Deficit Spending is Not the Answer

Posted on March 25, 2016 by MN Gordon

Central bankers and monetary adherents the world over are united in the common grouse that fiscal policy is lacking.  Grander programs of direct stimulation are needed, they grumble.  Monetary policy alone won’t cut the mustard, they gripe.

Hardly a week goes by where the monetary side of the house isn’t heaving grievances at the fiscal side of the house.  The government spenders aren’t doing their part to boost the GDP, proclaim the money printers.  Greater outlays and ‘structural reforms’ are needed to spur aggregate demand, they moan.

For example, last month, just prior to the G20 gala, the Organization for Economic Cooperation and Development (OECD) asserted that “Getting back to healthy and inclusive growth calls for urgent policy response, drawing on monetary, fiscal, and structural policies working together.”  The OECD report also stated that “The case for structural reforms, combined with supporting demand policies, remains strong to sustainably lift productivity and the job creation.” Continue reading →

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Why Janet Yellen is Toast

Posted on March 18, 2016 by MN Gordon

“The Phillips Curve is alive,” said Fed Chair Janet Yellen at Wednesday’s post FOMC meeting press conference.

We’ll offer some remarks on this in just a moment, including why Yellen is toast.  But first we must put her utterances into proper context.

This week, at a business meeting, we experienced the full veracity of Brandolini’s Law.  If you happen to be ignorant of Brandolini’s Law, we must apologize.  For we must forever end your bliss.

Brandolini’s Law, or the BS Asymmetry Principle, as formulated by Italian programmer Alberto Brandolini, says: “The amount of energy needed to refute BS is an order of magnitude bigger than to produce it.”

In other words, it takes 10-times the energy to debunk a falsehood than it takes to spew it.  Certainly, Brandolini is on to something.  In fact, as far as we can tell, there are countless applications of this law. Continue reading →

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No Free Lunches Be Damned

Posted on March 11, 2016 by MN Gordon

“There ain’t no such thing as a free lunch,” is one of the essential axioms of economics.  No doubt about it, there’s no getting around this simple truth.  Everything has a price.

For example, even if someone buys you lunch the lunch still isn’t free.  The opportunity cost, your time to eat the lunch when you could’ve been doing something else, has a price.  In addition, even if you don’t consider your time a cost, there’s no denying the fact that someone paid for the lunch.  Hence, it wasn’t free.

Nonetheless, despite this simple fact, politicians promise free lunches for the many at the expense of the few.  This offense is especially on display during a presidential primary election.  Free college.  Free drugs.  Free housing.  Free food.

You name it, there’s hardly a lunch out there this season’s crop of presidential candidates haven’t already laid claim to.  This is what they must do to get elected.  This is how presidential politics works in a democracy.

We don’t like it.  We don’t agree with it.  But what we think really doesn’t matter.  The facts are lucidly clear. Continue reading →

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Alan Greenspan’s Pickled Economy

Posted on March 4, 2016 by MN Gordon

Former Federal Reserve Chairman Alan Greenspan resurfaced this week.  We couldn’t recall the last time we’d heard from him.  But, alas, the old fellow’s in desolate despair.

On Tuesday, for instance, he told Bloomberg he hasn’t been optimistic for “quite a while.”  Obviously, this is in contrast to the perennial Goldilocks attitude he had during the 1990s.  So what is it that has the Maestro playing a low dirge?

China, the dollar, Dodd-Frank, and associated unknowns are all part of his negative outlook.  But the long winter of his discontent is something else.  Greenspan said he “won’t be [optimistic] until we can resolve entitlement programs.”

“Nobody wants to touch [entitlements].  But it is gradually crowding out capital investment and that is crowding out productivity and that is crowding out the standards of living,” said Greenspan.

Indeed, funding entitlement programs is becoming more burdensome by the year.  As a greater percentage of the economy’s GDP goes toward entitlement programs, a lesser percentage goes towards capital investment.  The effect of this negative feedback loop, as Greenspan infers, is quite simple. Continue reading →

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