May 14, 2010

My very own Nobel Prize

A Friday joke for the cognoscenti (pronounced "cone yo shentee"):

Descartes walks into a bar and the bartender asks "The usual, Descartes?"

Descartes replies "I don't think.." and disappears.

I salute Paul Krugman for fighting the good liberal fight. He styles his blog, somewhat sententiously, "Conscience of a Liberal." I'm sure he often regrets that; there are many days when I wonder whether "Waldenswimmer" has much to do with what I'm writing about, but at least I'm not rather ostentatiously advertising the precious quality of my "conscience."

Anyway, the noted Princeton economics professor, Nobel Prize winner and New York Times columnist weighs in today with his insistence that the United States is not Greece. Good to know. Personally, I didn't think we were. Krugman means it in a good way, of course. He gives some passing recognition to the key difference: Greece is locked into the euro, which it can't print on its own, whereas the United States is the paper-hanger of the world's reserve currency, the almighty dollar. Thus, no one really has to worry about U.S. default on its sovereign obligations - if we hold an auction and no one shows up, the Federal Reserve will create the "money" to buy our own debt. It can do this in a variety of ways, such as lending a few trillion more to the so-called "Primary Dealers" of the Federal Reserve cartel, who can then bid this virtually free money into Treasuries and earn money on the spread. If you're wondering how Goldman Sachs, the BofA, JP Morgan Chase and others managed to achieve absolutely perfect trading (no day with a proprietary trading loss) for every day of the last quarter, look no farther than that factoid. You could do it, too, if someone offered to lend you money at 1/2 percent and gave you privileged access to an auction where the instruments pay you 2-3% on your trades. This has been going on for a very long time now, as Bernanke continues to insist that despite the robust recovery underway that "extraordinarily low" interest rates are justified by the "subdued inflation" and tentative nature of our recovery. Something along those lines. He seems to fall asleep as he says it over and over again to Congressional committees, and I can't blame him.

So here's Krugman on another reason we're not Greece, aside from the lack of a Parthenon:

The U.S. economy has been growing since last summer, thanks to fiscal stimulus and expansionary policies by the Federal Reserve. I wish that growth were faster; still, it’s finally producing job gains — and it’s also showing up in revenues. Right now we’re on track to match Congressional Budget Office projections of a substantial rise in tax receipts.

It's naturally predictable that the good professor would salute the fiscal stimulus, since Krugman has staked his professional reputation (and the validity of his Stockholm award) on Keynesian economics. Personally (and it's the basis for my own self-nomination for a Nobel), I think that Krugman's favorite student, Barack Obama, has made a serious mistake. Obama bought into the idea of a huge ($700 billion) stimulus, exacerbating our deficit problems, and then, realizing that he wasn't being bipartisan enough, followed this move immediately with a call for austerity in spending. No, you can't do that. If you're going all in, you need to play your bluff all the way through. You don't shove all your chips into the center of the table and then fold. That's what Prez O has done. As for Krugman's claim, we can look at the Treasury's own recently published spreadsheet for the month of April. April, of course, has a particular, shall we say, significance for tax receipts - I mean, if we're going to rake it in, that's the month you'd expect to do so. So how did we do?

Well, we hauled in $245 billion, of which $68 billion was FICA taxes. FICA taxes tend to be higher in April because it is then that Schedule C filers (self-employed) pony up the rest of what they owe for the prior year. Year to date (since October 1, 2009, beginning of the last fiscal year) we have received $1.199 billion in taxes. In the prior year (deep in the Great Recession, in other words) the tax receipts were $1.255 billion. So what does the Nobelist mean when he says that our prosperity is showing up in tax revenues? It must be in the sense of that key word "projections" of the Congressional Budget Office, and also in the recent job growth figures.

Those job growth figures are interesting, actually. Of those 290,000 new jobs, 60,000 were Census hires. 188,000 are attributable to the "Birth/Death" estimate by the Ministry of Truth (Bureau of Labor Statistics), which refers not to human beings, but to the notional increase in new businesses (Births) versus closing businesses (Deaths). One might reasonably ask, during a Recession, is it actually reasonable to suppose that new businesses are being formed at such a prodigious rate, and if so, why is the commercial real estate market cratering? But never mind. If we subtract the Census and B/D numbers from the 290,000 number (in other words, if we eliminate the numbers the Federal Government itself actually controls), we are left with 42,000 jobs. Since 120,000 new employees enter the job world each month because of population growth, we can begin to see why the actual U-3 unemployment rate went from 9.7 to 9.9% despite the "job growth."

Still, I appreciate the Good Professor's chauvinist cheerleading. Someone needs to be optimistic, even if there is no statistical evidence whatsoever for such optimism. The growth in GDP is not "thanks to" stimulus spending; the GDP growth is government spending, but since it was done on a one-time, save-government-jobs basis, we've probably already seen its zenith of effectiveness. If I'm right, then the "jobs saved" by the Stimulus will begin to disappear, because the conceptual fallacy of spending money the way Congress did (the politically expedient method of supporting employment only for the existing way of doing things) means that the "investment" is short-lived.

In truth, there is no political will to undertake steps which would actually transform the American economy, which depends on a massive reworking of our energy regime. Tepid tinkering with the economy while we await some magical process to "restore" the consumerist Shangri-la built upon borrowing from houses is what the Nobelist actually thinks will happen. I am staking my own Stockholm Dreams on my theory that it will not.

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