The Trump Administration has, yet again, stuck it to the working men and women of the United States. Joining the Trump Administration has been a recalcitrant Republican controlled Senate led by Mitch McConnell. For months, McConnell and his anti American GOP have been playing chicken with the lives of hundreds of millions of Americans. And while many may state that headline after headline states a deal is near, the reality is that these very same headlines are calculated to trigger algorithmic trading on the stock exchange. Go no further than yesterday’s jobs report which was lukewarm, at best. While anticipated to add 410,000 jobs, there were only 245,000 added. Moreover, though, long term unemployment was almost above all historical levels. None of this mattered to the algorithmic trades,
The Dow Jones Industrial Average closed higher by 248.74 points, or 0.8%, at 30,218.26. The S&P 500 gained 0.9% to end the day at 3,699.12, and the Nasdaq Composite advanced 0.7% to 12,464.23. All three of major indexes posted intraday and closing record highs.
And while there is plenty of blame to go around, the reality is that the Republican view that we need to cut spending and debt relating such to the analogy of a household is the epitome of madness. In fact, the household analogy has been weaponized for political gain.
[T]he economic effects of government spending cuts are significantly different from when an individual household decides to cut its spending. For example, if a single family decides to cut back on spending, say by 10%, then this will have a trivial effect on the wider economy. In terms of size, a household’s spending is extremely small in comparison to the total amount of spending in the economy as a whole. As a result, no one will lose their job, incomes will remain almost the same, so the family’s income will remain the same as it was before. Consequently, for the family in question, cutting spending should help it to reduce its debts.
But if the government decides to reduce its spending by 10%, this will have massive implications and reverberate throughout the wider economy, and will ultimately end up reducing the income (from tax revenue) of the government. This is because government spending is a significant proportion of an economy’s total spending. As such, when the government reduces its spending, employment and wages fall in both the public sector (e.g. for nurses, teachers, and police officers) and those sectors that provide goods and services to government (e.g. construction workers).
By cutting its spending the government also ends up reducing its own income. So unlike a household, government spending and income are not independent of one another.
Keynesian economists such as Paul Krugman argue that instead of trying to reduce public deficits in a recession, government should increase spending, helping businesses to grow and providing employment. Government debt will rise, of course, but the government can run fiscal surpluses to pay it down when growth returns. Austerity is for the good times, not the bad times. Governments are monopoly suppliers of risk-free treasury securities. In contrast to households, which are assumed to be price-takers, government debt-management policies have first order implications for the interest rate. We show that an increase in government debt can, under plausible parameterizations of the economy, cause a drop in the real interest rate. As a consequence, the fiscal authority can run an active policy that ignores the level of debt when determining the path of the primary fiscal deficit
An analysis by the Washington Post found that 5% of recipients collected more than half the money from the $522-billion fund that was supposedly designed with small businesses at least somewhat in mind.
More on point, with nearly $10 Trillion pumped into financial institutions — while they have continued to charge double digit interest on credit cards — and yet another $6 Trillion from September through December of last year, many are asking what the hold up is as only $1,200 was given to families. And as unemployment is set to expire for millions in only a couple of weeks, virtually all Americans are outraged that Congress is set to take yet another vacation without passing any legislation to assist desperate families.
Time and again we have been asked to tighten the belt by our government as they throw trillions to their cronies. Time and again we have been asked to tighten the belt by the Industry as NAMFS members throw lavish parties and buy super yachts. The time is now to begin to demand what is rightfully ours.
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