings,” he will have the capital goods – the tools of production – that will then assist him increasing the quantities, varieties and qualities of the consumption goods that previously were beyond his bare labor’s potential to obtain.

In this way, he has employed himself in making capital goods with his store of saved consumption goods to live off so his own labor can be diverted from more immediate berry picking and fishing with his bare hands.

Production Time Results in More Desired Goods

The manufacture of those capital goods and their use over a period of time once in existence must logically and temporally precede the greater availability of consumer goods that that capital’s existence now makes possible. In other words, besides the time taken to making the canoe and net, he must now paddle out into the waters off his island to first catch that larger harvest of fish that his capital goods enables him to have before he can have that increased and more varied fish supply to eat as part of his dinner.

At the same time, using his bow and arrows for hunting and utilizing his net for fishing will result in “wear and tear.” That is, capital – tools and equipment – get used up in their use, and Crusoe will have to devote part of his labors and time to maintenance and repair if his ability to hunt and fish is not to be diminished.

Furthermore, if he is to increase his supply of desired consumer goods even more from their existing availabilities and amounts he must again divert an increased amount of his labor time and resource use to “investing” in more and/or better capital goods above that required to maintain his existing capital.

Thus, the more he invests in making the capital equipment that increases his capacity to produce greater quantities, varieties and qualities of the finished goods he would like to use and consume, the more resources, time, and labor effort he has to equivalently devote to maintaining his enlarged stock of capital to sustain whatever the standard of living he has been able to establish for himself through savings and investment.

In the Market, Prices Guide Production for Consumption and Investment

Of course, in “modern society” the process is more complex than presented when using Robinson Crusoe as a first approximation. In our world, today, this all works in a competitive market system of independent private entrepreneurs who employ and directing the men and material they hire, rent or buy in the arena of exchange.

In this market setting entrepreneurial decision-makers are guided by the system of market prices that reflect the types and amounts of goods that consumers desire, and on the basis of which entrepreneurs hope to make their profits. Changes in consumer demands are expressed in changes in the relative prices for the various goods offered on the market, and these prices then direct entrepreneurs to shift the types and amounts of goods they decide to produce.

This also applies to changes people make concerning consumption and savings, that is, their demand for consumer goods in the present versus consumer goods in the future for which they put their savings aside.

In a properly functioning free market, competitive economy, a decision to consume less and save more may reduce the current demand for some consumer goods. But the greater savings reemerges as spending on investment activities and other types of borrowing when the increased savings results in lower rates of interest to attract willing borrowers in the financial markets where that greater savings has been deposited.

But why would investors borrow this greater savings, even at lower rates of interest, if the current demand for goods on the market has not increased or maybe even gone down?

Fire as the Next Big Investment

Saving “Today” Means a Desire to Demand More “Tomorrow”

This was explained by the famous Austrian economist, Eugen von Böhm-Bawerk (1851-1914) near the beginning the twentieth century.

The man who saves curtails his demand for present goods but by no means his desire for pleasure-affording goods generally . . .

 

“The person who saves is not willing to hand over his savings without return, but requires that they be given back at some future time, usually indeed with interest, either to himself or his heirs.

 

“Through savings not a single particle of the demand for goods is extinguished outright . . . the demand for goods, the wish for means of enjoyment is, under whatever circumstances men are found, insatiable. A person may have enough or even too much of a particular kind of goods at a particular time, but not of goods in general nor for all time. The doctrine applies particularly to savings.

 

“For the principle motive of those who save is precisely to provide for their own futures or for the futures of their heirs. This means nothing else than that they wish to secure and make certain their command over the means to the satisfaction of their future needs, that is, over consumption goods in a future time. In other words, those who save curtail their demand for consumption goods in the present merely to increase proportionally their demand for consumption goods in the future.”

But even if there is a potential future demand for consumer goods, how shall entrepreneurs know what type of capital investments to undertake and what types of greater quantities of goods to offer in preparation for that higher future demand?

Böhm-Bawerk ‘s reply was to point out that production is always forward-looking, a process of applying productive means today with a plan to have finished consumer goods for sale tomorrow. The very purpose of entrepreneurial competitiveness is to constantly test the market, so as to better anticipate and correct for existing and changing patterns of consumer demand.

Competition is the market method through which supplies are brought into balance with consumer demands. And if errors are made, the resulting losses or less than the anticipated profits act as the stimuli for appropriate adjustments in production and reallocations of labor and resources among alternative lines of production.

When left to itself, Böhm-Bawerk argued, the market successfully assures that demands are tending to equal supply, and that the time horizons of investments match the available savings needed to maintain the society’s existing and expanding structure of capital in the long run.

Wages are Paid Out of Savings, Not Current Consumer Demand

Böhm-Bawerk explained that all production takes time, and invariably through a series of steps or “stages of production” that finally leads to a finished consumer good available for sale and use. He emphasized that the very nature of the time structure of production means that the goods available for consumption today are goods the production of which extends backwards in time over many production periods of the past, over months or years.

And the production processes being begun “today” and which will continue over the time periods of many “tomorrows” will only be completed and ready in the form of finished consumer goods at some point in the future.

The finished consumer goods bought today do not represent a “demand for labor” today. The entrepreneurs demanded that labor in the various stages of production at different times in the past while the consumer goods being purchased today were in the process of being produced.

And the labor being demanded “today” in the various stages of production, each stage of which represents a future product at a different degree of completion and that will be, respectively, ready for sale as a consumer good at different time periods of the future, is a demand by entrepreneurs looking to future sales, not current period consumer demand for “commodities.”

But this “demand for labor” by entrepreneurs through these future-oriented stages of production is entirely dependent upon the extend to which incomes and revenues earned in the present and future periods (and the resources they represent) are partly saved and not consumed.

It is this savings of resources not being utilized for more immediate consumption purposes, that “frees” part of the productive capacity of the society to be diverted to the making and maintaining of capital and providing the means to pay wages to workers who will be hired and employed in the respective processes of production for long periods of time before those specific goods in the manufacture of which they are participating will be offered for sale and generating a revenue in the future.

Thus, it is savings that represents the greater part of the “demand for labor” in the production processes of the market and not the current period’s demand for consumer goods.

Don’t Tax Away the Wealth that Provides the Savings for Production

Keynesian economists like Joseph Stiglitz miss all of this in their simplified and, in fact, simplistic view of the world that all that is needed is more government spending and greater “aggregate demand” to create more employment today.

When the “rich” are saving rather than consuming they are, in fact, supplying part of the financial wherewithal (and the real resources their savings represents) to maintain and expand the capital supply and to provide the means to pay workers and other resource suppliers incomes over the periods of production that everyday culminates in the availability of the goods and services (and the standard of living) we take for granted.

Under Stiglitz’s own argument, low or lower-income individuals in society use more of their incomes for consumption and less for savings. By using various government fiscal and other policies to transfer wealth and income from those in society who are greater savers to those who are greater consumers, the net effect over time can be to reduce capital formation and productive investment looking to the future.

It is savings that supports investment, enables capital formation, and creates and sustains jobs. Faster growth and more jobs depend upon savings and market-oriented investment, not the level or amount of current consumption spending.

Heaven - No Govn't and No Taxes Cartoon

Taxes and Regulations Reduce the Ability and Incentives to Invest

But what about Stiglitz’s statement that American “big corporations are sitting on upwards of $2-trillion.” What he failed to mention is that over half of that money is parked overseas where American firms have earned those sums from foreign investments and sales of goods. Why haven’t those dollars come home?

The Financial Times reported on May 10, 2015, “The growing cash piles underline the reluctance of boardrooms to repatriate money held abroad even as they tap debt markets to fund record spending on dividends, buybacks and acquisitions.”

U.S. businesses are double taxed if they bring those dollars back to the U.S.. The foreign government in whose country they earned those profits has already taxed them on their net revenues. If they bring any or all of those dollars back to the United States, Uncle Sam will tax them again on their foreign gains, a practice that few other government follow around the world.

But what about the profits made a home? Why aren’t more of those profits plowed back into productive activities and forward-looking investments? Partly this is due to what economic historian, Robert Higgs, has called “regime uncertainty,” that is, the uncertainties concerning the future direction of government policies that makes investment decisions more risky than it otherwise has to be.

This includes the uncertainty surrounding what to expect in terms of government regulations, controls, commands and restrictions in an environment in which the U.S. Federal code of regulations on business activity numbers over 175,000 pages. The enforcement of these regulations is widely open to the discretion and decisions of thousands of government bureaucrats, with often total unpredictability of where and when the regulators will appear and what they will demand or accuse an enterprise of having violated.

Matching the hindrances of the interventionist state is the manipulations of money and interest rates by central banks everywhere, which distorts markets, misdirects capital and labor use resulting in unsustainable booms and inescapable downturns that bring about wrongly invested capital and misallocated labor. This “wrong twists” to the market takes time to overcome and correct.

It is government impediments to open, competitive markets – whether in America or in other parts of the world – that are the causes to behind slow growth and sluggish job creation, not “the rich” and their savings.

 

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Tue, 05/12/2015 - 22:10 | 6087789 SickDollar
SickDollar's picture

message from the elites;

listen sheeps, it is simple the system is max out , too many of you are alive, we need to kill some of you it not most of you

rest asure we are doing are best to fleece you until the collapse

 

 

Tue, 05/12/2015 - 22:17 | 6087807 buzzsaw99
buzzsaw99's picture

President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?

[Long pause]

Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.

President "Bobby": In the garden.

Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.

President "Bobby": Spring and summer.

Chance the Gardener: Yes.

President "Bobby": Then fall and winter.

Chance the Gardener: Yes.

Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.

Chance the Gardener: Yes! There will be growth in the spring!

Tue, 05/12/2015 - 22:44 | 6087899 Usurious
Usurious's picture

free homes in Florida............fuck the banks..

 

''They sold my loan so many times no one knew who had the paperwork,” Adams said.''

 

http://www.wftv.com/news/news/local/9-investigates-people-turning-forecl...

Tue, 05/12/2015 - 23:07 | 6087963 CuriousPasserby
CuriousPasserby's picture

I'm spending all my spare money on Barber dimes, Barber quarters and Barber halves (1892-1916) They sell for nearly junk silver prices, but they are over 100 years old, so I think the gvt won't be able to "call them in."

Tue, 05/12/2015 - 23:45 | 6088083 Weaponized Innocense
Weaponized Innocense's picture

Yea because u see that economics up there in that article~ well that is old fashioned economics before lover pâténted and the warlord pimping passion assisins move into ur bed for ur endless eyeballs if they have to steal ur life and call it mandates of hypocrisy via evil jealous intentions down the endless echoing hole to hell of the spin machine. Which is more fascist barbarianism than any thing.... And we know how fascist barbarian economies work. It sure ain't what's being described up there in the article.

Tue, 05/12/2015 - 23:08 | 6087969 Bazza McKenzie
Bazza McKenzie's picture

Dr Ebeling is laboring under the fallacy that today's economy bears some resemblance to what is described by classical economics.

He assumes that most of those who are wealthy and amassing more wealth actually provide goods and services valued by ordinary citizens who will pay for them with what they earn from their own labours.  He has not realised that most of the modern truly wealthy achieve that position through government endorsed and facilitated theft and fraud on a massive scale.

Nor does he seem aware of the related phenomenon of enormous fiat money fabrication that helps both the government and its cronies take command of goods, services and assets of those who lack access to the money conjured from nowhere.

Stiglitz doesn't seem much more aware, since his recommendation to "more equitably share income gains" implies the "income gains" have been produced through actual value creation by someone rather than theft.  An equitable society and indeed a growing economy need the theft to be stopped, not to have its proceeds spread around a bit more.

Give them both a fail.

Tue, 05/12/2015 - 23:22 | 6088017 Oldwood
Oldwood's picture

Many see redistribution as the answer to corruption and theft, rather than working to eliminate corruption and theft, regardless of the fact that redistribution is the greatest theft of all. It punishes the producers equally with the thieves, and thieves, feeding off this redistributive government trough, have limitless access to additional theft. It is ideological madness that cannot see its own evil and destruction.

Tue, 05/12/2015 - 23:53 | 6088102 Weaponized Innocense
Weaponized Innocense's picture

There ya go old wood .... That's more the economics today I'm seeing too! Been like that for a while now for me! and my father too experienced it but u know Kiki has been around for a while now since sixth grade though it wasn't till high school she and Hillary connected through politics. I know Kiki economies and this is definitely it. Lover patented isn't any better.

But it isn't that economy of which is spoken above ... Much more fascist barbarian these days!

Tue, 05/12/2015 - 23:16 | 6087999 Oldwood
Oldwood's picture

I know little of what motivates others, but as a small business person I am forced to make bets on my business's future constantly. As such I have never felt more unsure of my future, especially when considering the larger issues of national and international politics and economy. I don't think business can really prosper when we are imprisoned by doubt. Doubt far in excess of anything in my prior 35 years of self employment. I think this is true for most of the other small businesses I work with. We are forced to continue forward even in the face of this uncertainty, but it effects everything we do.

There are lots of problems and some seem insurmountable, but if small business remains stifled, we are fucked for sure.

Tue, 05/12/2015 - 23:59 | 6088122 TeethVillage88s
TeethVillage88s's picture

Yes I think you are right. Maybe if enough people put the write words to it or the right turn of phrase it will catch on.

---------------------------------------------------------------
750,000 pages of US Regulations, 75,000 pages of Income Tax Regulations. Opaque Banking Practices. How to pick a city to do business in when they will visit and enforce regulations that can shut you down. Local Union Trouble.
---------------------------------------------------------------

If I am a potential business owner I have to survey if I want to sell to customers or to businesses, what type of business Industry, which segment, upstream, midstream downstream, and if I will try to cover vertical segments,... but mostly what licenses, fees, and regulations do I face or may face... and what the trends are, how stable in the regulatory environment and the Economy and Market whether local market, regional, or national-international.

I have never owned a business.

I see a lot of power players out there.

Some of the Power Players are Big Corporations & Big Government. The costs of regulatory compliance is daunting. The Risk of Breaking the Law or Getting a Catastrophic Lawsuit seems High.

I know I can't win in a Lawsuit with a Giant.

So I am Risk Averse.

But it is not like I just have to visit 5 offices locally and file the paperwork. Plus I have to get a Bank Loan probably unless I take big risk with savings or start at home.

Where do I get Cheap Labor? Maybe an indentured slave from Asia or India that I have to put in my house or help him rent a bedroom someplace for like $300 a month. But might not be legal. So maybe hire a local Hispanic who has ID and a Social Security Card and bond him/her to run the Cash Register.

Say I want to run a Store, small store, convenience type grocery with liquor maybe yes, maybe no. Rent by the month, then you risk having to move or store inventory some place... but is cheaper and no mortgage on building. Write offs of Car, truck, computer, office, business meetings, trade meetings, phone... business clothes... try some new electronics in the store which you can test sample or write off for non-sale.

But I have no clue how Federal, State, Local, and Civil Lawsuit Risks play into all this. Maybe with Rental of Building you avoid health department problems, condemnation, toxic waste,... maybe liability for Food Poisoning from prepared food on shelf, but surely if you sell cooked on premises food. So have to consider food prep training, licensing, and working with new employees and posting signage for washing hands and checking fire extinguishers.

What a mess.

In a third world country, the City has lots of rules and Fees that make starting and having a business harder. But if you go to smaller towns, less populated tax districts, then there may be no barriers to opening a business, and within days you are open with few regulations.

And you can close early or even take a day off work to vacation. There is no Debt Slavery if the Investment is small and you don't have a Loan. Open 10 Am - 10 PM. Or Surf or Fish in the Morning, open the shop near 11 AM and Close at 6:30 PM. Catch the lunch Crowd open 10 AM - 1 PM. Open again at 4 PM - 8 PM. Relax Evenings or go Dinner & Dancing, Fiesta, Catch Mountain Breezes. Rent hammocks or sleeping bag spaces.

Anyway... Most difficult place to open a Business might be European or US City.

Tue, 05/12/2015 - 23:30 | 6088033 kchrisc
kchrisc's picture

By definition, governments and grifting banksters can only steal someone else's production.

They steal and consume other's production, and savings. Savings that are needed to maintain the future.

So governments and grifting banksters steal the future, our future, from us, the people.

The future is here.

Liberty is a demand. Tyranny is submission.

 

Firearms Restore the future and redeem the past.

Tue, 05/12/2015 - 23:33 | 6088039 Pay Day Today
Pay Day Today's picture

Ah yes, let's keep cutting red tape, regulations and requirements. That's worked so well in the financial and banking industry thus far, why stop now?

Tue, 05/12/2015 - 23:39 | 6088056 Dre4dwolf
Dre4dwolf's picture

none of the regulations are enforced against banks anyway,  all regulations , laws and taxes are a farce to allow the banks to cheat while preventing the working man from progressing.

Wed, 05/13/2015 - 00:01 | 6088126 zeabow
zeabow's picture

The answer to that is more government spending to properly investigate these criminals and put them in jail, not get rid of the regulations.

Z

Wed, 05/13/2015 - 03:17 | 6088492 Clowns on Acid
Clowns on Acid's picture

No you  fucking idiot. The answer is the reestablsihment of Glass Steagal type laws to create COMPETITION betyween Banks, Inv Banks, and Insuirance companies for the excess $$ of the production of the US. You stupid fuckin' idiot.

All Fed "regulations" are rules that make the politicans indispensible to the Banks, and pols can be bought very easily. See Hillary ands Bill for example. BY encouraging competion for the excess $$ the competitors will be watching each other and that is the best way to ensure that anything untoward is reported and effected.

The Fed Gov't is full of politicians that dance to the tune fo the Banks. They are idiots like yourself, so the actual regualtions will be idiotc as well./ Look at Dodd Frank, look at ObamaCare... worst fuckin' regualtions and rules in the last 200 years. Kill productivity and encourage Banks / Insurance companies to buy off politicians. Notice that both crooks Barney "he made me bite the pillow" Frank and Chris Dodd have retired. They stole enough and didn't want to be around when the collapse came.

The answer is more competition NOT less competition. Less competition means only the Too Big Too Fail can afford to be profitable whilst needlessly jumping through idiotic regulations written by idiots.

Smarten the fuck you blabbering feckin idiot. 

 

 

 

Wed, 05/13/2015 - 06:33 | 6088616 zeabow
zeabow's picture

Yeah, you got things all figured out there, mate ...

 

In response to some of your inanity:

"The answer is the reestablsihment of Glass Steagal type laws."

"All Fed "regulations" are rules that make the politicans indispensible to the Banks"

"the actual regualtions will be idiotc as well"

You do realize that Glass-Steagal is a regulation?  Right?  Do you?

 

"All Fed "regulations" are rules that make the politicans indispensible to the Banks"

There are plenty of Federal regulations that have absolutely nothing to do with the banks.

 

I don't believe that Dodd-Frank has been a big productivity killer.

 

I see that you believe in financial industry self-regulation.  That might be the dumbest thing you tried to write.  Maybe ...

 

I agree that Glass-Steagal should be reinstated.  But I also believe that the government needs to spend more money investigating and prosecuting the wall street girlz than they have been.

 

I really shouldn't have even bothered ...

 

Z

 

 

 

 

 

Tue, 05/12/2015 - 23:54 | 6088114 zeabow
zeabow's picture

Exactly.

Regulations are always the problem.  Sure ...

 

Z

Wed, 05/13/2015 - 00:01 | 6088119 zeabow
zeabow's picture

To clarify, I agree with Pay Day Today that blaming regulations for a large amount of the economy's problems is utter bullshit.

Z

Wed, 05/13/2015 - 14:57 | 6088197 TeethVillage88s
TeethVillage88s's picture

Well take some time and look at these in wikipedia or someplace. My original list was a lot of deregulation.

- I'm pro GAAP Accounting Rules, Pro Standardized Financial Instruments, Against Shadow Banking, and for changing who pays for Financial Ratings of Organizations and Financial Instruments since if I originate an Instruments and I pay you to give me a Rating then you have incentive to change industry standards to give me what I want for $100,000 of dollars of fees.

Most of what US Federal Government does is spin, propaganda, and Intelligence Operations against it's Citizens.

1913 - Federal Reserve Act,

1964 - Gulf of Tonkin, Congress gives up War Powers, Legislative Powers, and Budget Powers
1973 - War Powers Resolution (Allows 60 days combat/war without congressional declaration)
1974 - Federal Energy Administration Act of 1974 (R. Nixon)
1978 - Bankruptcy Reform Act of 1978,
1980 - Depository Institutions (J. Carter, followed by S&L Crisis, 5000 convictions, RTC)
1981 - Executive Order 12287, (R. Reagan, removed price controls on Petrol)
1984 - Caribbean Basin Initiative (Free Imports to USA)
1992 - Energy Policy Act (H.W. Bush)
1994 - NAFTA, Deregulation of Trade, 3 Nations (W. Clinton)
1995 - Community Reinvestment Act, the Clinton Admin urged flexibility,
1995 - HUD advocated greater involvement of state and local organizations
1996 - Energy Deregulation (W. Clinton, followed by ENRON Scandal)
1996 - Telecommunications Act (W. Clinton, cross ownership)
1996 - Start of a Period of Accounting Fraud in USA which continues today
1997 - M2 Money Velocity Top
1998 - Clinton's Kosovo War (over 60 Days)
1998 - Brooksly Born Rejected on her concerns on OTC Derivatives
1998 - Derivatives expanded and were not regulated
1998 - Citicorp & Travelers Insurance Merger
1999 - Gramm–Leach–Bliley Act (Phil Gramm, W. Clinton, followed by 2008 Financial Crisis)
1999 - bombing campaign in Kosovo (W. Clinton, over 60 days)
2000 - Commodity Futures Modernization Act of 2000 (P. Gramm, W. Clinton, derivatives)
2002 - McCain–Feingold Act (G.W. Bush, Campaign Finance, soft money unlimited)
2005 - Energy Policy Act (G.W. Bush, subsidies, excluded clean air Water acts)
2005 - Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
2005 - CAFTA-DR Ratified, 2006 El Salvador, Honduras, Nicaragua, Guatemala
2008 - 2014 QE & LIRP/ZIRP (B. Bernanke, J. Yellen, B Obama)
2009 - 2014 Continuing Resolutions in which Congress gives up Budget Powers
2010 - Citizens United v. Federal Election Commission (money is free speech for corps)
2011 - US combat in Libya (B Obama, over 60 days)
2014 - lift ban on crude oil exports (B Obama, Commodities Deregulation)

Tue, 05/12/2015 - 23:38 | 6088054 zeabow
zeabow's picture

"If the government taxes the citizenry to finance its increased spending, then every dollar more that the government spends by necessity reduces taxpayers’ spending by an equivalent amount. The net change in overall or total spending in the economy would be zero."

 

Ah, no.  Not if you are laying additional taxes on insanely rich people that wouldn't spend the money anyway.

 

Z

Wed, 05/13/2015 - 00:11 | 6088147 TeethVillage88s
TeethVillage88s's picture

Eblings seems to like to speak, but doesn't like to spend time with Models or present mathmatical models.

I agree with you on this.

I don't have the model either, but most money is created by Banks who create debt when people take credit. Their may be many kinds of credit or loans to look at.

But think the interest on my loan is not created in the economy especially with low manufacturing these days which used to provide a strong multiplier effect.

So Taxes Increased + Interest on Debt Created = Tight Economy in an age where there is little infrastructure spending, and little domestic investment on Capital Equipment and Capital Facilities.

Just my take.

M1V, M2V, MZMV, and Multiplier all seem to Trend down before Collapse in 2008.

https://research.stlouisfed.org/fred2/series/MZMV
https://research.stlouisfed.org/fred2/series/M2V
https://research.stlouisfed.org/fred2/series/M1V
https://research.stlouisfed.org/fred2/series/MULT

We have more Foreign Investment than Domesticate Investment.

http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm (wow huge trend, $31 Trillion in Foreign Property in USA vs $24 Trillion)

Rest of the world; foreign direct investment in U.S.; asset, Level, 2014:Q4: 3,298,931.7 Millions of Dollars (+ see more), Quarterly, Not Seasonally Adjusted, ROWFDNQ027S, Updated: 2015-03-12
https://research.stlouisfed.org/fred2/series/ROWFDNQ027S

https://research.stlouisfed.org/fred2/series/GPDIA (Gross Private Domestic Investment, $2,851.6 Billions of Dollars)

https://research.stlouisfed.org/fred2/series/GPDICA (Real Gross Private Domestic Investment, $2,704.7 Billions of Chained 2009 Dollars)

Wed, 05/13/2015 - 03:06 | 6088473 Clowns on Acid
Clowns on Acid's picture

You are an idiot. HuffPo post is sending quite a few of you over here for some reason. Yopu statements above are sophmoric , idiotic, and clearly show that you understand very little about what the author was commnicating.

The author is 100% correct. The only thing he left outr was the stanic printing of money by the Fed. Capiltalism as i worked in the US would have worked as the In Banksshould have gone Ch 11.; The bailotys etc.. have created all sorts of additonal bubles most of which have serve to create a larger wealth gap. But it was money printing, which was effectively forced on the Fed by Federal Gov't OVER spending since 1990.

 

So STFU.

Wed, 05/13/2015 - 06:35 | 6088591 zeabow
zeabow's picture

Hey fool,

You can't understand that if you take a dollar off someone that has too much money to spend it all and give it to someone that has to spend it ... and they spend it ... that that equals an extra dollar of spending than would have been done otherwise?  If not, you need math lessons ... along with the spelling ones that you could definitely stand to benefit from.

 

I agree that the Fed's money printing created the bubbles and that has widened the wealth gap.  But the immense amount of "money printing" used to bailout the wall street girlz had little to do with Federal overspending. 

 

Z

 

Tue, 05/12/2015 - 23:42 | 6088071 zeabow
zeabow's picture

"If the government runs a budget deficit, it must borrow the dollars it wishes to spend above what it takes in, in taxes. Every dollar borrowed by the government in the loan and financial markets is one dollar less of people’s savings available for someone in the private sector to borrow for some investment or consumer purchase. Again, the net change in overall or total spending in the economy would be zero."

 

Someone needs to educate this Dr. about fiat money.

 

Z

Tue, 05/12/2015 - 23:44 | 6088077 zeabow
zeabow's picture

And this Dr. apparently has a PhD in Economics.  Well, maybe that explains his jaw-dropping ignorance.

 

Wed, 05/13/2015 - 00:45 | 6088218 zeabow
zeabow's picture

The truth of the matter is he almost can't be that ignorant about economic matters as he appears to be in this essay.  And the probable reason for his "ignorance" is that he has an agenda and it has nothing to do with trying to find the truth.  So, everything that doesn't support the logic in his agenda is ignored like it does not exists.  And his agenda appears to be: don't raise taxes on the rich and the corporations they make so money off of; and let them do as they please.

 

Wed, 05/13/2015 - 00:18 | 6088169 zeabow
zeabow's picture

"Wages are Paid Out of Savings, Not Current Consumer Demand."

 

Money pays wages.  It does not have to be saved money.  Without consumer demand for a product, ultimately there will be no money to pay the workers involved in that product. 

 

Z

Wed, 05/13/2015 - 00:47 | 6088231 Magooo
Magooo's picture

THE PERFECT STORM (see p. 59 onwards)

The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.  

 

But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.  

 

http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

Wed, 05/13/2015 - 03:34 | 6088500 CHX
CHX's picture

No problem, spend to save (Ag and Au). 

Wed, 05/13/2015 - 06:38 | 6088653 Crazy Canuck
Crazy Canuck's picture
The only function of economic forecasting is to make astrology look respectable.” —  John Kenneth Galbraith
Wed, 05/13/2015 - 09:20 | 6088994 armageddon addahere
armageddon addahere's picture

The Globe and Mail is Canada's leading newspaper, published in Toronto since 1853. It is not English.

If someone saves their money instead of spending, where does it go?

They put it in the bank.

What does the bank do with it?

They lend it out as quickly as possible. That is their business.

What does the borrower do?

They spend the money. That is what they borrowed it for.

So SAVINGS go back into the economy immediately, and are spent or invested to better advantage than they would be if savers were forced to spend their money whether they wanted to or not.

Economists are idiots and their analysis and predictions are on a level with astrology.

Fri, 05/15/2015 - 06:16 | 6096342 Winyard
Winyard's picture

Perfect example of what is wrong with economic thinking. It is a long and, truth to be told, convincing sounding explanation of why government should not try to stimulate economy. However it is wrong and you don’t even need to read beyond this point:
“Every dollar borrowed by the government in the loan and financial markets is one dollar less of people’s savings available for someone in the private sector to borrow for some investment or consumer purchase. Again, the net change in overall or total spending in the economy would be zero.”

Writer makes a mistake already in his underlying assumptions. Banks do NOT intermediate savings to lenders [1]. Banks create new money when they give out loans. Therefore “loanable funds” and “money neutrality” theories are wrong, just like this analysis that is based on those theories. If you correct your assumptions of banks operations, you will find out that government stimulation actually is the answer to slow economy [2].

It is quite remarkable that economic professionals don’t know the underlying facts and make such a blatantly wrong assumptions, even when the facts are voiced by several central banks and banking institutions and it has been proven empirically as well [3]. And we are talking about majority of the profession since mainstream theory embody those assumptions.

[1] Money creation in modern economy, Bank of England
http://www.bankofengland.co.uk/%E2%80%A6/qb14q1prereleasemoneycreat%E2%8...
[2] My fiscal cliff warning to congress, Prof. Steve Keen
http://www.businessspectator.com.au/%E2%80%A6/my-fiscal-cliff-warni%E2%8...
[3] Can banks individually create money out of nothing? — The theories and the empirical evidence, Prof. Richard Werner
http://www.cobdencentre.org/2015/05/more-spending-is-not-the-answer-to-a...

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