Monday, June 16, 2014

When the Economy Refuses to Play Keynesian Ball

Guy #1.

Good buddy of mine.  Realtor carpenter.  Busted his ass off when he was young.  Fell in love in his early 20's.  Lent a girl with big tits a lot of money, never got it back.  Didn't matter as through determination and raw effort he inevitably made killer coin during the housing bubble.  However, while he was successful he was foolish enough to buy a cabin and a luxury SUV (among other purchases) thinking it would continue forever.  Crash hit, he suffered mightily for 6 years.  Now, he crawled back, not losing a thing, and is once again approaching $100,000 for an annual salary.

His next major purchase?

A new fishing pole.

Guy #2

Another good buddy of mine.  Smart, young entrepreneur.  Made a KILLING during the housing bubble as he was a master carpenter and also invested in real estate.  Was flying to Vegas on a semi-weekly basis with his wife.  Drove a Mercedes and also thought the good times would last.  Housing bubble hit.  Some of his investment partners proved not to be as solvent or honest as they claimed.  His flagship operation went bust.  Now, he's rebuilt himself a nice piece of property he bought at the bottom of the bust, built up a stash of cash to pay off creditors if necessary.

His next major purchase?

A cigar with me.

Guy #3


Never had anywhere near the success of the aforementioned two.  Finally found a company to refinance my house.  Make enough money on book sales and various internet ventures to put food on the table and travel on the cheap sleeping in crappy motels, if not the rental car.  One time, with full time dance classes and full time banking work, almost made $100,000 had I not told my employer to go fornicate himself.  Housing bubble hit, reverted to solely dance classes, and once again lived in an illegally furnished basement apartment to make ends meet.

Next major purchase?

Gas for my next road trip.

So what, young lieutenants, do all the aforementioned boys above have in common?

Well, let me tell you.

1.  They in their naive youth were more than willing to bust out of the gates, take on life, and become great entrepreneurs or captains of industry.

2.  They foolishly assumed what finite and fleeting fortune they did have was going to last forever and either purchased things they shouldn't have or made investments in what is now in retrospect foolish things.

3.  After suffering the great recession, having to get by on limited income wherein finances were so crippling and threatening, all of them have (and pay attention to this) ZERO INTEREST IN EVER BUYING ANYTHING OF SIGNIFICANT WORTH EVER AGAIN.

And thus the point of my post.

While we three men of occident aren't conclusive empirical proof, we are anecdotes of what I believe to be a torpedoing trend for the Keynesian Obamanauts - people, with the harshness of the Great Recession fresh in their minds, just plain don't want to invest or spend money.

I wanted to see if there was a "Marginal Propensity to Consume" figure on the FRED database to confirm this, but I could not find one.  Still, using several proxies you see at least a reluctance or stubbornness as the population becomes penny pinchers a la those who went through the Great Depression.

Gross private investment, though recovering, still isn't back to its historical average:

The Personal Savings Rate (which I believe is actually a good thing) is not playing Keynesian ball

And the velocity of money puts another nail on Obama's record-breaking stimulus spending:

Whatever specific events caused this - crushing finances for 7 years, big titted girls running off with money, foreclosure, ne'er an ounce of job security - the larger point is that what is ultimately driving this fear to spend and invest is psychology.  And sadly, for Obama and his Keynesians, they largely ignore psychology, insisting to treat economics as an actual, mathematical science arrogantly thinking they can predict the economy like Newtonian physics.

Since they ignore psychology the economic policies they enact are rendered impotent.  For example we do have relatively low taxes historically speaking.  But spending is so out of control it undermines the entire future of the economy, driving away any long term investment.  Obama can talk all he wants about jobs, but with Obama and the left blatantly spouting off their hatred, envy and desire to steal from the successful, it not only makes it just talk, but further deters any would-be entrepreneurs from trying their best.  And ironically, since none of these Keynesian tactics have actually worked, the left has screwed over their most reliable demographic - young people.  Additionally burden this demographic with student loans used largely to finance the "Leftist Vampire Professor Industry" and it doesn't matter how much "hope and faith" they have in Obama, they just plain don't have the money to buy houses, cars, and boost the economy.

The end result is what we have now - an economy that could not be more diametrically opposed to textbook economics.  Historical (and I do mean historical) stimulus spending, yet a stagnant economy. 

For Austrian economists or people who just have their heads out of their asses, this makes sense.  For charlatans posing as Keynesians, but who know better (Krugman, etc.), this also makes sense, but they need to come up with increasingly fabricated poppycock to keep the spending gravy train going.  For the rest of the economists out there this simply does not compute.  But then again, most economists spent way too much time obsessing over math, let alone they actually believed the leftist claptrap they were fed in school.  Alas, the price one pays for a lack of intellectually honest and independent thought is confusion and forced cognitive dissonance.

Enjoy the decline!


Aurini said...

Same thing goes for Marxist Feminism.

The Feminists tried to "empower" women by redistributing male power to women (completely ignoring women's innate power in the process, the subtler, seductive arts women posses). Everything the Manosphere writes about - divorce theft, sexual harassment policies, et cetera - increases the cost of being a traditionally successful man, to benefit women...

Except it relies upon the existence of hard working, entrepreneurial men, who trust in the system. As more men Go Their Own Way, and live minimilistically, the costs of these policies are showing.

Sanelity said...

That velocity chart scares me. We're talking unexplored territory. What will turn it around?

I blame "Enjoying the Decline" for recommending the minimalist lifestyle. If that chart is correlated with your books sales, you should be raking in the dough.

In spite of the low velocity and lack of consumption. I see that federal tax receipts are setting new records.

Southern Man said...

I, too, worked hard and made good money, only to see my net worth devastated by divorce. Fine, eight years later I'm beyond where WE were and I hung on to that ten-acre rural retreat. I'll continue to work long enough to see my daughter out the door, then retire to my retreat, make my pocket money on the grey market, and fish and ride my bike and f*ck younger women and do whatever the hell I want. It's gonna be good.

sth_txs said...

I always resent the tax discussion in the media. They always focus on the this BS of 'low' federal taxes, but never count SS, medicare, property taxes, and tens of others that nickel and dime you to death. The media crows about how much less we pay than the commies in Europe but we pay just as much when all is accounted for as well as what you cannot count in your rent or grocery bill.

I distinctly remember being able to figure out that I was looted of 1/3 or 4.5 months of my labor that I could visibly count on my $41k/year salary in a state with an income tax.

PeppermintPanda said...

People who are smart enough to understand the causes of the great recession and observe that nothing has (really) changed will (likely) be careful with future spending; unfortunately, the masses will believe that everything was fixed soon after they stop directly feeling the pain.

Peregrine John said...

Panda, it is very possible that the masses will never stop feeling the pain again. However, the Ministry of Truth will eventually convince them that masochism is normal, desirable, and patriotic.

Kristophr said...


Nothing will turn it around. We are in the currency crash endgame.

Anonymous said...

Great post. You've been on fire lately.

outsider said...

Given the sheer, relentless, Ross Ice Shelf-like force of the slow decline I wish I could hate Obama for his dumb policies, but at least he's not a traitor like his enabling cronies on the right.

leeholsen said...

maybe i'm not an early retirement advocate, maybe i'm a had enough of allowing myself to be played by the govt like these 3 as i sure would like to make more money, but if it involves me giving 50% to people that cant be bothered to get off the couch and stop stuffung themselves; then i'm out; i have enough to satisfy my needs.

Anonymous said...

Don't you see that there is something wrong with how the economy is structured ?

Go back a few hundred years when people were craftsmen and mostly worked for themselves by producing for themselves and by themselves and only trading occasionally as a supplement.

If you make bread to feed yourself and your family, you will want to make as much bread as possible and store as much bread as possible while eating the least possible of it.

If somebody would come and tell this bread maker that he is not consuming enough bread, it would look like an outlandish remark.

The problem with the current system is that production is the hostage of demand while in the past it wasn't.

It's total nonsense that you need consumption to keep the economy going. It's total nonsense that the economy is not based on savings.

Anonymous said...

In the past, if you were a lumberman, you just kept on logging more and more wood and store it for the cold winter. If nobody wanted your wood, you just kept logging and storing even more wood.

You were diversified, you also grew your own food, hunted some meat, everybody in the family was doing something productive to provide for necessities.

You traded your surpluss wood in the winter in exchange for, let's say some maple syrup etc.

People worked extremely hard and produced as much as possible. The savings of people were in the form of warehoused and stored goods and resources, in the form of stored commodities, not in cash.

Trading and exchange was complementary, not mandatory.

People produced with the goal of keeping a surplus production, not with the goal of sellling and saving currency.

Even if there was no demand, people still produced and stored their production.

If you were a grain farmer, you just stored your grain and traded some of it later on.

Today, everybody is completely at the mercy of the market and completely hostage to demand.

Today, we require consumption or else some people will remain unemployed, underemployed, will lack and income and will no longer keep the economy going.

This is complete nonsense.