Thursday, February 18, 2010

More Economic Madness

Since when should economic policy be based on faith? Unfortunately, that's what we're stuck with now:
On the stimulus’s first anniversary, keep in mind one number: 6.3 million.

That is the Obama jobs gap — the difference between the 3.3 million net jobs President Obama said would be created (not just saved) and the 3 million additional net jobs that have since been lost.

By the president’s own logic, the stimulus failed. So Obama has shifted his argument. Sure, the economy lost jobs, he now says, but without the stimulus it would have lost nearly 2 million more jobs.

This “it would have been worse” theory is completely unprovable. No one knows how the economy would have performed without the stimulus.

Furthermore, it’s faith-based economics. The White House’s new estimates of “saving” nearly 2 million jobs are not based on observations of the economy’s recent performance. Rather, they are based on the Obama administration’s unshakable belief that deficit spending must create jobs and growth. Specifically, the White House’s “proof” that the stimulus created jobs is an economic model that they programmed to assume that stimulus spending automatically creates jobs.

How’s that for circular logic?
As we've talked about before, Dems tend to look at the economy as a static, unchanging pie that never gets bigger and always acts the same. That is a fundamentally flawed way of looking at things. Check it out:
The idea that government spending creates jobs makes sense only if you never ask where the government got the money. It didn’t fall from the sky. The only way Congress can inject spending into the economy is by first taxing or borrowing it out of the economy. No new demand is created; it’s a zero-sum transfer of existing demand.

The White House says the $300 billion spent from the stimulus thus far has financed as many as 2 million jobs. Maybe. However, the private sector now has $300 billion less to spend, which, by the same logic, means it must lose the same number of jobs, leaving a net employment impact of zero. But the White House’s single-entry bookkeeping simply ignores that side of the equation.
What the government is doing with their 'stimulus' is simply redistributing Americans' money. By taking it from one group and giving it to another, they're not stimulating anything other than anger.

Another thing that I think a lot of people are forgetting is that there are cycles in business. That means there are periods of contraction. It's not exactly desirable or pleasant, but it does prompt people who need to change something about their business or lifestyle to make that change, and in the long run it usually works out better. We can't have one long sustained period of growth that lasts as long as the nation exists, but some people seem to think so. It is to that end that I was glad to see this article by Peter Ferarra:

Americans no longer remember the concept of the "business cycle." For centuries, market economies have periodically turned down, and then turned back up. The recovery from such downturns is natural for a market economy. Every morning, at least some of the unemployed get up and look for work. Businessmen wake up and spend the day trying to restore their businesses to prosperity. As a result, market economies naturally come back to recovery. This is why the average recession in the U.S. since World War II has been only 10 months, with the longest, until now, being 16 months.

Bad economic policies can throw economies into downturns, and delay recoveries. Keynesian economics and rising effective tax rates produced four worsening inflation/recession cycles in and around the 1970s: 1969-1970, 1973-1974, 1979-1980, and 1982.

But Reaganomics was so successful that it all but abolished the business cycle for a generation. The economy took off at the end of 1982 on a 25-year economic boom interrupted by only two, short, shallow recessions in 1990-1991 and 2001. That is why today we no longer recognize the natural workings of the business cycle.

He goes on to talk about the details of some of the previous downturns and how certain policies affected them. Here's one example of how the Left just doesn't get it:
the truth is that over the past 40 years, every time capital gains tax rates have been cut, revenues have increased, and every time capital gains tax rates have been increased, revenues have declined.

In 1968, a 25% capital gains tax rate generated real capital gains tax revenues of $40.6 billion calculated in 2000 dollars. The capital gains tax rate was then raised 4 times in the next 7 years to 35%. By 1975, at the higher rate, capital gains revenues totaled $19.6 billion in constant 2000 dollars, less than half as much.

In 1978, the capital gains tax rate of 35% yielded $29.9 billion in 2000 dollars. The rate was then cut 3 times to 20% over the next 4 years. By 1986, the new rate, 43% lower than the 1978 rate, raised $92.9 billion in 2000 dollars, about three times as much.

The capital gains rate was raised by 40% the next year, to 28%. Capital gains revenues fell to $56.2 billion that year, and declined all the way to $34.6 billion by 1991.

In 1997, Congress cut the capital gains tax rate from 28% back down to 20%. Despite this almost 30% cut in the rate, capital gains revenues rose from $62 billion in 1996 to $109 billion in 1999. Revenues over the period 1997 to 2000 increased by 84% over the projections before the tax cut.

Finally, Congress cut the capital gains rate from 20% to 15% in 2003. Capital gains revenues doubled from 2003 to 2005, despite this 25% cut in the rate. Revenues increased by $133 billion during the years 2003 to 2006 as compared to pre-tax cut projections.

Obama is planning to raise many taxes, one of which is the capital gains tax. It is for that reason that some economists (primarily the ones who understand the economy to be a dynamic and growing thing) can look to history and predict that Obama's policies are going to cause another downturn, one that could be much worse than the one we're just starting to crawl out of. I strongly suggest you check out the whole story if you really want to know what very well could happen over the next few months. And then vote the Dems out of power every chance you get.

What's sad is that America is proof positive that free market capitalism works, and under Democrat leadership we're moving away from that success toward the exact opposite. At the same time, third world countries like Chile are adopting the same policies that made America great, and pulling themselves out of the third world and into the first.

Capitalism and free markets work every time they're tried, everywhere in the world. That's what we were founded upon, and that's what has made America great. We need to ditch the Dems (and Reps) who believe that the government is the end-all-be-all of human existence and get back to conservative principles based upon the Constitution, where free markets move powerfully to benefit everyone. That's the only hope we have for continuing the incredible legacy of America as a global leader, and a free and prosperous nation.

There's my two cents.

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