PATHETIC. Fox News Further Clowns Themselves Into Irrelevancy
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If you’ve ever played chess well, or for that matter, ever been pretentious like moi and wanted to convince others you could play chess well, you’ve studied a few openings and end games. You get these books which describe openings and end games that famous masters have played around the world. This tells you how to kick start your chess match and how to put your wily opponent down like unwanted puppy. It’s the part in the middle that always got me into check and then unceremoniously into mate. A similar analogy can be drawn to our current economic policies.
Our current Administration’s economic policy has a basic opening called Keynesianism. This involves identifying areas of our economy where private spending fails to stimulate sufficient aggregate demand and then “solving” this “problem” by pouring in the government as a super-consumer. The administration also has a vehicle to move past this opening known as stimulus. This involves borrowing vast piles of money to fuel government investments that are intended to provide the missing aggregate demand. What they seem to lack at present is any coherent sense of an end game.
Keynes didn’t think in terms of end games. He wouldn’t. He was trained as an engineer. He wanted the economy to become a manageable system within reasonable control bounds. He wanted it to crank aggregate demand like a well-run and efficient assembly line.
To see what end game occurs from attempting to manage a 10,000 variable, meta-stable, intangible system the way Deming envisioned running a factory, we look to what is happening in Japan, where people first learned to run factories the way Deming proscribed.
Japan may not yet have hit the wall and been forced to concede, but their economy limits the moves they have available. Japan has experienced an asset deflation in real estate eerily similar to America’s subprime crisis. This put Japan’s economic vitality into check because of the negative impacts that this had on Japanese banks and insurers. Japan has attempted over a decade’s worth of Keynesian Stimulus as a way out of check.
This stimulus has become addictive, not remedial. It has become perpetual life-support. The Japanese central banks continue to pour money into government programs that achieve a temporary stasis rather than a regenerative growth. The population ages, capital and family formation fails to occur, the nation goes deeper in debt. And yet, move after desperate move, the credit markets respond to Japan with a simple and malevolent “check.”
Takahira Ogawa, is the director of sovereign ratings at Standard & Poor’s in Singapore. He tells Business Week that Japan must cut domestic spending, or the price of its sovereign debt will fall below par. This would result in the Japanese central bank having to pay higher interest rates on its bonds or get less money for them at sale than their face value. This process would be catalyzed by a downgrade in Japan’s debt rating from people like Ogawa at agencies like Standard and Poor’s.
Ogawa watches the Japanese elections with a pecuniary interest. He tells Business Week the following in an article entitled “Kan’s Loss May Be Negative for Japan’s Credit Ratings.”
The Democratic Party of Japan’s upper-house defeat yesterday is “potentially negative” because of legislative gridlock, Takahira Ogawa, director of sovereign ratings at Standard & Poor’s in Singapore, said in a phone interview today.
Prime Minister Kan faces troubles because he wants to raise more money so that he can borrow less in sovereign bonds. He plans on doing this through doubling Japan’s National Retail Sales Tax at the point of sale from 5% to 10%. The Japanese people do not want this and will be less inclined to support Prime Minister Kan as a direct result of this policy.
However, Prime Minister Kan doesn’t have viable options to do otherwise. A sovereign debt downgrade would cause debt service costs to crowd out the government spending necessary to provide all the good things that Japan Inc has promised its civilian shareholders. Telling an increasingly aged nation that the government was kinda’ sorta’ just kidding about all that healthcare they promised to Senior Citizens is not the road to political viability. Prime Minister Kan, like the chess player facing a badly tilted board, is increasingly constrained into making bad choices….
Meanwhile, in America, the Paradigm plays out in similar fashion. American real estate crashed and burned. An American government pumped in the Keynesian stimulus. The stimulus produced wounded stasis; not healing progress and the nature of that stimulus has begun to morph from amelioration to addictive sustainment.
Stephen Spruill describes the process in a National Review Article entitled “Mechanical Failure.” Detail follows below.
From 2008 to now, the composition of the stimulus bills has changed, from mostly tax rebates intended to boost consumer demand to mostly income transfers from the employed to the unemployed and from the federal government to the states. Though the stimulus machine’s architects would be loath to admit it, this transformation represents the failure of its stated purpose, which is to create jobs and to jump-start sustainable economic growth.
In other words, so went Japan and now we follow in their footsteps like a pseudo-sapient zombie. It reminds me of a line from the movie The Matrix. As Trinity said to Neo: “Because you have been down there Neo, you know that road, you know exactly where it ends. And I know that’s not where you want to be.” (HT: IMDB)
Thus, we must pull out of our Keynesian death spiral. We must realign the fundamental role of government in our economy. It can referee, but it has no business suiting up and playing ball. The only way to accomplish this necessary realignment is the short-term political destruction of the Democratic Party. In November 2010, we’d better do everything in our power to make sure Neo takes the Red Pill, not the Blue.
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