Macroeconomics for Dummies in the age of Bullshit, Hold the Bullshit

Most thinking people correctly understand government to be not just “the things we do together”, but a system that confiscates property from some people and gives it to other people.

For many decades, this process was explicit. Taxes were collected from some and given to others.

Welfare transfers wealth from working middle class families to mostly unemployed poor families. Later, as the long term effects of welfare and the liberal attack on families took effect, the transfer was from working middle class families to unemployed single mothers.

Medicaid transfers wealth from working middle class families to unemployed poor old people.

Social security, on the surface, transfers wealth from working middle class families to unemployed old people. But due to an bookkeeping fraud that would land a CEO in jail, the story is more complex. Assume in one year the government collects a total of $100 from all social security payroll deductions, and pays out $75 to seniors. Social security was designed from to collect vastly more taxes than are paid out. The $25 goes into the general fund, where is it spent on Welfare, Medicaid, military and other things. A note is made that the “trust fund” is owed $25, to be spent on social security in the future. The money is gone, but the commitment and expectation to pay it in the future remains.

The trust fund doesn’t exist.

Social security was the beginning of the truly massive transfers of wealth from future generations to current generations that are too common now.

Bush amped up the generational wealth transfer with deficit spending – borrowing – as we correctly understand it. In amounts much larger than can possibly be paid back. Ever. Deficit spending is what is ruining Western Europe in slow motion.

But the real action is in monetary policy.

One of the jobs of the government is to maintain a “stable dollar”. The mechanism of doing so is to add or remove dollars to the economy via bank lending so as to as to keep the purchasing power of dollar more or less constant. The federal reserve watches the price of a set of goods and services and adjusts the money supply accordingly. The problem is that in the post Clinton economy – the last the adults were in control – the economy hasn’t responded in textbook fashion.

The money supply has increased due to deficit spending and monetary policy but the price of many goods and services has not increased. This is likely the result of the downward pressure on wages from globalization, and increases in business efficiency due to computers and the internet. But all that extra money is creating asset bubbles, which subsequently collapse. These bubbles transfer far more wealth than any of the traditional programs.

And they are completely out of control.

The stock bubble was a preview of the damage that would be done by the housing bubble. The housing bubble transferred amounts even greater than a life’s savings from some working middle class families (the ones holding the bag with underwater properties and huge debt), to other working middle class families (the lucky ones), and to the financial and construction industry.

The Obama administration, unable to reverse the multi-generational impact of the wealth transfer caused by the housing bubble collapse, is trying to re-inflate the bubble by doubling down on the Bush policy with truly frightening amounts of both deficit spending and expansionary monitary policy.

This is currently causing a transfer of wealth from old people with fixed income investments to stock holders (the current bubble). But the largest transfer is to parents from their children, and from their children’s children, who will inherit a mountain of debt, chronic high unemployment and a stagnant economy.

Obama of course doesn’t tell you this. He blames the rich. In his worldview there is enough wealth for everyone, but the rich are hanging on to too much of it. Given the magnitude and complexity of the US economy, this is a believable explanation.

It seems reasonable. The rich have nice cars.

It is of course wrong. The math doesn’t work. Not even close. And the next bubble will be the entire United States of America.

This is what the baby boomers, insatiable greed and bullshit have done to us.

Mike.

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s