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Monday, December 13, 2010

This May Interest You

December 12, 2010

Senator Jeff Merkley
107 Russell Senate Office Building
Washington DC 20510

Dear Senator Merkley

I listened to your interview on NPR last Saturday with great joy! I had given up thinking anyone in Washington had any common sense whatsoever. So your ideas and remarks were absolutely fascinating!

However, it seems to me that you need an “economic structure” to organize your ideas. That economic structure exists, and I hope you will find it useful.

Business Cycles have been observed in EVERY developed economy for at least 500 years. Further, they have the same characteristics every time.

When I heard economists and politicians in Washington babbling about ending the “Bubble” two years ago, I wrote The Great Recession Conspiracy to explain why ending the Bubble was ignorant nonsense. The book is available online at, Kindle books, Google books, etc. If you send me an email address, I will send you a copy gratis.

Here is the thing to understand about Business Cycles. Every economy is ALWAYS in one condition or the other, e.g., the economy is either expanding or contracting. Further, the Business Cycle is driven by psychology, not FINANCE. The Business Cycle is enabled by credit. There is NOTHING any government has been able to do to stop the Business Cycle. However, there are a lot of things that government policy can do to mitigate the pain of contractions and to aid the benefits of expansions.

Absolutely none of those things are being done by the government today, and that is a great tragedy!! And a frightening prospect for the future of the United States of America.

Here is what you will find in this short (100 pages) book. Section One explains Business Cycles in plain English and describes how they function, what is known about them, and importantly, what is not known. Section Two explains what appropriate government policies should look like and why that is so. Section Four explains what should be done to “solve” the problem with Social Security and Healthcare. They are simple, bullet proof solutions that will make both “problems” go away forever.

Now, let’s backtrack a little. I am not an economist, but I do know a helluva lot about economics and how the U.S. economy actually works. My resume is included with this letter.

Current economic theory is basically mathematical nonsense and I will explain why shortly. Further, current economic theory is a terrible basis for establishing government policy. One example; Larry Summers is convinced that if you are currently unemployed, it is because you are lazy. On the other hand, Joseph Stieglitz is convinced that if you are unemployed it is because you are incompetent. Basing government policy on either of these pieces of nonsense can only make things worse. The vast majority of unemployed Americans today are unemployed because the organizations they worked for no longer have sufficient income to pay their wages.

The only decent way to describe government policies that claim to generate income for businesses by offering some sort of tax break for hiring someone is stupid and uninformed. I have been a manager in a very large company (Hunt-Wesson, Foods, Inc.) and a very small company (Gilbert H. Brockmeyer’s Natural Ice Cream Company). I can assure you that neither company EVER hired a new employee to take advantage of a tax break. We hired new people when our order books were so full we needed help to handle all the business. Period. End of Story. But no one in Washington seems to understand that simple fact. But every business manager knows that fact.

Or another example, government policy is now going to give business a tax break for investing in new equipment. This is another compete failure to understand how business and the economy actually work. Big companies are now sitting on the largest pile of cash in history and those companies do not need a tax break to decide to invest in new equipment. On the other hand, small businesses are not going to spend their precious cash reserves on new equipment when their order books are only partially full, nor are they going to the bank to take on a new loan that requires more interest payments.

I could go on with other examples, but The Great Recession Conspiracy explains what would be appropriate government policy, and why the reality of the Business Cycle demands such policies.

O.K. here is a short explanation I promised you earlier about why virtually all current economic theory in the U.S. at least, is foolish crap. In the 1700’s, Adam Smith wrote down some observations about how economies work, and can work better. David Ricardo later added some elegant insights into the advantages of comparative advantage. Even John Maynard Keynes simply wrote down his observations about how economies work in the 20th Century and suggested what appropriate government polices might be.

But after WW II, American economists turned to mathematics to explain their ideas about how the economy works. It goes something like this. One economist gets an idea about how some part of the economy works and he/she writes it down in arcane English, and then immediately begins to develop a mathematical formula to express that insight. Then another economist gets a different idea about what he/she has seen in the economy, formulates the observation in English and then in mathematical formulas. The ensuing competing theories fuel endless economic journals and conferences.

The problem here is that both economists MIGHT be right, but neither can specify under what conditions their observations are appropriate.
This is exactly what led Harry Truman to make his classic comment about a one handed economist.

But the real problem is that the Business Cycle is driven by human psychology and that notion has been extraordinarily resistant to mathematical modeling. And NOBODY in economics wants to deal with that fact. The “behavioral” economists, some of whom are in favor today, are equally foolish. But that is a story for another day.

And finally, to the best of my knowledge, there is not a single working economist in the U.S. today who has the slightest understanding of Business Cycles and what they mean for government policy. A sad, but true, condition.

Feel free to check any, and all, of the facts in The Great Recession Conspiracy. Just don’t assign the job to an economist, especially to one who doesn’t yet have tenure in some economics department.

So, my point here is to give you some actual, factual, basis for structuring and explaining your ideas. And maybe, winning some converts to common sense.

Any questions?

Very truly yours

P.S. If you want to understand how a life long Republican became a total Obama convert, and finally became a disillusioned former supporter, read http.// from the beginning to today. It is a depressing story.

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