Thursday, December 19, 2013

First Obamacare, Then A Single-Payer System

In this article noted economist Dr. Peter Morici writes an economical step-by-step as to how Obamacare will progress once implemented.  His chronology paraphrases as this:
  1. Smaller businesses and healthy young people are seeing premiums jump -- sometimes by 300%.
  2. The former are finding it cheaper to drop plans for full-time employees and pay a penalty starting in 2015.
  3. Many healthy young people will calculate it is better to forego coverage and pay a modest penalty -- after all a 30-year old earning $50,000 really can't easily afford $4,000 for insurance, making a $500 penalty appear modest. 
  4. Even some middle-income families will find similar math compelling.
  5. That will leave health insurance exchanges with too many sick people and too few healthy ones, which will drive up premiums further.
  6. This will compel more businesses and individuals to forgo insurance
  7. This creates enormous political pressure to increase federal insurance subsidies for low- and middle-income individuals and families.
  8. Medicare's actuaries expect annual health costs per person, across the entire population, to rise from about $9,216 in 2013 to about $14,700 in 2022. That's about 20% of gross domestic product, whereas Germany spends about 12% and Britain even less.
  9. Large U.S. multinational companies will find providing most employees with insurance too expensive if they are to compete in global markets, and they will dump their employees into subsidized public exchanges.
  10. Too many voters will depend on federal subsidies or Medicaid and simply won't vote to give up those entitlements.
  11. The federal government will announce that it could probably pay doctors, drug companies and device manufactures pretty reasonably directly, and without the insurance company middlemen, through an American National Health Service.

Wednesday, December 18, 2013

How Portions of the Quakers Abandoned Classic Liberal roots in Favor of Socialism By Rick Kelo

How Portions of the Quakers Abandoned Classic Liberal roots in Favor of Socialism
By Rick Kelo

I want to link you to an article I found interesting.  It was written by the late Dr. Jack Powelson, who was known as "The Quaker Economist."  In addition to being a Quaker himself Dr. Powelson also held a phD in Economics from Harvard.  

This article is his analysis of how portions of the Quakers abandoned the group's roots in Classic Liberalism for a socialist ideology around the Great Depression. 
Some excerpts include:
During the seventeenth century, the period when Quakerism was born, classic liberalism dominated intellectual thought and conversation. Classic liberalism holds that people should be free to decide which goods and services they will produce and how they will produce them, with sales and prices voluntarily agreed between buyer and seller. Among other things, the classic liberal does not want the state to choose or regulate prices.
Unprogrammed Quakers have deviated 180 degrees from the classic liberal traditions of the seventeenth, eighteenth, and nineteenth centuries.  
Chuck Fager, Director of Quaker House in Fayetteville, North Carolina, finds three developments that may account for this drastic change at least in part, all of which surface around the late 1920s and early 1930s. First, he found “records of much debate at the Friends General Conference of the post-1929 years over socialism.” These new socialistic, utopian concepts now pervade the thought of most Friends, demonstrating a sharp departure from Quakerism’s classic liberalism origins. Second, “the Depression also had the parallel effect of reducing many enterprises and fortunes among established Quaker families.” Thus, some of those who would have historically supported free market business activity had gone from enjoying financial fortitude and successful businesses to struggling with insolvency and unemployment. Third, in the early twentieth century “industrial families of wealth” produced children who opted for Fabian socialism. 
The Political Ideology of Unprogrammed Quakers
~ Jack P. Powelson

Tuesday, December 17, 2013

The Austerity Myth By Rick Kelo

The Austerity Myth
By Rick Kelo

We're Angry!

Yesterday the King of the Netherlands told the nation to waive good-bye to their collapsed welfare state and get ready for the "participation society."
This topic was greeted with hand wringing and mutters about "austerity."  You know austerity.... that intangible bugaboo that anything can be blamed on.  In 2009 it took the place of blaming things on "The Man."  However there has been no austerity in the Netherlands.  Government expenditures rose from $1.76B in 2008 to $1.87B in 2012, and as a percent of GDP government spending rose from 51.5% in 2008 to 59.4% in 2012.  So, since there have not been any cuts to speak of why is it so many want to saddle the blame of any reductions in government on "austerity" and what does that word even mean?
The term "austerity" has been adopted to mean cutting government spending and taxes during an economic contraction.  This is the populist view, which is opposed to the professional economic view on the topic.  Economic theory states that shrinking government, or lowering government's finances through tax reductions, leaves an economy less encumbered and raises economic output.  However, some groups involved in "austerity" debates believe in economic theory as much as fundamentalist Christians believe in evolution.  When you try to discuss it with them they're every bit as open-minded as well.  So, to spare you the spin and sabre-rattling we will conduct a fact-based review of this topic.
There are some myths about austerity and some truths, and nary the twain shall meet.
Common myths about austerity include:
  1. It is in use across Europe
  2. It produces bad, harmful results
  3. Fiscal responsibility is economically bad
  4. Fiscal irresponsibility produces economically good results

The truths about austerity include:
  1. There are only 4 European nations who have cut spending and taxes since announcing what they called "austerity" policies.
  2. There are only 4 European nations who have cut spending, but instead raised taxes, since announcing what they called "austerity" policies.
  3. There are 9 European nations who have done the opposite of austerity: increased spending and increased taxes.

Has Europe, in fact, been savaged by brutal spending cuts?  Surely this must be the case, right?  Every day we read about protests in the streets.  Citizens of various countries in Europe are mad that the government benefits they never could afford now have to be reduced.  
Many of us have taken these protests at face value.  Very few of us have asked the question:
"Has government spending actually been cut?"

When we look at the truth we find that spending cuts have not, in and of themselves, harmed any nation in Europe.  That hasn't stopped the specter of government spending cuts from being fear-mongered to the unaware masses by those who see their empires of government bureaucracy on the chopping blocks.
This myth is more the arena of political pundits and internet authors than economists and politicians.  The European "austerity" debate has been more than anything dominated by one side seeking to maintain the government spending and another side that wants to raise taxes.  Usually neither side actually pushes for spending reductions, but spending cuts are the main thing you'll hear associated with this topic.
We will compare the 4 actual austerity nations against two other groups: the 9 nations who raised taxes and spending; and the 4 nations who raised taxes and cut spending.  Once we look at whether spending is the real issue you see that cutting government spending is nothing more than a Boogey Man used by pundits to scare people.
Of the nations we're about to look at only Ireland made any major cuts to government spending.  Below are the budgets for a few of the European nations where we see widespread protests.  As you will notice it is pretty tough to identify the "savage" spending cuts.

Countries w/ Most Austerity Protests.
Do you see any "Savage" spending cuts?
Source: World Bank's DataBank

Source: Dr. de Rugy; George Mason University

Ok, so we've looked over a few of the major measures and can see quite plainly that there is not an issue of widespread, massive spending cuts.  This is contrary to what the masses are being inflamed to believe by media pundits and by the agents of pro-big government groups like the various European socialist parties.
In reality, there has been more change in the increased taxation than in limiting spending.

Now what about the few countries who have cut their spending and have cut their overall tax burden?  That would be Ireland, Bulgaria and a couple of the Baltic countries: Latvia and Lithuania.  In the last 2 years those countries had an average 3.19% GDP growth rate (Source: International Monetary FundEuroStatEuropean Commission on Taxation & Customs).
Let's contrast that with the "non-austerity" countries in Europe.  The countries who have increased both their government spending and their overall tax burden include: the UK, France, Germany, Spain, Malta, The Czech Republic, Belgium and Slovakia.  In the last 2 years those countries had an average 0.98% GDP growth rate.
Lastly let's look at the countries who have lowered government spending, but increased their tax burden.  They are: Greece, Portugal, Hungary and Estonia.  These nations have, in the last 2 years, had an average -0.84% GDP growth rate.
These results aren't especially surprising given the economic impact of taxes.  Taxes redirect resources away from private property owners and into the hands of the state, which causes producer goods to not be fully economized.  Whatever the total tax burden of a country is, that's the percent of resource decisions that are in effect made by state officials.  Taxes interfere with the distribution of income from production.  Now the income earned by selling a good is partially disconnected from the resources committed to producing it, and this changes production decisions in a market.  The higher the tax, of course, the less production.  Lower the taxes (especially with the added juice of cutting government spending) and production increases... just like we see above.
So to close this topic, this is the misinformation that comes out of politicians and pundits:
"We can't just cut our way to prosperity."
~ President Obama, 2013 State Of The Union
"Slowly, with little fanfare, the whole notion that austerity might actually boost economies slunk off the public stage."
~ Paul Krugman, June 6, 2013
The next time you hear confident lies being spoken confidently remember that shrinking government, and lowering government's finances through tax reductions, unencumbered the 4 true austerity nations in Europe and raised their economic output.... just like the economic theory predicted.

Monday, December 16, 2013

Famous Economist Quotes

These quotes encompass all schools of economic thought from right to left, classical to modern, supply side to demand side, socialist to capitalist and so on.  Add others in the discussion that you like and I will edit the article to include them regardless of the persuasion.  
Please note transcribing these is enough fun for me so I am not going to fact check them.  If you see something you think is mis-attributed just let me know otherwise I'm taking them directly as provided to me.  Most I am typing up from a quote app I've earmarked over time.  It doesn't include all authors equally so just post below things you like and, again, I'll add them.

In alphabetical order by author's last name:
  • “An economic system which can only expand or expire must be false to all that is human.”
    ~ Paul Abbey
  • Everyone wants to live at the expense of the state.  They forget that the state wants to live at the expense of everyone.
    ~ Frederic Bastiat
  • Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.
    ~ Frederic Bastiat
  • Often the masses are plundered and do not know it.
    ~ Frederic Bastiat
  • They will come to learn in the end, at their own expense, that it is better to endure competition for rich customers than to be invested with monopoly over impoverished customers.
    ~ Frederic Bastiat
  • Fines are preferable to imprisonment and other types of punishment because they are more efficient.  With a fine, the punishment to offenders is also revenue to the State.
    ~ Gary Becker
  • Ignorance is an evil weed, which dictators may cultivate among their dupes, but which no democracy can afford among its citizens.
    ~ William Beveridge
  • Scratch a pessimist and you will often find a defender of privilege.
    ~ William Beveridge
  •  The first of all commodities to be exchanged is labour, and the freedom of man consists only in the exercise of the right to determine for himself in what manner his labour shall be employed, and how he will dispose of its products.
    ~ Henry Charles Carey
  • I believe socialism is the grandest theory ever presented and I am sure it will someday rule the world.
    ~ Andrew Carnegie 
  • Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.
    ~ Winston Churchilll 
  • I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
    ~ Winston Churchill
  • Economic advance is not the same thing as human progress.
    ~ John Clapham
  • The first issue to be settled is whether socialism has a right to exist.  Are its allegations concerning the present system true?  Is industry proceeding on a principle of fraud?  I wish to test the power of recent economic theory to give an exact answer to this question.
    ~ John Bates Clark
  • Is it not obvious that if we are to have socialism  - real and permanent socialism - all the fundamental opposition must be liquidated (i.e. rendered politically inactive by disfranchisement, and if necessary imprisonment)?
    ~ Gilbert Cope
  • Capitalism is the exploitation of man by man.  Well socialism is exactly the reverse.
    ~ Len Deighton 
  • Any union that can't accept workers choosing their own representatives through universal franchise is finished.
    ~ Jacques Delors
  • The problem of how we finance the welfare state should not obscure a separate issue: if each person thinks he has an inalianble right to welfare, no matter what happens to the world, that's not equity, it's just creating a society where you can't ask anything of people.
    ~ Jacques Delors
  •  I have people like Apple’s Steve Jobs in mind when I think about designing tax policy for the top 1%. But Piketty seems to think that those at the top end did not earn their compensation, rather their high pay came from amorphous forces such as “gains from globalisation.” However, let’s say Piketty is right, that the innovators behind firms like Apple just happened to be lucky that their products became global bestsellers. It still makes no sense to impose high taxes on them because those entrepreneurs are more likely to use the cash productively than the government. Indeed, from the beginning of Silicon Valley, wave after wave of millionaires have funded the next wave of business successes through angel financing and venture capital. Obviously, that would not have been possible under Piketty’s 80% tax rate.
    ~ Chris Edwards 
  • "The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil. We see before us a huge community of producers the members of which are unceasingly striving to deprive each other of the fruits of their collective labor—not by force, but on the whole in faithful compliance with legally established rules."
    ~ Albert Einstein
  • "I am convinced there is only one way to eliminate these grave evils [of capitalism], namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. In such an economy, the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child. The education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow men in place of the glorification of power and success in our present society."
    ~ Albert Einstein 

  • Many people want the government to protect the consumer.  A much more urgent problem is to protect the consumer from the government.
    ~ Milton Friedman 
  • A major source of objection to a free economy is precisely that it gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.
    ~ Milton Friedman
  • One of the great mistakes is to judge policies and programs by their intentions rather than by their results.
    ~ Milton Friedman   
  • Concentrated power is not rendered harmless by the good intentions of those who create it.
    ~ Milton Friedman. 
  • Governments never learn.  Only people learn.
    ~ Milton Friedman. 
  • Most economic fallacies derive from a tendency to assume there is a fixed pie, that one party can gain only at the expense of another.
    ~ Milton Friedman. 
  • The problem of social organization is how to set up an arrangement under which greed will do the least harm, capitalism is that kind of a system.
    ~ Milton Friedman.
  •  Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof.
    ~ John Kenneth Galbraith 
  • If wrinkles must be written upon our brows, let them not be written upon the heart.  The spirit should never grow old.
    ~ John Kenneth Galbraith
  • In economics, the majority is always wrong.
    ~ John Kenneth Galbraith
  • Liberalism is, I think, resurgent.  One reason is that more and more people are so painfully aware of the alternative.
    ~ John Kenneth Galbraith
  • More die in the United State from too much food than from too little.
    ~ John Kenneth Galbraith
  • The conventional view serves to protect us from the painful job of thinking.
    ~ John Kenneth Galbraith
  • You will find the State is the kind of organization which, thought it does big things badly, does small things badly too.
    ~ John Kenneth Galbraith
  • Man is the only animal whose desires increase as they are fed; the only animal that is never satisfied.
    ~ Henry George
  • Poorly paid labor is inefficient labor, the world over.
    ~ Henry George
  • That which is unjust can really profit no one; that which is just can really harm no one.
    ~ Henry George
  • The march of invention has clothed mankind with powers of which a century ago the boldest imagination could not have dreamt.
    ~ Henry George
  • The methods by which a trade union can alone act, are necessarily destructive; its organization is necessarily tyrannical.
    ~ Henry George
  • Anything that we can do to raise personal savings is very much in the interest of this country.
    ~ Alan Greenspan
  • Look I'm very much in favor of tax cuts, but not with borrowed money.  And the problem that we've gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money, and at the end of the day that proves disastrous.
    ~ Alan Greenspan
  • Whatever you tax you get less of.
    ~ Alan Greenspan
  • Protectionism will do little to create jobs and if foreigners retaliate, we will surely lose jobs.
    ~ Alan Greenspan
  • A claim for equality of material possession can be met only by a government with totalitarian powers.
    ~ Friedrich von Hayek 
  • "Emergencies" have always been the pretext on which the safeguards of individual liberty have been eroded.
    ~ Friedrich von Hayek
  • Even the striving for equality by means of a directed economy can result only in an officially enforced inequality.
    ~ Friedrich von Hayek
  • Perhaps the fact that we have seen millions voting themselves into complete dependence on a tyrant has made our generation understand that to choose one's government is not necessarily to secure freedom.
    ~ Friedrich von Hayek
  • Socialism has never and nowhere been at first a working-class movement.  It is by no means an obvious remedy for the obvious evil which the interests of that class will necessarily demand.  It is a construction of theorists.
    ~ Friedrich von Hayek
  • Socialist thought owes its appeal to the young largely to its visionary character; the very courage to indulge in Utopian thought is in this respect a source of strength for socialism which traditional liberalism sadly lacks.  Speculation about general principles provides an opportunity for the play of the imagination of those who are unencumbered by much knowledge of the facts of present-day life.  Their ideas suffer from inherent contradictions, and any attempt to put them into practice must produce something utterly different from what they expect.
    ~ Friedrich von Hayek, Intellectuals & Socialism 
  • It is perhaps the most characteristic feature of the intellectual that he judges new ideas not by their specific merits but by the readiness with which they fit into his general conceptions, into the picture of the world which he regards as modern or advanced.
    ~ Friedrich von Hayek, Intellectuals & Socialism 
  • The 'private sector' of the economy is, in fact, the voluntary sector; and the 'public sector' is, in fact, the coercive sector.
    ~ Henry Hazlitt
  • When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.
    ~ Henry Hazlitt
  • Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so- called economists who in turn are full of schemes for getting something for nothing. They tell us that the government can spend and spend without taxing at all; that it can continue to pile up debt without ever paying it off, because "we owe it to ourselves.”
    ~ Henry Hazlitt 
  • There is no more certain way to deter employment than to harass and penalize employers.
    ~ Henry Hazlitt
  • It is often sadly remarked that the bad economists present their errors to the public better than the good economists present their truths. It is often complained that demagogues can be more plausible in putting forward economic nonsense from the platform than the honest men who try to show what is wrong with it.
    ~ Henry Hazlitt 
  • We are socialists, we are enemies of today's capitalist economic system for the exploitation of the economically weak, with its unfair salaries, with its unseemly evaluation of a human being according to wealth & property instead of responsibility and performance, and we are all determined to destroy this system under all conditions.
    ~ Adolph Hitler
  • To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.
    ~ Thomas Jefferson
  • Most men love money and security more, and creation and construction less, as they get older.
    ~ John Maynard Keynes

  • The avoidance of taxes is the only intellectual pursuit that still carries any reward.
    ~ John Maynard Keynes
  • Words ought to be a little wild, for they are the assaults on the thoughts of the unthinking.
    ~ John Maynard Keynes
  • It is better that a man should tyrannise over his bank balance than over his fellow-citizens; and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative.
    ~ John Maynard Keynes 
  • Goods move in response to price differences from points of low to points of higher price, the movement tending to obliterate the price difference and come to rest.
    ~ Frank Knight 
  • There is no sense in making statements that will not continue to be true after they are made.
    ~ Frank Knight
  • Raising the minimum wage and lowering the barriers to union organization would carry a trade-off - higher unemployment.  A better idea is to have the government subsidize low-wage employment.  The earned-income tax credit for low-income workers - which has been the object of proposed cuts by both President Clinton and congressional Republicans - has been a positive step in this direction.
    ~ Paul Krugman
  • I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum.
    ~ Paul Krugman
  • In fact, I’d say that the sources of the economy’s expansion from 2003 to 2007 were, in order, the housing bubble, the war, and — very much in third place — tax cuts.
    ~ Paul Krugman
  • Close the weak banks and impose serious capital requirements on the strong ones...You see, it may sound hard-hearted, but you cannot keep unsound financial institutions operating simply because they provide jobs.
    ~ Paul Krugman, 1998
  • Many a man in love with a dimple makes the mistake of marrying the whole girl.
    ~ Stephen Leacock
  • Only now did I recognize the reciprocal relationship which exists between manufacturing power and the national system of transportation, and that the one can never develop to its fullest without the other.
    ~ Friedrich List
  • Capital is that part of wealth which is devoted to obtaining further wealth.
    ~ Alfred Marshall
  • The hope that poverty and ignorance may gradually be extinguished derives indeed much support from the steady progress of the working classes during the 19th century.
    ~ Alfred Marshall
  • The theory of communism may be summed up in one sentence: abolish all private property.
    ~ Karl Marx 
  • The bureaucracy is a circle from which no one can escape. Its hierarchy is a hierarchy of knowledge.
    ~ Karl Marx 
  • The production of too many useful things results in too many useless people.
    ~ Karl Marx 
  • The aim of the popularization of economic studies is not to make every man an economist.  The idea is to equip the citizen for his civic functions in community life.
    ~ Ludwig von Mises 
  • A lasting order cannot be established by bayonets.
    ~ Ludwig von Mises 
  • German Marxian's coined the dictum: If socialism is against human nature, then human nature must be changed.
    ~ Ludwig von Mises  
  • If one rejects laissez-faire on account of man's fallibility and moral weakness, one must for the same reason reject every kind of government action.
    ~ Ludwig von Mises 
  • Economically considered, war and revolution are always bad business.
    ~ Ludwig von Mises
  • Used to the conditions of a capitalistic environment, the average American takes it for granted that every year business makes something new and better accessible to him. Looking backward upon the years of his own life, he realizes that many implements that were totally unknown in the days of his youth and many others which at that time could be enjoyed only by a small minority are now standard equipment of almost every household.
    ~ Ludwig von Mises
  • The main propoganda trick of supporters of the allegedly "progressive" policy of government control is to blame capitalism for all that is unsatisfactory in present-day conditions and to extol the blessings of socialism.  They have never attempted to prove their fallacious dogmas, all they did was to call their adversaries names and cast suspicion upon their motives.  And, unfortunately, the average citizen cannot see through these stratagems.  The liars must be afraid of the truth and are therefore driven to suppress its pronouncement.
    ~ Ludwig von Mises
  • The sad fact is, people are motivated by all sorts of bad ideas that keep us poorer than we otherwise could be.
    ~ Robert Murphy 
  • While businesses are punished if they make a mistake, government regulators see their budgets grow with every bureaucrat's mistake.
    ~ Robert Murphy  
  • The argument over "public" (aka government) funding of programs isn't about materialism versus idealism.  On the contrary, its about letting citizens spend their money on whatever ventures they support, versus the politicians taking their money and spending it for them.  People who insist on using politicians to trump the market are people who insist on government coercion rather than individual choice.
    ~ Robert Murphy 
  • Any allegation of runaway capitalism has to be tempered by the observation that today we have the largest public sectors and the highest taxes the world has ever known.
    ~ Johan Norberg  
  • As with the Christian religion, the worst advertisement for socialism is its adherents.
    ~ George Orwell
  • In my opinion nothing has contributed more to the corruption of the original idea of socialism as the belief that Russia is a socialist country.
    ~ George Orwell 
  • Give me the fruitful error any time, full of seeds, bursting with its own corrections.  You can keep the sterile truth for yourself.
    ~ Vilfredo Pareto
  • The historical experience of socialist countries  has sadly demonstrated that collectivism does not go away with alienation but rather increases it, adding to it the lack of basic necessities and economic inefficiency.
    ~ Pope John Paul II 
  • Communism is the exploitation of the strong by the weak.  In Communism inequality comes from placing mediocrity on a level with excellence.
    ~ Francois Quesnay
  • "An inventor is a man who asks 'Why?' of the universe and lets nothing stand between the answer and his mind."
    ~ Ayn Rand
  • Globalization and free trade do spur economic growth, and they lead to lower prices on many goods.
    ~ Robert Reich 
  • The liberal ideal is that everyone should have fair access and fair opportunity.  This is not equality fo result.  Its equality of opportunity.  There's a fundamental difference.
    ~ Robert Reich
  • There will always be a business cycle, and white-collar workers will get hit in the next recession like they always do in recessions.
    ~ Robert Reich
  • The slaves of socialism are slaves, but they are no one's property and therefore no one's loss.
    ~ George Reisman 
  • If your corn has a herbicide-tolerant gene, it means you can pray your herbicides and kill the weeds; you won't kill your corn.
    ~ Jeremy Rifkin
  • Tax increases appear to have a very large sustained and highly significant negative impact on output.  Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects  
    ~ Christina Romer (Romer & Romer 2010
  • Taxes are paid in the sweat of every man who labors. If those taxes are excessive, they are reflected in idle factories, in tax-sold farms, and in hordes of hungry people tramping streets and seeking jobs in vain.
    ~ FDR 
  • This, by the way, is the welfare state in action: Its a whole bunch of special interest groups screwing consumers and taxpayers, and making them think they're really benefiting.
    ~ Murray Rothbard 
  • There is one good thing about Marx: he was not a Keynesian.
    ~ Murray Rothbard
  • Rights might be universal but their enforcement must be local.
    ~ Murray Rothbard
  • It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.
    ~ Murray Rothbard 
  • “It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money - that's all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”
    ~ John Ruskin
  • “If the ordinary wage-earner worked four hours a day, there would be enough for everybody and no unemployment -- assuming a certain very moderate amount of sensible organization. This idea shocks the well-to-do, because they are convinced that the poor would not know how to use so much leisure. In America men often work long hours even when they are well off; such men, naturally, are indignant at the idea of leisure for wage-earners, except as the grim punishment of unemployment; in fact, they dislike leisure even for their sons.”
    ~ Bertrand Russell
  • The essence of Africa's crises is fundamentally it's extreme poverty.
    ~ Jeff Sachs 
  • In Asia, a lot of successful economies that had been living on their own saving, decided to open up their financial markets to international capital in the early 1990s.  So here were countries doing quite well, but they decided to borrow a bit more and do even better.
    ~ Jeff Sachs
  • It's not so unusual to run out of someone else's currency.
    ~ Jeff Sachs
  • Roosevelt talked not only about Freedom from Fear, but also Freedom from Want.
    ~ Jeff Sachs
  •  America's government is not even aware of the gap between its commitments and action, because almost nobody in authority understands the actions that would be needed to meet the commitments.
    ~ Jeff Sachs
  • An intruiging paradox of the 1990s is that it isn't called a decade of greed.
    ~ Paul Samuelson
  • Politicians like to tell people what they want to hear - and what they want to hear is what won't happen.
    ~ Paul Samuelson
  • And for man to look upon himself as a capital good, even if it did not impair his freedom, may seem to debase him... by investing in themselves people can enlarge the range of choice available to them.  It is one way free men can enhance their welfare.
    ~ Theodore Schultz 
  •  Eagles come in all shapes and sizes, but you will recognize them chiefly by their attitude.
    ~ EF Schumacher
  • It is not the truth of Marxism that explains the willingness of intellectuals to believe it, but the power that it confers on intellectuals, in their attempts to control the world.  And since, as Swift says, it is futile to reason someone out of a thing that he was not reasoned into, we can conclude that Marxism owes its remarkable power to survive every criticism to the fact that it is not a truth-directed but a power-directed system of thought.
    ~ Roger Scrunton 
  • As we know, socialism is calculational chaos. Rational appraisement and allocation are eternally elusive. It is a gigantic negative-sum game in which each player quickly grabs a piece of the pie, and all the while the pie shrinks before the players' eyes. The welfare/warfare state, the interventionist state, is no improvement. Each intervention begets yet another. Bureaucracy is the only 'industry' guaranteed to experience growth. Each new regulation taxes the private sector, relentlessly shifting resources out of the hands of the productive, and into the hands of the unproductive. Capitalism is the only positive-sum game in town.
    ~ Larry Sechrest
  • A government debt is a government claim against private property – an unpaid tax bill.
    ~ Hans Sennholz
  • “Why should a financial engineer be paid four, four times... to a hundred times more than the, uh... real engineer?  A real engineer build bridges, a financial engineer build, build dreams.  And when those dream turn out to be nightmares, other people pay for it.”
    ~ Andrew Sheng
  • “In regards to the price of commodities, the rise of wages operates as simple interest does, the rise of profit operates like compound interest.  Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
    ~ Adam Smith
  • It is not from the benevolence of the butcher, the brewer, or the banker that we expect our dinner, but from their regard for their own interest.
    ~ Adam Smith
  • You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth -- and that future wealth is less likely to be produced when people see that it is going to be confiscated.
    ~ Tom Sowell 
  •  “Despite a voluminous and often fervent literature on "income distribution," the cold fact is that most income is not distributed: It is earned.”
    ~ Tom Sowell
  • The more corrupt the state the more numerous the laws.
    ~ Tacitus 
  • The real economic cleavage is not... between employers and employed, but between all who do constructive work, from scientist to laborer, on the one hand, and all whose main interest is the preservation of existing proprietary rights upon the other, irrespective of whether they contribute to constructive work or not.
    ~ RH Tawney
  • Trade and commerce, if they were not made of Indian rubber, would never manage to bounce over the obstacles which legislators are continually putting in their way.
    ~  Henry David Thoreau 
  • As for me, I am deeply a democrat; this is why I am in no way a socialist. Democracy and socialism cannot go together. You can't have it both ways... socialism is a new form of slavery.
    ~ Alexis de Tocqueville 
  • Capitalism is relatively new in human history.  Prior to capitalism the way people amassed great wealth was by looting, plundering, and enslaving their fellow man.  Capitalism made it possible to become wealthy by serving your fellow man.
    ~ Walter Williams 
  •  “We have not noticed how fast the rest has risen. Most of the industrialized world--and a good part of the nonindustrialized world as well--has better cell phone service than the United States. Broadband is faster and cheaper across the industrial world, from Canada to France to Japan, and the United States now stands sixteenth in the world in broadband penetration per capita. Americans are constantly told by their politicians that the only thing we have to learn from other countries' health care systems is to be thankful for ours. Most Americans ignore the fact that a third of the country's public schools are totally dysfunctional (because their children go to the other two-thirds). The American litigation system is now routinely referred to as a huge cost to doing business, but no one dares propose any reform of it. Our mortgage deduction for housing costs a staggering $80 billion a year, and we are told it is crucial to support home ownership, except that Margaret Thatcher eliminated it in Britain, and yet that country has the same rate of home ownership as the United States. We rarely look around and notice other options and alternatives, convinced that "we're number one.”
    ~ Fareed Zakaria

Friday, December 13, 2013

Medicare vs. Stagnant Wages: Cause & Effect By Rick Kelo

Medicare vs. Stagnant Wages: Cause & Effect
By Rick Kelo

There have been a great many articles written about how wages are flat.  I am going to show you exactly why wages have been flat since 1973 and show you a couple common fallacies & myths associated with this topic.
Myth 1:Let's start with the good news at least.  The good news is that it is a myth that overall wages are flat.  Actually overall wages are increasing.  Most loose populist articles fail to identify a very important disclaimer: they are only referring to the wages of a certain sub-set of the overall economy.  Overall wages have risen nearly every year, but not so for this particular sub-set of non-supervisory, production level workers.
This is a very important component for a society, but it is often conflated to imply that overall wages are stagnant which is untrue.
Myth 2:
This is one to remember as you read future articles on this topic.  I'm not going to elaborate on it here other than to point it out so you're aware of it.  Wage growth is generally graphed alongside productivity.  This is completely fallacious approach and, in my opinion, usually used to mislead.  Productivity does not determine wages at the macroeconomic level, which we will be examining here.  Perhaps for the individual worker it influences (not determines) wages, but at the macro level wages are set by a concept called the overall marginal productivity of labor and depend on many more factors than the general, non-marginal productivity number they're often graphed against.
The Back Story on Flat Wages:
Now to the specific topic of flat wages.  Below is a graph that is frequently thrown around.  Various versions now exist, but this is the original from Dr. Lawrence Mishel at the Economic Policy Institute.

It shows how wages for the labor sub-set of non-supervisory, production level employees became flat in 1973.  It is graphed against productivity to imply that workers are producing more but not being paid more.
Let me note that Dr. Mishel's graph is based on some "special" unpublished BLS data.  I fact check everything I include in my articles, and am opening with the disclaimer that the Mishel graph is not readily verifiable.  I contacted Mishel several times to request the data for his graph to no avail.  Regardless I consider it accurate.
Reinhart Rogoff reminded us this can sometimes be a dangerous assumption.  As I pointed out recently the CBO is occasioned to make announcements of fact based only on modeled projections and the BEA is occasioned to make major revisions to its GDP calculation methodology under dubious circumstances as well.  So, trust me, I value reading the fine print and I always encourage others to do so.  Despite that, for this article I am going to accept the Mishel wage graph prima facie.
The Facts on Wage Rates
As you can see wages for the non-supervisory, production sub-set break from the historic trend of growing in near tandem with productivity starting in 1973.  This was caused by a very major economic change that occurred in America that same year.
I'd have preferred to use the Mishel data since this graph is the most widely circulated.  Since I wasn't able to do that I, instead, obtained historic nominal wage data from Dr. Sam Williamson & Dr. Larry Officer, both professors of economics where I went to grad school in Chicago.  (As a quick FYI for the reader Williamson & Officer specialize in economic history and are involved in a very valuable project called Measuring Worth that makes high quality historical economic data widely available.)
That said, I took the Williamson/Officer nominal wage rates for non-supervisory, production level employees.  I then converted them to real wages using the BLS inflation calculator (SOURCE) for the period from 1949 - 2012.  The result was similar to the Mishel graph, however, it does not explain WHY wages for this sub-set have been flat.  
The Cause Of It AllWhat changed in 1973 that derailed the growth in wages?  Simple: America phased in a new payroll tax code-named Medicare.  The Medicare payroll tax was introduced in 1966 and slowly ramped up to full force in a series of 4 metered increases spread over 8 years from 1966-1973.  In 1973 the Medicare payroll tax rate underwent its far & away largest increase and jumped to 2%.  It eventually underwent 4 more rate increases until arriving at 2.9% in 1985 where it remains to this day.
Wages are still growing at the same rate they were before, but now Medicare is redirecting that growth into the hands of a government bureaucracy and out of the hands of the employee.  The hardest hit have been those at the bottom: the non-supervisory, production level workers.  
Look at wage growth and Medicare rates side by side:

The previous 2.92% wage growth is now being skimmed off the top by a 2.90% Medicare payroll tax.  Compare the changes by time period with wage growth above.  I have graphed them below.  The thick red & thick blue lines are the trendlines with equations included to draw your attention to their near identical inverse slopes.  If we mute out wage variations due to the business cycle and examine the two trendlines ceteris paribus they have a correlation coefficient of exactly -1.00.   As Medicare rates increase, real wage growth for production level, non-supervisory employees decreases.  

ConclusionWhen examined it becomes apparent the blame for stagnant wages is not a failing of private business or the free enterprise system as is usually the conclusion when this topic comes up.  The lack of real wage growth is a distortion caused exclusively by government action.  Americans love to vote themselves access to more and more government programs, unfortunately there's no free lunch. 

Thursday, December 12, 2013

Enron Style Accounting & the 1.7% GDP Announcement By Rick Kelo

Enron Style Accounting & the 1.7% GDP Announcement
By Rick Kelo

When things don't pass the sniff test, there's always a reason.  Famously a little over a decade ago one of the nation's largest companies crashed and burned.  Enron had been using some "creative accounting" to make itself look more profitable than it was.  Every time the company experienced a dip in profit it changed the accounting method it used to make itself appear more profitable or make the company look like it was growing more than it was.  In preparation for the fiscal cliff debate the Bureau of Economic Analysis has decided to engage in a massive revision of its accounting terms.  Overnight this week GDP became a full 12% larger than it was when we went to bed the night before... and so did the growth.
Yesterday I leveled an accusation against the Congressional Budget Office for lying on their statements of how many jobs the stimulus created.  Really they haven't lied to us so much as tricked us because they disclose their methodology, but they disclosed it in a very obscure way hidden in 1 sentence of an entire announcement, then presented job growth numbers in a way as to dupe stupid American journalists everywhere.  Sadly the CBO knows that group is made up of English majors not accountants or attorneys.  As such don't read the fine print.
So, while I'm in the mood to point out massive errors & omissions in the fine print the Bureau of Economic Analysis gave me cause several days ago to point out their approach to reporting the GDP.  
Earlier this week the BEA announced a 1.7% annual rate of GDP growth in the second quarter of 2013.  This is recession indicating growth rate, but that's not the interesting point.  The interesting point is what else the BEA announced that did not make it into the news story.
Going all the way back to 1929 the BEA decided to revise the accounting treatment of a couple items (R&D and pensions).  The change this produced is the biggest effective revision to the GDP calculation ever!  And it has gone totally unnoticed.  I'll just fill in the next question you're wondering: yes the revised accounting makes GDP growth suddenly much larger than it was before.
Changes in definitions (mainly accrual accounting for defined benefit pension plans, which credits households with the value of accrued benefits from these plans) raise personal income and personal saving
GDP. Current-dollar GDP was revised up for all years (1929–2012). The upward revisions to current-dollar GDP mainly reflect the recognition of additional expenditures -- for R&D; for the creation of entertainment, literary, and artistic originals; and for an expanded set of ownership transfer costs -- as fixed investment (see "Revision Analysis for GDP, 2012"). The new accrual treatment for government-sponsored defined benefit pension plans results in revisions to current-dollar GDP through revisions to supplements to wages and salaries for government employees (specifically, employer contributions for employee pension and insurance funds); these revisions are upward for 1929–1978, downward for 1979–1991, and upward for 1992–2012.
~ Bureau of Economic Analysis, National Income & Product Accounts, July 31, 2013
Now, you're no doubt asking yourself... so what?  The accounting revision changes GDP over that time period by $1.8T, which over our new total GDP of $15.4T is an overnight 11.6% jump in GDP.  However, because of the reporting & data for the particular items the BEA chose to "update" the newly higher GDP is especially improved in recent years.  Here's one representative example:

In the revised estimates real GDP increased 2.8 percent in 2012; in the previously published estimates, real GDP had increased 2.2 percent.
~ Bureau of Economic Analysis, Technical Note, July 31, 2013
Meh.  What's a 0.6% increase due to some accounting tricks?  Well its not actually a 0.6% increase, 2.8% is a 27% larger GDP growth than 2.2%.  I think the impact is starting to become clearer.
Meet the New GDP, Same As the Old GDP
Now allow me to make a caveat to my statements at this point.  Unlike the actions of the CBO in reporting unemployment numbers, this announcement by the BEA was not revealed only through a very tiny, vague reference to how it was being calculated.  It was announced on the BEA website for all to see.   However in my scanning of the world of news I have not seen a single mention of this new calculation method since and I have certainly not seen anyone yet analyze it to point out the incredible jump in GDP this revision makes appear.
The Significance
I'm going to moralize a bit and be someone dogmatic.  Things change, and as better information and techniques become available we update old ones.  The BEA's's evident reply if questioned about this massive accounting change would be along those lines I have no doubt.
It is not the BEA that I am concerned with, it is the common American.  When the US economy has fallen below a 2% growth rate for 2 quarters in a row it has always signaled a recession.  The exception was 2007 when, after 2 quarters below 2% growth, GDP came back up... for 1 quarter before the recession hit.  (Hey, I didn't say it was much of an exception, just that it was an exception).  I mention this because the 1st quarter US GDP growth was 1.1% so we are now in very dangerous territory from historical stand-point.
Either way, by taking Enron's approach of making ourselves look more profitable than we are we do not fool the economy.  We only fool the common man who turns on the news and hears the economy is growing.  He hears that GDP came in at 1.7% when everyone had predicted 1.0% so we must be doing BETTER than expected.  Except we aren't doing better than expected, we just moved the goal post.
I hope we have not moved the goal post in a way that prevents people from recognizing a possible recessionary threat approaching.

Wednesday, December 11, 2013

When the CBO lies By Rick Kelo

When the CBO lies
By Rick Kelo

While researching another article I was reminded of something quite concerning that escapes the notice of mainstream news.  First though let me just say that the worst behavior any government bureaucrat can engage in is to mislead the citizenry who employs them.  Despite the special trust & confidence that has been reposed in them that is precisely what the CBO has done.
Imagine for a moment that you hire a personal financial adviser.  You meet and he tells you that in 2 years your $100,000 you've given him to invest will have grown to $150,000 based on the estimation model in front of us.  You meet again 2 years later.  Now he tells you: based on my estimation model from 2 years ago your money is now worth $150,000.  
At this point you would probably ask the question: ok that's how much you said it would be worth, but how much is it actually worth?  
Now let's take this story a step further, to the step the CBO took it.  After 2 years of having your money the investment adviser sends you a written statement declaring that your investments are now $150,000.  Hidden in the statement after that announcement is a carefully crafted sentence by the crooked adviser's lawyer written in the most confusing language possible which you will never understand.  That confusing sentence says "it grew by $50,000 based on what I told you 2 years ago if my model from 2 years ago had turned out to be accurate."

Below is the picture President Obama's economists portrayed of what would happen to unemployment if we did not have the 2009 stimulus.   
Romer, Bernstein, 1/2009.  Source.

The CBO arrived at similar conclusions: 
In the absence of any changes in policy…[t]he unemployment rate is forecast to rise above 9 percent by early next year. ~ CBO, January 2009 (Source) 
Except that we did not get the promised unemployment of 7% WITH stimulus the Obama team promised.  We did not get the 9% unemployment without stimulus the CBO team promised.  America got an unemployment rate of 10% WITH the stimulus.  
Simply put the stimulus produced no effect on employment.  The projected jobs created by the stimulus never appeared.  Just like Bush's stimulus bill.  Just like Bush's first stimulus bill in 2001.  Just like Ford's stimulus bill in 1974.
Perhaps frantic efforts to conceal the truth that we just flushed $1 trillion down the toilet next led to one of the greatest myths of this current economy: the CBO's statement that stimulus worked and created 3 million jobs.  This myth is an accepted fact to most, but it shouldn't be given that many jobs would be something like ~3% of all jobs in America and none of us can identify even a single one of them.  
People came to believe those jobs were created because the CBO made a grand announcement that:
CBO estimates that ARRA’s policies had the following effects in the second quarter of calendar year 2010: Increased the number of people employed by between 1.4 million and 3.3 million
(Source: CBO, August, 2010).
The myth of the CBO's 3 million jobs is propagated by people who scan & grab a headline but do not analyze how that conclusion was reached.  When you actually look at how the CBO reached that conclusion they took the same formula they used in January, 2009 to predict the effect of the stimulus.  They then re-multiplied it with the actual levels of spending.  So, just like my example of the crooked investment adviser, the CBO took a forecast and re-did the forecast, then proclaimed that forecast was what happened.
The forecast was for 3.3 million jobs so they just announce it created 3.3 million jobs.  Totally dishonesty!  There were no jobs created, only a projection that X amount of spending SHOULD result in Y amount of jobs created.  So instead of being honest and admitting this theory doesn't work the CBO decided to instead state the theoretical outcome as a fact & the actual outcome!  Translation: you were lied to America.
The CBO actually believes you are dumb enough you wouldn't notice that about 3% of all the jobs in the economy were supposed to be created by this program in just one quarter when, in reality, there were only 600,000 jobs created that entire quarter and none of them from stimulus.  What's more in the entire 51 months we have final jobs data on since the stimulus was enacted (Feb 2009 - April 2013) there have only been 1.8 million cumulative jobs created TOTAL!  That's over 51 months.... a big difference from 3.3 million jobs created in 3 months isn't it?
Let me break this down & translate it for you.  Here's the full CBO announcement; in plain English it translates to say: 
  • The stimulus created 1.4 million to 3.3 million jobs (the quote above you've already seen)
  • Next paragraph: the stimulus didn't actually create those jobs, but we estimated before the stimulus (in Jan, 09) that it would create them.
  • We've just taken the same multiplier as then, multiplied it by the actual spending and are announcing our year old estimate as fact now because most of you aren't smart enough to translate our gibberish and realize we just pulled a carnival shell game on you.
CBO’s current estimates reflect small revisions to its earlier projections of the timing and magnitude of changes to federal revenues and spending under ARRA. They also reflect, for 2011 and 2012, a small shift in CBO’s assumptions about the future actions of the Federal Reserve.
(Source: CBO, August, 2010). 
READY FOR THE REAL KICKER?  This is the next paragraph.  It translates: we looked at the real data and it didn't show any jobs created so we disregarded it and instead republished our estimates from before the stimulus, but stated them as facts this time even though they're really only estimates:
Although CBO has examined data on output and employment during the period since ARRA’s enactment, those data are not as helpful in determining ARRA’s economic effects as might be supposed.
(Source: CBO, August, 2010).

Tuesday, December 10, 2013

Kelo Responds on Paul William Tenny, Keynes, George Bush & Roller Coasters by Rick Kelo

Kelo Responds on Paul William Tenny, Keynes, George Bush & Roller Coasters 
by Rick Kelo

Paul William Tenny recently penned an article addressing me on the topic of Keynesian Economics.  It can be viewed here
His article is in response to a series of my own which can be viewed here:
I enjoy discussing topics like this and because so few people are interested in them I want to thank Paul William Tenny for his effort in tackling a complicated topic.  I don't agree with his thoughts and I think they more represent what he imagines this topic should be like and not what it is actually like, but every side always thinks that about the other in discussions like this.  So, to head off that criticism in your own mind I will do what Paul William Tenny fails to do in his article: I will provide factual support for each topic I address.
Before I go into the topic I am going to briefly mention a few of Paul William Tenny's remarks toward me that I took as personal attacks.  I understand, in debate, that many feel strong language is warranted.  It is especially needed in Tenny's case given that he is trying to convince internet readers of a position that he has mostly made up.  So, to his specific slanderous remarks: I am not an advocate of "austerity" and in none of my writing have I ever suggested that approach, I am not a member of the birther society, or the flat earth society, or a denier of climate change.
Those insults are necessary lies Tenny hides behind at the outset to take advantage of the fact most of his readers are not self-aware enough to detect an effect called Halo Bias: that people see others as all good or all bad.  Knowing this some more childish debaters will launch into personal attacks knowing this will cause readers not mindful of Halo Bias to consider the other party all bad.  
Paul William Tenny makes his statements very confidently, but he has no idea what he's talking about and is wrong in every major topic he raises:
1. INVESTMENT- Kelo says: "Keynes wanted to control & direct all investment."- Tenny Says: "That statement borders on libel and is laughable. John Keynes was generally a free market advocate"- Tenny says: "Direct government control of all investment is actually what Keynes sought to avoid"
- Tenny says again: "He did not support totalitarian government control of private investment"
- Keynes says: The central bank controlling the interest rates isn't enough, the state needs to socialize all private investments.  I call for state socialism, but not of the means of production, as most socialist theorists called for, but of a government take-over of the nation's investments:  
Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment.  I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means...  case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. ... [T]he necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society.
~ John Maynard Keynes,  The General Theory of Employment, Interest, and Money, page 238.
I believe that the cure for these things is partly to be sought in the deliberate control of the currency and of credit by a central institution
~ John Maynard Keynes, The End of Laissez-Faire
Had Paul William Tenny read Keynes before trying to write about it he would know Keynes called for the state to assume control of all investments.  Until this could be done Keynes also called for negative interest rates so people had to pay the bank in order to save their money, which I detail here.

- Kelo says: "Recessions are not caused by a drop in aggregate demand.  Decreasing aggregate demand is the symptom.  The cause of recessions is the necessary cleansing of malinvestments that were created by the preceding boom period."
- Tenny says: "The reason for high unemployment in the first place is a lack of demand for goods and services."
- The Facts say: Kelo is right, Tenny is wrong again.  Below is a St. Louis Fed FRED graph (colors added for clarity).  Demand for goods & services (the orange consumption line) was nearly unchanged.  The economic drop was exclusively in the area of investments (light blue line).

Now on this exact topic I never elaborated on Keynes' theories, however, this is one area where Kelo & Keynes agree.  On this topic Tenny is off in left field by himself... again.  Keynes also felt that economic downturns came from declining investments not declining consumer spending.  This is probably news to most people since consumer spending gets far more press time than the more complicated, and less understood area of investment.
Thus, to justify any given amount of employment there must be an amount of current investment sufficient to absorb the excess of total output over what the community chooses to consume when employment is at the given level. For unless there is this amount of investment, the receipts of the entrepreneurs will be less than is required to induce them to offer the given amount of employment. It follows, therefore, that, given what we shall call the community's propensity to consume, the equilibrium level of employment, i.e. the level at which there is no inducement to employers as a whole either to expand or to contract employment, will depend on the amount of current investment.
~ John Maynard Keynes,  The General Theory of Employment, Interest, and Money, page 26.

3. REGULATION- Tenny says: "The only part that John Keynes played in all of that is that Congress took his theories to heart after the Great Depression and regulated Wall Street in ways that prevented another Depression for over half a century."
- Kelo says: Tenny just flat out made this one up.  In fact, he's referring in this quote to Glass-Steagall, which was enacted in 1933 and assigning credit to Keynes for a book he wrote in 1936.  Also, no where in that book does Keynes discuss regulating the banking industry, hey, at least his claims sound convincing.
- Keynes says:  Hey Tenny, if you can't sleep at night take it back 5 years to the early 30s.  I wrote a real snoozer of a book on central banking.  Sadly for your point on regulation though the only thing I call for in there is that the central bank has to be able to control how much money is printed by its member banks.
4. FREE MARKETS- Tenny says: "John Keynes was generally a free market advocate"
- Kelo says: Tenny just flat out makes this one up... again.
- Keynes says: "We already have in these cases many of the faults as well as the advantages of State Socialism. Nevertheless, we see here, I think, a natural line of evolution. The battle of Socialism against unlimited private profit is being won in detail hour by hour." ~ John Maynard Keynes, "The end of laissez-faire"
- Tenny says: "Keynesian economics respects the free market"
- Kelo says: Paul, you are using words that you don't know what they mean again.  Free Market, noun, "An economic system in which prices are determined by unrestricted competition between privately owned businesses."  Contrasted with: "Keynesian economics advocates a mixed economy" (Wikipedia)
5. MULTIPLIER- Kelo says:   "The answer revolves around something called the Keynesian multiplier.  The basic idea is that every dollar government puts into the economy creates much more than just $1."
- Keynes says: "It is, however, to the general principle of the multiplier to which we have to look for an explanation of how fluctuations in the amount of investment, which are a comparatively small proportion of the national income, are capable of generating fluctuations in aggregate employment and income so much greater in amplitude than themselves." ~ John Maynard Keynes, The General Theory of Employment, Interest, and Money,  Page 81
- Keynes says: "To dig holes in the ground, paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services".   ~ John Maynard Keynes, The General Theory of Employment, Interest, and Money,  Page 139
- Tenny says:  "The only reason the specific job the government creates would matter is that you want to get the biggest multiplier -- the biggest bang for your buck. Digging a hole and filling it in would only increase demand for shovels, so the multiplier would low."
Tenny completely mis-states this topic.  From his explanation you would not understand it at even the most basic level.
The Keynesian multiplier is a macro economic term.  The basic idea is as demand decreases in a recession government makes up the gap with spending that is augmented by a multiplier.  Keynes felt that after government spent a dollar, then the person who got that dollar would spend it and so on, thereby multiplying the effect.  (But he ignored the cost for government to raise that dollar through taxes or debt & the amount skimmed or wasted by passing it through government's hands).  This becomes important when we suppose that for every dollar of infrastructure spending it produces an actual effect of $1.75 in the economy, but maybe every dollar spent on a tax refund only produces $0.80 in the economy. 
This may be news to you after reading Tenny's piece and it may be news to him, but the multiplier has nothing to do with micro economics.  It has nothing to do with the demand for shovels, or any other single product.  Wikipedia explains it this way:
Keynesian and Hansen-Samuelson multipliers:
Keynesian economists often calculate multipliers that measure the effect on aggregate demand only.
 And, of course, Keynes theory of the multiplier doesn't proof out anyway.  Showing that government can move output around is not the same as showing it can increase overall output, which it can not.
- Kelo says: "You may never have heard the name John Maynard Keynes, but he was the architect of Too Big To Fail"
- Tenny says: "The true architect of too big to fail is Wall Street, and the antidote has been Keynesian economics."
- Kelo says: Paul you're using words again that don't mean what you think they mean.  Too Big To Fail was fiscal stimulus, and all fiscal stimulus is Keynesian economics.  Not only does your sentence make no sense, but its just plain wrong.  Then, even beyond that, Keynes made repeated calls to nationalize mainly the banking industry, and sometimes manufacturing as well.
- Keynes says:  If A=B & B=C, then A=C.
  1. Keynes: I believe government should own all the banks, AKA "comprehensive socialisation of investment"
  2. Keynes: "I have become convinced that the retention of the structure of private enterprise is incompatible with that degree of material well-being to which our technical advancement entitles us... above all, let finance be primarily national." ~ John Maynard Keynes, "National Self-Sufficiency" 
  3. Too big to fail was a nationalized finance scheme that gave government partial socialized control over banks & investment firms.  
  4. Keynes on government control of manufacturing: "War experience in the organisation of socialised production has left some near observers optimistically anxious to repeat it in peace conditions. War socialism unquestionably achieved a production of wealth on a scale far greater than we ever knew in peace, for though the goods and services delivered were destined for immediate and fruitless extinction, none the less they were wealth."  ~ John Maynard Keynes, The End of Laissez-Faire

- Kelo says: "Alan Greenspan's easy money policies sent a false signal to the housing industry to produce.  A signal that caused malinvestments in housing far above what the market actually needed.  With that in mind how logical does the Keynesian suggestion that deficit spending & easy money are the cure for the recession sound?"
- Tenny says: "Opposing the theories of Keynes is to embrace a roller coast from one economic bubble to the next" 
To those who don't know better yet not to take advice on economics from Paul William Tenny let me just put the nail in the coffin for you. 
To defend Keynesian economics is to defend the economic policies of George W. Bush.  Tenny is fine with defending this, so is Krugman for that matter.  Do you think Krugman cares if you get a huge recession from a housing bubble?  Hell he was calling for it:
To fight this recession the Fed needs more than a snapback; it needs soaring household spending... Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.~ Paul "I'd Like to Recant This Statement" Krugman, New York Times, August 2nd, 2002 (Source)
In 2001 Bush came into office in a recession.  He enacted Keynesian fiscal stimulus (remember those tax rebate checks?) and a demand-side tax cut.  The Bush Administration's position was: "Go shopping."  Remember that Keynesian economics believes you need to spend, spend, spend to get out of a recession.  Bush's exact words about what to do with this money were: "Get down to Disney World in Florida.  Take your families and enjoy life, the way we want it to be enjoyed."

Since Keynesian economics has never worked anywhere in all the history of the world, you already know what comes next: it doesn't work.
So, what does Keynesian theory next call for?  Monetary stimulus! The Federal Reserve must solve the recession at the printing press & in the form of lower interest rates.  So, in 2002, away went Alan Greenspan to do just that.  And, as I said above, it created an artificial boom that popped in 2007.  
Still not quite aware of this though, Tenny still has Bush's back: "the Lesser Depression of the late 2000s would be dealing with the consequences of not listening to Keynes in the first place."  No Tenny, Bush followed Keynes to the letter.  
Once the Keynesian bubble burst, what solution did Bush turn to?  Right back where he started in 2001: more Keynesian monetary stimulus, this time $168 billion.  Then, he left office and Obama came in and did even more Keynesian monetary stimulus (now $787 billion).  But, since Keynesian economics never works... well it didn't work for Bush or Obama either (notice a trend with Keynesian policies yet?).  So... Monetary Stimulus time!!  Ben Bernake has been soaking the economy with huge amounts of money ever since; just like Alan Greenspan before him.

How's it working for us?  How's that job market out there?  This is the roller coaster that is Keynesian economics.

  1. Tenny says RE: government jobs: "Those people will stop needing unemployment insurance, reducing government spending and will start spending their salaries on the economy buying food."
    Kelo says: 
    In order for your statement to be right they would have to have NOT been spending their unemployment on food for one.  Secondly government paying enough to hire someone full time does not reduce government spending.  In fact most of the jobs "created" by stimulus were done so at a cost of ~$250,000/average.  You call that reducing government spending over an unemployment check?
  2. Tenny says: "During a financial recession -- one created by Wall Street -- demand drops and businesses start laying off workers"
    Kelo says: This recession wasn't created by Wall Street, it was created by Keynesian monetary stimulus, AKA easy money.  
  3. Tenny says: "The idea that government spending will crowd out private spending during full employment simply doesn't apply in the aftermath of a financial recession."
    Kelo says: Yes it does, you just don't know what you're talking about.  In fact the entire term "crowding out" originated from this observed effect during the Great Depression, which was in the terms you are using a "financial recession"
  4. Tenny says: (referring to digging holes in the ground) "Odd as it may sound, such an activity would stimulate economic growth under the right conditions. A modern era counterpart to that would be replacing old bridges, repaving roads, and demolishing old buildings and replacing them with new ones."
    Kelo says: Two issues: first you are misinterpreting Keynes (again), that's not what he said.  In fact Keynes disagrees with your example; quote below.  Secondly the only proper case to be made for doing infrastructure repairs during a recession is if you already had to do them anyway and want to take advantage of the lower interest rates.
    Keynes says: "Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York." ~ General Theory p. 86.
  5. Tenny says the most effective method to solving unemployment is:" put people on the government payroll as a means to solve an unemployment problem"
    Kelo says: People employed by the government provide no good or service, they are a net drain on the economy.  Suppose we took the American government from employing some 15% of the workforce to employing some 40% of it.  Now the only goods/services that can exist are what the 60% produce which must be divided amongst the 100% instead of the previously better arrangement where 85% of the country is engaged in productive activity.
    Facts say: The governments in Portugal, Italy, Greece & France all employ between 28% - 35% of their nation's workers; how are they doing?  
  6. Tenny says RE multiplicative spending: "That's not a theory of John Keynes, it's economics 101."
    Kelo says: Actually that was Keynes' exact theory you might try to read it some time.
  7. Tenny says: "Even when the government funding goes away, growth will return to normal instead of being accelerated."
    Kelo says: If you go read the actual economists instead of Krugman's nutty web blog they are all predicting that the stimulus after 2016 will produce a permanent 0.8% reduction in economic growth until it is (never) paid for.
  8. Tenny says: "There is no economic argument that the government hiring people to dig holes and then fill them in wouldn't stimulate the economy. It's diversionary because it seems silly, but it's fundamentally sound."
    Kelo says: Hahaha.  Seriously dude just stop.
  9. Tenny says: Blah, blah blah, Rick Kelo quoted Keynes' intro about how Keynesian economics would work best in a totalitarian state.  In response I am going to paste another paragraph from the intro where Keynes talks about something totally different.
    Kelo says: You're proving a point, but its not the one you think you're proving.