Those raised around farms will probably know what eating one's seed corn means, but what does that have to do with Gross Domestic Product? Read on, and I will try to make the point.
Back in the 1970s on the campaign trail with my good friend Bob Krueger (former Democratic Congressman and US Senator) Bob would often use the term "we are eating our seed corn" in discussing government budgets and deficits. (Yes, Democrats, or some of them, were concerned about that in those days.) Bob was one of those rare politicians who would tell the truth, even when many people didn't want to hear it.
Of course we know that if you eat your seed corn, you have no seed to plant to get next year's crop. You would then be broke, or would starve to death. Not a good outcome.
This brings us to the current debate over the huge and growing deficits and national debt. Borrowing against the future to pay for the present is just like eating your seed corn. Our people, many businesses, and almost all of our governments have been doing this for years. The party is just about over. The train that is our economy is about to come to the abyss.
So what does this have to do with Gross Domestic Product, and how it is measured. Read on.
GDP is measured by adding Consumption (both private and business) plus Investment plus Government Spending plus Net Exports (exports - imports).
Those are the constituent parts of GDP. Note that the only net figure is the import/export number, and for over 40 years that has been a negative number.
Right now, GDP as thus measured is positive, and we are in a "recovery." Does it feel like a recovery to you? Ask the record number of long term unemployed.
Why do not we measure the net domestic product, whereby all of the spending would be reduced by the amount of borrowing that supports it? NDP has a good ring.
I am not an economist, so I cannot give any expert opinion on why the gross figure is considered better than a net figure, but I do know that relying on the gross figure has to distort the view of what is really happening in the economy.
Consider that government spending is all included although at least 44% of it is borrowed money. Is that why politicians always want to do a big stimulous when we hit a recession? It certainly makes it statistically look like a recovery. That is why we had a "recovery" this past year, and now that the stimulous is running out the "recovery" is faltering.
Back out the deficit spending and a clearer image of the real economy emerges.
Also consider that private (consumer) spending is also a gross figure, when by all reports, much of it is again being done on credit cards. This, of course, is one reason why the Federal Reserve always wants to force interest rates down during a recession. They want to encourage the consumer to borrow and spend.(Another is to allow the banks to borrow at low rates and lend at higher rates, helping their profits.) That is a lot of what got us into this problem.
The last decades were spent on a big joyride, with consumers being encouraged to buy things (houses among them) that they could not afford. A lot of people maxed out their credit, then borrowed their home equities to buy the tickets for that ride.
The fact that the measured GDP was good enabled the politicians---of all stripes--- to get elected and reelected because times appeared to be better than they were. And they sold it as such.
Here is where the measure of GDP deceives us: the last forty years we have been eating our seed corn, and the economic measure the government statisticians, the economic statitisticians, and the politicians have been using to tell us where we are has hidden the facts. Of course, we all know about liars, damned liars, statisticians, and politicians.
What is all this about? It is very simple. Over 30 years ago, Bob was right. We were eating our seed corn then, and that has continued to this day. And many want to continue.
That train I wrote about six months ago when I last posted speeds on nearer the abyss. At some point it will get too late to stop it in time.
Somebody needs to get serious about this, or we need to throw them out.
Friday, July 22, 2011
Saturday, February 19, 2011
Imagine a train
A very long train, with the United States on board. Call it the Gravy Train, for a name.
This train has been speeding down the tracks for many, many years. It has been a great party for most on board, though not for all.
At the end of the track it is running on there is an abyss. Nobody knows where the end is, but it is there.
It might be one mile away, ten miles, 100 miles; nobody can know for sure. We only know that the train must be stopped before it reaches the abyss, or there will be a terrible train wreck.
We also know that the train takes a long distance to be stopped, so there can be no waiting until the last moment to apply the brakes.
The only way to stop the train is to stop the party. Everyone will have to give up some of their gravy. It cannot be stopped any other way.
Meanwhile, the Engineer is opening the throttle. The train is picking up speed rapidly.
The rest of the crew is dithering, doing little at all to stop the train.
Some of the passengers are getting worried, many are just ignoring the speed and are enjoying all the gravy.
Very little is being done because nobody on the train wants to give up any of their gravy.
So the train keeps speeding toward the abyss. Will it be stopped in time?
It doesn't look much like it.
This little story should seem familiar. Our government has a huge and growing budget deficit and huge and growing entitlement commitments that cannot be paid for under any scenario.
The President has offered a budget proposal that will increase the deficit considerably. His party which controls the Senate is fighting to preserve current levels of spending.
The other party, which controls the House of Representatives are engaging in tokenism so far, and were split on a vote this week that would cut a mere $22 billion from the $1.5 trillion deficit.
The only conclusion that I can reach about this is that we are governed by morons.
Who will lead the political revolution that is needed?
This train has been speeding down the tracks for many, many years. It has been a great party for most on board, though not for all.
At the end of the track it is running on there is an abyss. Nobody knows where the end is, but it is there.
It might be one mile away, ten miles, 100 miles; nobody can know for sure. We only know that the train must be stopped before it reaches the abyss, or there will be a terrible train wreck.
We also know that the train takes a long distance to be stopped, so there can be no waiting until the last moment to apply the brakes.
The only way to stop the train is to stop the party. Everyone will have to give up some of their gravy. It cannot be stopped any other way.
Meanwhile, the Engineer is opening the throttle. The train is picking up speed rapidly.
The rest of the crew is dithering, doing little at all to stop the train.
Some of the passengers are getting worried, many are just ignoring the speed and are enjoying all the gravy.
Very little is being done because nobody on the train wants to give up any of their gravy.
So the train keeps speeding toward the abyss. Will it be stopped in time?
It doesn't look much like it.
This little story should seem familiar. Our government has a huge and growing budget deficit and huge and growing entitlement commitments that cannot be paid for under any scenario.
The President has offered a budget proposal that will increase the deficit considerably. His party which controls the Senate is fighting to preserve current levels of spending.
The other party, which controls the House of Representatives are engaging in tokenism so far, and were split on a vote this week that would cut a mere $22 billion from the $1.5 trillion deficit.
The only conclusion that I can reach about this is that we are governed by morons.
Who will lead the political revolution that is needed?
Tuesday, February 1, 2011
Is Egypt Iran Redux?
We are at the 32nd anniversary of the overthrow of the Shah of Iran, sped along by Jimmy Carter when he abandoned the Shah to the Ayatollahs. That had a great result, putting one of the chokepoints for the world's oil supplies in the hands of radicals who hate the United States.
Now we see the same thing going on in Egypt. And sure enough, our bowing and scraping President is abandoning our long time ally Mubarak.
To be sure, both the Shah and Mubarak are/were SOBs. But they were OUR SOBs. Those that replace(d) them hate us. And they are still SOBs.
Carter had no plans for the aftermath of the Iranian Revolution, and now, our government is apparently going to allow the Iranians to produce nuclear weapons, as well.
Obama? Where does he stand on Egypt? Unprepared, quite obviously. When the phone rings, there is nobody to answer it, not even Hillary.
Egypt has been the linchpin of our Mideast policy, helping to keep the shaky peace between the Israelis and the Arab nations. It also controls another major chokepoint for the worlds's oil supply, the Suez Canal.
And Obama........well, he opines that the Muslim Brotherhood would be fine in the new government. That is the grandfather of all Jihadis groups, and has just this week called for war between Egypt and Israel.
What could go wrong?
Now we see the same thing going on in Egypt. And sure enough, our bowing and scraping President is abandoning our long time ally Mubarak.
To be sure, both the Shah and Mubarak are/were SOBs. But they were OUR SOBs. Those that replace(d) them hate us. And they are still SOBs.
Carter had no plans for the aftermath of the Iranian Revolution, and now, our government is apparently going to allow the Iranians to produce nuclear weapons, as well.
Obama? Where does he stand on Egypt? Unprepared, quite obviously. When the phone rings, there is nobody to answer it, not even Hillary.
Egypt has been the linchpin of our Mideast policy, helping to keep the shaky peace between the Israelis and the Arab nations. It also controls another major chokepoint for the worlds's oil supply, the Suez Canal.
And Obama........well, he opines that the Muslim Brotherhood would be fine in the new government. That is the grandfather of all Jihadis groups, and has just this week called for war between Egypt and Israel.
What could go wrong?
Sunday, January 30, 2011
The Financial Crisis Commission Reports
It reported, and didn't really add anything to what we didn't already know.
Six Democrats and four Republicans did interviews and investigation, and probably could have read Sorkin's book TOO BIG TO FAIL and derived the same information. They also could have read Simon Johnson and James Kwak's book 13 BANKERS. Both of those shed a good bit of light on the situation.
The majority report is 545 pages, and from the reviews I have read, most of it just repeats the same things found in the above books, although I doubt it makes the allegations made in 13 BANKERS. That would not have been politically correct. I don't think I will bother, but it is available on Amazon in paperback for under ten bucks.
What it boils down to is that a partisan majority blames the banks, a partisan minority (of one) blames the government, and the rest of the Republicans blame everything and everybody.
So much for that waste of time. The government at least appears to have "done something" when, in fact, it has done nothing but perpetuate the problems at the expense of the taxpayers.
And all the politicians wonder why the Tea Parties are gaining influence.
Six Democrats and four Republicans did interviews and investigation, and probably could have read Sorkin's book TOO BIG TO FAIL and derived the same information. They also could have read Simon Johnson and James Kwak's book 13 BANKERS. Both of those shed a good bit of light on the situation.
The majority report is 545 pages, and from the reviews I have read, most of it just repeats the same things found in the above books, although I doubt it makes the allegations made in 13 BANKERS. That would not have been politically correct. I don't think I will bother, but it is available on Amazon in paperback for under ten bucks.
What it boils down to is that a partisan majority blames the banks, a partisan minority (of one) blames the government, and the rest of the Republicans blame everything and everybody.
So much for that waste of time. The government at least appears to have "done something" when, in fact, it has done nothing but perpetuate the problems at the expense of the taxpayers.
And all the politicians wonder why the Tea Parties are gaining influence.
Wednesday, January 26, 2011
The State of the Union
It sure didn't take Obama long to solve the fiscal crisis here in the US.
He is going to freeze spending!
This occurs at the point where the Congressional Budget Office confirms that spending at current levels will result in a $1.5 TRILLION deficit this year.
That will certainly get the job done.
The state of our union is going to be desperate until we get better leadership.
Sigh.
He is going to freeze spending!
This occurs at the point where the Congressional Budget Office confirms that spending at current levels will result in a $1.5 TRILLION deficit this year.
That will certainly get the job done.
The state of our union is going to be desperate until we get better leadership.
Sigh.
Monday, January 24, 2011
Musings on a Monday
Fooling around on a chilly Monday, a few thought have occurred to me:
First, The New York Times reports that our Congressman, Randy Neugebauer, has blown the whistle on a large scam taking place at Fannie Mae and Freddie Mac. It seems that the taxpayers have paid the legal bills for some of the worst of the perps in the greatest banking fraud ever....to defend them from charges of civil fraud!
The scandal of the banking collapse, the government bailouts of the perpetrators, and the government coverup of all the fraud needs to be fully exposed. Go Randy!
Secondly, it appears that one of the big perps, Jeffery Immelt of General Electric (General Electric Credit Corp.), has been appointed to a high economic post at the White House. He will know how to bail out the perps even more at the expense of Main Street Americans.
One wonders if there is no shame in Washington, D.C. But not for long. Clearly there is none.
Third, I note that Texas Tech has won in the Court of Appeals in the Mike Leach case. I have not read the opinion, and have no thoughts about the ruling.
From the news stories, it appears that Tech is not bound by the contract it signed, and is immune from any damages it might be assessed if Tech doesn't pay under its terms.
Bad news for Leach, but I wonder how everyone else that has signed contracts with Tech feel?
First, The New York Times reports that our Congressman, Randy Neugebauer, has blown the whistle on a large scam taking place at Fannie Mae and Freddie Mac. It seems that the taxpayers have paid the legal bills for some of the worst of the perps in the greatest banking fraud ever....to defend them from charges of civil fraud!
The scandal of the banking collapse, the government bailouts of the perpetrators, and the government coverup of all the fraud needs to be fully exposed. Go Randy!
Secondly, it appears that one of the big perps, Jeffery Immelt of General Electric (General Electric Credit Corp.), has been appointed to a high economic post at the White House. He will know how to bail out the perps even more at the expense of Main Street Americans.
One wonders if there is no shame in Washington, D.C. But not for long. Clearly there is none.
Third, I note that Texas Tech has won in the Court of Appeals in the Mike Leach case. I have not read the opinion, and have no thoughts about the ruling.
From the news stories, it appears that Tech is not bound by the contract it signed, and is immune from any damages it might be assessed if Tech doesn't pay under its terms.
Bad news for Leach, but I wonder how everyone else that has signed contracts with Tech feel?
Subscribe to:
Posts (Atom)