Wednesday, February 29, 2012

Gould, Morgan et al: Hopeless

imageIf you’ve ever wonder why Gareth ‘Bloody’ Morgan’s alleged investment company is the worst performing of all the Kiwisaver providers, perhaps the answer is that their economic analysis is as risible as the analysis in the books churned out by their principal.

Consider for example the Pollyanna like pronouncements by their “senior economist” John Carran recently that everything is about to become all rosy in the garden again—that official Chinese GDP figures (measuring the construction of empty cities, empty shopping malls and the like) are to be believed; that European banks have been inoculated from Greece’s by oodles of printed paper; that all the printing by all the world’s central banks will (sometime soon) bring about a second Land of Cockaigne; and that the US is one of these place in which Milk and Honey will soon be flowing. 

Or the equally insipid “analysis” by their “senior equity analyst” Nathan Field, who also pins his hope on a fabled US recovery while appearing not to realise that the US stock market has been rising recently for no other reason than all the phony paper money pumped into markets by The Fed, and that there is and had been no credible signs of a US recovery (about which more below).

_BryanGouldThe level of reasoning on display is so dim it almost makes the analysis in the Herald this morning by failed British Labour Party MP Bryan Gould look good. Basing his “analysis” on facts both historical and from out of yesterday’s papers, Mr Gould reckons that  a recipe of spend, spend, spend is the answer to today’s economic woes. And he’s wrong on virtually everything he says, both factually and analytically.

_Quote_IdiotIn the 1930s [for example, says Gould], there were those, like Herbert Hoover, who insisted that austerity - cutting government spending - was the way to beat recession.

In fact Hoover did nothing of the sort, as he himself boasted in his 1932 presidential campaign.  Instead of doing nothing, he crowed, “we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.”  “Gigantic” then meant raising spending by nearly one half, and adding a deficit where before there was none:

image

Spot any fiscal or monetary austerity there? (Note: these are not “gee-whiz graphs.” There is a zero baseline.)

The result of this non-austerity was to make the situation worse, not better---with even worse to follow when his successor, Franklin Roosevelt, followed the same medicine.

The myth of Hoover’s do-nothingness is just one of many myths from the Great Depression [PDF[ that are still peddled by the know-nothings of today to justify their own nostrums. It should be known to Mr Gould (who has the same pretensions to historical acumen as Mr Morgan and his colleagues at his lacklustre firm have to economic acumen) since the spending, debt, and deficit numbers are all given in tables published every year with the president's proposed federal budget [PDF]. So he really has no excuse. Because as often as this myth is repeated, the truth is the reverse: that Herbert Hoover was a big-government man who did not trust the free market whose meddling turned an ordinary depression into a Great one.

Not that accuracy is any part of Mr Gould’s intentions (even as a failed politician, lying was one of his professional talents) since he then goes on to suggest, quite erroneously, that the reason for the failure of Portugal, Ireland, Spain and the UK to get off the floor is not the enormous debts with which they’ve saddled themselves, which all have increased in the last four years, but some alleged “austerity” which all have inflicted on themselves.

If only they had.

It is not an austerity programme when you debt keeps rising—as it has in all these jurisdictions. It is not an austerity programme when you raise taxes—as all have done. The UK for example

raised capital gains taxes from 18% to 28%, which is the taxes that hit business formation the most.  Raising capital gains decreases the return on investing in new economic activities and investors can easily decide not to invest their capital so this tax reduces economic activity more quickly than other taxes.  If the UK had not raised taxes, they would most likely now be experiencing an economic boom.

It is not an austerity programme when governments spend beyond their means, and it is not a real rescue when the the real causes of the financial crisis [PDF] not only have not gone away but have been given more legs.

So what’s the argument Mr Gould gives for the success of his plan to spend more money?  It’s the wonderful success story of the United States of America in the last four years, wherein “President Obama's stimulus programme - bitterly opposed and relatively timid as it was - is pulling the US economy around.”

Really?!

Mr Gould seems to be reading the same poorly performing tea leaves as Mr Morgan’s poorly performing staff. Because far from recovering, as they both suggest, the latest data doesn't indicate a recovering US economy at all but precisely the reverse: a place wherein all that the Fed's phony paper money is sloshing around the highly inflated stock markets while  every real measure of recovery is on the floor or falling.

The evidence of an improved labor market, higher corporate earnings and the return of the housing market are all based upon misleading data [observes Charles Biderman in Forbes magazine]…

  • The only increase in cash since the March 2009 has been the Federal Reserve giving newly created money away as payment for government expenses… The combined $4 trillion deficit, when added to the $1.4 trillion given away to banks to buy their worthless mortgages equals the $5 trillion increase is US debt.
  • Corporate after-tax income is growing at just under 3% year-over-year, not keeping up with inflation… The reality is that if income tax collections are not growing very fast than neither are the number of new jobs. That calls into question the recent BLS press release that said jobs are growing fast.
  • Without seasonal adjustments unemployment claims are currently down the same 10% year-over-year as the past six months. In other words, by counting year-over-year numbers there is no improvement…
  • Real-time data, ignoring seasonal adjustments and counting year-over-year numbers, indicate both prices and sales of new and existing home sales are pretty much unchanged from year end 2011…
  • Yes the stock market has been going up, but that does not have to mean the U.S. economy is improving. While U.S. and European stocks have been going up, gold keeps rising faster. That means it is not gold that is a chimera, or a phantom, it is the U.S. currency that is a phantom.

This is not anything like the US of Mr Gould’s dreams then. This is the real US data from just yesterday--real data that doesn't corroborate an improving U.S. economy

Real data indicating Messrs Gould, Morgan, Carran, Field—and Pollyanna—have all been talking through their hats.

So perhaps instead of talking about some non-existent “austerity” of today, or talking up the failed super-Keynesian stimulus of the 1930s, they might instead look at the last time a serous economic depression was seriously allowed to play itself out by adopting the real hands-off approach Mr Gould erroneously attributes to Mr Hoover.

It was the Great Depression of 192o.  The Great Depression you’ve never heard of.

And the reason you’ve never heard of it before?  Because the hands-off real austerity turned around a bigger crash than 1929’s plunge in less than eight months.

And oddly enough, it was similar policies that eventually allowed most of the non-US western world to recover from the Great Depression , while Franklin Roosevelt (following Mr Gould’s recipe, which includes every ingredient necessary to stop a recovery in its tracks) was busy making it impossible for America to recover.

But don’t expect to hear that from a failed politician. Or Gareth Morgan’s “experts.”

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16 Comments:

Anonymous J Cuttance said...

I couldn't read past Gould's first dopey statement about Hoover.
It's a manifestation of the statist to-do list entitled "Lies we have to repeat until irremovably ingrained and the whole fucken country is a communist re-education camp"

2/29/2012 07:36:00 pm  
Blogger peterquixote said...

Oh my god, another one, you have switched on links to commercial rip you off idiots.
Close your blog if you have to stoop to that PC. Close blog now. We expect links to link to the blog.

2/29/2012 08:21:00 pm  
Blogger peterquixote said...

Do I have a virus in my computer. There are many links in the PC blog which go to crap commercial rip off

2/29/2012 08:24:00 pm  
Blogger James said...

^ Dad 4 Justice....just fuck off you gibbering idiot.

2/29/2012 09:33:00 pm  
Blogger Richard McGrath said...

PC, a great summary of just how pig-ignorant Morgan, Gould et al, actually are. Well said.

Funny how President Warren Harding's laissez-faire solution to the Great Depression of 1920 never gets mentioned by these intellectual pygmies.

2/29/2012 09:52:00 pm  
Anonymous Anonymous said...

Is it possible to cut government spending yet the economy shrinks and that leads to an increase in government debt? Yes. So whats with all the bullcrap?

3/01/2012 10:34:00 am  
Blogger peterquixote said...

nice one Dad. nice language, nice attitude, as always but I simply got links to advertisements and wondered why. .

3/01/2012 10:47:00 am  
Blogger peterquixote said...

I am sorry I just got links from the text of the blog to adverts, but nice attitude Dad, nice language,

3/01/2012 10:49:00 am  
Blogger PC said...

@Anonymous: I presume your rhetorical question is intended to maintain that cutting government spending causes the economy to shrink, leading to an increase in government debt.

If so, you are in error. (You're not Bernard Hickey, are you?) You are assuming that Gross Domestic Product measures all economic activity--which it doesn't--GDP is more accurately called Nett Domestic Consumption--and that if GDP shrinks then govt spending must be made up to fix it. That is not a good policy, and every time it has been tried is empirical evidence for its failure.

Govt can only increase its spending by either taking more taxes, printing more paper (a form of inflationary tax), or borrowing more (which has to be paid back pout of taxes. So increasing govt spending requires more tax.

But increasing taxes doesn't grown an economy, it shrinks it.

As Dale Halling points out in one of the linked articles above raising taxes decreases the return on investing in economic activities.

"If the UK [for example] had not raised taxes, they would most likely now be experiencing an economic boom. [Indeed, in an alternative low-spending universe we could all have seen recovery in February 2009].
The empirical data clearly shows that lower government spending results in greater economic activity. As an example of one study that clearly shows this see “The Size and Functions of Government and Economic Growth”. This study clearly shows that the lower government spending the greater subsequent growth of the economy. (see Graph)

Logically, if a government absorbs 50% of a country’s GDP then the cost of goods and services on average have to be twice as much as they would otherwise be. In order to pay the expenses of government, a private sector producer who would normally charge $1.00 for a good in the absences of any government costs will now have to charge $2 and pay $1 of it to the government. If the government consumes 25% of the economy then the average cost of goods and services has to be 33% higher than they otherwise be. The simple math to figure this out is to take the reciprocal of 1-government spending. If you want to stimulate “demand” as the Keynesians are constantly suggesting, then the way to do it is to cut government spending not increase it. Imagine the increase in demand if the US were to reduce its total government spending of about 50% of the economy down to 25% of the economy. This means that the average cost of goods and services would fall 39%. How many more cars, computers, software, etc would people purchase if they were 39% cheaper? Austerity is one of the keys to both our short term and our long term economic health.
"

3/01/2012 11:00:00 am  
Blogger PC said...

@peterquixote: What ads?

3/01/2012 11:24:00 am  
Anonymous the drunken watchman said...

I dont know enough to judge the respective arguments - intuitively, I like PC's. But at some stage it will have to be ground truthed, won't it? Like during some guy's lifetime?

So when can we expect the meltdown?

Or are you saying that(while we may never become Zimbabwe, that we might muddle along flirting with disaster, but never actually go hungry) had a different approach been adopted then, relatively, greater prosperity could have been had?

3/01/2012 11:34:00 am  
Anonymous the drunken watchman said...

Charles Biderman says "While U.S. and European stocks have been going up, gold keeps rising faster"

Is he sure? Since the crash of 2008?

3/01/2012 11:41:00 am  
Anonymous Anonymous said...

PC, you are obviously folowing the dictum that Thomas Woods made at the very end of the video... and you are doing it extremely well too, thank you.

One thing that stood out like a beacon for me in the video was the obvious but almost never stated fact that business makes its money by selling its products and services to a willing market, whereas government makes its money by seizing it from the productive sector.

The economic policies from governments for decades amount to economic suicide, but few people seem to have the intelligence to realise this. What they are doing is the equivalent to a family experiencing hard times and then responding by spending up HUGE on the credit card! Why can people not see the stupidity here?

Dave Mann

3/01/2012 12:31:00 pm  
Anonymous the drunken watchman said...

Dave Mann

yep, suicide. Got it.

But when do you expect the respective economies to die, then?

Cant commit suicide without dying, can you?

3/01/2012 02:11:00 pm  
Blogger Richard McGrath said...

Off subject a little bit, but still related to economics: Not sure if anyone was watching Fox last night. They were discussing rising U.S. gasoline prices (still much cheaper than here though!). One of the commentators, Dick Morris, noted that gasoline still costs the same, in terms of ounces of gold or silver, than it did in 1948. If the coinage of today still contained as much silver as it did back then, an American gallon of gasoline would still cost twenty cents!

What this demonstrates is just how badly the Federal Reserve's money-printing, the loss of any link between the dollar and precious metals - not to mention the minting of coins from scrap metal - has debased the currency.

3/01/2012 03:18:00 pm  
Blogger Sally O'Brien said...

Bernard Hickey getts high on the Power of printing money in the following article.
Sure Bernard, why not screw our most prudent citizens, the ones who have savings, to bail out government and private debt.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10788041

3/01/2012 06:56:00 pm  

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