The Greek Tragedy: Will We Heed the Warning?

July 3rd, 2015 by Roy W. Spencer, Ph. D.

Caution: For those who think I should stick to science, turn your eyes away now.

When my daughter studied in Greece several year ago, one of the first things she told me when she got there (and easily the most memorable) was “Dad, these people don’t know how to make money”.

Greeks, along with so many others in the world, have been fooled by the notion that prosperity can be achieved with a minimum of work. By “work” I mean as many people as possible, doing useful things for each other, as efficiently as possible.
2010-05-21-digest-cartoon-2
No monetary policy or economic stimulus can supplant this basic truth. It is a necessary, but possibly not sufficient, requirement for prosperity. The role of government in this fundamentally private sector-driven process is to make sure people play fair, and then get out of the way.

When government bureaucrats become the ones who decide which goods and services are the most important, or what those should cost, or just how much of that wealth they will siphon off to give to those who don’t work, prosperity for a nation as a whole suffers.

I’ve long wondered how people can be fooled into believing work can be avoided, and the most central misconception I keep coming back to is this: If a person believes the same amount of stuff is going to be made anyway, then the only argument left is who gets how much, and the goal of an equitable distribution of wealth becomes central.

But one only need look around the world to see that wealth generation varies widely. It’s not even related to how many natural resources a country has, otherwise Japan would never have prospered and Russia should be one of the most prosperous countries on Earth. Haiti would be just as prosperous as Hong Kong.

The “constant pie” mindset was revealed by President Obama in his speech yesterday at the University of Wisconsin – La Crosse, when he said, “Being an American is not about taking as much as you can from your neighbor before they take as much as they can from you.”

Obama has mastered the art of presenting platitudes that sound on the surface like he’s a free market guy, but his policies end up not encouraging the generation of wealth, but instead redistributing wealth from the dwindling few who still generate it.

Since we do not teach basic economics to our children, this kind of message becomes seductive to the masses. It is an old message, historically, and it always ends badly.

There is no easy way to prosperity, just as there is no free lunch.

A second point often missing from the discussion is this: prosperity depends upon efficiency (e.g. mass production), which generally requires large investments. So, unless those with the means to invest have some hope of being able to keep their profits (since most will fail, and lose their investment), the system will not work.

Those few who have gotten immensely wealthy, generally speaking, have kept only a tiny fraction of the extra wealth they have generated for the country as a whole. They did not unfairly take from the rest of society; society freely gave it to them in exchange for something we wanted (e.g. iPhones).

When we threaten to take away their reward for a (risky) job well done, the system collapses. Politicians who then play the class envy card may gain some short term political points, but it will be at the expense of the country’s economic health.

In the 2015 Index of Economic Freedom, Heritage Foundation ranks Greece 130th out of 178 countries (Venezuela, Cuba, and North Korea rank last). Yet, this Forbes article with opinions from 3 Harvard Business School professors asked to comment on the Greek crisis fails to even bring up this systemic problem, and instead offers only vague platitudes.

So, again, any government economic policy must (in my admittedly simple minded opinion) always be judged against the single overriding goal for a country hoping to achieve prosperity: “As many people as possible, doing useful things for each other, as efficiently as possible.”

If a government’s policies cannot support that basic goal, there will be nothing of value to govern, and the original poor among us (whose numbers will increase dramatically) will be even worse off than they were before.

Now back to our regularly scheduled programming.


176 Responses to “The Greek Tragedy: Will We Heed the Warning?”

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  1. David Vanegas says:

    I think you’re right to point out the politics, Dr, Spencer. It is highly relevant.

    Government can create the conditions for a population to prosper, but it cannot create anything of value from central office. History is littered with failed left wing governments who have had to adopt right wing policies to get themselves out of the hole they made. What saddens me most about climate hysteria is the economic damage it does to everyone (mostly the poor).

    From climate models to economic models, we see human error.

    • Gordon Robertson says:

      @David Vanegas…”History is littered with failed left wing governments who have had to adopt right wing policies to get themselves out of the hole they made”.

      Show me one example without a right-wing interpretation.

      Canada is a socialism. We have centralized Medicare, pensions, unemployment insurance, workers’ compensation, and better wages and conditions due to the socialist intervention of unions, who began socialism in Canada under democratic governments.

      Roy’s capitalist philosophy is representative of the 19th century before workers got organized and told capitalists where to stuff it. In the early 20th century, Sun Yat Sen tried to implement democracy in China and he was opposed by US capitalists with their UK and German counterparts. They were too busy selling opium to the Chinese in exchange for pillaging their country.

      Keeping governments out of the way of capitalists has lead to disasters like the 1929 stock exchange collapse. Had it not been for socialist policies imposed by FDR in the 1930s, the US may never have recovered.

      Roy needs to remember that in a democracy the government represents ALL the people not just the capitalists. Workers need to be protected from the excesses of corporations and the private sector.

      • fonzarelli says:

        Gordon, i’m glad you (finally) showed up here… It’s been quite a while, i think, since Dr Spencer has done an economics posting. Out of curiosity, what (historically) has been the unemployment rate in canada? One thing that i wish that you would consider when judging capitalism is that we really DO NOT have free market capitalism. The u.s. federal reserve undermines capitalism by not allowing the economy to grow past 4% unemployment (here in the u.s.). So, we never really have seen true free market capitalism, especially since 1979 with the appoint of volker to the fed chair. As a result of this, the only good possible outcome is as you have laid out; distributing the smaller pie “equally”… With full employment (approaching 0% unemployment) good wages and prosperity would abound. Just witness the world wide economic boom of a decade ago that happened with u.s. unemployment at 4%. How much better it would have been (and always should be) had the unemployment rate been even lower! I really love your comments, but just wish that you’d factor in federal reserve policy when judging capitalism…

      • Leo Morgan says:

        @ Gordon Robertson

        My belief in the virtue of the Capitalist system is currently as strong as yours appears to be in Socialism.
        But are our differences a matter of Faith or judgement? Would you be willing to exchange email addresses to discuss our differences rationally?
        I’m aware that there is a widespread admonition to not discuss politics, religion, or sex. (The admonition is seldom followed, especially on the Internet.) The purpose of the advice is largely that we’ll never change anybody’s minds. But if we’re discussing reality, it should be possible for us to resolve our differences.
        Certainly, within my imperfect human capabilities, it is my firm intention to change my mind whenever the evidence warrants it.
        Are you aware of the standard arguments and evidence economists use against your claims about the Great Depression? How do you answer them or refute them?
        Of course there’s always the possibility of ongoing differences as a result of differing values, and this is fine, I’m still keen to understand different values other people have.
        A possible example of different values is where you speak of the need to have Government to protect from the excesses
        of corporations and the private sector. But the excesses of Governments are wars, imprisonment, torture, execution, seizure of property, none of which corporations and the private sector do. (Except via the medium of Government.) The excesses of corporations are charging more than the customers want to pay for the things customers want to buy, producing better stuff than their competitors can produce, and insisting on people abiding by their contracts, and insisting that they are unwilling to offer salaries as high as their employees would like to get.
        My value is that it is not worth having the excesses of Government in order to avoid the excesses of corporations. If you really think so, would you be willing to explain why?

  2. Jim T says:

    Very well said. Thanks, Dr. Spencer, for bringing the discussion back to basics.

  3. donb says:

    In your definition of work, the phrase “as many people as possible” is an essential ingredient. And I don’t mean just that many people supply the labor, but that they also participate in the rewards. If the economy gets too “top heavy” in rewards, a vast ocean of those not participating can bring everything down.
    I concur with the points you make, but rewards must retain some sort of balance. In a non-democracy, like Czarist Russia or King Louis France, the anger can build until the country breaks. In a democracy like the US, the likely result is stagnation of both economics and politics.
    The hard part is figuring out HOW to ensure as many people as possible participate.

    • fonzarelli says:

      donb, it’s the job of the federal reserve to keep people poor by shutting down the economy when the unemployment rate reaches 4% to curb demand inflation. This policy does not take into account the fact that the growth in personal wealth must outpace “demand” inflation for an economy to sustain growth. If the fed were to let the economy grow (0% unemployment) then we would see your idea come to fruition…

      • DEEBEE says:

        It is incorrect to cast 4 or 5 percent. As Feds target for whatever reason. Unemployment figures are snapshots and one has to effectively guess at what percent of people at any given moment in time have lost their their jobs and are looking for new ones. Zero unemployment means that no one is looking for a job while not employed. An unrealistic scenario for sure

  4. Roy Spencer says:

    Donb, I’m not sure what you are referring to. Are you saying that allowing market forces alone to operate cause the least skilled to earn so little that they won’t participate?

    • donb says:

      Roy, I am saying that either market forces alone or government “organization” alone will distort the process and produce unwanted results for the country as a whole. There has to be a mixture, although I don’t know just what that mix should be. That should be why we elect politicians, but they can’t seem to get it together either.
      What I am saying is that part of the economy and country cannot move away from the whole without producing unwanted distortion and later problems.
      A rising tide needs to float at least most of the boats, no matter their size.

      Here are two examples:
      Strong government support was absolutely needed in the 1930s, when the economy was in serious trouble.
      Increasing government debt should have been much less when the US was prospering in the 50s through 90s and did not need that extra stimulus.
      Government frequently choses the wrong way to help. If you give a man a fish, you feed him for a day. If you teach a man how to fish (and make a lake available) your feed him for a lifetime (and help the whole country as well).

      • jim says:

        You wrote–“Strong government support was absolutely needed in the 1930s, when the economy was in serious trouble.”
        There is some disagreement here. Many feel that government turned an ordinary recession into a depression that only ended because of Tojo.
        Sadly today we seem to be following the same failed policies.

        • fonzarelli says:

          Jim, according to bernanke, FDR got us out of the depression by 1934 (by making a couple simple moves, fdic being one of them). The fed then got nervous about risky investments in the growing economy and so raised interest rates causing the depression to resume. According to him the great depression was really a double dip recession…

          • fonzarelli if Bernanke said that he is either ignorant of economics or lying. The evidence is very clear that Government intervention made the problem worse. As Dr Spencer said governments are there to made laws for fair play (whether personal eg murder or monetary effecting many) and ensure laws are complied with. People who take risks should be allowed to fail, people who take risks with other peoples money should be prosecuted if they cause harm and that includes members of the government and the Federal Reserve. I read that Obama has broken laws by defying and bypassing the elected parliament. If that is the case he should be impeached.

          • fonzarelli says:

            “The evidence is very clear that Government intervention made the problem worse.”

            How did it make things WORSE if the economy was getting BETTER by 1934? And if your argument was that after 1934 government intervention made things worse, then how would we know? The Federal Reserve is a powerful tool in regulating the economy. So, even if fdr policy were successful, the federal reserve could easily cancel that out. A good example is the pelosi stimulus which the fed deemed successful by the summer of 2008. Fearing inflation from the stimulus, bernanke then manipulated interest rates to cancel it out…

          • DEEBEE says:

            Nonsense she, Fonz. If you only look at a couple of years from a crisis government intervention is always ameliorative. It is the long term problem that all these interventions cause. Some refer to it as unintended consequence, I say perhaps nut they are not unknown at the time interventions are taken. The only think positive if at all, is that they are politically expedient.

          • Gordon Robertson says:

            @cementafriend…”governments are there to made laws for fair play (whether personal eg murder or monetary effecting many) and ensure laws are complied with”.

            If you live in the US I suggest you read your constitution to see what governments ‘should’ be about. Or refer to Lincoln’s address which included:

            “We here highly resolve that these dead shall not have died in vain, that this nation, under God, shall have a new birth of freedom; and that government of the people, by the people, for the people, shall not perish from the earth.”

            Apparently capitalists thought Lincoln meant only them. I have spoken to and worked for capitalists who seem to think they have a God-given right to govern, and to overturn the laws of the land. They regard employee’s much like a Medieval landowner would have considered a serf.

      • Joe Born says:

        Roy Spencer: “Strong government support was absolutely needed in the 1930s, when the economy was in serious trouble.”

        I was ready to congratulate Dr. Spencer for hitting the nail on the head in his head post. In fact, I will. Despite what I may have thought of the naivete of some previous economic statements of his, the head post hits the nail on the head.

        But we had experienced downturns like that in ’29 before, and we bounced back much more quickly because we did not have the Hoover/Roosevelt activism. If we had had someone like Coolidge in charge and allowed the people to sort things out themselves without government interference, much of the suffering would have been avoided.

        Stick with “As many people as possible, doing useful things for each other, as efficiently as possible.” Those boys and girls in Washington, no matter how many Harvard degrees they have, are less likely than its college-dropout owner to know what is most efficient for a machine shop in Milan, IN. Experience trumps intelligence.

        • Shawn Torgerson says:

          Um, Joe, Roy Spencer never said what you just attributed to him. I’m pretty sure he would not agree with statement, too. That was donb that wrote that. On a side note, this post by Roy was spot on, which you agree with, other than the quote you disagreed with that wasn’t even his. Greece and what happens to the EU in the next year hopefully will be a good example for what we should avoid here in the next election.

        • Gordon Robertson says:

          @Joe Born…” If we had had someone like Coolidge in charge and allowed the people to sort things out themselves without government interference, much of the suffering would have been avoided”.

          Said with typical capitalist naivete and arrogance. The 1929 crash was followed by devastating dust storms in parts of the US where children died because they could not breath. Are you suggesting people should have stood by and witnessed such human devastation and let them sort it out for themselves?

          Some of us stand for something else. We stand for helping each other out and we do it through voting in governments to implement our wishes. Although governments in Canada today are right-wingers, they dare not interfere with already implemented socialist values that are held dear even by those supporting right-wing governments.

          There is nothing to stop a left-winger becoming prosperous. It is a myth that socialists stand for the Draconian system of failed communism perpetrated by the Bolsheviks in Russia. The Bolsheviks persecuted socialists and true communists. It was the Bolsheviks who outlawed religion in Russia, not socialists or true communists.

          • Michael B says:

            Gordon when you say”Some of us stand for something else. We stand for helping each other out and we do it through voting in governments to implement our wishes.” it is spoken like a true liberal. It is always easy and self indulgent to be so generous with other peoples money. In a democracy you are free to help as many people as you would like but not using my money. Carter instituted a 25% “luxury tax” on aircraft and boats over $250,000 when he was president and 6 boat builders went out of business the first year alone in Maine. People went to foreign markets for these “luxury” items. The tax was repealed the following year but most builders never recovered. The highest corporate tax rates in the industrialized world cost American jobs.
            No liberal vs conservative, just fact, plain and simple. Higher taxes to finance your generosity actually costs people their jobs.

          • Ted T says:

            This is a response to the reply left by Michael B on Jul 10, 2015 at 1:15 AM the text of which is;
            “Michael B says:
            July 19, 2015 at 1:15 AM
            Gordon when you say”Some of us stand for something else. We stand for helping each other out and we do it through voting in governments to implement our wishes.” it is spoken like a true liberal. It is always easy and self indulgent to be so generous with other peoples money. In a democracy you are free to help as many people as you would like but not using my money. Carter instituted a 25% “luxury tax” on aircraft and boats over $250,000 when he was president and 6 boat builders went out of business the first year alone in Maine. People went to foreign markets for these “luxury” items. The tax was repealed the following year but most builders never recovered. The highest corporate tax rates in the industrialized world cost American jobs.
            No liberal vs conservative, just fact, plain and simple. Higher taxes to finance your generosity actually costs people their jobs.”

            Problem with Michael B’s reply is the the luxury tax (10% not 25%) was passed by US Congress and signed into law by former President George H.W. Bush and took effect on January 1, 1991. And with Congress twice voting to repeal the tax, that Bush administration twice vetoed the bill. It was the Clinton administration’s 1993 budget reconciliation bill that repealed the 10% luxury tax.

      • KevinK says:

        Donb;

        “Strong government support was absolutely needed in the 1930s, when the economy was in serious trouble.”

        Really, you still want to push the whole “FDR saved the USA from the Depression” meme, after we just did another “The guberment saved us from a recession” experiment with a Trillion dollar “stimulus”. Really, you want to be that totally ignorant of economic history ?

        FDR and his “brain trust” not only managed to make a serious recession into a major depression with their ham handed attempts at “central planning” but they also managed to create another recession inside of a depression (1937). A singular feat that has not been repeated, so far.

        When you read about the “Great Depression” you hear terrible stories about people starving here in the USA. What you don’t read so much about is the fact that the FDR administration intentionally slaughtered millions of totally edible livestock (pigs) in a futile attempt to “set the price of pork”.

        Starving populace and a goverment that is destroying food stuffs in a totally hubris-tic attempt to “set the price of bacon”.

        Just like our current guberment that thinks they can determine the temperature and weather in the year 2100.

        The hubris and stupidity really burns….

        Cheers, KevinK.

        • fonzarelli says:

          Kevin, according to bernanke, it was a nervous federal reserve raising interest rates to ward off risky investments that cause the second recession…

          • Erik Magnuson says:

            What got a lot of people outside the Federal Reserve nervous was FDR’s attempting to pack the Supreme Court along with encouraging a lot of labor strikes. That was not a conducive environment for businesses to take risks. On top of this, FDR was using the IRS to intimidate a lot of his political opponents.

            Many of the programs that helped with easing the Depression were started by Hoover.

          • fonzarelli says:

            Erik, i’m just giving bernanke’s thoughts here (i myself haven’t a clue…). He credits FDR for getting us out of the depression by 1934 and blames the fed for it’s resumption. Bernanke thus calls the great depression a “double dip recession”…

        • Shawn Torgerson says:

          Spot on Kevin!! Call him out on that stupid idea 🙂

        • Gordon Robertson says:

          @Kevin…”FDR and his “brain trust” not only managed to make a serious recession into a major depression with their ham handed attempts at “central planning”

          Save your right-wing propaganda, Kevin, we can read the history books. FDR was so popular that he was voted in to serve till his death during WW II, well into the 40s. FDR helped save the world from Naziism by setting up lend-lease programs to help the UK stave off the Nazis till Japan attacked the US in a suicidal moment.

          Had it not been for FDR, WWII would have gone much differently. Even a diehard socialist like myself is grateful to the man and to the US for their contribution to WWII.

        • Andy says:

          Kevin,

          What you are saying is historically inaccurate. Roosevelt became President in March 1933. The crash was in October 1929. So Roosevelt did not take over for nearly three and a half years. He did not turn a recession into a depression. The Depression was ongoing big time for years when Roosevelt took over.

      • Groty says:

        Donb: I’m sure studies exist to support your theory that FDR’s policies were beneficial and required. But if you are open to considering another viewpoint, two UCLA economists spent four years analyzing his policies and data and concluded that FDR’s policies prolonged the Depression by seven years.

        http://newsroom.ucla.edu/releases/FDR-s-Policies-Prolonged-Depression-5409

        • fonzarelli says:

          Groty, don’t discount the role of the fed. (see my note to kevin…) As the old saying goes, “THE FEDERAL RESERVE: CAUSING RECESSIONS SINCE 1913”

      • David Johnson says:

        Dubious that strong government intervention helped the 30s depression in the US. In the UK, government intervention was minimal and within a couple of years the economy was growing at a very fast pace. And that was before any rearmament began

        • Gordon Robertson says:

          @David Johnson…”In the UK, government intervention was minimal and within a couple of years the economy was growing at a very fast pace”.

          I don’t recall the UK suffering as the US did from the ’29 crash or the depression. I do know that after WWII, lead by an uber-right-winger, Churchill, the UK electorate kicked him out and installed a socialist government.

      • FTOP says:

        In 80 years, will we look back to Paris and wonder how we chose to move from reliable energy to a fragile Eco-friendly model while millions froze to death?

        Of course, when history fails the state, it can always rewrite it.

      • UsUrBrain says:

        @donb – “Strong government support was absolutely needed in the 1930s, when the economy was in serious trouble.”

        The only “Strong government support” that FDR gave was prompted by Japan’s actions in starting WWII. Everything he did before then aggravated the problem and extended the depression. Ask anyone that lived through that period while they are still alive and you will learn the truth, not the Liberalized rewrite of history.

        • Gordon Robertson says:

          @UsUrBrain…”Everything he did before then aggravated the problem and extended the depression. Ask anyone that lived through that period while they are still alive and you will learn the truth…”

          I guess people hated him so much that they continued to vote him back into power right into the 40s.

          With regard to the only good thing Roosevelt did being declaring war on Japan, you need to read some history books. FDR was very active with the British government from the beginning of WWII trying to work around US isolationists who saw nothing wrong with Hitler’s policies. One of them, Joe Kennedy, Father of JFK, had to be recalled by FDR as ambassador to the UK for urging Brits to give in to Hitler.

          The head of Standard Oil, Rockefellar, was called on the carpet by FDR for selling oil to the Nazis. When questioned on the policy, he replied that ‘free enterprise must prevail above all’.

          Is that another way of putting what Roy is claiming in his article?

      • An Inquirer says:

        I know there will some disagreement here, but the biggest misconception taught in schools for the last 60 years has been the FDR led us out of the Great Depression. That is not true. FDR led us IN the Great Depression.

        The economy had recovered nicely in the two years following the crash. The stock market was nearly back to pre-cash levels, and employment and incomes had recovered. Then the government instituted a huge tax increase and combined it with unprecedented government interference . . . and the Drepression was on in earnest. It was not until 1939, when FDR saw Hitler rolling through Europe, that he told his cabinet: “We will be involved in this war, but we cannot be fighting both a war against Hitler and a war against U.S. businesses.” FDR called off the war against U.S. business, and economy had phenomenal recovery in 1940 and 1941, 2 years before Japan attacked.

        Footnote: the war did not lead to economic prosperity in the United States. Yes, GDP soared because we spent a lot of dollars killing other humans, but that is not the same thing as economic prosperity.

        • Shawn Torgerson says:

          Maybe the best take on that decade I’ve seen. Well said

        • Gordon Robertson says:

          @an inquirer…”That is not true. FDR led us IN the Great Depression”.

          Yes…all the historians have it wrong and you have it right, albeit without proof, just your say so.

          • Juan Slayton says:

            …all the historians….

            Interesting argument, Gordon. But you left out the 97% part….
            :>)

    • fonzarelli says:

      DR. S., STICK TO SCIENCE !!! (WINK…)

      “as many people as possible, doing useful things for each other as efficiently as possible”

      It is the federal reserves job to make sure your quote does not happen! Our economy gets shut down when we hit 4% unemployment by the fed raising interest rates to curb “demand” inflation. This policy is unnecessary as in order for demand inflation to sustain itself, the growth of personal wealth must out pace the inflation that the growth causes. Otherwise the inflation would be shutting down demand on it’s own (as well as the inflation)…

      It drives me bonkers when brilliant people like your self don’t get this (and idiots like myself do…). I really wish that you would realize that federal reserve policy is fundamental to your idea of “fundanomics”. Of course, i was only being facetious with my opening line. I think you should do a “fundanomics” post every quarter. Let’s face it, climate science (no matter how well you embellish it) is pretty much like talking about the weather. It’s what people talk about when they have nothing else to talk about… What we all really want to talk about is MONEY !!!

      P.S. consider my comment as lesson in “fonzanomics”

  5. David Johnson says:

    Very succinct and on the ball article. However you forgot that much of the prosperity actually comes from magic fairy dust. At least this is what the “left” apparently believes.

    • Gordon Robertson says:

      @David Johnson ….”However you forgot that much of the prosperity actually comes from magic fairy dust. At least this is what the “left” apparently believes”.

      We know what it comes from and we fought tooth and nail to combat the privileged few who are eligible for prosperity by forming unions. We forced the prosperous, wailing and gnashing their teeth, into the 20th century. Some, like you, are still fighting it.

      Prosperity up till now has come at the expense of the millions working for poor wages in working conditions dictated by the prosperous. In one of their inventions, corporations are required to make a profit, despite what that entails.

      Why can’t you admit that under your system, some people are meant to be prosperous while the majority is not? Prosperity translates to privilege, and in some cases, outright corruption.

      If everyone was wealthy and prosperous, who would do the grunt jobs and the work?

  6. TinyCO2 says:

    There are many things that have contributed to Greece’s current problems including not paying tax.

    http://www.telegraph.co.uk/finance/economics/11715198/greece-crisis-live-no-yes-referendum-polls.html

    But ultimately it was joining the Euro that has scuppered them. Tied financially to hard working Germany they can’t devalue their currency and make their pensions, benefits and public sector wages smaller without giving them less cash. Their products and tourism can’t capitalise on them being cheap. Their people will still be attracted to foreign imports rather than their own affordable if less well made versions.

    With the instability of Egypt, Tunisia and Turkey, they should have been raking in the tourist money but instead people are afraid to be left stranded there with no food or worse, rioting locals.

    Given their original finances they should never have joined the Euro (ditto severl others) and Germany would have had to whistle for their United States of Europe.

    • WizGeek says:

      @TinyCO2: Is “not paying tax” simply the Dr. Jekyyl to unsustainable spending’s Mr. Hyde? Deficit spending seems to be the common thread in most economic collapses regardless of the government paradigm responsible for the fiscal irresponsibility.

  7. Eric Barnes says:

    We (non-statists) have already heeded the warning. The federal leviathan is steadily growing the dependent class and increasingly ruling from the top down. As long as the federal government can print and borrow cash it will be impossible to regain liberty for individuals and states. Sad to say, but it is true. I think it will take an external event that weakens the power of the federal government (financial or otherwise) before the status quo is broken.

    • Slywolfe says:

      I think it will take an external event that weakens the power of the federal government (financial or otherwise) before the status quo is broken.

      An internal (& inevitable) revolution will change the status quo considerably.

  8. mf says:

    accusing of platitudes, you resort to the same.

    We have now verified experimentally, over a period of about thirty years, that replacing wages with debt crash market economy.

    This has implications for international trade, support or lack thereof for trade unions, etc.

    Your critique is as shallow as those whom you critique, which is kind of a scourge of our times.

    • Roy W. Spencer says:

      mf, what do you mean by “replacing wages with debt”? I agree that sounds like a bad thing, but it’s not very specific, and I don’t know what it has to do with my post in any event.

      I, instead, was being VERY specific. Unless people are allowed to do useful things for each other, as efficiently as possible, and be rewarded in proportion to its utility, a country cannot become prosperous.

      • David Appell says:

        “Unless people are allowed to do useful things for each other, as efficiently as possible, and be rewarded in proportion to its utility, a country cannot become prosperous.”

        Except this has not happened in the US — wage increases have fallen far, far behind increases in productivity in recent decades. See the second graph on this page:

        http://news.forexlive.com/!/us-q4-unit-labor-costs-2-7-qq-vs-1-2-exp-20150205

        Really, Roy, you have a very poor grasp of the economic data.

        • Shawn Torgerson says:

          Not for the reasons you imply. I don’t think you have any concept of our standard of living vs the rest of the world. Please become more educated on macroeconomics before you post again.

    • coturnix19 says:

      Replacing wages with debt indeed crashes the market economy because replacing wages with debt is (the result of) statist intervention into market economy!

      • Eric Barnes says:

        Yep. A floating currency arrogantly steals from working people and appropriates wealth where our betters see fit. It’s another form of taxation without representation.

  9. FTOP says:

    And yet millenials continue to rally around Bernie Sanders who wants to bury the throttle and race into these failed economic models at full bore.

    History is a great teacher if students actually attend the lessons.

    I just attended a corporate meeting where our 33 year old CEO announced that our company was sold for $600m dollars. He started a business in 2004, created over 300 jobs paying over $100k on average, and earned the just rewards for hard work and perseverance.

    Compare that with Solyndra.

    The American Dream is real, but the MSM and current administration are trying to scare it away with fanciful tales of a world on fire.

    • David Appell says:

      “Compare that with Solyndra.”

      “U.S. Expects $5 Billion From Program That Funded Solyndra,” Bloomberg News, 11/12/14
      http://www.businessweek.com/news/2014-11-12/u-dot-s-dot-expects-5-billion-from-program-that-funded-solyndra

      PS: Has it ever occurred to you that your particular corporation is not representative of the whole? It should have, if you are data driven.

      • FTOP says:

        From the article,

        “The $5 billion to $6 billion figure was calculated based on the average rates and expected returns of funds dispersed so far, paid back over 20 to 25 years. Applicants view the Energy Department as a lender of last resort, according to Peter Davidson, the program’s director.”

        That is like saying I “expect” my portfolio to return 7% per year. I “expect” the taxpayers mileage may vary.

        • FTOP says:

          This loan program you reference was not held in high regard by the GAO. How driven is that data?

          It seems the DOE loan program was Oama’s version of the Clinton Foundation slush fund. As Roy stated at the beginning, the government should referee, but stay out of the way and let capitalism thrive.

          http://dailysignal.com/2011/11/14/report-80-of-doe-green-energy-loans-went-to-obama-backers/

          …The Government Accountability Office has been highly critical of the way guaranteed loans and grants were doled out by the Department of Energy, complaining that the process appears “arbitrary” and lacks transparency. In March 2011, for example, the GAO examined the first 18 loans that were approved and found that none were properly documented. It also noted that officials “did not always record the results of analysis” of these applications. A loan program for electric cars, for example, “lacks performance measures.” No notes were kept during the review process, so it is difficult to determine how loan decisions were made. The GAO further declared that the Department of Energy “had treated applicants inconsistently in the application review process, favoring some applicants and disadvantaging others.” The Department of Energy’s inspector general, Gregory Friedman, … has testified that contracts have been steered to “friends and family.”

          …These programs might be the greatest—and most expensive—example of crony capitalism in American history. Tens of billions of dollars went to firms controlled or owned by fundraisers, bundlers, and political allies, many of whom—surprise!—are now raising money for Obama again.

  10. John F. Hultquist says:

    Roy,
    I think more anecdotes from your daughter would be informative. Greece has gotten more words recently than just about any other topic, except maybe the US women soccer team. [Go USA!] Much of the Greek coverage is about the banks, government, and so on in the aggregate. However, when I read items about individuals there is a question about controls, regulations, and public ownership that stymie individual efforts.
    For example, a reporter a few months ago wrote of a person that wanted to start a business and found an empty building. It was owned by the government and he could not find a way to rent space nor get the necessary permissions to use it. Even with various payments (mentioned frequently in other stories), moving forward – with doing something useful that others are willing to pay you for – sounds impossible.

  11. Norman says:

    In the statement: “When we threaten to take away their reward for a (risky) job well done, the system collapses”

    and also this one: “I mean as many people as possible, doing useful things for each other, as efficiently as possible.”

    It needs to be understood that everyone involved in the doing useful things needs to be rewarded if you want prosperity.

    Mexico can be used as an example. A lot of hard working people who could build a nice economy yet nothing like this is going on and many come to the US seeking a better life. What is wrong here? It is not a lazy and unmotivated population. It is the other enemy of prosperity that is not often discussed in conservative circles. Greed. That is the risk taker believes he is entitled to all the money not just a portion and leaves none for the rest.

    If one is not willing to properly reward the workers for a job well done then prosperity collapses. The mass of citizens do not have enough money to support anything and so industry cannot grow and flourish. US economy did not really start a huge growth until workers through Union effort were able to gain some reward for their labor (by organized with holding of labor….Yes the coal mine owner took great risk in buying the mine but the workers also take great risk mining and also deserve some reward…Owner finds out without workers he can’t generate any coal or make any money).

    Now the global shift is to find the poorest most desperate people to work in factories and pay them next to nothing yet charge regular high price for all the goods made. It is not sustainable and is not generating true prosperity. Our economy is already shot and will probably collapse soon, nothing is sustaining it.

    I absolutely agree that hard work and effort on the part of all are the path to prosperity. But answer the question. Why would a person want to work super hard, get minimum reward so that some super billionaire can have even more? This is not a equation that will work. What motivates the worker now? In time the Chinese workers will tire of their long hours and low pay.

    • Simon says:

      Norman

      well written. The free market has it’s advantages, but is also takes its toll. Greece is a bad example of a socialist country, but there are may examples of good ones. Denmark has high taxes, but the pay off is it takes care of it’s sick/elderly and those unable to find work. According to studies, there people are the happiest on the planet.

    • Groty says:

      I don’t buy the greed argument entirely. People are obligated to maximize their worth. If they make no effort to develop their skills, then they don’t have much value to offer an employer. The rarer or more unique their skills, the more value they have in the marketplace. Companies pay top dollar for the right talent.

      Here’s an example. The owner of the Yankees would like to pay A-Rod minimum wage to hit baseballs for the Yankees. But rather than pay him minimum wage, he pays him several million dollars a year instead. Because that’s what he has to pay if he wants A-rod to hit baseballs for his team. If he doesn’t pay up, A-rod will offer his services to someone else who will pay up.

      The owner pays him several million because consumers are willing to pay to buy a ticket to watch A-rod hit a baseball. Or they lay on their couch at home and watch baseball on TV, in which case advertisers are paying for access to the consumer’s eyeballs. If consumers suddenly decide to stop paying money to go watch professional baseball games, or to stop watching baseball on TV, then A-rod’s value will decline sharply.

      It’s true that the owner doesn’t want to pay A-rod a dollar more than he has to. It is equally true that A-rod doesn’t want to “work” for a dollar less than someone else is willing to pay him. They’re both “greedy” in that they are both trying to maximize their own self interest. But in either case, it is the consumer demand for watching baseball that drives how much the owner is willing to pay and how much A-rod can demand to be paid.

      (Note: I watch a lot of K.C. Royals baseball on TV here in Kansas City. After each winning game, the TV crew will go on the field and do a quick interview with one or two players who had a good game. The players usually never miss a chance to talk about how great the fans are and how grateful they are for the fan support. The players get it. The players know, or have been taught, that the fans are really the ones paying their salary.)

      • Norman says:

        Groty

        I do understand the nature of your argument but there are always a small layer of high skilled jobs any system needs. Even if you go on to develop some high level skill only so much of it is needed. Most labor is much lower skill level.

        In your A-Rod example of your post, you do point out that it is the consumer or fan that is supporting the structure. In order for a prosperous system to exist it is not just “I mean as many people as possible, doing useful things for each other, as efficiently as possible.” You can have a large number of people doing useful things and efficient at it but the people who own the industry do not want to pay them much, where are your consumers to support the system? China is growing but only because of 1st world nations willing to pay for their low cost goods. The majority of the workers in China do not make enough to buy the goods they are producing. If the export trade system went under for China they would either have to pay the workers more to create a consumer class or collapse.

        http://www.npr.org/2014/01/27/267145552/the-middle-class-took-off-100-years-ago-thanks-to-henry-ford

        In this link about Henry Ford and giving more wages they attribute the growth of the Middle consumer Class to this action which led directly to a very prosperous United States which now is broke and cannot repair damaged infrastructure.

        Logic on this one. More Americans working needing less social net services, will pay more overall taxes if rates remain the same leaving a Government with more money to use to fix broken items in our system. More wages per worker mean more spending power which will directly act to create new ideas and products.

        The super rich do not see Set Theory from simple grade school math. They somehow think the set is not the same. They seem to think there is a magic endless consumer class that has all this money to spend on their products but the worker is a burden to profit. The Worker and Consumer are One and the Same. Not a different set. If you continue to erode the wages of the worker you no longer have consumers to buy the goods and services generated by your system. Factories close down, and collapse occurs.

        • fonzarelli says:

          Norman, i would urge you to look at federal reserve policy as the villain in what your talking about here. It’s their job to keep wages suppressed so as to curb demand inflation. (they are undermining the value of labor by keeping the unemployment rate artificially high) The Fed is in essence creating poverty with all the ill’s that you are speaking of. No analysis of economics can be complete with factoring in federal reserve policy. I honestly cringe when brilliant people like your self leave out fed policy when discussing economics…

          • fonzarelli says:

            “…with factoring in federal reserve policy” should read “…with out factoring in federal reserve policy”

          • I have noticed that the Fed goes along with Wall Street’s idea of inflation being working class prosperity when the Fed has to borrow money. Bond investors are scrooges whose assets lose value when there is inflation, and these scrooges want wages to be held low more than stock investors do.

            But when the Fed did not have to borrow much money, they were less restricted to pleasing bond investors. So then, they allowed unemployment to get lower and people who work for a living to be able to live reasonably comfortably. The most recent time this happened was during Clinton’s second term, when the budget was largely balanced for the first time since early in the Nixon administration, for reasons I said in another comment here.

            Disclaimer: This is the way I see it.

          • fonzarelli says:

            Yes, Donald, you should have heard the howls of disdain whenever bernanke lowered interest rates in ’08 in an attempt to get the stalled economy going. My sense was that bernanke was a bit intimidated by that and it influenced his decision making. (i recall even limbaugh mocking the hysteria over inflation) It took pelosi borrowing a hundred billion dollars in stimulus money to get the economy going by summer (that which the fed could have done for free). AND as soon as the stimulus was declared a success by the fed, bernanke did his darnedest to cancel it out! Very little attention was given to the role of the fed in creating the economic collapse in 2008…

          • fonzarelli says:

            Also, greenspan revealed in a 2007 (?) newsweek interview that the reason he brought the unemployment lower in the 90s was that automation along with chinese slave labor allowed him to go lower without the fear of sparking inflation. Not sure how much that had to do with the lack of intimidation from bond holders. But, then again you never know (doubtful that greenspan would admit to being influenced as such anyway)…

        • Groty says:

          The Ford example is completely consistent with my A-rod example. The Yankees have to pay A-rod what he is worth or he’ll quit and find an employer who will pay him what he’s worth. The same for companies like Ford. Companies have to pay employees what they are worth or the employees stop showing up for work. In 1913, when Ford was paying about $2.25/day, he had to hire 52,000 employees to fill 14,000 jobs. At $2.25/day employee turnover was massive. That resulted in the assembly line running sub-optimally, preventing it from reaching its full production potential. Plus every time an employee quit, Ford had to incur training costs to train the quitter’s replacement. So the solution to achieve full production, reduce turnover, improve employee retention, and avoid training costs was to pay employees more. $5/day was more than employees could get elsewhere, so that solved all of Ford’s problems. And it made him more money. He was able to ramp production from about 170,000 cars in 1913, to about 500,000 a couple of years later in part because he now had a loyal, stable, reliable, experienced workforce.

          The employees were acting in their best interests by quitting when they were only getting $2.25/day and Ford was acting in his best interest when he started paying them $5/day to retain them. At least for a while, $5/day seems to have been the equilibrium rate where everybody was “happy”, or at least content.

          BTW, there were contingencies associated with that $5/day that are omitted in the NPR article.

          http://www.adamsmith.org/blog/tax-spending/on-henry-ford-and-his-5-a-day/

      • Jim Dean says:

        Groty is exactly right. To take it further…Corporations and investors are in the business to make money. If the United States isn’t the best place to invest because of high taxes, they will invest overseas, where they get the most return on investment. If we want more high paying jobs, we need to have more jobs available than people to fill them.
        Reduce the size of government, lower taxes, reduce penalties, make the United States a place where investment is rewarded. We will see an infusion of investment in our country and all will prosper tremendously. A rising tide lifts all boats.
        Also, instead of worrying about how much someone else is making, be thankful for your own gains. Envy kills our enthusiasm for our own accomplishments…stop it!

        Cheers,
        Jim

        • fonzarelli says:

          Jim, i have a reply for you at the bottom of the comment page… For some reason the blog has been turning up a different format intermittently with the usual format. (at least it is for me) The other format didn’t allow me to place a reply next to your comment (which i really like by the way…). Keep your head in the game and always bear in mind this consequences of the federal reserve system. And remember that any one with a wallet in their back pocket is an economist. Don’t be intimidated by the “know it alls” in washington…

      • Gordon Robertson says:

        @Groty…”People are obligated to maximize their worth. If they make no effort to develop their skills, then they don’t have much value to offer an employer. The rarer or more unique their skills, the more value they have in the marketplace. Companies pay top dollar for the right talent”.

        In my experience over several decades, where high unemployment was the reality, it was not skill value that mattered, rather it was attitude. It mattered more to an employer that you were ‘part of the family’ and that you were a proper yes-man.

        Most employers I encountered had no interest in fairness. They ran the show as if they were the head of a family and at times their decisions were based on personality quirks that lacked rationale. I think capitalism survives despite itself. Most capitalists I have encountered are abject failures as human beings.

        That was not the capitalism Adam Smith projected when he defined capitalism. He made allowances for Joe Average and his needs. Modern capitalism is about arrogance and deceit, and with multi-national corporations, capitalism has become a dangerous force to the inhabitants of the Earth.

    • fonzarelli says:

      Norman, it is the federal reserve that suppresses reward for all. Keeping people poor curbs demand inflation. This is unnecessary as the presence of demand inflation simply means more people have growing wealth that outpaces that inflation…

      • Norman says:

        fonzarelli,

        I never did study economics so I am a bit rusty. I did grab this link and read it about the pros and cons of inflation.

        http://www.economicshelp.org/blog/315/inflation/inflation-advantages-and-disadvantages/

        If the US economy was an isolated system inflation may be helpful for some of the reasons given. We do live in a global economy. If US currency inflates too much our money does not buy much from other nations. I think at least one stable global currency is the goal of the Fed. Not sure though.

        • fonzarelli says:

          Norman, what you are advocating (better wages…) would be inflationary ANYWAY. That’s the point of what the Fed does. Keep people poor so they spend less thus curbing demand inflation. No matter how it’s done it will cause inflation…

          It looks like we’ve got our comments “crossed”. I posted the one (above) without seeing your comment here. Discussing economics with out factoring in fed policy is just spitting in the wind. What you’re advocating is just a pipe dream unless the fed stops stepping on the economy (thereby creating the poverty that you describe). Why ask employers to be more generous when unleashing market forces will do the same thing? Furthermore if employers suddenly became more generous, the Fed would view that as inflationary and manipulate interest rates to cancel it out. (this actually happened to the pelosi stimulus in 2008) If the Fed just let the economy grow, it would mean a larger economy with more people buying and selling more goods & services. I can’t see how we’d be worse off with that. Lastly, if and when we do reach full employment, the demand inflation would disappear as it only happens in a growing economy…

          • Norman says:

            fonzarelli,

            You have some thoughtful material about the Fed. Thanks. Wondering if you have an explanation of why the Federal Reserve would want to keep people poor and a stagnant economy. Does it have to do with the Global Warming Alarmism? Maybe they have been so convinced that CO2 will fry the Earth and kill all life that they are intentionally destroying growth potential as to keep the economy from expanding and using more fossil fuels in the process. Maybe something else is going on with their philosophy, do you have ideas?

          • fonzarelli says:

            Norman, the nice thing about economics (as opposed to agw) is that the people running the show actually talk… According to greenspan, bernanke and articulated by george will as well (not an economist but up on these things) the reason is very simple: preservation of wealth. And yes, if one has a pile of money just sitting there then the value of that money will go down with the onset of “demand” inflation. Milton Friedman is quoted as saying “inflation comes like a thief in the night”. However, “demand” inflation comes more like the relatives that show up on your door step after you’ve won the lottery. It requires growing wealth in the first place, a growth that must out pace the inflation it causes to sustain the “demand” inflation. SO, this is just another case of not very dynamic analysis on the part of government officials…

            Fed inflation policy has evovled since WW2 when low interest rates (due to a mountain of war debt) caused a boom economy with significant inflation. (the unemployment rate reached 1.8%) In the 1970s, everything came to a head with the onset of higher oil prices. An effort was made to counter that inflation by price controls (nixon) and then finally by curbing demand inflation in an attempt to offset the inflation caused by higher oil prices (carter with the appointment of volker to the fed). Again a lack of dynamic analysis here. People actually come out ahead with demand inflation as i explained above. (with oil price inflation only saudi shieks came out ahead) The thing to do would have been to let the economy grow so that growing wealth would counter the inflation from oil. With the appointment of greenspan (reagan) the fed policy of the 70s has crystalized into what we have today. Greenspan has called this “the era of moderation”. Yours truly (fonzie…) calls it the “era of crappy economies”…

            So there’s no agw conspiracy here. Just another case of stupidity at the top… It would all be so funny were it not so tragic. Recall the bush boom a decade ago when we saw unprecedented world wide prosperity. That’s the way it should be all the time. Sure, even with a much lower unemployment rate we would still have recessions. But, it would be much better if the unemployment rate bounced back and forth between 0% and 5% (than the 5% and 10% that we’ve seen since the 1970s). AND the unintended consequences! How much of our 18 trillion in debt would be there were it not for the social services needed for the poverty class at the bottom?

            Norman, thanks for listening here… I sometimes feel like the (lonely) “maytag repairman” when i spout off about the fed. (nobody ever listens to me!) I must say, i have really enjoyed reading your comments. I think you should be the “poster child” for why every young person should get an education. Many young people don’t see the point of having an education. I think if they were exposed to people like yourself (whether on the internet or in person) they would understand just why an education is so very important. There have been quite a few brilliant commentors here at dr spencer’s blog (they come and go). I think you have been the “cream of the crop”. Thanx and keep up the inspirational work…

          • Norman says:

            fonzarelli,

            A person from where I work loaned me his book titled “Secrets of the Temple: How the Federal Reserve Runs the Country”. I have never gotten around to read it (around 700 pages) but it may enlighten me to the content in your posts.

    • David Appell says:

      “Mexico can be used as an example. A lot of hard working people who could build a nice economy yet nothing like this is going on and many come to the US seeking a better life. What is wrong here?”

      In the last ten years, Mexico’s real GDP has increased by 27.0%.

      US: 16.8%

      data:
      https://research.stlouisfed.org/fred2/series/NAEXKP01MXA189S
      https://research.stlouisfed.org/fred2/series/GDPCA

      • Norman says:

        David Appell,

        Indeed the GDP of Mexico may have gone up but the “Trickle Down” is not taking place.

        http://www.reuters.com/article/2014/06/02/us-mexico-economy-analysis-idUSKBN0ED20H20140602

        If you have a chance read this. This article will explain why hard work and effort alone are not enough to generate a properous system. Greed is an evil that prevents a healthy growth and stagnates systems. IMHO I believe greed is the cause of the Boom/Bust cycles of a Capitalistic system. As people work and get ahead they are motivated to work harder and be more productive. Then greed takes over and the more gifted feel entitled to a greater % of the system’s overall wealth. They start starving the economic engine which requires a large amount of consumers with enough spending power to sustain an economy. The system goes into a negative growth depression since the few wealthy families can’t spend enough to keep the thing going.

        I am not sure that a Government taking money from the super wealthy at a higher rate is as damaging as so many posters believe it is. When the progressive tax was extremely high our economic engine was roaring, as long as the Government spends wisely I am not sure it is a big problem.

        • fonzarelli says:

          Norman, the boom/bust cycles are also caused by the fed… Once the economy begins to approach 4% unemployment those rates begin going up. At 4% unemployment the fed then stalls the economy completely (except to account for population growth). At that point it’s just a matter of time before a drag on the economy comes along and we head into a recession. Not all busts are the same… Bernanke says the 1980 recession was deliberately caused by the fed (the fed WAS the drag…). In 2000, it was sloppy management by greenspan (rates too high too fast…) that did it. 2008 was very well managed starting with greenspan slowly raising rates in august 2004 and bernanke continuing a good job of managing interest rates up til the crash. But, it’s always the same principle one way or another. In fact there is even talk now about raising interest rates, so the seeds of the next recession are being sown as we speak…

          • Norman says:

            fonzarelli,

            That is a very sad state you describe. The Federal Reserve intenionally slowing growth to generate poverty and misery for millions at the bottom.

            I have another possible reason why they may be so demented in thought process. I kind of reject the ignorant hypothesis (they do it because they do not know what they are doing) as I feel they are highly intelligent people and know exactly what they are doing.

            I feel that Corporate America does really control things. CEO’s in USA make much more than CEO’s doing the same thing in Europe. Why? The CEO of one company sits on the Board of Directors of another company and has control over the wage & benefit package of that CEO, it is a “good-old boy network”.

            Keeping people desperate helps to get motivation without cost (at least at the low skill end of things). If the economy keeps higher unemployment people are willing to do more for less pay. So the companies make more money but do not have to pay out more in labor costs. They get rich and happy and the Chairman of the Federal Reserve will do exactly what needs to be done to maintain this sense of desperation in the working class.

            Congress won’t help. Many retired Congress members go on to careers in Corporate America for really nice salaries. Much better than when they served the Nation.

            I think the combination of greed and lazieness will destroy the economic engine that was our pride and joy. Liberals only see greed as a problem. Conservatives only see laziness as the enemy. Need more open-minded thinkers to see that both of these conditions will destroy any vibrant economic system.

          • fonzarelli says:

            Norman, yes, the explanation that i gave you (curbing demand inflation preserves wealth) is simply the “party line”. I don’t pretend to know what’s really going on… About your explanation, i don’t really know what’s going on there either. It does seem to me that the only real looser in the game with full (0%) unemployment would be some one living off a mattress stuffed with money (fixed income?). You have to remember that in a boom economy the rich should get richer, too. I’ve always wondered if the richest would end up richer or poorer with full (0%) unemployment. I just don’t know the answer to that question (yet…). If the sad state of economic affairs over the past 36 years are any indicator, i would think that the lot of the very richest would improve with full employment. AND one last thing… If there’s one thing we can learn from agw, it’s that “highly intelligent people” ain’t all that intelligent and they don’t always “know exactly what they are doing”. It’s my “dream” that if agw is thoroughly debunked then maybe people will start asking questions. If climate change is wrong than what else is our government getting wrong? (economics maybe?)…

          • Norman says:

            fonzarelli

            In the last 36 years the super wealthy have made great gains in wealth.

            http://www.theatlantic.com/business/archive/2011/10/income-inequality-is-not-a-myth/247389/

            If you keep millions desperate they will work harder for less. If the employment becomes full (everyone who wants a job can get one) then you have the Groty competitive state where the workers will quit a low paying job for a better one since many jobs are now available. This will force the owners to pay more to keep good workers driving up wages all over leaving them with less in their pockets so as wage demand goes up they take less of the growing pie, also more start-ups with full competition are possible because of the increase in consumers available. This competition among suppliers will also lower the wages of the top.

          • fonzarelli says:

            Norman, one last footnote: It’s not just “millions at the bottom” who are adversely affected. The market value of ALL are undermined. And as i said, it’s not inconceivable that even the wealthiest among us are worse off…

          • fonzarelli says:

            Norman, something really weird is going on with the blog (from my end at least). I hope you get this… Nobody’s saying that the rich haven’t gotten richer since 1979. Just that they may have gotten richer still (with full employment). If higher wages become a problem for big business, then just like with higher interest rates the economy would stall out. So, there seems to be a built in mechanism there that makes sure that big business doesn’t do worse with lower unemployment. The big QUE for me is whether some natural unemployment rate actually exists (say maybe 2%). It certainly is not at 4% because business would keep on growing were it not for fed action (raising interest rates)…

  12. Roy W. Spencer said at 7/3 2:29 PM:

    ” Unless people are allowed to do useful things for each other, as efficiently as possible, and be rewarded in proportion to its utility, a country cannot become prosperous.”

    One problem I see is that many people are not being rewarded for their utility. Working class people have had wages significantly falling short of inflation since roughly the end of the Clinton administration. Meanwhile, the “job creator class” has had major tax cuts shortly after then which still stand, but they did less job creation after then than during and before.

    Income disparity has grown since the mid 1970s, and continued to grow as taxation of the “job creator class” plunged after Reagan took office. For that matter, in the 1970s many middle class folks started businesses and created jobs.

    Before the inflation spikes of the 1970s, conventional wisdom was that unemployment can be at 3% without excessive inflationary pressure. Since then, conventional wisdom was that unemployment needed to be higher than 3%, some said there was need to be 6%, in order to avoid excessive inflation. But during Clinton’s second term, when the federal budget got balanced due to minor 1st Clinton term tax hikes on the top income folks and gridlock against spending bills, unemployment dropped to 3.something % and there was no excessive inflation.

    I think that when the federal government does not have to borrow money, those who have money to lend have greater need to make it work for something – such as providing goods and services.

    My father said in the late 1970s that one who does well should be able to keep at least half of what the welldoer gains. It seems to me that high income folks were at least generally able to do that through the minor taxation bump of roughly 1994 through 2000.

    I hope one can see why class tensions are heightening. The top tax rate on ordinary income increased to 90% in Truman administration, got a cut to 82% during the Eisenhower administration, got another cut to 76% during the Kennedy administration, and another cut to 70% during the Johnson administration. And around 1980 to into the 1990s, some vocally blamed Jimmy Carter for raising the top tax rate to 70%.

    A major part of the problem there was “bracket creep” – where inflation causes people to get higher taxation rate by only keeping up with inflation. The fix to that was one of the few good things I see having occurred during Reagan’s first term, although I agree with my father about the top rate being best no higher than 50%, maybe 40% to allow for state and local taxes. (As in average taxation on top earners, including income types with lower taxation rates that mainly affect the top few percent.)

    As for who to blame: I think many are to blame. Along with top income earners who want to get a bigger share of the pie more than to grow the pie, I also blame NIMBYs and environmentalists who oppose industry, along with lobbying forces that favor immigrant labor supply to depress wages of people who work for a living.

    My late father and one of my consulting clients like to say that wealth is created by making saleable goods from dirt. The main wealth creation industries according to them are agriculture, mining and manufacturing. I agree with them.

    • John F. Hultquist says:

      “goods from dirt”
      Here ya go:
      http://wallypots.com/?tag=mt-st-helens-ash-glaze

      I have nothing to do with this pots place.

    • fonzarelli says:

      Donald, you are the only commentator (thus far) who has even referred to fed policy. That’s good, however, it seems that you’re buying into the malarky. Milton Freedman is quoted as saying that “inflation comes like a thief in the night”. “Demand” inflation does not, rather, it comes like the relatives that show up at your door after you’ve won the lottery…

    • An Inquirer says:

      “Working class people have had wages significantly falling short of inflation since roughly the end of the Clinton administration.” There is no shortage of data on such a statement, but there is a profound shortage of wise analysis on this statement.

      Actually, the REAL wages of lower-skill level jobs have been stagnant to slightly falling for longer than since the end of the Clinton administration. This trend has been going on for 35 years, and the trend has little to do with fiscal or monetary policy. Key reasons: 1) entrance of women into the paid workforce. The increase in supply of labor (especially lower-skilled labor) meant that real wages would go down for these jobs. 2) increase in supply of teens seeking work. It was a cultural shift – teens wanted to work, and they concentrated in jobs that are low-skill. 3) influx of immigrants, again increasing the supply of labor for those jobs. 4) decrease in the number of “unskilled” jobs in manufacturing, mining and agricultural. Mechanization means lower costs and fewer labor disputes. 5) increase competition from other seas — they will be happy to work for half of what the going wage used to be in the U.S.

      Again, these are not because of policies of Reagan, Clinton, Bush or Obama. They are demographic trends independent of politics.

      And people so often forget that Reagan and Bush cut taxes for lower-income relatively more than for the rich. The wealthy paid more taxes after those rate reductions, but lower income paid less in taxes. After hearing a liberal client complain about tax cuts for the rich, I did her taxes the old-fashioned way — before the Republican tax cuts. Her tax bill was ten times as high. She has not complained since! 🙂

      • fonzarelli says:

        “This trend has been going on for 35 years…”

        An Inquirer, i think you have a difficult case to make that “the trend has little to do with fiscal or monetary policy” in lieu of the fact that paul volker was appointed to the fed chair 35 years, 11 months (and one day) ago…

      • David Appell says:

        “Again, these are not because of policies of Reagan, Clinton, Bush or Obama. They are demographic trends independent of politics.”

        That’s not how I see it. Reagan had a lot to do with the destruction of unions in this country. My father was in a steel workers union. So was my uncle. Another uncle was in the truck driver’s union, and my grandfather in a machinist’s union.

        They weren’t rich, but they were solidly middle class. They were the backbone of America at the time. Their wives were able to stay at home, and their children went on to higher education that they never had.

        The destruction of unions has been a deliberate policy of Republicans for over 30 years.

        • Shawn Torgerson says:

          Thank you Reagan for destroying some of the unions. They are what killed Detroit and a number of other sectors in this country. They were a needed thing 100 years ago, but now they only hinder growth overall. Please, David, stop living in 1910 economic thinking.

        • DEEBEE says:

          And looks like higher education did not overcome the imbecility of the Appell, genetic chess pool. So perhaps Reagen did the Appell’s a favor

    • DEEBEE says:

      I stopped reading your post after the unserious comment about balanced budgets in the late nineties. The budget has not been balanced since about 1954. If it had been then why every year since the early 50s, does the U.S. Indebtedness go up?

  13. Alastair McDonald says:

    Roy,

    You wrote: Obama has mastered the art of presenting platitudes that sound on the surface like he’s a free market guy, but his policies end up not encouraging the generation of wealth, but instead redistributing wealth from the dwindling few who still generate it.

    I think you shuld ask yourself why are your “wealth creators” a dwindling few? It is because the rich bankers and industrialist have grabbed all the wealth and shipped all the jobs abroad. The rich have got richer and the poor poorer. Tricle down has not worked. In a free marketwhere there is unbridled competition then there can only be one winner. That is why Andrew Carnegie, Rothschild and Bill Gates arise. A free market leads to monopolies, and the winner taking it all. That is why the wealth creators are dwindling. The ordinary man is being forced onto Obama’s dole queue by Republican governments following 18th Century economic dogma.

    • Groty says:

      “The rich have got richer and the poor poorer.” Not true. The WORLD has gotten richer and the standards of living of average people have improved sharply. That has resulted in more “equality”, not less. Childhood obesity now ranks as the highest health priority by Gallup. Talk about a high class problem. Not malnutrition. Not starvation. Not childhood disease (for which vaccines are available for mere pennies a dose). But obesity. It’s just an amazing sign of success that people worry more about kids being fat than going to bed starving. People just don’t appreciate how much better the world is. The change seems to have happened most dramatically when the world started paying attention to Ronald Reagan, Margaret Thatcher, Milton Friedman and Thomas Sowell rather than Barack Obama, Paul Krugman and Thomas Picketty.

      https://twitter.com/ianbremmer/status/555373412361994240

      The rest of what you wrote is dangerous left wing populist sloganeering. Competition weeds out the inefficient and promotes dynamism and innovation. Take an industry with low margins and intense competition like retailing. Sears was the dominate retailer in the early to mid 20th century. Yet an upstart named Wal-Mart came out of nowhere (literally nowhere, who’d ever heard of Bentonville, Arkansas before Wal-Mart?) and figured out how to get an edge in retailing and kicked Sears off the top of the heap. Today it looks like Amazon is winning. Tomorrow it may well be someone else.

      The “rich” are always changing, too. Mark Zuckerberg and Bill Gates are college dropouts who started with practically nothing. Warren Buffett started a private investment partnership called Buffett Partners (prior to Berkshire Hathaway) with only $100 and managed it from his bedroom. By the time he took over Berkshire he’d been such a successful investor that he’d earned several million dollars for himself. Now he’s one of the richest people in the world, after starting with $100. Hewlett Packard was started by two guys in a garage. And on and on and on.

      As noted above with the retailing example, the successful companies are always changing too. Kodak is one of my favorite examples. It had a near monopoly on film and was one of the fastest growing, most successful, most profitable companies in the world in the ’50s and ’60s. By the late ’90s and early ’00s, consumers were choosing to buy less film and more digital. Kodak could not adapt to changing consumer preference fast enough. It was forced to file for bankruptcy a couple of years ago. So here you had one of the fastest growing, most dominate companies with a near monopoly a couple of decades ago that was forced into bankruptcy because consumers no longer wanted to buy what they were selling. The same story happens constantly. Just Google “list of defunct airlines” or “list of defunct automakers” and see the hundreds of companies in those industries that consumers forced out of business (or were acquired by another company) because the companies did not provide the value that consumers demanded.

      I really hope people are smart enough not to listen to people like you. But I’m not hopeful.

      • FTOP says:

        Just look at the Top 50 market cap companies and ask how many of those existed in 1975 (cherry picking before computers). Most of the 1% of this generation started well outside of it.

      • Scott M says:

        “The “rich” are always changing, too. Mark Zuckerberg and Bill Gates are college dropouts who started with practically nothing. Warren Buffett started a private investment partnership called Buffett Partners (prior to Berkshire Hathaway) with only $100 and managed it from his bedroom. By the time he took over Berkshire he’d been such a successful investor that he’d earned several million dollars for himself. Now he’s one of the richest people in the world, after starting with $100. Hewlett Packard was started by two guys in a garage”

        All of these folks had a huge advantage and their propaganda makes you believe it was only hard work.

        Gates family is wealthy, Buffets father was a state politician, H&P was a lot more than a garage etc etc…Lucky, yes, smart, yes, family wealth to draw on, YES

        • Groty says:

          You introduced notions of luck, connections or family wealth as being contributing factors to Gates and Buffett’s wealth. So what? It’s not relevant to my point.

          I was refuting the person who used the familiar left wing slogan about how “the rich have got richer and the poor poorer” by noting that many of the richest people in America today have not always been the richest people in America.

          I did not point out the equally valid point that many of the poorest people – the people who find themselves in the bottom quintile today – often figure out how to improve their economic situation over time. So the people in the bottom quintile are also changing. But even for the small percentage of people who fail to improve their condition and stay mired in the bottom quintile their entire life, they have it much better than the bottom quintile of say 50 or 100 years ago. None of that is propaganda. It is objective reality.

      • UsUrBrain says:

        Excellent!
        When I was a kid my parents had the only telephone within about 1/4 mile. It was my job to ride my bike when one of our neighbors got an important phone call. Today elementary school kids have phones in their pocket that cost $300. that is equivalent to 100 gallons of gas. In 1950 a gallon of gas was about $0.20 and 100 gallons would be $20. That is about what a party-line phone bill was. Do the same for all of the other things everyone has and expects to have today and what only the wealthiest had back in the 50s. Even the poorest today have a higher standard of living today than the average middle class and many upper middle class of the 50s.

      • David Appell says:

        “Not true. The WORLD has gotten richer and the standards of living of average people have improved sharply. That has resulted in more “equality”, not less.”

        The data show this to be FALSE.

        global:
        http://4.bp.blogspot.com/-qlJeasCfZeI/U8vpnWmPLsI/AAAAAAAAK2c/uOocKeDOWh4/s1600/IMG_0664.PNG

        US:
        https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#/media/File:U.S._Income_Share_of_Top_1%25_of_Households_CBO_%26_P-S_1979-2011.png

        • Norman says:

          David Appell,

          While I do not embrace your climate alarmism view, I will have to agree with you on the issues you present. I have found the very same thing. I believe the last time income levels were similar to today we entered a Great Depression.

          In order to fuel a Capititalistic economy consumers are vital. The upper 1% may buy big houses and yachts but the amount of inceased employment from these may not be enough to maintain a productive system.

          Thanks for the links.

        • DEEBEE says:

          Moron David, if top 1% income share has gone up, that still does not mean that bottom 99 have not become wealthier. Like your being a moron and an imbecile makes not difference to other people’s intellect.

  14. Brane Jenko says:

    I admire you Dr. Roy Spencer both when you write physics or social matters as well. Here in EU we normal people actualy don’t worry much for Griece mess but more about falling from one REAL communism (I live in Slovenia) to very sofisticated one, emerging from EU elites.

    I will give you few numbers which are very illustrative :

    Greece (11 M people)
    Export P/C 1.9 kUSD (20 bn USD total)
    Import P/C 4.0 kUSD (44 bn USD total)
    Citizens P/C banks deposits : 21 kUSD (total about 250 bn USD)

    Slovenia ( 2 M people)

    Export PC 13 kUSD (26 bn USD total)
    Import PC 12 kUSD (24 bn USD total)
    Citizens deposits in banks : 8 kUSD (total about 16 bn USD)

    Yet we are helping Greece with 4% of our GDP (highest in EU) and our average wages and pensions are much lower than in Greece.

    This is crazy world (corr., only EU). We don’t need to be polite; Greece is a country of disorder, with unusal share of lazy people. They protest only because they hate hard work and this default is from the same reasons already No 5 in last 150 years. It is time to let them to cook themselves in their own sauce.

  15. Bob Burban says:

    The term “Greek tragedy” come up often: “Greek farce” would be more appropriate.

  16. Gunga Din says:

    I came across this several years ago.

    Tax code explained in Beer
    Suppose that every day, ten men go out for beer and the bill for all ten comes to $100…

    If they paid their bill the way we pay our taxes, it would go something like this…

    The first four men (the poorest) would pay nothing.
    The fifth would pay $1.
    The sixth would pay $3.
    The seventh would pay $7..
    The eighth would pay $12..
    The ninth would pay $18.
    The tenth man (the richest) would pay $59.

    So, that’s what they decided to do..

    The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20”. Drinks for the ten men would now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? How could they divide the $20 windfall so that everyone would get his fair share?

    They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

    So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

    And so the fifth man, like the first four, now paid nothing (100% saving).
    The sixth now paid $2 instead of $3 (33% saving).
    The seventh now paid $5 instead of $7 (28% saving).
    The eighth now paid $9 instead of $12 (25% saving).
    The ninth now paid $14 instead of $18 (22% saving).
    The tenth now paid $49 instead of $59 (16% saving).

    Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

    “I only got a dollar out of the $20 saving,” declared the sixth man. He pointed to the tenth man,”but he got $10!”

    “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too. It’s unfair that he got ten times more benefit than me!”

    “That’s true!” shouted the seventh man. “Why should he get $10 back, when I got only $2? The wealthy get all the breaks!”

    “Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

    The nine men surrounded the tenth and beat him up.

    The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

    And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

    David R. Kamerschen, Ph.D.
    Professor of Economics.

  17. ossqss says:

    When the demands of the “Takers” exceeds the output of the “Makers”, the endgame is not far away.

    Greece has simply run out of other people’s money.

    The same symptoms of the same disease exist in many other EU countries, just on a larger scale. Those same symptoms also exist in the USA ($100 Trillion in unfunded liability http://www.usdebtclock.org/), but yet the current US administration continues to perpetuate policy that mimics that in the rapidly failing EU. Just look at the labor force participation rate in the US. 62.6%, the lowest since October of 1977.

    In Greece, it now appears a bail-in on deposits is in process. From a good source for economic info you probably will not view on the MSM.

    http://globaleconomicanalysis.blogspot.com/2015/07/30-bail-in-haircuts-on-greek-deposits.html?m=1

    For those in the US, Happy Independence Day!

    https://www.youtube.com/watch?v=TQMf8o47Q_g

  18. Milton Hathaway says:

    Imagine that an otherwise very intelligent person, who’s never been exposed to the principle of conservation of energy, searches for “over-unity” on YouTube and starts watching, hoping to learn someone useful about how the world works. That’s how several of the comments here come across – lost in the minutia, missing the big picture.

    The big picture is that for every $5 earned by a free-market entrepreneur (risk-taker), the entrepreneur has to create, on average, $100 of value for his/her customers.

    For every $5 taken by force from the entrepreneur, the customers are out $100 of value.

    So, for society to prosper economically, the folks taking that $5 need to be darn sure they are doing something with it that will create at least $100 in value. Building a road probably qualifies; paying someone not to work surely does not.

    Yes, there are other economic systems that seem fairer on the surface. But, unfortunately, all these alternative systems have proven to be a very poor match to the unalterable realities of human nature, and all eventually fail miserably (literally).

    Therefore it is the solemn responsibility of the older/wiser to protect the younger/idealistic from themselves, as our parents did for us, so that they, too, have a future.

  19. Robertvd says:

    Never forget that slavery was not abolished it just changed the way it looks. Now we all are slaves.

    http://www.irs.gov/pub/irs-pdf/f1040.pdf

    Not snow but freedom is a thing of the past.

  20. Chic Bowdrie says:

    Great prophetic post Roy.

    Lloyd Olgivie’s “God’s Best for My Life” devotional for today: II Chronicles 7:14. Read it and weep, or pray, whichever seems appropriate for your country. It’s Independence Day for us and I’m doing both. If things continue they way they are going, the US will become the new Greece. $18 trillion and growing debt can’t be sustainable. Dependence Day here we come.

  21. Lewis says:

    In short, what you are saying is that people need to be able to pursue their own interests without the distorting influence of government.

  22. ELC says:

    “No country can sustain, in idleness, more than a small percentage of its numbers. The great majority must labor at something productive.”

    Abraham Lincoln

    September 30,1859; Address to the Wisconsin State Agricultural Society, Milwaukee; Speeches and Writings, Volume II, page 98; Collected Works, Volume III, page 479; originally in Milwaukee Sentinel, October 1, 1859.

  23. albert says:

    Alexander Tytler:
    A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

    • Mac says:

      Thank you Albert for forwarding this quote. It should remind us that the majority in this country has also discovered the method mentioned and are clearly exploiting it these days. I no longer think if but only wonder when the collapse will come…

  24. albert says:

    Alexander Tytler:
    A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

  25. Robert says:

    Concise, to the point, and a necessary read. Thank you, Dr. Spencer, for summing up how this mess came to be.

  26. Bob Burban says:

    The problem with socialism is that eventually you run out of other people’s money – Margaret Thatcher

    • David Appell says:

      Bob: How do you like your own socialism? Mortgage interest deduction? Health insurance deduction? (cost ~ $250 b/yr). Tax-free retirement savings? Deduction of property taxes? College savings accounts?

      If the US did away with all its socialism, the country would immediately revolt. Example: after the US did away with subsidies for flood insurance. Owners of beach houses whined incessently and put a stop to that real quick.

      • FTOP says:

        Policies that allow people to keep their money and not give it to the government are NOT socialism.

        Mortgage interest deduction, health insurance, retirement savings and college savings are all incentives for people to be self reliant.

        Subsidies for flood insurance is government overreach and welfare for the rich.

        Somehow the liberal mindset now sees letting people keep their money as some sort of government “gift”. It is a long road back to freedom from that philosophical position.

      • Shawn Torgerson says:

        Owners of beach houses are taking a risk that the rest of us shouldn’t have to pay for.

      • DEEBEE says:

        David stop repeatedly showing your imbecility.

    • Gordon Robertson says:

      @Bob Burban…The problem with socialism is that eventually you run out of other people’s money – Margaret Thatcher”

      Typical words for a woman born with a silver spoon in her mouth. That’s akin to Marie Antoinette advising the French to eat cake when it was pointed out they lacked bread.

      Thatcher started the current propaganda about global warming. She was faced with revolting UK coal miner unions and one of her advisers suggested she use her degree in chemistry to baffle the dimwits at the UN. So she did.

      Thatcher convinced the UN that emissions from fossil fuels like coal were a threat to the earth’s atmosphere. That was much like cutting off your nose to spite your face since fossil fuels like coal were life savers in the UK.

      Stuff like that did not bother Thatcher as long as she had her own way. Governing for Thatcher was a Tory ego-trip that stripped Brits of their social safety net. She did not give a hoot who suffered.

      She had no proof that fossil fuels were warming the atmosphere but her theory prevailed. The UN subsequently formed the IPCC to investigate the matter.

      A protege of Thatcher, John Houghton, a climate modeler, was installed as the first co-chair of the IPCC. He proceeded to run the IPCC by climate model theory completely ignoring satellite temperature data from UAH, which contradicted them.

      To this day, Thatcher’s legacy is that she started a lie that got the whole world crying climate change. Why would anyone heed her comments on socialism?

  27. Curious George says:

    Well done, Roy. A “constant pie” idea is also known as a “zero-sum game” – people don’t create new wealth; they just steal from each other. The total wealth is a constant.

    Unfortunately, some parties – even states – believe it. Poor Greece.

  28. Dave Ross says:

    Roy it is not all the fault of Greece although their profligate spending is definitely part of the problem.
    Their difficulty in extricating themselves from this mess is exacerbated by their inclusion in the EU.
    Their intrinsic and specific economic characteristics are poorly served by the EU centralised financial controls that dictate interest rates and an international value for their currency.
    They do not have a sovereign currency that floats with the times, economic trends and problems specific to Greece.
    The EU is, in essence, a failed socialist experiment in my view.
    The sooner Greece cuts loose, revives the drachma and its economic autonomy the better.
    The UK opted-out from part of the 1992 Maastricht Treaty that would have required it to adopt the common currency, the Euro.
    Most wise.
    The increasing value of the pound sterling against the Euro today would suggest that this was most wise.

  29. Lewis says:

    Dave Ross:

    I objected to the Euro on more political grounds, that the euro would lead to political centralization and control. The various states would lose their autonomy over time and become subject to the central committee, much like the states in the US have lost their autonomy to the amoeba of Washington DC.

    Your point about the inability of the currency to float, which argument I have seen elsewhere, seems to be the best argument for the direction Greece and other countries should take. Avoid central control and deal with your own problems. We, in the US, will not be so lucky.

    • fonzarelli says:

      Lewis, when ever i begin to despair about washington, i just think of it as just another town with a loosing football team. It helps (me) to keep things in perspective…

  30. Darrylb says:

    In my teaching days, the first definition, or illustration I gave of the 2nd law of thermodynamics was simply

    ‘If you do not put energy into cleaning your room, it will become a mess’

    From there, we as a class expanded it to other social realms and then hopefully seamlessly crossed the border into the purely scientific definition.

  31. Babeth says:

    It’s a problem that has been festering a long time. It was known widely but not “officially” that, when entering the Euro, the Greek government had cooked the books in order to appear more affluent than the country actually was. The EU bosses closed an eye because they didn’t want to be seen as not giving those poor Southerners a fair chance to eat at the EU trough like the big boys in the North. Greece also has some particular (some historical) problems: they have a habit of tax-evasion that is just stunning, they have a lot of corruption and crony-ism as a left-over from the military dictatorships, and last but not least the Greek-Orthodox Church is just about the largest real estate owner in the country yet PAYS NO TAXES because -you know- who in his right mind would dare to tax God ? There are also vast parts of certain industries who pay little or no taxes like the international fish traders (result of crony-ism…).
    But, yeah, Big Europe is a bully and the Germans are the worst… right ? Well…. No. Several years ago the EU already wiped out 53% of outstanding Greek debts, with Germany having been amongst those countries losing big. But, alas, the electorate has a short memory and loves a leader with a big mouth telling them that they “are the underdog and everybody is against them”. The same electorate that considers tax-evasion a good sport and practically a duty and would prefer to stop to work at 55 with a full and generous pension.
    Oh yeah, in order to put this in perspective: I’m Belgian Flemish. My people likewise consider tax-evasion to be a fun hobby, albeit best enjoyed with moderation. But our leaders have just voted to extend the retirement age to 67 and we don’t consider that a breach of human rights but just a good example of common sense.
    Pfff… I dunno… Maybe it’s the climate ?

  32. David Appell says:

    Roy: Greece’s problems are mostly because they do not control their own currency, as Paul Krugman has been pointing out for years now.

  33. David Appell says:

    “Those few who have gotten immensely wealthy, generally speaking, have kept only a tiny fraction of the extra wealth they have generated for the country as a whole. They did not unfairly take from the rest of society; society freely gave it to them in exchange for something we wanted (e.g. iPhones).”

    The data show this is completely false. US and world inequality has increased greatly in the past few decades. Examine the data:

    http://www.economist.com/blogs/democracyinamerica/2013/11/inequality-america

    https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#/media/File:U.S._Income_Share_of_Top_1%25_of_Households_CBO_%26_P-S_1979-2011.png

    https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#/media/File:U.S._Income_Shares_of_Top_1%25_and_0.1%25_1913-2013.png

    https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#/media/File:U.S._Income_-_Changes_by_Income_Group_1979-2011.png

    Please, try to learn the data.

    • Shawn Torgerson says:

      Please try to understand that inequality of outcomes is a healthy thing overall and that the only truly important thing is equality of opportunity. Rewarding great risk drives growth in GDP and standard of living for everyone. Hasn’t the last 100+ years of experiments to the contrary in many countries showed you that those ideas fail?

      • fonzarelli says:

        Shawn, i’m not so sure how much of what you’re saying that i can agree with here… It’s the job of the federal reserve to create poverty in the (misguided) attempt to curb so called “demand inflation”. If the fed were to end this practice (by allowing full employment) we would have better outcomes and greater equality of opportunity for all. Think of the children’s game of musical chairs. If you have ten children but only 9 chairs, then one child is guaranteed to have an unequal opportunity to get a chair. That’s alot like what the fed does. By holding the unemployment rate high at no less then 4% (as well as suppressing wages in the process), somebody has got to be left out. I guess what i’m really trying to say here is that i agree in principal with what you are saying. It’s just that federal reserve policy is compromising equality of outcomes and opportunity…

    • DEEBEE says:

      Moron, the statement was about the total wealth created by the products the risk takers generate. But of course yor brain density get in your way to understand

  34. Norman says:

    The wonderful humans that comprise the super wealthy need to keep making more money and why? So they can hide it in offshore accounts so they don’t have to pay taxes on it. What is the point of this except some childish bragging rights to each other about how clever they are in not paying taxes and patting each other on their collective backs.

    http://www.reuters.com/article/2012/07/22/us-offshore-wealth-idUSBRE86L03U20120722

    • DEEBEE says:

      Norman get back to your crib and your soother.

      • Norman says:

        DEEBEE you are a troll idiot with nothing to offer except your over inflated ego and sense of worth. Add something of value rather than your low IQ pointless comments.

        I looked at a lot of your comments and they have nothing. They are just trying to get some type of knee-jerk reaction.

        I like discussion and ideas. You need to find someplace else to troll.

        I can ask you what type of pleasure do you trolls get? You are not smart enough to add substance just dumb enough to provoke emotional response. You remind me of monkey in a cage throwing poop at spectators for amusement. You must have a very shallow life.

        • fonzarelli says:

          Norman, growing up, i recall, a “D.B.” was shorthand for “Ding Bat”…

          In all seriousness though, it’s always important to remember that the internet is a VERY unnatural medium. There are millions of jerks out there who could potentially log onto a blog. The important thing for each of us is to internalize just how we handle these elements which are out there. If murphy’s law is correct (and i think it is…), then we can almost count on these elements to show up. And each one of us will have to have his or her own unique way of dealing with it…

  35. Norman says:

    For the conservative “lower the taxes” crowd posting on this thread here is an eye-opening article.

    https://philebersole.wordpress.com/2011/12/12/why-higher-taxes-might-be-good-for-the-economy/

    • FTOP says:

      I would describe this article as “juvenile” vs. “eye-opening”. A high marginal tax rate reduces capital in the economy and routes it through the least efficient entity — the government.

      It is wealth reinvestment that drives the explosion in small businesses either directly or in combination with debt leverage. This reinvestment spurs jobs and manufacturing which multiplies through the supply chain. More wealth = more capital = more reinvestment.

      That is why poor countries have high unemployment and low productivity.

    • DEEBEE says:

      Yep. You must be terrified of the juxtaposition of CO2 level versus temp oo. Correlate Causation Moronitis?

  36. marty says:

    lo
    Is not just about work, in Greece the price of tomatoes is higher for domestic production than for imported. So the tomatoes are imported although the production is underutilized. As long as that is not corrected, there is no solution. Since only its own currency thus helping the tomatoes can be exported.

  37. Jeff Id says:

    We will learn nothing from Greece, because we have probably a hundred examples of other similar countries already, we have examples at the city level Detroit, and we have a liberal party who runs in droves to an open socialist running for president. The whole party is interested in wealth redistribution as a key to success and false fairness.

    The left is so ridiculously unreasonable on economic matters, it leaves me comparing their logical confusion to muslim extremists. Both groups regularly accept realities which contradict observation.

    • RW says:

      Nice rant.

    • FTOP says:

      +10 Detroit is our Greek “city-state”. Tied to the dollar so it can’t devalue its currency and ran out of OPM.

    • David Appell says:

      “The left is so ridiculously unreasonable on economic matters….”

      As opposed, of course, to the last Republican president, who broke the economy and gave us the Great Recession.

      • FTOP says:

        The Great Recession was caused by the dreamy government effort to dramatically expand home ownership. Fannie and Freddie were pushed by Barney Frank & Bill Clinton to loosen lending standards. Loan approvals were acceptable with “stated” income and liquidity roared into housing to satisfy the appetite. Wall Street used this large private debt to build derivatives.

        Had the government stayed out of housing and not juiced the market with their idealism. There would have been no bubble to burst. Bush continued the policies, but it’s roots are with the government meddling in lending practices.

      • DEEBEE says:

        David, you are a moron, please do not expose yourself. Keep the trench coat of your intellect closed.

  38. fonzarelli says:

    “A rising tide lifts all boats”

    Jim Dean, it’s precisely the federal reserve’s job to make sure that the rising tide does NOT lift all boats. When we approach 4% unemployment the fed puts a drag on the economy in the form of higher interest rates. At 4% unemployment they then stall the economy completely. This is to curb demand inflation. No amount of business incentives can over come the fed. Furthermore, if the fed were not in the habit of killing the economy ever time it gets going, incentives would not be necessary as growth begets growth. Even our current tepid economy is growing, so much so that the fed is contemplating raising interest rates as we speak…

  39. bob boder says:

    Roy;

    Wow, I thought science was your strong point, dead spot on!

  40. David Appell says:

    “Greece’s Economy Is a Lesson for Republicans in the U.S.,” Paul Krugman, New York Times 7/10/15

    http://www.nytimes.com/2015/07/10/opinion/paul-krugman-greeces-economy-is-a-lesson-for-republicans-in-the-us.html

  41. Norman says:

    Gordon Robertson,

    I have been reading your posts concering socialism and Canadian’s economic system. From what you posted it looks as if socialism may be a means of creating a comfortable system but what does such a system do to generate motivation and new growth? Many dream of going back to more simpler times (not understanding the harsh condtions of such life, especially with disease) but I think the human race is in a position of advance or perish. I am not sure what the overall purpose of our species is but it seems it is on a trajectory of moving forward to some unknown future.

    The world will continue to need inovations and new ideas is the species is to make it. Even with fossil fuels that can generate a more prosperous existence for many but it is not an infinite supply. Even if oil is not fossil but made by chemical reaction it still is only made at a certain rate.

    My question is What motivation exists in socialism to drive some people to come up with new and different ideas or go through the long and difficult process of actually developing some new idea? These things do require lots of sweat and mental effort and I do not know how having a nice comfortabale life will push people to do more.

    If you own a pet cat or dog you can see that if they have their needs met they really do not push to do much and I do not think people will be much different.

    • fonzarelli says:

      Norman, i would think that what gordon is proposing is a smaller pie with legislation doing what market forces can not (given that it is a smaller pie). A larger pie (0% unemployment) would presumably do the same thing but market forces (rather than legislation) would make it happen. It’s not likely that federal reserve policy will ever change, which begs the question: pragmatically what is the best path for humanity to take, the socialist experiment or compromised capitalism?

  42. Doug1943 says:

    What do posters (Left and Right) think about Singapore?

    If you want some empirical data, last week’s Economist magazine(18 July 2015) had a special section on it, which presents the essential facts: starting from a very low base fifty years ago, Singapore now has a higher GDP than the US.

    It’s very capitalist: there are virtually no strikes, no welfare system, no communists. It’s very easy to start a business — and corruption is practically non-existent. Its Gini coefficient is one of the highest in the world.

    It’s very socialist: everyone has to pay a significant fraction of their wages into a government-run ‘Central Provident Fund’, which is used to build housing (almost all the housing is built by the government and leased for 99 years to buyers). The newspapers are all effectively organs of the government. The government plays a huge role in directing the economy in various ways.

    Ideologues hate it. It refutes every Leftist and Rightist dogma.

    If you are really an empirical thinker, and seek out disconfirming evidence (I’ve never met anyone like this, but I know quite a few people claim to be), then study Singapore.

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