First, if one’s model suggests that the solution to high unemployment and sluggish GDP growth is to boost aggregate demand, and then after these policies have been tried, unemployment is still high and GDP growth is still sluggish, why then, it’s obvious that the budget deficits and rounds of quantitative easing weren’t big enough. If you are certain that something is medicine, and the patient is still sick after a liberal dosage, then clearly the dosage wasn’t liberal enough.

Beyond that, Krugman and other proponents of more intervention do have some of the data on their side, as he explains in a blog post from last week:

The WSJ view was that federal borrowing would crowd out private spending by driving interest rates sky-high, that the bond vigilantes would destroy the economy. Note that when the linked editorial was published, the 10-year rate was at 3.7%, with the Journal in effect predicting that it would go much higher.

My view was that government borrowing in a liquidity trap does not drive up rates, and indeed that rates would stay low as long as the economy stayed depressed.

That’s a pretty clear test; among other things, you would have lost a lot of money if you believed the WSJ view.

Inflation is another issue; the WSJ kept telling readers that a big inflationary surge was coming. Commodity prices have muddied this issue to some extent, but even so actual developments on the inflation front have been a lot closer to what Keynesians were predicting than to the right-wing line.

Note Krugman’s brilliant rhetorical moves: The things that matter are the ones that he correctly predicted and the WSJ did not, namely interest rates and CPI inflation. Soaring commodity prices – which of course are consistent with the Peter Schiff view of the world, and not at all with the Keynesian “it’s all about demand” view – just “muddied this issue to some extent.” But we can just throw that out because we just know, deep down, that the Keynesian models are right and the right-wing models are wrong.

Krugman’s line about losing money by following the WSJ view is something he has been saying for a good year now, but it too isn’t so obvious. The one consistent bit of financial advice that the “paranoid” right-wing Tea Party types have been giving is to buy gold. (I myself was telling my readers to do this from the get-go, when I launched my personal blog in August 2008.) Over the last three years, gold is up more than 90 percent. That’s not too shabby for people who supposedly have been totally wrong about how this crisis would play out.

Note too that Krugman most assuredly did not call the huge appreciation in gold (or other commodities, for that matter). The only explanation I have ever seen him offer is that gold is in a bubble pumped up by Glenn Beck.

To my knowledge, no school of economic thought predicted all of the major trends back in, say, January 2008. The conventional Keynesians employed at the White House and in major forecasting firms were completely wrong about the Obama stimulus package. The “crowding out” Chicago School types were completely wrong about the deficit’s impact on interest rates. People like Peter Schiff (and yours truly) were completely wrong about consumer price inflation in 2009 and 2010. The “quasimonetarists” (who blamed Bernanke for his allegedly tight money policies) and Paul Krugman were completely wrong about gold and silver prices, and arguably about the fragility of the “recovery” in the stock market.

One thing is certain, and here I agree with Krugman when he concludes his article like this: “We already know what isn’t working: the economic policy of the past two years – and the millions of Americans who should have jobs, but don’t.”

Anyone with common sense will admit that the last two years have seen unprecedented budget deficits and monetary expansion. Krugman is correct; that hasn’t been working at all. It’s time to let the free market end this agony and bring us genuine recovery.

Regards,

Robert P. Murphy

End This Agony, Part II was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

According to USA Today — I know, not the most hard-hitting rag out there — contestants on shows like America’s Got Talent and Deal or No Deal have undergone a dramatic change in the past year.

Instead of dreaming of building a mansion or retiring early, the poor saps that go on those shows are now just hoping to win some kind of money to keep afloat. On Deal or No Deal, the percentage of unemployed prospective players jumped from just 5% of its total applicants to 20%.

Who Wants to be a Millionaire’s host, Meredith Vieira, claims that her contestants no long play for big prizes. They’re there to collect a few mortgage payments or to help pay off credit cards.

Apparently, the market’s recent fake recovery hasn’t ended this game show contestant trend. Vieira notes, “There’s still a sense of need, as opposed to want.”

This could spell disaster for marketing these shows. No one wants to watch desperate people cashing out early so they don’t have to move.

“Mustn’t Watch TV” aside, you shouldn’t be surprised by the still-pathetic situation out there. After all, one of the favorite buzz phrases on CNBC is “lagging indicator.” Forget that the phrase is an oxymoron for a moment. It’s applied to – more than anything else – unemployment numbers.

We have seen a slow down in job losses, which is to say that we aren’t losing jobs in this country as fast as we were. July even saw a slight increase in employment. I suspect a portion of that tiny bump is due to people giving up. If you aren’t applying for jobs, you no longer count.

We like to think of unemployment as a percentage. But it’s important to put the actual number of would-be-workers into perspective.

We have about 14.5 million unemployed people in the U.S. — at least 14.5 million reported unemployed people. Of those, we have a significant amount that has been in that situation for more than half a year.

As this chart shows, that’s the most people on the dole since the Second World War:

This begs the question: if we do ever recover, where will these new jobs come from?

Where’s Our Next Bubble?

Speculating about which industries will provide future jobs is still damned near impossible. Could Obama’s “green tech” jobs ever come to fruition? Possibly, but it won’t be in the near future. Right now, no one can even afford those kinds of products.

Even with amazing developments in turbine technology over the past few years, it still costs about 67% more for wind power than it does for coal or nuclear power. So for electrical engineers, there might be jobs in the R&D stage of this “green revolution.” For the majority of the 14.5 million unemployed, however, that’s of no help.

It’s doubtful that we’ll see a real recovery in manufacturing jobs. That’s one segment in serious trouble. We didn’t even see it recover during the boom from its 2001 lows.

Technology is one area with some potential. Americans’ need for the latest digital toy hasn’t dissipated in this rough economy. Sure, no one can afford new plasma TVs, but just take a look at AT&T’s iPhone 3G sales this summer. Pretty impressive.

We aren’t going to stash our life savings into Apple, but we are keeping our eyes peeled to see what comes next.

The energy sector, of course, needs a recovering economy to be of importance. It’s certainly not going to lead us out of our recession. Once we do recover, however, drills will once again meet the dirt and create some jobs. But right now, we’re seeing a lot of abandoned wells across our country.

We could always just pile back into the financial services industry and pretend the past two years were a dream. Unfortunately, that’s quite possible knowing how forgetful that crew is.

Wherever new jobs come from – if they come at all – and no matter which industry leads the way, we need to keep a careful watch over every sector. As you can see in one of our favorite charts, if you know which sectors are heading in which direction, you stand to make a lot of money:

There’s no doubt we’ll replace the financial bubble with another one – just like we did with the tech bubble in the 90s. So…where’s our next bubble?

Regards,
Jim Nelson

September 7, 2009

Recovery and Jobs; Where’s the Next Bubble? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The idea that we’re about to resume the insane behavior that induced the current epochal malaise of economy is so absurd it will only be heard in the faculty dining halls of the Ivy League. And if America is not picking up where it left off eighteen months ago — the orgy of spending future claims on wealth unlikely to accrue — then what is our destiny? Based on what’s out there in the organs of public thinking, it seems that we don’t want to think about it.

So many forces are arrayed against a return to the previous “normal” that we will be lucky, in another eighteen months, to still find ourselves speaking English and celebrating Christmas. What’s “out there” is a panorama of mutually reinforcing critical problems pertaining to how we live on this continent. Like the obesity, heart disease, and diabetes that plague the public, these problems are disorders of lifestyle habits and the only possible “cure” is a comprehensive revision of lifestyle. With the onset of spring weather and the cheez doodles and monster truck rallies and NASCAR tailgate barbeques and the drive-in beer emporiums all beckoning, can the public public shift its attention from these infantile preoccupations to saving its own ass?

So far, the most striking piece of the economic fiasco is the absence of any galvanizing spirit among the millions getting crushed in the tragic unwind of our relations with money. It will be interesting to see, for instance, if there is any uproar over the evolving story of Goldman Sachs’s latest raid on the US Treasury, after booking billions in taxpayer-funded payouts funneled through AIG, based on double-hedged credit default swaps. Such magic tricks are understandably hard to follow, but a dozen-or-so federal attorneys with a middling background in differential calculus might suss out the trail that leads from Ben Bernanke’s work station to Lloyd Blankfein’s cappuccino machine.

Something similar may be said in regard to revelations last week of White House economic advisor Larry Summers’ connection with a number of hedge funds shoveling millions into his deep pockets for showing up once a week to cheerlead their “innovations” — not to mention his shadowy visits to the Goldman Sachs gravy train even after he signed onto the Obama campaign. As long as the stock markets seem to rally — no matter what else is really going on in America — nobody will pay much attention to these disgusting irregularities.

Since it is that time of year, and I am haunting the gardening shop, one can’t fail to notice the many styles of pitchforks for sale. My guess is that the current mood of public paralysis will dissolve in a blur of blood and spittle sometime between Memorial Day and July Fourth, even with NASCAR in full swing, and the mushrooming ranks of the unemployed lost in raptures of engine noise and fried cornmeal. It doesn’t take too many determined, pissed-off people to create a lot of mischief in a complex society.

On the agenda in the second quarter of ’09 are ominous rumblings in the oil and food sectors. Half a year of cratered oil prices have decimated the oil industry and we’re driving at 100-miles-an-hour straight off a cliff into a new kind of supply crisis — even if industrial production and global exports remain moribund. So many drilling rigs are being decommissioned that the oil industry itself looks like it’s preparing for its own death, investment in exploration and discovery has withered with the credit markets, and the world may never recover from the year long hiccup in oil industry activity — translation: peak oil is biting back now with a vengeance. Its peakness will look peakier and the yawning arc of depletion beyond will look steeper and pose a threat to every globalized and continental-scale enterprise in the known world.

So many dire elements are ranging around our food production system (i.e. farming), from widespread drought and water table depletion to “input” shortages (especially fertilizers) to sickness in credit availability, that we’re all one bad harvest away from something that will make Pieter Bruegel the Elder’s “Triumph of Death” look like Vanity Fair’s annual Oscar Party in comparison.

Barack Obama, charming as he is, had better drop his pretensions about kick-starting the old consumer economy, fire the Wall Street clowns and parasites who are running that futile exercise, and start preparing a US Lifeboat Economy aimed at reducing the scale and scope of our outlays so we can survive the coming siege of austerity. Meanwhile, I’m glad that he finally got a dog for the White House, because the President knows full-well where to turn in Washington if you want some genuine love and affection

Regards,
James Howard Kunstler

April 14, 2009

No Recovery for America’s Economy was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.