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Oct 7, 2011

Fooling the Future

Government Planner:  Our next stimulus plan is really, really targeted at creating jobs and prosperity.
Mike:  What about the last stimulus plan?

Planner:  That was only sort of, kind of targeted at creating jobs and prosperity. We were distracted.
Mike:  How long will this new stimulus work?

Planner:  For about a year, probably past the next election.
Mike:  Then what?

Planner:  We'll have another stimulus plan ready, to continue the good works of the last two.

Future Economic News:

Federal Reserve Chairman Ben Bernanke has announced that Quantitative Easing Eight combined with Stimulus Six has not achieved the results that "were expected by now-fired Fed analysts". This is despite recent reports of an IRS program to increase tax audits unless "businessmen borrow money and invest in job-creating expansion, like it or not".

Quantitative Easing plus Stimulus is the following strategy:

(1) Increased government purchases and salaries cause increased demand for filing cabinets and restaurant meals. This starts a virtuous cascade of money throughout the society, leading to an explosion of wealth and prosperity.

(2) Small businessmen with "more luck than brains" are fooled into investment and expansion by a six-month, 5% increase in business. They will naturally hire more workers, at least until the six-month government buying spree ends.

"It is mystifying that this plan has yet again failed" said Bernanke. "We have run out of traditional economic levers to pull. Very few businessmen have a degree from Harvard. Yet, manipulating money and credit is failing to fool businessmen in any significant way."

"We are now forced to use non-traditional methods. We are making huge ad buys in major markets. Our message is that it is patriotic to lose money, if necessary, by expanding business and hiring workers in the current environment of regulation, taxes, and medical mandates. That is the carrot."

"We accept that business owners are unhappy. We will make it clear just how much more unhappy business owners will be if they don't do what we say. We are fundamentally pro-business. We want businesses to prosper by doing exactly what we tell them to do. One for all and all for one. That is the stick."

Wags have unfairly and mindlessly compared government policy to the South Park cartoon  Underpants Gnomes:
(1) Collect underpants.  (2) ???  (3) Produce huge profits.

(See the video starting from 17:40. Sorry for the 30 second commercial.)

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Cause and Effect
EO -> 10/11/11 - Knowledge Problem by Michael Giberson
( Click the link above, then see the further link at the upper right. )

The oil price increases of the 1970s prompted politicians to raise interest rates in an attempt to control inflation. The economy slowed. Was this because of the oil price increase, or the result of the higher interest rate?

This seemingly simple economic question is actually hard, with uncertain answers, like most questions about the economy.

Motto: We don't really know, but we are willing to guess.

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