Thursday, June 19, 2008
Economic Incompetence in High Places
Oh no. The Department of Commerce just released figures for retail sales for this year. Commerce Secretary Carlos Gutierrez and others are crowing about the success of the rebate stimulus in warding off recession.
But why? Take a look at the actual release. Notice anything? How about the lack of adjustment for price changes? (Note the latest PPI figures show a substantial jump for May.) How about gasoline retailers sales leading the way? How about the .90 confidence interval being compatible with half as much increase? It isn’t clear that the permanent income hypothesis is falsified by these data.
But more importantly, suppose the preliminary results are correct and actually show an increase in consumption. Would such a jump in consumer spending be a good thing? Consumers are already overextended, with heavy debt loads and low saving rates. Add to this the likelihood that housing prices will continue to fall, further worsening the position of the average household. To the extent that the additional spending is simply consumers contending with higher prices for food and fuel, it’s difficult to understand what’s good about this. And if the additional spending is simply increased consumption, paid for by more federal borrowing, then it’s positively destructive. We’re consuming capital. Either way, there’s nothing here that warrants a sigh of relief. We are dealing with the consequences of an unsustainable credit bubble. The rebate is simply more of this - the Federal government borrows to finance increased spending. Such "stimulus" is what got us into this mess in the first place. OK, Mr. Bernanke has better access to data than I do...maybe he knows something I don’t, and he really is bringing us a nice soft landing. I don’t have any reason to believe this, but am always ready to acknowledge that the unforeseen lurks.
But scarier is the longer term outlook. For the Federal government, the current financial position is terrible. And unfortunately, it is likely to worsen, not improve. Neither presidential candidate has any sort of serious proposal for addressing the growing debt, and either one would be more likely to make it worse than better. As for Congress, the Democrats are almost certain to make further gains in the House, and probably in Senate, and it’s likely they’ll take the opportunity to increase health care entitlements and other spending, drastically, if they can. And we’ve already seen that the Republicans are worthless when it comes to controlling spending. And Bernanke and similar "experts" are utterly lost on this bigger problem.
It’s not that our problems are inherently unsolvable. It’s rather that economic competence, or just plain good sense, seems increasingly scarce in high places. "What to do about high energy prices? Why, impose a ‘windfall profits tax,’ that’ll make ‘em give us cheaper oil!" "Health care insurance too expensive? Hey, let’s put the federal government in charge! With its proven record of cost cutting, things’ll be fine in no time!" "Asset bubbles out of control? Better give the Fed even more power." "And don’t forget the important role of ethanol in saving our energy economy!" "And when in doubt, spend, spend, spend!"
It’s not a nice situation. Here’s hoping that there are lots of pleasant unforeseen contingencies I’ve missed that will obviate all this. But in the meantime, well, it’s depressing to see the incompetence at work.
But why? Take a look at the actual release. Notice anything? How about the lack of adjustment for price changes? (Note the latest PPI figures show a substantial jump for May.) How about gasoline retailers sales leading the way? How about the .90 confidence interval being compatible with half as much increase? It isn’t clear that the permanent income hypothesis is falsified by these data.
But more importantly, suppose the preliminary results are correct and actually show an increase in consumption. Would such a jump in consumer spending be a good thing? Consumers are already overextended, with heavy debt loads and low saving rates. Add to this the likelihood that housing prices will continue to fall, further worsening the position of the average household. To the extent that the additional spending is simply consumers contending with higher prices for food and fuel, it’s difficult to understand what’s good about this. And if the additional spending is simply increased consumption, paid for by more federal borrowing, then it’s positively destructive. We’re consuming capital. Either way, there’s nothing here that warrants a sigh of relief. We are dealing with the consequences of an unsustainable credit bubble. The rebate is simply more of this - the Federal government borrows to finance increased spending. Such "stimulus" is what got us into this mess in the first place. OK, Mr. Bernanke has better access to data than I do...maybe he knows something I don’t, and he really is bringing us a nice soft landing. I don’t have any reason to believe this, but am always ready to acknowledge that the unforeseen lurks.
But scarier is the longer term outlook. For the Federal government, the current financial position is terrible. And unfortunately, it is likely to worsen, not improve. Neither presidential candidate has any sort of serious proposal for addressing the growing debt, and either one would be more likely to make it worse than better. As for Congress, the Democrats are almost certain to make further gains in the House, and probably in Senate, and it’s likely they’ll take the opportunity to increase health care entitlements and other spending, drastically, if they can. And we’ve already seen that the Republicans are worthless when it comes to controlling spending. And Bernanke and similar "experts" are utterly lost on this bigger problem.
It’s not that our problems are inherently unsolvable. It’s rather that economic competence, or just plain good sense, seems increasingly scarce in high places. "What to do about high energy prices? Why, impose a ‘windfall profits tax,’ that’ll make ‘em give us cheaper oil!" "Health care insurance too expensive? Hey, let’s put the federal government in charge! With its proven record of cost cutting, things’ll be fine in no time!" "Asset bubbles out of control? Better give the Fed even more power." "And don’t forget the important role of ethanol in saving our energy economy!" "And when in doubt, spend, spend, spend!"
It’s not a nice situation. Here’s hoping that there are lots of pleasant unforeseen contingencies I’ve missed that will obviate all this. But in the meantime, well, it’s depressing to see the incompetence at work.
