Obama is destroying the foundations of the country and selling us to the Chinese

Our President is so awful when it comes to economic management (as opposed to foreign policy, where he’s generally solid) that the truth sounds like hyperbole.

While Obama spends our money on a new $100 billion bailout announced today, China is becoming the world leader in renewable energy.

While clean tech companies are starved for capital, Obama is busy re-inflating the housing bubble.

Obama, apparently not concerned that many freshmen are unprepared for college, Obama is thinking of ending the requirement that schools show adequate yearly progress and giving up on the goal to close the racial gap in education,

While Obama spends that our national debt is now our largest national security threat, Obama will end the program to safely store nuclear waste.

24 thoughts on “Obama is destroying the foundations of the country and selling us to the Chinese”

  1. On point 6, “. . .and replace it with an index that would reward educators who prepare students for college and careers. ”

    This doesn’t sound like a bad thing, if they can get it to work. It would definitely help address your 5th point (Btw, how do you extrapolate from that one story that Obama doesn’t care?).

    The nuclear point is a toss-up: Heinlein suggested vitrifying the stuff until a use can be found, an old physics prof of my Dad’s suggested burying it on the seabed of a subducting plate. Both sound better than digging a hole and hoping you made it proof against a thousand years, but are such improvements in the pipeline?

  2. Michael,

    The story-behind-the-news is that there are two forms of school testing : fixed standard based on yearly-progress based. Fixed standards have been used for the 40 years preceding NCLB. You can tell how well that worked.

    The reason it is so awful is that the trick is for a school district or state to just write an easy test. That way everyone passes!

    The stupid places that tried this with NCLB were the first ones gutted, because if you write an easy test with a 99% “pass” rate the first year, you have almost no chance of making average yearly progress on that.

    Re: nukes, talk is cheap, action is difficult. Obama prefers talk to action. I have no idea if this preference is “true” or not. I judge him by his actions.

  3. “The reason it is so awful is that the trick is for a school district or state to just write an easy test. That way everyone passes!”

    Test-dumbing prepares students for neither ‘college’ nor ‘career’. What if the fixed standards were fixed at a reasonable level, though? And if the standard is fixed at a student’s abilities upon exiting school, then it is perfectly compatible with progress-based testing (the latter being a measure of the progress of the student towards readiness for college or career).

    On the bailout: Are banks lending at a reasonable rate, yet, or are they sitting on their dough (government provided and otherwise)? If the latter, Obama may not have a choice but to do a small-business oriented stimulus.

  4. Government deficits allow non-government sector savings. That is, the liabilities of the American government are the assets of the American public.

  5. Vimothy,

    By this logic, if the US government would borrow a billion from China, and shred it, there are now a billion extra assets for the American public?

  6. Hmm. The macroeconomics of the situation is certainly counter-intuitive. The best way to think about these things is to get the accounting right and then look at the resultant cross-sectional balances.

    What I said above is in some sense trivial. It’s just double entry bookkeeping–in short, a tautology. Any net financial assets in one sector *must* be the net financial liabilities of another sector, because within a sector all balances net to zero. Yes?

    So the US current account deficit (CAD) with China represents a cross-sectoral balance just like the public-private balance above. This CAD is the difference between total income and total spending in the US economy (restricting the model to the US and China) by accounting identity.

    We can look at this in different ways: US CAD; Chinese current account surplus; US capital account surplus; Chinese capital account deficit. But remember that this is just four different ways to say exactly the same thing.

    The US CAD relative to total spending is therefore the proportion of US agg demand going Chinese economy (i.e. the US CAD is the additional income the Chinese economy over total spending). From the capital account side, China is accumulating net US financial assets, by definition–all we’re doing is rearranging an identity here (but bear with me, because this may be hard to follow)–which represent a claim on future US output (the debts are dollar denominated). This is future US aggregate demand in exchange for an asset that does not contribute at all to current US aggregate demand. This is the obverse of the current net spending stimulus the Chinese receive from this relationship.

    Are you with me so far? If so we can explore your proposition and see if it really does logically follow from our NIPA identities and cross-sectoral analysis

  7. Maybe we can simplify this.

    For the economy as a whole total income equals total spending (i.e. nominal GDP). If total spending falls, total income must fall (i.e. GDP falls). If total spending increases total income will increase. In a closed economy, in order the private sector to net save on aggregate (within a sector all balances sum to zero), somebody else has to acquire those net liabilities. If there is no one standing on the other side (the government or the foreign sector), any fall in total spending (increase in net savings) necessarily reduces output, by definition. The US private sector wants to net save. This is an aggregate demand shock to the economy. Total spending is reduced, and so total income must be reduced *unless* there is an offsetting flow contributing to aggregate demand. That offsetting flow *is* the budget deficit. It allows the private sector to have a positive savings rate as a sector without causing a contraction. This savings rate is the flow of net financial assets (government loans) to the private sector.

    If the deficit falls, total income must fall. Maybe that’s okay, because who wants this much output anyway. But if the private sector wants to save 5% of its income on aggregate (say), there must be an offsetting equivalent contribution to total income or output must fall. And if output falls, private sector spending may not even recover. If there is an aggregate drive to spend less than income, output will fall further: frustrating the individual desire to increase savings and increasing the liquidity trap.

  8. Ok so what your saying Dan is if Obama is destroying the foundations of the country and selling us to the Chinese…then we are in a heap a sh!t yaw??! Destroying a foundation to me means that we are gonna have a pile of dung under our feet in short order? Inevitably causing an economic collapse for the United States. You cannot keep on spending this type of money without consequences. Obama is buying our collapse and doesn’t really even give a damn. The idiot says lets spend our way out of this recession. Oh brilliant…that’s like me saying gosh I have 50k in credit card bills, man I should just keep spending…eventually someone will bail me out. Look at his damn cabinet, he has less than 18% that know anything about the private sector and growing jobs. Ronald Reagan had over 40% of his cabinet that had experience in the private sector. What a pot of sh!t nuggets…and the American people are still buying this guys words!! President Obama is just another goon tied in real well with Wall Street and well known eugenicists like Rockefeller, Mellon, Carnigie. Those stupid bastard Free-thinkers that gave Obama a sh!t ton of money to run a campaign that completely flattened out everyone else. This president makes me sick, and they just keep getting worse!! Bush wasn’t much better!

  9. vimothy,

    OK, I thought you were making a prediction, instead of repeating an Keynesian accounting identity. My apologies.

    JD,

    Not sure exactly what you mean, but you sure sound mad!

  10. Naw what makes ya think that? I’m not mad watching our country get handed over to international bankers & cartels, and our president helping with it! I’m flipping furious!! We all should be!

  11. JD,

    I agree, it is angering.

    Vimothy,

    My meaning is that I am not sure that your statement is a testable proposition — it seems closer to something that is true by definition (and thus without its own meaning). Am I mistaken?

  12. tdaxp,

    Sorry I missed your follow up.

    You are correct that the NIPA identities are tautologous and true by definition. Perhaps this makes them, in some sense, trivial. I like to think of them as the axiomatic predicates/premises of a system of economic syllogistic logic. (Caveat: It has been a long time since I sat in a class of formal logic, so perhaps my metaphor is confused and/or confusing).

    Point being that these identities describe the macroeconomy. If your theory disagrees with them, it disagrees with reality as it currently exists. Not necessarily anything wrong with that, but worth bearing in mind. Furthermore, a stock-flow consistent sectoral analysis grounded in the NIPA and the operational realities of the monetary system is a prerequisite for understanding the role of fiscal policy and what the national debt and the government budget deficit actually represent.

    So when I say that (after netting), the liabilities of the government are the assets of the people, my statement is absolutely not a testable proposition. It isn’t theoretical at all. I’m simply describing reality given the accounting definitions. (Of course, I could also have the definitions wrong!)

    And does it mean anything? Well, I have to disagree with you here. I think it does mean something–it means that the national debt is private wealth, and those people who suggest paying the national debt back–in addition to the recessionary implications[1]–are in fact advocating the destruction of private wealth. It means that the national debt is not a national security threat. In fact it means that the national debt is foundational to the economic health of the nation. It means that the national debt cannot be understood in isolation from the sectoral flows that generated it. And it means that the national debt is largely endogenous.

    [1] See here for empirical record: http://vimothy.wordpress.com/2010/02/15/understanding-deficit-spending-part-2/

  13. Vimothy,

    Thanks for your comment.

    You are correct that the NIPA identities are tautologous and true by definition. Perhaps this makes them, in some sense, trivial. I like to think of them as the axiomatic predicates/premises of a system of economic syllogistic logic. (Caveat: It has been a long time since I sat in a class of formal logic, so perhaps my metaphor is confused and/or confusing).

    OK. I think now we can understand each other.

    My approach to understanding these issues is scientific. Therefore, I am skeptical of claims that cannot be refuted.

    Certainly, many claims about the economy are non-scientific. Among these are that everything is arbitrarily decided by God, dialectical materialism, “system of economic syllogistic logic.”

    I can’t argue with someone who simply makes up (or receives made up) axioms or predicates in this way. I have no desire to rob you of your faith. It simply does not help me to buy into your faith-based assumptions.

    Unlike other non-scientific belief systems, such as Scientology or the Cthulhu Mythos, it strikes me as both boring and useless.

  14. tdaxp,

    Not sure what just happened there. Obviously the fault is mine.

    I am talking about double entry bookkeeping, not faith. This has nothing whatsoever to do with faith or theories of any kind. To say that someone’s liabilities are someone else’s assets is not to make a statement based on faith (such as “Jesus rose from the dead”, or “the national debt is a national security threat”). It is simply to state a fact, given the operational realities of our financial system. If you want to be scientific, then your theories ought not to contradict the most fundamental rules of accounting.

    Moreover, if you are not interested in using the NIPA, I fail to see how you can have any interest in macroeconomics. Certainly dialogue between you and anyone else will be impossible, given your refusal of any received definitions. Flow of funds data are off limits. It doesn’t make sense to talk of a deficit. Basically, macro in Wonderland (“when I use a word…”). This is like some kind of weird neo-Kantian economic anti-theory and I confess that I’m having a hard time making sense of it…

  15. vimothy,

    Thanks for the rapid reply!

    To the extent you are introducing a set of mutually consistent definitions, you are able to speak more precisely within regard to those definitions, but you are not able to add any meaning.

    My concern is not with the adoption of jargon (which can certainly be necessary). Rather, I loudly reject any attempt to come to a conclusion as a result of definitions. Something that is “true by definition” is meaningless.

  16. tdaxp,

    I think that we half agree—the point is not to come to conclusions based on definitions, but to test your conclusions against them. The identities don’t add meaning. Rather, they show where meaning has been subtracted. That someone’s asset is someone else’s liability has always been true. So, in that sense, no meaning is added by recognising that fact. However, many people jump to the conclusion that deficit spending by government is bad ipso facto, without any recognition of the fact that a government deficit is a non-government surplus. Symmetrically, many people think (e.g. Clinton era Dems) that government surpluses are ipso facto good, without any recognition that a government surplus is by necessity a non-government sector deficit.

    We can go further: Since the national debt is just the resultant stock of cumulative deficit flows (spending > taxes), cumulative surpluses are necessary to pay it down. Now, in order for all aggregate output to be sold, someone must buy it. That is, total spending must equal total income. Additionally, any contemporary American budget surplus will also occur in parallel with a large foreign sector surplus (i.e. a US current account deficit), so that for the US private sector to maintain spending growth (and thus total income), it must go increasingly into debt (spending > income), or it must contract. Obviously, over the last decade it chose to go increasingly into debt, but this was not sustainable in the long-term, as is plain to all (I think?). Since the private sector is now repairing its balance sheet (net saving, i.e. spending < income), someone else must net spend or the economy will contract (total income will fall, since total spending is reduced). The foreign sector is not going to net spend. So that leaves the government. Net spending means that expenditure is greater than revenues, i.e. that the government balance is in deficit.

    The government deficit is therefore necessary if you want the private sector economy to stay out of a punishing debt deflation spiral (nominal income falls while nominal debts are fixed so that the real value of debt increases). Moreover, the government deficit is just the private sector surplus viewed from the government’s balance sheet, and in general is a positive thing for the macroeconomy—that’s why you can see the clear empirical relationship between government surpluses and serious recessions in the US (hey—a testable proposition!).

  17. Vimothy,

    Since the private sector is now repairing its balance sheet (net saving, i.e. spending < income), someone else must net spend or the economy will contract (total income will fall, since total spending is reduced).

    Why would this be true? All long-term economic growth comes from investments, which have a rate of return. The economies grows as long as the net rate of return of all spending is positive, keeping the velocity of money equal.

    Presumably one could declare by fiat that the velocity of money must increase every year, but this would not lead to real long term economic growth, obviously!

  18. tdaxp,

    Good question!

    Investment spending contributes to final sales (i.e. GDP), so to the extent that savings are recycled (actually it’s more complicated than the simple recycling suggested by the Wicksellian loanable funds doctrine, but I digress…) into (real!) investments, there is no net change to total income. A problem occurs if there are not enough profitable investments to satisfy the private sector’s desire to net save (so that S > I, i.e. S /= I) and hence there is an aggregate demand leakage. This is often described as the private sector’s desire to net acquire *financial* assets. Only the government sector can supply net financial assets to the non-government sector. Monetary policy tries to balance the two flows, so that as it lowers interest rates, it makes dissaving and investment more attractive (investment is cheaper and saving is more expensive), and therefore that the equilibrium condition S = I holds, there is no leakage and the economy does not contract.

    If actual investment exceeds planned investment, businesses have incorrectly forecast consumer demand (i.e. consumer saving is higher than expected) and will have overproduced—resulting in unsold inventory. Aggregate output is therefore greater than planned expenditure, and the economy is in disequilibrium. Firms with unsold inventories will lay off staff and reduce output. This will happen as long as planned saving is greater than planned investment (S > I) so that unsold output manifests as increased investment (unsold products held in inventories), specifically, as unplanned investment.

    Moreover, we can easily see why a recessionary environment will not likely be conducive to profitable investment. That is, if the economy is contracting, producers will not be likely to invest in capital goods, even if the interest rate is low (if in fact it is in real terms). A useful thought experiment might be to imagine what would happen if the private sector saved *all* of its income. Would investment spending rise to a sufficient degree to offset this? I suggest that it is extremely unlikely. Additionally, even if the return on saving is low, if the private sector is trying to pay down debt built up over the boom leg of the cycle, it will be difficult to goad it into spending more of its income.

  19. Vimothy,

    Thank you for your thoughtful reply.

    Again, I am hesitant to adopt the nomenclature of a closed set of definitions. One can discuss things for quite a while, and learn new sets of words, without any meaning being generated.

    I do not disagree that a Treasury Department deep into ‘regulatory capture’ can act in ways that transfer wealth to speculators, instead of economic investment.

    However, your wording of this passage:

    If actual investment exceeds planned investment, businesses have incorrectly forecast consumer demand (i.e. consumer saving is higher than expected) and will have overproduced—resulting in unsold inventory. Aggregate output is therefore greater than planned expenditure, and the economy is in disequilibrium.

    makes me think you view this as a bad thing, when of course it is a great thing. An expanded production possibilities curve and a destruction of the least able firms is an engine for further productivity gains.

    That is, if the economy is contracting, producers will not be likely to invest in capital goods, even if the interest rate is low (if in fact it is in real terms).

    This reminds me of one of Obama’s most puzzling decisions: for all his focus on a ‘stimulus’ in public good investments, it is instead spent on special interest pork. If one’s concern really was that there were no investments more profitable than keeping one’s wealth in cash, then the government could rationally begin building public goods. Instead, what spending there has been is simply doubling-down on infrastructure decisions that made sense 60 years ago.

  20. tdaxp,

    But you are already using them, for instance, when you talk about GDP or the national debt or capital/equity. Now, you can stay out there with the Cheshire cat in pomo Wonderland if you like. And if words mean whatever, then sure you can say whatever and still be “right” (i.e. not wrong). But that really is circular.

    Moreover, in the real world money is still somebody’s asset and somebody else’s liability. Sectoral balances must still sum to zero. Total income is still total expenditure. Even if you reject the definitions this remains the case. The national debt is still the stock of cumulative deficits, and the deficit is still the surplus of the (consolidated) private sector, i.e. the net financial assets supplied by the government. The national debt is private wealth. The government’s liabilities are, after netting, the assets of the non-government sector, by definition. Furthermore, the government is not selling the country to the Chinese. China is selling goods to the US, and the US is buying them with dollars. China uses its dollars to buy treasuries. The Fed then debits a reserve account and credits a treasury account. The Chinese swap one risk free asset (a reserve balance) for another risk free asset (a T-Bill), but one that earns interest income. Total number of government liabilities has not increased because of this. We’ve just swapped cash for an interest bearing note. And total number of non-governmental financial assets has not increased either. We’ve just swapped cash for an interest bearing note. That’s basically it.

    We can also see why this statement doesn’t make sense, if we have some knowledge of financial accounting:
    “By this logic, if the US government would borrow a billion from China, and shred it, there are now a billion extra assets for the American public?”
    If the US government borrowed a billion from China and shredded it, there wouldn’t be any increase in assets available to the American public. There would be a financial liability for the US government equal to billion, and an asset for the Chinese equal to the same. That’s just double entry bookkeeping. However, we’re not only confusing balance sheet entries, but the whole shebang. In order for the US government to borrow a billion dollars from the Chinese, the Chinese have to somehow acquire a billion dollars. They can only do this directly by selling goods to Americans, and then “lending” this money received in exchange to the US government. The liabilities of the government have not increased because of this “lending”. The cash received by China in exchange for goods is already part of the national debt. Total assets held by the non-government sector do not increase. All that happens is that the Fed debits China’s reserve account and credits its treasury account. The precise mix of assets has changed (the ratio of interest bearing versus non-interest bearing), but that is all.

    “ I do not disagree that a Treasury Department deep into ‘regulatory capture’ can act in ways that transfer wealth to speculators, instead of economic investment. However, your wording of this passage… makes me think you view this as a bad thing, when of course it is a great thing. An expanded production possibilities curve and a destruction of the least able firms is an engine for further productivity gains.”

    I find your wording here somewhat difficult to parse. I do think that the ability of the government to transfer wealth to speculators is a bad thing. Surely you do not disagree with this? This disequilibrium condition S > I does not increase the PPF for society. It implies ceteris paribus a contraction in total income (GDP). Creative destruction is probably a good thing on net, but outright destruction is not helpful. Referring to Kling’s story about the society of chefs, if the pattern of spending but not the gross amount changes, then there is no contraction, but resources do get reallocated across the economy, so that prices direct resources to the highest value usage. Thai food is in; Tasmanian is out. But if there is a reduction in the gross level of spending, there is not enough consumer demand to meet planned investment full stop. And we are no where near the PPF.

    I agree with your assessment of Obama’s poorly written stimulus policies, though. Not very impressive.

  21. Vimothy,

    But you are already using them, for instance, when you talk about GDP or the national debt or capital/equity

    This is a valid concern. The difference is that I am avoiding tautologies.

    Sectoral balances must still sum to zero.

    Thus your introduction of tautologies. As these things add nothing to the conversation, I will stay silent on them. Thus I will pass over the rest of your comment, until I get to the next non-tautological passage:

    I agree with your assessment of Obama’s poorly written stimulus policies, though. Not very impressive.

    It is good to agree! 🙂

  22. Accounting is tautology? Stock-flow consistency is tautology? Avoiding obviously illogical statements is tautology? I pity your algebra teacher! And I hope you enjoy Wonderland–but it is a prison-house, you know.

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