Poor Sales

by Russ Roberts on October 9, 2011

in Uncategorized

Invictus over at The Big Picture wants Charlie Rose to ask this question of the GOP candidates:

“We repeatedly hear about taxes, regulations, and uncertainty standing in the way of job creation. However, the National Federation of Independent Business (“The Voice of Small Business”) surveys its members every month as to their “Single Biggest Problem.” Among the possible answers are both taxes and regulations, yet “Poor Sales” has, in fact, dominated for the past three years.  Additionally, as we see in the chart, “Poor Sales” and the Unemployment Rate correlate very strongly, at about 0.87.

Given these facts, is it disputable that our problem is one of aggregate demand and that, if we could improve demand we could lower the unemployment rate notwithstanding the tax or regulatory environment?”

Is it disputable? Of course it is.

Saying that poor sales is the biggest problem facing small business is like saying that the biggest problem facing the economy is that it’s not doing very well. It has no content. It tells you nothing about an amorphous concept called “aggregate demand” and even if it did, it does not tell you how to increase aggregate demand.

Of course businesses are worried about current and future sales. The challenge is to improve prospects for sales and profitability.  We’re not very good at that.

Does the government spending borrowed money increase the sales of the businesses who receive the money? Sure. Does it increase them permanently? No. That reduces the incentives to hire even when your sales increase. Does borrowing money reduce the sales of other businesses? Probably. Does the expansion of the firms that receive the money increase the prices of inputs that they demand and thereby crowd out other firms? Almost certainly. These are empirical questions that we don’t have good information about.

Finally, I would note that while the survey that Invictus cites does indeed list “Poor Sales” as the single most important problem (25% in the September survey (scroll down to “Single Most Important Problem), taxes are listed as the single most important problem by 18% and government regulations and red tape is listed by 19%. So the two combine to 37%. They also happen to be two factors that government can actually control.

BTW, while I believe that regulatory uncertainty, particularly in the health care sector ia discouraging hiring, I concede that any precise evidence on its importance is just speculation (mixed with some bias of course).

UPDATE: Krugman made a similar claim to Invictus’s a while back.  My comments are here. I find it interesting how we all use data to confirm our biases. It’s too bad that facts don’t speak for themselves. We speak for them and in doing so, we color them using our own lenses.

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{ 181 comments }

Invisible Backhand October 9, 2011 at 1:09 pm

Do I talk like Donald Rumsfeld? Probably.

Does the government spending borrowed money increase the sales of the businesses who receive the money? Sure. Does it increase them permanently? No.

The purpose of a life jacket isn’t to keep you alive forever, it’s to keep you alive until the boat comes.

jjoxman October 9, 2011 at 1:44 pm

What if the boat isn’t coming?

vikingvista October 9, 2011 at 1:54 pm

Or the life jacket is obtained by removing it off another swimmer?

Dan J October 9, 2011 at 3:43 pm

They had to throw 100 lifejackets……..

vikingvista October 9, 2011 at 4:12 pm

Where did they get them from?

vidyohs October 9, 2011 at 5:46 pm

They borrowed them of course.

Dan J October 9, 2011 at 6:15 pm

They ‘borrowed’ 100 lifejackets to give to one…

vikingvista October 9, 2011 at 7:05 pm

What would the lenders have otherwise done with the lifejackets?

anthonyl October 10, 2011 at 11:27 am

OMG! These lifejackets were made in China!

Greg Webb October 10, 2011 at 1:04 pm

And, the life jackets are made with cheap plastic and sold at Wal-mart…

muirgeo October 9, 2011 at 6:15 pm

Invisible Backhand,

Remind me never to go boating with these guys. They appear to not plan for any eventualities. They don’t even know wear life jackets come from.

jjoxman October 9, 2011 at 6:20 pm

As if you would be invited to the liberty party.

Economic Freedom October 9, 2011 at 6:53 pm

As if you would be invited to the liberty party.

Are you kidding? muirgeo and his lefty co-conspirators are the ones who sank the boat.

T Rich October 10, 2011 at 11:08 am

By aiming their cannons at the deck.

Dan J October 9, 2011 at 6:55 pm

On my boat, when fishing, the person who catches the fish keeps it. We don’t split it. The liberal would starve as they are unwilling to tend to their pole.

vikingvista October 9, 2011 at 7:07 pm

Funny you should say that. My arguments with liberals usually end with me telling them to go tend to their poles.

brotio October 9, 2011 at 10:59 pm

:D

Observer October 9, 2011 at 8:06 pm

you must not land very many big fish, for landing a big fish is quite often a team effort.

HaywoodU October 9, 2011 at 9:35 pm

I take it you’ve never been fly fishing.

Uncle Jeffy October 9, 2011 at 10:55 pm

Hmmm….fly fishing. Is that a Larry Craig thing?

Dan J October 11, 2011 at 1:19 am

Walleye, pike, muskellunge, salmon, smallies, channel cats……. He who lands it keeps it.

Invisible Backhand October 9, 2011 at 7:39 pm

I have to break it to them that the life jacket is metaphorical and doesn’t exist, just like regulatory uncertainty.

vikingvista October 9, 2011 at 7:44 pm

No need. We are already aware that you struggle with abstract thought.

Mesa Econoguy October 10, 2011 at 1:15 am

Note to self: never Musky fish with George without his bodyguard

Greg Webb October 9, 2011 at 7:04 pm

Proposition by Russ RobertsDoes the government spending borrowed money increase the sales of the businesses who receive the money? Sure. Does it increase them permanently? No.

Response by IBThe purpose of a life jacket isn’t to keep you alive forever, it’s to keep you alive until the boat comes.

Color Commentary by Greg Webb: Here comes the pitch from Russ Roberts…Swing and its a miss by IB…Strike One!

IB, Russ’ proposition is that business owners know that government spending is a non-recurring event and will happily realize the additional sales, but will not hire more workers because they know that it is not a true increase in consumer demand and most likely won’t, and can’t, be repeated. So, the owners decide that it is better to get by with the existing workers, enjoy the one-time only extra sales, and further prepare the re-slow down in sales when the government spending is reduced again.

The government’s hope is that business owners will just see an increase in aggregate sales, think that it will continue because it is actual consumer demand, and hire more workers to meet that increased consumer demand. But, business owners are not as stupid as government officials are so it never works.

Observer October 9, 2011 at 8:08 pm

Greg Webb

we have already gone over the Ricardian equivalence in all its forms as being false.

Even Lucas and his defenders admit such

Greg Webb October 9, 2011 at 8:13 pm

Swing…and another miss by Observer…seems that he and IB are one and the same batter…

Invisible Backhand October 9, 2011 at 9:12 pm

Does it increase them permanently? No.

It only has to increase them until demand recovers (it always does).

You could counter that it wasn’t enough (as Krugman does) or you could counter that the demand won’t recover (which has never happened) or you could counter that it was too much (popular with Marie Antoinette et. al.)

But your position that business is too stupid to know what’s going on is just asinine.

Greg Webb October 9, 2011 at 9:17 pm

But your position that business is too stupid to know what’s going on is just asinine.

Swing…and another miss by IB. Or should I simply say another non sequitur by IB.

I clearly said that business owners KNOW what is going on and that is why they won’t hire new workers in response to a nonrecurring expenditure by government. You really must work on those reading comprehension skills.

Invisible Backhand October 9, 2011 at 9:45 pm

You claim government officials think business owners are stupid, I say they aren’t and now I have the reading comprehension problem? You should get the voices in your head to form a quorum before posting anything.

Greg Webb October 9, 2011 at 10:10 pm

IB, I quoted you as saying, “But your position that business is too stupid to know what’s going on is just asinine”. Then, you said, “I say they aren’t…” and then you complain that “and now I have the reading comprehension problem?”

Well, you either have a reading comprehension problem or an inability to say on the topic problem. Both explain your latest incoherent rambling.

You also leveled another silly personal attack as further evidence of your inability to make a supportable logical argument. You said, “You should get the voices in your head to form a quorum before posting anything”. Well, all the voices agree that you are a typical statist idiot.

Seth October 9, 2011 at 10:17 pm

“But your position that business is too stupid to know what’s going on is just asinine.” IB1

“You claim government officials think business owners are stupid” IB2

The actual quote from Greg Webb:
“But, business owners are not as stupid as government officials are so it never works.”

It’s right there as plain as day, IB, yet you managed to mischaracterize his assertion twice.

I’m guessing you’re spending more time coming up with what you think is a clever pot shot than actually reading and interpreting. Hint: If you resort to using the word ‘quorum’ in your pot shot, don’t hit the submit button. Oh wait…

Invisible Backhand October 9, 2011 at 9:14 pm

You mean mom and pop soda shop doesn’t worry about the tax burden 9 years in the future? That’s not rational!

Greg Webb October 9, 2011 at 9:21 pm

Wow! And the non sequiturs just keep on coming from IB. Business owners recognize the government stimulus spending is nonrecurring and won’t hire additional workers because business owners KNOW this. Business owners also will take action to reduce expenses, including compensation expense, if they KNOW a tax increase is coming.

Greg Webb October 9, 2011 at 9:22 pm

And, that is rational. I see that you have not profitably run a business before.

Dan J October 11, 2011 at 1:23 am

And if they know overhead will be increased by govt, i.e. Energy prices that ‘ must necessarily skyrocket’.

Observer October 9, 2011 at 1:37 pm

Krugman

Oh, he is that guy with the Nobel prize who warned us of the Lesser Depression in August 2005–now he obviously has no judgment on this matters (and no need to screech like a broken record trying to get attention)

jjoxman October 9, 2011 at 1:44 pm

He’s also the guy who called for a housing bubble to replace the stock bubble.

Observer October 9, 2011 at 8:08 pm

no he didn’t

Greg Webb October 9, 2011 at 8:23 pm

Swing…and another miss by Observer! Strike 3 and your out!

Paul Krugman, in his article entitled, “Dubya’s Double Dip?” which was published: August 02, 2002, said: “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

See the complete article, here:

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

Invisible Backhand October 9, 2011 at 9:20 pm

I’m going to be gracious and say you just didn’t know what he said after that, not that you are stupid or dishonest:

One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble — in fact, the bubble is my fault! The claim seems to be based on this piece.

Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.

http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/

Greg Webb October 9, 2011 at 9:26 pm

You are spinning again, Irritable Bowels…I mean, Observer…I mean, Paul Krugman. No matter which statist you are, you need to man up and accept responsibility for your poor analysis of the economic situation in in your article entitled, “Dubya’s Double Dip?” which was published: August 02, 2002,

Greg Webb October 9, 2011 at 9:29 pm

So, Paul Krugman (aka Invisible Backhand, Irritable Bowels, and Observer) reads Cafe Hayek. That’s great! Now, learn something, damn it!

Invisible Backhand October 10, 2011 at 9:53 am
Greg Webb October 10, 2011 at 1:10 pm

IB, apparently, you chose not to believe what you can read directly from the words of Paul Krugman’s article. He was wrong; he knew it at the time that he wrote it; and now he, and you, want to spin the facts differently. Instead of trying to weasel out of what he said, perhaps you, Paul, and every other statist out there ought to apologize for your idiocy of supporting more and bigger government, which naturally results in the boom and bust policies.

Darren October 10, 2011 at 1:37 pm

Krugment said:
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

The question is whether this could be considered a policy recommendation. Krugment said a house bubble would be needed to fight this recession. I suppose the alternative would be to say Krugment proprosed NOT fighting this recessing. I doubt he would have taken this position. If this was NOT his ‘prescription’ at the time, what was? I strongly doubt he said nothing on the subject.

vikingvista October 9, 2011 at 1:56 pm

“no need to screech like a broken record”

And yet he does anyway.

Invisible Backhand October 9, 2011 at 2:12 pm

Stiglitz too. But you won’t get Krugman past the tribalism here, they belong to the tribe on other side of hill and they enemy with other side of hill and smash smash other side of hill with club.

Will October 9, 2011 at 5:12 pm

Didn’t Obama win a Nobel Prize?

Dan J October 9, 2011 at 6:16 pm

For being progressive black president……..

kyle8 October 9, 2011 at 6:29 pm

for being “non-bush” .

Dan J October 9, 2011 at 6:44 pm

That, too.

vikingvista October 9, 2011 at 7:45 pm

Even Obama doesn’t know why he received it.

Mesa Econoguy October 10, 2011 at 12:54 am

LMAO.

Krugman is also the moron who got fired from CEA in 1982 for predicting interest rates would fall (with L. Summers, n.b.), concurrent with Volckers tightening.

Bill Woolsey October 9, 2011 at 1:47 pm

Can increasing the quantity of money permanently increase sales?

Yes it can.

Can it increase the sales of some businesses without decreasing the demand for the products of other businesses?

Yes it can.

Total spending in the economy is 14% below the trend of the Great Moderation. The most likely problem faced by firms is that demand is too low.

Only if one _assumes_ perfect market clearing would you say that if demand were the problem, prices and wages would have all fallen to a 14% lower growth path too, and real expenditue would be the same as it was in the Great Moderation.

Sadly, we have new classical economists who believe this and Austrian economists who insist that this is what “should” happen.

Now, it is possible that the productive capacity of the economy also shifted to a 14% lower growth path, and so, the new classical economists happen to be right this time.

That business says that their problem is low sales doesn’t really prove that this isn’t true. It does fit very well with the 14% drop in the growth path of spending on output, but certainly every business would prefer more demand for their product always.

On the other hand, if high on the list of problems were difficulty in finding the resources needed for production and high costs of those resources, the sudden drop in productive capacity would seem like a more plausible candidate.

However, the _test_ is to bring nominal expenditure on output back up to trend (or something close,) and if the result of that is firms being unable to expand production to meet the higher demand because they can’t find the needed resources, then we would know.

A monetary order that allows spending on output to fall 14% below trend really can’t tell us whether the problem is a drop in productive capacity or a drop in sales.

Why not follow a policy like that followed by Reagan/Volker in 1983 and 1984. In those two years spending on output (nominal GDP) grew at a 9% annual rate, increasing nearly 20% over the two years.

What was the result? Real output grew at a 6% annual rate, and nearly 12% over the two years. The estimated output gap shrank from 7% to 6% of the productive capacity of the economy.

Can monetary policy do it again? Yes, but step one is to try! Target nominal GDP at $17.9 trillion two years from now and then back to a 5% (or 3%) growth path.

Try a “Reaganite” monetary policy.

John Papola October 9, 2011 at 3:36 pm

Bill,

Why are NGDP or nominal expenditure trends important? Past performance need not indicate future results so trends are trends until they aren’t anymore. Is it not the problem that wage and price flexibility leads to the need for NGDP to stay on trend? If so, why aren’t you advocating very vociferously for a repeal of laws which increase wage and price stickiness?

What about mobility and skills mismatch? That seems likely to have a similar potential to reduce productive capacity as people become trapped in nominal debts like mortgages or left with devalued skills or the dreadful combination of regionally devalued skills combined with a mortgage that’s underwater.

How will expansionary monetary policy target these particular microeconomic coordination problems that are holding up increasing productivity? Why would we believe that the vector of new money creation won’t be in some other direction which produces asset bubbles or self-reversing malinvestment?

It very well may be that money-expenditure or NGDP target macro stuff such as yours and Sumner’s is on target. But without connecting the dots to the micro foundations and transmission mechanisms by which this new money actually resolves real problems, it’s very hard for those of us who aren’t aware of your assumptions on this front to grok your approach.

I read somewhere that most new job creation comes from new businesses, not increased hiring by existing firms. If that is true, doesn’t that totally undermine this survey and it’s relevance all together?

Isn’t it possible that our banking system is still very deeply malformed and that the money multiplier isn’t multiplying the way it should, leaving the Fed to become an increasing share of total credit? What does total bank credit look like right now? In that case, doesn’t monetary policy start to morph into industrial policy and isn’t that very very bad?

What do you make of this:
http://www-ac.northerntrust.com/content/media/attachment/data/econ_research/1108/document/econtrarian_081511.pdf

I’m not claiming to understand all of this. Rather, I’m begging for the dots to be connected. If the Fed is going to target NGDP…. how is it going to do it? At what point, given a potential broken banking system, is the Fed going to need to starting buying our cars and goods for us in order to achieve the nominal goals want it to hit? How can such a thing possibly work?

Free banking theory may rightly point toward stable nominal expenditure as a result of an ideal and free banking system. That doesn’t seem to me to infer that a monetary monopoly could ever replicate such results without doing amazing damage.

anthonyl October 10, 2011 at 1:35 pm

Strange… Not a single reply to your post. I guess everyone is busy with Observer and muirgeo. It’s so Mises to think in terms of actual people. That is what so many miss. The fact that it isn’t about numbers or math or using those to prove your theory right but about actual people going about their life. Maybe governments should be about more freedom and liberty than handouts and control. Private property begins at home. Teach your children about liberty because the school system isn’t going to.

Steve C. October 9, 2011 at 1:47 pm

Has anyone done a survey of small business that asks the question:

What are we doing that we should keep doing or do more of?

I’d also like to see more detailed information of the number of businesses by category? I expect real estate brokers and machine shops might have different opinions about what can be done. Wouldn’t a tax accountant and a financial advisor have have divergent views.

Tax accountant: I need more customers with tax problems that need to be resolved.

Financial advisor: I need to spend less time reading up on tax avoidance strategies for my customers so I can focus on growing their assets.

Somewhat related….

1. This is the absolute worst time to engage in tax reform. Control of the White House and the Senate by Democrats means any reform that originates in the House will be crippled by compromise. The Democrats will say and agree to anything that gives them more money to spend, comfortable in the knowledge that once the laws are changed, undoing them will be nearly impossible.

2. Regulatory reform is a fool’s errand. The amount of time and energy required to make any significant changes is far greater than anyone imagines. The best alternative is a suspension of federal rule making until February of 2012.

kyle8 October 9, 2011 at 6:27 pm

The answer to all such questions is likely to be the answer of the French businessman to Louis XIV, “laissez faire” .

vikingvista October 9, 2011 at 7:09 pm

To Colbert, actually. And I think it was allegedly “laissez-nous faire”.

Mesa Econoguy October 10, 2011 at 1:07 am

Financial advisers said they are bracing for impact from Dodd-Frank, Obamascare, and Muirgeo taxes.

Dallas Weaver October 9, 2011 at 2:30 pm

As a small business owner, the answer to that question would depend upon the implied time frame of the answer.

If the time frame was short:
* April the answer would be taxes
* After X-mass to Feb. the answer would be sales — in my business
* Just after my insurance company increased costs again it would be insurance
* If one of the government “inspectors” just came through my facility and was giving me a load of nonsense or enforcing regulations that are designed to enrich a third party rather than true health and safety, the answer would be regulation.
* At other times I can see any of the other categories on top of the list.

If the implied time frame was the next decade (planning time cycle for government projections) and the implicit question was “what is slowing or limiting future expansion and increased employment” the answer would have always been “regulations”. Regulations are making it difficult/impossible to be innovative, especially if those innovations are subject to but not covered in the regulations. Something new really scares regulators and they will come up with hundreds of “COULD” and “MAY” statement that have to be disproved at great time and cost. The regulators true technical expertise is usually near zero and they have a check box mentality so anything new is verboten.

With future jobs being dependent upon innovation and creation of new businesses, and our regulatory system evolving into an “all is forbidden, except for what the regulatory bureaucrat permits” system, the answer to competitive job growth is restarting our regulatory system.

Some regulation is required, but systems evolve and government system often evolve in a sick way. In the case of environmental regulations, I have invented/developed methods to eliminate some water pollution problems and face regulators that demand that we put a “conventional” treatment system after our system, thereby upping the cost. The only savings for the client is the expendables costs on the conventional system (no pollution into the conventional system, no expendables) and this can be enough to cost justify our approach, but the range of economical concentrations and sales would be larger without having to have a conventional system increase the capital cost.

I could go into the potential multi-billion dollar per year offshore aquaculture business that could be created along our coasts that is being prevented by a legal/regulatory nightmare involving dozens of agencies with ability to say NO. I recommend to consulting clients in this area — anyplace but the US and especially California.

Aquaculture is the fastest growing food production area around the world (about 9%/yr compounded), except the US where the growth is near zero. This is all do to regulations.

EG October 9, 2011 at 2:46 pm

Has there ever been a business that has not said that…sales…are their biggest problem?

Ghengis Khak October 9, 2011 at 3:11 pm

Exactly.

The reason I’m not selling more widgets is because my customers aren’t buying enough widgets at their current price. It is no more complicated than that. We clearly need to stimulate widget purchases.

Methinks1776 October 9, 2011 at 3:52 pm

Yep. Demand for your product is the number one thing you worry about. It is by far not the only thing you worry about and a fall in demand may not be the thing that puts you out of business.

The current situation is one where demand has fallen and costs and uncertainty have been greatly and artificially increased by government. A lethal combination.

muirgeo October 10, 2011 at 1:01 am

“…and costs and uncertainty have been greatly and artificially increased by government. ”

No they aren’t. You can’t point to any major regulation that has changed over the last 3 years that is signficant and taxes are down. You’re just a parrot…parroting the latest things the cult has taught you to say. You can make such proclamations and have them accepted out of hand by the cult but those of us not in the cult see when you’re just spouting unsupported non-sense.

Mesa Econoguy October 10, 2011 at 1:34 am

At some risk, I’ll point to a couple:

1. 15c3-5 the Market Access Rule -

Seemingly innocuous, this rule creates enormous counterparty and third-party obligations, as well as jacking up systems costs well beyond serviceable levels, creating the need for future investor fees which, once they appear, will be dismissed by ignorant shitbags like you as “corporate greed.”

The SEC has zero ability to understand downstream implications, because they hire clueless lawyers, but you’ll be well protected by them, just like last time, I’m sure.

2. FINRA 2268, 4511, 4512, 4513, 4514, 4515, 5340, 7440(a)(4)

http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p123548.pdf

This series of rules is so poorly written, it will destroy many lines of financial business, resulting in either outright loss of services, or fewer financial advisory services at much higher cost.

That’s your goal, right George, you sniveling retard?

Simply put, you’re an ignorant, philistine piece of shit, uninformed of any and all financial regulation, and it’s ill-advised effects.

brotio October 10, 2011 at 3:00 am

That’s two, Ducktard.

Methinks answered the other of your muirsinine statements on this subject, and has chased you over several threads with it.

QUACK… QUACK… QUACK…

Greg Webb October 10, 2011 at 1:11 pm

:)

Invictus October 9, 2011 at 4:53 pm

Yes. Of course.

Mesa Econoguy October 10, 2011 at 3:23 am

Of course you’re dumb.

Chucklehead October 9, 2011 at 6:43 pm

Only when they reach full capacity.

Bastiat Smith October 9, 2011 at 3:12 pm

It’s unfortunate that less regulation is such a simple answer that it appears extreme. It seems that the easier the solution, the less consideration is receives.

The mistake lies in the pretense of the question: “What should government do?” Any question of the initial assumption, that something should be done by tax dollars, doesn’t fit the narrative of central planning success.

kyle8 October 9, 2011 at 6:24 pm

Bastiat, It isn’t a matter of central panning, rather it is a matter of mission creep. Regulatory agencies constantly create new regulations in order to justify their phoney baloney jobs.

When your only tool is a hammer, then all problems look like a nail.

Rothschild Jones October 10, 2011 at 3:27 am

It’s even more unfortunate that “less regulation” is perceived as verifiable history, which it is not.

The actual mistake lies in the false premise:

Deregulation

Darren October 10, 2011 at 1:56 pm

It’s unfortunate that less regulation is such a simple answer that it appears extreme.

The problem is that so many take “less regulation” to mean “no regulation”, or at least the repeal of the those regulations we usually hear about. What these people don’t know about (or prefer to remain ignorant of) are the myriad of other regulations that don’t really have a direct effect on workers but are created for favored special interests (various businesses or industries, unions, environmentalists, etc.). These then discourage the creation of new businesses and therefore of new jobs. New businesses and the jobs that go with them *will* be created someplace. If not here, then in another nation.

Daublin October 9, 2011 at 3:30 pm

Kudos for looking at the actual data, Russ.

In addition to the issues you point out, the number of responses saying “red tape” has steadily increased since 2008. It is currently 19%. A year ago it was 15%. Three years ago it was about 10%.

A bigger problem, though, is that it’s a survey of existing businesses. It’s not going to tell us anything about why business formation has been so weak in recent years.

Sam Grove October 9, 2011 at 3:42 pm

Policy uncertainty > business does not hire > unemployment persists > the unemployed refrain from spending > lack of sales

Mesa Econoguy October 10, 2011 at 2:05 am

>leftists wonder why >pass more laws creating uncertainty >creates greater unemployment, and duration

http://research.stlouisfed.org/fred2/graph/?id=UEMPMED

> creates more lefty intervention> creates Joe Biden intervetion>

<Blame Bush?

TeeJaw October 9, 2011 at 3:49 pm

It’s not really analogous but saying poor sales is the problem for small business reminded me of hearing someone say the biggest problem with Communism is shortages.

Not a great analogy I admit, but stems from the same sort of muddled thinking.

Bill Woolsey October 9, 2011 at 4:26 pm

Papola,

Given any degree of price and wage inflexibility, a policy of a stable growth path of money expenditure performs better.

Why do you oppose it?

Why should everyone have to adjuts their prices and wages so that the real quantity of money can adjust to the demand? Why should everyone have to adjust their money prices and wages so that real expenditures adjust to the productive capacity of the economy?

Why shouldn’t the nominal quantity of money adjust however much is needed so that the real quantity of money adjusts to the demand to hold it at a stable growth rate of money expenditures on output?

I think policies that interfere with price and wage adjustments are a bad idea, but not because everyone should adjust them to keep real expenditures growing with the productive capacity of the economy. Not because prices “should” adjust so that the real quantity of money matches the demand to hold money.

It is rather that it interfers with the role of prices and wages in coordinating the allocation of resources to the production of goods and services that people want most.

There are good reasons why prices and wages aren’t perfectly flexible in free markets, and it has to do with the need to shift resources from less important to more important products. Those reasons don’t apply when there is an imbalance between the supply and demand for money. In that situation there is no need to reduce production of some goods to free up resources to produce other things. The reduced demand is only there to signal lower prices and wages to raise the real quantity of money.

John Papola October 9, 2011 at 5:23 pm

Bill,

With all due respect, and with full disclosure that my amateur understanding surely sets me up to make as many elementary mistakes as it does offer me a chance for fresh eyes (if not mores), I don’t feel like you’ve answered my question.

You’ve made the leap from some to all here and what I’m asking for is the connection between the two. Discussing these issues in terms of “everyone” doing something is macro-headed. I was asking about the transmission mechanisms between these macro views and micro processes.

I understand that an increase in demand for cash balances will lead to a fall in demand for certain goods and services without an increase in demand for other goods and services. Fine. I get that a free banking system would produce increased creation of bank notes to satiate demand without problematic injection effects that distort relative prices while driving towards macro stability of nominal spending. I appreciate that this is mostly Hayekian and much further developed by George Selgin.

What I DON’T understand is how the Fed can reasonably simulate this free market process and why we shouldn’t expect the Fed’s efforts to do so to lead to malinvestments and misallocations. Why shouldn’t we expect public choice to rule the Fed as well as knowledge problems to swamp their ability to calibrate money supply and money demand?

You and Scott both speak with a high level of confidence regarding the Fed’s ability to control NGDP. I’m less confident and, again, wish to understand HOW your view of Fed action in the real world leads to control of NGDP without allocation effects through the path of monetary injection.

So how do see them doing what you want them to do, Bill? And, perhaps more importantly, why is there such an increase in the demand to hold money? And why aren’t the relative price changes that come from people reducing demand for some goods not still important even if that money isn’t going into other goods in the short run?

Drop down to the micro of this process. Help me out.

kyle8 October 9, 2011 at 6:22 pm

John, Why would injections of cash from a free banking system not also distort relative prices? I would like to understand the theory.

vikingvista October 9, 2011 at 7:50 pm

Risk regulates private injections. Increasing the monetary base of a fiat monopoly money is not subject to the same feedback signals as fractional reserve lending.

Bill Woolsey October 10, 2011 at 12:54 pm

Changes in the demands for various things happen all the time.

Changes in relative prices and in the composition of output change all the time.

The least bad environment for those adjustments is one of slow stable growth of expenditure. The flow of money expenditure rises more quickly for those products people want more. Firms raises prices, make more profit, produce more and employ more. The flow of money expenditures grows more slowly, or even shrinks, for those goods people want less of. Those firms cut prices, production, and employment. Resources, including labor, freed up in those areas growing more slowly or shrinking shift to growing ares. This process is not instant, and so there is always some structural unemployment, and it is possible that sometimes the amount of adjustment is larger and the associated unemployment is higher. This is why targeting the unemployment rate or the growth path of real GDP is a mistake.

Don’t assume that this is what a target for nominal GDP does. It doesn’t.

There is no benefit to a system where those areas in the economy that need to expand have falling sales, but just falling less than those areas in the economy that need to contract. Where those areas that should expand suffer losses, but less severe losses than those areas that need to contract. That lay off workers, despite “really” needing more, but fewer than in those areas that need to contract. That the unemployment in all industries, including those that should be expanding result in lower wages. And then, when wages fall enough, then despite lower demand and prices, profits expand and production and employment expand where they should. And wages just never fall “enough” in those areas that need to contract and while they may expand production some, in the end they produce and employ less than the initial amount.

How can anyone see this as a desriable environment to make this adjustment? Everyone contracts first and then only when wages and other resource prices fall enough so that those with lower demand make profits expand? It is crazy.

The demand for money can rise for many possible reasons. So can the demand for bicycles. Good monetary institutions adjust the quantity of money and the interest rate paid on money to match the demand, just like a good bicycle market adjusts the price and quantity of bicycles.

I don’t know that the banking system is broken, but even if it were, the quantity of money can still increase to meet the demand. Base money just must rise enough to offset the decrease in the money multliplier. The point isn’t to get banks to lend more. The point is for the total quantity of money, checkable deposits and currency, to match the quantity demanded. Base money just needs to rise more if banks don’t want to lend.

If finanicial intermediation is “broken” then what happens is that people who would, under better conditions, lend, will spend more. And those, who under better conditions, would borrow, will spend less. If this is borrowing to fund investment, then less productive investments will be made because finanical markets work less effectively. As for consumer loans, people will spend closer to what they earn.

But fixing this problem is alot easier if the flow of spending on output is stable. A 14% drop in spending is going to cause massive problems for people with debts, and so with finanical intermediaries. Even if they were screwed up before.

The notion that the answer is to just have all prices and wages fall, and then shift net worth to the creditors to the degree possible, and start over, is crazy. Keep nominal GDP growing on target, and then, if bad loans have been made, shift the capital to the net worth and have them take whatever losses remain. But don’t exacerbate the problem with deflation.

In my view, injection effects can only be a problem when there is an excess supply of money. Keeping the quantity of money equal to the demand for money doesn’t create injection effects.

The most imporant element of targeting nominal GDP is to have the target and then commit to whatever level of open market operations needed to reach it and stay there. You just need to be clear that intererst rates and prices will be allowed to adjust according to market forces. Interest rates probably won’t fall and the quantity of base money can probably be reduced. But you have to be willing to raise it as high as needed and never worry that interest rates will be “too low.” Or even that inflation will be too high.

I favor free banking. But not with a fixed quantity of base money.

John Papola October 11, 2011 at 11:01 am

Bill,

Let’s imagine that Ben Bernanke is ousted tomorrow and you are put in charge of the Fed. You have strong support from the board of governors and the open market committee.

What do you do? Walk us through it. Driving NGDP up to 17 trillion is going to involve and who will get all those new dollars. Please step through how this money creation process will happen with specifics. The broker dealers get the money. Why isn’t this a giant subsidy to those specific firms? Why aren’t there injection effects?

Stone Glasgow October 9, 2011 at 4:35 pm

Is Apple having trouble with sales? Google?

Invictus October 9, 2011 at 4:56 pm

Is Warren Buffett or Bill Gates having a problem paying their mortgage? Is your example really an honest representation of what’s going on in the country?

Economic Freedom October 9, 2011 at 7:10 pm

Bill Gates is not having a problem paying his mortgage because he’s not having a problem with sales of Microsoft products.

Try to get cause and effect in the right order.

Invictus October 9, 2011 at 8:38 pm

MSFT’s stock price tells me otherwise, but that’s neither here nor there. Plucking two examples out of one’s arse and extrapolating them to the economy at large is no way to make an argument.

Economic Freedom October 9, 2011 at 10:00 pm

Actually, I had the unpleasant task of plucking that specific example out of your arse because you were the one who bent over in public and demanded “Explain THAT!!!”

but that’s neither here nor there

Then why bend over again and demand that we explain yet another irrelevancy? Perhaps you’re just an exhibitionist.

extrapolating them to the economy at large is no way to make an argument

That would be true of any attempt at extrapolation, including the one that goes “Is Warren Buffett or Bill Gates having a problem paying their mortgage? Is your example really an honest representation of what’s going on in the country?”

“Invictus” is a good moniker for you. Must be a Latin abbreviation for “Invincibly Stupid.”

Mesa Econoguy October 10, 2011 at 2:13 am

Is Brad DeLong having a problem with his fluffer?

John Papola October 9, 2011 at 5:03 pm

Or healthcare firms where prices are rising… or higher ed where prices are rising… or many many other areas of the economy…

Mesa Econoguy October 10, 2011 at 2:08 am

where government intervention is rising….

Stephan October 9, 2011 at 5:52 pm

I’ve only one question. Why does a public university employ an ignoramus like Russ Roberts? This is really a waste of federal expenditure.

kyle8 October 9, 2011 at 6:15 pm

Yes, because you are so much smarter than Dr. Roberts who has been published many times and is held in high esteem by his colleagues.

Yes, why don’t you illuminate us as to your incredibly higher order knowledge of economics?

Chucklehead October 9, 2011 at 6:53 pm

The same reason private institutes employ Dr. Roberts. His teachings, writings and debate add value to their product. The question is what value is it of your to ask such a question?

Stephan October 9, 2011 at 7:06 pm

Oops… Only two poor guys defending Russ Roberst with no arguments? Conclusion: the guy is a waste of time.

kyle8 October 9, 2011 at 8:35 pm

By all means do not waste your time any further, No doubt you are so clever, and your mind is so open you have nothing to learn from here. Move along.

Greg Webb October 9, 2011 at 8:51 pm

Oops… Only two poor guys defending Russ Roberst with no arguments? Conclusion: the guy is a waste of time.

kyle8 pointed out that Professor Roberts has written many articles that have been so well-written and thoughtful that various newspapers, magazines, and journals have published them as well as written books that were published and purchased by many people. kyle8 also pointed out that Professor Roberts is held in high esteem by his academic colleagues.

Chucklehead pointed out that private institutes employ Professor Roberts because they value his teachings, writings, and debate.

And, you conclude that, “Only two poor guys defending Russ Roberst with no arguments?” That is all it took to properly support the logical argument that Professor Roberts is a valuable, productive person. You, on the other hand, have only made unsupported conclusory personal attacks, which, of course, makes you a “waste of time.”

Nick October 9, 2011 at 10:08 pm

Stephan’s only contribution to society is a worthless, unread blog that looks like it was written sometime around 1995. Judging from the content (by content I mean paranoid conspiracy-laden ramblings), it appears to be written by someone that displays a borderline personality disorder.

MWG October 10, 2011 at 2:55 am

Appearantly no too much if a waste of time for you as you’ve found the time to comment on his blog.

Seth October 10, 2011 at 11:50 am

Revealed preferences are a booger.

vikingvista October 9, 2011 at 7:52 pm

How much Federal expenditure is Russ Roberts receiving?

Greg Webb October 9, 2011 at 7:57 pm

an ignoramus like

Another conclusory statement in the form of a personal attack. Don’t you statists have anything else in your intellectual arsenal?

vidyohs October 9, 2011 at 6:02 pm

I complained that the price of things were too high; and a wiser friend corrected me by saying, “vidyohs, your problem isn’t that the prices are too high, your problem is that you can’t afford them.”

The answer poor sales is really a poor answer not very well thought out. The answer is that people can’t afford your product at the price you ask, or must ask.

If they don’t have the money to buy, you ain’t selling.

kyle8 October 9, 2011 at 6:13 pm

actually People might have the money but are uncertain of the future and so would like to keep a nest egg in case of future problems.

vidyohs October 9, 2011 at 6:41 pm

kyle8, okay you enjoy saying the same thing just using slightly different words.

If people are unwilling to spend because of they are uncertain of the future, then “they don’t have the money to buy.”

If people would like to keep a nest egg in case of future problems, then “they don’t have the money to buy.”

JoshINHB October 9, 2011 at 10:46 pm

Or maybe they don’t fancy whatever you’re selling irregardless of price.

Or maybe the government prevents you from selling at a competitive price.

Or maybe they have the money and want to buy your product but your odor is so off putting that they go elsewhere.

vidyohs October 10, 2011 at 6:14 am

JoshINHB,

I agree your answers have good plausibility under circumstances different from the proposition of the thread, which is poor sales.

kyle8 October 9, 2011 at 6:11 pm

The aggregate demand for women among the male population is near infinite. But the demand for a specific woman is variable. If you need a woman, an Amy Winehouse looking skank just might not do.

Aggregate demand is a near meaningless concept. People will spend money if they are REASONABLY assured of a future income. If a consumer or business is unsure of a future income then demand decreases.

Regime uncertainty is a reasonable explanation for this phenomenon.

Gnome DeGuerre October 9, 2011 at 6:18 pm

Econ 101 questions for Invictus:

If insufficient “aggregate demand” is the problem, where does “aggregate demand” come from? Can there be any “aggregate demand” in the absence of “aggregate supply”? How can you have “demand” without (someone) supplying something first?

kyle8 October 9, 2011 at 6:31 pm

It is all a silly false construct from the mind of that infamous chimeric elf Lord Keynes.

Invictus October 9, 2011 at 7:09 pm

Uh…last I checked things like Industrial Production and Capacity Utilization (INDPRO & TCU @ FRED), it seems like we’ve got oodles of production slack, which is to say we’ve got tons of supply and no demand to take it up. So I’m not sure WTF you’re talking about.

Economic Freedom October 9, 2011 at 7:27 pm

So I’m not sure WTF you’re talking about.

Here’s what he’s talking about, $##t-for-brains:

“Production slack” is not the same as supply. Your homework assignment for this week: go back to Kindergarten and review Say’s Law. You obviously don’t understand it.

Invictus October 9, 2011 at 8:42 pm

Now, now, no need to be rude.

That said, we’re done. If you don’t have enough decency or civility to engage in a discussion without resorting to ad hominem attacks (in almost record time, I might add), I have no use for you. Run along home.

Invictus October 9, 2011 at 9:04 pm

Almost forgot to add that your vitriol, to me, speaks to someone whose economic models and worldview have been thoroughly discredited. But that’s just me.

Greg Webb October 9, 2011 at 9:10 pm

Almost forgot to add that your vitriol, to me, speaks to someone whose economic models and worldview have been thoroughly discredited. But that’s just me.

Yep, you and every other statist out there.

If Economic Freedom’s economic models and worldview are discredited, then make the case for it by presenting a coherent, logical argument with objective, verifiable evidence. Just because he called you a name in frustration does not discredit his economic model and worldview.

BTW, you were rude first when you wrote, “So I’m not sure WTF you’re talking about.” You should not make such statements if you cannot take similar comments in response.

Nick October 9, 2011 at 9:54 pm

Ad hominem.

You keep using that word. I do not think it means what you think it means.

Insults are not automatically ad hominems, invictus. Gratuitous verbal abuse or “name-calling” itself is not an ad hominem or a logical fallacy. He saying your argument is logically inconsistent therefore you’re a moron, not because you’re a moron therefore your argument is logically inconsistent.

People with poor arguments tend to throw up their hands and play the “ad hominem” card without actually understanding what the fallacy actually entails.

vidyohs October 10, 2011 at 6:17 am

@invictus and Nick,

Also Nick, as I have pointed out many times here, it isn’t an ad hominem if it is true.l

Gnome DeGuerre October 9, 2011 at 7:46 pm

Sounds like it’s time for an inventory liquidation! Oh, wait, we can’t allow price cuts because deflation is supposedly “bad”.

Economic Freedom October 9, 2011 at 8:27 pm

Bingo.

Gnome DeGuerre October 9, 2011 at 9:46 pm

Typical Keynesian Argument:
1) Recession caused by insufficient “aggregate demand”
2) insufficient aggregate demand caused by hoarding cash
3) Hoarding cash caused by…uh…um…uh…”Animal Spirits! Yeah that’s it. “Animal Spirits”.

When an argument fails, resort to mysticism or ambiguity.

vikingvista October 9, 2011 at 11:30 pm

I keep getting keynesiacs telling me Keynes had a lot more to say than just “animal spirits”. But when I ask them for a specific quote or reference, they fall silent or give me their own personal explanations.

JoshINHB October 9, 2011 at 10:51 pm

…it seems like we’ve got oodles of production slack, which is to say we’ve got tons of supply and no demand to take it up.

How does a persistent trade deficit fit with this assertion?

Is that not evidence of demand that is not being filled domestically?

Mesa Econoguy October 10, 2011 at 2:40 am

Hi Victim, here’s your Phillips Curve:

http://research.stlouisfed.org/fred2/graph/?id=UEMPMED

Any questions?

K, when you wakey wakey, let me know, Brad DeWrong punk.

muirgeo October 9, 2011 at 6:22 pm

“Saying that poor sales is the biggest problem facing small business is like saying that the biggest problem facing the economy is that it’s not doing very well.”

“It’s too bad that facts don’t speak for themselves. ”

Facts don’t speak for themselves? Nor do business leaders? They are telling Russ what the problem is and he dismisses them like children suggesting the facts speak for themselves…. WOW.

It’s like, I know you THINK sales are your problem but I AM TELLING YOU your problem is regime uncertainty… THAT’s why you have no sales. Trust me I’m a trained economist.

Greg Webb October 9, 2011 at 7:16 pm

George, I know that you are used to treating symptoms and not the cause of physical ailments, but you simply cannot do that in economics. Otherwise, you would as poor an economist as you are a pediatrician.

The symptom is poor sales. The improper diagnosis is the treat aggregate demand through government spending.

To make a proper diagnosis, you have to ask, “Why are sales poor for this company?” And, there could be a lot of reasons, including no one wants to buy their crappy, politically correct products (i.e., Solyndra’s solar panels and Government Motors’ Chevrolet Volt) to consumers are concerned about their jobs and investments so they are cutting back on their normal spending, which negatively impacts sales on companies that do provide goods and services that consumers desire. Higher taxes takes away funds that consumers could spend. And, both greater taxes and more regulations increase the cost of doing business such that businesses layoff workers.

Economic Freedom October 9, 2011 at 7:30 pm

Otherwise, you would as poor an economist as you are a pediatrician.

Gott im Himmel! He’s a pediatrician?

Poor kids.

Mesa Econoguy October 10, 2011 at 2:17 am

+1 HochDeutsch usage.

muirgeo October 9, 2011 at 10:52 pm

Greg,

The diagnosis is inadequete demand from wage stagnation related to off-shoring of our manufacturing base, massive trade imbalance, excessive debt financing, financialization of our economy, more successful rent seeking by those with ever more concentrations of wealth and access and changes in corporate board structure that reward short term profits over long term increases in producitivy.

Those are the problems Greg. I have a good grasp of what is going on… you have no clue because you’ve bought into a dead philiosphy that exist soley to justify greed and economic dominance by an elite non-productive articratic class… YOU are a modern day Tory. I by the way am a very good Peditrican working for a group that comes out on top in national employer/purchaser surveys. I think in fact my ability to look at the economy from a physicians perspective gives me an advanatge looking at signs, symptom, diagnosis and possible treatments. It great to be able to be objective and not so bound by dogma.

Greg Webb October 9, 2011 at 11:52 pm

George, you said, “The diagnosis is inadequete demand from wage stagnation related to off-shoring of our manufacturing base, massive trade imbalance, excessive debt financing, financialization of our economy, more successful rent seeking by those with ever more concentrations of wealth and access and changes in corporate board structure that reward short term profits over long term increases in producitivy.

I see that you are still pretending at knowledge. However, the correct diagnosis is that many people and businesses, responding to the federal government’s cheap-money monetary policies and misguided fiscal policies subsidizing residential real estate investments, over invested in residential real estate creating supply well in excess of true demand, which has lead to drastically falling prices. Government officials, flailing around in an effort to appear to be doing something, have further disrupted markets and scared people with silly, vindictive political rhetoric while squandering precious resources by funneling taxpayer money to corrupt political cronies like GE, Solyndra, Government Motors, Goldman Sachs, etc.

The correct treatment is for government officials to do nothing, and let the economy (much like the human body) heal itself. The recuperative powers of the economy are great once individuals are permitted to do what is in their own best interest.

You said, “Those are the problems Greg. I have a good grasp of what is going on…”

No, you are pretending at knowledge again. Your statist philosophy has failed every time that it has been tried.

You said, you have no clue because you’ve bought into a dead philiosphy that exist soley to justify greed and economic
dominance by an elite non-productive articratic class…”

My philosophy is one of limited representative government with Constitutionally-guaranteed freedoms for individuals. You argue for government with unlimited power with no right to property for individuals. You have stated many times how “the right person” will fix all the problems, and that is aristocracy, you idiot. You use terms that you do not even understand their meaning.

You incorrectly call me YOU are a modern day Tory.”. Tories supported aristocracy with “the right person” being the King. So your prevarication is easily revealed because the American Revolutionaries supported limited, representative government with Constitutionally-guaranteed rights for individuals, just like I do. Those who want unlimited governmental power in the hands of ‘the right person’ were Tories, the aristocracy, and the King. You believe what they believed, therefore, you are like them.

You said, I by the way am a very good Peditrican working for a group that comes out on top in national employer/purchaser surveys.”

George, why do you talk about “surveys”? I know incompetent physicians who use surveys because they have lost several medical malpractice lawsuits. Lawyers use those kinds of facts to increase the amount of the award by showing how incompetent physicians have misled patients.

You said, “I think in fact my ability to look at the economy from a physicians perspective gives me an advanatge looking at signs, symptom, diagnosis and possible treatments. It great to be able to be objective and not so bound by dogma.”

Then, it’s time for you to learn the dogma of “DO NO HARM” which should apply to both pediatricians and economists. So, before you administer drugs/conduct surgery/etc or promote silly governmental policies, make damn sure that you do not harm your patient (or the economy) with your proposed treatment. Many doctors DO HARM their patients with unnecessary drugs, surgeries, etc as do government officials with their silly monetary and fiscal policies.

muirgeo October 10, 2011 at 1:14 am

Greg,

You just show your weak grasp of what has happened to the global economy when you repeatedly fault the real estate market and not the finance sectors that used its financial creations ( they lobbied for) and cheap government money (they lobbied for) to leverage those mortgages 100 time over ( which they lobbied for) all of which made the economic melt down the global disaster that it is.

That you are so far from being able to admit or understand this basic glaring fact makes you mostly uninteresting to talk to. You are truly clueless and unable to deal with the facts as they are. You have a messy alibi and you are sticking to it. It’s silly and um-impressive.

And further you fail to acknowledge the more proximate cause of our economic collapse was falling wages from free trade and other policy factors leading to the need to use debt to continue the market demand that was lost with decreased wages.

Mesa Econoguy October 10, 2011 at 3:38 am

Greg isn’t responsible for your investment stupidity, moron.

You lost that money all by yourself, “doctor.”

I hope you lose lots more, countersuing me in the Obamascare case.

Since we already know who you are, and how much time you spend on this forum, it will be very easy to use you as evidentiary fodder.

Greg Webb October 10, 2011 at 11:53 am

George, you said, “You just show your weak grasp of what has happened to the global economy when you repeatedly fault the real estate market and not the finance sectors that used its financial creations ( they lobbied for) and cheap government money (they lobbied for) to leverage those mortgages 100 time over ( which they lobbied for) all of which made the economic melt down the global disaster that it is.”

George, you really need to brush up on your reading comprehension skills. I did NOT “repeatedly fault the real estate market.” I repeatedly faulted easy-money monetary policies of the Federal Reserve System and fiscal policies of the federal government that subsidized real estate investments. Please re-read my post as many times as it will take you to correctly comprehend what I said. (Please limit your re-reading to no more than two hours. If you don’t get it by then, you never will.) If you cannot correctly comprehend what I wrote, then it is obvious that you cannot comprehend economics.

You said, “That you are so far from being able to admit or understand this basic glaring fact makes you mostly uninteresting to talk to.”

George, I know that coherent, logical arguments supported by objective, verifiable evidence are uninteresting to you as they are to all statists. All that matters to statists is their envy and jealousy of those more successful than they are.

You said, “You are truly clueless and unable to deal with the facts as they are. You have a messy alibi and you are sticking to it. It’s silly and um-impressive.”

LOL! So says the guy who “cluelessly” posted a comment under the name of 99er in order to praise a previous idiotic post that you made under the name of muirgeo. But everyone knew it was you because your picture of FDR showed up in both posts.

You said, “And further you fail to acknowledge the more proximate cause of our economic collapse was falling wages from free trade and other policy factors leading to the need to use debt to continue the market demand that was lost with decreased wages.

Another conclusory statement. Where is the evidence supporting this incoherent babbling of yours?

Mesa Econoguy October 10, 2011 at 12:58 am

Doctor Stupid In America, let’s put this in medical terms:

Nurse: Dr, the patient’s temperature is abnormally high, for an extended duration [see? I threw that in there for you "dr"]

Doctor George: Well, the problem is obviously the patient is too hot.

Duh?

Greg Webb October 10, 2011 at 11:57 am

Excellent comment, Mesa! But, let’s continue…

Doctor George: Put the patient in the freezer to solve the problem of his being too hot.

(4 hours later)…

Doctor George: Is my patient cured?

Nurse: I’m sorry, doctor. The patient froze to death.

Doctor George: But, he is no longer too hot, is he?

Nurse: Uh…no, doctor.

Doctor George: Success!

txslr October 9, 2011 at 6:43 pm

It does sound like proclaiming that the patient died because his heart stopped beating.

But think about it a minute. Suppose (God forbid) the black plague came back and killed off 30% of the population. If you went to surviving small businessmen and asked them why weren’t doing well they would be correct in blaming poor sales. What else could they say? The might – probably would – make the connection and say “I think the Black Death has lowered demand for my product. Judging from all the dead bodies stacked up all over.”

Well, good for him! He has hypothesized a connection between the ongoing plague and poor sales. Good, but it’s not really that difficult connection to make.

Our current woes are neither as calamitous nor as obvious as the plague, however. Not surprising given that we still can’t agree on what caused or resolved the Great Depression. So what in blazes makes anyone think that asking a small business owner about the problem would yield an answer that the rest of us can’t come up with after years of consideration?

If that sort of thing worked, I suppose we could have avoided the plague just by asking the first person to contract Black Death what the problem was.

Economic Freedom October 9, 2011 at 6:50 pm

I find it interesting how we all use data to confirm our biases.

That’s why Mises tried to put economics on an apriori foundation derivable from a few fundamental axioms of “human action.”

Milton Friedman ridiculed the apriori method with his quip that if two Austrian economists disagreed over an economic axiom, their only recourse to solving the dispute (given the Austrians’ apparent contempt for empirical data) would be “the trigger.” I think Friedman is quite wrong about this. First, as you have shown above, empirical data by itself can never solve a dispute because its meaning and significance must still be interpreted within some theoretical, non-empirical framework. Second, it seems to me that the position of Misesians is the same as that of mathematicians: when two of the latter disagree on a mathematical idea, they neither seek empirical evidence to support their opposite positions, nor do they resort to “the trigger”; they resort, instead, to more blackboard-and-chalk, and try to hone their arguments. Economists of the apriori school do the same.

steve October 9, 2011 at 10:47 pm

“First, as you have shown above, empirical data by itself can never solve a dispute because its meaning and significance must still be interpreted within some theoretical, non-empirical framework.”

Nope. You mostly have a bunch of people who have not even looked at the data making judgments based upon pre-existing bias. If you look at it, you see that concerns about taxes are always relatively high. It tells us very little about changes in the economy. You also see that concerns about regulations do not correlate very well with anything. The only factor that does is concerns about sales. If there were two equally compelling interpretations here, then you might have a case.

Steve

Sam Grove October 10, 2011 at 12:09 am

Cart before horse?

Whenever I ask why there is insufficient aggregate demand, all I hear is crickets chirping.

Mesa Econoguy October 10, 2011 at 1:00 am

Horse with phantom cart before it?

steve October 10, 2011 at 9:39 pm

I said nothing about demand. Did you look at the data?

Steve

Economic Freedom October 9, 2011 at 7:17 pm

Saying that poor sales is the biggest problem facing small business is like saying that the biggest problem facing the economy is that it’s not doing very well.

Very true. It would be as if a coroner were to fill out a death certificate with the following “cause” of death: the deceased stopped breathing.

steve October 9, 2011 at 10:54 pm

“Saying that poor sales is the biggest problem facing small business is like saying that the biggest problem facing the economy is that it’s not doing very well.”

By slightly mis-stating the survey, you come to such a conclusion. It asks about their primary concern, meaning the small business owner. It is asking what they perceive to be their biggest problem. If you actually look at the survey (I know it is easier to just make stuff up but go look at it) you see that much of the time it is not their biggest concern.

Now, this does not tell us why sales are down. If it was due to taxes and regulations you would think you might see a corresponding increase in those numbers. There is a small increase in concerns about regulations, but it is still fairly low by historical standards. Taxes have not budged. I would suggest there is another reason.

Steve

steve October 9, 2011 at 8:09 pm

” taxes are listed as the single most important problem by 18% and government regulations and red tape is listed by 19%. So the two combine to 37%. They also happen to be two factors that government can actually control.”

But there is essentially no correlation between economic performance and concerns about taxes and regulation. You need to look at the original charts. Got to page 18 at the link to see the NFIB graph. Note that only sales appears to correlate to actual performance. Note that concerns about regs were very low in 1982, but steadily increase at a time when the economy was doing, mostly, well. Concerns about taxes are, even now, lower than they were through the 90s, when the economy was growing. The factor which has changed a lot, corresponding with a change in our economy, is sales. (Note the concerns about inflation in 2008. We sure had a lot of inflation then.)

http://www.nfib.com/Portals/0/PDF/sbet/sbet201108.pdf

Steve

This was very disappointing Russ. I read much of what you write. I may disagree with some of it, but I generally find that you write with integrity.

Sam Grove October 9, 2011 at 8:40 pm

The factor which has changed a lot, corresponding with a change in our economy, is sales.

Well, duh.

WHY aren’t people buying as much?

Greg Webb October 9, 2011 at 8:52 pm

Now that is the real question, Sam.

kyle8 October 9, 2011 at 8:54 pm

fear

Greg Webb October 9, 2011 at 9:02 pm

And that is a partial answer to the real question, kyle8. To complete your answer, what are people afraid of?

vikingvista October 9, 2011 at 9:05 pm

Either because they are greedy, or because they are racists who want our President to look bad.

Greg Webb October 9, 2011 at 9:11 pm

LOL! Nice sarcasm.

Mesa Econoguy October 10, 2011 at 1:02 am

It’s obviously Packer fans.

President Obamalini is a Bears “fan” so the Packers will continue to win, like they did tonight, just to make him look bad, so he’ll change the rules.

Randy October 9, 2011 at 8:55 pm

Question; Why do those who accept the ideas of aggregate supply and aggregate demand not accept the idea of regime uncertainty? I mean, its just another aggregate. Let’s call it aggregate political malfeasance.

Sam Grove October 10, 2011 at 12:10 am

Because government can never be blamed for anything due to it being staffed by angels.

Denno October 9, 2011 at 8:59 pm

If Krugman is right, maybe the Fed should simply print up more money and buy all the goods that businesses can generate.

The best thing about free market economics is the word, “free.” Creating aggregate demand with government spending undermines the freedom of those who subsidize it. Government ventures may occasionally succeed, but I believe that private ventures are more responsive, more flexible, and more consistent with the freedom of our citizens and a respect for a man’s property rights.

“Underlying most arguments against the free market is a lack of belief in freedom itself.” – Milton Friedman (1912-2006)

Economic Freedom October 10, 2011 at 12:18 am

and more consistent with the freedom of our citizens and a respect for a man’s property rights

I still believe that is the ultimate defense of capitalism, irrespective of all the other arguments — certainly not unimportant — regarding “efficiencies” and “rational allocation of scarce factors of production”.

Jingoist October 9, 2011 at 9:33 pm

“Saying that poor sales is the biggest problem … has no content.”

The report clearly shows this concern of small business owners has reached new highs. Is Mr. Roberts saying small business owners don’t know what they’re talking about?

On the other hand … the concern over taxes has been relatively consistent throughout the years, so it’s arguable that small business owners are no more concerned about taxes today than they were during the great Reagan years.

It’s interesting that insurance costs and labor quality don’t seem to be much of a concern … we sure hear a lot of bitching about those.

Why would they be concerned about the inflation rate? What inflation?

The “over-regulation” crap is always over-simplified. Some think the US Gov’t can just fix it all, but that’s garbage. In my industry, the US could pretty much do away with all regulation and it would n’t change a thing … any company that wants to sell products overseas still has to meet the regulatory requirements of all thos other countries and there are LOTS of them … even in China!

HAHA … and their big concern over “big business”? Ummm .. that’s capitalism … who are these small business leaders, Socialists?

Nick October 9, 2011 at 9:59 pm

I would like to know what business involved in moving inventory isn’t always going to list “poor sales” as a growing potential concern. The goal of the enterprise is to sale things.

Additionally, even if we knew lack of demand was a real problem, what exactly do you propose as a solution? More government handouts?

Economic Freedom October 10, 2011 at 12:45 am

Is Mr. Roberts saying small business owners don’t know what they’re talking about?

No, but I’m saying it. Small business owners are not (and needn’t be) trained economists. To say “I’m a small business owner and I’m concerned about low sales” is no different from a wage/salary earner saying “not enough income to support me in the lifestyle I would like to have is my major concern.” So what else is new? Each one would always like more. I’m willing to bet that the small business owner’s concern with “low” sales correlates exactly with the small consumer’s concern that prices for products and services of small businesses are too “high.” Again: so what?

On the other hand … the concern over taxes has been relatively consistent throughout the years, so it’s arguable that small business owners are no more concerned about taxes today than they were during the great Reagan years.

It’s also arguable that “having a cold” is a relatively consistent concern throughout one’s life: when one is young and healthy, “having a cold” is of negligible concern when compared to one’s overall health, which is excellent; and when one is old and suffering from cancer, heart disease, and alzheimer’s, “having a cold” might still of negligible concern when compared to one’s overall health, which is extremely poor. So the fact that “concern with having a cold” is consistent throughout one’s life proves precisely this about the state of one’s health over time: NOTHING.

Same applies to “concern with taxes” over time as any sort of indicator of the health of the economy. Small business owners might not have been concerned about taxes during the Reagan years because they were confident that they would be kept low; conversely, they might not be concerned about taxes during the Obama years because there are far more injurious things than taxes to worry about under the current administration.

Jingoist October 10, 2011 at 5:39 pm

So, then, you’re saying Roberts is wrong … taxes are not a concern … right?

steve October 9, 2011 at 10:39 pm

“I would like to know what business involved in moving inventory isn’t always going to list “poor sales” as a growing potential concern. ”

Go look at the NFIB chart. You guys are just taking the word of someone else. What you see if you actually look at it is that concerns about sales are often quite low, which correlates well with when the economy is strong.

Steve

steve October 9, 2011 at 10:43 pm

You should also look at what is not being bought. Housing stands out. If real estate was at its historical average, we would be seeing GDP growth at about 3%, close to our recent historical average.

http://blogs.wsj.com/economics/2011/10/01/number-of-the-week-the-economys-housing-albatross/?mod=WSJBlog

Steve

Economic Freedom October 9, 2011 at 11:38 pm

If real estate was at its historical average, we would be seeing GDP growth at about 3%, close to our recent historical average.

You mean the historical average that was completely fueled by grossly distorting the market through easy-money Fed policies and federal regulations that strong-armed banks into making loans to unqualified borrowers? The historical average that was simply the inflationary boom which precipitated the bust in which we still languish today? That historical average? WAY COOL!!! Let’s try to repeat the inflationary conditions we had up till ’08 just so we can have another bubble, another inflated GDP of 3% or more, and then enjoy the next bust — if we’re really lucky, and we get another Obama-type administration, we can stretch the next recession out to 20 years or more. What fun!

steve October 10, 2011 at 9:42 pm

No. I really do mean historical average, not just that of the last few years. It is well documented at the link.

Steve

A. Zarkov October 10, 2011 at 12:50 am

Sales are down in many businesses because consumers have maxed out their credit. Without a rising housing market, they can no longer borrow against future home equity increases. When the government borrows money and hands out checks, consumers use it to pay down their debt. A lot of the ARRA money went to state and local government, and they used it to pay down debt.

The basic problem is too much total debt (public + private). In other words, think Minsky not Keynes. Keynesian demand stimulus is a discredited theory. It hit the wall in the 1970s, and it still doesn’t work. No one really even knows if the multiplier is greater than one. If it’s not, then the government had better spend money on projects with a positive net present value. We know for sure the vast majority of ARRA was not invested in projects with NPV greater than zero. Now we have an even bigger future debt overhang to retard growth.

kyle8 October 10, 2011 at 6:26 am

Absolutely right. If indeed the stimulus had actually been spend on worthwhile infrastructure projects instead of just pissed away then there might be some public good.

All bubbles are a product of too much debt, we have compounded that problem by bailing out inefficient businesses, and creating more debt.

It was a recipe that was bound for failure. If government spending were drastically cut and our borrowing reduced then you might see the beginnings of a recovery.

Observer October 10, 2011 at 8:20 am

kyle8

believes that cutting demand even further will create more sales, but only “the beginnings”

kyle8—what if you are wrong, where are we then–instead of 20% under and unemployment, say 30% under and unemployment.

did you ever take Macro?

Dan H October 10, 2011 at 10:27 am

I took Macro… and I was preached to about mystical things like “liquidity traps”.

That’s just a fancy way of saying “assets are overvalued and prices need to drop”. There is really no such thing as a liquidty trap, since liquidity is a relative term, and decreasing price increases liquidity.

Let prices reset. Get governemnt and the Fed out of the way, let the market bottom out, and then watch the economy come storming back.

Methinks1776 October 10, 2011 at 1:33 pm

You blew his one brain cell.

kyle8 October 10, 2011 at 11:57 am

I am not wrong. But if I were well then, we could always go back to idiotic borrowing and spending.

Observer October 10, 2011 at 8:25 am

kyle8

You are asked to bake a wedding cake for 100 people. You do. 300 people show up at the wedding, so not all get cake. Is the wedding cake a failure?

We had a stimulus package 1/3 the size of what was necessary. That was failure of many including all the Republicans in Congress who were opposed to doing anything more

kyle8 October 10, 2011 at 12:00 pm

Oh yes, there never seems to be enough spending is there? Here is the thing, WE ARE FRICKING BROKE!

The spending and quantitative easing that we have had so far have spooked the financial markets, frightened the investors and alarmed our trading partners. And rightfully so.

Eventually the debt service will eat up such a large fraction of our budget we will be like Greece. Damn you are dense.

Mesa Econoguy October 10, 2011 at 1:29 pm

“We had a stimulus package 1/3 the size of what was necessary.”

What size was “necessary,” Dr. Krugfuck?

Methinks1776 October 10, 2011 at 1:32 pm

I didn’t know you could divide infinity into thirds.

Darren October 10, 2011 at 2:19 pm

We had a stimulus package 1/3 the size of what was necessary.

Let’s first assume the economic assumptions underlying the stiumlus were correct. In no way is it possible to know what was “necessary” beforehand. Likewise, it is impossible to know if what was already done was only 1/3 or 1/10 or 1/100 what was actually ‘necessary’ to obtain the desired goal.

Covington October 10, 2011 at 1:44 am

Now for something completely liberal: outlaw the sale/purchase of iPhones and iPads. All that dispoable income in the 4% unemployed set might just flow to other things. Apple can afford – and Jobs (rather, the Jobs estate) can afford it and is ‘a’ millionaire. It sounds eminently fair to me. The multiplier effect could be huge. We know that Apple fanboys will not shift to Galaxy Tab II and Android. They can’t even buy a spare Apple battery.
If sales are down, it might be that the product is less than superlative. So, as redistributionists, would it not be fair to take from the sales of the successful and give to the less great products’ sales?
BTW, watch for the homeless guy’s remarks on sleeping in the midst of the protesters :http://reason.com/blog/2011/10/08/danny-cline-occupy-wall-street

anthonyl October 10, 2011 at 11:21 am

Russ- enjoyed this post tremendously! What is government’s proper role in society? People in government should ask themselves this every second. The fact that government can’t increase aggregate demand much or sustainably should give many pause… Sad that people in government don’t chose to do the things they really could do to help. They could keep spending under control and think hard about every dollar of ours they spend. I mean really hard!

muirgeo October 11, 2011 at 1:58 am

“Words ought to be a little wild, for they are the assaults of thoughts on the unthinking.”

John Maynard Keynes

Of course that is The Master speaking against protectionism but it just underscores how little the average person here knows of his positions.

Stone Glasgow October 11, 2011 at 6:10 am

What’s the point. No one ever changes their mind, regardless of how wild the words may be.

Bill Woolsey October 11, 2011 at 10:39 am

Nearly all expenditure is funded out of current output. If the quantity of money matches the demand to hold money, then there will be sufficient expenditure to purchase all of the output.

If, however, the demand to hold money rises beyond the quantity of money, then there will not be sufficent expenditure to purchase all of output. There will be a general glut of goods.

If firms reduce production (and employment) to match what they can actually sell, then the lower real income will reduce the demand to hold money to match the existing quantity.

In that situation, being willing to produce and sell more, at current prices, will not result in more demand. It will just result in a greater surplus, understood as firms wanting to sell more, but not being able to sell more. It is likely that actual production will continue to match sales.

The solution is to raise the quantity of money. It is true that this creates a surplus of money at the low level of output, but that level of output is a disquilbirium level of output. What is happening is that the quantity of money is being increased to the amount that would be demanded if real output and real income rises to the level that matches productive capacity.

The easy way to do this is to raise the nominal quantity of money. The hard way is for everyone to lower prices, including the prices of resources like wages. That increases the real quantity of money, creates an excess supply of money as above, and real expenditure then rises to match the productive capacity of the economy.

Now, it is possible to try to convince people to hold less money. If people are willing to hold government bonds, especially short term ones, in place of money, that can work. That is how fiscal policy might work. Or, perhaps you can convince everyone that new, Republican, pro-business policies will make future profits really high, and so they will decide to hold less money.

My view, however, is that we need a monetary regime that adjusts the nominal quantity of money to the demand to hold money consistent with keeping spending on output growing at a slow steady rate.

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