Steve Bannon Abandons Fiscal Responsibility for Pork; Austrian Economics Says Why He and Trump Are Wrong
A couple of days ago I read with interest this 2014 talk by Steve Bannon, Trump’s right-hand man. And I found myself agreeing with much of what he had to say — in particular this:
Now, with that, we are strong capitalists. And we believe in the benefits of capitalism. And, particularly, the harder-nosed the capitalism, the better. However, like I said, there’s two strands of capitalism that we’re quite concerned about.
One is crony capitalism, or what we call state-controlled capitalism, and that’s the big thing the tea party is fighting in the United States, and really the tea party’s biggest fight is not with the left, because we’re not there yet. The biggest fight the tea party has today is just like UKIP. UKIP’s biggest fight is with the Conservative Party.
The tea party in the United States’ biggest fight is with the the Republican establishment, which is really a collection of crony capitalists that feel that they have a different set of rules of how they’re going to comport themselves and how they’re going to run things. And, quite frankly, it’s the reason that the United States’ financial situation is so dire, particularly our balance sheet. We have virtually a hundred trillion dollars of unfunded liabilities. That is all because you’ve had this kind of crony capitalism in Washington, DC. The rise of Breitbart is directly tied to being the voice of that center-right opposition. And, quite frankly, we’re winning many, many victories.
That was then. This is now. In an interview with the Hollywood Reporter published Friday, it became clear that, to his shame, Bannon had changed his tune utterly when it comes to fiscal responsibility:
“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”
Susan Wright mentioned this interview in this post, and quoted the language above. She focused on Bannon’s bizarre statement that the 1930s were “exciting” — a mockable statement that she criticized admirably. I have a different focus here. I think this passage is worth quoting again in light of Bannon’s previous acknowledgement of the state of our balance sheet.
I could simply note the blatant contradictions here — and the casual discarding of any semblance of fiscal responsibility. I could do that, dust off my hands, and walk away . . . patting myself on the back for a post well done.
Yes, I could do that. But I won’t stop there. You’re going to get more. In fact, you’re going to get:
A RANT ON AUSTRIAN ECONOMICS AND THE BOOM-BUST CYCLE: Bannon’s more recent statements show a staggering and disappointing ignorance of the theory of the boom-bust cycle, as explained by Austrian economists Friedrich Hayek and Ludwig von Mises.
The Austrian theory of the business cycle was explained by Hayek (whom you may know as the author of The Road to Serfdom), and his teacher Mises (perhaps the pre-eminent scholar in the field of Austrian economics, or as I call it, “economics”). I have discussed the concept at greater length here, but here’s the “too long; didn’t read” version:
Interest rates, which are prices for credit, should not be set by central planners — much like prices of goods should not be set by central planners.
The End.
Here is the slightly more detailed explanation — though not as detailed as my previous post:
Businessmen look to the price of credit (i.e. interest rates) as a signal that tells them when it’s best to engage in long-term capital expansion. When the natural rate of interest is low, businesses naturally decide that’s a good time to take scarce resources and allocate them to long-term projects. During such periods, consumers are saving — which releases real resources for the long-term capital expansion that businesses desire.
All this works in beautiful harmony in an economy where interest rates emerge on the market.
Similarly, when the natural rate of interest is high, businessmen forego capital expansion and serve more immediate consumer needs. This matches consumer behavior, because consumers are saving less and spending more.
Again, the beauty of the market in action.
But when central banks manipulate interest rates (as the Federal Reserve does through its open market operations and other policies), this affects the price of credit — and thus distorts the price signal as it applies to credit. Business decide that’s a good time to build up capital, based on the low rate of interest — but it may be a bad time to do that. Due to central bank manipulation of the price of credit, businesses think consumers are saving, freeing up real resources for their large capital expansion. But in reality, consumers are doing nothing of the sort. Consequently, there is a shortage of real resources to devote to the capital expansion. Businesses scramble to compete for the shrinking pool of resources, bidding up prices and causing a “boom.”
And then, as capital expansion proves to be more expensive than anticipated, businesses run into problems. Many fail. Recession or even depression hits, and we get: the “bust.”
This entire boom-bust cycle is driven by the false signals of low interest rates, which mislead businesses into engaging in long-term investments when they are least appropriate.
And the problem is worst in government, which doesn’t respond to market forces anyway. Government taxes citizens — by which I mean to say it seizes money from citizens at gunpoint — and then it spends the money it grabbed. There’s no market involved in any of that. It’s economic “expansion” by fiat. (Sound familiar?)
So when someone like Bannon says “hey, with these low interest rates, it’s a great time to expand!” . . . well, that just shows a blatant ignorance of the work of Hayek and Mises. It’s a policy that is designed to exacerbate the boom, which will inevitably lead to the bust.
And when they want to take your money through taxation (or the money of your children through borrowing), and spend it on projects that the market cannot justify . . . that’s even worse.
And when they have made comments in the past about “the United States’ financial situation” being “so dire” — referencing in particular our almost “hundred trillion dollars of unfunded liabilities” . . . well. They can claim ignorance of business cycle theory — but they can’t rely on a claim ignorance of the fiscal problem we face.
Not their own ignorance, that is. But maybe they’re relying on the ignorance of the population at large.
You can do better. It’s time to learn about real economics, and resist this awful change that is coming. Stand up for the free market. As the car heads towards the cliff, help me grab that wheel and steer it before it’s too late.
I’ll have more to say about how to educate yourself in coming days, at the Constitutional Vanguard.
We have nothing less at stake than our financial future . . . and, more importantly, that of our children.
Everything I learned about this topic, I learned from Tom Woods and the people he turned me on to.
His Liberty Classroom series has taught me a ton. I promote that here from time to time — but if you’re thinking of joining, DON’T.
I mean, don’t do it . . . right now.
Because the big discounts come next week.
I become a lifetime member myself during Black Friday time last year, when the discounts were at their largest. It was a bit of a splurge, but I never regretted it for even a moment.
I’ll talk about it more in coming days, as well as other stuff I have been learning from lately: The Great Courses, my reading list, etc. I’ve learned a lot in the past three years or so and would like to share some of it.
Depends on what you’re interested in . . . but if you read the whole post above and followed it, then you (and I am talking to maybe a select group of maybe a dozen of you at this point) might really be interested in Woods’s site.
Patterico (115b1f) — 11/18/2016 @ 11:39 pmGood point about the interest rate being set by the market or by central planners. However, it is the job of the Federal Government “To coin money, regulate the value thereof..”. Regulating the value means keep its value stable (with a reasonable rate of inflation in my opinion). I think the best way to do this is to influence the amount of money in circulation by regulating interest rates that the banks pay to borrow money from the feds to cover their reserve requirements. The market forces are how much money the banks will borrow at a given interest rate, based on how they read the marketplace. The Fed’s job is to set the interest rate correctly so the amount of money borrowed will be the amount needed to allow economic activity with a reasonable amount of inflation. I think the system we’ve been using has been very good. The problem is how much debt the Congress and President pile up relative to our GDP; the federal reserve is the clean up crew trying to make adjustments to keep things running right after the Congress has acted.
Ken in Camarillo (17aa36) — 11/19/2016 @ 1:15 amBannon. I find his inclusion in the Trump inner circle troubling. I hadn’t a lue that he was so intimately tied to the candidate in a personal sense. I knew Breitbart was all in on Trump, certainly, but not that Bannon & Trump seem tied at the hip. This will be a move I suspect Trump will come to regret.
Estarcarus (cd97e1) — 11/19/2016 @ 4:19 amlol i don’t think we can trust a dirty propaganda slut at “The Hollywood Reporter” to actually reflect Mr. Bannon’s views
if you click through you can clearly see that the slut what interviewed Mr. Bannon did not himself seem particularly interested in fiscal responsibility so it seems unlikely he asked Mr. Bannon to address that in the context of his thinkings about infrastructure, so we really just have slut regurgitation here, where the slut contextualizes everything into the framework of a slut narrative
this is not the basis for an actual discussion
happyfeet (28a91b) — 11/19/2016 @ 4:50 amThere is an important distinction here, we’re talking about (arguably) necessary public spending. IF we do have to re-build a bridge, it does make sense to rebuild it with cheaper money.
I hope he was overstating that case, not making a demand side argument.
Markus (73d12a) — 11/19/2016 @ 5:16 amThis is the best repudiation of the media’s nonsense about Trump I’ve read: http://slatestarcodex.com/2016/11/16/you-are-still-crying-wolf/
Colonel Haiku (2601c0) — 11/19/2016 @ 5:26 amLike I said earlier this week, Bannon is crazy.
Sean (41ed1e) — 11/19/2016 @ 6:14 amHere’s Hayek vs Keynes: https://www.youtube.com/watch?v=d0nERTFo-Sk
davidaitken47 (e0d788) — 11/19/2016 @ 6:19 amI’m not speaking in favor of the government regulating interest rates, but I’m pretty sure business cycles have to have other causes in addition because there were business cycles before there were ever monetarist government policies.
I suppose you could argue that a free market in credit never existed, but historical economies were so highly regulated in so many ways that I doubt you could pin business cycles solely to credit.
Gabriel Hanna (905cbf) — 11/19/2016 @ 6:31 am@Ken in Camarillio: Interpreting “regulate the value thereof” as giving Congress the power of setting interest rates by fiat is pretty ahistorical, like the Supreme Court’s interpretation of the Commerce Clause as meaning Congress can interfere in anything it likes.
Gabriel Hanna (905cbf) — 11/19/2016 @ 6:33 amDid bannon say anything about fed, no he was addressing a world where the business cycle has practically no impact on the larger cohort of people in this country.
narciso (d1f714) — 11/19/2016 @ 6:48 amThat link from #6 is awesome, Colonel.
Rev. Hoagie® (785e38) — 11/19/2016 @ 6:51 amBannon is also violating Keynes because we should be attempting a surplus during a growing economy, and it is growing, albeit slowly.
WarrenPeese (a6c998) — 11/19/2016 @ 6:54 amTheoretical economics is the opiate of the intellectuals.
But I agree about deficit spending. It is cutting off the tail to feed the dog and should be used only in dire emergencies, not as a bone thrown to the constituencies of the recently elected politicians.
I would not mind Trump’s infrastructure proposal if it were paid for by current “revenue”. Not necessarily raising taxes. Eliminating some deductions and exemptions would do, such as the kind that allowed Trump to avoid paying taxes on nearly a billion dollars in income.
nk (dbc370) — 11/19/2016 @ 6:55 amThe economy is not really growing, anywhere near it should, its a paradox
narciso (d1f714) — 11/19/2016 @ 6:58 amBecause 100 trillion dollars is a behemoth greater than anything Keynes feared.
narciso (d1f714) — 11/19/2016 @ 6:59 amThat’s because real wages are depressed. By 14% since 2008 according to a recent link by shipwrecked crew. The primary stimulus for businesses expanding is workers getting more money to spend on more things, and that’s not happening.
nk (dbc370) — 11/19/2016 @ 7:02 amSo the gift steels the danegeld not only from the private sector but also from the states and localities, so they cannot fulfill their duties, meanwhile multinationals find ways of evading their share of tax
narciso (d1f714) — 11/19/2016 @ 7:07 amI don’t understand this comment.
DRJ (15874d) — 11/19/2016 @ 7:08 amHave their lives improved, no they have not, that is why they are the forgotten man, so more jobs get shuttled over to Mexico and china, with their refusal of even basic health standards,
narciso (d1f714) — 11/19/2016 @ 7:12 amThey certainly exist, just because of human nature. However, without government interference, the market responds quickly, few people are hurt, and the market rebounds. Ever heard of the Depression of 1920? No? That’s because Harding cut government spending and taxes and let the market do its magic. The Fed did nothing. The market worked. See this article from our hosts favorite economist.
—
Didn’t know you were an Austrian economist Patterico. But knowing that you got your info from Tom Woods it makes sense. He is really good at explaining the principles behind it.
I don’t trust Bannon for this reason: like his President he cares about power not doing the right thing.
Patrick Henry, the 2nd (2ab6f6) — 11/19/2016 @ 7:16 amWell, we still need to be careful about raising the prices of shoddy Chinese consumer goods at Walmart through tariffs or other trade restrictions before we can produce our own shoddy American consumer goods to sell at Walmart. But people will not build factories in America if they don’t trust the government to stick to long term protectionist policies.
nk (dbc370) — 11/19/2016 @ 7:23 amAs far as monetarist government policies, look up seigniorage. Governments have always set the value of money, and took their cut in advance, even when it was coined in gold and silver. Now that we make it in paper, we call it the Fed rate. It’s a fact of life that your money is worth less than what it says from birth and “the markets” should know how to deal with it the same way they deal with the fact of a life that it’s 2,000 miles between a California lettuce patch and a Chicago supermarket.
nk (dbc370) — 11/19/2016 @ 7:31 amIs 20 in response to my 19, narciso? If so, I understand the concept of the forgotten man but how can you say the business cycle has no impact on them?
DRJ (15874d) — 11/19/2016 @ 7:36 amHow do we fix California?
crazy (d3b449) — 11/19/2016 @ 8:28 amOne can see why Bannon is being vilified by the Left and others: he scares the living sh*t out of them, he has The Plan to seriously loosen their grip on ALL of it… http://www.hollywoodreporter.com/news/steve-bannon-trump-tower-interview-trumps-strategist-plots-new-political-movement-948747
Colonel Haiku (2601c0) — 11/19/2016 @ 8:36 amsanctuary cities won’t be getting any of that fat infrastructure money.
Which airports, what bridges, will be fixed after you subtract those no account city mayors who put illegal aliens before their public trust?
papertiger (c8116c) — 11/19/2016 @ 8:44 amAnd kimberley strassel’s interview is better because she knows what bannon is talking about.
Maybe they should break up the fed, greenspan in particular proved horrible at gouging the impact of his hikes, of course then the
narciso (d1f714) — 11/19/2016 @ 9:03 amThey want to impose a carbon tariff on us, if refuse to go along with their diktat agreed to in Morocco.
narciso (d1f714) — 11/19/2016 @ 9:09 amThat last was a typo, but somehow freudian, Argentina was brought to default by the first wave of hikes, which probably had a little to do with the collapse of the tech bubble.
narciso (d1f714) — 11/19/2016 @ 9:13 amOk, I guess you aren’t reading my comments so I won’t read yours, narciso.
As for the post, beware of people like Bannon who talk the talk but don’t walk the walk.
DRJ (15874d) — 11/19/2016 @ 9:21 amDo all boats get risen up by the tide, or do they just get swamped by thud by the tsunami afterwards
narciso (d1f714) — 11/19/2016 @ 9:23 ami’m not beware of Mr. Bannon he’s a good pickle
happyfeet (28a91b) — 11/19/2016 @ 9:24 amHow about we wait and see, drj he had no policy input till now?
narciso (d1f714) — 11/19/2016 @ 9:25 amboats lol
need moar boatz bwapped carly fetalroehha as into the sunset she sailed
happyfeet (28a91b) — 11/19/2016 @ 9:25 amIts a mixed metaphor but nonetheless its on point.
narciso (d1f714) — 11/19/2016 @ 9:28 amIt’s liberating to ignore comments by people who won’t respond. I think I’ll add elissa to the list.
DRJ (15874d) — 11/19/2016 @ 9:30 amIt’s just as ridiculous to expect Trump to trickle out a sea of prosperity that will float us out of the trailer park as it was to expect Obama to literally lower the sea level.
nk (dbc370) — 11/19/2016 @ 9:33 amHe used the 30s, because the 20s like the 80s are branded as trickle don to the likes of wolff, and much of what passes for wiseman in Hollywood, they read the dig trainer and believe like scripture
narciso (d1f714) — 11/19/2016 @ 9:34 amat least you’re looking at the big picture Mr. narciso that is both perspicacious and commendable
an infrastructure program is meritorious maybe yes maybe no depending on the what and how
but there’s also a larger context
if we did the infrastructures in conjunction with
robust deregulation
meaningful tax reform
enlightened union thug abatement policies
with lots of well-meaning conservative judges and justices
all while slapping climate change trash across their idiot fascist faces with various handy appendages
it could be so good
it could be so good
happyfeet (28a91b) — 11/19/2016 @ 9:35 amelissa i’m reading all them comments you are so nice and you make the good observations
love ur comments!
happyfeet (28a91b) — 11/19/2016 @ 9:36 amAnd that attitude might be why elissa was away for a while, how does one sell Austrian economics in a world where Keynes is holy writ?
narciso (d1f714) — 11/19/2016 @ 9:37 ami’m nervous about creating an infrastructure bank that’ll just sit there until america’s illiterate sleazy union trash and their chamberpot dildo friends capture and pervert it
it needs to sunset
like carly!
happyfeet (28a91b) — 11/19/2016 @ 9:39 amThe issues involved are interrelated, its not just races, but productivity, employment rates.
narciso (d1f714) — 11/19/2016 @ 9:41 amWell wait a minute. You subtract sanctuary cities, that’s like every sizable extortion racket in the country.
That leaves trailer parks which are notoriously ill served by niceties like sewer lines, sanitation, water works, roadways.
Who says it won’t trickle to the trailer park? It’s almost targeted for the trailer park.
papertiger (c8116c) — 11/19/2016 @ 9:45 amyes yes prosperity is like a well-balanced cocktail
infrastructure makes a nice garnish, but you gotta get the build right first
quality ingredients are key but you have to know when you can cheat it a little too (penny saved and etc)
for example you don’t need your best bourbon for to make an old fashioned
happyfeet (28a91b) — 11/19/2016 @ 9:45 amRates, take Eliot Cohen’s rather snobbish up ed as a way not to do this kind of advice.
narciso (d1f714) — 11/19/2016 @ 9:51 amEar worm of the morning –
The C&H pure cane sugar jingle.
Good stuff.
papertiger (c8116c) — 11/19/2016 @ 9:53 amTrailer park = America’s economic woes.
Metaphor is not a description of your blind date with a homely girl.
nk (dbc370) — 11/19/2016 @ 9:55 amIdeally, paper, ideally that’s who gets the poop chute. Key is stopping the Kushner lobby from going all Robert Moses and a willing turncoat i.e. Emanuel, Anissa Parker being rewarded for their recent enthuiastic conversion, not punished for the years of intransigence (DJT will drive the truck to Flint himself, can’t screw that up). Funny Bannon should mention WJB…the Dems (more likely their replacement) gets reinvigorated South/interior west then North, not solely by flipping back the non Chicago great lakes and river valleys.
urbanleftbehind (847a06) — 11/19/2016 @ 9:55 amKnock it off, ulb, there’s only one narciso.
nk (dbc370) — 11/19/2016 @ 9:58 amWhat does the mayor of Houston, have to do with this, except if they are going to dredge another ship channel?
narciso (d1f714) — 11/19/2016 @ 10:04 amdredge another ship channel
That’s called an allusion, papertiger.
nk (dbc370) — 11/19/2016 @ 10:14 amParker is an example I threw out there since I think her electorate could turn real quick, I couldn’t see diblasio or garcetti being a magnanimous knee bender.
urbanleftbehind (a34745) — 11/19/2016 @ 10:18 amI think Bannon and Trump are using the alt-right the way Obama did — to divert the media with racism claims while they focus on their real agendas.
Obama’s agenda was lavish vacations and liberal socialism. Apparently Trump (and probably Bannon’s) agenda is lavish living and spending money.
DRJ (15874d) — 11/19/2016 @ 10:35 amPessimism May be Bad for the Heart, Study Shows
happyfeet (28a91b) — 11/19/2016 @ 10:42 amThe problem with federal spending, infrastructure and otherwise, is that the money is squandered.
For example, after the flooding, it became public knowledge that plans for flood control measures were already in place for the lower Mississippi long before Katrina, but that the federal money went instead to less important projects favored by the politically connected. Those levies should have been raised; the flooding should not have occured. But they weren’t raised and it did flood. When I hear the argument that infrastructure funding decisions should be left to those on the local level who better understand the local problems, I always think about the Katrina flood.
California needs water projects and more interstate highway lanes, but that infrastructure will never get build. The funding for lane building is already in place: the feds collect large sums from a variety of vehicle-related taxes that were originally intended for highway building. If the feds chose to spend Highway Trust Fund moneys exclusively on interstate highway lane building (there are city and state vehicle-related taxes to fund local roads projects), would any of us object? But that’s not how Trust Fund monies are spent. They are subvened to local jurisdictions to fund projects that include road beautification, bike lanes, and mass transit. Where highways are widened, the funding is typically done through local mechanisms. Although I fully approve of such local funding, Kings County and other rural counties sure aren’t going to fund the widening of I-5 through the boondocks of the rural San Joaquin Valley.
Eisenhower built the interstate highway system. If Trump wants to rebuild and expand it, I would not object. Would any of us? But that’s not what is going to happen.
And let’s not forget, there are entire cabinet level bureaucracies that should be completely eliminated from the federal org chart.
ThOR (c9324e) — 11/19/2016 @ 10:42 amI see it more as carrot and stick to oust the sanct from the cities either by directly speaking the only language Democrat Mayors are likely to respond to, moolah, or inducing their myopic electorate by appealing to their greed to oust the uncooperative local pols in the next election.
papertiger (c8116c) — 11/19/2016 @ 10:48 amTrump might be more successful because you can make poor people happy by giving them money.
Obama had a harder time of it because no matter what you do you cannot make the chronically malcontent happy. For example, remember the tranny whom Obama had a invited to White House — A tranny! Invited to the White House! — making a scene and ruining Obama’s photo-op?
nk (dbc370) — 11/19/2016 @ 10:50 amMike Pompeo at CIA, Jeff Sessions at DoJ, (hopefully) Richard Grenell at the U.N., and (hopefully) John Bolton at State.
This is like Morning in America.
Whereas if that stinky nasty Hillary woman had won, it would be mourning in America.
Mr Donald, thank you for winning.
Cruz Supporter (102c9a) — 11/19/2016 @ 10:50 amyes yes yes we are so blessed
we coulda had a stanky pig
a stanky pig all up in it
or a pervy mitt romney (yikes)
a sleazy bush klanster like jeb
a puritanical wing-wang like harvardtrash ted
but we chose the road less traveled by
hee and also yaw
happyfeet (28a91b) — 11/19/2016 @ 10:55 amBannon wants to fund infrastructure because he believes that it will benefit (or, at least, appear to benefit) the same working class voters who elected Donald Trump. He wants to be Jeff Smith, the great man of the people.
The “alt-right” is this year’s incarnation of Hillary’s Vast Right Wing Conspiracy, except, this time, the GOPe has jumped on the bandwagon. Good luck with that.
ThOR (c9324e) — 11/19/2016 @ 10:58 am“Real” economics in the ‘free’ market: ‘Hamilton’ on Broadway– $836/ticket.
“Never give a sucker an even break or smarten up a chump.” – WC Fields
DCSCA (797bc0) — 11/19/2016 @ 11:01 amsince it’s all speculation Mr. ThOR
i prefer to thing of the infrastructure thing as protecting their flank
it signals they’re going to do some for reals conservative reform
some balls-out pro-growth policies
and this will serve as cover
we never talk about it here
but the Kansas story’s been much-discussed
all reform and no pay-off
Mr. Trump doesn’t wanna be President Brownback
go figure
he’s idiosyncratic like that
happyfeet (28a91b) — 11/19/2016 @ 11:02 amugh to *think* i mean
happyfeet (28a91b) — 11/19/2016 @ 11:02 ami got a sticker once for how good i did spellings
it was a scratch n sniff strawberry
if i close my eyes i can still smell it
happyfeet (28a91b) — 11/19/2016 @ 11:03 amHow do we fix California?
–
ThOR (c9324e) — 11/19/2016 @ 11:06 amcrazysanehappy,
very good points.
I think the appointment of Reince Priebus and now, perhaps, Romney, serves a real purpose.
I’m a former Democrat, as is Bannon, and it still galls me that the Dems abandoned blue collar America.
ThOR (c9324e) — 11/19/2016 @ 11:14 ami’d love so much to be where i could be a former democrat
almost as bad as i wish i could cancel my New York Times subscription
i’m not well-positioned for to make any grand gestures
that’s just where i am now in life (bad planning)
but i’m not pessimism on it cause it wouldn’t be heart healthy
happyfeet (28a91b) — 11/19/2016 @ 11:24 amHow likely is any of this to fly past Mr. Paul Ryan? Seriously.
Getting your knickers in a twist or your hopes up – which ever direction you paddle.
papertiger (c8116c) — 11/19/2016 @ 11:26 amHappy, excellent Kansas reference. That might have been Cruzer.
urbanleftbehind (a34745) — 11/19/2016 @ 11:31 amSimilarly, when the natural rate of interest is high, businessmen forego capital expansion and serve more immediate consumer needs. This matches consumer behavior, because consumers are saving less and spending more.
This makes the rash assumption that “consumers” save. Ever. More likely when rates are high, the interest on their variable-rate cards is sucking up more of their disposable income and they spend less.
When rates on debt are low, consumers rack up more debt, spending like drunk sailors or congressmen.
Now, maybe in Libertarian-land, where people are educated and make sane choices rather than buying stuff off of Home Shopping Network at 3AM, this “savings” idea might have some merit.
The only time they really save is when they are scared sh1tless.
Kevin M (25bbee) — 11/19/2016 @ 12:06 pmit still galls me that the Dems abandoned blue collar America.
But hey, they got T-shirt America!
Kevin M (25bbee) — 11/19/2016 @ 12:11 pmGovernment spending for infrastructure = “reals conservative reform.” On what planet, hf 64?
And, yes, the Trump-Bannon bandwagon has used the alt-right. Hopefully for convenience and not out of ideology, but it’s still wrong.
DRJ (15874d) — 11/19/2016 @ 12:13 pmnonono
the infrastructure is a HUGELY vocal lib prescription for prosperity and ponies and all good things
(the pig was all up in it)
so… what happens if it doesn’t work?
(it can’t not work you see)
PLUS they did it 4x more than the pig axed for!!!
but meanwhile they can do all sorts of pro-growth stuff
and yes yes yes it all comes out in the wash
but they’re playing it smart, these ones
i love them
happyfeet (28a91b) — 11/19/2016 @ 12:18 pmwhere’s the hill where the pigtards plant their flag lol
(where is it?????)
all the pig-sniffers have so far is fake news and faker racism
and that’s with all of daddy soros’s money slathered all up in it
happyfeet (28a91b) — 11/19/2016 @ 12:22 pmIt will take a lot more than not spending federal money on infrastructure to return to the Austrian school of economics.
crazy (d3b449) — 11/19/2016 @ 1:07 pmI don’t get this. Why would consumers save during times of low interest rates? They get no return on their savings and lose out on low interest on purchases they can finance on the cheap.
This seems pretty counter intuitive.
LBascom (1cae03) — 11/19/2016 @ 1:13 pmThis is why I cannot rejoin the Republican party until I see how Congressional leaders react to Trump proposals that fly in the face of what the party has always stood for.
Right now we’re still in the afterglow of the election, and even though the elections of Senate and House Republicans are as important in their way as the election of Trump, everyone hyper-focuses on the Oval Office. So there will be a show of unity at first, and I will try not to overreact to that.
But the interesting part comes when we see how Congressional Republicans actually react to Trump’s leftist policy proposals. I argued throughout the election season that the GOP will mostly roll over, but I’d love to be wrong. If I turn out to be wrong, I’ll happily rejoin.
But I fear that we’re looking at 4-8 years of the Trump Republican party. To the extent that party becomes the party of Big Government and populist ideas that sound good to people ignorant about economics (like protectionism, for example), it’s not my party.
We’ll see. Fingers crossed.
Patterico (115b1f) — 11/19/2016 @ 1:13 pmTrue, I believe the Chicago boys did it in Chile, but they lost control in the 82 recession.
narciso (d1f714) — 11/19/2016 @ 1:14 pmmy planet is so good it has free samples and it is so good
happyfeet (28a91b) — 11/19/2016 @ 1:15 pmYou should know this bismarkian state capitalism, if it resembles anything
narciso (d1f714) — 11/19/2016 @ 1:21 pmThat’s a good question, LBascom. There is an answer, but what you say is not wrong. It’s a cause and effect thing; I was focused on the cause of low interest rates and you are focused on the effect of low interest rates, and we are both right as to what we are focused on.
I was focused on the cause. Interest rates are the price of credit, and like everything with a price, a greater supply lowers the price, all other things being equal. So the cause of low interest rates is consumers’ actions in saving more, increasing the supply of credit, which lowers its price. That’s why, in an economy where interest rates are set by the market, lower interest rates are a signal that more consumers have decided to save more.
Of course, everything goes in cycles. As prices lower, that results in less supply — and that is true of credit, as you have observed. In other words, the effect of low interest rates is less saving. The lower interest rates go, the less people will want to save, on average. So, over time, they will begin to save less, and that will cause interest rates to rise, signaling to entrepreneurs that the time has come to shift resources away from long-term capital expansion and into production processes that more immediately satisfy consumers’ preferences to buy goods and services now.
Patterico (115b1f) — 11/19/2016 @ 1:22 pmroads = freedom
this was never not the deal
except maybe in stupid justin “pantsed in prague” bieber canada
happyfeet (28a91b) — 11/19/2016 @ 1:23 pmMr Donald might nominate Diane Sykes to the Supreme Court.
Cruz Supporter (102c9a) — 11/19/2016 @ 1:27 pmThis is a good thing.
Team #NeverTrump should look at the glass as half-full.
yes yes she has the golden lasso
you has to tell the troof! (no choice)
happyfeet (28a91b) — 11/19/2016 @ 1:31 pmI don’t know about economics to really judge if this spending is right–and what Markus said, that if you have to rebuild, do it when rates are low–but I do think Trump will not find many more shovel-ready jobs than Obama did. You can bet the lawsuits, graft, and EIRs of the left will bring it all to a halt, if only to hurt him politically. I would rather see them fund individual projects as they come along.
Another good question is the blind trust issue of Trump, Inc. Even if he is out, the family will benefit. How to stop the favor-buying? I don’t know. Per Hotair, the parasites are already gathering.
Patricia (5fc097) — 11/19/2016 @ 1:44 pmI’m not convinced Trump will push such a monstrosity, but I fear he might.
I bitterly oppose it for the exact same reasons I opposed Obama’s pork stimulus; it won’t work, and will simply balloon the debt.
There are *some* infrastructure spending items I would not oppose, such as safety related ones (A bride becoming dangerous due to deferred maintenance)but those can be paid for like they are supposed to be, out of the highway fund (via cutting other programs, like mass transit).
Economically nonsensical pork is economically nonsensical pork, not matter which party or person is behind it.
Arizona CJ (191c8a) — 11/19/2016 @ 3:30 pmThere are two problems that make this conclusion less obvious than it sounds:
1. Are interest rates naturally low, or have they been pushed lower by the Federal Reserve?
2. When interest rates are naturally low, that is when it is most important for businesses to use available capital to engage in capital expansion. For businesses, that is also the worst time for government to engage in huge building programs. Government infrastructure program expansion means you are taking away business’s resources through taxation, and at the same time you are bidding up the price of resources that could be used for private capital expansion, by swallowing up those resources to be used in the public sector rather than the private sector.
I understand that most of the government programs will be carried out by private contractors, but these contractors’ services are being diverted from better uses that private business could put them to. Market use of resources such as capital expansion will always and everywhere be more efficient and better for the economy than government use of the same resources.
Patterico (115b1f) — 11/19/2016 @ 3:33 pmTeam #NeverTrump should look at the glass as half-full.
Oh, I do, I do.
The question is: What’s it half-full of?
gwjd (032bef) — 11/19/2016 @ 4:27 pmOn No. 1 I completely agree, we are living in a world of low interest rates built on a fairy tale, that lending money for free will jack up growth. It will of course for a time, but then, when the Fed would increase rates again, the phony growth will stop.
No. 2. But who will repair roads and bridges and airports, if not the government? Should we privatize everything? Still too much opportunity for graft.
Patricia (5fc097) — 11/19/2016 @ 8:00 pmit should go to states and localities, but the leviathan in Washington siphons all the money toward the Capitol, and lets the Districts grow fallow,
narciso (d1f714) — 11/19/2016 @ 8:05 pmThe plan all along has been for the Fed to keep interest rates artificially low, print money and then stop kicking the can down the road, take the even more painful than it had to be corrective actions at the end of the Obama Fiasco when Republicans were assuming control so that the results could then be laid at the feet of the Republicans.
Colonel Haiku (2601c0) — 11/19/2016 @ 8:06 pmThe reason interest rates are low is because we have a $20 trillion dollar debt. If and when interest rates go to historic levels the cost of servicing that debt will destroy us.
The government has the tiger by the tail and no idea how to let go. Lord help us when they lose their grip.
LBascom (1cae03) — 11/19/2016 @ 8:08 pmUnfunded liabilities are well beyond $20T, don’t kid yourself.
Colonel Haiku (2601c0) — 11/19/2016 @ 8:19 pmTrue, LBascom.
Patricia (5fc097) — 11/19/2016 @ 8:20 pma better rendering of his message,
http://www.wsj.com/articles/steve-bannon-on-politics-as-war-1479513161
narciso (d1f714) — 11/19/2016 @ 8:37 pmThat’s not like Andrew Jackson. That’s like Henry Clay and the Whigs. Except that Henry Clay, I think, was not for wasting money.
As for low interest rates, that’s probably better used first to re0finance the debt. The old debt is still somewhat srot term. Also Bannon doesn’t seem to realize that interest rates are low because of federal policy, and the “conservative” inclination is to do things that would raise interest rates. The idea is that it is inevitable, or not really set by federal policy. Now Janet Yellen has said she will fill out her term, but that only goes to January, 2018. If he appoints monetary hawks, he’ll be undermining everything else he does. That alone could increase the deficit and spark inflation. And then they’ll say they should raised interest rates sooner.
http://www.thefiscaltimes.com/Articles/2014/01/08/Rising-interest-rates-will-slam-Federal-Budget
It’s supposed to be a big no-no to keep interest rates low for the sake of the federal budget, but it’s fiscally destructive not to, and the only way out would be inflation..
Here you could have Donald Trump as ignorant as Andrew Jackson was in his own time. But maybe he’s unconventional enough not to do it.
Sammy Finkelman (704f59) — 11/20/2016 @ 7:07 amLBascom (1cae03) — 11/19/2016 @ 8:08 pm
And the danger isn’t losing their grip, which won’t happen for a long time because the Dollar is the world’s reserve currency – it’s deliberately letting go because somebody thinks that’s the correct policy.
Sammy Finkelman (704f59) — 11/20/2016 @ 7:10 amYou’ve got it backwards. Consumer saving is why interest rates are low — everyone’s looking for somewhere to put their money, so they’ve bid the rates down. When consumers stop saving and start spending interest rates go up and it’s time for business to stop borrowing and building.
Milhouse (40ca7b) — 11/20/2016 @ 7:56 amYes.
If it’s private — actually private, not private people running it for the government — there’s no opportunity for graft. You either make a profit or go under.
Milhouse (40ca7b) — 11/20/2016 @ 8:01 amI just don’t see how an interstate highway or a bridge could be completely privatized.
Patricia (5fc097) — 11/20/2016 @ 8:13 amThe same way they were built in the first place. Roads and bridges didn’t use to be government projects, you know. People built them for profit. If the government allowed it, and did not compete them into bankruptcy, people would do so again. But they’d put them where they thought it was a good idea, not where the government thought it. Government has to get completely out of the business.
Milhouse (40ca7b) — 11/20/2016 @ 8:21 amSammy @99- so you’re saying interest rates need to be kept artificially kept low forever? That’s what I meant about having the tiger by the tail.
Millhouse @101- the flaw in your idea is that much of interstate infrastructure is a national security issue.
LBascom (1cae03) — 11/20/2016 @ 10:45 amNo, it isn’t. That was just a transparent excuse to use federal funds to build highways.
Milhouse (40ca7b) — 11/20/2016 @ 12:08 pmInterstate Highway System – The Myths
happyfeet (28a91b) — 11/20/2016 @ 12:12 pmWhatever Millhouse, it’s obvious to me most government funded infrastructure is a national defense issue.
Besides, I much prefer being able to travel freely on public roads instead if having to cough up $5 to Goldman Sachs or Deutsche Bank every 10 miles.
LBascom (1cae03) — 11/20/2016 @ 12:33 pmI prefer being given things for free at other people’s expense too. Food stamps. Obamaphones. That doesn’t make it right.
Milhouse (40ca7b) — 11/20/2016 @ 12:38 pmGD it! I should’ve known Milhouse has been on the dole.
Colonel Haiku (2601c0) — 11/20/2016 @ 12:42 pmNot yet, but I am technically eligible, and four years ago when 0bama was reelected I did seriously consider it, on the grounds that if this was what the country had chosen then it should get it good and hard.
Milhouse (40ca7b) — 11/20/2016 @ 12:44 pmSure Millhouse, and I suppose you resent people getting all the free tap water you had to pay for too.
LBascom (1cae03) — 11/20/2016 @ 12:50 pmi would like for at least a small portion of food stamps to go to goodhearted nice people what love america
you may say i’m a dreamer
happyfeet (28a91b) — 11/20/2016 @ 12:51 pmIt’s a matter of principle: everything government does is by force; it has no other way of doing anything. Therefore it should do only those things that can’t be done any other way, i.e. protecting people from force and fraud, whether foreign or domestic. Everything else can be provided by the private sector, if only government would get out of the way.
Milhouse (7905a0) — 11/20/2016 @ 5:37 pm