Monday, February 09, 2015

Stupid Americans Not Playing Keynesian Ball

Given the largest stimulus post WWII, many-a-Keynesians are (secretly) very upset their academic and government economics models are no longer working.

Never mind economics isn't a real study in the first place.
Never mind their flagship economic model (Keynesianism) is based on data only going back to 1947.
Never mind their Lord and Savior (John Maynard Keynes) explained ONE economic phenomenon in his life (the Great Depression)
And never mind every "great" contemporary economist today has failed in their job to get the economy going.

No, we're just going to sit and pout and (scramble) to find/concoct reasons our economic models aren't working and the economy is remaining stagnant despite trillions in stimulus spending.

But while they live-up to the phrase "those who can't do teach or work for the government," real economists are going to try to rationally explain why, despite trillions of dollars in stimulus spending, US economy growth is stagnating. 

Enter - "Animal Spirits."

Animal Spirits is an economic term that is used to describe humans' natural "instinct" of sorts to capitalize on economic opportunities to (primarily) enrich themselves.  And what is perplexing the world's dumbest economists Keynesians now is "Why aren't those gosh darn animal spirits resulting in more growth, investment, and spending!"  We currently have relatively low taxes (if you use government revenues as a percent of GDP) and we also currently have relatively high spending (as a percent of GDP).  And interest rates are at an all time low.  So why aren't those people blowing their life savings on investments, opening up businesses, and buying consumer crap they don't need!?

Well, there's some problems.  While many on the left will point to consumer confidence, the commensurate spending is just not materializing.  THis has resulted in a divergence between confidence and the velocity of money (the rate at which a dollar is received and then respent).

But if we look at another chart, you start to see something that is really killing those ungrateful, disobedient Animal Spirits - debt.

(it should be noted the chart only has data going back to 2009, but generally correlates with the velocity figure.  The US FRED database for some reason only goes back to 2009 and I'm too damn lazy to go hunting for the data)

You see, that whole housing crash has had a lengthy effect on people's memories and thus psychologies.  Gen X was obliterated during the housing crash, having whatever equity that may have been built up in their homes destroyed.  And Gen Y is currently saddled with their student loans, not to mention the worst job market (for them) since the Great Depression, prohibiting them from spending money even if they wanted to.

The result?

Throw all the Keynesian stimulus you want at this population, it's been trained to become minimalists, eschew debt, and not play Keynesian ball.

The truth is that effectively two generations' faiths have been destroyed in their futures and the American dream.  And when you take that away from any person, they have no real reason to mobilize as labor, let alone be foolish to start a business.

That sad truth for the charlatans posing as academian and government economists is that when your beloved leader does nothing to boost the economy and spews hatred against investment, success and private property (you didn't build that, not paying your fair share, 14% taxes on overseas profits, Obamacare) it scares away Animal Spirits no matter how much money you piss away on government deficits and no matter how low you set interest rates and no matter how much QE money you print.
You completely failed to instill ANY faith in the future of America, and worse, instead of painting a picture of a future America where success, profits, riches, and wealth are championed, you painted one where such things are criminalized and confiscated.

Your laziness, love for socialism, and envy of others has blinded you from practicality, effectiveness, and reality.  And so you can print off all the money you want.  Promise single mothers all the free housing you want.  And make all the worthless community college degrees free to all 315 million Americans.  None of this Keynesian poppycock will result in genuine confidence among the American people, especially the innovators, entrepreneurs, investors, and other non-parasitic classes who are your only hope of growing the economy.  Ergo, you can expect that velocity of money to stay nice and low and perhaps while you're down there try to scrounge around for some other lofty, theoretical reason your grand, master economic theories are failing.


just some gut said...

James Grant The Forgotten Depression. Read It.

Brian said...

But as long as other countries suck more than the U.S., will we be ok?

Just Saying said...

The fact of the matter is, the Government takes too much for you to risk your income on something you stand to make pennies on the dollar, and lose dollars on the dollar, and only write off a small percentage of it. Ergo - you risk NOTHING - at least in the US. If you're smart you invest overseas and off-shore your business ASAP...

Southern Man said...

Well, I learned something new today - the Keynes / Hayek Rap Battle references "Animal Spirits" but I never knew what it meant.

Southern Man said...

Keynes vs Hayek Round 2:

Rich Fader said...

Dear Keynesians: The long run was not long enough for you to be dead before Lord John's theories went to excrement. So sorry.

grey enlightenment said...

The US economy is not stuck, but I agree that Keynesian is a failure, in agreement with the many republican economist predictions of its failure in 2008/09.

Rick Caird said...

Many of us Boomers were also hit hard by the stock market decline of 2007-2008 as well as losing equity in our homes. Couple that with ZIRP, which has made a safe 4% return just not available any more, and Boomers are cautious with their spending and with their investing.

My father was a child of the depression, being born in 1922. As such he was always cautious in his spending and how he invested. I inherited that trait. So, it is pretty easy to pull back on the spending. If the Keynesians want to encourage the animal spirits, they would do well to increase interest rates.

Red Knight said...

So households have on the net been paying off debt corresponding to about 20% of GDP during a time when the government has increased its debt by about 35% of GDP. If anything, that'd validate the Keynesian concept of the Paradox of Thrift.

This post just goes to show that of all economists who have ever lived, Keynes has by far had the most strawmen erected of him. Apologists of deficit budgets invoke Keynes as an intellectual pretext to waste money, and haters like the good Capn attack Keynes on that basis.

Keynes never advocated indiscretely splashing cheap or borrowed money all over the economy. What he advocated was to get out of recession by targeted deficit spending on things with a high fiscal multiplier. If alive, he would have had a great deal to say about how Obama's stimulus was spent.

Anonymous said...

This is one of the most cogent explanations of why our economy continues to stubble along. Well written (meaning I am going to be sending excerpts to all of my liberal "friends").

Anonymous said...

All this also points to another problem with liberal economic "thought": mistaking activity for actual achievement. I knew we were in for long-term trouble when Obumbo announced in Dec 2009, after an economic summit, that he was unveiling the Cash For Caulkers Program (named after the highly counter-productive Cash For Clunkers boondoggle). Idea is that I caulk your house, and you caulk mine, and we both get rich in the process since we have economic activity. Yep, 'das 'da ticket.