Public Enquiry Project

Prof Brad Delong again shows he doesn’t understand ECONOMIC MOMENTUM.

Alan Greenspan, on the other hand, has shown a brilliant understanding and mastery of the tools he has (interest rates and money supply) to manage our economy’s momentum. He’s mastered the phasing and calibrating of his interventions to keep the US economy on an even keel while growing the national wealth with only one notable exception. And that exception was his unwillingness to reign in the bubble economy of Clinton’s second term with sufficient negative momentum inputs (rate increases).

With that exception, he has shown us how to leverage small rate changes timed early enough relative to the business cycle so as to prevent catastrophic crashes.

Does anyone know the algorithms that he uses to guide his decisions?

THE FEDERAL RESERVE MOVES AGAIN
The Federal Reserve raises short-term interest rates to 1.75%:
“The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. After moderating earlier this year partly in response to the substantial rise in energy prices, output growth appears to have regained some traction, and labor market conditions have improved modestly. Despite the rise in energy prices, inflation and inflation expectations have eased in recent months.”

I have a hard time imagining a world next summer in which the Fed is sorry that it did not raise interest rates today. But I have an easy time imagining a world next summer in which the Fed is sorry that it did raise interest rates. So I'm having a hard time understanding their thinking.
Posted by DeLong

Prof Brad Delong assures us that the Social Security Trust Fund will be there when we need it. Do you feel better?

"But There Will Be Nothing Left in the Social Security Trust Fund!"

Teresa Nielsen Hayden is shrll. She writes:

Making Light: Wedge: I’ve been ruminating about a one-liner that’s been floating around the meme pool since lord knows when. You’ve probably heard it a thousand times:

By the time you retire, there’ll be nothing left in the Social Security retirement fund.

It’s untrue, of course; but for those who aren’t aware that it’s untrue, it’s profoundly frightening. We’re set up to be a cooperative society. We believe that by working together, we can as a people be richer, safer, smarter, and happier. However, this cooperation requires a certain basic level of trust. The belief that you could be left penniless in your old age, after a lifetime of contributing your regular fraction to the public good, creates a huge breach in your sense of trust.

It’s not the kind of idea that turns you into a monster overnight. I’m inclined to believe that the commonest reaction to it is dull, low-level grief: you thought life in America would be better than this. Still, if that’s what you have to look forward to, you’d better get while the getting’s good. You’re going to need that money. Meanwhile, you find yourself resenting calls on your generosity. True, you’re probably a lot better off than the people you’re being asked to help; but you’re not comparing them to your present self. Lodged in your heart there’s an elderly, needy, cast-off version of you, whispering that when the time comes, nobody’s going to pay to help you. Children stop looking like our hope for tomorrow. Instead, they’re the heartless little bastards who’re going to let you live on dogfood in your SRO until a heat wave finally does you in.

The other thing about believing there’ll be nothing left when you retire is that it makes you far less likely to scream in outrage over the long-term looting of the national treasury. After all, you already know you’re not going to get any of that. It’s not inevitable. I think we need to say so, early and often.

The first stage of the con is that those who say "there’ll be nothing left in the Social Security retirement fund" want you to think that that means that no further Social Security checks can be written. But what actually happens upon trust fund exhaustion is either (a) benefits are cut across the board by about 1/4 so that Social Security payments thereafter equal revenues, (b) Social Security taxes are raised to avoid benefit cuts, (c) the Managing Trustee of the Social Security System (i.e., the Treasury Secretary) borrows money from the government's fiscal manager (i.e., the Treasury Secretary), or (d) some combination of the above. This does not mean that the long-term imbalance in Social Security funding is not a serious problem. But those who say "there’ll be nothing left in the Social Security retirement fund

Posted by DeLong

LEFT WING DEMOCRAT ECONOMIST PROF BRAD DELONG ILLUSTRATES WHY DEMOCRATS CAN NEVER BE TRUSTED WITH CONTROL OVER OUR ECONOMY.

No leftwing political party has ever increased the wealth of its nation and citizens. Lefty intellectuals know nothing about the building blocks of economic success which live firmly in the character of the citizenry.

Almost all Democrat intellectuals are the privileged offspring of wealth and are therefore blind to the actual causal characteristics of those who succeed in business. Even worse, they have absolutely no respect for successful businessmen, even though it is the successful businessmen of a nation who provide the real jobs and develop the technologies that build the real wealth of nations.

This privilege derived prejudice totally precludes any understanding of economics on their part beyond the grossly obvious measurement of economic activity which they call Macro Economics.

Macro Economics measures but does not cause, control or predict.

Micro Economics which is based in the intelligence and character of economic actors is where you must look to cause, control and predict economic activity. Tax cuts that affect marginal rates operate in the micro world and really do have an impact.

Increase personal incentives and economies grow and decrease personal incentives and economies grow less or contract. Kerry’s “tax increase on the rich” will definitely crimp the economy and cause us all, individually and as a nation, to become poorer.

Democrat economists are political economists, not scientific economists. Their theories are politically motivated and driven by envy and greed. Democrats foster a culture of victim hood among their supporters. A culture of helpless citizens who need the largess of government to satisfy their needs and “bring down” the economically successful whom the envy and hate.

It is crucial, if the United States is to survive and prosper, that all political economists are recognized for the frauds they are so that only scientific economists have any power in our government.

Measurement is not understanding. Economic success comes from incentives, character and education, not from government handouts.

UC Berkeley economics Prof. Brad Delong is brilliant when he’s a Scientific Economist and a total Charlatan when he’s a Political Economist.

This is true of all Democratic Economists and it’s a crime. These pretentious but phony savants not only brain wash our children in their care, but they seek to con the electorate into voting for candidates who will give them power over our wallets and lives.

In the article below from his blog he disses R. Glenn Hubbard for 2% error over fifteen months. That’s .13% per month. Who’s he kidding? You know for sure that had he made that prediction that he’d be bragging all over the place about “point one three percent per month accuracy…”

Brad the Scientific Economist is a great resource for our nation while Brad the power hungry Political Economist is a grave threat to the well being of our families our nation, and our world. I can only hope that once his dreams of imminent power go down in flames the night of November 2, 2004 that we will undergo a course correction back to the world of Scientific Economics.

Arrogant Adrian

Income inequality

WALTER WILLIAMS EXPLAINS HOW DEMOCRATANOMIC DEMAGOGERY IS BASED IN LIES.

Income inequality

Walter E. Williams

Last month, the U.S. Bureau of the Census reported its findings on income and poverty. Median real income remained constant between 2002 and 2003 at $43,000; the official poverty rate rose slightly from 12.1 percent to 12.5 percent for a total of 36 million Americans; poverty rates by race remained unchanged at 8 percent among whites, blacks 24 percent and Hispanics 22 percent. Dr. Daniel H. Weinberg, Bureau of Census division chief, added that income inequality remained unchanged with the lowest 20 percent of households ($18,000 and below) earning 3.5 percent of national income and the highest 20 percent ($86,900) about 50 percent...

... Let's look at who doesn't pay taxes. According to a study done by Scott Hodge, president of the Washington, D.C.-based Tax Foundation, and his colleagues, 41 percent of whites, 56 percent of blacks, 59 percent of American Indians and Aleut Eskimos, and 40 percent of Asians and Pacific Islanders will have no 2004 federal income tax liability. The Tax Foundation study concludes, "When all of the dependents of these income-producing households are counted, there are roughly 122 million Americans -- 44 percent of the U.S. population -- outside of the federal income tax system."

Who does pay federal income taxes? The top 20 percent of income earners pay 80 percent, and the top 50 percent pay 96.5 percent of total federal income taxes...

... The top fifth of income earners (earnings greater than $84,000) are not only more productive and have higher skills and education than the bottom fifth of income earners, they work more hours and have more people in their household working...

...According to Internal Revenue Service tax data, 85.8 percent of tax filers in the bottom fifth in 1979 had moved on to a higher quintile, and often to the top quintile, by 1988. Income mobility goes in the other direction as well. Of the people who were in the top 1 percent of income earners in 1979, over half, or 52.7 percent, were gone by 1988.

Here's my question to you. What are we to make of politicians, and other charlatans and quacks, who are knowingly dishonest and use the politics of envy to exploit American ignorance for political gain? It's immaterial whether you're for George Bush or for John Kerry winning the White House -- do you think politicians running on the politics of envy bodes well for the future of our country?

http://www.townhall.com/columnists/walterwilliams/ww20040908.shtml

Adrian the commonsense economist teaches Prof Brad Delong an economic lesson

Trimming the Macro Forecast

Three new macro forecast revisions arrived in my inbox over the past week. They're all down--oil prices and the effective end of fiscal stimulus. In fact, they are all suggesting growth at or below the growth rate of potential output. This means that the labor market is unlikely to get any better over the next eighteen months or so.

This is really depressing...

Posted by DeLong at 10:49 AM

BRAD, YOU KNOW BETTER THAN THAT. REDUCED MARGINAL TAX RATES ARE THE GIFT THAT KEEPS ON GIVING. POTENTIAL INVESTORS WILL SEE MORE PROFITS IN THEIR PROJECTED PRO FORMAS AND MORE JOB PRODUCING PROJECTS ARE LIKELY TO GO FORWARD BECAUSE OF IT.

Posted by Adrian Spidle

Prof Brad Delong and the Academic Left still don't understand economics...

And here's why:

All their arguments against the Efficient Markets Hypothesis in favor of government planning are not only wrong but miss the point entirely.

The genius of free markets is that they allow evolution by natural selection to occur as a matter of course in the economy. Nations that replace free markets by central planning can never really evolve - get better - because the planners won't allow it. This is why the USA is so much richer and more successful than the Eurosocialist democracies. As evidence I assert that the average American earns $9,000 more per year and lives in twice the space of the average Social Democrat citizen.

The main mechanism that allows this is called DIVERSITY in politics and biology and DIVERSIFICATION in finance. They mean the same thing and work the same way in their diferent domains. It has to do with putting all yopur eggs in one basket.

Democrats get DIVERSITY all wrong because they don'y understand that diversity exists in many dimensions and they are all important.

Is a bunch of people who look different but think the same really diverse? I would like to propose ADRIAN'S THEOREM OF DIVERSITY:

Principal 1 - Total diversity TD = D1 + D2 + D3 +++ where each partial value represents a different dimension of diversity such as ... RACE, RELIGION, GENDER, PHILOSOPHY, AGE, PROFESSION, HEALTH, DEGREE OF ATHLETICISM, HOBBIES, etc.

Principal 2 - Forced selection in one dimension reduces diversity in all other dimensions.

This means that government diversity mandates actuall, reduce total diversity and thus reduce total fitness.

In other words, free markets are fitter than planned markets.

Adrian the commonsense economist

The Great Prof Brad Delong quotes JM Keynes

“It seems an extraordinary imbecility that this wonderful outburst of productive energy [over 1924–29] should be the prelude to impoverishment and depression. Some austere and puritanical souls regard it both as an inevitable and a desirable nemesis on so much overexpansion, as they call it; a nemesis on man’s speculative spirit. It would, they feel, be a victory for the mammon of unrighteousness if so much prosperity was not subsequently balanced by universal bankruptcy. We need, they say, what they politely call a ‘prolonged liquidation’ to put us right. The liquidation, they tell us, is not yet complete. But in time it will be. And when sufficient time has elapsed for the completion of the liquidation, all will be well with us again.

“I do not take this view. I find the explanantion of the current business losses, of the reduction in output, and of the unemployment which necessarily ensues on this not in the high level of investment which was proceeding up to the spring of 1929, but in the subsequent cessation of this investment. I see no hope of a recovery except in a revival of the high level of investment. And I do not understand how universal bankruptcy can do any good or bring us nearer to prosperity…” (p. 349)

Posted by DeLong

WELL, LET'S DO A MOMENTUM ANALYSIS OF THE ECONOMY LEADING UP TO THE GREAT DEPRESSION.

1 - In 1929, from a momentum management perspective, a recession was at least a year overdue. In boom times an extra year will cause all kinds of crazy economic excess just as we experienced in 2000.

2 - To fight the bust the Republicans passed the smoot Hawley tarriff act which totally shut down the already fragile international trading systems cutting off US exports adding a large downward economic shock IN PHASE with the already collapsing bubble.

3 - Those Republicans then added fuel to the fire by passing a tax increase that further drove the economy into the drink. Resonance is wonderful on the upside but can be catastrophic on the downside.

THAT'S IT.

Adrian the commonsense economist

Republican Tax Cuts Create Jobs and Democrat Tax Cuts Don’t

Republican Tax Cuts Create Jobs and Democrat Tax Cuts Don’t

When you look at the graph of the value of a stock or an economy you see that analysts break it down into fluctuations around trend lines. The fluctuations are noise and the trend lines are the real signal. The noise should be ignored and the signal is valuable information to be used in your planning.

Noise is all over the place and is fairly meaningless in the long run. Trend lines can be up or down, a little or a lot. This characteristic of a trend line is its slope.

Proposed Democrat tax cuts (I say proposed because no Democrat has ever actually passed a tax cut in 40 years although they’ve promised plenty) are always temporary give-aways to their middle, low and no income constituents and are supposed to “stimulate” the economy when they are spent at McDonalds or Target. From a long term perspective these illusory Democrat promises are never more than noise.

Republican tax cuts are real and actually do create jobs. Above all, Republican tax cuts are MARGINAL TAX RATE CUTS that increase the slope of the economy’s trend line. When individuals or companies plan future enterprises, the MTR is always prominent in the Pro Forma they will use to determine whether the proposed enterprise is worth doing in the first place. If they decide to go ahead with a proposed job creating enterprise, the Pro Forma will be the tool they use to raise the necessary capital to start their new business (or division) that will create jobs.

This is way the Republican passed low marginal tax rate United States of America is so much richer than the high marginal tax rate Euro socialist nations.

Adrian the commonsense economist

THE KILLER REPUBLICAN ECONOMIC ARGUMENT

As my neighbors and I brace for the physical impact of the DNC here in the Boston area, I'm trying to get emotionally ready for what I know will be egregiously inaccurate economic arguments - DEMOCRATANOMICS - formed in part by my brother-in-law Prof Brad Delong of UC Berkley and former Asst Treasury Secretary in the Clinton administration.

There are two huge fallacies in their economic arguments that need to be directly addressed by Bush supporters:

1 - YOU CAN'T ASSIGN ECONOMIC EFFECTS TO SIMULTANEOUS POLICY CHANGES. There is always a time delay between when economic policy changes occur and when their effects show up in the economy. This delay is determined by the relative value of the economic momentum of the policy change and the existing economic momentum in the economy as a whole as well as the value and direction of any other economic events such as the internet bubble burst and 911.

I've proposed ADRIAN'S THEORY OF ECONOMIC MOMENTUM which provides a framework for actually measuring and predicting these effects... see below.

The political points to be made are:

A - The great bust of 2001 was the result of the decision of the Clinton administration to not take a recession in 1996 or 1997 which allowed the runaway boom (accelerating economic momentum) that crashed so devistatingly in 2001.

B - This decision is directly responsible for the devestation that was subsequently afflicted on the American job market.

2 - THE BULK OF TAX CUT ECONOMIC STIMULATION RESULTS FROM THE MOTIVATION OF THE INVESTOR CLASS TO INVEST THEIR RESOURCES BECAUSE OF THE INCREASED RETURN THAT COMES FROM MARGINAL TAX RATE CUTS AND NOT THE SPENDING OF TAX REFUNDS.

This means that the Bush tax cuts which are derogated as "a give away to the rich" were exactly the best possible tax cuts if improving our economy is your primary goal. I assert that this is never the Democrats primary goal and that their main goal is always to buy votes and pay off supporters.

THIS ISN'T SO HARD TO UNDERSTAND so let's not let the Democrats get away with their silly and dangerous DEMOCRATANOMICS.