Gould, Morgan et al: Hopeless

If you’ve ever wonder why Gareth ‘Bloody’ Morgan’s alleged investment company is the worst performing of all the Kiwisaver providers, perhaps the answer is that their economic analysis is as risible as the analysis in the books churned out by their principal.

Consider for example the Pollyanna like pronouncements by their “senior economist” John Carran recently that everything is about to become all rosy in the garden again—that official Chinese GDP figures (measuring the construction of empty cities, empty shopping malls and the like) are to be believed; that European banks have been inoculated from Greece’s by oodles of printed paper; that all the printing by all the world’s central banks will (sometime soon) bring about a second Land of Cockaigne; and that the US is one of these place in which Milk and Honey will soon be flowing. 

Or the equally insipid “analysis” by their “senior equity analyst” Nathan Field, who also pins his hope on a fabled US recovery while appearing not to realise that the US stock market has been rising recently for no other reason than all the phony paper money pumped into markets by The Fed, and that there is and had been no credible signs of a US recovery (about which more below).

The level of reasoning on display is so dim it almost makes the analysis in the Herald this morning by failed British Labour Party MP Bryan Gould look good. Basing his “analysis” on facts both historical and from out of yesterday’s papers, Mr Gould reckons that  a recipe of spend, spend, spend is the answer to today’s economic woes. And he’s wrong on virtually everything he says, both factually and analytically.

In the 1930s [for example, says Gould], there were those, like Herbert Hoover, who insisted that austerity - cutting government spending - was the way to beat recession.

In fact Hoover did nothing of the sort, as he himself boasted in his 1932 presidential campaign.  Instead of doing nothing, he crowed, “we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.”  “Gigantic” then meant raising spending by nearly one half, and adding a deficit where before there was none:

Spot any fiscal or monetary austerity there? (Note: these are not “gee-whiz graphs.” There is a zero baseline.)

The result of this non-austerity was to make the situation worse, not better---with even worse to follow when his successor, Franklin Roosevelt, followed the same medicine.

The myth of Hoover’s do-nothingness is just one of many myths from the Great Depression [PDF[ that are still peddled by the know-nothings of today to justify their own nostrums. It should be known to Mr Gould (who has the same pretensions to historical acumen as Mr Morgan and his colleagues at his lacklustre firm have to economic acumen) since the spending, debt, and deficit numbers are all given in tables published every year with the president's proposed federal budget [PDF]. So he really has no excuse. Because as often as this myth is repeated, the truth is the reverse: that Herbert Hoover was a big-government man who did not trust the free market whose meddling turned an ordinary depression into a Great one.

Not that accuracy is any part of Mr Gould’s intentions (even as a failed politician, lying was one of his professional talents) since he then goes on to suggest, quite erroneously, that the reason for the failure of Portugal, Ireland, Spain and the UK to get off the floor is not the enormous debts with which they’ve saddled themselves, which all have increased in the last four years, but some alleged “austerity” which all have inflicted on themselves.

If only they had.

It is not an austerity programme when you debt keeps rising—as it has in all these jurisdictions. It is not an austerity programme when you raise taxes—as all have done. The UK for example

raised capital gains taxes from 18% to 28%, which is the taxes that hit business formation the most.  Raising capital gains decreases the return on investing in new economic activities and investors can easily decide not to invest their capital so this tax reduces economic activity more quickly than other taxes.  If the UK had not raised taxes, they would most likely now be experiencing an economic boom.

It is not an austerity programme when governments spend beyond their means, and it is not a real rescue when the the real causes of the financial crisis [PDF] not only have not gone away but have been given more legs.

So what’s the argument Mr Gould gives for the success of his plan to spend more money?  It’s the wonderful success story of the United States of America in the last four years, wherein “President Obama's stimulus programme - bitterly opposed and relatively timid as it was - is pulling the US economy around.”

Really?!

Mr Gould seems to be reading the same poorly performing tea leaves as Mr Morgan’s poorly performing staff. Because far from recovering, as they both suggest, the latest data doesn't indicate a recovering US economy at all but precisely the reverse: a place wherein all that the Fed's phony paper money is sloshing around the highly inflated stock markets while  every real measure of recovery is on the floor or falling.

The evidence of an improved labor market, higher corporate earnings and the return of the housing market are all based upon misleading data [observes Charles Biderman in Forbes magazine]…

• The only increase in cash since the March 2009 has been the Federal Reserve giving newly created money away as payment for government expenses… The combined $4 trillion deficit, when added to the $1.4 trillion given away to banks to buy their worthless mortgages equals the $5 trillion increase is US debt.
• Corporate after-tax income is growing at just under 3% year-over-year, not keeping up with inflation… The reality is that if income tax collections are not growing very fast than neither are the number of new jobs. That calls into question the recent BLS press release that said jobs are growing fast.
• Without seasonal adjustments unemployment claims are currently down the same 10% year-over-year as the past six months. In other words, by counting year-over-year numbers there is no improvement…
• Real-time data, ignoring seasonal adjustments and counting year-over-year numbers, indicate both prices and sales of new and existing home sales are pretty much unchanged from year end 2011…
• Yes the stock market has been going up, but that does not have to mean the U.S. economy is improving. While U.S. and European stocks have been going up, gold keeps rising faster. That means it is not gold that is a chimera, or a phantom, it is the U.S. currency that is a phantom.

This is not anything like the US of Mr Gould’s dreams then. This is the real US data from just yesterday--real data that doesn't corroborate an improving U.S. economy. 

Real data indicating Messrs Gould, Morgan, Carran, Field—and Pollyanna—have all been talking through their hats.

So perhaps instead of talking about some non-existent “austerity” of today, or talking up the failed super-Keynesian stimulus of the 1930s, they might instead look at the last time a serous economic depression was seriously allowed to play itself out by adopting the real hands-off approach Mr Gould erroneously attributes to Mr Hoover.

It was the Great Depression of 192o.  The Great Depression you’ve never heard of.

And the reason you’ve never heard of it before?  Because the hands-off real austerity turned around a bigger crash than 1929’s plunge in less than eight months.

And oddly enough, it was similar policies that eventually allowed most of the non-US western world to recover from the Great Depression , while Franklin Roosevelt (following Mr Gould’s recipe, which includes every ingredient necessary to stop a recovery in its tracks) was busy making it impossible for America to recover.

But don’t expect to hear that from a failed politician. Or Gareth Morgan’s “experts.”