Small Business on Obamacare: No Reason to Hire or Invest

Business hires to service customers and expand when there’s enough aggregate demand to sustain sales at profitable prices. With or without Obamacare.

Small Business on Obamacare: No Reason to Hire or Invest

By Patricia Orsini

June 28 (CNBC) — Small business owners, who have been waiting for the Supreme Court’s decision on Obamacare before hiring and investing, say the ruling raises more questions than it answers.

Italian Business Confidence Unexpectedly Rises to 88.9 in June

Another glimmer of hope in a June number that deficits are sufficient for stability:

Italian Business Confidence Unexpectedly Rises to 88.9 in June

June 27 (Bloomberg) — Italian business confidence unexpectedly rose in June from the lowest level in almost three years. The manufacturing-sentiment index rose to 88.9, from a revised 86.6 in May, the lowest since August 2009, Istat said. Istat originally reported a May reading of 86.2.

Euro zone economy

After weak April and May numbers, I’ve been on the lookout for possible hints that euro zone economies may now be flattening.

Austerity tends to drive down demand which also causes deficits to increase to the point where they stabilize GDP.

Therefore, if the euro zone just leaves their fiscal policies alone at some point those automatic fiscal stabilizers work to prevent further declines.

Meanwhile, no euro zone banks have had liquidity cut off by the ECB, and it doesn’t look like any euro zone govt will be missing any payments any time soon, so govt deficit spending will continue to add income and ‘savings’ to their real economies.

French Consumer Confidence Stalls as Hollande Readies Budget

June 26 (Bloomberg) — French consumer confidence stalled as President Francois Hollande prepared tax increases and spending cuts to help reduce the nation’s budget deficit.

Household sentiment was unchanged at 90 in June, national statistics Insee said today in a release from Paris. Economists expected a reading of 89, according to the median of 14 estimates gathered by Bloomberg News.

Broadbent Says Indicators Suggest U.K. GDP Growth May Be Flat

June 26 (Bloomberg) — Bank of England policy maker Ben Broadbent said that indicators suggest the U.K. economy may be broadly flat in the next quarter or two.

“The near-term indicators suggest that, abstracting from the various short-term distortions (the effect of the Golden Jubilee holiday, for example), output is broadly flat in the next quarter or two, as it has been for the past 18 months,” he said in answers to a questionnaire from the U.K. Treasury Committee published today in London.

Demand leakages- the 800lb economist in the room

I can’t say I’ve seen anyone in the deficit debates talking about the demand leakages? Not a mention in the mainstream press, financial news media, or any of the thousands of economic reports?

That’s like discussing the right horsepower for a truck or an airplane without any consideration of the weight of the vehicle.

Demand leakages are unspent income. And if any agent doesn’t spend his income, some other agent has to spend more than his income or that much output doesn’t get sold.

And if the non govt sectors collectively don’t spend all of their income, it’s up to the govt to make sure its income is less than its spending, or that much output does’t get sold, which translates into what’s commonly called the ‘output gap’. Which is largely a sanitized way of saying unemployment.

And with the private sector necessarily pro cyclical, the (whopping) private sector spending gap in this economy can only be filled with by govt via either a (whopping) tax cut and/or spending increase, depending on your politics.

So why the ‘demand leakages’? The lion’s share is due to tax advantages for not spending your income, including pension contributions, IRA’s, and all kinds of corporate reserves. Then there’s foreign hoards accumulated to support foreign exporters. And it all should be a very good thing- net unspent income like that means that for a given size govt our taxes can be that much lower. Personally, I’d rather have a tax cut than a policy to get other people to spend their unspent income. But that’s just me…

And then there’s the fear mongering about the likes of the $200 trillion present value of US govt unfunded liabilities. But 0 mention of the present value of all demand leakages- that future income that will be unspent as it’s squirreled away in the likes of retirement plans, corporate reserves, and foreign central banks.

If history is any guide, the demand leakages will probably continue to outstrip even the so called ‘runaway spending of our irresponsible government,’ like they’ve always done in the past, as evidenced by nearly continuous output gaps/excess unemployment.

Worse, every mainstream economist learned that it’s the demand leakages that create the ‘need’ for govt deficits. But somehow fail to even mention it, even casually.

If anything, they voice no objections to the popular misconception that we need more savings to have funds for investment, thereby tacitly supporting the call for higher levels of demand leaks and the need for even higher levels of govt deficit spending.

And all you hear are calls for deficit reduction, both public and private, all in the face of geometrically expanding demand leakages.

Am I missing something?

Endorsement of Mosler’s 3-point plan

Endorsement of Mosler’s 3-point plan

After hearing an explanation of Modern Monetary Theory by Warren Mosler, Occupy Dallas endorses his remedy for our nation’s current economic condition:

1-cut FICA taxes to end this regressive policy and allow greater spending.
2-disbursement of federal funds to states on per-capita basis
3-guaranteed “transitional” employment for anyone seeking a job at $8/hr

We feel these proposals are simple and effective and will serve the interests of the 99% far better than any “austerity” measures being considered by politicians in both major parties.

Germany rebuffs Obama’s advice on euro crisis

Until they all get ‘in paradigm’ the 99% don’t have a chance.

Germany rebuffs Obama’s advice on euro crisis

June 25 (AP) — Germany’s finance minister is rejecting U.S. President Barack Obama’s calls on Europe to move faster in fighting its debt crisis, telling him to get the American deficit under control instead.

Wolfgang Schaeuble told public broadcaster ZDF in an interview late Sunday that “people are always very quick at giving others advice.”
He says: “Mr. Obama should first of all take care of reducing the American deficit, which is higher than in the eurozone.”

N.Y. Times letter

Letters: How to Mend Trust in the U.S. Economy

June 23 (NYT)

To the Editor:

Re “Broken Trust Takes Time to Mend” (Economic View, June 17):

Tyler Cowen argues that the “slow cure” for our economic malaise is to allow asset prices, wealth, trust, etc. to slowly rise. He states that the textbook cure of significant “Keynesian” government stimulus spending will not quickly restore prosperity because fiscal stimulus does not “rebuild confidence.”

Unfortunately, Professor Cowen seems not to understand that if the government were to let contracts for, say, $1 trillion to private enterprise to rebuild our failing highways, bridges, and municipal water and sewage systems, and provide resources for our shrinking public and higher education systems, this would quickly restore companies’ confidence in the profit opportunities that are available if they hire workers and buy materials from other United States companies. When these newly hired workers go out and spend their wages, the confidence of United States retailers would immediately surge as these additional customers break down the doors to get at the merchandise on the shelves.

Nothing will build the confidence and trust of business and workers quicker than the continuous ringing of cash registers. Paul Davidson

Morton Grove, Ill., June 17

The writer is editor of the Journal of Post Keynesian Economics and author of “The Keynes Solution: The Path to Global Economic Prosperity” (Palgrave Macmillan, 2009).

Early Thought follow up… A conversation with Warren Mosler– great investor, thinker, sports car manufacturer, author, blogger….

Please click on the link below to listen to a conversation with Warren Mosler. Topics include: Demand leakage (how to fix end-demand), Fed Policy (QE is counterproductive) and overall market/econ outlook for US, Europe and China.

Please click here for the audio