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Sage Observations from Cato

James Dorn at the Cato Institute makes a great case for how and why our government is going in the wrong economic direction. Some of his points are as follows:

Economic growth depends on institutions that reward saving and investment, that expand individuals’ choices, and that protect private property rights, allow free trade, and safeguard the value of money.

Policies that lead to higher taxes, more debt, socialized health care, costly regulations, protectionism, and unstable money undermine U.S. economic strength and frustrate the natural equilibrating function that characterizes a dynamic market system based on freely determined prices, the rule of law, and sound money”.

Well said. Dorn published his essay in Investor’s Business Daily. You can catch the whole article here.

Cafe Hayek on Government Spending and Job Creation

As I’ve mentioned before on this blog, my friend Don Boudreaux has a great website with a fellow economist, Russ Roberts:  www.cafehayek.com. Roberts was recently thinking aloud about the correlation between government spending and job creation. He does a nice job taking to task some of the Keynesian ideas on the topic.  Toward the end of his piece, Roberts rightly identifies one of the main reasons for our current sluggish economy:

The simplest answer is that businesses are not investing. Investment is still very low. I’d like to hear the case of how government spending lots of borrowed money encourages business to invest. It would be a hard case to make. It seems to me that government spending of borrowed money, especially on unproductive stuff, discourages business investment.

And with the current state of uncertainty in the business world due to Congress’s gross negligence of the tax margins, we can expect that businesses will continue to refrain from real investment for awhile.

http://cafehayek.com/2010/10/does-government-spending-create-jobs.html

Why Stimulus Doesn't Stimulate

Robert Higgs published a thoughtful essay a few days ago in the Sacramento Bee. Higgs reminds us of a basic economic lesson that Obama has yet to learn:  consumptive spending is not nearly as stimulative as investment spending. Higgs rightly cites a sharp decline in private investment as the reason for the economic downturn. Obama is compounding this cycle by perpetuating a feeling of uneasiness and uncertainty with his plans to raise taxes and regulations on business owners. And with Congress promoting only band-aid stimulus projects as the cure for the economy, we will unfortunately continue to have a long road ahead. Higgs writes,

If politicians truly wish to promote genuine, sustainable recovery and long-term economic growth, they should focus on actions that will contribute to a revival of private investment, not on pumping up consumption. In the most recent quarter, gross private domestic investment was still running at an annual rate more than 20 percent below its previous peak. Net private investment was fully two-thirds below the previous peak.

To bring about this essential revival of investment, the government needs to put an end to actions that threaten investors’ returns or create uncertainty that paralyzes the undertaking of new long-term projects.

Well said. The article in its entirety is a great read.

Read more: http://www.sacbee.com/2010/10/01/3071526/why-stimulus-doesnt-stimulate.html#ixzz11dc1RJCF

NY Income Drops

Reuters reports a drop in the personal income of NY residents for the first time in 70 years:

The recession put a 3.1 percent dent in the personal incomes of New York state residents, who endured their first full-year decline in more than 70 years, according to a report released Tuesday. Paychecks or net earnings tumbled 5.4 percent, while dividends, interest and rent slid 8.4 percent, to a grand total of nearly $908 billion, the state comptroller’s report said. Not only did New Yorkers’ personal incomes fall “almost twice” as much as they did in the nation as a whole, but they have yet to recover to pre-recession levels, Comptroller Thomas DiNapoli said.

The situation is likely to worsen if higher taxes prevail in the next year. NY must cut spending  and reconcile the public-private earnings divide if it wishes  to see real economic recovery.

http://www.cnbc.com/id/39531849