During Presidential primaries, voters consider not only the policies of the candidate they are voting for, but also their ability to win in the general election. While far left and far right candidates may have some success in energizing their base, many primary voters eschew their preferred candidate if the one they deem as next best is more likely to win the general election. 2012 seems ripe for this line of thinking, as nobody actually likes any of the Republican candidates and most voters in the GOP’s primaries are thinking along the lines of “Please God, anything but four more years of Obama.” Because I am such a caring person, I decided to help out Republicans who may be thinking this way by crunching the numbers and figuring out who is the most electable. “What numbers?” you ask. It is for reasons like this that God invented intrade.com, a website which allows you to buy and sell “shares” of future events. Because open markets consolidate the best available information in their price, I took the probability of a candidate winning the Republican primary and divided it by the probability of him or her winning the general election. The result is the probability of them winning the presidency should they be the Republican nominee, or their electability percentage.
Alan Blinder wrote an editorial today for the Wall Street Journal that makes me question if the Journal’s editorial staff is losing it or actively attempting to infuriate people who understand economics. Blinder seems insistent that Republicans are crazy for preaching that government spending destroys jobs. Lets put aside the fact that no Republican with any substantive power (sorry Ron) actually wants to cut spending and pretend he criticized libertarians for decrying government spending as wasteful.
I’m actually impressed that Blinder was able to recognize two of the ways government spending harms the economy, but he reaches a stumbling block when confronted with how the Federal Reserve manipulates interest rates. Blinder points to the fact that interest rates have remained low despite the government borrowing money as proof that crowding out has not occurred. Of course, this completely ignores the fact that the interest rates he points to are not interest rates in any real sense of the term. The Fed sets the interest rate at an arbitrary level which does not correspond to the amount of wealth saved by society.
I am going to make this point once: WHEN THE GOVERNMENT SPENDS MONEY, THE PRIVATE SECTOR (That’s you, America) PAYS FOR IT. There is no way the government can magic up the wealth necessary to pay for any of its outlays. In this case, the Fed’s below market interest rates are causing an increase in the money supply. When the money supply increases, our money gets less valuable, regardless of what the CPI says. This is how we have paid and will continue to pay for the stimulus packages. When the government spends a dollar that its taken from your pocket, the best it can do is spend the money as you would have yourself. Although this is theoretically possible, it almost never happens and you (America) get stuck paying a dollar for something you value less than a dollar. Unlike what proponents of stimulus spending tell you, there’s no magic that multiplies your money when it passes through the hands of the government.
Blinder also attacks the idea that government spending creates uncertainty. Government spending does not create uncertainty, lack of administrative respect for the rule of law does. The constantly changing regulatory rules scare business away from long term investments, and government spending squanders resources and crowds out private investment.
According to his byline, senor Binder is a former Vice Chairman of the Federal Reserve. Thank you for taking the time to read my rantings, but I’m off to go high five a belt sander to take my mind of the fact that this man had so much power over our economy.
