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January 10, 2012 / 74

A Response To An Economic Article in the UK Guardian

A response to an article  by Mark Weisbrot in the UK Guardian, 10 Jan, 2012

The economic illiteracy of economists

First I find Mr Blinders’ name to be entirely appropriate to his views. In terms of economic knowledge and understanding.

First… The government can borrow short term at negative real interest rates, and long-term at about zero. The world is paying us to hold their money. That is anything but a debt crisis.

In this he is correct, but unwittingly so. It is not a crisis – it’s a disaster building to destruction. Have you ever seen those credit card offers where they offer the borrower “zero percent interest for a YEAR?” I have. And as an accountant I know how they work. They suck the victim (borrower) into borrowing a lot of money because “it’s FREE”. Then at the end of the year they have a HUGE debt that they cannot pay, and the interest rates skyrocket to the moon and the fish is thoroughly hooked. So – the US is either mortgaging it’s future, or careening toward default and collapse.

Second – about the CBO. As a Brit you may not be aware of how the CBO functions. Someone who wants a projection gives the CBO a set of assumptions. The CBO TAKES those assumptions and calculates a result. The CBO DOES NOT evaluate those givens for their relation to reality. So just because the CBO numbers SAY things are peachy does NOT make it even likely. They’re just numbers that someone provided. Totally meaningless.

Third, is government spending the problem? No, he said, it’s healthcare costs, and mainly the rising price of healthcare

You are obviously a young person – who is unaware of WHY US health care costs are so high. I remember a time when a poor person without insurance could take their kids to a hospital and get minor surgery for them, then make $5 a month payments until the (no interest charged) bill was paid off. FYI my tonsillectomy at age 8 was paid for when I was 14. That can no longer be done.

The REASON healthcare became so expensive was that the government got involved!!! The fraud and price rises were DIRECTLY ATTRIBUTABLE to the fact that it was the government paying!!! Individuals actually never even knew how much was being charged. Since those early days, it has developed into a tug-of-war between providers and the government over cost. The government tries to fight fraud and abuse, the providers try to at least recover their actual costs.

The last time I checked, the government currently pays “50% of 80%” of charges – which means they only pay 40% of charges. (I believe this payment rate will be reduced under Obamacare.) Thus providers have to charge MORE to even break even on their costs. Add in the government’s law that the provider has to CHARGE EVERYONE the same rates and that insurance companies negotiate lower payment levels than are available to an uninsured payor – and you get ridiculous situations like a one mile ride in an ambulance that costs between $500 and $1,000. (Charges are the same – payment rates are NOT.)

So – the idea that we need government to pay for health costs because they are too high is a fallacy. And it’s a double fallacy because the impending “Obamacare” laws require that doctors actually PAY to work, because there is absolutely NO WAY a provider can even recoup losses at the proposed rates – and like in the UK, the wages and charges of health care providers becomes a political issue, not a simple matter of reasonable pay for reasonable work. Thinking that health care will improve under Obamacare is pure dreaming – as we will add 30 million new patients to a system already critically short of providers – the number of doctors is expected to decline by 30% or more over the next few years, and up to 2/3 of doctors are saying that they will leave the profession as they won’t be able to afford continuing as a doctor. Also, nurses are already in critically short supply – and the growing need for both doctors and nurses is outstripping training facility capabilities -0 with absolutely NO incentives like tuition reimbursement being offered by Obamacare for a person to go into the profession!)

Forth – the public is not up in arms about the deficits because the public has absolutely NO understanding of economics – having been kept deliberately ignorant through the public school system which, if it teaches economics at all it is the faux-economics of your countryman Mr Keynes.

As to the solvency of the US Social Security program – since you’re a Brit, you may be unaware that there is really no such thing as a “trust Fund” so the numbers put out by the US Government about the balance in it are complete fantasy. The Government, IIRC under Lyndon Johnson, combined the SS funds with the general treasury and has freely spent Social Security revenues as if they were general tax revenues. ie any payments to recipients MUST come from the general treasury, and since it is broke, payments are borrowed just like every other dime the US government spends. ie the US government has already SPENT the retirement funds – there IS NO SURPLUS to take beneficiaries into the future as the government keeps saying. (Have I mentioned lately that there is one thing that governments do better than anything else – which is LIE to the people as it suits the occasion?)

Finally I find your belief in Mr Keynes’ absurd ideas and in the power of fiat currency touching, but not helpful. You obviously slept through the economics lessons on fiat currency, what it is, and why historically – in EVERY case, it led directly to collapse of the economy and of the currency.

The future is clear to anyone who has actually studied economics (as opposed to receiving indoctrination into Keynesianism). The global use of fiat currency is leading directly and rapidly to a global depression – which we are in the beginning phases of as I write this. Globally much is being made of the US Dollar as Reserve Currency – but have you considered what happens when every nation is trying to inflate their debt away at the same time? Global hyper-inflation. And what happens when enough nations follow China/Japan/Brazil and STOP using it as a trade currency? (Brazil/China and China/Japan now conduct trade using their respective currencies instead of the US dollar.) That’s when the bills come due!!! Expect to hear these words in the near future, “No, sir. US Dollars are NOT acceptable as payment!”

Even the vaunted Swiss Franc has been dragged into the fiat currency mud. As former French Finance Minister and now head of the IMF Christine Lagarde said,

…no country is immune from the financial crisis.

and:

The world risks sliding into a 1930s-style slump unless countries settle their differences and work together to tackle Europe’s deepening debt crisis, the head of the International Monetary Fund has warned.

On a day that saw an escalation in the tit-for-tat trade battle between China and the United States and a deepening of the diplomatic rift between Britain and France, Christine Lagarde issued her strongest warning yet about the health of the global economy and said if the international community failed to co-operate the risk was of “retraction, rising protectionism, isolation”.

She added: “This is exactly the description of what happened in the ’30s and what followed is not something we are looking forward to.”

And still the elites of the financial world champion fiat currency because it is the source of their power over the people.

For those who may be looking for solutions to the crisis, may I refer them to my theory on causes of financial collapses and the cures for them?

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