BCT Editorial – 3/2/08

This page was last updated on March 2, 2008.

Living for today; Editorial; Beaver County Times; March 2, 2008.

The editorial’s subtitle is “Federal Reserve moves represent more bad news for people who are savers.”

Below is a critique of selected portions of the editorial.

“Savers are getting the shaft — again.

“In testimony before the House and Senate last week, Federal Reserve Chairman Ben Bernanke said his priority is shoring up the nation’s fragile economy. That means fighting inflation is going on the back burner.”

[RWC] Earth to the Times. Any economic intervention that ignores “fighting inflation” won’t result in a “shored up” economy. As with everything, the key is a balanced set of policies.

“The Fed’s proposed move of cutting back a key interest rate is a double whammy for savers. Lower interest rates mean less in earnings from certificates of deposit and other savings accounts while inflation eats into the principle [sic].”

[RWC] Don’t “savers” also invest in the stock market, either via individual stocks or mutual funds?

“The nation’s economy is in bad shape. The collapse of the housing market and the collateral damage in related industries is doing real damage. The job market has deteriorated, and rising gasoline prices are taking huge chunks out or [sic] corporate and family budgets. The federal government is awash in debt, and its borrowing is pulling money needed in the private sector out of the economy.”

[RWC] Did you catch what the editorial unintentionally conceded? The last sentence conceded government spending “is pulling money needed in the private sector of the economy.” After all, the borrowing is the result of excessive spending.

The editorial mentioned “corporate” budgets but failed to mention other businesses like proprietorships and partnerships.

“Like their government, Americans have borrowed to the hilt, thereby digging themselves deeper into debt.

“It reflects a live-for-today mindset that has serious consequences, now and in the future.”

[RWC] It also reflects liberal fiscal policies – based on “a live-for-today mindset” – dating back to FDR. Programs like Socialist Security, Medicare, et cetera are nothing but Ponzi schemes whose design – whether intentional or not – embraces the Wimpy (I’ll gladly pay you Tuesday for a hamburger today.) philosophy.

“In terms of Keynesian economics, which are scorned in good times but embraced when things go bad, the Fed has few options. To keep the economy from sliding into a recession, if it isn’t there already, or turning into a depression, it must manipulate monetary policy, and one way to do that is via interest rates.”

[RWC] Though there’s a little more to it, for the purpose of this discussion Keynesian economics is about more government intervention in the economy than less. Intentional or not, the result is less economic freedom. That’s why Keynesian economics tends to be popular on the left and less so on the right. To say that Keynesian economics is “embraced when things go bad” is wishful thinking on the part of the Times.

FYI, FDR’s Great Depression policies were based to a large degree on Keynesian theory. As we know, after nine years of FDR’s policies, the economy remained in depression. World War II ended the Great Depression, not FDR’s Keynesian-based policies.

The Times editorial board knows full well the definition of a recession is two or more consecutive quarters of negative growth. Though GDP growth was low during the 4^th quarter of 2007, it was still positive.

“One reason our economy is in this position is that we have become a nation of consumers, not savers.”

[RWC] The question is, who is leading whom? Did we set the example for government, or did government set the example for us?

“Americans scream bloody murder when someone proposes raising gasoline taxes by 10 cents a gallon to build and reconstruct the country’s roads and bridges, which represent investments in the future.”

[RWC] That’s because taxpayers don’t believe the additional tax revenue would be used “to build and reconstruct the country’s roads and bridges.” Indeed, politicians openly admit they want to use new taxes to help fund government-run bus systems.

“Yet those same cash-strapped Americans think nothing of buying HD TVs, cell phones loaded with options, GPS systems, etc. — on credit, of course — that are produced overseas.”

[RWC] Of course, the editorial fails to notice an important distinction between buying a new TV and giving the government more tax dollars. When a customer pays the sales clerk, the customer gets something tangible he can see, touch, and use immediately. Give the government more tax dollars, and all you get is a promise from an entity with a less-then-stellar history when it comes to promises and bridge/road maintenance.

“Look around. The United States is the wealthiest nation in the world. By any measure, its people could live well while still living well within their means. That’s what savers do — and they’re being punished for doing so.”

[RWC] OK, but saving during a recession goes against the Times beloved Keynesian economics. Indeed, Keynesian theory holds that during a depression/recession, individuals should be encouraged to spend and discouraged from saving. Even during good times, Keynesian theory advocates increased taxes, thus grabbing earnings that could have been saved.

“Fear for our nation. Savers are investors in the future — theirs and the nation’s. But instead of investing in the future, we are squandering it.”

[RWC] You have to love this comment. With rare exception, Times editorials lobby for more government spending which means more taxation and/or borrowing and thus fewer earnings available for saving. Recent examples include “Healthy trend” and “Starting point.” How many programs has the Times believably/seriously lobbied to be cut in the name of “fiscal responsibility?” Hint: You won’t need an entire hand – or maybe even one finger – to count them. Indeed, editorials have pulled the old “mandatory spending” BS to assert meaningful spending cuts are impractical.