shareholdersunite.com

Opportunities in smallcaps

shareholdersunite.com header image 2

Since when is Karl Rove an economist?

February 6th, 2009 · 4 Comments

The world faces an unprecedented recession, that could easily spiral into a deflationary rot from which it is very hard to escape, but politics is muddling the necessary response. This is becoming untolerable, so much so, that we have to suspend our political neutrality.

Simple economics: When there is a $2 trillion shortfall between what the economy can produce and demand for it’s goods and services, the rest of the world also faces strong downdraft (no help from there), and monetary policy has largely ran it’s coarse (interest rates under it’s control are already close to zero), what can policy makers do?

Simple. There is one instrument left, large Federal spending. But the Republican party, worried about budget deficits they themselves created are fighting a rear end obstruction campaign arguing, falsely, that tax cuts are more efficient.

There is simply no evidence for that, in fact, the economic evidence argues that:

  • Federal spending is more efficient as a significant part tax cuts will be saved
  • Therefore, Federal spending has a larger ‘multiplier’, leading to more jobs and incomes, and hence the burden on future debts is actually less.

We’ve seen bogus entries from the likes of Russ Limbaugh and Karl Rove, the latter might have been a brilliant political strategist, but we are unaware of his economic qualifications (he dropped out of college, actually).

John McCain (who was on the receiving end of nasty Rove campaign in 2000) argued:

  • Sen. John McCain criticized the bill and its writers for keeping Republican ideas out of the original House version. [Moneynews]

Perhaps that is not such a bad thing, as the Republicans simply do not have economic science behind them on this issue.

You can hear from the recent Nobel price winner in economics here instead. At least he knows what he’s talking about..

Tags: Credit Crisis

4 responses so far ↓

  • 1 ron cobb // Feb 7, 2009 at 5:15 am

    Well, since 435 members of Congress believe they are ecomists I guess Karl Rove has every bit the same right as they do to weigh in.

  • 2 admin // Feb 7, 2009 at 3:40 pm

    There is something in what you say, Ron, as the ultimate consequence of what we were arguing would be a technocratic government by economist, which is something even we recoil from.
    However, Congress must democratically decide, that’s their constitutional duty. It is somewhat different to write economic opinion pieces without a background in economics (we don’t meddle in discussions about, say, biology).
    We’re quite allergic to the argument that tax cuts would be more efficient. This just ain’t so and there is a very simple reason for that. We’re also not too impressed by sudden Republican worries about deficits and debts. Were where those worries the last eight years?

  • 3 ron cobb // Feb 7, 2009 at 5:51 pm

    From Peggy Noonan: “you can’t spend enough for the Democratc base, or cut taxes enough for Republicans.But in a time when all the grown ups of America know spending is going to bankrupt us and tax cuts without spending cuts is more of the medicine thats killing us, the same old arguments, which sound less like arguments than compulsive tics, only add to the public sense that no one is in charge.”

  • 4 admin // Feb 7, 2009 at 9:53 pm

    Ron, if nothing happens, the US, and indeed much of the world economy is threatened to sink into a deflationary rot from which escaping is quite hard. We’re no big government fans ourselves (although not demonizing them either, Scandinavian countries seem pretty comfortable place to live), but without a massive infuse of demand, the economy will really fall off a cliff. This demand can only come from the Federal government, and the ensuing debt is over-hyped for three reasons:
    – interest rates on it will be rather low
    – debt/GDP ratio for the US is still way below countries like Japan, Italy, Ireland, Belgium
    – doing nothing will have terrible consequences for the economy and, by default, also hugely increase debt/GDP levels.

    It’s mostly an economic argument we’re trying to make. Better to act soon..