Roubini Helicopter Money Drop

The Nouriel Roubini 'tracking blog' (yes, there is such a thing…) informs us that the master thinks that 'the saving madness must be stopped'. Similar to Krugman,  Roubini seems to believe that the best thing one can do when one is at the threshold of insolvency is to somehow spend even more. Roubini is calling for the functional equivalent of a helicopter money drop according to the blog entry, without explaining in detail who should pay for it or why it would actually be a good thing (presumably, it is held to 'spur growth').


“The savings madness must be stopped. Governments must lower taxes and increase wages. Europe needs growth. The German government should give every German household a 1000 euros travel voucher. However, it should only be used for holidays in crisis countries. That will help boost growth there. In addition, everyone who buys a holiday home in a southern European state should get a tax bonus.”


Keynesians generally view savings as a bad thing – in their view, prosperity is a result of consumption. Therefore, they think that economic growth can be attained by increasing spending and hence consumption; production is supposed to follow automatically.

Those of our readers familiar with older editions of Samelson's 'Economics' textbook (the passage has been excised in later editions) may recall the Keynesian 'accelerator principle', which holds that an X% increase in consumption will lead to a proportionally higher  increase in capital spending. We don't want to list in detail here in how many ways this is utterly misguided, especially as it has obviously been retracted, but this method of putting the cart before the horse – this fantasy world, in which one first consumes and then produces, or rather, hopes that production will swing into action as if by magic –  is  fairly typical Keynesian fare.

Robert Higgs has really put it best in his book 'Delusions of Power' – we have quoted this passage before, and in all likelihood will find opportunity to quote it again, because it is such an apt and trenchant description of what differentiates the views of economists from the comparatively crude ones of Keynesians like Roubini:


“John Maynard Keynes persuaded his fellow economists and then they persuaded the public that it makes sense to think of the economy in terms of a handful of economy-wide aggregates: total income or output, total consumption spending, total investment spending, and total net exports. . . .

In fact, “the economy” does not produce an undifferentiated mass we call “output.” Instead, the millions of producers who bring forth “aggregate supply” provide an almost infinite variety of specific goods and services that differ in countless ways. Moreover, an immense amount of what goes on in a market economy consists of dealings among producers who supply no “final” goods and services at all, but instead supply raw materials, components, intermediate products, and services to one another.

Because these producers are connected in an intricate pattern of relations, which must assume certain proportions if the entire arrangement is to work effectively, critical consequences turn on what in particular gets produced, when, where, and how.

These extraordinarily complex micro-relationships are what we are really referring to when we speak of “the economy.” It is definitely not a single, simple process for producing a uniform, aggregate glop. Moreover, when we speak of “economic action,” we are referring to the choices that millions of diverse participants make in selecting one course of action and setting aside a possible alternative.

Without choice, constrained by scarcity, no true economic action takes place. Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception, the intellectual equivalent of a baby toy.”


(emphasis added)

The above is also why modern neo-Keynesian balderdash like the lately popular warmed-up Chartalism (these days referred to by the more spiffy moniker 'MMT', although it is nothing but the same hoary inflationism preached by G.F. Knapp way back when) should be flatly rejected. 



Nouriel Roubini: eager to see more spending.

(Photo via: Bloomberg)



Charles 'Gutenberg' Evans Eggs on Stock Market Rebound

In a reversal of Monday's poor showing, the US stock market decided to go up again on Tuesday, a move that really became pronounced when Chicago Fed president Charles Evans grabbed a microphone to once again inform us of the urgent need for more money printing. The market had almost given back its initial gains after Fitch downgraded 18 more banks in Spain, but then Evans worked his magic:



The S&P 500, intraday – Evans rescues the rally – click chart for better resolution.



SPX daily -the rally has nearly taken back Monday's losses – click chart for better resolution.



Evans, we learn, would 'support various stimulus plans'. Nothing is beyond the pale – he apparently has yet to meet a stimulus method he doesn't like. He remains completely undeterred by the fact that nothing has worked so far.

As far as we can tell, 'QE' has only managed to goose stock and commodity prices – with the former creating a completely phoney 'wealth effect' and the latter imposing an additional tax on consumers.


„Federal Reserve Bank of Chicago President Charles Evans said he would support a variety of measures to generate faster job growth, underscoring his preference for more stimulus.

“I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu that was aired today. “Extending the Twist would be useful,” he said, referring to a plan expiring this month that lengthens the average duration of bonds in the Fed’s portfolio. “More asset purchases would be useful. More mortgage-backed securities purchases would be good.”


“I would prefer that we worked harder to clarify our forward guidance,” Evans said in the interview recorded yesterday in Chicago, reiterating his call for the central bank to commit to low interest rates until the unemployment rate falls below 7 percent or inflation breaches 3 percent.


“At the moment we’re looking at probably 2.5 percent growth over the next two years,” Evans said. “I’d like the economy to be a lot stronger. As long as it’s only economic shocks I think we’d be able to weather that without too many difficulties.”

“I’m sure that we’ll get the unemployment rate below 7 percent — the question is when,” said Evans, who was the only member of the FOMC last year to dissent in favor of more stimulus. “It’s currently going to take longer than anybody would like. If we had more aggressive monetary policy, it would happen sooner.”


While Spain’s 100 billion-euro bailout is a “turning point for the better,” the Fed must do what it can to ensure the U.S. Economy can withstand “any shocks we get from Asia or Europe or from fiscal policy here in the U.S.,” Evans, 54, said. “It’s good policy to make sure we have the most vibrant economy possible.”

The Chicago Fed chief told reporters after a speech yesterday that additional asset purchases would be helpful even with Treasury yields near record lows. Purchases of mortgage- backed securities would “provide additional confidence in the fact that our low-rate policies would be here for some period of time,” he said.


(emphasis added)

Good grief, where did they find this guy? Is there a nest somewhere? Seriously, we would argue the exact opposite of what Evans claims: the ultra-loose monetary policy has done great structural harm to the economy and has substantially hindered genuine recovery. Any economic activity that can still be bought with yet more money printing would perforce be uneconomic otherwise, which  means it will waste scarce resources and create the foundation for an even bigger bust.

The fact that the algo-bots trading stocks apparently like such news is immaterial in this context – or let us rather say: by keeping stock prices artificially high, the support from monetary pumping today does nothing but create the big losses of tomorrow.



Chicago Fed president Charles Evans: has yet to meet a monetary stimulus he doesn't like.

(Photo via: Federal reserve Bank of Chicago)



Stimulus Fail

The WSJ has a big article out on the complete failure of 'green energy stimulus' to create anywhere near the number of jobs the government has hitherto claimed to have been created. This is no surprise: the government's assertions are based on an 'econometric model' – and in these garbage in, garbage out Keynesian models the conclusion is already built into the models themselves. 'Spending' is assumed a priori to have positive effects like job creation – and since this is the underlying assumption that informs the model, it cannot possibly spit out a different result.

The difference to reality is only revealed when someone actually goes out to count the jobs that have allegedly been created. Then comes the 'oops' moment.  True, a number of 'green' cronies have made a mint; but apparently that's about as far as it went. Any industry that can not survive without subsidies is simply not worthy of survival, as it ipso facto misallocates scarce capital. If that were not so, it would receive private sector funding and produce profits.

$10 billion were spent on this particular stimulus program (named 'program 1603'). In a summary of the WSJ's findings, the National Review writes:


“On paper the program claims to have created 102,883 jobs. That’s too few jobs considering the $10.7 billion paid to 5,098 businesses for 31,540 projects according to the Department of Treasury. That’s also $97,197 per job.

But it gets worse, because these jobs probably aren’t real. This reported number of jobs is a product of formulas, mathematics models, and reports by recipients of the money rather than actual counting of jobs.


Now here is some of what we know for sure about the wind-farm jobs:

About 40 percent of the funding — roughly $4.3 billion — went to 36 wind farms. At the peak of employment, these firms employed 7,200 workers. But these were temporary jobs, as is almost always the case with stimulus money. Now these 36 farms employ 300 employees. If you do the math and calculate the cost per job, you may well fall off you chair.

● Very few local people were employed in these “new jobs” because they lacked the technical skills to work in these high-tech factories. This is an increasingly well-documented story about why stimulus money doesn’t create as many jobs as it hopes to: High-skilled jobs require high-skilled workers, and you can’t just hire anyone from the unemployment lines to do these jobs.

The American Wind Energy Association successfully lobbied the government to get $7 billion of the Section 1603 funding between 2009 and 201, claiming it would create thousands of jobs. Yet, the industry payroll declined to 75,000 in 2011 from a peak of 85,000 in 2009.


(emphasis added)

As we have pointed out in the past: it is erroneous to claim that the government or the president can 'create jobs'. Only the private sector actually creates jobs. The only thing the government can possibly contribute to jobs creation is to get out of the way and lower regulatory barriers and the burden of taxation.

It is equally erroneous to claim that 'jobs must be created to stimulate growth of the economy'. This once again putting the cart before the horse. Economic growth creates jobs, jobs don't create growth.

Here are a few more tidbits from the WSJ article (which we recommend reading in its entirety), highlighting a number of anecdotal examples:


“Raser Technologies Inc., for example, filed for bankruptcy protection last April, after receiving a $33 million grant for a geothermal plant in Beaver County, Utah.

Lecia Langston, a Utah state economist, said the plant now has fewer than 10 employees. Regulatory filings show that in the year after receiving its 1603 grant, the total number of company employees fell from 42 to 27.

When it went bankrupt, Raser owed $1.5 million in state and local taxes, bankruptcy documents show. Neil Glassman, a bankruptcy lawyer for Raser, declined to comment.

Other companies prospered. AllEarth Renewables Inc. in Williston, Vt., for example, saw its revenues rise nearly sevenfold in two years to $20 million, thanks largely to $2.3 million in 1603 funds used to install solar-power systems at homes and businesses that agreed to buy the electricity generated, said spokesman Andrew Savage.

But counting jobs beyond its own 24 employees was trickier. Each installation, Mr. Savage said, "triggers a chain of activity through our suppliers that results in jobs that are real but hard to quantify."


“In Texas, the state comptroller estimated the Cedro Hill wind farm would create 531 jobs directly and indirectly during construction in 2010 and taper down to 44 jobs this year, according to computer models and information from developers.

But county officials said few locals were hired. "I'm so disappointed," said Rosaura Tijerina, a Webb County commissioner who supported tax subsidies for Cedro Hill, which is owned by California-based Edison International. "I expected a lot more jobs."

Susan Olavarria, a spokeswoman for Edison, said 300 people worked building the wind farm, including 80 locals. "Many of these jobs require a certain level of experience in operating heavy machinery, which can limit the availability of local workers in smaller communities," she said.

Ms. Olavarria said out-of-town employees stayed at hotels and campgrounds. They shopped, she said, bought gas and ate at restaurants. Richard Castillo, a 46-year-old local truck driver, complained he was employed for just six weeks. "Am I counted in their jobs figures?" he said.

The American Wind Energy Association lobbied successfully in late 2010 to extend the 1603 program through 2011, predicting it would create thousands of jobs. Wind companies wound up with more than $7 billion of the 1603 money, yet industry payrolls declined to 75,000 last year from a peak of 85,000 in 2009, according to the association.

Iberdrola Renewables Inc., the U.S. arm of a Spanish energy giant, received more than $1.5 billion for its wind and solar projects. In January, it laid off 50 people, leaving about 850 U.S. employees, according to spokeswoman Jan Johnson.

The company takes credit for creating more than 15,000 jobs, based on economic models that count staff, suppliers, temporary construction jobs, as well as employment generated by the money workers spend on food, hotels and other purchases. Some communities are baffled by such estimates. In Kenedy County, Texas, population 416, Iberdrola said it supported 978 jobs building a wind farm there.

"How dare they claim they created those jobs," said Dick Messbarger, executive director of the nearby Kingsville Economic Development Council. "Their existence is almost invisible."

Ms. Johnson said focusing on the number of permanent jobs "overlooks not only all the manufacturing and construction positions it took to erect the turbines, but also the 850 Iberdrola Renewables employees who work every day to ensure delivery of 4,700 megawatts of clean, renewable energy across the country."

The 1603 program also nurtured the geothermal business, which produces electricity using the earth's heat. Some recipients say the federal money didn't boost hiring.

Canada-based Nevada Geothermal Power Inc. last year received $65 million for a geothermal plant near Winnemucca, Nev. The company used half the grant to refinance a loan and the rest for "drilling and corporate development," said government-relations chief Paul Mitchell. NGP would have likely retained the Nevada plant's 14 employees without the grant, he said, though the money helped the company maintain financial stability.”


Private-equity firm Wayzata Investment Partners created neither jobs nor energy with the $6.5 million it received for a plant in Thompson Falls, Mont. The facility had state permits to burn coal and wood for energy, and Wayzata had invested more than $20 million to comply with government rules, said a person familiar with the matter.

After finishing the work, this person said, Wayzata told Treasury officials the plant would burn only wood; coal-burning plants don't qualify for 1603 money.

But Wayzata found it couldn't make money operating the plant on just wood without investing millions of dollars more in equipment improvements, said three people with knowledge of the project.

Wayzata submitted its application to the Treasury Department and in June 2010 received its payment. By then, the plant had not produced power for months, regulatory filings show. The facility, which still doesn't produce power, is for sale. Wayzata representatives declined to comment.

Another wood-burning plant, Blue Lake Power in Northern California, received more than $5.3 million in October 2010. The plant had a number of temporary shutdowns around that time, said Chief Executive Kevin Leary. About a year ago, it laid off most of its staff and stopped producing power. Mr. Leary said the plant is now scheduled to start operating again on March 15. If the plant doesn't work, he said, it may face bankruptcy.”


From the very beginning advocates of the stimulus measures have insisted that millions of jobs were either created or saved by the massive spending exercise. Not once has an actual credible count of these jobs been produced. Admittedly, this would be difficult to do, but to insist that mathematical models based on preconceived conclusions can serve as 'proof' is preposterous. For a detailed critique of this approach see our previous article 'Alan Blinder and Unemployment'.

What the advocates of these interventions seemingly always forget: it makes no sense to fund uneconomic projects; Keynesian ditch-digging exercises do not 'help the economy', they weaken it further. The government has no resources of its own – every cent it spends must be taken from someone else, either by borrowing, taxation or even worse, inflation. It follows that this someone else then no longer has said resources available.

However, the government has no means of ascertaining whether its spending makes any economic sense, since it is not subject to profit and loss accounting. Absent economic calculation, it is simply impossible to tell what opportunity costs it incurs. Moreover, massive government spending is always an open invitation for graft and corruption. Usually the politically best connected firms will see the funds channeled into their coffers.

However, this is not conducive to furthering the necessary post-boom readjustment of the economy's productive structure. It delays and hinders the process and thereby makes things worse, not better –  regardless of the fact that in the short term, a surge in fiscal spending can make a number of economic statistics look better.


Addendum 1: Dangerous Words

Via a Simon Black article at, we learn that Big Brother, after putting up vigorous resistance, was forced via a FOIA request to divulge the list of 377 'key words' his professional snoopers are looking for when they read our e-mails, listen in to telephone calls, or patrol the web.


“According to the manual, DHS breaks down its monitoring into a whopping 14 categories ranging from Health to Fire to Terrorism. It’s a testament to how bloated the department’s scope has become.

Afterwards there is a list of 377 of key terms to monitor, most of which are completely innocuous. Exercise. Cloud. Leak. Sick. Organization. Pork. Bridge. Smart. Tucson. Target. China. Social media.

Curiously, in its ‘Critical Information Requirements’, the manual decrees that analysts should also catalog items which may “reflect adversely on DHS and response activities.”

Absolutely unreal. Big Brother is not just watching. He’s digging, searching, reading, monitoring, archiving, and judging too.”


Of course people are not stupid – they know very well that there is wide-ranging domestic as well as international surveillance. It is rarely talked about, but everybody knows it by now. What is not considered in all this: when people feel that faceless organs of the State are intruding on their privacy in this manner, the free flow of information and ideas is hampered. People will begin to shy away from uttering controversial views for fear of being blacklisted. Self-censorship soon becomes commonplace.

However, this robs our civilization of one of its chief strengths –  it is ultimately yet another hallmark of our decline. Moreover, it is highly doubtful that it actually helps to do what it is designed to do. The sheer volume of data that this list perforce creates is one reason, the other is that the genuinely bad guys out there surely are not stupid either – or let's put it this way: the stupid ones probably can not inflict much harm  and the clever ones won't be caught this way. Of course this is probably only the pretext for these surveillance exercises anyway.


Addendum 2: ECRI WLI Still Falling



ECRI's weekly leading index continues to decline and is now closing in on last year's lows. So much for all the 'stimulus' – click chart for better resolution.




Charts by:,, Bloomberg



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6 Responses to “Pleas for More Spending and Money From Thin Air, Stimulus Failure Unearthed”

  • Andyc:


    You said it, “MADE famous” as in “made man” he was made famous over “predicting” the housing bust because he provides academic cover for the concept of”whocouldaknowed” they used him to create the illusion that only some high falutin academic economist using advanced theories “couldaknowed” same goes for Nasim Taleb.

    This when anyone who read the Yahoo finance message boards or blogs like Paters here “shouldaknowed” as far back as 2003…..cause it was all over the internet that housing would crack up…even as early as 2001 when Greenspan started to drastically slash interest rates, I saw comments and articles stating “uh oh, now it looks like Greenspan wants to create a housing bubble bust to go along with the Nasdaq bubble bust he just got done with”

    and as for Roubini’s calls for stimulus, this is right up there with Kenneth Rogoff who famously wrote this book below, which is basically an end game manual for what is occurring now, calling for same on a TV interview with Krugman alongside him, both bobbleheading in agreement over each others palliatatives, nostrums and “ideas” on how to cure the economy.

    You COULD make this stuff up, after all this is what they do everyday, make it up as they go along……and it doesn’t have to rhyme or reason either.

    : )

    • jimmyjames:

      even as early as 2001 when Greenspan started to drastically slash interest rates, I saw comments and articles stating “uh oh, now it looks like Greenspan wants to create a housing bubble bust to go along with the Nasdaq bubble bust he just got done with”

      Yep–it’s amazing that a bunch of run of the mill bloggers all seen it coming and still do-

      I think Greenspan’s biggest OMFG moment was when he raised the FFR consecutively for 2 years and the long end inverted–
      The bond market is almost as smart as the bloggers (:

      • The earliest prediction that the GSE’s would one day go bankrupt was made by Doug Noland back in 1998 if memory serves. He was decried as a lunatic for suggesting such a thing. Perhaps people became a little less certain about the epithet when his prediction that Enron would keel over came true.
        Anyway, he always pointed out that the GSE’s were leveraging themselves up further in every financial crisis in order to help shovel liquidity to the banking system. This ‘worked’ until it didn’t anymore.

  • worldend666:

    RE: Dangerous words:

    An old Arab lived close to New York City for more than 40 years. He would have loved to plant potatoes in his garden, but he is alone, old and weak. His son is in college in Paris, so the old man sends him an e-mail. He explains the problem:

    “Beloved son, I am very sad, because I can’t plant potatoes in my garden. I am sure, if only you were here, you would help and dig up the garden for me.
    I love you,
    Your Father”

    The following day, the old man receives a response e-mail from his son:

    “Beloved Father,
    Please don’t touch the garden. It’s there that I have hidden ‘the THING’.
    I love you, too,

    At 4pm the US Army, The Marines, the FBI, the CIA and the Rangers visit the house of the old man, take the whole garden apart, search every inch, but can’t find anything. Disappointed they leave the house.

    A day later, the old man receives another e-mail from his son.

    “Beloved Father,
    I hope the garden is dug up by now and you can plant your potatoes.
    That’s all I could do for you from here.
    I love you,

  • Kim:

    I had to laugh when I got home from work yesterday and read Roubini’s comments on CNBC (that he had made to Bild). Since when do German’s need incentives to go on vacations to southern European countries (an anywhere else, for that matter)? Seriously though, here’s an economist, made “famous” for “predicting” the financial crisis in 2008, and now he thinks the ECB should “massively” increase the money supply so that the euro will be more at par with the US dollar in order for the southern states to “have a real chance to be competitive”? Guess he hasn’t learned anything from the former crisis. Either that or he must be sniffing around for a new crisis to predict.

    • Pavlov s dog:

      «Guess he hasn’t learned anything from the former crisis. Either that or he must be sniffing around for a new crisis to predict.»

      I do believe he was told to predict then (2008) and now… a huge crisis.

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