Our Dismal Economic Stagnation … Diagnosing The Slowest Recovery Since The Great Depression

The Bureau of Economic Analysis has reported that in the first quarter of this year, the U.S. economy declined at a 0.7 percent annual rate. Although growth may be higher for the rest of the year, this is another reminder of how slowly the economy has grown during more than five years of economic recovery from the recession of 2008-09. The rate of economic growth for the 23 quarters since the second quarter of 2009 is the slowest for any economic recovery since the Great Depression. These results are not due to bad luck; they are due to bad policy—particularly the Federal Reserve’s enormous expansion of the monetary base and the near doubling of the federal government’s debt since the end of 2007, both of which have been supported by the Obama administration.

In response to the financial crisis of 2008, the Federal Reserve used newly created money to purchase hundreds of billions of dollars of mortgage-backed securities and government debt. Because much of the newly created credit was used to buy the bad loans that were the cause of the financial crisis, less money was available to invest in productive capital, which would have contributed to job creation. The resulting low interest rates also made it easier for the government to borrow and spend on boondoggles such as “cash for clunkers” and to expand programs like unemployment compensation and food stamps. Instead of creating jobs, extended unemployment compensation and increased eligibility for food stamps made it easier for unemployed workers to turn down job opportunities.

Keynesian economists like Paul Krugman argue that the recovery would have been stronger if the government had provided more economic stimulus spending. In their view, more government spending was needed to increase demand for goods and services and create more jobs, which in turn would have had a multiplier effect on the output of the economy. They ignore the fact that someone has to pay for the additional government spending; and as a result, fewer resources are available for private-sector firms to invest and create jobs.

Recessions can eliminate the excesses caused by a credit-fueled economic boom. Without bailouts, firms that borrowed heavily to invest in unprofitable projects would be forced to liquidate those investments. Declining demand during recessions leads to falling prices, which give incentives for consumers to buy more of the goods and services they want, thus leading to the creation of new jobs. Economic stimulus spending and Federal Reserve monetary expansion prevented prices from falling and capital from being reallocated to produce the goods that consumers wanted. The Troubled Asset Relief Program (TARP) funneled government money to firms that took too much risk and should have gone bankrupt while the Federal Reserve used newly created money to rescue banks from the consequences of reckless lending.

The policies that caused the financial crisis and the bailouts and unprecedented monetary expansion that followed were chosen by the Federal Reserve, the Bush administration, and the Congress to benefit politically powerful interest groups that included financial services firms and wealthy investors. Barack Obama had an opportunity to repudiate these policies when he took office. Instead, he not only supported them but also expanded them. In addition, he reappointed Ben Bernanke as chairman of the Federal Reserve Board of Governors in 2010, in spite of the irresponsible policy choices he presided over during the financial crisis.

Bernanke’s policies emphasized helping banks, particularly the large money center banks, whose balance sheets were loaded with bad mortgages and other toxic assets. By keeping interest rates close to zero, monetary policy under Bernanke made it much more difficult for ordinary Americans to save for retirement. This policy did, however, enable large banks’ profits to soar so they could offset their losses during the financial crisis.

Although his first campaign was all about change, President Obama, as much or more than his predecessors, supported bailouts, subsidies, and regulation that rewarded politically powerful businesses and created obstacles for responsible entrepreneurs. These included the practice of allowing small businesses to bear the full consequences of their losses, while firms the government deems too big to fail won special benefits if they were mismanaged. To this fiscal folly he added health care reform, which was designed in such a way as to enhance the profits of large insurance companies while its mandates discourage job creation.

The slow recovery since 2009 is the consequence of Federal Reserve monetary policy and a series of ill-conceived policies by the federal government, most of which began before Barack Obama took office. By endorsing and in some cases expanding these policies, President Obama must bear some of the blame for the results. Instead of correcting the bad policies that caused the crisis, he used the crisis as an excuse to expand the government’s control over the economy, further hampering the ability of businesses and entrepreneurs to create jobs and restore economic prosperity.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Equipping You With The Truth

Monetary Reform In Iceland: Maybe There Is Still Hope?

Despite the barrage of catastrophic financial data throughout the Western world, there may be a glimmer of hope coming from the tiny Nordic island of Iceland.

It must not be forgotten that it was Iceland which was one of the first to feel the fallout of the financial crisis of 2007-08. Unlike most of the other nations, however, Iceland showed tremendous backbone and did not allow, for the most part, any of the NWO monetary agencies to intervene in its affairs. So, any Icelandic currency reform considerations must be taken seriously.

Instead of following in the global insanity of massive money creation, artificial suppression of interest rates, and all other sorts of tricks and gimmicks, Iceland is considering the prohibition of banks from artificially increasing the money supply through the fraudulent and evil practice of fractional reserve banking (FRB).

The Financial Times reports that the government in Reykjavik is contemplating “a complete ban on its banks creating krona when they issue new loans. Growth in the money supply would become a matter of government policy alone.” In the proposal under consideration, “the state has complete monopoly on legal tender. Banks can only lend what they have previously gathered in state money.” The Times adds: “Money created ‘out of thin air’ – the devilish secret at the heart of fractional reserve banking – becomes a relic of the past.” Oh, if it was only so!

Of course, the Financial Times gets much wrong in the story; but it does show that the monetary authorities of Iceland recognize that there is something radically wrong with the current monetary order, especially with FRB.

While Iceland’s proposal to eliminate banks from fractional reserve practices is commendable, the replacement of it by total governmental control would lead to similar, if not worse, problems. Under such a system, the money supply would be subjected to the whims of politicians who, no doubt, would expand it at the drop of a hat to gain and/or maintain their power among constituents. Such an arrangement should send chills down the spine of every native Icelander.

Economic theory has clearly demonstrated that a monopolist will exploit the privilege he is given, and the Icelandic government would be like any other monopolist. Monopoly control leads to higher prices and shoddy services. In the case of a money monopoly, the quality of money (its purchasing power) would drop.

A far sounder proposal for Iceland (and for the world at large) is to take away the power of both banks and governments to create money “out of thin air.” This would mean a complete “de-politicalization” of the Icelandic monetary order. A non-statist monetary system would surely be based on commodities – gold and silver – where the money supply would be determined by the amount of minerals mined, not by government fiat.

A metallic monetary standard naturally puts a limit on the amount of money in “circulation” since it has to be “produced.” Extracting gold and silver from the earth is an expensive process. Printing paper notes is virtually costless.

What Iceland (and, for that matter, the rest of the world) apparently does not understand is that economic growth is determined not by the amount of money there is, but the amount of genuine savings. If Iceland seeks economic well-being, it should undertake policies that increase savings.

There is a bigger hurdle that will most likely prevent either Iceland or any other nation from undertaking any meaningful monetary reform. FRB and central banking (which was created to legitimize fractional reserve banking) are the instruments where governments and the political elites derive much of their power. Central banks buy the public debt that allows government to spend recklessly without recourse. If this was taken away, and states had to rely solely on taxation, their power would be severely curtailed.

Iceland and the Western world’s financial doldrums will only be cured when FRB and central banking are eliminated. Prior to this, however, the public must be convinced that the only economically sound and morally defensible monetary order is one where money is fully redeemable in gold and silver. Until this is recognized, Iceland and the rest of the global economies will continue to stagnate and eventually collapse.

Aquinas@AntoniusAquinas

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Equipping You With The Truth

Watch: In Minutes, This Video Proves What REALLY Crushes An Economy (It’s Not What You Think)

Generation Opportunity just released an effective video explaining the costs of crony capitalism to consumers.

Crony capitalism is when certain interest groups successfully lobby the government to get favorable treatment by the government, often at the expense of the competition and the consumer.

The video first offers the example of Uber being banned from Nevada. Who would protest such an innovative way for people to get around Las Vegas and other communities in the state?  The taxi companies, of course.

The website Air B&B (allowing individuals to rent out rooms to travelers) similarly experienced efforts to shut it down, or at least restrict the innovative service, from the hotel industry.

The city of Chicago passed a law to put the kibosh on food trucks being able to operate within 200 feet of a restaurant.

“Government will tell you that these laws are in place to protect us, and [we] get it – we want laws to keep people from [stabbing or stealing],” the narrator says. “But to keep us from finding a ride, renting out our homes, or getting a dang quesadilla from a food truck? It just ain’t right.”

Generation Opportunity President Evan Feinberg said: “‘When We Choose’ is about innovation vs. cronyism. Laws promoted by special interests allow protected businesses to grow lazy, discouraging competition, limiting choices, and bumping up prices. But when our generation is able to choose what works best for us, we have the power to reward principled businesses that meet our needs and desires – and shun the ones that don’t.”

In a famous interchange, talk show host Phil Donahue asked Milton Friedman, Nobel prize winning economist and co-author of the best-selling book Free To Choose: “Did you ever have a moment of doubt about capitalism?”

Friedman responded, in part: “The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus…The record of history is absolutely crystal clear. There is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free enterprise system.”

Donahue followed up, asking if capitalism rewards self-interest rather than virtue, implying government control is the best way to address it. Friedman responded, in part: “Is is true that political self-interest is nobler than economic self-interest? You know I think you are taking a lot of things for granted. Just tell me where are we going to find these angels to organize society for us. I don’t even trust you to do that.”

This post originally appeared on Western Journalism – Equipping You With The Truth

It’s Not Bad Being An Economist–You Just Have To Be A Liberal

Economists don’t have to be right – ever. They just have to say what fits the liberal mindset. Since the proved pedophile John Maynard Keynes told Franklin Roosevelt the way to get America out of the Depression was to make prices so high that no one could afford to buy anything, liberals have used economists to justify their failed policies.

The latest stupid prediction from the Democrats’ useful economists (DuE) fits perfectly into this construct. When faced with a terrible 0.2% GDP growth rate for the first quarter, they told us that “U.S. economic growth braked more sharply than expected in the first quarter as harsh weather dampened consumer spending and energy companies struggling with low prices slashed spending, but there are signs activity is picking up. The growth slowdown is probably not a true reflection of the economy’s health, given the role of temporary factors such as the weather and the ports dispute.” Not a true reflection?

This sounds very familiar.

After a sickly first quarter GDP in 2010, they said: “….but resurgent consumer spending offered evidence of a sustainable recovery, a government report showed on Friday.” It never happened.

After the 2011 Q1 numbers came out, the DuEs said: “The economy is just not that weak. The data shows this is a one-time thing and we’ll get a rebound this quarter.’”

Oh but the economy WAS “just that weak.” The 2011 GDP was just 1.6%!

Having been burned for a few years, the humiliated DuEs responded to the first quarter disaster of 2012 with: “Don’t panic yet. The government reported Friday that the economy got off to a tepid start this year, but that doesn’t foreshadow a repeat of the near-standstill that happened in 2011…. The first-quarter slowdown will be temporary.” The final GDP rate for 2012 was a paltry 2.2%, which certainly was a “near standstill.”

The DuEs were somewhat accurate in 2013 when they counseled against concern about the first quarter’s numbers. The GDP for 2013 thus became the exception that proves that rule.

Last year, the DuEs reverted to form; and they called a 2.1% contraction “unexpected” after one of the worst winters in memory. Things have not gotten better.

So being a liberal economist is a pretty nice gig. All you have to do is forget everything about economics and say what liberals want you to say.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Equipping You With The Truth

Overcoming Stagnant Wages: Stronger Unions And Higher Minimum Wages Are Not The Answer

Recently, many economists and politicians have expressed concern about stagnant wages and rising income and wealth inequality. Such concerns prompted 20 states and the District of Columbia to raise the minimum wage this year. Some economists, such as former treasury secretary Larry Summers, also argue that steps should be taken to increase the number of workers who are members of labor unions so they can bargain for a greater share of corporate earnings. Strengthening unions and raising minimum wages, however, will do little to help low- and middle-income Americans, and will instead reduce job opportunities for young and inexperienced workers.

Progressive economists, such as Lawrence Mishel of the Economic Policy Institute, argue that low- and moderate-income workers’ wages have been held down by their lack of bargaining power, which is partly the result of reductions in the influence of labor unions and of minimum wages that have not kept up with inflation. The percentage of workers who are members of unions fell by more than half between 1973 and 2007. Union membership in the private sector declined even more. Adjusted for inflation, the minimum wage is now 25 percent below its peak in 1968.

A higher minimum wage would affect more than 15 percent of the workforce directly and another seven percent indirectly. More than 10 percent of those who would be directly affected by an increase in the minimum wage are single parents, and more than half work full-time. If the minimum wage were raised, some workers who now earn more than the minimum wage would also be offered higher wages as firms try to hire them to replace minimum-wage workers.

Unions and minimum wages increase the wages of some workers, but at the expense of others.

Some evidence suggests that unions reduce wage inequality, but most of that reduction is within unionized firms. Higher union wages reduce the number of workers employed in unionized industries. Workers who are unable to find jobs in unionized industries will compete for jobs in other industries, pushing down wages in nonunionized firms.

There is nothing wrong with workers joining labor unions to enhance their bargaining power. The problem is that unions’ ability to bargain for higher wages is the result of laws and coercive practices that limit competition from nonunionized workers. This includes closed shop laws, which require all workers in unionized firms to pay union dues, as well as the threat of strikes, which all too often have been accompanied by violence against nonunion workers who cross picket lines during a strike. During the late 1970s, numerous deaths and millions of dollars in property damage resulted from union violence.

Labor unions have been granted a privileged position in the economy. They are immune from anti-trust laws and injunctions from federal courts. Unions have declined in the United States because many workers no longer agree with the agendas that unions are pursuing or do not think that the benefits of unions are worth the costs. In addition, growing competition, particularly from imported goods, has resulted in unionized firms losing market share and, in some cases, going out of business.

A study by the Organization for Economic Cooperation and Development reports that countries where unions and collective bargaining affect a large percentage of the labor force have higher unemployment rates. If enough workers belong to unions, unions can create an effective wage floor that works like a minimum wage, causing unemployment.

Because they apply to all workers, minimum wages cause unemployment if they are higher than what some workers would be paid in a free market. Firms will only employ a worker if the value of the additional output he contributes exceeds the wage he is paid. Thus, minimum wages result in fewer jobs for inexperienced workers with limited skills. Minimum wages also reduce the incentive of firms to train workers. Many firms will not be willing to spend much on training workers unless they can offset the cost of training by paying lower wages during the training period.

Recent improvements in technology make it easier for firms to reduce employment in response to higher minimum wages or higher wages that result from union bargaining. To avoid paying mandated higher wages, some firms are replacing unskilled workers with robots.

More important than reducing inequality is providing opportunities for the poor and middle class to improve their standards of living. The poor would have more job opportunities if minimum wages were lowered, not raised. Good job opportunities, especially for young and inexperienced workers, are more likely to be found in nonunionized industries, since unions tend to protect older, more experienced workers from competition.

Instead of more regulation of the labor market, entrepreneurs need more freedom to develop innovative arrangements that will offer opportunities, even for workers from disadvantaged backgrounds, to gain the skills and habits needed to succeed in a changing economy.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by WesternJournalism.com.

This post originally appeared on Western Journalism – Equipping You With The Truth