Who Are The Real Economists?

The world of economics is divided between 16th century blood sucking practitioners who believe in Keynesian economics and Austrian economics. There are some other schools in the mix that are variations of the monetarist or Chicago School but in today’s environment center stage is dominated by the Austrians and Keynesians, and we vehemently disagree on everything.

Some might argue for the classical economist and their standard bearer Irving Fisher, but who cares. The big fight is the Keynesians and Austrians. So who is the winner?

UCF Economics Professor Sean Snaith is a economic "forecaster" but he missed the biggest money bubble in the history of mankind. Like most Keynesians he collects a government paycheck and baffles students with BS

To be a economist is similar to being a weatherman. You will never get it 100% but if there is a God damn hurricane 100 miles off the fricking coast you better pick it up on your radar. If you cannot pick up the biggest financial storm in the history of mankind then you need to find another line of work.

So who were the idiots with their head in the sand and who picked up on the financial storm 500 miles off the coast?

A little background first. Any good economist on top of their game that understands the fundamentals of economics can pick up economic storms, usually three years out. Crazy? Alan Greenspan did it with his “irrational exuberance” speech complaining that the NASDAQ was overvalued three years and five months before the bust.

Greenspan’s comment was made on December 5, 1996:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

Federal Reserve Chairman (1987-06) Alan Greenspan gave his "irrational exuberance" speech three years plus before the NASDAQ crash

NASDAQ peaked March 10, 2000 at 5132, then rapidly lost almost 80% of its value. Today the NASDAQ is at 2381 some 11 plus years latter. Greenspan, love him or hate him, was on top of his game in 1996.

Peter Schiff of Euro Pacific Capital called out the housing boom and bust as soon as Greenspan lowered the Federal Funds rate to 1% in 2003 AFTER the 9-11 recession was over. Schiff had previous experience with the NASDAQ bubble and made the call almost immediately. Later as the housing boom progressed Schiff was even more forceful on several business shows finally resulting in several classic “Peter Schiff was Right” videos available on YouTube.

And now we have had another bubble that is bursting. Before August most of the main stream economist believed we were out of the recession and all was well, except that 9% unemployment rate. The Keynesian stimulus programs of Bush and Obama had saved the economy from disaster and there was economic growth since 2009. All was well in the Keynesian bubble world, all that was needed was more stimulus applied and that pesky unemployment problem would disappear.

UCF professor and “forecaster” for the Institute for Economic Competitiveness, Sean Snaith, gave a speech for a Orange County, Florida economic summit May 13, 2011 in which he talked the usual Keynesian gibberish and saw steady future growth for the economy. The only problem he saw was the “oil shock” that had temporarily slowed the economy like a speed bump in the road. Soon the economy would be back up and running full speed. From his July 2011 forecast we see he predicted Florida’s GDP to be up 2.1% in 2011, 2.8% for 2012, 3.3% for 2013 and 4.1% for 2014 when Obamacare was scheduled to kick in. He predicted “much stronger” retail growth for 2011 and a 5.2% growth rate for 2012-14. Personal income was predicted to grow 3% peaking out at 4.8% in 2014.

After he delivered his speech I was absolutely livid that he could be so callous and blatantly wrong in front of Orange County, Florida Mayor Teresa Jacobs. I confronted him as forcefully as I could, without knocking him the fruck out, and asked him point blank if he did not see a problem with the Federal Reserve expanding the monetary base 200% or the producer price index showing signs of inflation. He reassured me that Bernanke was a student of history and had it all under control. He disparagingly referred to the monetary base as “power money,” which it is sometimes referred to, as if I was some idiot who did not know shirt. Cocky ignorant bastard is how I would characterize him. Completely negligent in his duties as a consultant to Mayor Jacobs.

Euro Pacific Capital President and former Connecticut Senate candidate Peter Schiff was warning about the housing bubble three years before it happened

No problems foretasted whatsoever. Just a “oil shock” speed bump. But WTF the guy looks good and gives a good speech. Other than that he is completely clueless. If it was just some professor being a idiot it would not be so bad. The problem is he has Mayor Jacobs ear, real estate developers ear, and was even on Fox News today (8-10-2011) pretending he knew what the hell was happening criticizing Bernanke for setting the interest rate the same till 2013. The only way this idiot new what the hell was happening was if he read my blog, because looking at his July 2011 forecast off his web site he is clueless.

Did Mayor Jacobs decide to build the Orlando Performing Arts Center based on his recommendations that all was well? Y = C + I + G + NX Mayor Jacobs. “Spend, spend, spend, because in the end we are all dead.” JMK.

I would compare him, and all Keynesians, as a bunch of hired intellectual guns. These pretenders suck up to government elites and whisper encouragement to rip off the peasants. Nothing more than hired stiff that will justify whatever the government wants to devour, and entertain the students at the university with English fairy tales. The same breed of progressive thugs Wilson found useful to justify the movement of the United States away from gold, the constitution, and toward progressive goals such as the Federal Reserve and the income tax.

Sean Snaith is a example of a villain but who were the real economist?

There is Frank Shostak’s “Is Deleveraging Bad for the Economy?” from August 20, 2008:

“It is … futile to urge banks to lend more if real savings are not there. Likewise it doesn’t make much sense to suggest that the Fed can somehow replace nonexistent real savings … by printing more money. (It is also an exercise in futility to raise government spending to fix the problem. After all if a government spends more it means that somebody else will have less resources left.) All that adding more money to the economy will do is to weaken wealth generators and thereby reduce the future supply of real savings and weaken future real economic growth.”

There is Scott Kjar’s “Henry Hazlitt on the Bailout” from October 15, 2008:

The argument that the government is somehow pumping new capital into the market is absurd. Government is actually borrowing the money from the capital markets that it is in turn injecting into the capital markets. There is no additional source of funding; there is only a diversion of funds from more-productive outlets to less-productive outlets, with government acting as the middleman.

Austrian Economist Lew Rockwell predicted the economic crisis three years before it happened

“After all, this Keynesian nonsense has had many trial runs, and it has failed every single time.”

So when Henry Paulson argues that it is necessary to pump money into credit markets to prevent them from freezing up, he doesn’t bother to realize that the money he pumps into the credit markets is coming directly out of the very same credit markets. He is doing little more than rearranging the deck chairs on the Titanic.

Kevin Duffy was bang on with his “Looting the Responsible” from October 8, 2008:

Government has no resources of its own, no elves working overtime to produce something of value, just promoters who espouse Santa Clause economics. It can only transfer wealth from one group to another (skimming a nominal transaction fee in the process). The current … $700 $800 billion bailout (sorry, rescue) package is nothing more than a looting of the responsible and productive by the reckless and profligate. Call it reverse Darwinism: survival of the least fit.…

[T]ransferring more blood from the productive host to the parasite does not in the long run make either healthier. For the economy and country to begin healing, we need capital, credibility, and authority to move from the wasteful to the productive. The power elite, predictably, is attempting to achieve the exact opposite.

Consider Christopher Westley’s “Bailout Blame Game” from October 7, 2008:

As a student of the Depression I know that Congress and the executive can do much damage before the long term gets here, and indeed, they can delay its arrival indefinitely. Will the conservatives who supported this legislation lay into a President Obama two or three years hence, in the event that the economy devolves into a repeat of the 1970s, thanks in large part to government’s attempt to forestall market forces over the last two weeks? This seems likely. Our current problems resulted from the infusion of credit in the past. To think that infusion today will not have the same effect in the future is to challenge pesky things like natural and economic laws.

From Doug French we have “History Is Clear,” published on November 13, 2008:

Austrian Economist Doug French predicted the financial storm three years out

Is it any wonder that Treasury Secretary Henry Paulson’s plan has morphed into the federal government taking equity stakes in banks, mortgage companies, and at least one insurance company? … But history is clear: more fiat money won’t solve this crisis; a return to sounder money will.

Robert Murphy’s “Consumers Don’t Cause Recessions” slashed through Krugman’s theory on November 11, 2008:

When the recession is the result of a central-bank-induced artificial boom (such as the recent housing boom), the downturn is a period of readjustment, when misallocated resources are channeled back into more appropriate lines, consistent with consumer preferences and technological realities. When the government steps in and tries to prevent this readjustment, it simply maintains an unsustainable deployment of scarce resources.

Poignant comments from Frank Shostak’s “The Rescue Package Will Delay Recovery” from September 29, 2008:

It is true that the financial system must be rescued; it must be rescued from the institutions holding bad debt that are currently draining capital while waiting for a bailout and adding little in return. It is they that are preventing wealth-generating activities in the financial sector and the other parts of the economy from expanding real wealth.…

“I want to be sympathetic to those who were deceived — and grant the best of intentions to those who favor stupid policy — but it is really hard.”

The government package is not going to rescue the economy, but it will rescue activities that the economy cannot afford and that consumers do not want. It will sustain waste and promote inefficiency, draining resources from growth and efficiency.

Llewellyn H. Rockwell’s “Don’t Bail Them Out” from September 10, 2008:

Austrian Economist Robert Murphy predicted the financial storm three years out

The government should completely remove itself from the course of action and let the market reevaluate resource values. That means bankruptcies, yes. That means bank closures, yes. But these are part of the capitalistic system. They are part of the free-market economy. What is regrettable is not the readjustment process, but that the process was ever made necessary by the preceding interventions.…

We need to let the market handle the entire process, come what may. I guarantee that this solution is a better one than creating another trillion or so to bail out failing enterprises.

And mine on this web site from December 28, 2008:

“Now the Federal Reserve is increasing stocks of money faster than ever. What is the next housing bubble? Most likely our currency. Our monetary base has gone up from $824 billion to $1,435 billion in 2008! Normally this change is from 0% to at the most 15% from year to year. This year it has grown an astonishing 80%! We are in very serious times.

If the congress fails to cut taxes or better yet scrap the current tax code and adopt the fair tax we will have a dollar collapse similar to third world countries like Argentina, Venezuela and the former USSR. Congress needs to cut taxes now; Congress needs to take away the power of the Federal Reserve to set interest rates. The Federal Reserve needs to quit increasing the money supply. Congress needs to quit bailing out everyone. But none of this will happen. When it all collapses we will once again need to rely on each other to get through this. As we have for centuries.”

There are hundreds, even thousands, of such articles and statements from 2008 to the present. They appear every few days, and the message is the same: This stuff is not going to work. Their green shoots are an illusion. There will be no stimulus. Let the market liquidate. Government should stop looting the private economy. The Fed should stop the money creation. No more bailouts. Let interest rates rise. Let bad banks fail. Above all: stop fighting the market! Only at that point can we have solid recovery.

And now that some of the bust has arrived we can finally separate the real economist from the pretenders. The government intellectual thugs from the honest concerned economist. Next time I want Mayor Jacobs ear. The pretenders need to find other employment.