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Source link: http://archive.mises.org/10230/because-the-government-can-work-magic/

Because the government can work magic

July 5, 2009 by

NPR reports that: “Now, as the year’s second half begins, most economists are saying the worst of the recession is over, and that slow growth will begin in the fall.”

I was going to insert a sarcastic comment about how these mainstream economists all predicted the bust, right? Or maybe a comment about how NPR works full time for the Obama administration. But it’s all too obvious at this point.

Anyway, short-term optimism needs to deal with this reality:

{ 20 comments }

Carrie B July 5, 2009 at 10:49 pm

The “economists” – if you can call them that – are nothing more than salesmen for the administration. Their goal is to seduce investors into putting what’s left of their money back into the market so they can lose the rest of it and be reduced to the proletariats the administration wishes us to be. When we’re *all* living paycheck to paycheck, we’ll be much easier to control. Especially since the sheeple will be clamoring for the gov’t to bail us out. Even Gerard Celente is predicting “Obamageddon”, but the average person will refuse to prepare and will follow the MSM and these “economists” blindly.

Stranger July 5, 2009 at 10:49 pm

It’s interesting how in the last two recessions there is a considerable lag time between the fall in investment and the official acknowledgment of a recession.

2nd Amendment July 6, 2009 at 12:05 am

If we apply aerodynamics to economics, we can see why the recession was due.

If an airplane rapidly gains altitude in a parabolic climb, it is bound to loose lift and rapidly fall down.

The climb must be steady and gentile in order to maintain lift and control.

It really looks like a physics graph and from the looks of this graph, we’re on our way back to the 1980 levels.

William Ortel July 6, 2009 at 12:41 am

@stranger, @secondamendment.

Don’t we have to look at this in a logarithmic way as well to arrive at some approximation of a likely reality? Our economy has grown orders of magnitude and while i’m no bull I doubt we’re headed directly back to 1980 levels without at least a coupla wars.

End the Fed July 6, 2009 at 2:36 am

without at least a couple of wars? you already got em. But yeah, it’s already at 1980 levels, if you factor in all the counterfeit money printed by the Non-Federal Non-Reserve.

2nd Amendment July 6, 2009 at 5:02 am

William Ortel,

“I doubt we’re headed directly back to 1980 levels without at least a coupla wars. ”

Yes, we will reach back 1980 levels and we will get quite some “coupla” wars.

Iran, China, North Korea, Russia, Venezuela, Israeli-Palestinian, Pakistan-India.

Get ready.

J Cortez July 6, 2009 at 8:54 am

What is interesting to me is how the downturns are not proportional to previous ones, that they are larger and larger every time.

Also interesting is that the increases in investment also coincide with when the Fed was known to have increased the money supply.

Brad July 6, 2009 at 8:57 am

It was nice how after a few comments it turned to talk of war.

When I read the title to the article the first thing that came to my mind about “magic” the government can perform I thought “the only magic about the State is that it has monopoly power on Force”. So many people expect the government to perform miracles and all it can do is gun-butt people in the head. For every rabbit it pulls out of the hat to the delight of a few is a crack over the skull somewhere else.

wilde July 6, 2009 at 9:46 am

“It was nice how after a few comments it turned to talk of war.”

not nice, but definitely accurate… it’s their trump card, what they always resort to when they run out of things to steal in one country… when they need to “reduce” unemployment and crush dissent.

Yancey Ward July 6, 2009 at 10:50 am

This is definitely a graph that should be logarithmic.

Mike D. July 6, 2009 at 11:23 am
Mike D. July 6, 2009 at 11:27 am
Eric Williams July 6, 2009 at 12:51 pm

Has anybody attempted to adjust this plot for inflation?

Zach Bush July 6, 2009 at 1:11 pm

Correct me if I’m wrong, but doesn’t this indicate that we are indeed in a depression that started in 2000 (that’s even without adjusting for monetary inflation)?

I think the shaded area should be expanded.

Eric Williams July 6, 2009 at 1:40 pm

Pardon my ignorance as one who is very far from having expertise in economics, but doesn’t Austrian Theory say that real money supply must be at least approximately known in order to correctly interpret data like these? Couldn’t GPDI be deceptively high in a period of high monetary inflation?

Steven Smith July 6, 2009 at 2:32 pm

That government, at least at the level where central banking, graduate taxation, deficit finance & national bureaucratic regulation are involved, can do magic is literally if tacitly-implicitly what many of the people I know believe. They are too smart & logical to think this magic can be done for every one but excuse the harm befalling any one as merited due to greed, flintiness toward employes, obtuseness, wilful unadaptivity, re-action, unwillingness to “share” or other subjectively designated sins. Such people avidly embrace the idea of government performed economic magic to warrant & justify their resolute envy.

Final Moments July 7, 2009 at 9:20 am

From looking at this graph, it is safe to assume that this recession will go much deeper and last much longer but that there will be one final economic growth that will look like a miracle.

It will then be time to increase prosperity and get out of the dollar in the next wave of growth. And buy food and arms.

Because after the final growth will come the final collapse.

I think we’re set for a final miraculous growth and a final apocalyptic collapse right after.

Next growth will start in about a decade and will last about a decade, then even God won’t be able to save us.

Lee July 7, 2009 at 4:42 pm

Brad:
“So many people expect the government to perform miracles and all it can do is gun-butt people in the head. For every rabbit it pulls out of the hat to the delight of a few is a crack over the skull somewhere else.”

Lol, well put. I chuckled a bit when I read that, but it really shouldn’t be funny.

Bennet Cecil July 7, 2009 at 8:39 pm

This is going to be a deep and probably long contraction. The government seizure of the private economy and the coming tax explosion are killing business investment. Stagflation is the ultimate destination. Americans will wake up in 5 years and notice that everything costs 50% more than it does now.

Vincent Cook July 8, 2009 at 2:07 pm

Eric Williams asked:

“. . . doesn’t Austrian Theory say that real money supply must be at least approximately known in order to correctly interpret data like these? Couldn’t GPDI be deceptively high in a period of high monetary inflation?”

The Austrian theory of the business cycle says that during a boom, increases in the total money stock enter the economy via the expansion of bank credit, causing investment spending (a portion of which is counted as the GPDI) to increase at a faster rate than consumer spending. During a bust, it isn’t necessarily the case that the money stock will fall (since the central bank usually tries to keep expanding the money stock), but the market does react to the previous distortion of the capital structure by curtailing investment spending (and thus GPDI) relative to consumer spending.

In other words, the prediction is that GPDI is the most volatile component of GDP over the course of business cycles, and that it tends to be a leading indicator of GDP changes. This is true of both the nominal and the real GPDI/GDP statistics, since the theory is referring to relative and not absolute changes in various types of spending. Ideally, one ought to illustrate the Austrian business cycle with the ratio of investment to consumer spending and not just a graph of investment spending, but the relative volatility of consumer spending is low enough that it really doesn’t make a lot of difference. A dramatic crash in investment spending should get the point across, since consumer spending is not declining at anywhere near that magnitude.

It may be helpful to go to the St. Louis Fed website and look at the GPDI data in a year-on-year percent change format. You’ll see that the GPDI changes are far more pronounced than any money stock changes (however you measure that) or consumer spending changes, and that the current GPDI percentage decline rivals the largest decline in the dataset, namely the the downturn of the late 1940′s.

Another noteworthy feature you can see in the year-on-year version of the graph is that the overall amplitude and frequency of GPDI cycles noticeably declined after the mid-1980′s, only to have the current dramatic decline after many years of relatively mild fluctuations in GPDI. This suggests that the current decline is something more than just an ordinary market reaction to the immediately preceding inflation. Whatever your views are about the existing forms of government intervention in credit markets and about the newly-adopted or proposed policies of the Bush/Obama regimes, it is undeniable that private investment is still crashing. Whatever the government is doing, it isn’t working.

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