Right. I’ve gotten ticked off enough it’s time for me to tick other people off. Welcome to a grab-bag of economic truths, at least some of which will tick most people off. Republicans and conservatives should be especially wary. You have been warned. Not only am I not worried about goring your scared cow, I’m aiming for it.

1. Republicans have no credibility on the deficit. None what so ever.

The last Republican President who actually managed to balance a budget was Nixon. The reason we have such a high debt, and the reason the Chinese own so much US debt, is because Republicans ran the debt up over the last 30 years- spending most of it on tax cuts for the rich and military buildups and unnecessary wars. Now, you can argue that Democrats voted for those budgets as well, it’s not the Democrats who have suddenly, over the course of just a few months, discovered the inner deficit hawks and started opposing any deficit spending.

What changed is two things: who was spending the money, and what the money was being spent on. Bush proposing a trillion dollar tax cut or a trillion dollar war? No problem. But Obama proposing a trillion dollar health care program? The Republicans are having vapors. Of course, the argument they’re making is that we can’t afford to heal the sick people, as we already spent that money on tax cuts and a stupid war. Remember that the next time the Republicans propose a tax cut or a war.

By the way, I’m old enough that I actually remember Bubbles Greenspan, among other people, warning Clinton against paying down the debt. One of the ways Bubbles colluded with Dimwit W in selling his first round of tax cuts was because- heaven forbid- we were paying down our debt too fast, and if we continued paying down the debt, terrible things would happen (like health care reform, it turned out).

2. We can stop the economic meltdown. But we won’t. And the next one will be worse than the last one.

Listen up: doing crap like selling subprime mortgage CDOs made some individuals shit loads of money. We’re talking hundreds of millions of dollars. Per individual. Don’t look at what happened to Bear Sterns or Lehman Brothers, look at what happened to their CEOs and top traders. Those people made out like bandits. Of course they want to do it again- and big, faster, harder, and more this time. The lesson they’ve learned, repeatedly, with the savings and loan crisis in the 80′s, Long Term Capital Management in the 90′s, and the most recent brouhaha, is that deep pockets Uncle Sam will always come to bail them out when their high risk gambles blow up on them.

The next time is going to be different. Public outrage over this last bailout will guarantee that next time, there will be no bailout. And if you think the bailout was bad, what happens when there isn’t a bailout is going to be worse. Way worse. For several days in 2007, the credit market froze- no one was willing to risk loaning money to anyone. Now, a couple of days was annoying, but not catastrophic. The credit markets unfroze when a bailout basically became inevitable. Without a bailout, credit markets will freeze solid and not thaw- which means that any company caught with less cash than short or medium term debt will be screwed with their pants on.

See, most companies have leveraged, illiquid assets. Except instead of being toxic waste securities, we call these illiquid assets names like “factories” or “trucks” or “inventory”. Normally, a company having some short and medium term debt isn’t a big deal- when it comes due, you just roll it over into more short or medium term debt. But if the credit market is frozen, you can’t roll it over, you’ve got to come up with cash. Now. Don’t have the cash? You’ve got to sell some assets, at fire sale prices. Which can trigger margin calls on all the other debt the company has (as it no longer has the collateral).

This happens people. Only us weirdos who do things like read history know it, because it’s been seventy years since it’s happened. The US had a banking crisis, as bad or worse than the one we just went through, about every 20 years from the founding of the country right up to 1933. Every heard of the Panic of 1907? If you’re a Ron Paul support who thinks we don’t need the Fed, some quality time with Wikipedia may be in order.

What changed? New Deal Liberalism threw the stifling blanket of harsh regulation on the financial markets, which prevented profitable (to the bankers) financial innovations, like sub-prime mortgage CDOs. We could go back to pre-Reagan regulatory environment, when banking was boring and not nearly as profitable.

But we won’t. Because if we tried to, Wall Street and the conservative Republicans would all scream that we’re killing the free market and imposing fascist-communism. I mean, even louder than they are now. Remember: the people in charge of Wall Street are making shit loads of money taking risks that, when they blow up, lead to financial panics and depressions. Any regulation effective enough to prevent the financial panics and economic depressions will, by necessity, prevent Wall Street from making as much money as it could. If Wall Street isn’t screaming, the problem isn’t being fixed. And you can take that to the bank. So to speak.

3. The Free Market is not Perfect

It’s very effective, in a lot of ways, but it has failure modes. For example, externalized costs- like stock market bets that make me a lot of money if I’m right, and cost the tax payer a lot of money if I’m wrong. Or pollution. Another failure mode is monopolies. And imperfect information (aka insider trading). And the regular banking crisis/economic depression (I’m not talking about recessions, with their pansy ass 10% unemployment rates and general economic malaise, I’m talking about the real-man depressions with 25%+ unemployment, soup lines, hoovervilles, etc.). And so on.

Failure to address these issues can cause the destruction of the free market. What people forget was that a large and growing number of people back in the depression had decided that the free market and democracy had failed, and it was time to try something else. “Hitler made the trains run on time” was a catch phrase signifying that at least Hitler got things moving again, something that (in 1931) Democracy and the Free Market had yet to do. It was only due to one man that we didn’t have a coup d’etat and fascist dictatorship in 1934.

John Maynard Keynes was a pro-free-market conservative. It was Keynesianism that showed we didn’t need to abandon the free market, just tweak it a little. That we didn’t need to go to fascism or communism. Conservatives should be lauding this man as the man who saved capitalism. But no, they’re destroying the village in order to save it.

For the record, I am not at all looking forward to the destruction of either the US economy or of American Democracy. Not in the least little bit. There is no good here.

4. Keynsianism Works, Bitches

Science, as Carl Sagan reminds us, is the merging of theory with experiment. Without theory, experiment is just stamp collecting. Without experiment, theory is just wanking. Well, if it’s advanced enough, it can be mathematics (which is interesting in it’s own right). But at that point, it is mathematics- and not economics, physics, or anything else. The freshwater economists would do well to remember this (as would the string theorists). Any economic theory that fails to explain depressions and repeated, demonstrated, market failures like bubbles and collapses, fails. Period. I don’t care how pretty your mathematics is.

Unfortunately, economists have discovered that the real money in economics is to act as paid shills for the kleptocratcy who want to make shit loads of money selling sub-prime mortgage CDOs (or whatever today’s financial snake oil is) without the dreaded weight of intrusive government regulation shutting the party down. Most economic theories of the last 30 years have all the intellectual integrity of Lamarckian biology- and for exactly the same reason. They are starting with demonstrably false premises to reach politically pre-ordained conclusions.

5. Supply Side Economics doesn’t work.

I can disprove supply side economics simply: the most important thing a company looks at, before building factories, hiring people, etc., is not the availability of capital, but instead demand for the produced good or service. It doesn’t matter how cheap you can get a loan to build the factory if there isn’t any demand for the goods the factory produces. If there is enough demand, the financing can always be finessed.

How did we (finally) get out of the great depression? The government created a huge amount of “artificial” demand- both directly and indirectly. Whether it was the New Deal or World War 2 that lifted the US out of depression (and the difference is mainly in the definition of what “out of the depression” means), it was honking huge, artificial, government induced demand that did it.

Of course, stonking great artificial government demand builds up stonking great levels of government debt. Now responsible government says that after the crisis has passed, and you’ve gotten out of that democracy-threatening depression and defeated at least 2/3rds of the global forces of totalitarianism, that you then start paying down the debt incurred- raise taxes, reduce spending, save for a rainy day and all of that. Or at least stop adding to it and let the economy outgrow the debt. Which the New Dealers (sorry, Eisenhower- who support integration and massive new federal programs like the interstate highway system, and enlarged social security- was more liberal than the “moderate” Democrats of today) did. By this definition, the only good times we’ve had in this country in the last thirty years were under Clinton.

Well, that’s enough for now. Although trust me, there is more. In closing, I’d like to comment that if you’re going to post a “STFU” comment (including variations like “what are your credentials to talk about economics?” and “I like you better when you don’t challenge my political beliefs”), don’t bother. I am disinclined to acquiesce to your request (means “no”). All it will accomplish is to make me lump you in with the teabaggers and town hall screamers, who are doing the trick. If you can explain why I’m wrong, have at it- but if all you have is STFU, well, STFU.

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