This Is As Good As It Gets

The GDP announcement this morning for the first quarter of 2013 was 2.5 percent, well below the 3 plus estimates that economists were expecting.    This will not be the first disappointment.  Folks like Jim Cramer on CNBC can't understand why businessmen are reluctant to expand capital equipment and hire employees.  That's because Cramer is a media celebrity not a businessman.

If Cramer were even remotely aware of the actual business climate that ordinary folks have to contend with, he would know what the problem is -- over regulation, absurd tax levels, Obamacare, EPA regulations, Dodd-Frank.  It is almost as if the Obama Administration has declared war on the US economy.  Anything that smacks of business success is viewed suspiciously by the Administration (and by Jim Cramer, I might note).

The talking heads can't figure it out, but the economics are simple.  If hiring an employee at a $ 35,000 salary means it costs you $ 75,000 per year, you are not going to make that hire.  End of subject.

Why the simple economics of hiring and firing eludes people like Jim Cramer is amazing.

There is no reason that health care costs should be borne by employers.  None....no reason at all.  But one thing is certain, if employer bears the cost of health care, they are going to be reluctant to make new hires and anxious to reduce their existing work force.  Why is that hard for the Obama fans like Jim Cramer to figure out?

Citizens should finance their own health care.  That would keep costs down and make the market efficient, as in the provision of anything else in a market economy.  The only way to get health care costs to spiral out of control is to get the government involved. 

There is so much double talk in an attempt to circumvent the obvious facts on the ground.  The economy is grinding to a halt in Europe and in the US.  The West is in deep, deep trouble.  They have drunk the nectar of socialism and wealth redistribution.  All of that feels good for a while until the economy begins to fall apart.  We are now witnessing the collapse of the West.

This is not going to get better.  It is going to get worse.  Economic policies in Europe and in the US are not designed to make economies grow.  They are designed to make economies fair, according to the fairness whims of the political elite.  That kills economic growth.

So, get used to it.  This is as good as it gets.

Ignorance and the NY Times

Eduardo Porter, an "economics" columnist with the NY Times, has penned an article this morning in the NY Times that purports to address the lack of solutions to today's economic stagnation.  Porter reports on a recent IMF sponsored conference of economists that was supposed to address problems posed by the "financial crisis of 2008."

According to Porter, the 2008 collapse discredited policies of lower taxes and de-regulation.  You have to wonder what world Porter lives in.  Was Sarbanes-Oxley an example of the deregulation?  Were the Congressionally-imposed strengthening and rule-making for Fannie and Freddie examples of de-regulation?  Exactly what is Porter referring to?  Or do facts matter anymore when you have a convenient agenda ready?

Here is an example of the absurd conclusions that Porter draws in his article: "One lesson from the crisis -- first learned in the 1930s and corroborated in several contemporary analyses -- is that when interest rates lose their power to stimulate the economy, additional government spending can help generate real growth."  Really?  Could have fooled me! 

Government spending in the US has exploded since 2008, as well as the national debt.  And what have we gotten for this explosion in government spending?  Economic stagnation -- the worst economic recovery since?  Guess what -- the 1930s.  Yes, the last time government spending was tried as a solution was the last time the economy failed, for a genertion, to recover from an economic downturn.

The way out of our current quagmire is easy and historically established. Go back to the early 1980s.  Drastic tight money, high interest rates, major tax cuts and de-regulation spurred the most dramatic economic recovery in world history.  All of this took place in the US under President Reagan in the bad old 1980s.  The Clinton years benefitted from these policies, but Clinton couldn't handle prosperity.  He and a Republican Congress raised taxes which began to produce economic contraction by mid-2000.  Further regulatory nightmares, led by Sarbanes-Oxley, the dramatic push by Congress to expand Fannie and Freddie set the stage for the 2008 disaster.

What has been discredited is the idea that expansive monetary and fiscal policy can substitute for free market capitalism.  The facts have turned naive Keynesiasm on its head.  Free markets produce economic growth.  Governments produce economic stagnation.  The IMF wasted its time holding their conference last week.  They would have been better served reading some economic history and learning the facts.

Even the WSJournal Doesn't Get It

David Wessel has a lengthy article in this morning's Wall Street Journal about the future direction of the world's economies.  He begins with Europe and then walks the reader through the US, Japan, China, and the rest of the world.  In every case, Wessel's discussion is about government policy.

The overall theme is that economic recovery depends upon government policy, discretionary policy at that.  He discusses the twists and turns of policymakers as they, according to his story line, attempt to guide their economies to the promised land.

But, that is exactly the problem.  Once government policy becomes the determinant of the economy's future, the economy no longer has a future.  The proper role of government in a free market is to lay down the rules of the road and then to get out of the way.  Increasingly, a government of rules is not to be found.

Instead we watch daily as policy makers, who frequently have a very limited knowledge of economics, move this way and that in a vain attempt to get economic growth going.  Such things cannot work.  They never have worked and they never will.

Economic growth occurs when businesses make capital expenditures and hire workers to create product.  They aren't going to do that if they have to spend their time wondering what the next move is going to be by their government.  Government action is detrimental to an economy's future.  Government inaction and consistent application of the rules of the road is the ticket to prosperity, not frenetic political activity and polarizing rhetoric.

If Obama had played more golf and forgotten about the stimulus, Obamacare and Dodd-Frank, we would probably be looking at 4 - 5 percent unemployment today and economic growth rates of 3 1/2 to 4 percent.  Unfortunately, Obama thought he had something to contribute.  So, we stagnate.  that's the price of a responsive government.

Taming the Beast

When an economy collapses, usually with the financial sector leading the way, everyone fears that it will not soon recover.  But, history tells us otherwise.  The numerous financial and economic collapses from the end of the civil war in the US up to the start of World War I took place during the fastest spurt of economic growth in US history.  The US economy had no central bank during this period and the government was so tiny that fiscal policy was largely non-existent.  Absent modern policy tools, what happened?

What happens, when government is not around to step in, is that economies recover on their own.  That's what the period from 1865 to 1914 teaches us.  It was during that period that the US overtook other economic power houses to become, by the end of the first World War, the most powerful economic engine in the world.  That is the outcome one can expect if the central bank is non-existent and if government fiscal policy is non-existent.

But what happens when government attempts to "tame the beast?" and "reform" the economy and the markets.  After the 2008 collapse, an unprecedented effort by central banks and governments took place throughout the Western economies.  Combined with aggressive "regulatory reform" to prevent future financial collapses, political actions by western economies have attempted to "tame the beast" of modern capitalism for the past 4 1/2 years.

And what is the outcome of all of this government action? -- economic stagnation and distress.  Economies that chugged along with 3 - 3 1/2 percent real GDP growth and 4 - 6 percent unemployment, now face zero real GDP growth and unemployment rates between 7 1/2 percent and 30 percent (Spain, Greece).

What next?  The beast has been tamed.  The furious fires of capitalism have been successfully tapped down by government policy.  Now, policy makers have abandoned any serious effort to get free markets going again and are focused on taxing rich folks.  That is the new agenda -- move more and more activities from the private to the public sector (think health care) and go after the wealth of anyone who played by the old rules.

We now have new rules.  Bond indentures (think GM, think Stockton) can be rewritten by the judiciary and by politicians.  Raiding government protected checking accounts are now policy tools for dealing with excessive sovereign debt (think IMF recommendations on Cyprus).  Nothing is safe from the wandering policy eyes of the Obama administrations and European politicans.  Even IRA accounts in the US have now become targets of the new political elite.

The beast has been tamed.  Look for the economies in Europe and the US to roll over.  In the US, the imposition of massive tax increases, major new hikes in employee costs (Obamacare), an onslaught of new EPA regulations, and blurring of the legal status of ordinary financial contracts (GM) is enough to snuff out the tepid recovery in the US.  Absurd policies designed to increase sovereign debt in heavily indebted Europe will put the nail in the coffin for Europe.  The future is not bright.

Once Upon A Time

The American dream was, once upon a time, the idea that if you worked hard, postponed consumption, saved your money and invested it, you could live whatever lifestyle that you wanted.  The flip side was that if you failed, you paid the price for that failure.  That idea fueled the economic engine that made American the wealthiest country in the world.  Millions of people came to America, because of the freedom that the American dream represented -- the freedom to be who you wanted to be without the heavy hand of the government telling you what you could or could not dream.

We are now embarked, along with our friends in Europe, upon the journey to the American nightmare.  Political struggles, both in Europe and the US, are degenerating into class warfare, pitting higher incomes against lower incomes, and producing economies that no longer grow.  Massive unemployment is becoming accepted and commonplace.  The Eurozone unemployment rate exceeds 12 percent and American workers are leaving the work force to enjoy that leisure that an over-abundant "safety net" provides.

Freedom includes the freedom to fail, the freedom to make mistakes, the freedom to pay the price of your failure and your mistakes.  Once upon a time the discipline that was imposed by the freedom to fail provided the necessary incentives to succeed.  Taking away the freedom to fail with the heavy hand of government takes away the freedom to succeed.  It is not only the "too big to fail" that is the problem, it is the "too politically correct to fail" as well that eliminates the freedom necessary to make an economy successful.

Economists Who Think Incentives Don't Matter

I nominate Simon Johnson for an award as an economist who has managed to reach the remarkable conclusion that economic incentives do not matter.  He joins a long list of politicians who seem to think that government policies that take money from one group of Americans to give it to another have no effect on behavior.

Save and save and save and then find out that the government will take the proceeds of your savings away from you.  That's the message of the recent Obama message and Simon Johnson's column today in the New York Times.  Obama's new war on the IRA promises to slap the hands of any American who decided to forego that extra TV or car or who bought a house that they could afford, putting the money into an IRA account instead.

The new crime is saving, investing and accumulating assets.  According to Obama, that is un-American and he proposes bringing it to an end.  Somehow eliminating what paltry private savings the American economy generates doesn't seem to bother Obama and his economic advisers.  After all, I suppose, China can continue to supply whatever savings we need as the Chinese own an increasing share of American assets and Americans own less and less of their own country.

Meanwhile those who don't save and who splurge on consumer goods and purchase homes they cannot afford will continue to receive bailouts, special new program proposals from the Obama-led White House, and higher levels of dependency on government.  Already the number of Americans even remotely interested in working for a living is at a forty year low and the number of Americans collecting disability checks is at a record and a new record is achieved every day.

Reward the indolent and punish the thrifty and those with a work ethic -- that is the Obama mantra, ringingly endorsed by his adoring economists.  Simon Johnson thinks he hasn't gone far enough.  I suppose Johnson would like to raise the minimum wage to $ 100 an hour as well.  That should go far to eliminate poverty (at least for the handful of Americans who would still have jobs).

Sanofi and the Future of France

Sanofi is a drug company with a research facility in Toulouse, France.  The facility needs to be closed.  It is a research facility that hasn't produced a new drug in twenty years and costs are prohibitively high in any event.  600 workers are employed there.

So, what happens when Sanofi decides to close the plant?  Mass demonstrations and a protracted legal battle.  In the end, Sanofi will be refused by the government and the plant will stay open, regardless of what Sanofi shareholders want.

So, what happens when another company is considering opening a plant anywhere in France?  They will think about Sanofi's troubles and look elsewhere.  Markets work and learn -- which is bad news for France, a country with a declining GDP and absurd economic programs.

Obama thinks that they are on the right track.  I guess it depends on what destination you are shooting for.

Krugman and I agree on one thing

Austerity is not the answer.  Austerity just means lower standards of living in the future and political chaos.  Does anyone think things look bright for Cyprus, Greece, Portugal, Spain or Italy?  These unpayable debts should have been moved into default negotiations.  That is the only answer.  Increasing sovereign debt in all of these countries is madness and brings Germany and France into the same boat.

Bureaucrats and naive politicians (think Obama) always believe that there is some simple "political" solution to every problem.  There isn't.  They are wrong.  The only way to deal with too much debt is to reduce it.  Period.  Nothing else helps.

The ECB is on the wrong track.  It is long past time for "workouts," but better late than never.

Otherwise the center-right and center-left political parties will be completely discredited and radical alternatives, already emerging, will move into prominence.

Politicians never learn.  The only way to a higher standard living is free enterprise.  Having the government responsible for old age security and health is a huge mistake.  Government can play a role as a backstop, but if government is the major provider, the only outcome will be waste and mismanagement and improper funding, which is what we are observing.

Obama's biggest problem is that he thinks of everything in terms of "justice," which, to him, means equalizing the outcomes of the economic process.  If you do that, the economy will grind to a halt.  That was the experiment in Russia, China and Cuba.  It doesn't work.  The sluggish and stagnant growth of the American economy is living testament to the outcomes that the Obama economic policies will lead to.  Things will get worse.

What is needed is an economic environment where individuals are free to pursue their dreams and achieve success or failure on their own terms.  You can't guarantee everyone success.  That just means that everyone fails.

The President's Budget Proposal -- More of the Same

If you want people to save less, increase the tax on their savings.  So, the President now threatens to pull the rug out from under IRAs.  The President's defenders say that he is only going after very wealthy IRA users, but we know where it ends -- the average American will find his savings threatened by this increasingly autocratic regime in Washington.

How do you help poor people?  Increase their taxes.  So, the President proposes to increase the tax on cigarettes.  Who are the smokers amongst us?  The country club set?  Or those without jobs and working at the lowest paid jobs in the country?  Everyone knows the answer to that, including the President.  He knows that smoking is mainly a habit indulged in by the poor, so he wacks the poor with one more tax hike.  Smoking is almost unheard of among upper middle income folks.  Obama has his sights set on socking it to the poorest demographic in the country.

What about entitlements?  The President proposes cutting medicare reimbursements.  He seems to think this will mean that medicare services will simply cost less with no reduction in services.  Why not simply eliminate reimbursements entirely.  Then everyone could get health care free!  This is the logic of the President's medicare savings.  We've seen it all before.  There are now several states where a majority of doctors will not take medicare patients and that chorus of opt-outers is growing everyday.  The President's plan is that health care will ultimately be free, unless you need a doctor or a hospital, in which case it will be unavailable.

As for cost-of-living adjustments on social security, that is merely a technical adjustment of limited significance in a world where people increasing live on social security far beyond our society's ability to provide the resources to support it.

Meanwhile the new budget continues to subsidize Obama's cronies where the losses continue to pile up in failed "green industry" activities, though Obama's cronies never seem to lose any of their own money in these ventures -- just taxpayer money.

So, tax thrift, reward those with uneconomic schemes and dreams that cannot make it in the market place, let the entitlements grow on to infinity, and sock it to the poor.  Continue the same economic policies that have produced the worst economic recovery since the 1930s (the last time these kinds of policies were tried).  Meanwhile, let the national debt soar on to infinity.

That's the President's new proposal.  Not much of a surprise, given the last five years.

Portugal Waffles on Austerity

Promised 78 billion Euros by the ECB, Portugal had agreed to limit it's budget deficit to 3 percent of GDP.  Forget that promise.  It won't happen.

The high court in Portugal said "no" yesterday to a plan to trim government employees compensation and that is the end of the 3 percent plan.  Back to plan B.  Portugal now says 5 percent is doable.  Not that it matters.

Portugal's debt was 124 percent of GDP before the ECB stepped in.  It will be 150 percent within two more years on its way, no doubt, to over 200 percent within a decade.  This, of course, assumes there is someone out there willing to buy this worthless stuff.

All the other Eurozone countries are on a similar trajectory, including France and Germany.  The US is on a similar path, perhaps as a sympathetic show of unity.

The ECB magic elixir is that the cure for too much debt is more debt.  Austerity is thrown into the mix, one supposes, for comic relief.

Ridiculous economic policies in the US and in the Eurozone are bearing fruit.  Their economies are stagnant at best and collapsing at worst, while their sovereign debt levels continue to explode.

The Obama Hunt for Revenues

The Wall Street Journal reports today that the Obama Administration is now planning on major new taxes on: 1) cigarettes; and 2) IRA accounts.

Increasing the taxes on cigarettes goes after the poorest demographic in America.  In his continuing war on the lower middle income Americans, Obama plans to raise what is probably the most regressive tax in existence -- the cigarette tax.

For balance, one supposes, Obama intends to break the long standing promises of IRA accounts.  IRA accounts are a special target of the Obama Administration, because IRA's are the main avenue that individuals use to provide savings for their retirement.  Not content to let social security run out of money in the next generation, Obama now plans to steal the private savings that individuals have accumulated by abstaining from consumption and saving for their future.

There are no limits to the duplicity and meanness that characterizes the Obama Administration.  These proposals are just more of the same.  Just as the minimum wage laws make it a criminal offense to provide jobs for the poorest amongst us, the cigarette tax punishes the poorest Americans and the attack on IRA's is an assault on individual thrift.

Meanwhile another "green jobs" project funded with $ 200 million in Obama Administration funds is going belly up.  Fisker, a maker of electric cars, with a huge credit line from the US Government, is laying off 150 of its employees (60 percent of its workforce) in order to conserve cash for Obama-friendly wealthy shareholders.  The company still has the ability to draw another $370 million from government coffers as it slides into bankruptcy.  Another transfer from the poor and from the savers to Obama's wealthy friends.

Half a Million Americans Give Up Looking

This morning's job report was notable mainly for the number of Americans who have simply given up any hope of employment and have exited from the workforce.  Another half a million Americans quit looking for work in March.  The percentage of American adults that now make any effort at all to find work is at the lowest point since 1979 (when Jimmy Carter was president).

If more people continue to quit looking for work, the unemployment rate will continue to fall.  Eventually, if everyone out of work just gives up looking, America's unemployment rate can fall to zero.  That seems to be the only way to get the unemployment rate down in the new Obama world.

In a culture that is becoming increasingly a "where's mine?" culture, it is hard to see how the American economy that we used to know (in the bad old days) is ever going to return.

How many private sector jobs were created in March?  A laughable 85,000.  That's almost a rounding error to the Reagan era 1.2 million jobs that were created in September of 1982.

Watching the pundits was interesting this morning?  They seemed puzzled.  Was it the sequester, they pondered?  They ignored the implementation of Obamacare, the $ 600 billion tax increase imposed at the beginning of 2013, the ceaseless barrage of new regulations designed mainly to strangle American business and the continued war against free enterprise that is waged daily by the White House.

The American culture is changing.  We are becoming more like Greece every day in every way.   There is a sense of entitlement in the air and in every part of life.  McDonald employees in NYC demanding a 107 percent immediate wage increase in the midst of a sea of unemployed Americans is a great example of the modern cultural disconnect.

The idea that you have to work and save to provide for yourself is so Reagan-like.  Why do that when government can generously provide everything?

Well now we know one thing that the government cannot provide -- private sectors jobs.  Stay tuned.  There is more coming.  Wait until you experience the implementation of Obamacare.  You haven't seen anything yet.  You might read up on pre-1990 Soviet Russia to get a good glimpse of where we are headed.

Obama Calls for the Return of Predatory Lending

After excoriating the banking community for the past five years for making loans to Americans with less than stellar credit, Obama has now reversed course.  This week, Obama has now called for banks to return to the bad old days -- lending to people of modest means.

What has been considered a crime by the Obama folks for the last five years is now their latest policy initiative.  With the taxpayer, of course and as usual, as the guarantor.

Instead of letting the free market decide who gets to borrow and at what rates, which would avoid the booms and busts of the past, Obama is following his tried and true instincts.  Only he knows what is best -- not the markets.

But banks have learned their lesson.  Why loan to folks that might not pay you back, regardless of who the guarantor is?  The banks now know that they will be accused of predatory lending when these loans go sour.  By that time, Obama will be resting comfortably with his millions in Hawaii.  What does he care?

Once again, an administration with nothing but contempt for free markets, has demonstrated their ignorance and their duplicity.  At least, finally, they appear to realize that strangling the financial community has consequences.  Witness the stagnant economy of the Obama years.

Don't expect banks to rush forward to put their neck in the noose once more.