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Lacy Hunt On The Unintended Consequences Of Well-Intended Policies

Tyler Durden's picture


Submitted by Lacy Hunt on behalf of Casey Research

Unintended Consequences of Well-Intended Policies

In the early 1960s, when JFK was in the White House and William McChesney Martin was Fed chairman, Keynesian economics was in full bloom. One of its major tenets is the Phillips Curve, which posits a stable inverse relationship between the rate of inflation and the unemployment rate. Yale professor James Tobin and others argued that the social outcome could be improved by a more activist monetary and fiscal policy. Specifically, they contended that the unemployment rate could be lowered while only resulting in slightly higher inflation.

The argument posited the notion that economic policymakers had sufficient knowledge to intervene or fine-tune the economy with tools like those of a surgeon. Presidents Johnson, Nixon, and Carter (two Democrats and one Republican) followed this policy. At one point, President Nixon made the famous statement that "We are all Keynesians now." Moreover, as the White House led, the Fed chairmen of the era – Martin, Burns, and Miller – generally acquiesced.

To judge the effectiveness of this policy, an objective standard is needed. Arthur M. Okun, Yale colleague of Tobin, developed such a standard, which he called the Misery Index – the sum of the inflation and unemployment rates.

Under the activist, Phillips Curve-based policy, some reduction in unemployment was temporarily achieved. However, inflation accelerated much more than was anticipated, and the net result was higher unemployment and faster inflation, an outcome not at all contemplated by the Phillips Curve. The Misery Index surged from an average of 6.7% in the 1950s, to 7.3% in the 1960s, to 13.6% in the 1970s, with peak rates above 20% in the early 1980s.

Many US households suffered. Wages of lower-paying positions failed to keep up with inflation, and when higher unemployment resulted, many of those people lost their jobs. Those on the high end had far more resources that enabled them to protect their investments and earned income, so the income/wealth divide worsened. A half-century later, the United States has never regained the prosperity of the 1950s.

Working independently in the late 1960s, economists Milton Friedman and Edmund Phelps, who would both eventually be awarded the Nobel Prize in economics, had determined that while the Phillips Curve was observable over the short run, this was not the case over the long run. While the economics profession debated the Friedman/Phelps research, the US had to learn its findings the hard way.

Growing Evidence of the Long-term Depressants from Activist Policies

In addition to the compelling evidence that more active monetary and fiscal policy involvement did not produce beneficial results over the short run, three recent academic studies, though they differ in purpose and scope, all reach the conclusion that extremely high levels of governmental indebtedness diminish economic growth. In other words, deficit spending should not be called "stimulus" as is the overwhelming tendency by the media and many economic writers.

Whereas government spending may have been linked to the concept of economic stimulus in distant periods, these studies demonstrate that such an assertion is unwarranted, and blatantly wrong in present circumstances. While officials argue that governmental action is required for political reasons and public anxiety, governments would be better off to admit that traditional tools only serve to compound existing problems.

These three highly compelling studies are:

  • Debt Overhangs: Past and Present, by Carmen M. Reinhart, Vincent R. Reinhart, and Kenneth S. Rogoff, National Bureau of Economic Research, Working Paper 18015, April 2012;
  • Government Size and Growth: A Survey and Interpretation of the Evidence, by Andreas Bergh and Magnus Henrekson, IFN Working Paper No. 858, April 2011;
  • The Impact of High and Growing Government Debt on Economic Growth – An Empirical Investigation for the Euro Area, by Cristina Checherita and Philipp Rother, European Central Bank, Working Paper Series 1237, August 2010.

These papers reflect serious research by world-class economists from the US, Europe, and Sweden – and they all confirm the detrimental consequences of extreme governmental indebtedness.

Misery on the Rise Again

In the past year, Okun's impartial arbiter averaged 10.5%, the highest on record for the third year of an officially recognized economic recovery and almost double the average of the 1950s. The latest readings have occurred despite US gross public debt in excess of 103% of GDP and with the Federal Reserve's unprecedentedly large balance sheet that approaches nearly $3 trillion.

Other measures of well-being confirm the Misery Index. The Poverty Index in 2011 appears to have reached 15.7%, the highest reading in five decades. Not surprisingly, two unenviable records have been set: 46 million, or 14.6% of the population, are now in the food stamp program, up from 7.9% in 1970 and a record-high 41% pay zero national income tax.

In the eleven quarters of this expansion, the growth of real per-capita GDP was the lowest for all of the comparable post-WWII business cycle expansions. Real per-capita disposable personal income has risen by a scant 0.1% annual rate, remarkably weak when compared with the 2.9% post-war average. It is often said that economic conditions would have been much worse if the government had not run massive budget deficits and the Fed had not implemented extraordinary policies. This whole premise is wrong.

In all likelihood the governmental measures made conditions worse, and the poor results reflect the counterproductive nature of fiscal and monetary policies. None of these numerous actions produced anything more than transitory improvement in economic conditions, followed by a quick retreat to a faltering pattern while leaving the economy saddled with even greater indebtedness. The diminutive gain in this expansion is clearly consistent with the view that government actions have hurt, rather than helped, economic performance. Sadly, many of those whom the government programs were supposedly designed to help the most have suffered the worst.

The Way Out

The original theoretical argument in favor of deficit spending originated in J.M. Keynes' The General Theory of Employment, Interest and Money. A search of Keynes' work reveals no recognition of the "bang point," or the condition where a government engages in deficit spending for such a prolonged period of time that a massive buildup of debt leads to denial of additional credit to the government because of fear that the existing debt will not be repaid. Nor did Keynes address the situation where a large number of countries are all simultaneously getting deeper and deeper in debt and there are gradations of debt among these countries – serious shortfalls in the basic Keynesian theory.

Keynes, as opposed to some of his interpreters and predecessors, may have implicitly recognized that a bang point could occur, because he did not recommend constant budget deficits. Instead, he advocated cyclical deficits, counterbalanced by cyclical budget surpluses. Under such a system, government debt in bad times would be retired in good times. However, Keynes' original proposition was bastardized in support of perpetual deficits, something Keynes himself never advocated.

Milton Friedman, whom many consider to have been the polar opposite of Keynes, also never addressed the concept of a bang point, but he may also have understood implicitly that such a situation could occur. The reason is that Friedman advocated balanced budgets, which if followed or required constitutionally as Friedman argued, would prevent a buildup of debt. This view was largely rejected as being inhumane since in a recession, government policy would not be responsive to unemployment and other miseries of such a condition. What should have been discussed is whether some short-term misery is a better option than putting the entire country and economic system in jeopardy, as numerous examples in Europe currently illustrate.

The most sensible recognition of budget policy came not from Keynes nor Friedman, but from David Hume, one of the greatest minds of mankind, whom Adam Smith called the greatest intellect that he ever met. In his 1752 paper Of Public Finance, Hume advocated running budget surpluses in good times so that they could be used in time of war or other emergencies. Such a recommendation would, of course, prevent policies that would send countries barreling toward the bang point. Countries would have to live inside their means most of the time, but in emergency situations would have the resources to respond.

In the context of today's world, this approach would be viewed as unacceptable because it would limit the ability of politicians to continue their excessive spending, thereby saddling future generations with obligations and promises that cannot be honored. But isn't Hume's recommendation exactly what we teach our children in preparing them to manage their own personal finances?


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Thu, 08/02/2012 - 18:31 | 2674218 fonzannoon
fonzannoon's picture

Well intended my anus.

Thu, 08/02/2012 - 18:37 | 2674229 SilverTree
SilverTree's picture

Thats just funny.

Fri, 08/03/2012 - 00:15 | 2674868 jeff montanye
jeff montanye's picture

oh well, i might as well jump in as look up uranus.

this post is noteworthy, imo, because it gives keynes his due, at least.  he did say that governments should run surpluses in times of plenty (hear that ghost of reagan and, i wish, of bush jr.?).

he was not unique in that insight.  good princes in the era before we (as a species) forged iron, knew that resources should be husbanded (or, much more likely, wifed) in good times to have stores in times of famine.

unfortunately, we have evolved a political system which depends on those having a stake in the matter putting a stake in our hearts to succeed.

Fri, 08/03/2012 - 07:36 | 2675171 F-X
F-X's picture

The poster was referring to the title -- On the unintended consequences of well-intentioned policies.

Clearly the policies are intended to preserve politicians' jobs - nothing more, nothing less.

Thu, 08/02/2012 - 18:43 | 2674242 Michael
Michael's picture

Just wait till the adjustable rate mortgage on America's $16 trillion debt goes up. Must see new Rick Santelli & co video.

Thu, 08/02/2012 - 19:08 | 2674303 NotApplicable
NotApplicable's picture

Psshaw! Debt service costs are for the little people.

Any attempt at forcing sovereign rates higher is merely a squeeze in order to get them to "play ball" with the globalists.

If you want to see fireworks, just wait until everyone's variable interest rate on the credit cards goes through the roof. Total debt load is somewhere around $1T.


Thu, 08/02/2012 - 20:52 | 2674491 economics9698
economics9698's picture

Y = C+ I - G + NX

Economics 101.

Fiscal policy.  When the Feds spend more than 18% of the GDP there will be a deficit 98.5% of the time.  The bigger the deficit the shittier the economy.  Exhibit A, 2009-2012.

Monetary policy.  The Feds print for their friends on Wall Street and bribe the politicians in Washington.  It s a big criminal organization, the more they print, the more they steal, the worse off the people are.

End of lesson.

All the economists above are government employees in one sense or another and are paid propagandist for the fascist regime.  Do not listen to them, they are full of shit.

Any questions?  

Thu, 08/02/2012 - 21:08 | 2674530 slyhill
slyhill's picture

What can should will I do?

Fri, 08/03/2012 - 00:58 | 2674918 mkhs
mkhs's picture

Don't worry.  Seems Obama has given everyone a pass.  You (everyone) didn't build the debt.  It is not your fault or responsibility.

Fri, 08/03/2012 - 00:41 | 2674900 jeff montanye
jeff montanye's picture

yes, you are funny with the -g.

it is so sad that the current government is so captured by the capitalist pigs, to coin a phrase.  

the unions are a joke or an invisibility.  

where will you (we) turn?

i have no pat answers, only (ridiculous) portfolio recommendations.  p.s. i like majestic silver and oppenheimer and van eck gold funds but don't set any store by that sh8t.  if you have no sense at all, double short the treasury and the equity markets. 



Thu, 08/02/2012 - 19:14 | 2674320 Stuck on Zero
Stuck on Zero's picture

Very well intended for the 0.001%.  They are 31 Trillion dollars richer and have protected their wealth in tax havens, yachts, land, and captive government officials.


Thu, 08/02/2012 - 19:39 | 2674376 Beam Me Up Scotty
Beam Me Up Scotty's picture

"Well intended my anus"

That is exactly it.  It has nothing to do with "well intended".  Its all about buying votes for politicians.  Everything they think or do or say is about buying votes.  Our whole tax code is created to buy votes from people.  Be they rich or poor or middle class.  These idiots don't give a shit about unemployment.  In fact some politicians love it because they can use it to buy votes.

Thats the problem in one simple nutshell.

Thu, 08/02/2012 - 20:00 | 2674412 traderjoe
traderjoe's picture

No, the tax code was created to ensure your debt servitude to TPTB. Sovereign countries don't have to borrow "money", at interest and with the collateral of your future labor. The sovereign governments, for free, have granted the right to create money (under fractional reserve banking) to the commercial banks. These banks can create money out of thin air and lend it to the government, once again - at interest. See the United States Note. 

That's simply the scam of the century. 

No taxes are required by sovereign governments. It's no coincidence that both the Federal Reserve and the Income Tax were created in the same year. 

Thu, 08/02/2012 - 20:03 | 2674416 Quisat_Sadarak
Quisat_Sadarak's picture

Bing! Well said.

Thu, 08/02/2012 - 20:23 | 2674451 Beam Me Up Scotty
Beam Me Up Scotty's picture

Its both.  They vote buying keeps the whole process going.  Heres a for me.

Thu, 08/02/2012 - 20:56 | 2674516 Quisat_Sadarak
Quisat_Sadarak's picture

You have my vote.

...phasers on stun, Kirk out.

Thu, 08/02/2012 - 18:32 | 2674219 bob_dabolina
bob_dabolina's picture

I have an idea.


Once they're all dead everyone can welfare themselves.

Thu, 08/02/2012 - 18:50 | 2674256 AlaricBalth
AlaricBalth's picture


You have been designated a malcontent and are now considered a threat to National Security of the United States of America. The Stellar Wind Worldwide HydraSquid Algorithm has detected an anomaly from your IP address and hereby orders you to surrender yourself to the nearest law enforcement agency. A Skynet airborne drone has been dispatched to your location coordinates to ensure compliance with this directive. Upon your voluntary arrival at LEA, you will then be relocated to one of the DHS re-education facilities in an undisclosed location.

This is the only notice you will receive.
Resistance or non-compliance will be met with extreme prejudice.


Thu, 08/02/2012 - 18:32 | 2674221 Josh Randall
Josh Randall's picture

Lacy Underall ?

Thu, 08/02/2012 - 20:14 | 2674432 francis_sawyer
francis_sawyer's picture

The pride of Manhattan... (in the FILA tennis shirt with no bra)...

Fri, 08/03/2012 - 11:30 | 2675821 NeedtoSecede
NeedtoSecede's picture

"He says to me: Gunga La Gunga: On your death bed you will recieve eternal consciousness.  So I got that going for me..."

Thanks ZH for giving some of us financial outsiders a chance to look behind the curtain and see the scam.

Thu, 08/02/2012 - 18:36 | 2674225 SilverDoctors
SilverDoctors's picture

Tyler- CME just slashed silver margins 11% after the close.  Big move tomorrow w/ the BLS?

Thu, 08/02/2012 - 18:38 | 2674233 fonzannoon
fonzannoon's picture

After last year if you buy silver on margin you should get a free helmet.

Thu, 08/02/2012 - 18:40 | 2674239 SilverTree
SilverTree's picture

Turd is hoping for a nice pop tomorrow too. Phyz and only Phyz my friends.

Thu, 08/02/2012 - 18:44 | 2674244 fonzannoon
fonzannoon's picture

My guess is we get a number above 110k tomorrow. QE is off the table for now so we have to have some data points for the fed to ponder.

Thu, 08/02/2012 - 19:40 | 2674380 SilverTree
SilverTree's picture

Anything and everything will be done to push the shitstorm beyond the elections. Think of the power grab during the epic flush. Prepare if you dare!

Thu, 08/02/2012 - 19:53 | 2674401 SilverTree
SilverTree's picture

Ripped from treefrog @TFMR


"tired of all the more common patterns like head and shoulders?  check out the netdania one minute silver spot chart right now.

it's the rare "lingering dog fart pattern. "

somebody who knows how to post a screen capture from netadnia to here, please post it!

this pattern has a high probability of predicting a move either up, down, or sideways!"

Thu, 08/02/2012 - 18:46 | 2674249 Neethgie
Neethgie's picture

so then you can hold it and try and feel its value disintegrate.

Thu, 08/02/2012 - 19:31 | 2674358 NidStyles
NidStyles's picture

Hmm, nope all 31.1 grams per Troy oz. are still there. 

Thu, 08/02/2012 - 19:01 | 2674283 NotApplicable
NotApplicable's picture

Mr. Celente approves of this message.

Thu, 08/02/2012 - 19:32 | 2674363 RacerX
RacerX's picture

or at least a 32oz tub of K-Y

Thu, 08/02/2012 - 18:46 | 2674250 TheSilverJournal
TheSilverJournal's picture

Silver probably won't go anywhere fast for a few weeks. Tremendous upward pressure in the long run, but too much downward pressure right now with scares of the ESM and Eurobonds not going through and the Fed not stepping up its purchases. Then they approve ESM and ease further and it's off to the races.

But who knows, even though the market might sell off hard, there's so much upward pressure on silver right now that it may not sell off with the market and might just go up anyway.

Thu, 08/02/2012 - 18:54 | 2674269 flacon
flacon's picture

Sounds like you've got your bases covered. ;)

Thu, 08/02/2012 - 19:33 | 2674364 RacerX
RacerX's picture

He should start a newsletter.

Thu, 08/02/2012 - 20:26 | 2674460 TheSilverJournal
TheSilverJournal's picture

Silver's only going to $1,000 / oz in real terms over the next few years. No biggie.

Thu, 08/02/2012 - 19:11 | 2674312 NotApplicable
NotApplicable's picture

If they keep killing off the FCMs, paper silver may stay low for a long, long time. Physical, meanwhile, will simply not be available at that price.

Thu, 08/02/2012 - 19:05 | 2674292 disabledvet
disabledvet's picture

Big move DOWN.

Thu, 08/02/2012 - 18:37 | 2674231 TheSilverJournal
TheSilverJournal's picture

You can't expect good results when the decisions to control the monetary system is made by a few guys behind closed doors.

Thu, 08/02/2012 - 18:38 | 2674234 MsCreant
MsCreant's picture

Preaching to the choir posting that here. Good post to pass on to others though. Very straight forward.

Thu, 08/02/2012 - 19:02 | 2674287 RockyRacoon
RockyRacoon's picture

I don't know about you Missy, but I've given up on elucidating others about these matters.  Can't find a one who gives two shits.  The ones who connect are already in the loop.   It's sad that I gotta run most of my friends off when they show up on my front porch looking for a handout.

Thu, 08/02/2012 - 19:17 | 2674330 Urban Roman
Urban Roman's picture

Which I find amusing, given your avatar. I have had tho shoo your kind off of my front porch!

Thu, 08/02/2012 - 20:10 | 2674428 RockyRacoon
RockyRacoon's picture

Yeah, and you've been dead for 2,000 years -- give or take.

Thu, 08/02/2012 - 20:16 | 2674440 francis_sawyer
francis_sawyer's picture

Well ~ the useless emperors stage still seems to be alive & kicking...

Thu, 08/02/2012 - 22:03 | 2674661 nmewn
nmewn's picture

(Ribs hurting from laughing)...thanks Rocky.

Fri, 08/03/2012 - 11:02 | 2675840 NeedtoSecede
NeedtoSecede's picture

I am on an airplane catching up on my fix of ZH and I am laughing so hard I am getting strange looks from everyone within earshot.  Well, actually, I always get strange looks, but today more than ever.  It is hard not to laugh when the first comment out of the blocks contains the word anus.  And it just gets better from there.

Love ZH and love the comments!

Fri, 08/03/2012 - 13:03 | 2676198 MsCreant
MsCreant's picture

Can't give up Rocks. I have a bully pulpit.

Thu, 08/02/2012 - 18:39 | 2674236 Neethgie
Neethgie's picture

i have always thought that if you run a surplus during the good times without debt, you can have a party should the bad times show up.

unfortunately you cant run a mild deficit during the good times, then go full retard on it during the bad times as we see now, the problem lies with politicians more intent to hold office than use office of course they will spend whatever they can because its a vote winner, even though its stupid but who cares about tommorow? also with that excess spend you are pumping the economy with steroids that shouldnt be in play causing an even worse reaction when instead of spending the gov has to cut back too. 

by going full retard we now have no bazooka we have spent it all, now the crash is bigger than if we had a few spare pennies to stabilize things.

Thu, 08/02/2012 - 19:05 | 2674290 RockyRacoon
RockyRacoon's picture

Congress is like a little kid getting his tiny allowance.   He runs down to the corner candy store and spends all he has on what he can.   Then in the middle of the week he looks longingly at the items that would take 3 allowances total to buy.  But wait!  Congress can borrow!  Problem solved.  All those immediate gratification desires can be satisfied.

Thu, 08/02/2012 - 19:13 | 2674317 disabledvet
disabledvet's picture

You are clearly a sensible person. I SALUTE YOU! Having said that "we've gone from the asshole rich to asshole Government." in other words "nothing succeeds like excess" and...well, I just didn't see "trillion dollar deficits plus a debt downgrade" being a net net positive. I will listen intently to Bill Gross tomorrow cuz "this ain't just Confounded Interest" here...clearly we're full on "lunatic fringe-enomics." unless and until someone can explain to me how "Keynes on Planet Pluto" (which is what we have) can possibly work I'm just not listening. I mean "Japan like interest rates with full on Imperial Overlord" shit. How does that friggin work?

Thu, 08/02/2012 - 18:43 | 2674243 Whiner
Whiner's picture

I like to blow the balloon, way, wayyyyyy up! Then she goes "POP" real lound and quick! What's fun is the balloon can get soooo big and then "BANG!!!" just when you think she'll take a few more blows. Then it really scares the crap out of everybody!

Thu, 08/02/2012 - 18:44 | 2674247 resurger
resurger's picture

That's what Zerohedge been saying since 2009

have a nice weekend , Bitchez .. fuck your wives, girlfriends nicely and take ya kids out , flex somenutz and chilaax ..


Thu, 08/02/2012 - 18:47 | 2674252 toomanyfakecons...
toomanyfakeconservatives's picture

Way ahead of you on that... and hey everyone, don't forget the looming MASS ARRESTS or you are liable to be a startled spectator when they occur...

Thu, 08/02/2012 - 20:44 | 2674492 akak
akak's picture

A YouTube video is not an argument --- if you have one, please make it in words, here, now.

But as nice as your implied dream might be, I am far too cynical to expect ---- what?  A coup by righteous military leaders?  A sudden 180-degree turn in American government?  A corrupt and dying corpse of a national government springing back to youthful vigor and honor?

Aren't we all here too old for fairy tales?

Thu, 08/02/2012 - 20:52 | 2674508 toomanyfakecons...
toomanyfakeconservatives's picture

It's not a coup and the interview explains that in elementary school terms. The system is about to receive a Constitutionally legitimate EMEMA of epic proportions. Just flush your mind and listen to the interview. If you cannot see that plain and simple truths contained in it, there is no hope for you and you can just another shocked spectator when the MASS ARRESTS occur.

Thu, 08/02/2012 - 21:01 | 2674522 akak
akak's picture

Well, I have a very slow internet connection, and will not blithely wait 45 mintues or two hours for any random YouTube video that some stranger tells me I "must see" to download.  It would be much preferable if you could make your argument from the get-go --- one single paragraph would suffice.

Thu, 08/02/2012 - 22:37 | 2674731 toomanyfakecons...
toomanyfakeconservatives's picture

*ENEMA* I prefer to let the experts like Drake do the talking.

Thu, 08/02/2012 - 18:45 | 2674248 macduggie
macduggie's picture

To be truthful to the point of banality, counter cyclical activity reduces the size of the cycle. Whether elected governments can actually contract spending in boomtime is another matter.

Anyway, this debate is tired, let's look at wealth for a change.

In the US the 1/3 of households that rent hold on average 5% of the wealth of the 2/3 of owner-occupiers.

And US housing policy...massively subsidises high income mortgage payments and guarantees high returns to landlords from low income renters.

So the policy is sets out to rig the market against low wealth groups being able to gain wealth by becoming home owners.

The housing market is where this crisis started...maybe it's worth giving it a wee doublecheck and making sure policy on it isn't completely upside fucking down? 

Just a thought.

Thu, 08/02/2012 - 19:34 | 2674343 Quisat_Sadarak
Quisat_Sadarak's picture


The FEDs like the ever expanding housing bubble (via inflation) for several reasons:

#1) Tax - when you sell the FEDs reap the "capital gain" since you will almost certainly sell for more (nominal) than bought. This is bullshit of course because had the USD currency not been inflated you would have booked a loss when sell your older broken down house for less than you bought it.

#2) Debt slaves - when you borrow money from a bank to buy a house, you become a debt slave... working to pay the bank. The interest goes into the bankers pockets, and the bankers kick some donations to the FEDs to keep the ponzi going.

#3) Ownership - when the little energizer batteries that are the folks take the bait and buy into the scam (becoming a debt slave) and own a property they now have a vested interest in perpetuating bubble for their own benefit to buy low and sell high.

It's not all bad... In many cases you can come out ahead if you time the market and figure rent is a 100% loss, as opposed to even, say a 50% loss, on your equity value after loan term is up. Historically the FEDs have subsidized housing with mtg interest write offs, and first time buyer credits, etc. The point is people need to do the math first, and if it pencils out, then it may work out.

The FEDs seem to have moved the debt slave scam on to the college loans... selling their crack to an even younger generation of potential slaves, while the housing mess recovers.

I don't think the FEDs care about egalitarian policies or not. They just want to keep the debt slave ponzi going so they can skim the cream for themselves. If someone happens to come out ahead as a result, they will just find a way to tax them too.

Thu, 08/02/2012 - 21:06 | 2674532 CloseToTheEdge
CloseToTheEdge's picture

Veblen's Institutionalist elaboration of Rent Theory

Thu, 08/02/2012 - 18:47 | 2674251 lineskis
lineskis's picture

But isn't Hume's recommendation exactly what we teach our children in preparing them to manage their own personal finances?

Oh yeah, that good old useless common sense, might be proven not so useless after all... Not quite like the discovery of aquatic wetness but close enough...

Thu, 08/02/2012 - 19:06 | 2674296 HD
HD's picture

They spent decades teaching kids that having an 800 fico score and being in debt up to you eyeballs was "financial responsibility"...

Thu, 08/02/2012 - 19:40 | 2674379 Quisat_Sadarak
Quisat_Sadarak's picture

I agree. Save some money for a rainy day.

The problem with this idea is:
Suppose one political party is fiscally responsible and saves off some of the tax revenue in a rainy day fund (just suppose for the moment!). Then the fiscally irresponsible party (take your pick of either one today) comes along and realizes ... "Hey we have all this money in a rainy day account. Let's declare an emergency and give a bunch to our supporters to get more votes. Let have big party in DC, and by the time money is gone, we will be long gone."

The money is gone before you even get real emergency to use it on. This will *never* work unless you save your own money for your own use.

Thu, 08/02/2012 - 20:18 | 2674434 tom a taxpayer
tom a taxpayer's picture

David Hume! Well hell, if we are going back in history to bring Hume into the conversation, then let's also hear from Samuel Johnson:

"The commercial world is very frequently put into confusion by the bankruptcy of merchants, that assumed the splendour of wealth only to obtain the privilege of trading with the stock of other men, and of contracting debts which nothing but lucky casualties could enable them to pay; till after having supported their appearance a while by tumultuary magnificence of boundless traffic, they sink at once, and drag down into poverty those whom their equipages had induced to trust them."
Johnson: Rambler #189 (January 7, 1752)


Thu, 08/02/2012 - 20:24 | 2674455 Quisat_Sadarak
Quisat_Sadarak's picture

I don't understand the relevance of the Samuel Johnson quote above. Johnson appears to be an a$$h0le:

Wikipedia on Johnson:
The last of these pamphlets, Taxation No Tyranny (1775), was a defence of the Coercive Acts and a response to the Declaration of Rights of the First Continental Congress of America, which protested against taxation without representation.[144] Johnson argued that in emigrating to America, colonists had "voluntarily resigned the power of voting", but they still had "virtual representation" in Parliament. In a parody of the Declaration of Rights, Johnson suggested that the Americans had no more right to govern themselves than the Cornish people, and asked "How is it that we hear the loudest yelps for liberty among the drivers of negroes?"[145] If the Americans wanted to participate in Parliament, said Johnson, they could move to England and purchase an estate.[146]

Yeah... let them eat cake too.

Thu, 08/02/2012 - 20:39 | 2674482 tom a taxpayer
tom a taxpayer's picture

Thomas Jefferson banned Hume's History from the University of Virginia, fearing that it "has spread universal toryism over the land".[88] Yet, Samuel Johnson thought Hume "a Tory by chance... for he has no principle. If he is anything, he is a Hobbist".[89]

Thu, 08/02/2012 - 20:54 | 2674503 akak
akak's picture


Yet, Samuel Johnson thought Hume "a Tory by chance... for he has no principle. If he is anything, he is a Hobbist".[89]

I just knew that was Hume in Lord of the Rings!

The hairy feet were a dead giveaway.

Thu, 08/02/2012 - 18:52 | 2674266 Hannibal
Hannibal's picture

From Pepe Escobar, Asiatimes (offline since last night).

Where is (newly appointed Saudi intelligence chief) Prince Bandar bin Sultan?

Thu, 08/02/2012 - 21:58 | 2674650 nmewn
nmewn's picture

Who cares...eating a BLT maybe.

Thu, 08/02/2012 - 18:53 | 2674267 adr
adr's picture

Well for some reason gasoline went from $3.59 at 3pm to $3.90 at 6pm at all my local stations. In two days gas went from $3.31 to $3.90, 20% in two days! The kicker is premium that went from $3.51 to $4.49. That's right a $.59 difference between regular and 93.

$4.49 for premium is a record for this year. $3.90 matches the high for the year in my area when oil was $114 a barrel.

Same gasoline for $114 and $88. My guess is they will blame the price on corn making the 10% ethanol more expensive.


Thu, 08/02/2012 - 19:16 | 2674321 Dr. Engali
Dr. Engali's picture

I filled up three days ago at $3.23 a gallon. Gas today went to $3.92 a gallon.  Gas futures are at $2.87. Friggen nuts. Something is going on to raise spot so quickly.

Thu, 08/02/2012 - 19:49 | 2674396 toomanyfakecons...
toomanyfakeconservatives's picture

Something is indeed going on. The imminent MASS ARREST and imprisonment of thousands of top traitors to the Constitution of the United States...

Thu, 08/02/2012 - 20:58 | 2674519 GeezerGeek
GeezerGeek's picture

The president hasn't been polling well lately, so he has to change course. He's going to go back to blaming oil speculators. He's not going to tell anyone that he's forcing the prices up with all the rumors of war.

Thu, 08/02/2012 - 18:57 | 2674274 LMAOLORI
LMAOLORI's picture




"Many US households suffered. Wages of lower-paying positions failed to keep up with inflation, and when higher unemployment resulted, many of those people lost their jobs."


Sounds just like today



'Real' Unemployment Rate Shows Far More Jobless


Low-paying jobs are here to stay



The depression is here — it’s just invisible


Thu, 08/02/2012 - 21:06 | 2674531 GeezerGeek
GeezerGeek's picture

Regarding the "low-paying jobs" article and the comment in the main section that "the United States has never regained the prosperity of the 1950s", it needs to be repeated time and time again that the 1950s and 1960s were an anomaly for the US economy, not likely to be repeated any time soon. The US has a near-monopoly after WW II because we'd bombed the crap out of our enemies' industries after they'd bombed the crap our of our allies' industries. With no significant competition, companies like GM didn't mind if union wages and benefits went up and up. It was great to be in the middle class back then. Eventually Europe and Japan got back on their feet industrially and the middle class has been slipping downhill ever since. As the saying goes, success breeds mediocrity, and we've become overachievers when it comes to being mediocre.

Thu, 08/02/2012 - 19:12 | 2674302 Dr. Engali
Dr. Engali's picture

The book of Genesis offers up our earliest known economic theory. In the book Phoroh has two  dreams that go like this:

Dream 1:

From the Nile were coming up seven cows, of handsome appearance and robust flesh, and they pastured in the marshland. And behold, seven other cows were coming up after them from the Nile, of ugly appearance and lean of flesh, and they stood beside the cows which were on the Nile bank. And the cows of ugly appearance and lean of flesh devoured the seven cows that were of handsome appearance and healthy.

Dream 2:

Seven ears of grain were growing on one stalk, healthy and good. And behold, seven ears of grain, thin and beaten by the east wind, were growing up after them. And the thin ears of grain swallowed up the seven healthy and full ears of grain.


Joseph's interpretation went like this:


Joseph offered Pharaoh his interpretation of the dreams: The seven fat cows and healthy ears represented seven years of plenty; the skinny cows and beaten ears represented seven years of extreme famine.

He then continued to give his advice--although he wasn't asked to do so--and in so doing he clarified everything: During the first set of seven years they should harvest and store as much grain as possible so that when the seven years of famine arrive the Egyptians will have what to eat.


It seems fairly sensible to me. You would think after a few thousand years we could eventually get it right.


Thu, 08/02/2012 - 19:24 | 2674342 Hannibal
Hannibal's picture

You really believe this imaginary visual fairy tale as factual truth??

Thu, 08/02/2012 - 19:32 | 2674361 Dr. Engali
Dr. Engali's picture

It's not about whether or not I belive it. It is about  a 6000 year old story  that forms the same synopsis as the current post. The earliest known recorded economic theory.

Thu, 08/02/2012 - 19:38 | 2674368 NidStyles
NidStyles's picture

More real than the value of the USD and that fairy tail called government. 

Fri, 08/03/2012 - 08:20 | 2675228 awakening
awakening's picture

I'm going to have to declare that a tie, they are all as equally useless as each other.

Thu, 08/02/2012 - 19:23 | 2674311 Bullionaire
Bullionaire's picture

Fantasizing about barrelling towards Lacy Hunt's bang point and then finding out she's a BBW could lead one to have a Minsky moment followed by a crack-up boom.


Just sayin.




Boy was I wrong -

Thu, 08/02/2012 - 19:19 | 2674332 vertexa
Thu, 08/02/2012 - 19:22 | 2674339 Hannibal
Hannibal's picture

Great!...murdered-slauthered animals shouldn't be on the menu anyway.

Thu, 08/02/2012 - 19:38 | 2674366 Umh
Umh's picture

Look at it this way. If we don't eat them they will not exist! Believe me the farmers will slaughter them if they can't sell them. They aren't going to feed big stupid critters for nothing.

Thu, 08/02/2012 - 19:38 | 2674370 NidStyles
NidStyles's picture

You're scared of meat aren't you? You're one of those queers...

Thu, 08/02/2012 - 21:09 | 2674538 GeezerGeek
GeezerGeek's picture

He hasn't been the same since he fell off his elephant.

Thu, 08/02/2012 - 20:34 | 2674469 akak
akak's picture


Great!...murdered-slauthered animals shouldn't be on the menu anyway.

Is it OK if they are not murdered, but just merely slauthered?

Personally, I like my animals slauthered in barbecue sauce.

Thu, 08/02/2012 - 21:00 | 2674521 Row Well Number 41
Row Well Number 41's picture

Proud member of PETA

People Eating Tasty Animals.

You sound like a herbivore, I could eat you in a pinch, and I would too.


Thu, 08/02/2012 - 21:43 | 2674609 dwdollar
dwdollar's picture

Don't you vegetarians have any compassion for the plants? They are alive too you know.

Thu, 08/02/2012 - 21:55 | 2674642 nmewn
nmewn's picture

A radical vegan who doesn't know the distinction between murder and can't possibly get any better.

Thu, 08/02/2012 - 19:26 | 2674346 q99x2
q99x2's picture

Keynesian economics works great for attempting to take over the world. Look how easily it has been to move everyone's wealth to the banking families of the world. Good thing is though, now with genetic research, we can hunt them down, redistribute their stolen wealth and start over without the vermin or their deletarious genepool on the planet.

Thu, 08/02/2012 - 19:31 | 2674356 Duke of Con Dao
Duke of Con Dao's picture

hey Victor Frankenstein had a well intentioned policy of re-animating dead flesh but it lead 

to certain unintended consequences, as you can see here in this Monster Vid-Mash:

"You Didn't Build That Frankenstein!' sez President Obama
- YouTube


Comment Preview



Thu, 08/02/2012 - 19:53 | 2674402 JR
JR's picture

So Nixon pops up again with his “We are all Keynesians now.” But the point to remember is that all recent presidents concerning operation of fiscal policy are pretty much the same – they do what they are told (by the owners of the NY Federal Reserve Bank).

And as far as “Nixon” taking us off the gold standard, it turned out to be the time for the Federal Reserve to play that card (as if Nixon woke up one morning and said, This is what I shall do) like it was Nixon’s idea to go to China. 

These decisions are not only cleared by the masters, they are directed by the masters.

President Wilson summed up the situation in the U.S.A. in 1916:"A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men… We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world --  no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson

Thu, 08/02/2012 - 20:04 | 2674418 loveyajimbo
loveyajimbo's picture

These theories have merit, but do not adequately consider the rise of unrestrained corruption and corporate takeover of government.  A large majority of politicians are bought, the Supremes did the heinous "Corporations are People" thing and the defense contractors demanded unending war for profit.  A president in power that spits on the Constitution and hates the wealthy, capitalism and the white man.  No economic theory can be applied in the presence of such  toxic, catastrophic influences.

Thu, 08/02/2012 - 20:18 | 2674442 Cabreado
Cabreado's picture

While I read the article "with good intentions,"

I could find the word "Truth" nowhere,

so I searched for "Treason," and it too is missing,

and in desperation tried "Sociopath"...

so then,

my "good intentions" failed me, and I leave with nothing,

but am five minutes older,

all spent reading Relative Gibberish.

We are letting Ourselves down, as We miss the Problem -- entirely.

Thu, 08/02/2012 - 20:22 | 2674448 SwingForce
SwingForce's picture

TO: You Fucking Assholes with girlz name

In 1987 when I was trading TBond CALLS, and you douchebags crashed the stocks on October, you fucked everything up. Until you could get Greenspan & Bernanke into the fold. Then Tbonds went  astronomical, and changed the coupon from 8% to 6%...a 25% goose in principal value.  I could be making a fortune if I had stuck with it.....

Thu, 08/02/2012 - 20:25 | 2674457 Hype Alert
Hype Alert's picture

Bang point = Event horizon

Thu, 08/02/2012 - 20:39 | 2674478 JR
JR's picture

Moreover, as the White House led, the Fed chairmen of the era – Martin, Burns, and Miller – generally acquiesced.” – Lacy Hunt

For crying out loud, the Federal Reserve was created by the banker elite to lead and to dominate and they started with Woodrow Wilson and worked down from there.

It is ridiculous to the sublime to imagine that the White House would tell the owners of the NY Federal what it was going to do.

As for The Unintended Consequences Of Well-Intended Policies, Henry Hazlitt put them in the grave and covered it over years ago.

Ludwig von Mises, writing in the Christian Science Monitor, wrote years ago,“Hazlitt has entirely demolished the Keynesian misconceptions…”

Hazlitt’s book, The Failure of the New Economics, appeared in 1959 and does precisely what Mises says it does – the proof is in the statistics. Among Hazlitt’s conclusions:

“Keynes recommends two main remedies. One is deficit spending (sometimes euphemistically called government ‘investment’). How good is this remedy? It was tried in the United States (partly because of Keynes’ recommendations) for a full decade. What were the results? …

“The central and decisive fact is that heavy deficits were accompanied by mass unemployment…

“The other main Keynesian remedy for unemployment is low interest rates, artificially produced by ‘the Monetary Authority.’ Keynes incidentally admits … that such artificially low interest rates can only be produced by printing more money, i.e. by deliberate inflation… The question immediately before us is: Did low interest rates prevent mass unemployment?

“In sum, over this period of a dozen years low interest rates did NOT eliminate unemployment. On the contrary, unemployment actually INCREASED as interest rates went down…”

Thu, 08/02/2012 - 21:22 | 2674562 dunce
dunce's picture

You nailed it. All these studies have been done before with the same conclusions. It is more of that old saw about history repeating itself first as tradgedy ,then as farce. Why does every generation have to relearn the truth?

Thu, 08/02/2012 - 22:45 | 2674744 rufusbird
rufusbird's picture

I have been toying with a theory that inflation equals the interest rate for about 30 to 40 years now. I am not enough of a statician to actually put it on a spreasheet and test it. 


Thu, 08/02/2012 - 21:04 | 2674501 DavosSherman
DavosSherman's picture

Just what the fuck is it that you don't understand about "free market"?  "Well Intentioned Policies" ARE NOT MEDLING WITH THE FUCKING MARKET!

Thu, 08/02/2012 - 20:54 | 2674512 Yen Cross
Yen Cross's picture

 An affair to remember.  "Lacy Hunt does Maiden Lane".

Thu, 08/02/2012 - 21:21 | 2674537 earleflorida
earleflorida's picture

excuse me,... but Martin never acquiesced!

Nixon hated Martin literally for his 'tight money policy's', which cost him the election in the 60's. 

Ps. Johnson [War on Poverty/ Medicare& Medicaid] didn't care to much for the man either.


Thu, 08/02/2012 - 21:16 | 2674550 dunce
dunce's picture

About 40 or 50 years ago i began reading business magazines to educate my self and i think it was business week that published a page of economic figures like tons of steel and coal produced and railcar shipments with historical data for comparison purposes. GDP and many other figures are expressedin dollars wich is much less revealing. All that government spending is counted as though it was a positive just like producing real product when in fact it might be better to look at it as negative because most of it is spent on redistribution  entitlement schemes the govt. chooses to define as services the same as IBMs software services. By changing every thing to a dollar denomination the truth of government waste and corruption is obscured.

Thu, 08/02/2012 - 21:18 | 2674557 reader2010
reader2010's picture

Gordon Gekko: It's all about buckskid. The rest is conversation.

Thu, 08/02/2012 - 21:20 | 2674560 mercury1
mercury1's picture

Regarding Hume, it's a sad commentary on mankind that it requires one of the world great intellects to come up with the idea of saving for a rainy day.

Thu, 08/02/2012 - 21:39 | 2674597 Eric L. Prentis
Eric L. Prentis's picture

Covering up the credit crisis by boosting Keynesian government spending so that national debt-to-GDP is over 100%, and now a detriment to economic growth, a zero interest rate policy (ZIRP), and increasing the supply of money through quantitative easing by the Federal Reserve does not the address our real fundamental economic problems of high public and private debt levels, lack of consumer demand, declining full-time employment, absence of income growth and the structural problems of the insolvent banking system.


President Obama’s solutions to the credit crisis over the past four years have made our real economic problems worse. Doing more of the same is insanity. The US needs new leadership.

Thu, 08/02/2012 - 21:48 | 2674618 nmewn
nmewn's picture

"Keynes, as opposed to some of his interpreters and predecessors, may have implicitly recognized that a bang point could occur, because he did not recommend constant budget deficits. Instead, he advocated cyclical deficits, counterbalanced by cyclical budget surpluses. Under such a system, government debt in bad times would be retired in good times. However, Keynes' original proposition was bastardized in support of perpetual deficits, something Keynes himself never advocated."

I take it you have not read his foreword in the German edition of his General Theory?

A refresher...

"The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.

This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions.

Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interest—all these basic ideas also remain under such conditions necessary parts of our plan of thought."


I don't see any central planning or coercive depredations on the free will of individuals across the globe involved here at all...ROTFL!!!...ts more like kumbaya time for bankers, pols & monopolists.

It gets so tiring showing the Fabian face of Keynes.

Thu, 08/02/2012 - 22:04 | 2674665 Yen Cross
Yen Cross's picture

 nice FUCKING post!  I knew you had it in ya "nmewn".  Shit! , Now I need to crack out wordpad before I post!

   Keep em smoking my friend!

Thu, 08/02/2012 - 22:01 | 2674654 malek
malek's picture

I think one sentence should be changed:

 However, Keynes' original proposition was bastardized in support of perpetual deficits, something Keynes himself never XadvocatedX criticized while still alive.


Thu, 08/02/2012 - 22:12 | 2674677 Atomizer
Atomizer's picture



In order to develop perpetual growth cycles (bubbles), new environmental public works programs need to be initiated immediately. [New climate sustainably laws are the only way to tax our way out of this clusterfuck mess we created.]

Crying Tree Huggers

Seeking Environmental Leaders 


Thu, 08/02/2012 - 22:37 | 2674733 ReligiousAtheist1
ReligiousAtheist1's picture

Interesting piece on the current state of affairs

Fri, 08/03/2012 - 06:13 | 2675091 AnAnonymous
AnAnonymous's picture

However, Keynes' original proposition was bastardized in support of perpetual deficits, something Keynes himself never advocated.


It shoud read

However, Keynes' original proposition failed to bastardize the 'American' support of perpetual deficits, something Keynes himself never advocated.

'American' economics are based on Ponzis, that is that the inputs provided by tomorrow's expansion will cover today's deficits.

The nineteenth US century is an example of that, as the US were in perpetual deficits for more Indian lands, always expecting that the land brought by the next day's theft would cover the present day's demand.

When it failed, the crackings showed first in people who demanded new inputs to sustain their economic activity (work) like seasonal miners, farmers etc. They were the first to feel the pang while the concentration of wealth (that can keep a long time) enabled some others to increase their standard of life.

Keynes failed to bastardize that way of doing (according he was interested in doing so) because the US citizen way of doing that includes betting on a better tomorrow, on a more abundant tomorrow, was already in action way before Keynes was born.

Fri, 08/03/2012 - 11:47 | 2675982 akak
akak's picture

Funny, here's that annoying post-shart echo again ....

Fri, 08/03/2012 - 09:24 | 2675497 csmith
csmith's picture

"Not surprisingly, two unenviable records have been set: 46 million, or 14.6% of the population, are now in the food stamp program, up from 7.9% in 1970 and a record-high 41% pay zero national income tax."


IF one makes the assumption that the goal of democrat politicians is a greater level of dependence upon government services paid for by someone other than the recipient of those services, then the current administration's record is one of smashing success!


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