Saturday, January 24, 2015

My Economic rant for the day.........

Pragmatism is indeed an American tradition/philosophy and many a president has deferred to such a policy in their tenure. FDR was no exception. However when one digs past the ‘myth’ that encapsulates the 32nd president it is evident that there are many fault lines that run through his presidency. I won’t get into his abuse of democracy in loading the Supreme Court with judges favourable to his political stance, or his anaemic response to the Holocaust, nor will I address the way he was consistently manipulated by Stalin in a series of dealings that set the stage for the Cold War. He did however have the foresight to realize that the US was the ‘Arsenal of Democracy’ and endeavoured despite much local opposition (many of whom argued along pragmatic lines) in assisting the UK and later the USSR (via the Atlantic Charter, Cash and Carry, Lend Lease etc) in their war efforts. This in spite of a popular (and arguably utilitarian) belief that such intervention was not necessarily in the best interests of the nation.

However there is much debate surrounding the efficacy of the New Deal, an initiative driven by an early form of Keynesian deficit spending, in turning around the economy. To begin with many people believe erroneously that FDR’s predecessor Herbert Hoover was a do-nothing President who steadfastly argued that the economy would turn around on its own. This is not the case. Hoover intervened significantly – he raised the top tax bracket from 25% to 63% (an increase that Obama can only dream about) and upped corporate tax. Like FDR (with the TVA program) Hoover championed big construction projects (most noteworthy the Dam that bears his name today). He greatly increased federal building programs and through his support of the Federal Farm Board provided the foundation for the Agricultural Adjustment Act (a cornerstone of the New Deal). These attempts at fiscal activism did not help, neither did the protectionist Smoot-Tawley Tariff that was designed to safeguard local US industry.

Hoover was an interventionist at heart and the record shows clearly that he clashed with Treasury Secretary Andrew Mellon, who favoured a hands-off-approach during the ten years in which he held this post.
What Roosevelt did was extend the policies of Hoover in an attempt to increase consumption. The economy did improve (but then the base was so low to begin with) but unemployment rates continued in the double digits until 1942 when the war effort was in full swing. US GDP rates finally matched their 1929 levels but this did not occur until 1937 and then subsequently dipped again when the US went into a secondary recession (at the time when the New Deal was in full swing). Also private consumption remained low (Wasn’t this the point of the New Deal?).

In researching FDR’s economic initiatives it appears as though many of the policies were cosmetic and made more sense politically than economically. The nation had to be assured that government was working for them and that’s what Roosevelt did. However the Depression dragged on for a considerable amount of time and the New Deal (following on from Hoover’s proto-‘New Deal’) seems to have delayed the natural recovery that is evident with all economic cycles (and that Obama and co. disingenuously take credit for in today’s context)

In the early 1920s, 1960s and 1980s significant economic downturns were cut short by tax reduction policy (+ managed spending). This however was not the policy followed by either Messrs Hoover or Roosevelt.

Political situation in Yemen

The Houthi Shi'ites are fighting against their Sunni adversaries but there is one thing they both agree on...each side hates the US and Israel. Like Syria there is no faction worth supporting here. File this under Jack the Ripper meets Ted Bundy.

On the Federal US Debt - Some Comments

Indeed I am a critic of Obama (no surprise there) but I am not a fan of George Bush either. The Iraq war was a bad idea (strategically as well as economically) and did play a huge role in pumping up the debt (lets not forget though that this was a war supported by many Democrats as well so no party is clean on this front – 58% of Democrat Senators voted for the war including Joe Biden himself).

Tax Cuts work to generate revenue if they are coupled with a decrease in spending (Bush did not do this). Lets look at some evidence – In the 1920s tax rates were slashed from over 70% to less than 25%. Revenues actually rose from $700 million + change to just over $1100 million – an increase of 60% or so. Kennedy did something similar in the 60’s reducing the top rate from 90% to 70% - revenues climbed by 62% (33% if you adjust for inflation).

By the 1970s many taxpayers had been pushed into higher tax brackets (by bracket creep). Enter the Reagan tax cuts of the early 80s that saw tax revenue increase by a whopping 99%. Now I no what you are thinking…Wasn’t Reagan responsible for the bulging deficit to begin with? To some extent…yes…but remember that Reagan did not follow the cardinal rule of reducing spending at the same time as dropping tax rates. The same was true of Bush Jr. almost twenty years later. However the world of the 80s was a different place and Reagan had the menace of the Cold War to deal with. A topic for another time.

So where does this leave Obama? – Well he obviously had faith in the tax cuts, in fact he signed a bill to extend them by two years in 2010. Where Obama went wrong though was just like the Republicans he increased spending, largely through his stimulus package and other initiatives – remember he also had a war to fight in Afghanistan (and later Libya) – and so the debt went up.

In summary there is strong evidence that tax cuts increase tax revenue but it has to be coupled with substantial decrease in spending to offset deficit risk. Both Bush and Obama kept tax rates low (to their credit) but both presided over notable increases in government spending that nullified these gains and have driven up the spiralling debt.

In terms of absolute numbers the debt has increased more under Obama than Bush but both have failed to demonstrate the necessary fiscal acumen that the holder of the Oval Office justifiably owes future generations.

Sunday, January 18, 2015

Genocide in Africa

Why is it that genocide in African countries is so overlooked? I remember Rwanda in 1994 where 800,000 Tutsis and Moderate Hutus were massacred by Hutu extremists. The world neglected to intervene (Clinton and Albright were loathe to admit that this was genocide in the first place) and far more attention was given to the Eurocentric Bosnian conflict that claimed considerably less lives. We argue that black lives matter but when the chips are down the world doesn't care (including so-called civil rights leaders in the US). Its disgraceful. The same attitude defined our response to the Biafra genocide, Darfur, the civil war in Liberia, Mugabe's post independence ethnic cleansing of the Matabele, the Mozambique Civil War, Sierre Leone, the turbulent Obote-Idi Amin Era in Uganda, the Angolan Civil War, War in the Congo and of course moderrn day slavery which is still rife in Mauritania and other West African countries (by some estimates there are 8 million slaves in Africa.

On Existentialism

Existentialism is a powerful philosophy in that it brings to the center and defines as paramount our very existence. In short it argues that we exist in a world where we are capable of thought and action and that we are ultimately responsible for creating our very own meaning. We must therefore embrace life but be mindful to live with the consequences of our doing. Our actions truly define us. Many existentialists have tended to see the philosophy as a natural consequence of their atheism but not all existentialists are/were atheists (Kierkegaard and Buber both believed in God). The image of Jean Paul Sartre is often associated with existentialism but a reading of his work shows that he borrowed heavily from Nietzche, Heidegger and Kierkegaard and clearly built on a dynamic that preceded him. Some have criticized the philosophy for setting itself up in a world of no purpose, a bleak dystopia of zero absolutes. I don’t see it that way. In fact I believe that it gives the individual something to aspire to. It returns one’s destiny to ourselves (where it should always belong) and nullifies the noise of mysticism that only serves to disrupt our rational thought.