Saturday, March 2, 2013

"What's the Story with the Economy"? Oil! (and Keynesianism)

I was thrilled to see this article in the Washington Post.

Dear Washington Post:

I have published hundreds of articles regarding the impact on demand from declining Oil imports into the U.S. and other Western importing nations. Why not add me to the list of folks you called to explain what is going on?

(yea... I know that Oil production in the U.S. is up to 7 million barrels per day. What a blessing. Had that "tight oil" and ethanol not been there this would have been a far different story. That's the problem with forecasting - it is failure prone. That does not change the world wide picture for Crude & Condensate production - flat - and harder to produce, consuming more oil to produce it (lowering ERoEI), and requiring more "security" (military spending)).

From the article:
You can tell an inverted version of Warsh’s story through the economic models of another famous economist, John Maynard Keynes. That story holds, like Warsh’s story, that policymakers fumbled the response to the recession — but in this telling, the problem is that they didn’t do enough. The depth of the recession was so great, the effects of the financial crisis so dire, that the economy needed a huge dose of fiscal and monetary stimulus to regain all the lost ground and return to historical growth trends.
Since the stimulus that policymakers supplied wasn’t big enough, the economy hasn’t grown as fast as it could have, the Keynesian story goes. Janet Yellen, the vice chair of the Fed, gave voice to that story in a February speech. After boosting the economy in the first year after the recession, she said, fiscal policy “has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline and have put in place further policy actions to reduce deficits.”
Got that? What we need are more local and state regulators, SWAT teams, police Armored Personnel Carriers, Drones, Fire & Rescue personnel and equipment (when was the last time you heard of a fire in your neighborhood, local school, or work place? We are pretty good at designing buildings that don't burn. That does not stop local "fire budgets" from expanding), code inspectors, et al...

Those of you that have been reading my stuff know that I have repeatedly said that as Oil prices and supplies does its thing to the Industrialized West that all of the Keynesian folks would be screaming that the problem is that we just were not Keynesian enough. That if we would have just "stimulated" more (went into further debt) we can get the economy "growing" again - and with sufficient growth to pay back all of that debt (public and private). Of course, as the past 4.5 (and 40) years bear witness to, there is not a shred of evidence to support that contention. Nada. Zip. Bupkis.

(This is not to say that an all out effort to bring wind and solar technologies to bear will not replace Oil, and do so in time to avoid economic disaster. That absolutely could happen. I simply don't know enough about the rate of growth in that input. Ray Kurzweil and Stuart Staniford are of the opinion that that will happen, or come close to happening. Happen or not, that does not change the Keynesian cluster f***.)

But the Keynesians will never stop. I suspect this is part and parcel to the Keynesians' other political belief system(s), but why is not relevant. What is relevant is that we keep track of the promises and claims so that we can make accurate comparisons to outcomes - something that this article, and coming as it does from the Washington Post is certainly surprising, touches on (lightly).

To be fair, it is not just "Oil". Oil is a stressor, and what it is "stressing" is the impossible expansion of debt that the Keynesians thought could, and would, go on forever ("world without end, Amen". Keynesians are little different than other religious belief systems - they have their own chants and prayers with roughly the same efficacy).

From the article:
First, let’s review some facts. The U.S. economy grew by 2.2 percent last year, 1.8 percent the year before, and 2.4 percent in 2010. That was not enough growth to bring down unemployment speedily, which is why — three and a half years after the recession officially ended — 12 million Americans are still looking for work.

Uh... well, those are kinda/sorta facts. U.S. economic growth of 2% would be essentially all imputations, and; "12 million people are still looking for work"? Nonsense. Sheer and utter nonsense. The only metric that matters is the civilian employment participation rate. The number of people defrauding "disability" or dealing in the black market or too fat to do either is simply impossible to suss out of the data. How many people paying FICA taxes/the total population is not.

I was thrilled to see the article cite Milton Friedman's famous quote: "everything we know in economics we teach in Econ 1, and everything else is made up.” There are simply no truer words to describe the "dark (dismal) science" of economics - I don't give a good fart how the establishment dresses up so much of this nonsense with Nobel Prizes, Doctorates (Snicker), whatever, because all of that dress up B.S. has been designed by The Establishment for the benefit of The Establishment. Not one of these people (including me) is absolutely certain of what is going on with this massive system we call the "world economy" or the "U.S. economy". We have some intelligent thoughts, we string sentences together fairly well, wear a dark suit and a white shirt, and don't drool on ourselves in public - and suddenly we think we know WTF we are talking about, despite all evidence to the contrary. Go figure.

I particularly loved this:

When you miss so regularly on your forecasts, Altig says, “it’s easy to think we have to rethink everything we think we know.” But, he adds, “You can be wrong for a very long period of time and still have the underlying structure and story about the economy correct. That’s not crazy. I guess that’s where I would be right now. It’s not like you have to throw out how you think about these things. You just have to have the same humility you always have.”
He should have added "Provided that you continue to respect us as the learned people we most certainly are, deserving of tenure or some other absurd compensation program (my view of "oncologists" comes quickly to mind) stripped from the mouths of people that actually work at something productive" and I would have been satisfied.

Economists (Oncologists/Divorce Lawyers/Women's Studies professors, Bankers, et al) add sooooooo little value and we have soooooo many of them leaching off of the rest of us that it is hard for them to see what the real problem for The People truly is: THEM.

The Corporations and their mouth pieces (economists/education professionals/politicians) moved The People around like chess pieces on a board... but with no thought for tomorrow. Now normally, The People did their own thinking about that, but the system developed systems and protocols to overcome that. To stop people from thinking and questioning for themselves and their own future and the future of their family. The public school system and the education/industrial complex (that most unholy alliance between the university system and corporations that developed in the second half of the 20th century that convinced individuals that they needed to spend $100k, and give up 4 earning years on state school undergrad degrees in play ground supervision in order to work at Walmart stocking shelves for peanuts). Feminism (the Gay Women's Movement) came along and contributed mightily by helping to destroy the family unit, leaving straight women "independent" of (read: without) husbands and children and completely dependent upon their corporate masters and their corporate pensions to provide for them in their old age (oh, wait. Those corporations, after removing women from their homes and families by promising "independence" don't provide their workers with pensions any more. Seems the corporations did not want anyone depending on them, either. Has anyone looked at the financial health of all of those post 50 corporate/independent women? I have. They are destitute.).

It would be hard to make this stuff up! Truth truly is stranger than fiction (and with friends like the Feminists and the Corporations who needs an enema?).

Wrap your mind around this little stat: Median family income in the U.S. is $50K! MEDIAN. That means that half the families out there are living on less and half on more. I spend $17k per year on health insurance! Now take out FICA taxes. Yet they (nearly) all have cell phones, and nearly half of those in the under $50k per year income group has a smoker in the household ($1750 per year for a pack a day smoker). Is it any wonder that 1 in 6 Americans cannot afford to feed themselves or their children and rely on the government for Food Stamps (SNAP)?

Think about that: The government is, in effect, subsidizing the liquor, tobacco and cell phone industries while criminalizing "under age" tobacco & alcohol use (as well as drug use and prostitution). In what f***ing universe does that make  sense? Half of American women and a third of American men are obese - and the solution to people's health is to have them subsidize the healthcare industry by forcing Americans to buy health insurance?

Welcome to Keynesian thinking. How else does government "Stimulate" the economy but by deficit spending and subsidizing? And the Keynesian answer? To spend more. To addict people to programs and benefits that encourage them to "consume" tobacco, alcohol, tattoos, piercings, gold teeth, cell phones... hey, these items contribute to GDP, don't they? That's how GDP works, in our system. Go out tonight and have a massive heart attack and die = no benefit to GDP. Go out tonight, get sick and go to a hospital and get diagnosed with terminal cancer = $500k minimum for GDP.

That's the system, and it is not so deeply entrenched that it cannot be extirpated and ripped up by the roots, but it will require an end to the 2 Headed 1 Party system.


tweell said...

So a Keynesian is like a Communist? "It hasn't been done correctly yet!"

Don't worry, with Obamacare we'll all be paying $17K or more a year on healthcare. That's what will be charged for 'bronze', the minimum and required coverage that pays a whopping 60% of costs!

Greg T. Jeffers said...

I pay that for BC/BS. Nothing special there. That's just basic family coverage today.

Anonymous said...

I, too, liked that paragraph that had: “You can be wrong for a very long period of time and still have
the underlying structure and story about the economy correct. That’s
not crazy
...It’s not like
you have to throw out how you think about these things

Right, it's not like we should throw out theories proven unsound by observation or experiment. I wrote Altig a response along the lines of comparing his philosophy to that of any group of people who disregard all contradicting evidence until the occasional data points that agree with a part of their theory [inevitably] shows up and then their theory was correct. How people still take economists -- mainstream ones anyway -- seriously, is perplexing. The writer of the article, an economics writer no less, thought nothing of ending the article on that note without questioning such a philosophy.

Publius said...

Keynesianism, and neo-Keynesianism, are orthodoxy.

Even in the physical/biological sciences, orthodoxy trumps evidence until, as I believe Thomas Kuhn wrote in one of his books on the history/philosophy of science, the old guard retires or dies.

The current orthodoxy in economics is even more entrenched than in the hard sciences, because you can't really disprove something that never had much evidence in its favor anyway.

I suspect the current "system" is un-reformable.

The rational thing for people to do is to develop real skills that real people in their real communities need: from cleaning windows to repairing small engines; growing things; building things... and downsize one's material life to the extent possible, especially anything that depends on significant cash flows.

In other words, avoid debt and mortgages, unless you are going to be willing to fight, literally, to keep the homestead when the next leg of the continuing new great recession starts to happen.

Form webs of relationships with people who can reciprocate, and who are involved in useful trades and activities.

It is unbelievable how people I know are continuing to go the wrong way: the family with two parents about my age (older than ideal, but hey, at least they reproduced!), with one disabled child who will never be able to work - they are considering buying a new house twice as big as their current house. They are underwater on the current house. They own a third rental property, and the rent barely covers the costs, if that. And they plant to rent the current underwater house, and use one of the parent's "early" inheritance - courtesy of the still-living generous well-to-do father, to buy the new larger than necessary property.

Luckily, they are currently getting almost full-time assistance from a nurse for the disabled child, courtesy of the state taxpayer, so that the mother can work-time from home at a job that pays about what the state aid nurse is paid.

In general, I still see people expanding the list of goods, services, and real-estate that they feel is essential, rather than downsizing.