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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: i-node who wrote (654013)

5/6/2012 2:57:44 PM

From: FJB

Respond to of 1584019

Weekend Market Summary

5/4/12

investmenthouse.com

Austerity they say does not work, citing Europe as the example. But is austerity the issue?

Jared Bernstein, a democratic economic strategist, was on CNBC Friday morning, and to his credit Mr. Bernstein lamented the lower unemployment rate as not a good indication and that there was very little positive in the jobs report.

But, it had to happen, he had to revert to his roots. He went on to say that what the European woes and the weak US jobs report show is that austerity does not work and thus the last thing the US should do is cut spending. So much for rational thought on the subject.

I have discussed this before, but given it is really picking up in the public discourse it is worth discussing again: comparing the US to Europe in terms of austerity is a non sequitur. Europe has no free enterprise, capitalist background. Decades of socialism and government control and regulation has snuffed out or severely retarded the entrepreneurial spark. It is not that people don't want to have their own businesses, it is just practically impossible to create one given the crushing regulation and red tape. Thus it has been replaced by government as the primary spender and employer, and that is why when they talk austerity in the EU there are riots because the largest employer by numbers is the government. Without it there is little hope for any other opportunity.

The US is wholly different. Government growth the past three years is staggering, and on top of 50 years of explosive federal growth things are not well here either. But, we still have that entrepreneurial spirit and history; if we remove the roadblocks, regulations, restrictions, etc., our economy would indeed surge again.

What Mr. Bernstein and others miss is that the huge federal and Fed spending during this crisis has not helped the economy, but HAS PREVENTED it from recovering as energetically and robustly as it normally would. Thus MORE spending is NOT the answer. Indeed federal spending growth rates have far outstripped the rate of climb in healthcare, college, and other costs cited daily as the culprits behind our deficit. No, we just spend too much on too many things the federal government has no business spending on. Cutting federal spending and letting citizens keep more of their earnings would, as it did in the 1960's and as it did in the 1980's, trigger a new wave of entrepreneurism: US citizens are ready, able, and willing to do it on their own yet again.

We need the government to get out of the way, remove the obstacles, let us keep our money, and then as Harvey Korman said in 'Blazing Saddles,' do that voodoo that you do so well!

But . . . there is even a bigger issue.

What I kept waiting for the Republican commentator to say was that austerity was not the clear case study in recent economic history. No, what we have a front row seat to is what should be the lead chapter in any Economics 101 textbook: How Keynesian Economics Failed in the Real World Yet Again.

Why are EU governments forced into austerity and why are US states and municipalities (because unlike the federal government they cannot print money) waging massive battles regarding pensions and benefits that can never ever be paid? Because they, unlike Odysseus, ate the Lotus flowers.

They were beguiled to believe that government could provide all necessary goods and services and all the people had to do was go to work and pay their taxes. They would be cared for. As Margaret Thatcher's famous line states, however, 'the problem with socialism is you eventually run out of other people's money.'

I miss the 'iron lady.' She had it right. We have seen that too much government and too much government spending and intervention create catastrophic events. Here in the US we pushed home ownership, Bush, Schumer, Frank, etc. even when it was clearly unaffordable. Then when things started to crumble we spent hundreds of billions, indeed trillions, and all we get is a 2% economy with 115K jobs supposedly created?

No the track record is clear: taxing and spending by the government in places it thinks is best is no substitute for letting the entrepreneurs keep their money and put capital where it wants to flow. Whenever in history we go back to those ideals the US is clearly the strongest country on earth. Kennedy in the 1960's (before Johnson ruined things with the Great Society) and Reagan in the 1980's are recent examples of how well we do when we unleash the US citizen.