Another Picture of the Problems With the Economy - Not Another Solution Though

Why Consumers Went Into Debt, and Why Demand is Not High Enough

This chart is from the Economic Policy Institute, by way of Jared Bernstein’s excellent blog on economics.  What the chart is showing is the growth in Real Average Hourly Wage Compensation by income group.  The important part of the graph is at the right hand side, where the compensation for high income wage earners grows substantially while there is virtually no growth for the rest of the labor force

Wages at the high end are growing faster

Change in real hourly wages by wage percentile, 1973-2009

The chart explains a lot of recent economic and consumer credit history.  With relatively stagnant real wages, lower and middle income families increased their consumption by going into debt.  This debt was financed by a bubble in home values, providing collateral for home equity based loans, and it was financed by credit card companies extending credit far beyond what an average family could support.

The result:  when the housing bubble collapsed the collateral base of consumer debt collapsed, and when  employment and income contracted, the collateral base of credit card debt collapsed.  Since this has not been corrected, the economy cannot resume a high growth path.  Hence the report that the U. S. economy grew very slowing in the 2nd calendar quarter 2011, and that after revisions to earlier numbers, slower growth took place in the first calendar quarter.

And notice that the only time real hourly compensation was rising for everyone was during the Clinton administration, with its higher taxes on the wealthy.  For the Bush years to top lines continued to rise, but the middle and lower income lines, flat-lined.  The result of that trend during the Bush years, a major contribution to the causes of the Great Recession.

For the future,

Mr. Bernstein’s conclusion

I’d go further—still in hypothesis mode, but I’ll bet I’m right.  High levels of inequality depress longer-term growth by depressing more broad-based consumption—you end with a lot going on at Walmart and Nordstrom without enough going in the middle—and dampening investment both in human and physical capital.

Mr. Bernstein does not need to be in “hypothesis mode”.  His conclusion is exactly correct.  Eighty years of Keynesian economic theory, proven again and again to be correct, support his conclusion.

Of course, this chart does not even show the enormous tax decreases that have been provided for the top earners over the period.  That would be piling on, wouldn't it.

Surprise in Britain: Contractionary Fiscal Policy Leads to Contracting the Economy

The Economics of Connect the Dots

The Conservative party in England, in a coalition government which they control took office and pledged to reduce the budget deficit by a series of large spending cuts and tax increases.  The results so far, not so good.

British GDP grew .2% in the 2^nd quarter over the first quarter for 2011.

In spite of growth of just 0.2 per cent, the chancellor insisted he would stick to his tough deficit reduction plan and that Britain was a “safe haven in the storm” that was battering other European economies.

The U.S. is about to embark on a similar policy (well, without the tax increases, we're Americans, we don't to do that do we).

So until they repeal the laws of economics, look at Britain as a possible preview of things to come.  And given the GDP numbers that have just been released showing a significant reduction in the rate of growth of the economy, the show starts very soon.

High Wage Job Losses; Low Wage Job Gains – More Explanation of What Has Gone Wrong with the Recovery

No Explanation of How to Fix It

The Great Recession, circa Jan. 2008 to ??? should be in recovery phase at this time.  Recovery in the average post World War II Recession has taken place in far shorter time than this recession.  The explanation is that The Great Recession has been unique in two ways, a collapse of the financial system and a collapse of asset (housing) prices.

A third reason why the Great Recession and its so-called recovery are different has been developed by The National Employment Law Project, a liberal leaning think tank.  This group has issued a report and found that 

During the Great Recession, employment losses occurred across the board, but were concentrated in mid-wage occupations. Of the net losses during this period, 21.3 percent were in lower-wage occupations, 60.0 percent were in mid-wage occupations, and 18.7 percent were in higher-wage occupations. But in the weak recovery to date, employment growth has been concentrated in lower-wage occupations, with minimal growth in mid-wage occupations and net losses in higher-wage occupations.

In short, job losses were in relatively high paying positions, job gains have been in relatively low paying positions.

From an economic policy point of view this is very bad news.  It means that the income of those returning to employment is less than their previous employment, which means their consumption is less which means aggregate demand is less.  The U.S. economy simply cannot fully recover without increases in income over current level to low and middle income workers. 

Nope, Can't happen, won’t happen.

What a Default Looks Like, and Some Regret on the Part of the U. S. Chamber of Commerce

There Will Not Be Rioting in the Streets

It is possible that U. S. will reach a point between August 2 and August 12, 2011 in which it will not pay interest and/or principle on its debt.  This will be termed a default.

What will happen?

At first, not much.  The financial markets have shown relatively little concern about a default.  Business will take place as usual, with holders of U. S. debt expecting and probably receiving continued interest on unpaid principle.  The secondary market in U. S. debt will continue as before.  Interest rates may rise, but not significantly.

Over the long run, government will start to shut down.  Operations will go on furlough, but Social Security checks will like continue, indeed it may not be physically possible to program the computers to stop them.

The ratings agencies may downgrade the U. S. debt.  This will not be an issue.  Relative to the risk of other sovereign securities, the risk of U. S. Treasury debt will not have changed. 

Paul Krugman talks about the impact of a ratings decline and noted

the last time the raters downgraded a major economy’s government. Here’s the 10-year bond rate in Japan:

See the downgrade? (It was in 2002).

The point is that when S&P or Moody’s speaks, that’s not the voice of “the market”. 

The impact of a ratings downgrade is political as Republicans will accuse Mr. Obama of the additional sin of causing U. S. credit to decline.  If the jobs picture does not improve, though, they really won’t need that issue.

Oh, and remember last fall when the supposedly non-partisan U. S. Chamber of Commerce spent millions to elect Republicans to the House.  How’s that working out?  Well the Chamber

is struggling to convince the House it helped to build that the debt ceiling must be increased.



Phelan M. Ebenhack/Associated Press

The U.S. Chamber of Commerce

 spent $250,000 to help elect

Representative Daniel Webster.



The chamber and other business groups have pressed with increasing urgency for Congress to raise the maximum amount that the government can borrow. They have cataloged the consequences of default at meetings, parties and dinners and over drinks.

Maybe its just not enough drinking, have some more Chamber of Commerce.

The Debt Ceiling Compromise is Starting To Take Shape

A Huge Win for Republicans

Assuming Mr. Boehner's strategy of getting his plan passed by the House, and then forcing the Senate and Mr. Obama to adopt it does not work, the beginning of the end of the debt ceiling fiasco/fight is starting to come into focus.  There are two competing plans, which are not all that different from each other.  Each will have to be voted down first, and then brought together to form an acceptable solution.



Philip Scott Andrews/The New York Times

John A. Boehner, the Speaker of the House,

 walked to a meeting on Capitol Hill on Wednesday.



The Boehner Plan in the House calls for massive unidentified spending cuts, but raises the debt ceiling in a two step process to get to 2013.  This plan may or may not pass the House, but it will not pass the Senate.

The Reid Plan calls for massive unidentified spending cuts, but cannot get 60 votes to pass the Senate.  It raises the debt ceiling on one step to get to 2013.

Once the two competing plans have been defeated, a compromise will be developed that is likely to look something like this.

1. Massive unidentified spending cuts of $200 billion to $300 billion a year in social programs.

2. A two step process, except that the second step will use the McConnell structure.  The debt ceiling will be raised unless Congress passes a resolution against raising it.  Congress will pas the resolution.  Mr. Obama will veto it and the veto will not be overridden.

This so-called compromise plan can only pass the House with major Democratic support.  So at the end of the day Democrats will be on the hook for raising the debt ceiling, for cutting popular spending programs once they are identified and for being tax and spend liberals even though there is not tax increase.

Republicans will have gotten a huge cut in spending with no revenue increase, and the ability to campaign against the deficit and debt ceiling against Democrats. Even more, once the unpopular cuts are announced, Republicans will campaign against Democrats and Mr. Obama on cutting popular Federal programs even though they, the Republicans wanted to cut much more.


 Mr. Obama, well he may be well down the road on his journey to becoming the Great Irrelevant President.

Britain's Hot and Cold Weather is to Blame, Don't Tell Anyone But Texas Creates Jobs with Government, Now France is Not Doing Well . . .

And Other News That Just Begs for Comments

Economic Growth for the second quarter of 2011 in Britain was announced this weak, and the figures showed a very week .2% increase over the first quarter. (Yes that is 2/10th of 1%, not 2%)  Britain’s Office of National Statistics that keeps tabs on these things explained that

"the figures had been hit by the extra bank holiday to mark the royal wedding, the unseasonably warm weather in April and the impact of Japan's tsunami and calculated that growth would have been 0.7 per cent without those one-off factors."

Wow, that wedding was just an economic killer.  Too bad they just didn't elope.  Of course, last winter the weather was also blamed for weak performance

"UK had probably only achieved "weak" average quarterly growth of 0.1% over the last six months. Robust growth since January had done little more than recover output that was lost in the final weeks of 2010 when heavy snow disrupted the economy"



The Only Good Weather Day in England



Look England, The Dismal Political Economist is willing to give you a break, and at least consider that your poor economic performance has to do with the weather (and a wedding) instead of your contractionary fiscal policy, but make up your mind.  Too cold or too hot, one or the other

.

It turns out a lot of the Texas job creation that readers will be hearing Gov. Rick Perry brag about came about from public hiring.  The WSJ reports that 300,000 public sector jobs have been added in Texas in the last decade.

"Over the past decade, Texas has added more people than any other state and now accounts for 8.1% of the U.S. population, up from about 7.4% in 2000. And Texas has added more than one in five of the public-sector jobs nationwide, including those at the local, state and federal levels"



Source: WSJ 7-27-11



And what does Mr. Perry have to say,

"Government doesn't create any jobs," he said last month on Glenn Beck's show on Fox News. "They can actually run jobs away."

Wow, that the man can say that with a straight face and not suffer near fatal embarrassment means that maybe he is Conservative Presidential material.

Of course,  the job creation must be high paying jobs, right

Critics say many of the new jobs are low-wage and without benefits; according to federal data, the state is tied with Mississippi for the largest percentage of hourly workers who make minimum wage or less, at 9.5%.

So there it is, if you want a minimum wage job (or less, not sure how that happens) the road to Texas is wide open for you.

Also in the Wall Street Journal is a report on expected job creation by large U. S. companies in the coming months.  The signs, dismal at best.

The Journal found about 50 companies that directly addressed head count in their remarks. The results aren't scientific, but they do provide a snapshot of sentiment at a crucial moment for the U.S. economy.

           

These executives remained consistently cautious. They were willing to invest only in growth businesses or international markets, largely Asia.

Outside of rail and technology companies, almost none of them discussed long-term plans to significantly expand their work force.

So ok everyone in D. C., after you have had all the fun with the debt ceiling and after you complete your August vacation and after you get back from the Redskins home opener, can you please address the jobs issue.  It it’s not asking too much, of course.

Everyone is surely getting tired of hearing about problem with European economies.  Greece, Ireland and Portugal are all in some form of bailout, and Spain and Italy are walking up the steps to Bailout Headquarters and may knock on the door at any minute.

Now we learn that France is being put on notice by the IMF.

The International Monetary Fund has warned that France will miss its target of cutting its budget deficit to 3 per cent of output by 2013 unless it carries out more spending cuts.

In a yearly review of the French economy, the Washington-based fund said it expected economic growth and tax revenues to be below the government’s own forecasts.

It appears that The Dismal Political Economist is going to have to invoke the famous “five country rule” on Europe.  This rule states that no more than five countries in a region can have economic difficulties at one time, meaning that one of the group of five already in trouble will have to have near full recovery before France can join the group of troubled economies. 

Get with it Europe.

Rep. David Wu (D, Or) is just the latest and will probably not be last member of Congress to resign after some inappropriate behavior.  Before anyone feels sorry for Mr. Wu, USA Today reports that

Rep. David Wu could be eligible for pension and benefits worth more than $1 million in his lifetime, according to an analysis by the National Taxpayers Union.



Mr. Wu



And has this to say in general about Congressional benefits.

Congressional pensions are two to three times more generous than those offered to private-sector workers who earn the same salary, the NTU says. (Rank-and-file members such as Wu are paid $174,000 a year, while top leaders get more.) Also, unlike most private-sector pension plans, a cost-of-living adjustment is applied to the congressional benefit.

So remember all that storm about cutting pensions and benefit for public employees.  Well members of Congress are public employees.  How about we start there. 

Summer Camp – The Difference Between Liberals and the Tea Party

What Summer Camp Can Be

Several weeks ago The Dismal Political Economist noted that the Tea Party had started a summer camp in Tampa that gave a doctrinal political education to young people.  At the heart of the camp was this.

The 912 Project, teaches 8-to-12-year-olds “the principles of liberty, free markets, and limited government.” Jeff Lukens, 53, whose day job is at an auto auction firm, will run this year’s session. The first lesson will teach campers the difference between European tyranny and freedom in America:

Now it turns out a somewhat different camp has been set up at Bard College outside of New York City.

But Mattie Williams, 13, who attends Middle School 343 in the Bronx, was happy to attend, giving up summer barbecues with her parents and afternoons in the park with her Chihuahua, Pepsi. She and 16 other adolescents are spending three weeks at Bard College here in a free camp for low-income students who are gifted in mathematics.

Jennifer May for The New York Times

Students participating in the summer

 mathematics program at Bard Colleg

e take a break from their desks

And here is how the camp is funded.

The camp is financed by the Art of Problem-Solving Foundation, the nonprofit arm of an online school that promotes math education for gifted students. Classes meet for two hours each and cover topics including voting theory, graph theory, and math and the arts.

Of course, math is well known to have a liberal bias, so it is no wonder the Tea Party group sticks to teaching Conservative dogma.  Yes, that instruction is also biased, but it has the right kind of bias.

Gerald O’Driscoll on the WSJ Opinion Page - Federal Reserve Engages in Fiscal Policy

Economic Illiteracy Reaches a New High (Low?)

Writing on the opinion page of the Wall Street Journal is Gerald O’Driscoll, who is  described “as a senior fellow at the Cato Institute. He was formerly a vice president at the Federal Reserve Bank of Dallas and later a vice president at Citibank.”  He says this

The Fed's foray into fiscal policy makes for a volatile political mix that all but guarantees control from without.

Now  basic, basic, basic macro economics (we're talking grade school here) defines fiscal policy as changing government spending and/or taxes to impact economic conditions.  The Federal Reserve System manages the nation’s monetary policy.  It has absolutely nothing to do with taxes or government spending.



The First Federal Reserve Board - With New Socks



Mr. O’Driscoll wants to make the point that he believes the Federal Reserve System should not be purchasing government bonds on the open market, something it has been doing for decades as part of its mandate on monetary policy to promote price stability and economic growth and employment. This is neither new, nor even controversial.  But Mr. O’Driscoll doesn’t want the Fed to do it anymore.

 Unfortunately,  it is apparent that Mr. O’Driscoll does not have a valid argument to support his position, else he would have presented it.  So when one finds oneself on the Opinion pages of the WSJ and one finds oneself without a valid argument the solution is to go to the invalid one.  As long as the conclusion is editorially correct, they don’t care.

So how can a person like Mr. O’Driscoll have ever been a VP at a Federal Reserve Bank or a VP at Citibank?  Don’t ask. 

Really, don’t ask, The Dismal Political Economist has no idea.

Mini-Government Shutdown: FAA Dispute Illustrates Why Congress Does Not Work

Is This the Coming Attractions (Attractions May Be The Wrong Word)

The Congress has been unable to resolve a dispute over the funding of the Federal Aviation Administration.  This is the group that employs Air Traffic Controllers and also is involved in the operation of the nation’s airports.

The House of Representatives wants to

1. Reduce subsidies for small airports
2. Change the unionization rule for some transportation workers.

The Senate does not want to do either.



The Congress's Idea of Modern Air Transportation



The result is no funding for non-essential FAA activities (Air Traffic Controllers are considered essential, surprisingly).  This report from the Washington Post illustrates the problem of resolution of these issues in Washington.

Senate Commerce Chairman John D. Rockefeller IV  (D-W.Va.) late Monday called on the House to meet with its Senate counterparts Wednesday to work on resolution of the disagreement.

And

House Transportation Chairman John L. Mica (R-Fla.) responded that the Senate should instead adopt a House plan.

There you have it, Washington in July 2011 in a nutshell.

Oh, and did we mention the $200 million a week in tax revenue the government is losing out on?  We didn’t.  Well, it's not that important, after all the government is doing quite well fiscally, isn’t it.

Republican Deficit/Debt Ceiling Plan Needs 50% to Pass, Democratic Plan Needs 60% to Pass

Does Anyone Else See A Problem With This?

Majority rules is what rules the House of Representatives.  So in order to pass Mr. Boehner’s deficit reduction/debt ceiling plan Mr. Boehner needs 50% of the vote.

Majority rules is not what  rules the Senate.  So in order to pass the Senate Mr. Reid’s plan needs 60% of the votes.

Republicans get to cry victory when they win a majority vote and they get to cry victory when they lose a majority vote.

So it is entirely possible that Mr. Boehner’s plan will get a lower percentage of approval in the House then Mr. Reid’s plan does in the Senate yet Mr. Boehner’s plan will be deemed by one and all including the wonderful thing we call the national press to have passed, and Mr. Reid’s plan will be deemed to have failed.

 

Is everybody ok with this, just asking.

Washington Post Columnist Says Mr. Obama Will Sign Republican Plan

He Explains the “Loophole” in the Veto Threat

Marc Thiessen writes a column for the opinion pages of the Washington Post, and has latched on to a very technical out for Mr. Obama should he be faced with the prospect of having to sign the Republican deficit reduction/debt ceiling plan.

Mr. Thiessen notes that the language coming out of the White House says only that

If S. 627 is presented to the President, the President’s senior advisors would recommend that he veto this bill .” (Emphasis in the original.)

This in and of itself sends a signal: The president is preserving his options. Which means that if House Republicans hold firm and pass the Boehner plan, Obama will sign it into law.

Look closely Mr. Thiessen says, Mr. Obama is not saying he will veto the bill, he is saying his advisers will advise him to do so.

The scenario here is one that The Dismal Political Economist has explained earlier.  Passage by the House of the Boehner plan and rejection by the Senate of the Reid plan will leave only the Boehner bill as possible legislation.  Under this scenario according to Mr. Thiessen

Senate Democrats will face a choice: Pass Boehner’s bill and send it to the president or take responsibility for causing a government default. Here’s my prediction: They will pass it. And Obama will sign it. 

With default looming, I’ll even wager that his senior advisors will “recommend” he do so.    

Of course, if this scenario does take place a Constitutional revolution will have also taken place.  Under current law,  the Speaker of the House is second in line for the Presidency.  If Mr. Obama follows this scenario, Speaker of the House John Boehner will become de facto President, an amazing development given that less than a year ago he was an obscure Congressman from Ohio who was Minority Leader of the House. 

Reagan Era Economist Martin Feldstein Explains It All

News That Really Does Not Need Further Comment




Alex Wong/Getty Images

President Bush, at right,
meeting with Martin Feldstein,
a Harvard economist, in 2003

 Martin Feldstein is professor of economics at Harvard University and former chairman of the Council of Economic Advisers and President Ronald Reagan’s chief economic adviser.  Writing in the Financial Times on Economics and the future for Mr. Obama,

“Forget the debt: its jobs that will define Obama’s future”

he concludes this way.

The US unemployment rate will come down when the government in Washington develops policies that encourage business investment, housing construction, small business hiring, stronger exports and other increases in demand. Unfortunately, it does not look like the Obama administration has a strategy for achieving any of that.

As its says above, no further comment needed.

Who Does House Majority Leader Eric Cantor Represent? The Richmond Suburbs or Private Equity Firms and Hedge Fund Managers

Do You Really Have to Ask?

In an in-depth story on House Majority Leader Eric Cantor (R, Va) the Washington Post Headline reads

In Cantor, hedge funds and private equity firms have voice at debt ceiling negotiations

Mr. Cantor is the House Majority Leader for the Republican Party.  In the deficit/debt ceiling talks he has been the most adamant about not raising taxes on wealthy taxpayers.

His interest in that particular aspect of the policy may well be explained by this

Among the White House’s top demands for new revenue are changes in the tax code affecting hedge funds, private equity firms and real estate partnerships, which would raise an estimated $20 billion over 10 years.



Mr. Cantor



For the past four years, Cantor has taken the lead in the House on fighting the same changes. He also has been one of the top recipients of contributions from those industries — last year, his two fundraising committees received nearly $2 million from securities and investment firms and real estate companies, more than double the figure for Boehner (R-Ohio).

Now Mr. Cantor is not the first member of the Congressional leadership to accept massive donations from wealthy special interest groups, and the practice is not restricted to Republicans as many Democrats (including Mr. Obama) have also taken huge donations from Wall Street and its minions.  That is not the point.

The point is that while the voice of the very wealthy are more than adequately represented in the budget talks, the voices of working men and women and the voices of those unable to work, the elderly, the sick, the disabled, the young do not seem to be represented. 

Supposedly their positions were the positions of the Democrats and Mr. Obama.  Yet it is clear that the only agreement on deficit reduction that they will fight for contains massive (and as yet unidentified) cuts on spending for social programs, Medicare, Medicaid and possibly Social Security.  There is no new revenues to offset some of the cuts.  They have given up the fight to reduce some of those cuts by increasing taxes on the very wealthy. 

So no one is representing the Democratic Wing of the Democratic Party.  When no one is speaking for you at the bargaining table, you lose. 

Many Americans Do Not Know Mr. Romney’s Religion, Mr. Obama Talks, But Is Anyone Listening Anymore, The Blackberry Turns Sour

And Interesting Things in Political  and Economic News



Mr. Romney is What?



Poll results reported by USA Today show that a large number of American simply do not know what religion Mitt Romney is affiliated with.  This is a rare bit of good news in an otherwise vicious and mean and ugly political season.

President Obama has made another speech about the budget deficit and raising the debt ceiling, yada, yada, yada.  Although no poll has been released, The Dismal Political Economist thinks that if asked, 98% of American would say they longer care what Mr. Obama says, and the other 2% would say they did not understand the question.

Because of budget dispute the FAA non-essential operations have stopped, and airlines are no longer collecting some air ticket taxes.  The airlines are, however, raising their prices so that the taxes that would have been paid to the government is going to the airlines.  Wow, who could have seen that coming?

Moody’s, the company that gives quality rating to debt has cut the ratings on Greek bonds again, and again and again.  The new rating is “Ca”, which in layman’s terms means “this is the stuff you line the birdcage with”.



Shares in RIM, lead by joint chairmen
 and chief executives Mike Lazaridis (above)
 and Jim Balsillie, have lost more
 than half their value in the past six months



Remember when the Blackberry was the latest thing in electronics.  Well the company that makes the Blackberry, RIM is not doing very well and will cut 2,000 positions.  The Company will also look at restructuring its senior management.  The Dismal Political Economist thinks maybe they should look at their product line instead.

Economic Growth figures for Britain for the 2^nd quarter was  released this week and nobody was expecting anything great.Their expectations were met, .2% quarterly growth.   Also, for June business lending contracted, so future numbers are not expected to have a large improvement.  Consumer credit also contracted.  All of this comes as a surprise to everyone except those who recognized that policy to reduce growth in the economy is likely to produce lower growth. 

The Conservative government accepted no blame for the British economy, George Osborne, chancellor, on Monday defended the deep spending cuts his government has made, blaming overseas problems for making the recovery more difficult.  Yep, those “overseas problems” sure can kill an economy.

The idea of a new Deficit Commission that would produce recommendations for budget cuts is being floated by Republicans.  Gee, where have we heard that before.  See that last time Republicans proposed a Congressionally appointed Debt Commission Mr. Obama accepted the idea.  Once Mr. Obama was on board, the seven Republican Senators who not only supported the idea for co-sponsored the legislation withdrew their support.

As noted by a Politico story on Jan. 26, 2010, "The tepid support from Democratic leaders contributed to the loss, but more decisive was the number of Republicans switching under pressure from their party to block the measure." Days before the vote, seven Republicans who had supported the measure withdrew their co-sponsorship and eventually voted against it

The Dismal Political Economist is somewhat amazed at how dumb the Republicans think the American people are, and constantly amazed at how often they are right.

Glen Beck Reaches New Low; Compares Norwegian Victims to Hitler Youth

News Corp and Fox News Get Some Good News, He’s Not With Them Anymore

 

Glen Beck and the term “odious” often occupy the same sentence.  On his radio show Mr. Beck apparently described the victims of the Norwegian tragedy, who were youthful campers in this way.

"There was a shooting at a political camp, which sounds a little like the Hitler Youth, or whatever," Beck said on his radio show Monday, which is broadcast on more than 400 stations.

The reaction from Norway,

Former press secretary to Norwegian Prime Minister Jens Stoltenberg, Torbjorn Eriksen, swiftly condemned the U.S. broadcaster for his remarks about the Utoya camp.

"Young political activists have gathered at Utoya for over 60 years to learn about and be part of democracy, the very opposite of what the Hitler Youth was about,"

The Dismal Political Economist had been concerned that left wing commentators would use the tragedy in Norway as an entry for an attack on right wing, anti-Muslim groups in the U. S, an approach he felt was totally inappropriate.

It is Wrong to Link the Right Wing Extremist in Norway Charged with Mass Murder to American Politics

And did not think he needed to worry about people on the right like Mr. Beck.  He was wrong again, apparently one always has to worry about people like Mr. Beck.

Oh, and then there was this from Mr. Beck,

"I mean, who does a camp for kids that's all about politics? Disturbing," Beck said

Well Mr. Beck, your group, the Tea Party does.  Here is a group that you probably admire and love that are running a political camp,

Tea Party Ruins Summer Camp for Kids in Tampa

And for once The Dismal Political Economist can agree with you, these people are “disturbing”.  We’ll look for your denunciation right after your apology to the people of Norway.

Mongolia is No Longer Mongolia, It is a Really Big Deal

When Did This Happen?

Business Week reports on the boom in the economy of Mongolia.  Yes, Mongolia.  First of all there is not a lot of people in Mongolia but there is a lot of livestock.

Squeezed between China and Russia, and equal in size to Western Europe, Mongolia has just 2.8 million people, making it one of the most sparsely populated countries in the world, though not with livestock: Mongolia’s National Statistical Office estimates there are 33 million head of livestock in the country, including goats, sheep, horses, cattle, and camels.

Left: Tending horses in Bugat; Right: Sunset over Ulaanbaatar From left: Timothy Fadek/Polaris; Getty Images

But relatively little population, Mongolia it turns out has a lot of mineral wealth, the kind of mineral wealth a developing Asia needs.

Mongolia is one of the richest countries in terms of natural resources, and that’s just the known deposits: Four-fifths of the country is still unsurveyed

The result, a fast growing economy that will take off in the next decade.

Parmeshwar Ramlogan, the Ulaanbaatar-based resident representative for Mongolia at the International Monetary Fund. Ramlogan predicts Mongolia could grow at double-digit rates for at least the next 10 years, lifting per capita income—now at $2,470—fourfold within a decade and making it one of the fastest-growing economies in the world.

Who would have thought?

Can The Republican Deficit/Debt Ceiling Plan Pass the Republican House?

It Just Gets Weirder and Weirder

The Plan of House of Representative Speaker John Boehner (R, Oh) to get his deficit reduction/debt ceiling increase enacted had three steps.

1. Passage by the House of Representatives
2. Passage by the Senate
3. Delivery to Mr. Obama with the challenge to sign it into law, or veto it and be responsible for the ensuing default.

Senate Democrats have said that the second step will never happen.  Now it turns out the first step may not happen either.  The Wall Street Journal reports that opposition to the plan will prevent it from getting the 218 votes necessary to pass.

The leader of a large group of House conservatives said Tuesday he was "confident" there weren't enough GOP lawmakers to pass a plan by Republican House Speaker John Boehner to increase the debt ceiling and reduce the deficit.

Mr. Obama        and    Mr. Boehner

the House of Representatives.   

The Dismal Political Economist has long believed that there might be no debt ceiling increase that could pass

He also believes that however much the 2^nd in Command to Speaker Boehner, Mr. Eric Cantor (R, Va) says he supports Mr. Boehner, Mr. Cantor is secretly working to defeat any plan, and cause the Republicans to dump Mr. Boehner in favor of Mr. Cantor.

This is pure speculation on the part of The Dismal Political Economist.  That doesn’t make it wrong.

Tyler Cowens Reading Ludwig von Mises’s Incorrect Analysis on Taxation

Does He Understand Why vonMises Gets It Wrong?

Tyler Cowens is an eminently likeable and intelligent economist whose Forum, The Marginal Revolution always manages to educate and elucidate.  One of the features of that Forum is a list of what Mr. Cowens is currently reading.

What I’ve been reading

by Tyler Cowen on July 25, 2011 at 6:12 am

2. Ludwig Mises on the exhuastion of the reserve fund.  I first read that passage when I was fourteen years old and I was scared.

Reading the particular passage from Mr. vonMises (yes, that is the one Michelle Bachmann takes to

the beach) one finds that it starts out this way.  

The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.

In the field of public finance progressive taxation of incomes and estates is the most characteristic manifestation of this doctrine. Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets

 This is scary, Mr. Cowens, because it is so absolutely wrong.  It envisions a class warfare where there is none.  It fails to comprehend the most basic of economic ideas.  And even worse, it appears to be believed by a great number of people who are in position to effect public policy.

In the field of public finance, progressive taxation is advocated because it provides for public investment, investment that would otherwise not take place.  This public investment, in education, infrastructure, national security, environmental and business regulation if done correctly produces an economic society where wealth and income rise for all.  Far from detracting from the wealthy, it enhances their wealth, as one can see from the U. S. experience from the end of World War II to the present.



Would YOu Buy A Used
Economic Theory From
This Man?

 The passage above is probably the greatest evidence of the near total lack of intellectual understanding of economics that is Conservative economic philosophy.  That so many believe what is so basically wrong is truly scary. 

Hopefully that is what is also scary to Mr. Cowens.