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The Austerity Howlers Strike Again—More Rubbish From Bloomberg

This is a syndicated repost published with the permission of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

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Bloomberg’s terminal business takes in approximately $7 billion annually—-of which upwards of $5 billion is variable profit. For whatever reason, the organization chooses to waste large amounts of that on Bloomberg News, Bloomberg Television, Bloomberg View, Bloomberg BusinessWeek and a variety similar dubious news and media operations.

But thank heavens for Bloomberg’s perpetual wastathon. It provides employment and a forum for an army of the stupidest and laziest journalists in the financial world. On any given day you can count on them to reduce the Washington/Wall Street policy line to its most specious, primitive and refutable formulation.

So it is today that one Peter Gosselin explains that the struggling U.S. recovery was all due to a spree of misguided “austerity”:

The U.S. is paying a big price in growth, jobs and wages by practicing the kind of fiscal austerity that it criticizes European nations for pursuing.

If you think Gosselin is writing for the Onion you would be wrong. He means this with a straight face:

 federal, state and local governments were cutting taxes, increasing spending and expanding hiring as they did during all but one recovery since World War II, the economy would be growing 3 percent a year rather than slightly over 2 percent, the average of the past six years, according to a Bloomberg analysis of data.

Let’s see. Before we get to the issue of fiscal stimulus efficacy and long-run costs, it might be worth refuting the startling notion that since the financial crisis we have not had enough stimulus to shake a stick at.

In fact, on the eve of the Great Recession the public debt was $9.2 trillion and since then it has doubled to $18.3 trillion.  That’s right. During the last 89 months of recession fighting, Uncle Sam has incurred more debt than had every Congress since George Washington’s inaugural, and that encompasses every war and every recession during the course of 219 years!

Yes, a dollar is not worth what it used to be, and those are nominal debt dollars that have been doubled during this period of alleged fiscal “austerity”. Yet put it relative to GDP and you get the same picture. The public debt grew by 40 percentage points of GDP during the most recent cycle—–far more than during any previous episode.

Gosselin sites the 1961-1969 expansion in particular as an exemplar of how it used to be done in earlier purportedly more enlightened times. Well, that’s not even remotely the case. The Federal budget was close to balance during most of those years and for the nine year period as a whole, the deficit averaged just 0.9% of GDP. That compares to 7.1% during the current cycle.

As it turns out, Gosselin is not even measuring fiscal stimulus correctly—-just throwing some multi-colored Bloomberg charts against the wall. The chart below from this morning’s Bloomberg post actually reflects the government consumption and investment component of GDP. The latter, however, excludes the overwhelming bulk of government spending—which goes to transfer payments—-and has nothing to do with deficit stimulus, anyway. It most certainly is not a measure of real gains in societal wealth and welfare.

GRAPHIC: Government Spending Previously Added Growth

It is quite literally the case that if the US government had a $3 trillion program to put people to work digging holes with tablespoons and filling them back up with teaspoons, it would compute out as a 17% gain in GDP compared to current levels.

So by the lights of the geniuses at Bloomberg, its all real simple. Washington just needs to hit the “spoon ready” button.

Furthermore, Bloomberg might have looked into what it wished for. Nearly half of the contribution by the government sector to GDP growth during the 1961-1969 period highlighted in its graph was due to defense spending. Do you recall a disaster during that period called Vietnam?

Apparently Gosselin doesn’t. All Obama would need to do is put 500,000 American boots on the ground in the killing fields of the middle east and the negative 0.23% contribution shown in red for the 2009 to present bar would disappear in a heart-beat.

In a similar manner, the Bloomberg “study” summarized below purports to show that the current tepid jobs recovery is due to lack of growth in the government payroll. Right, we should add several million people to the payroll of the IRS, the EPA, the Census Bureau, the TSA, the National Endowment for Arts and the US Army and we would have a rip-roaring gain in our national standard of living.

GRAPHIC: No Boost From Government Hiring

Self-evidently, government payrolls do not add to national wealth; apart from rare exceptions, they consume it. Even then, however, the story doesn’t hold up even in a Keynesian framework. That’s because the above chart takes no account of the historic trend or the arbitrary manner by which government payrolls are counted.

To wit, if you are getting treated in a VA hospital your doctor and nurses are government employees. If you are getting the same care via the $1 trillion being spent this year on Medicare and Medicaid, they are not. And newsflash to Bloomberg: Both kinds of spending dollars end up via different computational routes in the GDP accounts, even if neither really adds to national production and wealth.

So the Bloomberg job contribution chart is pointless drivel. During the 1960s government payrolls soared because the baby boom was going to public sector schools. Now the baby boom generation is beginning to pull big time fiscal stimulus into the U.S, economy via health care and transfer payment spending, but virtually none of the $2.6 trillion government tab for social transfer shows up in the government payroll data.

In fact, the Keynesian smoke blowers at Bloomberg have it exactly upside down, as dramatized in the two charts below. The first shows that government payrolls nearly tripled between 1960 and 2007, but that explosion of government employment had little to do with the seven business cycles during the period. It was overwhelmingly caused by demographics, and the year-in and year-out expansion of Big Government.

Even if the flattering out since 2007 is a statistical illusion—- because most of the massive fiscal stimulus since then has been contracted out to private sector vendors—–what’s wrong with finally halting the expansion of wealth consuming public jobs? Bloomberg is suffering from an advanced case of Keynesian paint-by-the-numbers stupidity.

On the other hand, social transfer spending has soared. During the alleged period of fiscal austerity since 2007, government transfer payments have increased by $850 billion or 50%.

Now that’s what you call stimulus! On the margin, nearly every dollar of that huge increase in consumption unsupported by production was borrowed first, and then eventually monetized by the Fed. Indeed, the $3.5 trillion gain in the Fed’s balance sheet since August 2008 is the real measure of the policy stimulus that has actually occurred.

At the end of the day, this pitifully stupid Bloomberg “study” amounts to saying that huge deficits can never be reduced or it will amount to the sin of “austerity”. And, further, that when you monetize trillions of government stimulus with central bank credits conjured from thin air, it doesn’t even count as “stimulus”.

It doesn’t take too much thought to demonstrate that the Keynesian model is rubbish. Nor is it a mystery as to how Bloomberg achieves $5 billion in profits from its ubiquitous terminals. Approximately 95 percent of the traders and financial gamblers who inhabit the world’s casinos today owe their lucrative craft to the drastic financialization fostered by the central bank. In an honest free market based on sound money they would actually be producing something—-perhaps in a coal mine or tile factory.

At the end of the day, the mighty Bloomberg empire is an accident the money printers built. Still, thank heavens for Bloomberg News. It has so much money to waste that it has actually gone into biting the hand that feeds it.

Attached is its latest rubbish it has assembled toward that very end.


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