While mainstream academic economists have thrown out one spending scheme after another in the name of promoting economic recovery, let us not forget those economists who work for other organizations, and who are supposed to understand how the economy functions. Today, I give you Michael T. Darda, the chief economist and director of research for MKM Partners, who declares in the Wall Street Journal that “Big Spending and Easy Money Will Produce a Recovery.”
This is an article filled with howlers worthy of Paul Krugman. Because I want readers to look at the whole thing, I give only a few snippets of “wisdom” from this guy:
Here we should look to three historical examples where aggressive monetary expansion was wedded to an aggressive fiscal policy: the U.S. during the mid-1930s, Germany through the 1930s, and Japan in the early 2000s. In each case there was a recovery, although policy errors led to significant setbacks. These episodes can help assess U.S. growth prospects, and the risks to a sustainable recovery.
What were those “policy errors”? We begin:
In sum, history suggests that a highly aggressive monetary policy married to a fiscal expansion will lead to recovery. The Treasury yield curve is steep and money supply growth has been rapid, a dynamic usually associated with an eventual pickup in economic growth.
However, an inflation-led boom is not a policy error, according to Darda. No, the “error” occurs when the government tries to do something about inflation. It also is clear that Darda has no idea what is the difference between a “real” economy that actually produces goods that consumers may want versus a “phony” economy in which people produce things that the state wants:
The German economy expanded rapidly in the 1930s, as large increases in government spending on public works, construction and rearmament were funded by deficits and easy money. The money stock grew at an average annual rate of 10% while government expenditures galloped by 30.7% a year. Real GDP expanded by about 10% per year. Unemployment disappeared. For a time the “German economic miracle” concealed Hitler’s homicidal intentions. Still, Germany suffered from stagnant wages and low productivity. Business profits and investment did well, but consumer-goods industries languished as wages were restrained by the state.
It is obvious that while he seems to be troubled by the fact that Germans were employed making war goods, nonetheless he is bound by the GDP measurements that declare: Germany’s GDP was up; therefore, the economy was in “recovery,” when, in truth, this was a ghastly example of a “recovery.”
So, we see that a “star” of the “professional” economists also subscribes to the nonsense of “Aggregate Supply — Aggregate Demand” fallacies that are so harmful to the economy. Maybe MKM Partners needs to hire Robert Murphy, who in my view is a real economist. He also could explain some things that apparently Darda is incapable of doing.
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Mike and I once had many great discussions and his insights helped me re-educate myself away from the Keynesian economics I was taught in graduate school. The past few years I have been simply overwhelmed by how far he has gone embracing Keynesian and monetarist theory. I wonder if I ever really knew him. I am sad.
maybe the government has mind control drugs, or trains clones to replace their influential real-life counterparts. i’m sorry, but i have to resort to conspiracy theories to explain such madness.
judging by this guy’s standard, ALL policy responses will produce a recovery. Every policy that has been tried has eventually resulted in a recovery, right? Stupid empirical analysis – “history suggests we should either start a global conflict, or drastically cut the budget”. The only course to avoid I guess would be policies never before tested, simply because we aren’t sure these will produce a recovery, unlike every other policy.
I’ve followed Mike since he left Jude Wanniski’s firm to jointly found his own. Prior to the financial crisis he was solidly against government intervention, warned against too easy Fed policy, and advocated lower taxes. Starting in 2008, he changed his tune. Every time I’ve heard him, he’s endorsed the Fed’s monetary policies and other government interventions. He may be feeling pressure from his clients. In any case, it’s sad to see.
The guy called the bottom. I admire that he doesn’t subscribe to either Keynesian or Supply Side dogma. He uses his own indicators and has been spot on.
Hate the game not the player.
True. He also called the bounce and now the recovery. We grabbed a nice 20% on his call. Hope he keeps barking the good news.
So I assume if we have a recovery as designated by the NBER and solid growth as measured by GDP in 2010, all of you detractors will eat your words? Of course you won’t, because you seem to be measuring things through the distorted lens of a political agenda.
Plus he is good to look at…his gf is a lucky woman
Bauer / Hedge,
I just want to confirm, is Mike taking the position that the bottom of this recession is behind us and that this current rally is a recovery and not a bear market bounce?
Robert Davis is so hot. Some of his calls on Gold and Copper were balsy. I always watch him on Fox News.
If you think Robert Davis is hot, you should see Hailey on the slopes….
Thanks for calling me Hedge. I don’t know him from Dick or Pete. But I think he called the bottom and he always mentions gold.
Does he have a website? I’d love to see a record of his calls.
I have to give a PLUG for Joseph Alois Schumpeter.
You guys need to read him and DRILL DRILL his points into your head. (just make sure you drill evenly in the front)
I like how Darda notes that government spending on rearmament concealed Hitler’s homicidal intentions.
Maybe one day he’ll win the Luciferian Award — I mean, the Nobel Prize.
These guys are clueless. I just put up a post on two dumbass ideas from academic economists, from Harvard and UCLA no less:
http://www.topgunfp.com/dumbass-ideas-from-economists/
Agree with Greg and nice website. Academic economists got us into this mess. Thats why Dardas points are helpful. He is respected both sides of the aisle and doesn’t have a political axe to grind.
Hailey Hedge
I continue to be UP!!!
So glad to have read the bottom and not paid attention to the pointy hats who lecture from a classroom.
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