Koch Speaks Out
I hadn’t noticed this, but Glenn Greenwald linked to a WSJ op ed by Charles Koch (I’m guessing the name rings a bell with most readers). I wish he would have taken on the accusations more directly, since I like a good brawl (in words of course, not fists), but I imagine his media consultants said it was better to err on the side of too little.
Here’s an interesting line: “In spite of looming bankruptcy, President Obama and many in Congress have tiptoed around the issue of overspending by suggesting relatively minor cuts in mostly discretionary items. There have been few serious proposals for necessary cuts in military and entitlement programs, even though these account for about three-fourths of all federal spending.”
For what it’s worth, I can report that among the right-wing but serious about fiscal issues people, it’s now OK to talk about cutting the military budget. I dipped my toe in the water in non-Auburn circles and it was fine; I confess I would have been afraid to do so in (say) 2005. I think Rand Paul showed everyone that it would be OK to meekly suggest cutting the military budget.
Going back to the Koch piece, he talks about the success of fiscal austerity in Canada. David R. Henderson has done some good work [.pdf]* on popularizing this episode.
* And by “good work,” I mean, “Paul Krugman says it’s stupid and doesn’t count.”
P.S. If you follow Krugman’s link to Stephen Gordon, be warned that Gordon misinterpreted the author affiliation. David R. Henderson does not teach at GMU. (“Not that there’s anything wrong with that.”)
Seinfeld references will last forever.
The current rate on 30 year government securities is 4.59%, which of course is lower than what it was in 2005. And lower relative to 1995; the days of lower deficits. And of course the bid to cover for 30 year securities is HIGHER now than what it was back then as well. Now, you do not need to be a bond market expert to recognize the bond market is not worried about a ‘looming bankruptcy’ since demand and prices are HIGHER relative to the days of lower deficits and spending. But I guess Koch (and Mr. Murphy) is smarter than the bond market, and we should take his word for it. Or maybe a little common sense should kick in and recognize that this guy does not have the slightest clue what he is talking about, the US represents exactly zero credit risk under the current monetary system, and Austrian economists driven by ideology do not understand the monetary system of the US. FYI – the US public sector balance sheet is not like a household balance sheet…
And it’s sad if the David Henderson piece is what constitutes good research these days. Sure he does a good job of summarizing events, but I thought it was a economics piece, not a history piece? And of course he completely fails to recognize the impact the lower deficit and ultimate surplus had on the private sector. In the real world for every deficit there is surplus, or in this case, for every surplus there is a deficit. It’s called double entry accounting and regardless of your ideology, it holds. Kind of like 2+2=4. As a result of the Canadian federal governments austerity, the Canadian private sector savings, including business, has collapsed, and the external balance was flipped. Now maybe it is your belief that lower savings and net exports is the road to prosperity, but to claim Canadian austerity ‘worked’ and should be brought to the US is not only factually incomplete, it fails to recognize double entry accounting and that public deficits = private savings, to the penny, at all times, and it fails to recognize the US must run a deficit in order for the private sector to have net positive savings given the US dependence on foreign oil, creating a constant negative external balance. It’s almost as if Mr. Henderson fails to recognize that, in aggregate, exports = imports.
Historical fact: the US government has experienced depressions in 1819, 1837, 1857, 1893, 1929, and potentially today. Every one of those periods was preceded by a federal budget surplus. Every one. Coincidence? Of course not.
The current rate on 30 year Greek bonds is 4.59%, which of course is lower than what it was in 1975. And lower relative to 1995; the days of lower deficits. And of course the bid to cover for 30 year securities is HIGHER now than what it was back then as well. Now, you do not need to be a bond market expert to recognize the bond market is not worried about a ‘looming bankruptcy’ since demand and prices are HIGHER relative to the days of lower deficits and spending. Therefore, the Greek government is not at risk of insolvency. (And if it is … well, I’m sure I’ll sell my bonds soon enough.)
Silas,
Have you looked at the borrowing costs of Lehman Bros or AIG or Bear Stearns 12-18 months before they imploded? I bet it was pretty cheap!
The current rate on 30 year Greek bonds is 4.59%, which of course is lower than what it was in 1975.
The the rate of 30 year Greek bonds is in the 8-9% range. No idea whether this is lower or higher than in 1975 or 1995.
He should have dated that comment as coming from back in year 2008.
Were the 30 year rates 4.59% in 2008, or are you just guessing?
They weren’t precisely 4.59%, but they were approximately the same as that of developed, safe, neighboring countries — i.e. no risk premium built into the government bond rate.
I’m pretty sure Silas was poking fun at APL. I could be wrong but I don’t think he is actually saying the Greek’s are fine. The numbers are the same APL used to describe the US situation. So I think Silas is saying that someone could have made that argument about Greek bonds right before they started marching higher.
Dan has it right, and sandre got it too. Permission granted to beat Blackadder and AP_Lerner with a cluestick (non-violently).
Dan,
I understand the point Silas was trying to make, but using precise numbers made it sound as if he actually knew what he was talking about.
I did actually know what I was talking about. The specific numbers aren’t critical, just that Greek bonds traded without the risk premium dangerously close to the Greek government’s insolvency.
If God has revealed to you the precise nominal interest rate associated with “truly” vs. “falsely” solvent governments, then please share it with us so we can compare it to prevailing yields.
But then God would be powerless to short the ETF.
Ah, good point.
Well said. The level of thought in that statement was second to none.
“I did actually know what I was talking about.”
Are you sure? Because it sounds like you tried to compare the monetary system of the US to Greece. And everyone knows that’s like comparing an apple to an orange.
Let’s not lose sight of what the economic theory of AP “Hut Tax” is: “Deficit spending creates surpluses in the private sector. Net new financial assets can only be created via deficit spending.” Further, it is government surpluses that CAUSE depressions.
http://tinyurl.com/4h53ruu
I don’t recall a surplus before the latest catastrophe. Do you? Further, why wouldn’t deficits tend to be lower and surpluses higher during an unsustainable boom before a bust? Employment is high so there is less need for poverty payments by the government. Property values are high and tax receipts are high. The surpluses don’t CAUSE the bust.
Mises smacked down APLerner’s hero Knapp and his wacky state theory of money a century ago.
http://tinyurl.com/4f2wp24
The laws of economics do not disappear just because a criminal fiat money system has us by the throat. Dr. Hut Tax, can you support your claim that catallactics does not matter in a fiat money economy?
http://tinyurl.com/4rf8pg9
I’ve been waiting for months and months for an answer.
“I don’t recall a surplus before the latest catastrophe. Do you? ”
Under Clinton.
“Mises smacked down APLerner’s hero Knapp and his wacky state theory of money a century ago.
FYI – we left the gold standard
That doesn’t answer the question. Humans still engage in exchange under a fiat system.
Hold on, under Clinton? You think the Clinton surpluses created the collapse in 2008?
Someone needs to tell Greenspan he’s off the hook.
AP,
Even though you correctly point out significant differences between government and household balance sheets, the comparison actually hurts the deficit Chicken Littles.
Most households have debt/income ratios vastly in excess of federal levels. Most families live in homes financed by mortgages at 3X or more annual income. Add auto loans, credit card debt, any student loans, etc., and yet the vast majority of families have always remained solvent. This is even overwhelmingly true now.
But, to your point again, the feds can raise taxes on what is easily the largest tax base in the history of the world, and one in which taxes are currently well below those of other developed nations at least, and perhaps those of the less developed(haven’t looked at this data).
They can also create some new money, so default shouldn’t be a concern at all right now, and as you point out, markets aren’t worried at all.
Most households have debt/income ratios vastly in excess of federal levels.
Really? Are you taking the “federal level” of “debt/income” to be federal debt / GDP? Because tax revenues aren’t equal to 100 percent of GDP. Also, to get your household debt figure up, you’re including secured loans that have collateral (like houses). The federal government’s debt is mostly unsecured, i.e. backed up only by future revenues.
How about these corporations?
BM debt to income 2:1
Caterpillar 14:1
Boeing 4:1
Dupont 3:1
United Technologies 3:1
JPM 50:1
BAC negative income, negative return on equity, negative return on assets
Are those figures unsecured debt? And what is the comparable USG figure, adjusting for tax receipts (not GDP) relative to federal debt? That alone makes the number 5x higher.
don’t see a reply link under your name
Debt/Equity
BM
Caterpillar 2.63
Boeing 4.49
JPM 4.77
BAC 3.55
for the rest, d/e was less than 1
Krugman this morning: http://krugman.blogs.nytimes.com/2011/03/13/japan/
Hmmm. A major catastrophe that will presumably cost a fortune to clean up and interest rates on Japan’s debt decline. This, despite a far larger debt/GDP ratio for Japan than the US?
Where’s the support for your position? As usual, you haven’t a shred of evidence. On the rare occasions you offer something like a graph, you misinterpret it horribly and in ways that would make a freshman econ student giggle uncontrollably. Apparently, you don’t even understand time series data.
But, what else should I expect from an anti-science guy? Anti-science is even worse than pseudo-science.
Come on. The real cost of servicing a debt has to be taken in the context of GDP. If you think comparing federal debt corporate debt is fairer, you have the numbers below.
Oops. I’ll fix that. The study is a GMU working paper, but I missed the affiliation in the endnote.
Wow. The Austrians are routed! The Canadians have budget austerity AND then are tricked into lowering their wages and prices via funny money dilution and it sorta works.
Amazing. You lower your real wages and prices and you sell more stuff.
Who knew?
Being from Detroit, I always have the goal of trying to get conservative warmonger types to cry like little girls. Or, in the very least, to question their warmongering views. Here’s my plan.
I think it’s undeniable that the US government through its foreign meddling is always engaged primarily in installing anti-free market regimes around the world. To the extent that the government is claiming to be exporting “democracy”, it is exporting “social democracy”, a “progressive” idea (both the exporting and the form of government).
Further, I submit that it is undeniable that “social democracy” adopted by a multi-ethnic or multi-cultural society is bound to end in ethnic conflict. This is precisely what I predicted would happen in Iraq and it has. The book that was necessary to change me from a McGovernite to a Rothbardian in 1973 was “Politics in Plural Societies: A Theory of Democratic Instability” by Alvin Rabushka and Kenneth Shepsle (available at amazon.com):
http://tinyurl.com/6z8f6o7
I had to be convinced that democratic socialism could not work before I could accept that the free market could work. The Rabushka/Shepsle book examines numerous of third world countries which became democracies after the end of the colonial period and other multi-ethnic countries. In every case, ethnicity became the dominate issue in the election with the largest ethnic group winning the election and thus “owning” the socialized economy. Murder and poverty followed. I found the entire book online (a 12 mb pdf file):
http://www.stanford.edu/~rabushka/politics%20in%20plural%20societies.pdf
Further, we have the writings of Peter Bauer on how state to state foreign aid is disastrous:
http://en.wikipedia.org/wiki/Peter_Thomas_Bauer
While conservatives seem ready to accept criticism of “progressive” policies at home, they seem unaware that the same progressive policies that did in Detroit are being inflicted in spades upon the foreign lands we are allegedly trying to save and “democratize”. I think we have to rub the truth in their face: Our military adventures are doing nothing but inflicting “progressive” policies upon the victim nations with the result necessarily being impoverishment, ethnic war and the road to serfdom (to coin a phrase). Using this argument, we come off as champions of the free market and they come off as pre-McGovernite “progressives”. Which should make them cry.
And, as a bonus, you can also throw this idea in the face of “progressives” as you explain to them how they are responsible for the “road to serfdom”, war and pestilence etc…
Neo-cons really get passionate about America’s defense of Israel. I like to make the neo-cons squirm by pointing out that the US giving Israel billions of dollars in military support is just another form of socialism.
I like to throw this one at the neo-cons:
“ISRAEL: A SOCIALIST SPARTA” by Justin Raimondo:
http://www.antiwar.com/justin/j042902.html
I think you can make the neo-cons squirm even more if you advise them of the socialist domestic economic policies of our allies that we are defending or imposing with our kids and cash. Just my opinion.
Good grief. Hillary Clinton is now our ambassador of economic policy to the third world. Hello neo-cons!!??!!!
Anyone home up there?
“Not that there’s anything wrong with that.”
Ah. . . Got to love the LvMI and GMU bloodfued.
I notice Murphy rarely if ever finishes conversations with non-Austrians. This is perhaps because he has no points to make. I don’t recall him making even one proper scientific claim. In fact, he hardly ever even offers the pretext of an evidence-based claim.
What about the time I said you had your head… never mind.