Economic Breakfast

Right off, let me thank Great Lakes Bank of Choice for inviting me to their 17th Annual Economic Breakfast this morning.  The breakfast was very nice at the Olympia Fields Country Club and the guests were the Who’s Who of the Chicago Southland economic activity.  (I was only invited because I got a business loan from Great Lakes to pay for my electronic medical records—I’m a doctor so I’m in the Socialist part of the economy.)

However, while I enjoyed the optimism of the speaker, Brian Wesbury, who evidently is among the talking heads for economics on CNN, I really hated his politics.  (Here’s your stock tip for today—he thinks the S&P should go to 2200 from the 1700s now and thinks that there will be a lot of bargains when the rubes drop the market upon the Feds stopping the QE bond buying program.)  Because [really questionable idea (1)] the Fed’s QE program has almost nothing to do with the economy—the economy is mostly controlled by something called the M2 money supply which is growing steadily.  (Full disclosure—I’ve never taken an economics course in my life—but I do read the op-ed pages of the Wall Street Journal and the New York Times.) 

The Feds might as well dump money from helicopters into the streets to stimulate the economy according to Mr. Wesbury.  Fed chairman, Bernanke is familiar with helicopters.  The QE program would have caused substantial inflation (I think Mr. Wesbury meant this) as well as greater economic activity, but very noble and astute banks (in Mr. Wesbury’s estimation—remember who invited him) are just taking their profits and sitting on the money rather than maliciously acting as lenders. 

The problem with Mr. Wesbury is that he is very personable—not like his mentor, Phil Gramm, so these knuckle-dragging economics ideas seem to sound sooo reasonable.

[Questionable whopper (2)]: The unemployment rate is related in a causal manner to the proportion of the economy related to spending by the Federal Government.  This is totally bass ackwards (this is a family-friendly blog).  Obviously, the business cycle is the business cycle so there will be recessions.  And with these recessions there will be unemployment.  When this happens, the economic output of the private sector is in decline (right? that is what a recession means) but the obligations of the Federal Government not only do not decline, they get much bigger due things like food stamps and unemployment insurance payments rising.  (And most Keynesians would say that the spending of the government **should** get much higher to make up for the lost demand from the private sector.)

 So it is just wrong to put up a graph relating government spending as a proportion of the economy and say that the higher proportion “causes” unemployment.  It’s like the like saying the cock crowing causes the sun to rise.  Or consider this cartoon example.  (Mr. Wesbury blames Keynesians for Detroit’s problems.  He put a slide of modern Hiroshima up by a slide of modern Detroit.  He stated that Detroit’s problems were all due to unions and entitlements (and something like rent controls—hard to find those in Detroit) and nothing to do with complacent management of GM and Ford etc. getting their lunch handed to them by the Japanese auto manufacturers.

The worst statements of Mr. Wesbury relate to his theory that Bill Clinton signed welfare reform due to the government shut down of 1995 engineered by Newt Gingrich as though Clinton was not part of the “New Democrats” that wanted balanced budgets and welfare reform anyway—as early as the 1992 presidential campaign.  The Washington Post agrees with Mr. Westbury that Newt Gingrich won concessions from Bill Clinton—he just misplayed the politics so badly that he gets no credit for this.

Similarly, Mr. Wesbury believes that the decreasing proportion of Government spending in the economy today compared to its peak around the time of the stimulus program is not due to the recovery but relates to the efforts of the Tea Party and their success in shutting down the government.  He stated that the only way for Mr. Obama to regain his popularity is to “move right.” Here is Nobel-Prize-winning economist Paul Krugman on austerity.

Now Mr. Wesbury had many encouraging things to say about fracking and US energy independence (no mention of global warming or pollution).  He predicted that our grandchildren will all have 3-D printers in their houses.  He said that the US Economy will move ahead steadily like a “plowhorse” because of the efforts of entrepreneurs which are the true engine of the economy—not Ben Bernanke or Janet Yellen.  (Frankly, I doubt that Mr. Bernake or Ms Yellen would disagree.)  Even that dastardly Mr. Keynes spoke highly of “animal spirits”—did he not?  And I’m guessing that he meant on the supply side as well as consumption.  BTW, besides Phil Gramm, Milton Friedman, and Newt Gingrich, Mr. Wesbury mentioned Ludwig von Mises as his guru.  Not mine.  I’ve been reading a ton of Albert O. Hirschman including a fascinating biography. 

That said, it’s pretty sad when a rube physician can instantly see through the posings of a friendly, but reactionary economist.  For the best book on reactionaries, see Hirschman’s The Rhetoric of Reaction.  Actually, one should buy this—but if you want to read it for free—here it is.