No Pork, Part II

Oh, and that worked so well in the late 1980's. That was Graham-Rudman-Hollings. The problem is that the only way to remove control of spending from the Congress is by constitutional amendment. If Congress tries to pass a law limiting what future Congresses can do, those future Congresses always have the power to say "nevermind." That's exactly what happened with G-R-H: they would pass a budget with a rider along the lines of "G-R-H doesn't apply here."

William Easterly says that when a theory's predictions fail, the theory is disproved. Government spending as stimulus to the economy has been tried many times and failed every time.

I'm told that the best minds in Government and on Wall Street have this one figured out. This time, they say, it won't fail.

But it will, of course. Unlike Bush's idiotic stimulus checks it will not merely be neutral, it will make everything worse. And next time the "best minds" will be saying the same thing.

It's time to put some people with lesser minds in charge. It's time for some minds that don't say foolish things, as Obama has, that we need a top-down plan because bottom-up growth does not work when in fact bottom-up is all that has ever worked anywhere in the world and top-down has failed everywhere.

Best minds. Indeed.

So, there will be a viewing window into the sausage factory.

No earmarks!

Apparently, Obama did not spend enough time in the Senate to comprehend reality.

There will be earmarks, starting with Harry Reid's pet projects for Vegas.

Regardless of pork, this "stimulus" is criminal.

Taking on debt has a negative externality: by inflating the money supply it decreases the purchasing power of dollars. Paying off debt has a positive externality: by deflating the money supply it increases the purchasing power of dollars.

During the inflation consumption increases and production decreases, and vice versa during the deflation. In the long run these need to at least balance. (Investments would increase production during the deflation more than consumption during the inflation).

When government borrows and spends it creates the negative externality of inflation. But they are neve going to pay off their debt, because they do not tolerate deflation. The imabalance will never be corrected, and there wil be no positive externality to offset the negative.

This is the opposite of an investment. This is a black hole, pork or no pork. Government debt is inflation, with no prospect of positive externality by way of deflation in the future.

The claims that the stimulus will not contain any pork barrel spending is flat out wrong. The spending that is proposed consists of specific projects requested by government officials at all levels. How is this not pork barrel spending? Will the congressman not be working to see that projects from their state are included? Just because a federal congressman may not have initially proposed a project, doesn't mean it still isn't pork barrel spending.

I think sequestering is a terrible idea. I have a better idea: appoint a committee of congressmen (such as one of the numerous committees that already exist) with the task of ranking the numerous projects and programs funded by congress. This work will be ungodly political, but at least then the politicians will be forced to publish and defend their positions (is researching bovine mating habbits or sugar price supports really more important than bridge maintenance?).

Then you can impliment a rule to cut 100% of those projects and programs that occupy the bottom of this list if the deficit exceeds a certain amount.

Afterall, this would make great political negotiations. Under sequestering, wasteful pork spending tastes almost as good after a 10% haircut, but critical national priorities should not be made to suffer after a similar cut due to the greed of congressmen.

Maybe I'm just stupid, but I'm trying to get a handle on all this "stimulus" bs. How is it stimulus to take from the private sector and then put it back in the private sector? Isn't that just shuffling the money around? How does that create wealth? The only time wealth is actually created is when enterprising minds are allowed to work their magic in free market.

Of course liberals make a good point that our high-functioning economy would not work without all the public sector investment in basic infrastructure(highways, utilities).

Given the existing amount of intertwine between private/public what is the pragmatic libertarian approach? Obviously we have to oppose Obama's "stimulus" bs at all costs.

Lee Kelly - there is a benefit to the "stimulus". For the politicians, they can go back to their districts and tell the sheeple that they "did something". I can only imagine how American managed to ever prosper like this...

Question to Lee Kelly and others....

Where does one currently invest for the future?

In theory.... science observes what is taking place and helps predicts the future. If economics like psychology is unable to understand what is taking place and what will happen... - What use is it?!? (economics = psychology)

Science of predicting the weather.... pretty good for 72 hours – one month or more is lousy. - 72 hours is more than economicbabblers and psychobabblers can do.

Point?

How can one take seriously the science of economics when it merely reveals what has happen in the future?

Again the important/real question - Where does one currently invest for the future?

John Smith,

You wrote,

"How can one take seriously the science of economics when it merely reveals what has happen in the future?"

Didn't you mean, when it merely reveals what has happened in the past?

It doesn't do that either. It is not an empirical but a theoretical science, and not predictive but explanatory.

By the way, what do you hear from Pocohontas?

John Smith,

People invest for the future in the present. Unfortunately, the U.S. Government is doing all it can to disincentivise that. When you do not spend money, Barack Obama will do that for you with his $775 billion "economic stimulus package". And it will not be with higher taxes in the future that you pay, but right now through inflated prices. Pumping trillions of dollars of "stimulus" into the economy is going to cause inflation.

A big concern for me is what foreign holders of dollars will do if they see inflation in the U.S.. Almost half of the world's supply of dollars is overseas, and much of it in savings. Inflation destroys the incentive to save, and when foreigners begin trying to spend inflation might go through the roof.

Eventually, then President Obama will then come on TV. 'After an unexpected rise in prices', he will say, 'the $775 billion economic stimulus package has been depleted too quickly'. He will then go on, 'many programs vital to the future of the American economy have yet to be undertaken', and after a dramatic pause, 'so today a new $1.5 trillion stimulus will be approved by Congress to help middle-class Americans'.

Obama might just "stimulate" the economy to death with inflation.

Just listening to Robert Reich on C-SPAN. He was talking about the shortfalls in state and local governments that could result in their being unable to provide "vital services". My thought; sounds like a good opportunity to create private sector jobs.

if the government surplus cost $800 billion and it creates 3 million new jobs, that comes at a cost of $266 thousand per job that will be added to the deficit.

I have deleted a set of comments by Oil Shock (as well as a reprimand by another commenter.) Please restrict your comments to the content of the post and the content of the comments rather than making ad hominem attacks.

"Please restrict your comments to the content of the post and the content of the comments"

I guess this is not time to discuss the reqested porno bailout and any related stimulus. But the reality is that the bailout requests of Flynt, et. al. have no less merit than virtually all such requests I have heard or read. The pork is going to be flying.

Sorry Russ. I got carried away.

Anybody want to comment on this Moody report on the stimulus plan. I thought I heard that for every $1.00 spent there would be a return of $1.59 on this package. I claim to know nothing about this but anybody have any thoughts?

http://www.allhealth.org/BriefingMaterials/Fisc...>

So we all know that "stimulus" is simple political grandstanding is very likely to cause hyperinflation and actually trigger a very nasty recession/depression. All to benefit of the liberals, since then they will say - "Ah hah! You see the failure of the free markets!". Alas, the gullible sheeple will swallow it all as the gospel truth and then we as a nation are truly, royally fucked.

I have only recently begun to study macroeconomics and am confused about a few things. If someone could help me, it would be much appreciated.

Why does the Federal Reserve increase the money supply by increasing the supply of credit? It seems to me a thoroughly foolish thing to do.

Let me explain:

After getting a loan, a debtor is like a monetary counterfeiter. He imposes a negative externality on everyone else by decreasing the purchasing power of their money. But unlike a counterfeiter, a debtor will eventually pay back his loan plus interest. When producing to pay off his debt the money supply decreases, and a positive externality is imposed on everyone else by increasing the purchasing power of their money.

While borrowing a debtor inflates the money supply quickly and then deflates it slowly. During the inflationary period the debtor is consuming or investing. But it is during the deflationary period when the production to pay for consumption and investment occurs. It will resemble a personal recession for our debtor, but it is also vital for his long term prosperity.

By increasing the availability of credit the Fed can inflate the money supply, but they must also be setting in motion a long run deflationary pressure as debtors pay off or default on their loans.

If they target 2% inflation per year, then this is a recipe for disaster. At first progress might be smooth, but when debtors begin paying off or defaulting on their loans there will be a deflationary pressure. To achieve the 2% target the Fed will have to expand the money supply even more than before to overcome creeping deflation.

The problem is that by expand the money supply even more credit is sold, and that will produce an even greater deflationary pressure in the future. But the Fed is still targetting 2%, so it expands the money supply more than ever before to overcome the deflation created by so many debtors paying off or defaulting on loans.

It seems to me this process would continue. The Fed is always trying to inflate, but in doing so creates ever stronger deflationary pressure in the future. This would wreak havoc with prices and make economic bubbles more likely. Eventually, however, the Fed's scam must come to an ugly end.

The market is trying to force people back to work to pay their debts, while the government is meddling with interest rates and fiscal policy to stop them.

Is this what the Fed does, and if so, why have not more people noticed?

From my above post.

It will resemble a personal recession for our debtor, but it is also vital for his long term prosperity.

This should read.

It may resemble a personal recession for our debtor, but it is also vital for his long term prosperity.

Afterall, he may be able to live comfortably while paying off his debt, especially if he made wise investments.

Lee Kelly,

Sounds right to me. What are we at now, 50 some trillion dollars worth of deflationary pressure - and with a political class whose primary incentive is to protect their position of power regardless of the cost.

Randy,

This is crazy. As soon as I learned that the Federal Reserve decreased interest rates by expanding the supply of credit, it occurred to me that they are creating deflation in the long run. It took me some time to develop the ideas expressed above, but no more than 6 weeks. Surely everything I wrote should be obvious to any professional economist. Supposing I am right, how can the Federal Reserve continue with such a transparent scam?

"No matter how cynical I am, I just can't keep up".

Addition to previous message:

Government debt does not create any (or at least very little) deflationary pressure, because the government never pays off its loans.

Our private debtor created the negative externality of inflation, but later provided the positive externality of deflation as he paid off his debts. The government only increases and consolidates its debt, and has no intention of paying it off. No purchasing power is ever returned to the economy. Government debt is inflation, and it is projected to increase by $2 trillion dollars this year alone.

Please someone explain to me my terrible error of reasoning. I would appreciate it greatly

Is it possible - just possible, mind you - that a good part of the economic growth in 2002-2006 was artificially induced, the result of easy credit and gee-whiz marketing? To me that's plainly true in housing.

And thus, to the extent that is the case, is it not unrealistic to try to recreate that level of growth? Methinks the only recovery strategy is patience and organic growth. Easy credit and "incentives" (heh... with my own hard-earned but IRS-confiscated money) can only lead to more "ballooning".

Lee Kelly,

"Government debt does not create any (or at least very little) deflationary pressure, because the government never pays off its loans."

But it does pay interest - lots of interest - $450 billion last year - half a stimulus plan.

That's right Randy.

And, (assuming your figure is accurate) $450 billion divided equally between the 12 private banks that owns the Fed makes $37.5 billion pretty nice take for doing nothing more than creating money out of air with bookwork.

Obama proposes a web site allowing people to monitor the money. The idea that this will ensure money is not wasted is an absolute joke.

The city of Chicago has had the same thing for a decade. There has been a never-ending stream of people sucking millions of dollars due to nothing more than their political connections.

But it does pay interest - lots of interest - $450 billion last year - half a stimulus plan.

Okay... and when they have finally borrowed so much that no one is willing to lend? Perhaps I misunderstood your original point. I'll read it again.

Okay... and when they have finally borrowed so much that no one is willing to lend? Perhaps I misunderstood your original point. I'll read it again.

They may pay back their debts nominally, but they will do it by devaluing the dollar. To really pay back a debt it is necessary to transfer purchasing power back to the lender, but the government is just going to give them devalued dollars. All those taxes which politicians have not collected to pay for the real cost of government, will come back to ordinary Americans in higher prices and worthless loan repayments.

Lee - the government is all of us. We are all to blame for this mess. The American people as a whole never wanted a true free market and that will imply losers.

Credit/monetary expansion by the central bank induces harmonic alignment of borrowing and spending. Thus, boom and bust.

Sam - you make it sound like it's all based on funny money, not real wealth.

Credit is constantly being extended to entrepreneurs.

By extending credit above natural market demand, the FED causes a synchronizing of these events in time. This turns the random ups and downs of the market into broad based booms and busts.