The Federal Reserve chairman, Ben S. Bernanke, said on Wednesday that the United States needed to develop a plan to restore fiscal balance, even as the government builds huge budget deficits as it tries to spend its way out of the worst economic crisis since the Great Depression.
In remarks to the House Budget Committee, Mr. Bernanke said that the government must address the immediate problems of a crippling recession that has erased trillions of dollars in household wealth, hobbled investment portfolios and raised unemployment to its highest levels in a generation. Still, he said, the government needs to think about putting its fiscal house back in order.
“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” he said.
[blockquote] Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth[/blockquote]
This is a bit like an arsonist calling for stricter fire codes.
You don’t get elected with fiscal responbility. You get elected through largess. And the Democrats are the best at largess.
The Obama administration loves Bernanke for this. They will use this as further proof that “Cap & Tax” plus taxation of health benefits, plus all their other revenue grabs are “needed and called for” in the name of “fiscal discipline”. Never mind that this economy is going to sink in a combination of over taxation and wild inflation. As Mr. Limbaugh says, the aim of all this is to “return the wealth of the nation to its rightful owners”.
2. Br. Michael wrote:
[blockquote] You don’t get elected with fiscal responbility. You get elected through largess. And the Democrats are the best at largess.[/blockquote]
One form of largess is tax cuts for the wealthiest 5% of tax payers. Another form of largess is the no-bid contract to Haliburton subsidiaries and other similar fiascos. Another form of largess is turning a blind eye to corporate corruption. There are other forms of Republican largess one might mention.
3. Capt. Deacon Warren wrote:
[blockquote]Never mind that this economy is going to sink in a combination of over taxation and wild inflation.[/blockquote]
The inflationary future was guaranteed by undertaxation, over spending and an economic crisis partly due to deregulation of financial institutions and lax regulation.
The reality is that regardless of what the government does, we will see inflation return with vengence.
If the government does nothing, we will see soaring energy prices and a resulting soaring price of food an everything else, along with serious threats to our national security. There has been a 25% increase in the price of gasoline in the past month. If the government pushes for increased domestic production and energy alternatives (other than conservation) we will see soaring energy prices and a resulting soaring price of food and everything else.
If the government raises taxes, we’ll pay more in taxes. If the government doesn’t raise taxes, we’ll pay more for everything due to inflation resulting from government borrowing and high interest rates.
If the government doesn’t bring about reduction in CO2 emissions, we will pay for more severe weather damage.
Etc., etc., etc.
The “good old days” of the 50s are gone forever.
[blockquote]One form of largess is tax cuts for the wealthiest 5% of tax payers.[/blockquote]
All inaccuracies of your talking point aside, that can only be “largess” if one assumes that all wealth belongs to the State. Is that what you believe, Ken?
[blockquote]The inflationary future was guaranteed by undertaxation, over spending and an economic crisis partly due to deregulation of financial institutions and lax regulation. [/blockquote]
This is nonsense on stilts. Inflation is not a creature of fiscal policy, but monetary. “Undertaxation” (LMAO) does not provoke inflation, nor does deregulation. This is just asinine. Inflation is caused by increasing the number of dollars chasing the same pool of goods – in other words, by the Fed policy we’ve witnessed the last few months.
[blockquote]If the government pushes for increased domestic production and energy alternatives (other than conservation) we will see soaring energy prices and a resulting soaring price of food and everything else. [/blockquote]
Econ really isn’t your strong suit, Ken. Exactly how does increasing the supply of something drive its price up? Do all port-siders live in a world of backward-sloping demand curves? Your assumptions even fail on their own terms: What does conservation do but increase supply vis-a-vis demand?
It just goes on and on in your post. Please, go read a book, something like [url=http://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ref=sr_1_1?ie=UTF8&s=books&qid=1244162939&sr=8-1]this[/url].
5. Jeffersonian wrote:
[blockquote] All inaccuracies of your talking point aside, that can only be “largess†if one assumes that all wealth belongs to the State. Is that what you believe, Ken?[/blockquote]
No, I never said any such thing. I do think that those who benefit most from the policies of government should pay the most to support that government. I also think that patriotic Americans ought to happily support the government according to their ability to contribute.
[blockquote]Inflation is not a creature of fiscal policy, but monetary…. Inflation is caused by increasing the number of dollars chasing the same pool of goods – in other words, by the Fed policy we’ve witnessed the last few months. [/blockquote]
A policy begun under a Republican adminstration by a Republic Secretary of Treasury and a Republican appointed chairman of the Federal Reserve. There is, however, a relationship between fiscal and monetary policy. Specifically, when the government spends more than it takes in, the money supply is effectively increased and the borrowing will tend to drive up interest rates — something we are beginning to see as bond prices drop.
And what I said, and you choose to misrepresent, is that the current economic crisis (which is the reason for current deficit spending — tax cuts and increased government spending are the classical economic remedies for recession) was due in part to deregulation and lax regulation of the financial markets.
[blockquote]Exactly how does increasing the supply of something drive its price up?[/blockquote]
If “increasing the supply” involves increasing the cost of production, then the price will go up or the producers will go out of business. The cost of production of “new oil” is $70+ per barrel. If oil sells for less, then the producer is losing money on each barrel. (I think the current price is $69 — way up from a month ago — so the producer of “new oil” would be losing $1 per barrel. Furthermore, as the global recession draws to an end, the demand for oil will increase faster than new wells can be brought on line — so we will see a repeat of the $150/barrel oil, and even worse, in the future. Remember that the actual supply of oil is finite and the cost of production will always go up as we have to turn to less accessible oil to increase supplies to meet increased demand.
[blockquote]What does conservation do but increase supply vis-a-vis demand[/blockquote]
Precisely. That is why I excepted that particular approach to energy. It is the one win-win approach. By reducing demand, we reduce the pressure to increase supply. That’s why the global recession resulted in $30/barrel oil briefly. And since there was no pressure to increase supply, but rather pressure [b]not[/b] to increase supply, there temporarily was no need to go after the more expensive to produce oil.
[blockquote]No, I never said any such thing. I do think that those who benefit most from the policies of government should pay the most to support that government. I also think that patriotic Americans ought to happily support the government according to their ability to contribute. [/blockquote]
And if someone makes a lot of money independent of “the policies of government?” Or is that possible? If not, then what is the distinction between what I posited and your position?
I seem to remember a system that started out “From each according to his ability…” It didn’t turn out so well.
[blockquote]A policy begun under a Republican adminstration by a Republic Secretary of Treasury and a Republican appointed chairman of the Federal Reserve.[/blockquote]
True! Stupid monetary policy knows no party. You will recall that Nobel Laureate FA Hayek addressed his book “The Road to Serfdom” to “Socialists of all parties.”
[blockquote]There is, however, a relationship between fiscal and monetary policy. Specifically, when the government spends more than it takes in, the money supply is effectively increased and the borrowing will tend to drive up interest rates—something we are beginning to see as bond prices drop. [/blockquote]
But the borrowing does not increase the amount of money in circulation since the dollars used to purchase Treasuries are already circulating. It’s when the Fed starts “buying” US bonds that inflation looms, and that’s what Bernanke has been doing at Geithner’s behest.
And if the economic crisis is one of confidence, why are we pumping liquidity? We don’t have a liquidity crisis. We do have an ambitous President, however, who is apparently eager to coopt or crush the private sector. Think that might have a bit to do with it?
[blockquote]If “increasing the supply†involves increasing the cost of production, then the price will go up or the producers will go out of business. The cost of production of “new oil†is $70+ per barrel.[/blockquote]
That’s hogwash. Oil can be extracted from oil shale at those costs, and the oil in Alaska, off the coast of California, in North Dakota is a lot easier to get to than that, but it’s been placed off-limits by Congress. You economics are utter nonsense…increasing supply will lower prices, as it always has and always will.
[Commenters are requested to keep their comments addressed to the topic and not each other – there will be no further warnings – Elf]
[Update: Our warning having been ignored six comments by two commenters have been deleted – Elf]
7. Jeffersonian wrote:
[blockquote]And if someone makes a lot of money independent of “the policies of government?†Or is that possible? If not, then what is the distinction between what I posited and your position?[/blockquote]
No it isn’t possible — which is why businesses and wealthy individuals spend billions lobbying government. As Donne said, “No man is an island.”
[blockquote]That’s hogwash. Oil can be extracted from oil shale at those costs, and the oil in Alaska, off the coast of California, in North Dakota is a lot easier to get to than that, but it’s been placed off-limits by Congress. You economics are utter nonsense…increasing supply will lower prices, as it always has and always will.[/blockquote]
There is a principle in microeconomics that states that as production increases the per unit cost of production also increases. That is, perhaps, counter intuitive, especially since producers generally do quanity discounts. But the fact remains.
Suppose you have an apple orchard. The first bushels of apples involve pickers reaching to low hanging apples, so they can quickly pick a bushel of apples. As production increases, they must go to those apples mid-tree with ladders; so you have the “capital expense” of the ladders and the pickers can’t pick as many apples as fast because they must climb up and down the ladder and constantly reposition the ladder. Finally, to harvest the apples at the very top of the trees one must invest in expensive machinery to bring down those apples.
The “easy oil” has already been tapped. Drilling and transporting oil from the Artic Circle or off shore is inherently more expensive than the old West Texas oil well. So is extracting the remaining few barrels from that played-out West Texas oil well; that’s why it was capped in the first place.
Yes, if the regulators allowed drilling in areas currently off limits [b] and[/b] oil had remained at $150/barrel, oil companies would drill. But with oil selling at $30 or even $70 a barrel, they won’t because it simply isn’t profitable to do so. The exception would be something like Exxon who is drilling — using profits obtained when oil was selling at $150/barrel — in anticipation that when the recession is over, demand will again cause prices to rise so that those new wells become profitable.
The law of supply and demand simply asserts that the two are related — increased demand will lead to increased supply and decreased demand will lead to decreased supply until the two are in equilibrium (actually something that never quite happens). It does not say that increased demand (and the resulting increased supply) will result in lower or even stable prices. In fact, increased demand usually means that those wanting the product are willing to pay a premium to get it. Efficient companies will not increase supplies to the extent that the cost of production exceeds what the demand will pay for. It isn’t profitable to sell at a loss. One may see a “fire sale” to reduce inventory; but no company will produce goods to sell at a loss. That’s why GM, Chrysler and Ford are idling plants and laying off workers.
When the reduced production tips the balance so that the demand exceeds the supply, the price will rise. We’ve seen that operate recently. As the recession drastically cut the demand for oil, oil companies cut back on production. Inventories were going for $30/barrel. As the supply lagged even the recessionary demand, the price more than doubled. And what new oil that is being developed is being developed in anticipation that $150+/barrel oil will return when the global economy recovers and the more expensive new oil will become profitable.
Similarly, the alternative energy sources being developed are expensive. They won’t lower energy costs. (They will stave off the day when world oil reserves are depleted, and they will make the nation more secure by making us less dependent on foreign oil.) They won’t lower energy costs for the simple reason that no efficient company will intentionally operate at a loss; capital costs and costs of production cannot exceed income indefinitely.
[blockquote]No it isn’t possible—which is why businesses and wealthy individuals spend billions lobbying government. As Donne said, “No man is an island.†[/blockquote]
Uh, no. They spend billions for a variety of reasons, most of them a form of rent-seeking (i.e. acquring wealth through force). But what of the businesses that do not rent-seek…aren’t they able to escape your onerous tax schemes?
I fail to see the difference between what you’ve described here and my characterization. The premise does seem to be that all wealth is at the disposal of the State which, in effect, says that it all belongs to the State and the State gets to say who keeps what.
[blockquote]There is a principle in microeconomics that states that as production increases the per unit cost of production also increases. That is, perhaps, counter intuitive, especially since producers generally do quanity discounts. But the fact remains. [/blockquote]
It’s not a fact, however. In your illustration, it seems to work, but it ignores the possibility of a larger orchard. It also ignores capital-intensive industries (like oil and gas extraction) where the marginal cost of the next unit of production actually reduces costs by spreading fixed costs over more units produced.
There is still plenty of oil that can be accessed cheaply, but it’s been walled off by Congress.
10. Jeffersonian wrote:
[blockquote]I fail to see the difference between what you’ve described here and my characterization. The premise does seem to be that all wealth is at the disposal of the State which, in effect, says that it all belongs to the State and the State gets to say who keeps what.[/blockquote]
It isn’t entirely clear why you insist on putting words into my mouth in the form of your “characterization” — which is nothing more than a strawman. It certainly does not contribute in the least to a rational discussion.
Regarding your rejection of the microeconomic principle that increased production increases unit cost — since you choose to insult my knowledge of economics, I suggest you enroll in a course on microeconomics at your local community college. It’s either a freshman or sophmore course. If that’s too much of a struggle for you, I could suggest [i]Economics for Dummies[/i]. It is true that if a producer is operating at a fraction of capacity, there can be a reduced cost per unit up to full capacity production. But it is not true that increasing capacity (i.e., capital investment such as new oil wells) will reduce unit cost of production — it will instead increase it.
Yes, if you are so lucky as to have a producing West Texas oil well, then pumping faster may, in the short run, reduce the per barrel cost. It will also hasten the day when the well goes “dry.”
But drilling a lot of oil wells doesn’t reduce the per barrel costs — particularly given the fact that for the most part “easy wells”, those that are profitable at $30 per barrel have already been drilled and depleted. The cost of today’s deep wells, those in the Artic Circle, those in the Gulf or oceans are inherently more expensive to drill and operate than the old West Texas wildcatter well. And the cost of extracting oil from marginal wells is also more expensive than those old West Texas wildcatter wells. And because Exxon-Mobil isn’t in business to lose money and will pass the increased costs of increasing supply on to the consumer, the price per barrel of oil will go up as more people in the world demand more oil and are willing to pay premium prices for it.
The hard reality is that if you want to spend less on energy, use less energy. Period. Because, no matter what the government does or does not do, the future cost of energy will go up. We saw cheap gasoline a few months ago as demand dropped and inventories depleted. Gasoline has risen 25% in the past month; oil prices have gone from $30/barrel to $70/barrel. As there is more global recovery from the recession and as more countries demand more oil and are willing to pay premium prices again, we will again see the price of crude and gasoline (not to mention electricity, food and everything else) go up. Yes, that might be tempered some by increased supplies — with the related increases in production costs, but not enough to prevent $150/barrel oil and $4/gallon gasoline.
Get used to it.
Well, let’s put this to the test then, Ken, ala Julian Simon/Paul Ehrlich. Let’s open up all of Alaska, Florida, California, Colorado to drilling and see what happens to the price of oil. Let’s even open up to oil from the Alberta oil sands. You go long on oil, I’ll short it and we’ll see who has to pay whom.
Yes, your reasoning is deeply flawed.
Oh, I meant to address this, too:
[blockquote] It isn’t entirely clear why you insist on putting words into my mouth in the form of your “characterizationâ€â€”which is nothing more than a strawman. It certainly does not contribute in the least to a rational discussion. [/blockquote]
Then perhaps you will explain the difference. If someone can come and claim something I possess under the color of law, it would seem that he can claim legal title to it, no?
12. Jeffersonian wrote:
[blockquote]If someone can come and claim something I possess under the color of law, it would seem that he can claim legal title to it, no?[/blockquote]
You are at liberty to continue your argument with your strawmen. Since that has nothing whatever to do with what I have said, I see no reason for me to participate in your argument with your strawmen. Have at it. I’m no long party to it.