Obama offers inflation plus unemployment

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As of this writing, the term “stagpression” gathers only 145 hits on Google.  This is probably because the term — meant to suggest high unemployment plus high inflation — does not convey this meaning effectively.

So we’re stuck with the term “stagflation”.  Or maybe something like, “stagflation on steroids”, although this seems a bit hackneyed.

Although Jimmy Carter did not invent “stagflation”, his detractors certainly introduced the term into the financial vocabulary.

Inflation and unemployment are compatible

I  was living in Brazil during the Carter years and found it surprising that so many US economists seemed to think that recession and inflation were somehow incompatible.

This, of course, is not true.

During the 1960s and 1970s in Brazil, inflation normally ran about 20% to 25% a year, and effective unemployment or underemployment exceeded 25%.

Carter: Inflation plus unemployment

Inflation is a rapid devaluation of the currency, that can occur when a government issues more money than it should — usually to cover excessive spending.

(Note: There are other forms of inflation, such as inflation caused by a shortage of goods and services.)

Recession and depression are terms referring to periods of slow or negative economic growth with higher than normal unemployment.

In the Great Depression, high unemployment was accompanied by price deflation and many economists, even today, seem to think that the two phenomenon are inextricably linked.

The difference between recession and depression is simply a matter of degree and duration — or as one wit put it, whether it is you or your neighbor who is unemployed.

Whether or not high unemployment is accompanied by inflation or deflation depends upon what happens to the money supply.

Inflation is good if you owe money without indexing and have income that increases with prices.

Deflation is good if you’re permanently employed, are debt-free, and have assets in cash.

Lessons of the Great Depression

In the Great Depression, President Roosevelt favored anti-capitalist measures, like high taxes on investors and business people.

The result was high unemployment — above 25% in some regions.

However, prices also fell because Roosevelt was restricted on spending by the gold standard and by the fact that billions of dollars were removed from the economy when some 9,000 banks failed and depositors lost their life savings, as bankers foreclosed on mortgages.

Rosie the riveter (WW II)

Deficit spending rose to 4.6% of GDP during the Great Depression and failed to stimulate economic recovery.

It took the attack on Pearl Harbor to cause factories to rev up to produce tanks, guns, ships, and airplanes, while the unemployed were eliminated by conscription into the Army, creating a shortage of workers so severe that women were forced out of their homes into factories.

In contrast, under Barack Obama, the US fiscal deficit is expected to run between 10% and 12% of GDP in 2010, based on analysis of the White House and Congressional Budget Office.

President Obama attacks capitalism

After 100 days in office, it is becoming increasingly evident that President Obama is no friend of capitalism — at least any form of capitalism that creates jobs in the private sector.

Now, I am no friend of those who evoke the term “capitalism” but who, in fact, are simply thieves and usurpers of the property of others.

In this category, I would place the grossly overpaid employees that sit at the apex of publicly owned corporations, claiming to be “capitalists” although they are not owners of the businesses they manage for others and who ignore their fiduciary duties and role as agent of the real owners, using stock-options and buybacks to defraud long-term investors, purloining their life savings.

Being a millionaire is no big deal

The real capitalists, the ones that create almost all new jobs in the United States, are the little guys and gals that run small stores, restaurants, dry-cleaners, tiny factories, auto-repair shops, and other enterprises in which they have invested and risked their own money and who intend to pay back any amounts that they may borrow from banks.

These ‘real capitalists’ actually know most of their employees by name.

Now, many of these “little guys” are millionaires (it’s not such a big deal to be a millionaire today):

A business that returns $250,000 a year in net profits is probably worth more than a million dollars — and the owner of this small business is considered a “fat cat” by President Obama — someone who deserves to be heavily taxed, not only on current income, but on the value of the business he or she has built up over the years, hoping to pass on to sons or daughters as a way for them to make a living. President Obama would like you to believe that it is the “patriotic duty” of these little guys to pay more taxes so that he can hire more non-capitalist, unionized school teachers and support a union-owned General Motors.

Obama is no friend of private property

President Obama has already indicated that he does not support property rights, as defined in the Constitution of the United States.

He has indicated that he objects strongly to the position of Justice Clarence Thomas on strict interpretation of the Constitution.

With the retirement of Justice David Souter, he has indicated that he will place a successor on the Supreme Court who will be very squishy on property rights.

But property rights, after all, are one of the elements that separate socialists and communists from capitalists.

Today’s Wall Street Journal carried an article saying that the Obama administration intended to press for a law that will impair the property rights of investors in the United States from offshore financial centers. Obama’s agents have already pressed Chrysler into bankruptcy under terms that give more favorable treatment to claims of the unions than to investors, under the rule of law.

Hardly a day goes by now, that President Obama does not indicate some new plan to raise taxes on the “rich” — in this case, the small businessmen and women that create jobs.

Therefore, the foundation is being laid not only for inflation (excess spending), but prolonged unemployment and falling GDP (depression).

The rich are smarter than Obama

The problem with taxing the rich is that they have greater mobility and flexibility than government bureaucrats or members of Congressional staffs that draft the laws.

The only tax on the rich that really works is to storm their homes, throw them in jail, and put their children up for ransom until they surrender the hidden family jewels. Then, rip out the gold fillings from their teeth before sending them off to the gas chamber.

President Obama has not quite reached that stage yet. So, the rich will simply fade away to more favorable climes, pushing their assets through the inevitable loopholes present in any tax code, no matter how cleverly written, and hide out at posh hotels in foreign countries, or other enclaves of the wealthy, waiting for the storm to pass.

In the meantime, the capital that the rich might have employed, creating jobs in the United States, will go elsewhere.

After all, there are many places on earth that welcome investment. Why waste time where you are not appreciated and loved?

This is precisely what occurred in the Great Depression in the United States. Roosevelt attacked the rich as “malefactors of great wealth” and they, in turn, proceeded to sit on their wallets and wait until “that man in the White House” went away.

Of course, this is not how President Obama interprets history. Apparently he has never read Amity Shlaes book, The Forgotten Man: A New History of the Great Depression.

He actually seems to think that FDR saved America by government spending.

Deflation or Inflation?

Franklin Roosevelt, although spending government money on many stupid projects during the Great Depression (like hiring people to bang tin cans to scare birds out of the trees in Washington), did not actually spend that much until World War II.

FDR’s spending, prior to Pearl Harbor, was only a fraction of the spending that Barack Obama has authorized in his “spending is stimulus” bill.

Most of the world had emerged from the Great Depression, while the United States suffered under Roosevelt’s rule.

When government spending exploded during World War II, it went into factory production, to buy tanks, airplanes, and ships, creating the world’s greatest industrial economy.

Inflation was controlled (to some degree) by rationing.

People were patriotic and bought War Bonds.

Obama is not FDR

This is not the Great Depression and Obama is not FDR.

President Obama is spending at unprecedented levels, claiming to “stimulate the economy” by transferring wealth from the rich to the poor, by giving “free health care” to all (without increasing the number of doctors and nurses), by moving to nationalize big banks, by giving the US automobile industry to the unions, by increasing the number of public employees and jobs dependent upon government payments, and by ordering the country to shift from a carbon based economy to wind and solar power, whatever the economic consequences.

Meanwhile, the rest of the world is smarter.

China and India are not about to tax the use of energy. In fact, while President Obama is pushing the United States towards socialism, it seems that the fastest growing economies are going in the opposite direction

So what this seems to suggest is a prolonged period of economic stagnation and unemployment in the United States, accompanies by inflation — a stagpression-flation, so to speak.

Of course, no one can see the future.

Some dramatic event may change everything tomorrow and it will be a whole new ball game.