Thursday, September 15, 2011

Peter Schiff's Testimony Before Congress



"Government stimulus will never grow this economy. It will never create jobs. It is the equivalent of trying to put out a fire by pouring gasoline on it. We have to understand that the housing bubble, the financial crisis of 2008, were the consequences of government stimulus.

We stimulated our way into this problem, we’re not going to stimulate our way out. In fact, the stimulus is actually a sedative. The stimulus is preventing the free market from unraveling the problems that years of bad fiscal and monetary policies have created. We don’t need more spending, we need the opposite of spending. We need under-consumption. What the economy lacks is savings, investment, production. And if we try to preserve the jobs of the Bubble Economy with more reckless money printing and borrowing and government spending all we’re going to succeed in doing is preventing the restructuring that we need and preventing more productive jobs from ever coming into existence."


40 Comments:

At 9/15/2011 8:30 PM, Blogger VangelV said...

The best part for me was when he asked just how much of his income should be taxed away. You could feel just how uncomfortable the mountebanks in the room really were because as much as they want higher taxes they don't want the public to figure out just how much they really steal.

 
At 9/15/2011 8:51 PM, Blogger Jon said...

Government stimulus does create jobs and has created jobs. Think WWII.

The free market has been unleashed in other parts of the world. Latin America and Africa, owned and operated by the World Bank, which implements the Washington Consensus. A few countries have resisted. These include China and Vietnam, your leading government meddlers in the economy. They are also leading the world in economic growth.

 
At 9/15/2011 8:57 PM, Blogger VangelV said...

Government stimulus does create jobs and has created jobs. Think WWII.

You could not buy a car, a refrigerator, or a candy bar because of rationing. You can create jobs but unless they produce what is in demand by consumers your standard of living goes down. And when you hire a bit chunk of the working age population to serve as targets I doubt that you are doing those 'workers' any favours.

The free market has been unleashed in other parts of the world. Latin America and Africa, owned and operated by the World Bank, which implements the Washington Consensus. A few countries have resisted. These include China and Vietnam, your leading government meddlers in the economy. They are also leading the world in economic growth.

Actually, China and Vietnam had poverty and starvation before they gave up on central control and liberalized their economies. China is far more market oriented today than the US, which regulates about every product that is sold in the country and fines or puts people in jail for drinking raw milk or using too much water when they flush their toilets.

 
At 9/15/2011 10:00 PM, Blogger Benjamin said...

Actually, Japan has followed a rather strict monetary regime since 1990, and it has failed. The yen is strong, but Japan's growth rate is very weak, and investors in real estate and equities are down 75 percent to 80 percent in the last 20 years. Some people blah-blah about demographics, but Japan's income per capital is falling relative to other nations. They have been eclipsed by China, S Korea and the USA.

I totally concur that less government regs and taxes are advisable--especially at the state and local level, often overlooked when people are braying about regulations.

Small government, less regs and some inflation is the way to go.

 
At 9/15/2011 10:23 PM, Blogger Jon said...

Complain about the WWII situation if you like, VangeIV, but economic growth was at record levels as was employment. So Schiff is wrong.

China has some key government intervention in the economy. Restrictions on movement of capital and currency speculation. Also massive restrictions on imports in order to protect infant industries. The results have been phenomenal.

It's true that there's a lot of government meddling in the US economy too. Basically all first world nations have lots of government meddling in the economy and they became rich with that meddling. The countries without the government meddling are in Latin America, Africa, Haiti. Basically all the hell holes.

 
At 9/15/2011 10:23 PM, Blogger Michael Hoff said...

Dr. Boushey is a moron.

 
At 9/15/2011 10:38 PM, Blogger Michael Hoff said...

Jon,

Clouds are gray and white. Marble is gray and white. Therefore, clouds are made of marble.

This hellhole argument is all the rage on the left these days. Somalia has no government intervention. Therefore, if we have no government intervention, we'll be Somalia. It's indicative of the left's total inability to reason. Read the declaration. Right there is everything you need to know about the difference between the U.S. and the hellholes. It's the founding philosophy and what guides that philosophy that makes the difference, not the level of intervention of bureaucrats and politicians. The hellholes comparisons are just more vacuous, childlike nonsense.

 
At 9/15/2011 10:39 PM, Blogger Hydra said...

Yeah, underconsumption will improve the economy.

Just what is it that some investor will produce that I need to buy?

Contact lenses coated with gold and Sprinkled with diamonds to make my eyes sparkle?

 
At 9/15/2011 10:46 PM, Blogger Hydra said...

Therefore, if we have no government intervention, we'll be Somalia.

=========>>>>>====
You got evidence otherwise?

London street violence. Teen flash stealing in silver spring.

The right can't fathom that govt does anything for business, like this internet or face recognition. This invention funded by govt and now capitalized on.

 
At 9/15/2011 11:48 PM, Blogger Che is dead said...

"Just what is it that some investor will produce that I need to buy? Contact lenses coated with gold and Sprinkled with diamonds to make my eyes sparkle?" -- Hydra

Did you need the personal computer that you are writing your comments on before someone created one? How about that iPod or that cell phone? In order for those things to materialize you need investment. We do not suffer from a lack of consumption right now, we suffer from a lack of investment.

 
At 9/16/2011 4:45 AM, Blogger juandos said...

"London street violence. Teen flash stealing in silver spring."...

Ahhh hydra nice of you to come up with two examples where government overreach is rampant and yet there are still serious problems...

 
At 9/16/2011 5:48 AM, Blogger juandos said...

Well one thing that was painfully obvious is that Rep. Cummings and Dr. Boushey apparently lack even the most minimal grasp of basic economics...

 
At 9/16/2011 6:33 AM, Blogger VangelV said...

Actually, Japan has followed a rather strict monetary regime since 1990, and it has failed. The yen is strong, but Japan's growth rate is very weak, and investors in real estate and equities are down 75 percent to 80 percent in the last 20 years. Some people blah-blah about demographics, but Japan's income per capital is falling relative to other nations. They have been eclipsed by China, S Korea and the USA.

I assume that you mean GDP per capita, not capital. If that is the case Japan is significantly higher than China, if you mean mainland China instead of Hong Kong or Taiwan.

Japan is weak because it has been trying to 'stimulate' the economy for the better part of two decades. It has wonderful roads and bridges to nowhere and has been on an infrastructure spending binge that has added to the capital structure of the nation but has done little to integrate the new additions into the productive economy. Their make work projects have been about as effective as those wonderful Soviet dams that never had transmission lines to take away the electricity that they could have produced.

The folly is central planning and meddling in the economy by bureaucrats who are incapable of understanding it.

 
At 9/16/2011 6:44 AM, Blogger James Fraasch said...

^^^^^What Vangel and Hoff said^^^^^

I couldn't have said it better myself.

Government stimulus spending is what leads to situations like Solyndra. I've heard of at least three other Solyndra-like situations from the last round of stimulus where the government picked the winners and losers of the economy.

The workers at Solyndra knew before they put the shovels in the ground on their factory that their technology would not compete with what was happening in China. They built the half a billion dollar plant anyway.

Private capital never would have invested in such a predictable disaster.

James

 
At 9/16/2011 6:46 AM, Blogger VangelV said...

Complain about the WWII situation if you like, VangeIV, but economic growth was at record levels as was employment. So Schiff is wrong.

No, employment was not at record levels. Much of the able bodied work force was overseas acting as targets for the Japanese and Chinese. And there was not much being built that was useful to consumers and domestic workers. As I said, you could not buy a car, a refrigerator, or chocolate even if you had the money to do so. That means that the production was to satisfy the needs of government, not the people. (Think of all those workers diligently building pyramids for Pharaoh and you have a good idea what war production is all about.)

China has some key government intervention in the economy. Restrictions on movement of capital and currency speculation. Also massive restrictions on imports in order to protect infant industries. The results have been phenomenal.

But China succeeded when the government stepped aside and let the people make more economic decisions. Its central planning regime, just like Russia's, was a failure.

It's true that there's a lot of government meddling in the US economy too. Basically all first world nations have lots of government meddling in the economy and they became rich with that meddling. The countries without the government meddling are in Latin America, Africa, Haiti. Basically all the hell holes.

No, the more they meddled the harder it was for the average family to maintain a good standard of living. You how have governments consuming about half of the national income, which means that workers and investors get to keep a lot less of what they earned. Governments certainly did not help them earn more because all they did was put up barriers to production and increase compliance costs. As I said, the US government now tells you what kind of light bulb you may use, how much water can flow through your shower, and where you must buy your milk. I can't think of a single part of life where it does not meddle and make worse.

 
At 9/16/2011 6:47 AM, Blogger VangelV said...

Jon,

Clouds are gray and white. Marble is gray and white. Therefore, clouds are made of marble.


His is a faith based system that ignores the real world, economic history, and logic. Unless he thought in the way that you describe he could not have the position that he holds.

 
At 9/16/2011 6:50 AM, Blogger VangelV said...

Yeah, underconsumption will improve the economy.

Correct. A country needs the capital that is produced by savings. You have to make something before you can consume it.

Just what is it that some investor will produce that I need to buy?

Iron ore that goes into the products that you buy. Oil that is the basis of our economy. Wheat that we use to make bread and other products. Silver that is essential for our high tech products. What will consumption produce?

 
At 9/16/2011 8:55 AM, Blogger morganovich said...

jon-

your WW2 example is absurd. it's just a massive broken window fallacy.

building tanks that then get blown up is no way to achieve prosperity.

we ran up massive debts. quality of life dropped precipitously.

you are myopically focusing on GDP and missing reality.

you could drive huge GDP by paying people to dig holes then paying peiple to fill them in too. would you be richer afterwards?

WW2 was an economic calamity. it wiped out the industrial base of much of the world. the US was spared and derived huge benefit in the next decade as we produced everyhting the world used to rebuild, but the world as a whole took a very long time to recover.

repeating this fallacy over and over will not make it any more true.

 
At 9/16/2011 9:11 AM, Blogger morganovich said...

the notion of "underconsumption" in economics is really just a code word for fascism and statism.

stop and think about what you are really saying: "you, the unenlightened masses of people and corporations don't know what you should do. you worry that you need to save, when we, your enlightened overlords think you should spend so we can get reelected. we here in DC know more about what you and your household need to be doing that you do."

it's paternalistic in the extreme, and wildly counter productive.

if a household feels over leveraged and uncertain about the future, mooting dozens of interventionist economic policies just makes them more cautious. the very act of proposing them increases uncertainty and thereby drives up the propensity to save. corporations in particular become loathe to invest.

obama is falling into the same trap FDR did. you generate so much uncertainty trying to find the "right" policy that you stop investment and growth dead.

it's not a question of "correct" policy and being smart enough to find it this time. they are all wrong. the mere act of intervention short circuits stimulus and diminishes investment.

it's like a surgeon always trying to find the right bit to cut off to cure the common cold. no matter what he does, he makes you worse. what you need is to be left alone to recover.

 
At 9/16/2011 9:57 AM, Blogger Paul said...

"The countries without the government meddling are in Latin America..."

You have to be joking. What specific countries in Latin America are without government meddling?

 
At 9/16/2011 10:37 AM, Blogger Methinks said...

the notion of "underconsumption" in economics is really just a code word for fascism and statism.

Ten million points go to Morganovich.

Well said, very well said!

 
At 9/16/2011 10:53 AM, Blogger Methinks said...

I admit I didn't catch every single thing said since I'm at the office.

Is Dr. Douchey a Keynesian or just a moron?

I suspect the latter. Did anyone catch what her doctorate is in?

 
At 9/16/2011 10:58 AM, Blogger Jon said...

No, employment was not at record levels.

Yes it was.

Its central planning regime, just like Russia's, was a failure.

Too much central planning did fail. Some central planning though did not fail. It didn't fail in Britain, the US, German, South Korea, Japan. There was planning in government directing the economies in all of these places. The countries that lack government direction in the economy are Haiti, Tanzania, Nicaragua, Jamaica, Nigeria, Somalia, Colombia, Panama, Ecuador, the Philippines, and on and on the list goes. Countries with heavy US influence in the way their economies run as the World Bank and IMF implement what is known as the Washington Consensus. With very few exceptions (the main ones being Hong Kong and Chile, which are special cases) the forced imposition of free market policies has met with disaster. The very policies that have failed so badly (but incidentally serve the interests of those that seek short term profit maximization) are being suggested for us by the AEI and other corporate apologists.

I can't think of a single part of life where it does not meddle and make worse.

So you feel worse off in that you have access to an interstate highway system, a computer from which to type your responses, and satellite communications with their myriad of uses? These have all ruined your life? You can drive to a friends house with GPS and talk about how the government can't do anything right. Maybe you could fly there on a commercial jet developed by the government for WWII and then handed off to private industry. Enjoy the low price of gas you get because your government has compelled Saudi Arabia and others to enter economic arrangements that keep the price within an ideal range.

 
At 9/16/2011 11:13 AM, Blogger Methinks said...

It didn't fail in Britain, the US, German, South Korea, Japan.

Nope, it did not fail to drag down those economies and prevent them from flourishing to their fullest potential.

That is the great accomplishment of central planning.

You have it wrong about the USSR. Central planning was a super success. It completely destroyed everything.

 
At 9/16/2011 12:19 PM, Blogger Paul said...

"The countries that lack government direction in the economy are... Nicaragua..Colombia..Panama, Ecuador.."

Bullshit. You have no idea what you're talking about.

 
At 9/16/2011 12:38 PM, Blogger arbitrage789 said...

Jon,

You're leaving out the issue of debt.

If we pile on more debt now, and use the money to pay Davis-Bacon wages to build bridges to nowhere, it may help to get Obama re-elected.

But then we'll have all that extra debt.

 
At 9/16/2011 12:41 PM, Blogger morganovich said...

jon-

1. unemployment is not the same as employment. if you look at % of workforce employed, then the 40's were lower than even now. women didn't work or count as unemployed.

2. employment in the army is not productive. they were destroying assets, not building them. go back to my example about paying people to dig holes then fill them in.

it's the even worse than welfare in terms of waste. at least welfare recipients don't blow things up.

you really can't tell the broken window fallacy from actual growth, can you?

 
At 9/16/2011 12:42 PM, Blogger Jon said...

All the presently rich countries that you would think of started poor and became rich with government meddling in the economy.

Other countries now try the same approach. Haiti tried it by electing Aristide in 1990. But the business community objected, so he was ousted violently with US support. Today Haiti remains the poorest country in our hemisphere after having been subjected to a series of leaders acceptable to the US and corporate interest.

Honduras was on the same path until Zelaya was ousted in an illegal coup backed by the Obama administration. This is a familiar pattern. Goes all the way back to Arbenz in Guatemala. Guatemala had a brief foray into democracy. They elected a social democrat. The United Fruit Company didn't like the idea though. Providing health services and education means taxation, less profits. So the government was overthrown in a US backed coup. Free markets and low taxation were imposed. That was 1953. We can see the effects. Guatemala is probably second to Haiti in terms of poverty in our hemisphere.

The pattern seems very consistent. You can say that the government meddling countries would have done even better without that intervention if you like. How can that be disproved? It's unfalsifiable. What we can see is that the (relatively) free market countries are a nightmare and the meddlesome government countries are much better. In my mind that means your unfalsifiable thesis seems implausible.

 
At 9/16/2011 12:53 PM, Blogger Jon said...

Morganvich, Schiff's thesis is that government stimulus "will never create jobs". It did create jobs. That's an extremely dramatic reduction in unemployment. Sure, they weren't doing things that build wealth. They were destroying wealth. It's not a good thing. It's not my claim that it was good. It is my claim that it reduced unemployment and it did grow the economy as measured by GDP.

It's not my claim that GDP growth should be a goal. Like you said, you can build a tank and blow it up and say GDP went up. That's not good. But GDP did go up. That's a fact. Don't confuse claims with advocacy. If you cut of your leg you'll lose weight. That's a fact. Don't deny it. This does not mean I'm advocating that you do it. I'm just saying you will lose weight if you do it.

Schiff says government stimulus doesn't create jobs. It does. It has. It may not be desirable, but it does grow jobs.

My position is that our present economic structure demands increased consumption and also requires employment and I think that's not good. I also think it can be changed. But breaking windows does create jobs.

There's a reason Apple Computer sees to it that their accessories are not backwards compatible. There's a reason computer motherboards can't be swapped from 10 years back. These items are designed such that you must discard the old and buy the new. That's because our economy is driven by consumption. It's irrational. It has to change. Why not construct an economy that produces goods that last? It's possible. It would mean that less work is required, which should in theory be a good thing. But that's not how our system is designed. We need more work and more consumption just to have a basic allocation of goods.

 
At 9/16/2011 12:56 PM, Blogger Jon said...

I expanded on this concept of how our economy is driven by consumption at my blog here.

 
At 9/16/2011 1:07 PM, Blogger arbitrage789 said...

Jon,

The wealth of this nation has arisen, to a large extent, from the efforts of inventors and entrepreneurs. And more broadly, from those who work hard at their jobs, however menial.


Government is best that governs least.

 
At 9/16/2011 1:17 PM, Blogger Paul said...

"This is a familiar pattern. Goes all the way back to Arbenz in Guatemala. Guatemala had a brief foray into democracy. They elected a social democrat."

They elected a communist who sought refuge in the Soviet client state of Czechoslovakia when the jig was up.


"Honduras was on the same path until Zelaya was ousted in an illegal coup backed by the Obama administration."

Again, you are just making stuff up. The Obama regime supported Hugo Chavez buddy Zelaya.

Let's hear some more about how Nicaragua, Colombia, etc., have no government direction in the economy.

 
At 9/16/2011 1:24 PM, Blogger Paul said...

"What we can see is that the (relatively) free market countries are a nightmare and the meddlesome government countries are much better."

Then Cuba, the most meddlesome of all, should be the shining jewel of Latin America instead of a tyrannical, economic basket case. I notice the makeshift rafts full of fleeing humans only go in one direction. How is this possible with all that magic meddling going on?

 
At 9/16/2011 1:54 PM, Blogger Che is dead said...

"Haiti tried it by electing Aristide in 1990. But the business community objected, so he was ousted violently with US support." -- Jon

Almost everything in that sentence is wrong. I suggest that you read this article: Democrats for Despotism - Party figures had a profitable relationship with Haiti's dictator, WSJ


"Today Haiti remains the poorest country in our hemisphere after having been subjected to a series of leaders acceptable to the US and corporate interest." -- Jon

No, Haiti is the poorest country in our hemisphere for many reasons almost none of them relating to the U.S.. Here are a couple:

... according to the Economic Freedom of the World index*, property rights in Haiti are the least secure in the Americas – less secure than even in Hugo Chavez’s Venezuela!* (Is it, then, any wonder that no one in Haiti has incentives to plant and protect trees?) Also, according to the World Bank, legally starting a business in Haiti requires, on average, 195 days and costs 228 percent of the average Haitian’s annual income in administrative fees." -- CafeHayek

 
At 9/16/2011 2:09 PM, Blogger Che is dead said...

"Again, you are just making stuff up. The Obama regime supported Hugo Chavez buddy Zelaya." -- Paul

Jon is a big Chomsky fan. And as such he accepts only one cause for all the worlds ills - the U.S.A..

"Tegucigalpa, Honduras - Sometimes, the whole world prefers a lie to the truth. The White House, the United Nations, the Organization of American States, and much of the media have condemned the ouster of Honduran President Manuel Zelaya this past weekend as a coup d'état. That is nonsense. In fact, what happened here is nothing short of the triumph of the rule of law." -- CSMonitor

Lots of hypotheses have been floated to explain why the Obama administration went to such extremes last year to try to force Honduras to reinstate deposed president Manuel Zelaya. Now the release of two WikiLeaked cables from the U.S. embassy in Tegucigalpa strengthens one of those theories: that the U.S. knew Mr. Zelaya was a threat to democratic Honduras but had decided the country should tolerate his constitutional violations in the interest of realpolitik. Practically speaking, Hugo Chávez was the man to please. After a decade in power, the president of Venezuela’s influence around the region was notable. George W. Bush had clashed with him. Barack Obama was out to prove that they could get along, as evidenced by the warm handshake at the Summit of the Americas in Port of Spain in April 2009. Honduras offered a bonding opportunity. Mr. Zelaya was a protégé of Mr. Chávez. Standing up for him as democratically elected was a way to score points with Latin America’s hard left. -- WSJ

 
At 9/16/2011 2:19 PM, Blogger Che is dead said...

"Schiff says government stimulus doesn't create jobs. It does. It has. It may not be desirable, but it does grow jobs." -- Jon

No, it does not. You need to spend some time reading Frederic Bastiat. The "stimulus" simply takes capital from one part of the economy and applies it to another. You see the jobs created by its application in one part, but what you do not see is the jobs that were either destroyed or not created by its extraction from the other.

 
At 9/16/2011 3:17 PM, Blogger Jon said...

Paul, you wrote:

"They elected a communist who sought refuge in the Soviet client state of Czechoslovakia when the jig was up."

That ruse is openly conceded in scholarly circles. Edward Bernays, the father of public relations (in earlier days referred to as propaganda) was called upon to provide a pretext that would rally the public behind the violence. He advised the government to just paint Arbenz as if he was in league with the communists. A total lie, but useful, and it worked perfectly. That precise formula was then used repeatedly up until the fall of the Berlin Wall at which point they just switched to other pretexts. Latin American narco traffickers and terrorists. Today Islamic jihadists. Pretty amazing that you still accept the communist ruse. As I said it's pretty openly conceded as a ruse these days.

 
At 9/16/2011 3:47 PM, Blogger Paul said...

Jon,

"That ruse is openly conceded in scholarly circles."

So? "scholary circles" is one of the few remaining places on the planet where you can call yourself a Marxist and not be laughed out of the room. Arbenz was red, regardless of what Howard Zinn told you in one of his idiot books.


"Latin American narco traffickers and terrorists."

And what exactly is that supposed to mean? Are you speaking of Colombia, where you previously assured us all no government intervention exists? Or are you just blathering on? Please enlighten me, my wife is Colombian and I have been there several times.

 
At 9/16/2011 6:38 PM, Blogger juandos said...

Way to go jon wip out the ever questionable wikipedia when you can't find any facts...

 
At 9/16/2011 10:02 PM, Blogger VangelV said...

No, employment was not at record levels.

Yes it was


No, it was not. There were several million people, who used to be unemployed, sent to fight overseas. That does not constitute full employment.

Too much central planning did fail. Some central planning though did not fail. It didn't fail in Britain, the US, German, South Korea, Japan.

Look around. Korean only rose to its current position after the military government was overthrown and the economy was liberalized. Britain became a basket case and needed Thatcher's deregulation to bring it back from the brink of collapse. The US is bankrupt as is Japan. Neither has a future. And Germany was the freest of the European economies with the least amount of interference by the government, and the least help from the Marshall Plan funds.

Central planning has never worked and can never work better than the market. Some meddling can make a decent economy poorer but it can never make it better. And total meddling leads to starvation and poverty.

With very few exceptions (the main ones being Hong Kong and Chile, which are special cases) the forced imposition of free market policies has met with disaster.

Free markets are never forced because freedom is the lack of force. You talk a big game but cannot provide any examples that stand up to scrutiny. History is actually full of examples where the central planners have failed. In the cases where government is kept small and not permitted to meddle a country booms.

So you feel worse off in that you have access to an interstate highway system, a computer from which to type your responses, and satellite communications with their myriad of uses?

The first interstate highways were built by private trusts without government. Government muscled in on the highway building business by taxing fuel heavily. With the same amount of money private interests would have done much better.

 

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