The Economic Sinkhole

The Tea Party and Wall Street Journal Complement One Another

The thought that Michelle Bachmann, Rick Perry or similar type Republicans could obtain the presidency of the United States of America and guide its foreign and economic policies cripples the psyche. Can individuals of scarce intellectual knowledge, who resolve difficult problems with slogans and a turn to God, develop the complex policies that rescue the United States from economic Armageddon? Congresswoman Michelle Bachmann won the Iowa poll by being more careless with facts, more devoid of reality, more appealing to biased agendas, more distorting of truths, and more likely to use mendacity than the other candidates. Reflect on statements:

Literally, if we took away the minimum wage—if conceivably it was gone—we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.

— Michele Bachmann, 1/26/05, testifying against a bill to raise the minimum wage and advocating the elimination of the minimum wage altogether

Dark economic clouds are dissipating into an emerging blue sky of opportunity.

Democracy functions best when we have an active citizenry.

— Rick Perry

Election of poorly equipped persons to highest office reveals a larger problem – a sizable portion of the electorate, possibly fifty percent, subscribe to the simplistic economic thinking that thwarts economic recovery – “It’s the government’s fault,” “Only business can create jobs,” “Get the government out of our lives,” and the latest, “We only have to return to God.”

And what thinketh the other fifty percent? Well, the Wall Street Journal has a huge and trusting readership who use its words to plan their economic futures. Combine Tea Party, Libertarian, and Wall Street Journal (WSJ) subscriptions, and we have, with some overlap, economic thought that defies analysis because there is no thought to analyze.

Tea Party proposals for economic growth are self-refuted due to their lack of depth, slogans and simplistic expressions.

Libertarian economics derives from libertarian philosophy, a single-minded approach to all issues. The economics have been challenged in a previous article by the writer:

How to Create an Economic Downfall, exactly what these miscreants are preparing for their nation.

Close association between Wall Street Journal and barren right wing economic ideologues are revealed in a WSJ editorial. Each line of the editorial is either a self-refutation, an inaccuracy, a distortion, a made-up issue, or an outright deception. Is that serious? Yes, it is serious – the electorate is almost entirely captured by inadequate economic proposals that will sink America. And the politicos think only of catering to the electorate; not educating it with sensible policies, and only interested in winning an election. The United States is moving towards an economic sinkhole in which the Tea Party and Wall Street Journal complement one another.

Wall Street Journal, August 11, 2011 Editorial:

These examples show that China is no ‘miracle.’ Running a trade surplus while accumulating and sterilizing foreign reserves succeeds for a time. But inflation is only deferred, and the more that is stored up, the worse the hangover afterward. Investments that were predicated on the good times lasting forever must then be written off. Subsidized exports must shrink to a more appropriate share of the economy. There is some irony here in that one of the reasons Beijing has refused to change its monetary arrangements is that it doesn’t want to repeat the experience of Japan. That was understandable during the Asian monetary turmoil of the late 1990s and again during the panic of 2008-2009. But in economics what can’t continue won’t. Tokyo pursued a policy of reserve accumulation for too long, making a difficult transition inevitable. Stagflation is a warning to Beijing that it is running out of time to avoid that fate.

— Wall Street Journal (subscription required)

China is no “miracle”.

If we speak of a German miracle and Japanese miracle, then certainly China deserves the expression China miracle. Like all the others, the ‘miracle’ was actually worthwhile economic policies.

Running a trade surplus while accumulating and sterilizing foreign reserves succeeds for a time.

Does the patronizing WSJ believe the Peoples Republic government, which has steered a totally deprived nation to become the second largest economy in only thirty years, doesn’t know the care of foreign reserves? Meanwhile, the country is growing at a rapid rate.

Does China sterilize foreign reserve? Doesn’t the government buy the dollars, increase its money supply and invest the dollars in foreign assets?

Inflation is only deferred, and the more that is stored up, the worse the hangover afterward.

In 1995, China had a 25% inflation rate and a minuscule trade balance. Now it has a 6% inflation rate and a major positive trade balance. A 6% inflation rate is already a relatively high rate and so the government is not storing up anything.

Subsidized exports must shrink to a more appropriate share of the economy.

Does China subsidize exports more than other nations?

“According to the GATT/WTO trade agreements, a country with a value added tax (VAT) such as China can legally rebate to its exporters the VAT taxes they pay on exports. US manufacturers face this problem when competing with the Chinese, but also with the Europeans, Japanese, South Koreans and many other nations.”

Charging China with manipulating its currency in order to favor exports is not easily proven. The moderately high six percent inflation rate offsets other factors that push the Renminbi to an increased value. Nevertheless, the Renminbi is still not an international currency whose value can be comfortably compared with other currencies. As for, general subsidies, they are no more than the U.S. subsidies for its agricultural industry, which floods the world market with foodstuffs, which are competitive due to the subsidies.

Economist Eswar Prasad of Cornell University argues that cheap credit and subsidized land and energy further enhance the price competitiveness of Chinese exports.

Cheap credit? Has Eswar Prasad confused nations?

Similar to the policies of other industrialized nations during the economic slowdown, Beijing originated stimulus plans with easier credit to invigorate the economy. Unlike other industrialized nations, the Chinese stimulus maintained a low unemployment rate (4.5%) and an escalated GDP growth (9%).

The benchmark interest rate in China was last reported at 6.56 percent.

The benchmark interest rate in the United States was last reported at 0.25 percent.

The Cornell university economist is comparing a minor green technology trade dispute with the United States, which Beijing has settled by agreeing to stop subsidizing wind power firms that use domestic parts at the expense of imports,

Examine the U.S. government assistance to the energy sector.

U.S. government support for renewable energy may plunge from record levels, setting back the use of wind and solar power before they can compete on their own with oil, gas and coal. Written into the federal tax code are benefits valued at $24.2 billion for renewable energy and efficiency incentives through 2014, compared with an estimated $17.9 billion for the oil, gas, and coal industries, according to a December report by the congressional Joint Committee on Taxation.

Direct spending, tax breaks and research funding pushed federal renewable-energy subsidies to $14.7 billion in 2010, according to Alan Beamon, director of the Energy Information Administration Office of Electric, Coal, Nuclear and Renewables Analysis. Project developers are lining up for subsidies approved in the 2009 stimulus bill as incentives expire and the deficit-reduction deal dims prospects for future backing of solar panels and wind farms.

…an examination of the American tax code indicates that oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process.

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

There is some irony here in that one of the reasons Beijing has refused to change its monetary arrangements is that it doesn’t want to repeat the experience of Japan.

What “experience of Japan?” From 2008, until the Tsunami crippled its production, Japan’s GDP rose from $4.3 trillion to $5.5 trillion. During the same interval, U.S. GDP rose from $14 trillion to $14.3 trillion with a slight dip in 2010. Has the WSJ been told this reason by Chinese officials, or is it originating this thought, and using a reference to Beijing to confirm it? The economic development of China is much different than that of already developed Japan; why should policies be similar?

In economics what can’t continue won’t.

Profound statement, similar to those of Michelle Bachmann.

Tokyo pursued a policy of reserve accumulation for too long, making a difficult transition inevitable.

Japan is a resource deficient nation, which needs to export to obtain funds to import raw materials and energy supplies. Foreign competition forced its corporations, similar to those in the United States, to move production offshore. External production limits domestic money supply and domestic consumption. Japan incorporated is doing what it has to do and not what the WSJ wants it to do, and doing it successfully. Nothing wrong with having the third largest economy in the world.

Stagflation is a warning to Beijing that it is running out of time to avoid that fate.

Stagflation is when the economy experiences slow GDP growth (stagnation) with high inflation. Japan, to whom the WSJ is telling China it might soon resemble, has exhibited moderate GDP growth with deflation.

Meanwhile the U.S. retains slow economic growth with slow inflation and exhibits characteristics that tend to no growth and hyperinflation.

Does one editorial from the Wall Street Journal mean much? The WSJ influences a significant portion of the shakers and makers in America. Every editorial characterizes its approach to the economic dilemma. Prevarications, deceptive remarks, illogical reasoning, and distorting facts to advance an agenda skew the dialogue. Although the Bush administration’s policies headed the nation towards an obvious economic downfall, the WSJ never presented any alarm. Now it’s warning the People’s Republic it’s going to soon be in trouble. The editorial implication is that all is right in America, and if it isn’t, it’s China’s fault.

The reality: Measures needed to reduce unemployment to acceptable levels and provide sufficient economic growth refute the slogans that guide the population’s concepts of a beneficial economic system. Unfortunately, these measures invite more government intervention in the economy, which means they will neither be advanced by hypocritical politicians nor accepted by a disillusioned electorate. Popular economic media, together with the Tea and Libertarian Parties, drive the population to politicians whose policies create consistent high unemployment and perpetual stagflation to the U.S. economy. The confused population will continue to rail against the predicament and blame the government and China.

Dan Lieberman is Editor of Alternative Insight, a monthly web based newsletter and author of the book A Third Party Can Succeed in America. He can be reached at: alternativeinsight@earthlink.net. Read other articles by Dan.