Diary

Fiscal Insanity from the Economic Intelligentsia

If you can keep your head when all about you
Are losing theirs and blaming it on you

Rudyard Kipling

So-called “intelligent people” are continuing to call shots and give advice to the US President and Congress that is leading us straight over the financial cliff.

Obama claims that the root causes of our financial crisis are: a) Bush, b) Wall Street, c) Banks, and d) Republicans.

Paul Krugman, like Obama, a Nobel-prize winner (which should say something about his credibility) is a perma-Keynesian who writes for the NY Times. I noted recently that he has been one of the prime proponents of MASSIVE borrowing and spending by the Federal government.

Now on Sunday the 27th, he warned we are entering a Depression. He whines about the lack of spending from government:

“you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.”

Gee Paul, what part of reckless spending don’t you understand? He says that not spending is a deliberate mean-spirited act:

“the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.”

It now seems that Krugman, Obama and his merry men are becoming a smaller and smaller voice, as governments all over the world wobble with crushing debts and deficits. Obama encouraged the G20 in Toronto to spend; they told him to pound sand.

Rebuffed, Obama still cannot bring himself to reduce government spending — rather we will see some wild-ass tax proposals. As far as he is concerned, though federal expenditures are up 21% in the last 2 years, spending isn’t the problem. He wants to hike taxes, but knows he hasn’t got a chance before the November elections, so he sent a veiled warning from Toronto:

“I hope some of these folks who are hollering about deficits and debt step up, because I’m calling their bluff, And we’ll see how much of the political arguments they’re making right now are real, and how much of it was just politics.”

Why wait? Well, he has to wait for his blue-ribbon debt commission to come back (after the election), so he can propose taxes, taxes, taxes .. to save us. But that committee looks like there are some no-nonsense members, like Alan Simpson, who aren’t going to pussy foot around — so that may blow up on Obama.

Of course, the root causes of the financial crises are not, according to the government:

Reckless government spending
Unfunded programs: social security, medicare, prescription drugs
Unfunded government union pensions
A non-transparent and reckless Fed, who is trying experiments never tried before
Freddie and Fannie, encouraged by Congress, backing ridiculous loans to anyone with a dog
And did I mention? reckless government spending
The reality is that we cannot spending our way out of an over-spending problem, regardless of what Nobel-prize winning economists say.

Allan Meltzer writes in today’s WSJ: “Why Obamanomics Has Failed:

“Almost daily, Mr. Obama uses his rhetorical skill to castigate businessmen who have the audacity to hope for profitable opportunities. No president since Franklin Roosevelt has taken that route. President Roosevelt slowed recovery in 1938-40 until the war by creating uncertainty about his objectives. It was harmful then, and it’s harmful now.”

The solution? Reganomics anyone?

“The contrast with President Reagan’s antirecession and pro-growth measures in 1981 is striking. Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending. Recovery began about a year later. After 18 months, the economy grew more than 9% and it continued to expand above trend rates.”

Are we too late to following recovery plans like Prices’s “Stop Reckless Spending” plan, Paul Ryan’s “Roadmap for America’s Future”, or Eric Kantor’s You Cut project?

I’m afraid we will suffer a lot of pain before then. Mish Sherlock wrote this week that “An Economic Depression is Here”. Congress and The Fed are to blame.

Hold tight … this won’t be fun.
(Cross posted from LibertyYes Blog)