[tw]

As Clinton so often said, "It's the economy stupid." A driving force behind these mid-term elections. Unfortunately too many saw bottom line unemployment numbers. Ignored facts such as the recession has ended. That job losses have been constantly decreasing since the worst losses in Jan 2008. And decreasing job losses will continue maybe until next spring. It is how economics works when economic recovery is strong.

Meanwhile another discussion is ongoing among insider economists. Many view a Japanese economy that suffered these same problems a decade earlier, did not address them forthwith, and have never really seen a robust growth rate since then.

Whereas deficit spending can be used to overcome a liquidity (cash flow) problem. And that is what TARP did so successfully. Deficit spending afterwards is long term harmful. The Japanese continued deficit spending to fix their economy. And therefore were not rewarded with robust growth. That is bean counters doing economic growth. We know bean counter types can harm growth and cannot create growth. They can only make growth possible by acting as bank tellers; by serving all other productive (innovative) people. But bean counters and Wall Street foolishly think they create growth with money games.

Unfortunately economists now argue that deflation must be Japan’s problem. Nonsense. Deflation is a symptom. But economist mind games assume economics can create product innovation. They propose tax cuts, deficit spending, buy American, and even ethanol production. And now even suggest that higher inflation will create economic growth.

With interest rates at a zero (or negative depending on how factors are weighted), many economists are now encouraging inflation to create growth. Latest proposal is to manipulate price increases. As usual, they ignore the only thing that creates economic wealth - innovation. Their reasoning is based in the same myth that low interest rates, tax cuts, and deficit spending creates economic growth.

How did America create growth after those lies were so exposed in the 1970s? Volker forced interest rates to exceed 20%. The resulting reduction in American living standards during Carter’s reign cause economic growth to occur in the second half of Reagan’s first term. It takes that long for actual economic growth to appear on spread sheets. Four to ten years after the actual problem is eliminated. Tax increases to create balanced budgets – not tax cuts – create jobs and wealth. A reality that contradicts widely believed myths. Welcome to Economics 101 with political spin removed (with contempt).

There is no way around the hard solution. Any attempt to use Wall Street spin and money games to create growth means economics takes revenge on everyone else many years later. We let the liars (Bernie Madoff, Lehman Bros, AIG, etc) get rich. Time to pay for their money games, government welfare to the rich, and easy money.