Red Queen Economics
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by Chip Krakoff

Economics is not quantum physics. The mathematics may be abstruse in either case, featuring equations which, having run out of Greek letters, resort to smiley faces and other symbols to designate variables. But whereas quantum physics is so hard that even its practitioners don’t entirely grasp it – Nobel Prize-winning physicist Richard Feynman said, “I think I can safely say that nobody understands quantum mechanics”there is nothing terribly difficult about the concepts underlying economics, even if there is spirited disagreement over some of them.

This is why the profound idiocy infecting American fiscal and economic policies is so disheartening. Either our elected and appointed officials and candidates for high office are completely ignorant of the most basic economic principles or they are lying in an effort to win political favor. I’m not sure which explanation is more frightening. Former Minnesota Governor Tim Pawlenty, considered one of the more moderate and “grown up” candidates for the 2012 Republican Presidential nomination, last week came out with his economic plan, which Financial Times columnist Clive Crook called “an idiotic farrago…stunning in its vapidity.” If anything, Crook is too kind.

According to Pawlenty’s so-called plan, the real problem is that the U.S. has not had an ambitious enough GDP growth target, which he proposes to remedy by setting it at five per cent a year. And hey, presto! In 10 years the deficits are gone and millions of new jobs are created. But it can’t be long before another would-be nominee ups the ante, declaring five per cent too wimpy and proposing eight per cent, which would eliminate the deficit and restore full employment in only seven years. This is Red Queen economics, believing as many as six impossible things before breakfast. Or Humpty-Dumpty economics: “When I use a word…it means just what I choose it to mean — neither more nor less.”

You don’t have to be a Nobel Prize winner to know that sustained five percent annual growth for an advanced, post-industrial economy is inconceivable. Countries like Chile or Thailand or Malaysia can grow that fast, but their economies tend to be more volatile, so in any 10-year stretch they are likely to experience at least a couple of years of sub-par or even negative growth. Yes, Sweden, currently the best-performing rich country, experienced 4.5% growth in 2010 and is expected to do the same in 2011, but in 2012 it is forecast to revert to a more moderate three percent, much closer to its long-term average. And Sweden, far from being the socialist paradise Obama supposedly wants to replicate in America, has a more competitive capitalist economy than the United States, at least according to the World Economic Forum competitiveness ranking, in which the U.S. sits in fourth place.

It’s tempting to declare the Republican Party insane, and wonder if someone has slipped LSD into Iowa’s water supply, but if the Republicans are idiots the Democrats must at least be morons or imbeciles, according to the old taxonomy of mental deficiency. Rep. Paul Ryan’s proposed budget plan, which would replace Medicare with a system of vouchers for private insurance, may be a step too far for most people, but without some way of controlling health care costs the system will go bankrupt. Meanwhile, House Democratic leader Nancy Pelosi says, “I could never support any arrangement that reduces benefits for Medicare.”

Not only do the Republicans refuse to contemplate any tax reform that might somehow, somewhere, raise someone’s marginal tax rate, they also object to any tax reform that would broaden the tax base and increase revenues, even if it left tax rates unchanged. Because, in the words of Grover Norquist of Americans for Tax Reform, “My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.” Norquist has voiced his opposition to ending ethanol subsidies, since doing so would free up money the government could use for something even worse, like funding NPR.

For Democrats, the only acceptable tax reform is to increase taxes on Americans earning more than $250,000 a year, the roughly two per cent of the population that currently earns 27% of all personal income and pays 48% of all personal income taxes. In 2010, this group paid around $454 billion in personal income tax, or about 21% of total federal tax revenues, which also include Social Security and Medicare taxes, customs duties, excise taxes, and corporate income tax. So you could double the tax burden on this group and we would still have a $1 trillion deficit this year. Much as the Democrats might wish otherwise, you can’t balance the budget by raising taxes on the rich, however you define them. So Democrats, just like Republicans, reject any suggestion of broadening the tax base, though for different reasons. The two sides, barely on speaking terms otherwise, are happy to unite to oppose any reduction or elimination of tax deductions for mortgage interest and employer-paid health insurance, which together cost over $300 billion a year, as well as the $6 billion ethanol subsidy program.

“Every nation gets the government it deserves,” is a quote attributed to everyone from Thomas Jefferson to Ayn Rand to Eldridge Cleaver, and it is probably true, which means that if we are governed by idiots and liars, it is probably because we ourselves are idiots and liars. Idiots, because no one with a lick of sense could possibly believe anything the politicians are telling us about how to rebuild the economy and restore fiscal balance, and liars, because we lie to ourselves about how everything will be okay and the value of our house will once again rise at seven percent a year.

If we want to elect a better class of politicians than the current crop, maybe a good place to start would be to stop lying to ourselves and stop accepting idiot remedies proposed to us by lying idiots. I don’t know for sure if it will work, since it hasn’t been tried for at least 50 or 60 years. But isn’t it worth a shot?

Posted 07-01-2011 2:05 PM by Charles Krakoff