Wednesday, November 17, 2010

Taxpayers about to be hooked, thanks to "taxpayers on the hook!"



When the government was bailing out GM there were cries everywhere of "taxpayers on the hook." The reality, however, was exactly the opposite: the government injected cash into the economy, saved GM and many workers' jobs and sustained a vital portion of our industrial capacity, which we use every day to produce the goods that Americans and others consume.

This was in no way "hooking" taxpayers.

Now, GM will go public once again and the U.S. government will sell $13 billion worth of the stock that it holds in the company. (See Matt Franko's previous post.)

Ostensibly, this sale of $13 bln worth of stock represents a "payback" to taxpayers (if you go by their "taxpayer on the hook" logic).

But is it?

The government sells its stock to taxpayers, who fork over the dough and that money goes to Treasury...taken out of the economy for good. That's a payback???

The moral of the story is, when you act like you're putting taxpayers on the hook when you're not, you really DO put taxpayers on the hook!!

36 comments:

Tom Hickey said...

Oh well, it sounds good. Isn't that what contemporary politics is all about? Substance, not so much.

Seething said...

Where do you draw the line? When is it okay to bail out failing firms, and when is it not okay?

What criteria do you use?

I mean, even MMT people have to recognize that letting firms fail is good for the economy if it leads to more efficient allocation of scarce resources. Isn't that what "economics" is all about?

Is it size? Too big to fail?

Is it the type of recession? In other words, it's okay to let GM fail in normal times, but because of the nature of the recession, they needed to be bailed out this time..?

Matt Franko said...

Mike/Tom,

maybe we can watch this and determine how important is this approx 110B/mo flow as the 'NFA savings desires' of the non-govt sector.

I think the MMT thought leaders view this number as sort of irresistible. Latest evidence in Greece as they supposedly cut back on fiscal (via 'austerity') in an effort to reduce the deficit and voila, the latest figures show an actual increase in the deficit as predicted by MMT (economic activity down/automatic stabilizers up)...its like the non-govt sector will not be denied its savings.

So here with the IPO, if the balances just go back over to the Treasury side, it may result in a bit of a hit to early holiday sales as the non-govt sector will cut back by the 13B or so in order to maintain their 110B/mo savings desires.

This number 13B (although 10+% of the monthly fiscal) doesnt look very high wrt monthly retail sales of over 300B but maybe there is a 'multiplier' type of phenom with this.

I guess a confirmation would be if early retail sales reports are not as robust as predicted... may be hard to tell.

Resp,

Matt Franko said...

Seething,
I see your point but Mike has blogged in the past about how the foreign auto makers enjoy certain fiscal advantages within their own external jurisdictions, (health care, R&D, retirement, etc..) that the US auto Cos. do not... so that would tend to put the US Cos at a competetive disadvantage globally and may have contributed to their demise. Govt had to get involved, etc.

Resp,

Mike Norman said...

Seething:

They're not failing. Their cars are selling! And these are cars that were conceptualized and in development since 5 years ago or more. We would have killed this production if we stuck with the idea that they were "failed" entitiies that should be left to die. Who do you kill off as well? Autoparts makers, servicers, dealers, etc.

welfarewarfare state said...

Mr. Norman,

When government takes from one taxpayer to give to an organized interest like Big Labor (read G.E.) for instance, it is easy to see the spending that results from the transfer of wealth. Economics is more about what is not seen than what is seen though.

The money confiscated from those individuals to pay for G.M.'s bailout had to be taken from wealth generators by definition. If they weren't wealth generators then there would have been no money to confiscate. So: the government takes money from market actors who have proven themselves to be efficient users of capital by a profit/loss test and transfers the wealth to market actors who have proven themselves to be inefficient users of capital. I'm sure you think this bit of insanity is good policy.

One must learn to look beyond a simplistic stage one level Mr. Norman. What would those wealth generators have spent/invested THEIR money on if not for the government confiscating it? It's easy for a strutting politician to point to some government project and say, "Look what government spending has created." It's impossible to know what private sector project wasn't started because the money was transferred to those who would use it for political ends.

Government is an inefficient user of scarce resources because it lacks mechanisms to sort. It has no profit/loss feedback test to ascertain whether it is using scarce resources efficiently. In fact, government has every incentive to be bloated and use resources inefficently for political ends.

If a routine banruptcy had run its course then G.M.'s assets would have been reallocated. If G.M. were allowed to fail then we would all be better off in the long run because GM was an inefficent user of scarce resources by market test. It isn't like the capital to produce the autos was going to vanish into thin air. The workers' skill sets weren't just going to vanish into the ether, either. The debt should have been liquidated, and whatever assets, including labor, they had could have been purchased by other producers of autos. In other words, efficient users of scarce resources could have purshased the assets, and we would have all benefitted from it in the long run.

cheers!

welfarewarfare state said...

The above post should have read (read: G.M.) not (read: G.E.). I think it is an understandable mistake given that General Electric is a political capitalist just like Government Motors.

Seething said...

Matt, your argument is that GM needed a government bailout because it's in an unfair position compared to car makers in other countries? And the recession made that position worse?

If there was no recession, but GM still found itself in difficulties, would you bail them out still, using that "at a competitive disadvantage" rationale?

Ford didn't take any bailout, did they? I don't know the details, but what made Ford able to withstand the storm, but not GM?

Mike, I don't understand what you mean in your first two sentences. A firm can be selling its product but still failing. I can have customers lining up at the door, but at the same time I could be mismanaging the firm into bankruptcy.

If GM wasn't failing, then why did they need a bailout?

The last part of your comment seems to be the Too Big To Fail idea? If GM goes, it would send a ripple effect throughout the economy, which would have made a bad recession much worse. And that would have been the last thing we need when the economy was cliff-diving.

BTW, I'm not arguing with anybody. I'm just thinking in broadly theoretical terms about government and business, and the extent of government involvement in the marketplace and when it's okay for the government to support a business, and when it's not okay.

hiljaa said...

More embarrassment and pie in the face for Peter Schiff!

http://www.youtube.com/watch?v=KqDzaG_z1tk

Marty Steinberg said...

The government sells its stock to taxpayers, who fork over the dough and that money goes to Treasury...taken out of the economy for good.

That's really hilarious. "fork over", like someone has a gun on the investors' head. LOL.

Try not paying taxes, you will quickly know who has more guns - you or Uncle Sam.

In the long run, we are all dead. Keynes did die relatively young.

Marty Steinberg said...

Oh, I agree with you there. The U.S treasury is indeed a blackhole - money pit. :-)

googleheim said...

Let's look at Marty's comments which remind me of those in the other posts who are pointing at Norman's fingernails and not discussing what the finger is pointing towards ...

The "tax payer on hook" shenanigan is played by all the Republican'ts and Blue dogs, and even Noam Chomsky!

The economy tanked so the ball field lost a lot of dirt ( money ). Huge swaths of it.

If no one fills in the dirt, then the players fall in and the game cannot be played.

Sustaining the businesses that add to our economy and not the speculation con artists on Wall street has always been pointed out by Norman in this blog.

If you fill in the dirt so they can play the game, then take the dirt back, then you have done nothing to promote the next game(s).

However, if you at least look at the point that the teams got to play that last game then at least something was accomplished.

However, first the dirt / money was removed by over speculation in the market, then the dirt / money was filled up by the Fed/Tsy as part of the temporary fix.

Then the Fed/Tsy takes the dirt back out.

So there are two points you can make from here with questions :

a. Did the temporary fix allow natural erosion in the market to fill the holes so the Fed / Tsy can take it's dirt back ?

b. Does taking the dirt back out of the field cause more holes to occur or at least delays in the up coming game since that money was being used for a good purpose in the playing field ( real economy ) ?

googleheim said...

Either way, the Fed is not printing money because it feels like it. It is "printing" because the CDO's were more ferociously hyper-printing than the Fed.

Come to think of it, these WMD's
( CDO's and the gammut of debt SPAM processing ) blew up the economy to false levels of value, then defragged into a compressed state of collapse.

These false levels of value equated into real time hyperinflation. The real economy was way overvalued.

This is the real economy printing money and value to make more debt into printing money and value to make more debt into printing money and value, until it popped.

So for these nit wits to scream the sky is falling and hyper inflation is coming when the Fed & Tsy follow standard monetary policy, that is a farce and a Republican and Austrian lie.

Austrian economics is dead as Nietzsche - it is completely inapplicable when the Austrian's themselves will not come and pay the taxes in the German precision manner.

So whenever an Austrian tells you that you cannot print money or stimulate the economy, then they need to be reminded that OK fine we'll not do that but look what your CDO debt Spam complex did to the real economy during the Bush years.

Marty Steinberg said...

Mike,

I just watched a couple of month old video of yours on Varney & Co. Great show Mike. You said money printing during WWII lead to generation long boom. I want to see the data, the regressions, variables, coefficient of correlation etc. on that one.

Paul Samuelson, one of the most prominent Keynesians, worried that economy would collapse into a deeper depression after the WAR, because government would stop spending money on destruction. LOL. His fears came true, at least partially. Government cut its budget by over 60% after the war. Economy boomed. LOL.

Matt Franko said...

Thinking more about all of this...

when Treasury made the initial investment it was for a purchase of Financial Assets (shares) so that would not have added to AD. (at least directly, but did aid stability, etc) (I think we said so at the time)

Now here when they take it back, although it may not be a hit to AD (it is not a broad tax per se), perhaps it puts pressure on FA prices as something has to be sold to raise funds to give back to the govt?

so we may not see any hit in AD/Sales from this just maybe a small sell off in FAs... This months fiscal deficit should in any case be smaller than otherwise.

It may come down to what the impact of the actual (cash basis) fiscal deficit really means to the non-govt sector... is it the net effect on AD that is important, or is it the provision of NFAs to the non-govt sector that is the operating influence...

Marty Steinberg said...

Mike,

Couple of other things about that WWII episode: Government spending COLLAPSED at a time when government spending was the economy.

You told cavuto that you know how to make money if Tea Party gets a seat at the policy table. I hope this is not going to be another episode of Real Estate going up 10% in 2007. Are you shorting the market Mike?

I heard you say elsewhere that you are going to buy GM on IPO. That's awesome, Mike. So are you sending your taxpayer money to the blackhole of U.S treasury?

Mike Norman said...

Marty Steinberg:

The figures below are Federal Gov't expenditures (billions $) from 1947 - 1966. Show me where they collapsed!

1947-01-01 37.4
1947-04-01 37.2
1947-07-01 39.6
1947-10-01 35.8
1948-01-01 36.2
1948-04-01 37.4
1948-07-01 40.2
1948-10-01 41.1
1949-01-01 43.3
1949-04-01 44.4
1949-07-01 43.9
1949-10-01 42.3
1950-01-01 49.7
1950-04-01 42.7
1950-07-01 38.2
1950-10-01 42.3
1951-01-01 47.3
1951-04-01 51.6
1951-07-01 55.5
1951-10-01 58.7
1952-01-01 57.9
1952-04-01 61.4
1952-07-01 64.2
1952-10-01 64.9
1953-01-01 65.8
1953-04-01 67.8
1953-07-01 66.1
1953-10-01 67.5
1954-01-01 65.0
1954-04-01 63.7
1954-07-01 63.7
1954-10-01 64.4
1955-01-01 64.8
1955-04-01 63.6
1955-07-01 67.2
1955-10-01 66.0
1956-01-01 65.7
1956-04-01 68.9
1956-07-01 67.7
1956-10-01 71.0
1957-01-01 74.4
1957-04-01 75.6
1957-07-01 75.6
1957-10-01 78.7
1958-01-01 76.9
1958-04-01 81.9
1958-07-01 83.3
1958-10-01 84.0
1959-01-01 81.8
1959-04-01 83.6
1959-07-01 84.0
1959-10-01 85.4
1960-01-01 84.0
1960-04-01 86.1
1960-07-01 87.1
1960-10-01 90.0
1961-01-01 89.8
1961-04-01 93.4
1961-07-01 93.6
1961-10-01 95.0
1962-01-01 98.7
1962-04-01 100.4
1962-07-01 101.9
1962-10-01 103.8
1963-01-01 105.1
1963-04-01 105.1
1963-07-01 106.8
1963-10-01 109.0
1964-01-01 110.8
1964-04-01 111.7
1964-07-01 110.6
1964-10-01 110.5
1965-01-01 112.0
1965-04-01 114.7
1965-07-01 120.3
1965-10-01 123.9
1966-01-01 127.6
1966-04-01 133.9
1966-07-01 138.2
1966-10-01 143.2

Marty Steinberg said...

Mike,

I knew that you were very clever. Very clever indeed. I watched that video clip you made of Peter Schiff's investment record - made a couple of months ago - where you decided to pick middle of 2009 instead of the day you made that video. LOL.

What about including data from 1940, or 1945? ha ha ha.

Here is the data for those not interested in the spin, which you are very good at, yet not soooo good at.

Year Outlays ( billions) Receipts
1943 78.6 24.0
1944 91.3 43.7
1945 92.7 45.2
1946 55.2 39.3
1947 34.5 38.5
1948 29.8 41.6 ( look at that surplus. Wow! ) Can you say boom!

Marty Steinberg said...

Those who are interested in the truth without clever Mike Norman spin can look at the data here.

http://www.whitehouse.gov/omb/budget/Historicals/

Marty Steinberg said...

BTW, I do think that Peter Schiff is no great investment advisor. However, I don't see any sinister motive or fraud there.

DoggeyStyleMikey said...

What artificial lending standards are you talking about?!?!?!!?!?

hiljaa said...

CONVERSATION WITH PETER SCHIFF RE. HIS GREAT GM PREDICTIONS:

hiljaaidiotii
1 day ago
Does that pie on your face taste good Peter? Hahahaha.

General Motors shares [GM 35.39 + 2.39 (+7.24%)] traded up 7 percent on Thursday morning, in a dramatic market return for the top U.S. automaker that comes less than a year and half after it emerged from a government-funded bankruptcy.

v=bmIM87OwFHQ

SchiffReport
1 day ago
@hiljaaidiotii Not sure how a GM IPO means I have pie on my face. Now if over the next few years GM shares out preform the market you might have a point, but at this stage of the game it is way too early to tell. Remember I predicted GM would go bankrupt years ago and I was spot on. So my GM track record so far is very good.

SchiffReport
1 day ago
@hiljaaidiotii Again why does a 7.24% pop on the IPO mean I have egg on my face? Almost all IPO's rise on their first day of trading. What does that prove?  I never said that GM shares would open below the IPO price. There is no way Wall Street would even allow that to happen.

hiljaaidiotii
18 hours ago
@SchiffReport

Direct quotes from you from various interviews:

"What's going to happen is that they (GM) are not going to meet the criteria, they're going to come back under the new administration and they're going to say 'You know what, things got even worse, things are worse than we thought, we can't meet it, we need more time, its going to go on and on and on and its going to be a never ending money pit..."

hiljaaidiotii
18 hours ago
@SchiffReport

(cont'd)

"If you think these companies are such good investments, you put your own money into it. If they really think they have a good plan, let them sell it to the private capital markets, don't let them go hat in hand to Washington. Thats because they don't have a viable plan."

Well, they did go to the capital markets with a plan that investors think is so great, the share offering was 4x oversubscribed, with a very broad base of investors.

Care to comment on your two quotes and predictions?

NO REPLY AT ALL.... HAHAHA~~~~~~~

hiljaa said...

The "pie in his face" comment was in reference to these 3 videos on Youtube:

http://www.youtube.com/watch?v=KqDzaG_z1tk

http://www.youtube.com/watch?v=bmIM87OwFHQ

http://www.youtube.com/watch?v=sDf9fI0l2iw

bubbleRefuge said...

Those who are interested in the truth without clever Mike Norman spin can look at the data here.

http://www.whitehouse.gov/omb/budget/Historicals/

What are you talking about? The point is that deficits during WWII took us out of the great depression and set the stage for the prosperity of the 50's and beyond. This prosperity was because the deficit spending restored the 'balance sheet' of the private sector increasing savings and reducing unemployment to nothing. These deficits were unprecedented and unmatched in scope even today. WWII deficits wre 24% of GDP. Today we are at 10% of GDP and shrinking.

Marty Steinberg said...

This prosperity was because the deficit spending restored the 'balance sheet' of the private sector increasing savings and reducing unemployment to nothing.

Very clever. Soviet Union also had 0% unemployment rate.

Prosperity was not restored until the demise of FDR and scaling back of government. WWII was not a period of prosperity. It was period of shortages & price controls. And yes, Paul Samuelson openly worried about the greater depression after the war. Read the works of Bob Higgs on the myth of WWII curing the Great Depression, or a paper by Wedder & Galloway titled "Great Depression of 1946".

George Selgin, who btw supports QE2, has a working paper written along with Lastrapes & White on destabilizing effect of the creation of the Central Bank on the economy. Of course, they draw liberally from the works of such "economic kooks" as Christina Romer et al.

Any how, you still have to admire the spin Mike Norman put on the whole thing by cherry picking his numbers.

bubbleRefuge said...

Prosperity was not restored until the demise of FDR and scaling back of government. WWII was not a period of prosperity. It was period of shortages & price controls In terms of economic variables such as GDP, unemployment, and inflation it was a period of great prosperity. Your soviet union analogies are right out of the fox news playbook. Mike statements are accurate. I don't agree with everything he proposes in terms of policy but his economics are solid.

Marty Steinberg said...

In terms of economic variables such as GDP, unemployment, and inflation it was a period of great prosperity.

Based on such statistical artifacts, it was a period of great prosperity. However, inflation measurements were faulty because of price controls, shortages and rationing. Since Inflation measurement was faulty, so was GDP deflator. Unemployment sure was low. You can get unemployment down buy just lining up and shooting the unemployed.

Economics as subject is not solid. All other things have to remain equal for saying something solid about economic variables, but all other things rarely do remain equal. You can say whole lot less about a person's economics than economics in general.

"Curious task of economics is to demonstrate to men how little they really know about what they imagine they can design" - F.A Hayek, Nobel Prize in Economics 1974 for Business Cycle Theory.

bubbleRefuge said...

Based on such statistical artifacts, it was a period of great prosperity. However, inflation measurements were faulty because of price controls, shortages and rationing. Since Inflation measurement was faulty, so was GDP deflator. Unemployment sure was low. You can get unemployment down buy just lining up and shooting the unemployed.
I repeat. The point is that the economics of WWII worked. It set the stage for the prosperity of the 1950s and beyond.

Marty Steinberg said...

I repeat. The point is that the economics of WWII worked. It set the stage for the prosperity of the 1950s and beyond.


Does it make it true because Keynesian keep repeating that fallacy? Do you have any proof that's what caused prosperity and not gazillion other things that happened during and after the war?

bubbleRefuge said...

What is proof? The only way to prove it is to go back to the 50's and ask every us citizen: Where did you get more money and why did you decide to spend it?

In the absence of absolute proof what we have is the economic indicators. We saw an dramatic boom following a dramatic bust with a huge us budget deficit in between( the largest in history.)
That budget deficit put a tremendous amount of money into the economy. What more do you want?

Marty Steinberg said...

"Indicators" have been found to be faulty, including the 25% GDP growth in 1941. LOL.

I want the regression, correlation coefficient, data & variables. Not just an ex-post story that conveniently fits one's belief system.

Of course, prosperity returned after Government spending COLLAPSED, which Mike Norman tried to obfuscate for obvious reasons. It punched a gaping hole in Mike Norman's belief system, which tremendously inconvenienced him.

Marty Steinberg said...

"When this war comes to an end, more than one out of every two workers will depend directly or indirectly upon military orders. We shall have some 10 million service men to throw on the labor market. We shall have to face a difficult reconversion period during which current goods cannot be produced and layoffs may be great. Nor will the technical necessity for reconversion necessarily generate much investment outlay in the critical period under discussion whatever its later potentialities. The final conclusion to be drawn from our experience at the end of the last war is inescapable--were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties--then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced. " - Paul Samuelson on end of WWII.

Almost all of his worries came true, except the greatest period of unemployment and industrial dislocation. Yes, spending collapsed between 1945 & 1948, and economy prospered. What more proof do you need for proving that cutting government spending works?

bubbleRefuge said...

"Indicators" have been found to be faulty, including the 25% GDP growth in 1941. LOL. I'm not sure there was 25% GDP growth. Their was 25% deficit to GDP ratio during WWII.
Of course, prosperity returned after Government spending COLLAPSED, which Mike Norman tried to obfuscate for obvious reasons. It punched a gaping hole in Mike Norman's belief system, which tremendously inconvenienced him. Mike is correct. Prosperity ( lets us say sustained GDP growth and low unemployment) peaked during the war and remained robust after the war due to repaired balance sheet caused by the large deficits. The Government spending collapse as you put it reduced GDP by a proportional amount. Its simple math: national income (Y) = C + I + G + X
where C=consuption I= investment G=government spending and X equal trade balance

bubbleRefuge said...

Almost all of his worries came true, except the greatest period of unemployment and industrial dislocation. Yes, spending collapsed between 1945 & 1948, and economy prospered. What more proof do you need for proving that cutting government spending works? It works if something else can pick up the spending in Y=C+I+G+X. If not then it doesn't work. Your argument makes no sense. How can cutting government spending work unless your goal is to reduce GDP? Let me be clear, I am not saying that GDP should never be cut. There are cases when lower GDP is desirable such as when inflation is too high.

Marty Steinberg said...

Y=C+I+G+X

There lies the problem. In that equation there is no room for crowding out.

Now consider this:

Y=C+I+X-G

Then you will understand why government spending hurts the economy.

bubbleRefuge said...

Huh? You don't like the math so you invent your own equations to suit your self instead of arguing on the facts.