Bloomberg's terminal business takes in approximately $7 billion annually----of which upwards of $5 billion is variable profit. For whatever reason, the organization chooses to waste large amounts of that on Bloomberg News, Bloomberg Television, Bloomberg View, Bloomberg BusinessWeek and a variety of similarly dubious news and media operations.
But thank heavens for Bloomberg's perpetual wastathon. It provides employment and a forum for an army of the stupidest and laziest journalists in the financial world. On any given day you can count on them to reduce the Washington/Wall Street policy line to its most specious, primitive and refutable formulation.
So it is today that one Peter Gosselin explains that the struggling U.S. recovery was all due to a spree of misguided "austerity":
The U.S. is paying a big price in growth, jobs and wages by practicing the kind of fiscal austerity that it criticizes European nations for pursuing.
If you think Gosselin is writing for the Onion you would be wrong. He means this with a straight face:
federal, state and local governments were cutting taxes, increasing spending and expanding hiring as they did during all but one recovery since World War II, the economy would be growing 3 percent a year rather than slightly over 2 percent, the average of the past six years, according to a Bloomberg analysis of data.
Let's see. Before we get to the issue of fiscal stimulus efficacy and long-run costs, it might be worth refuting the startling notion that during the seven years since the so-called financial crisis, Washington has been woefully negligent on the stimulus front.
In fact, on the eve of the Great Recession the public debt was $9.2 trillion and since then it has doubled to $18.3 trillion. That's right. During the last 89 months of recession fighting, Uncle Sam has incurred more debt than had every Congress since George Washington's inaugural. And that span encompasses every war and every recession during the course of 219 years!
Yes, a dollar is not worth what it used to be, and those are nominal debt dollars that have been doubled during this period of alleged fiscal "austerity". Yet put it relative to GDP and you get the same picture. The public debt grew by 40 percentage points of GDP during the most recent cycle-----far more than during any previous episode.
Gosselin sites the 1961-1969 expansion in particular as an exemplar of how it used to be done in earlier purportedly more enlightened times. Well, that's just unadulterated nonsense. The Federal budget was close to balance during most of those years and for the nine year period as a whole, the deficit averaged just 0.9% of GDP. That compares to 6.3% during the current cycle.
As it turns out, Gosselin is not even measuring fiscal stimulus correctly----just throwing some multi-colored Bloomberg charts against the wall. The chart below from this morning's Bloomberg post actually reflects the government consumption and investment component of GDP, not anything that can be remotely considered to measure fiscal stimulus.
The "government" sector in the GDP accounts, in fact, excludes the overwhelming bulk of government spending! That is, it excludes about $2.6 trillion of transfer payments----the very mechanism by which Washington injects "stimulus' into the body economic. Indeed, there is virtually zero correlation between the government sector GDP accounts and the quarter by quarter change in government deficits---even if the latter had something to do with real gains in societal wealth and welfare, which it most certainly does not.
It is quite literally the case that if the US government had a $3 trillion program to put people to work digging holes with tablespoons and filling them back up with teaspoons, it would compute out as a 17% gain in GDP compared to current levels.
So by the lights of the geniuses at Bloomberg, its all real simple. Washington just needs to hit the "spoon ready" spending button.
Furthermore, Bloomberg might have looked into what it wished for. Nearly half of the contribution by the government sector to GDP growth during the 1961-1969 period highlighted in its graph was due to defense spending. Do you recall a disaster during that period called Vietnam?
Apparently Gosselin doesn't. All Obama would need to do is put 500,000 American boots on the ground in the killing fields of the middle east and the negative 0.23% contribution shown in red for the 2009 to present bar would disappear in a heart-beat.
In a similar manner, the Bloomberg "study" summarized below purports to show that the current tepid jobs recovery is due to lack of growth in the government payroll. Right. We should add several million people forthwith to the payroll of the IRS, the EPA, the Census Bureau, the TSA, the National Endowment for Arts and the US Army. Why, we would have a rip-roaring gain in our national standard of living in no time!
Self-evidently, government payrolls do not add to national wealth; apart from rare exceptions, they consume it. Even then, however, the story doesn't hold up even in a Keynesian framework. That's because the above chart takes no account of the historic trend or the arbitrary manner by which government "payrolls" are counted.
To wit, if you are getting treated in a VA hospital your doctor and nurses are government employees. If you are getting the same care via the $1 trillion being spent this year on Medicare and Medicaid, they are not. And newsflash to Bloomberg: Both kinds of spending dollars end up via different computational routes in the GDP accounts, even if neither really adds to national production and wealth.
So the Bloomberg job contribution chart is pointless drivel. During the 1960s government "payrolls" soared because the baby boom was going to public sector schools to be ministered by public payroll teachers and administrators. Now the baby boom generation is beginning to pull big time fiscal stimulus into the U.S, economy via health care and transfer payment spending, but virtually none of the $2.6 trillion government tab for social transfer shows up in the government payroll data; its all contracted out.
In fact, the Keynesian smoke blowers at Bloomberg have it exactly upside down, as dramatized in the two charts below. The first shows that government payrolls nearly tripled between 1960 and 2007, but that explosion of government employment had little to do with deliberate "stimulus" programs during the seven business cycles of that period. It was overwhelmingly caused by demographics, and the year-in and year-out expansion of Big Government.
Even if the flattening out since 2007 is a statistical illusion---- because most of the massive fiscal stimulus since then has been contracted out to private sector vendors-----what's wrong with finally halting the expansion of wealth consuming public jobs? Bloomberg is suffering from an advanced case of Keynesian paint-by-the-numbers stupidity.
On the other hand, social transfer spending has soared. During the alleged period of fiscal austerity since 2007, government transfer payments have increased by $850 billion or 50%.
Now that's what you call stimulus! The gain in social transfer spending since the crisis is more than the entire GDP of all but the largest dozen economies on the planet.
On the margin, nearly every dollar of that huge increase in consumption was unsupported by production; instead, it was borrowed first, and then eventually monetized by the Fed. Indeed, the $3.5 trillion gain in the Fed's balance sheet since August 2008 is the real measure of the monumental policy stimulus that has actually occurred.
At the end of the day, this pitifully stupid Bloomberg "study" amounts to saying that huge deficits can never be reduced or it will amount to the sin of "austerity". And, further, that when you monetize trillions of government stimulus with central bank credits conjured from thin air, it doesn't even count as "stimulus".
It doesn't take too much thought to demonstrate that the Keynesian model is rubbish. Nor is it a mystery as to how Bloomberg achieves $5 billion in profits from its ubiquitous terminals.
Approximately 95 percent of the traders and financial gamblers who inhabit the world's casinos today owe their lucrative craft to the drastic financialization fostered by the central banks. In an honest free market based on sound money, the endlessly churning secondary and derivatives "markets" would be a fraction of their current size and their current inhabitants would actually be producing something useful----perhaps in a coal mine or tile factory.
At the end of the day, the mighty Bloomberg empire is an accident that the central bank money printers built. Still, thank heavens for Bloomberg News. It has so much money to waste that it has actually gone into biting the hand that feeds it.
Attached is its latest rubbish it has assembled toward that very end.
By Peter Gosselin at Bloomberg
The U.S. is paying a big price in growth, jobs and wages by practicing the kind of fiscal austerity that it criticizes European nations for pursuing.
If federal, state and local governments were cutting taxes, increasing spending and expanding hiring as they did during all but one recovery since World War II, the economy would be growing 3 percent a year rather than slightly over 2 percent, the average of the past six years, according to a Bloomberg analysis of data.
Some 2.4 million more Americans would be employed, helping to push up lagging wages, the analysis estimates.
“There’s really nothing in the postwar that compares with the current expansion,” said Brookings Institution economist Barry Bosworth. “We threw in the towel on fiscal stimulus way too soon.”
The government’s role in the economy has taken on new significance in light of concerns that growth may have ground to a temporary halt in the first quarter of the year, slowing a recovery that has already taken longer than normal to reach pre-recession levels.
Opponents of using fiscal tools, especially higher government spending, focus on what they regard as a greater threat than tepid growth: federal deficits and debt. “Government can’t spend its way back to a strong economy,” said Representative Kevin Brady, a Texas Republican and member of the House Ways and Means Committee.
The Obama administration and Congress agreed in 2009 on an $830 billion stimulus plan to help break the economy’s fall during the recession that began in December 2007, then abruptly dropped the effort after growth resumed. By many measures, the federal government’s actions since then have been the most fiscally contractionary since the rapid demobilization of troops after World War II.
Bloomberg News reviewed government tax, spending and hiring data for each expansion since 1945, looking especially at those that were at least as long as the latest upswing so they could be measured at the same point in the cycle.
Among the findings:
In past long recoveries, government hiring added an average of almost 14 percent to overall job growth. This time, it has subtracted more than 6 percent.
Government consumption and investment previously contributed an average of more than a half a point to annual growth of the gross domestic product. This time, they’ve shaved off an average of a quarter of a point.
Personal income tax burdens were cut during prior recoveries by an average of 10 percent to encourage consumer spending. That’s less than the 25 percent reduction early in the current expansion. But while over half the cuts in past upswings remained in place for six or more years, well over half of the reductions this time were unwound by the end of the third year.
The nation’s retreat from tax cuts and spending increases to promote the recovery has been a bipartisan affair. Democratic President Barack Obama and Republican House Speaker John Boehner agreed in 2011 to apply the fiscal brakes by negotiating $1 trillion in spending cutbacks over 10 years and a process to impose more.
Now the driving political force is largely one party. Congressional Republicans recently passed a budget outline for next fiscal year that calls for further cuts, which the nonpartisan Congressional Budget Office estimates would knock a half-point or more off growth through 2018. Not a single Democrat backed the measure.
Brady, who is also vice chairman of the congressional Joint Economic Committee, said that even if extra spending helped growth, Washington can’t afford it because of debt. Federal debt held by the public is at its highest level relative to the size of the economy since the years immediately after World War II -- 74 percent of GDP, according to the Congressional Budget Office.
All the government can do, Brady said, is “get itself out of the way of a stronger economy” by removing regulatory and other barriers to private investment.
Fiscal policy advocates counter that with record-low interest rates borrowing is cheap and that stronger growth is the best cure for the debt.
“We’re running the most contractionary fiscal policy in the postwar era and probably longer at a time when the case for an expansionary one could not be stronger,” said J. Bradford DeLong, an economist at the University of California at Berkeley and one of the most vocal advocates of using government taxing and spending powers to boost growth.
Federal Reserve Chair Janet Yellen and her predecessor, Ben S. Bernanke, who’ve overseen the central bank’s most aggressive use ever of monetary policy to revive growth, have both decried the impact of recent fiscal practices.
Bernanke, then the Fed’s chairman, said early last year that “with fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be.”
The contractionary nature of the fiscal policy has been partially obscured because it’s an amalgam of government tax and spending actions at all levels -- federal, state and local -- rather than a single set of decisions.
Recent Obama administration comments about the fiscal policies of other major economies have also helped conceal the reality.
The administration has repeatedly criticized the big European nations, especially Germany, for running austerity programs of deep spending cuts and tax increases that the administration says slow their own growth and undermine the global recovery. Treasury Secretary Jacob Lew last fall urged Germany and others to “pursue more fiscal policies to boost demand.”
But figures from the Organization for Economic Cooperation and Development show that since the 2009 start of the recovery, the administration has allowed U.S. policy to tighten by more than twice as much on average as Germany, France, Italy and the U.K.
The result by last year was that Washington was running an austerity program not terribly different than a composite of its European counterparts.
Since 2008, using fiscal policy for stimulus has gotten a second look from economists -- even some conservative ones, such as Martin Feldstein, the Harvard University professor, Reagan administration chief economic adviser and longtime opponent of deficit spending.
Last year, Feldstein floated an ambitious proposal to spark stronger growth, including more than $1 trillion in deficit-financed infrastructure spending and permanent tax cuts. While he later retreated from the spending, he continues to endorse more modest tax cuts.
The renewed interest stems from the fact that economists’ two biggest concerns about fiscal policy don’t seem to apply now. The problem of timing tax cuts and spending boosts to kick in when most needed isn’t such a worry when the economy’s problems have lasted for years. And the concern that government borrowing to finance deficits will crowd out private investment and drive up interest rates simply hasn’t happened.
Most Republicans remain unmoved, even those like former Representative Tom Davis of Virginia who agree that fiscal stimulus would provide a short-term boost. The impact on the deficit is the larger worry, he says.
“I’ll take the short-term hit of being criticized for contributing to a sluggish economy to do something about these deficits,” Davis said.