Sunday, September 18, 2011

Jonathan Krause's Randy Marsh Impersonation

There was a stunning degree of bullshit in Jonathan Krause's Friday blog post, but it does serve as a pretty good example of how Krause is usually wrong and why.

Here we go:
I'm glad I'm not a business owner right now. You're facing a dwindling customer base with less money to spend, rising expenses and now, people in Washington who have never run a private business in their lives pressuring you to make really bad decisions--all in the name of "saving the economy."

Americans are falling into two groups: Those with no money to spend because they un- or under-employed and didn't put enough away while working to make it through a downturn--and those who have money, but are choosing to sit on it because it looks like things will be getting much more expensive for them in the future--or they fear falling into the other category. No matter how low you go with your prices, it's hard to convince people to part with their cash if what you are selling is not a necessity.
Ants and grasshoppers. Notice how this bullshit construction is based not on economic figures, models or theory, but on the moral sentiment which states that those who do not prepare for hard times deserve their suffering. So when Krause claims to be talking about economics, he's really talking about his own personal sense of morality. 

When Krause does start actually talking about causes contributing to a general lack of consumer spending he gets his facts embarrassingly wrong:
Adding to the struggle is the increase in energy costs as utilities are hog-tied and forced to abandon the cheapest forms of electricity in favor of more expensive renewable sources--and continued de-valuation of the US Dollar increases the price of oil and gasoline. And not only are you paying for your increase in energy costs--but you are also picking up the increase in your suppliers and manufacturers power and gas bills as well.
A good rule of thumb: any time someone ascribes anything other than market forces to fluctuations in the price of energy, they are full of shit. This is a problem for libertarians like Krause, who have a tendency to celebrate the market and deregulation when it does something amazing, like reinvent the brewing industry, but it's never spoken of when gas tops $4 a gallon. Basically, this is like wide receivers who always thank God when they catch the clutch pass to win the game, but never blame Him when they drop it.

This entire bit about energy costs rising due to mandatory environmental regulations is complete and total nonsense. At the very most, oil refining composes about 7% of the total cost of any gallon of gas one buys. That's it. So even if we could say that the entire refining process is devoted to complying with Krause's phantom environment regulations, which we can safely say is not the case, it would only add a pittance to the cost of energy prices.

And here's why:
[Crude oil] is the raw material used to make commercial-grade gasoline, known in much of the world as petrol. The cost of crude oil accounts for the largest percentage of what U.S. consumers pay for gas at the pump. On average, about 51 percent of every dollar spent on retail gasoline went to crude suppliers in much of the last decade, according to the EIA.

In 2008, when gas and oil prices were at their highest, crude represented an average of 75 percent of U.S. gas prices and currently hovers at around 70 percent (PDF), according to April 2011 analysis from oil industry advocate the American Petroleum Institute (API). "You cannot decouple gas prices from crude prices," says one API analyst. "If you want to help the consumer at the pump, you have to make sure crude prices don't rise too much."
So currently 70% of gas costs go to raw materials, while 7% goes to refining where most environmental regulations, like ethanol addition, are enforced. Even if Krause is talking about the environmental regulations that prevent drilling in certain areas, and which would be added to the price of the raw material, these regulations don't add all that much the price paid by the consumer:
A 2004 study by the government's Energy Information Administration (EIA) found that drilling in ANWR would trim the price of gas by 3.5 cents a gallon by 2027. (If oil prices continue to skyrocket, the savings would be greater, but not by much.) Opening up offshore areas to oil exploration — currently all coastal areas save a section of the Gulf of Mexico are off-limits, thanks to a congressional ban enacted in 1982 and supplemented by an executive order from the first President Bush — might cut the price of gas by 3 to 4 cents a gallon at most, according to the Natural Resources Defense Council. And the relief at the pump, such as it is, wouldn't be immediate — it would take several years, at least, for the oil to begin to flow, which is time enough for increased demand from China, India and the rest of the world to outpace those relatively meager savings.
It's not environmental regulations that are causing gas prices to increase, it's the fact that the bulk of the world's oil supply is controlled by a cartel that dictates supply during a time of increasing demand. The end.

What about home energy costs, like heating and electricity? Right now most homes (64.3%) in Wisconsin are powered by coal, while another 20.6% by nuclear energy ... with only 3.8% coming from the awful renewable energy sources that are supposedly costing us so much money.  Again, Krause really doesn't have much of leg to stand on with this claim.

Krause then goes after President Obama's jobs plan:
And now, the President is trying to tempt you into expanding your workforce by offering short-lived tax breaks. It's funny how Mr. Obama touts the temporary reduction in payroll taxes--but conveniently forgets to mention the increased rates that would take effect after the 2012 election.
Krause is speaking of the fabeled Bush Tax Cuts, which have been nothing short of disastrous. Many of the recipients of the Bush tax cuts are doing quite well despite the weak economy, thank you very much:
[B]etween 2001 and 2008, the bottom 80 percent of filers received about 35 percent of the cuts. The top 20 percent received about 65 percent—and the top 1 percent alone claimed 38 percent.
What about the president's claims? Take his pledge that the cuts would spur job growth. To be fair, we'll ignore employment changes during 2008, the year the Great Recession seized the economy. During the 2001 to 2007 business cycle, America's economy enjoyed 52 straight months of job growth. But it was sluggish—in fact, the slowest rate of jobs growth on record since World War II, and just one-fifth the pace of the 1990s.
Why did this happen? Because the wealthy, who received the lion's share of the tax cuts, saved their tax cuts rather than spending it, according to a study by Moody's.

And how much did those tax cuts cost, since they weren't off-set with any spending cuts?
Total income was $2.74 trillion less during the eight Bush years than if incomes had stayed at 2000 levels. 
And the tax cuts were the single largest contributor to the national debt:

Krause can't have it both ways.
And the only way to get the highly-touted tax credits is to hire someone who has been unemployed for more than a year. Yes, some of those long-term unemployed are in situations where the specialized job they are qualified to do just isn't available in the "New, New, New Economy"--but more are people who lack the basic education and work skills to keep a job.
This is simply not true. In fact, length of unemployment is becoming a problem regardless of education:
That makes a business owner have to decide if the guy who misses a day of work every week because he is "sick again" is worth the cost of a tax-break.
Again, notice how Krause reverts to a moral assessment of the unemployed: clearly the unemployed are that way because they're lazy and employers who hire them must be stupid. In fact, just the opposite is true.

If a small business owner was really intent on hiring a member of the long-term unemployed for the purposes of collecting a tax credit (or whatever reason), the numbers suggest he could hire and fire numerous employees before finding the right fit. There's no sense in keeping the wrong people on in a bad economy because it's essentially an employer's market. Hiring the long-term unemployed is actually a good idea for most employers because they tend to be willing to take a salary lower than what they may actually be worth.

Now watch Krause uses a dickish tone to completely miss the point
I know most business owners in our area didn't study Keynsian Economics while attending Harvard--so they aren't qualified to know how things work--but those I do know don't hire or increase production in hopes that more people will start pouring through the doors. Usually in the real economy, you wait for demand to increase beyond the point where you can meet it economically--then you bring in more staff and ramp up production. If no one is buying snowthrowers, you don't keep making snowthrowers thinking that if they see enough sitting around for sale Joe Homeowner is going to suddenly want a new one.
Ta-da! Krause has finally arrived at the problem: private companies aren't hiring and people aren't spending. So if the jolt that will revive the economy isn't coming from consumers, and it's not coming from banks that aren't lending (as Krause will discuss in the next graph), and it's not coming from the companies that aren't hiring -- where's it going to come from? We've pretty much covered the entire private sector just now, so ... who's left?

That would be the government. The tax credits proposed in Obama's jobs plan are intended to incentivize hiring by firms who can staff up or are still on the fence about doing so. The hope is that if enough employers take advantage of the incentives it will kick-start the economy an spur other employers into hiring binges of their own. Whether this works or not is subject to debate, but Krause' argument actually demonstrates just how badly some kind of government intervention is needed to kick-start the economy -- he's just not bright enough to realize it.

The rest of the post is rather pedestrian whining from Krause and includes a breathlessly vacuous defense of Wall Street which demonstrates that Krause really doesn't have the first fucking clue why the economy crashed. This creates something of a problem when searching for solutions to problems, but that's not something that really bothers Krause. In the end he eschews possible remedies for feigning empathy with people who actually have some skin in the game:
So that is the decision Mr and Mrs Small Business Owner faces now: Take a giant leap of faith that things are suddenly going to turn around because Uncle Sam is going to spend even more money--and risk losing everything you worked hard to build....or exercise sound business judgement and hang on until people are ready to spend again and ride the wave back to success. Glad I don't have to face that decision.
It really doesn't look like we can count on Mr. & Mrs. Small Business Owner to get the economy up and running, can we? It's just not in their best interests to take any risks right now. Using tools like tax credits, the government can help to mitigate some risks. Since any more stimulus is anathema to libertarian like Krause, what more is left on the table?

Not much. Krause's post advocates the exact position that Randy Marsh promoted in this classic South Park episode: you're stupid to be spending your money now. This won't help the economy, it will only make it worse ... much, much worse.

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