I have learned that I am an optimist.

The amount of poorly informed, rigid, Luddite, Malthusian claptrap that is pouring out seemingly everywhere is astonishing. I’ll try to counter some of this stuff but I don’t think much of it is founded in reason. You can’t reason somebody out of what they weren’t reasoned into in the first place.

I am genuinely beginning to despair for my countrymen. We have divided into two feuding camps, each of which thinks the other is false and evil. Bellyfeel is the spirit of the times. Whatever advances the fortunes of your team is good; if it hinders the fortunes of your team it is ungood.

If you have the audacity to question that a team is fallible or in possession of complete truth, you must be on the other team. Facts, evidence, and logic are not countered with other facts, evidence, or logic but by outrage.

That isn’t healthy. Nobody, no group is in possession of the entire truth or incapable of making a mistake.

Your reading today, targeted at getting your blood boiling, is this piece from EconMatters surveying all of the money that the government (in various guises) has disbursed to backstop Wall Street and its status:

In light of the recent S&P downgrade of the U.S. sovereign credit rating, the nation suddenly looks more dire financially than before the downgrade ( (at least psychologically, as the country still has the ability to borrow at its pre-downgrade low interest rates.) So it would make tracking down Wall Street bailout money still outstanding a good start to reclaim some of the lost treasure.

However, more than two years after the bailout, there never seems to be a straight answer to these two questions: (1) Where has Uncle Sams’ bailout money gone? (2) Has the money been paid back yet?

The short answer is that nearly $5 trillion has been deployed to bail out Wall Street, we’re continuing to pour money down a rathole, and there are few prospects for it getting much of it back.

See the linked post for the longer answer.

In related news Long Island property values remain high and luxury retailers in New York can’t keep enough inventory in stock it’s flying off the shelves so fast.

The other day I stumbled across something that Frédéric Bastiat wrote that may reflect some light on the situation:

When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.

There’s a good post by Daniel Alpert that you may notice supports several themes I’ve discussed around here. This quote jumped out at me:

Debt deflation is debt deflation, wherever the debt resides. Growth suffers either way. Adding the excess supply and productive capacity of the 3.5 billion people in the emerging markets overwhelmed aggregate global demand even before the developed world over-leveraged itself.

that is whether in household debt (the U. S.), public debt (Europe), or corporations (Japan).

Here’s another snippet:

We have long been unable – despite valiant efforts to make our currency unattractive (ZIRP, QE, etc.) – to devalue the dollar in order to re-inflate the economy. Our trading partners simply won’t let us in an environment of excess supply – everyone can’t devalue at once – and the curse of being the world’s reserve currency is that the dollar is also the flight currency in times of weakness. Protectionist measures – once again being grasped at by otherwise well-intentioned but desperate minds – are more frightening to the market than almost any other solution.

In my view the real solution to our problem is to get China and India to open the floodgates of their own domestic demand. There’s lots of stuff that the Chinese and Indians want and the Chinese, in particular, have lots of foreign exchange gathering dust in musty old publicly-owned banks to spend. I think that the Powers That Be are afraid that China and India will pick up their marbles and go home. And do what, exactly? The Chinese and Indians have more at stake than we do in globalization.

Bottom line of the post: fasten your seat belts, we’re in for a bumpy ride.

As you’ve probably already heard the 11th Federal Circuit Court of Appeals has struck down the PPACA AKA “ObamaCare” as unconstitutional:

A three-judge panel of the federal appeals court based in Atlanta on Friday ruled the health-care overhaul law’s individual mandate is unconstitutional, in one of the largest legal challenges to the Obama administration’s signature achievement.

This is the second federal appellate court to rule on the law; the first decision, by a Cincinnati-based court, upheld the measure. It is also the most high profile ruling, responding to a challenge to the law brought by 26 states. The law’s constitutionality is likely to be ultimately decided by the U.S. Supreme Court.

Is the “individual mandate” constitutional? I suppose it depends on what you mean by “constitutional”. If you mean is it in the Constitution and consistent with it, I think the answer is almost undoubtedly “No”. I don’t believe the welfare clause of the preamble means what the proponents of that as a mandate for pretty much anything the Congress wants to do think it does. I think it’s referring to “the general welfare”, i.e. public goods not private goods.

If, on the other hand, by “constitutional” you mean will it survive review by the Supreme Court of the U. S., I think the answer is most likely “Yes”. I think the Supreme Court as presently constituted will most likely uphold the individual mandate and the entire PPACA.

I’m beginning to hear people claim that even if the individual mandate is struck down it will only clear the path to a single payer system. I find this line of thinking incomprehensible. The PPACA was enacted into law solely with Democratic votes and in the House there were 34 defections who voted against. Would a single payer system have passed the Congress? I think that if it would have the Congressional leadership would have done so. Consequently, no single payer no matter who’s holding the reins in the House.

Mish makes a pretty good case that the U. S. went through a period of deflation that ended in 2009 and that it has returned now:

From a practical standpoint of economic analysis of the economy, debt-deflation (deflation) and consumer deleveraging is of paramount importance and is likely to remain of paramount importance for some time, no matter what definition one assigns to the process.

Austrian economists, as well as hyperinflationists with myopic eyes focused solely on money supply instead of debt, and everyone with ill-conceived notions of the power of the Fed, better figure that out in a hurry or they risk more horribly blown macro calls.

Read the whole thing.

I largely agree with him and, indeed, find it a bit hard to see on what grounds one might disagree. I’m still concerned about hyperinflation but my concerns are policy concerns, not money supply ones. I don’t believe that the historical shows a progression from inflation to hyperinflation but, rather, hyperinflation is sui generis.

I’m still puzzling over the graph in this post showing the massive increase in debt in all sectors that began during the 1990s. Why the sudden bump in public debt? I thought that we balanced the budget during the Clinton Administration.

I’m open to suggestions. The only explanation I can come up with is that we were at very nearly full employment at that time which means that we were taking in a lot of FICA revenue. By law whatever Social Security revenue is not disbursed in the form of Social Security benefits is put into Treasuries. That of itself would increase the debt even if the budget were at or near balance. I guess I’d need to go back into old Social Security Trustees’ reports to quantify that but it’s a start at an explanation. Any others?

Update

Aha! I misread the captions on the graph. My eyes aren’t what they used to be and the graph is a little fuzzy. The bump is in the 80s and it makes sense: the buildup of the military during the Reagan Administration coupled with the rewrite of the tax code. Not to mention Social Security running in the red for a bit until they revamped FICA.

Bill Gross, CEO of bond giant PIMCO, is jumping onto the pro-growth dogpile:

Revenue increases may be part of the solution, but even then, at some imbalanced ratio of spending cuts — such as three or four dollars of spending cuts to one dollar of tax hikes — the thesis assumes that markets and economic growth require what in essence is a fiscally contractionary step, reminiscent of International Monetary Fund policies in emerging markets during past decades. We must, the consensus goes, become like Argentina, Brazil and Mexico from the 1980s: Tighten the budget via spending cuts, reduce the deficit and voilá — economic growth will blossom.

But while our debt crisis is real and promises to grow to Frankenstein proportions in future years, debt is not the disease — it is a symptom. Lack of aggregate demand or, to put it simply, insufficient consumption and investment is the disease. Debt has been simply an abused sovereign and private market antidote to sustain it. We and our global market competitors are and have been experiencing a lack of aggregate demand for several decades.

He points to demographics, globalization, and technological innovation as the basis of the inadequate consumption and investment.

If that’s true, how would fiscal stimulus to boost aggregate demand remediate any of those causes? I don’t think it would. It might give a temporary fix to the economy but the brief high would not be self-sustaining. And that, coincidentally, is what we’ve seen.

I agree with his assessment of the drivers but I would phrase them a bit differently. We are spending too much on healthcare which, under our system, goes primarily to the healthcare of the aged. China is not consuming enough. If, rather than hoarding dollars, it were spending them it would go a long way to resolving our trade imbalance with China and would generally boost global economic activity. And high income earners have been successful in shielding themselves from replacement by machines.

I’m still perserverating on Joseph Stiglitz’s remarks about “high-return investments”. Does anyone really oppose making high-return investments? I would assume that businesses don’t need other incentives to jump all over them. The investments that require government intervention are those with low returns, very long payoff times, or too speculative.

Even saying that we need to put stimulus spending into high-return investments assumes that we are, effectively, leaving money on the table. Is that really the case? Quite to the contrary I think that problem is more that we have already picked the low-hanging fruit, there are no easy, short-term high-quality investments to be made, and what we are left with have returns that are too low for the bucks we’d invest, take an unacceptably long time to materialize, or are just too oblique.

Furthermore, I’m not convinced that going after such projects would resolve the near term problems we face. Let me give some examples.

Outer space exploration can almost unquestionably yield a high return on investment. Not only is there a lot of knowledge to be gained but there’s a lot of stuff out there. Stuff we want. Room to put stuff we don’t want, well out of the way where it’s not in anybody’s backyard.

Closer to home putting a little more investment into the education and care of a kid who without it would be a lifelong ward of the state sounds like a pretty high-return investment to me. I’m not talking here about average kids who just aren’t interested but about kids with special needs who with the right care and education can be self-sufficient or nearly so. Another example: pre-natal nutrition and care. Incentives for mothers to stay off drugs and alcohol. That kind of stuff can pay off for sixty or seventy years worth of enhanced productive activity. It won’t put a lot of unemployed people to work, though.

I’m beginning to wonder about Nobel Prize winners. And Finanical Times op-ed writers. These observations are almost too vapid for words.