Thursday
Oct302014

Hillary Clinton's Misunderstanding of Basic Economics

 Vaughn Cordle, CFA / October 30, 2014

HILLARY CLINTON: "Don’t let anybody tell you it’s corporations and businesses that create jobs. You know that old theory trickle-down economics. That has been tried. That has failed." 

Hillary Clinton flunks Economics 101 and her moronic quote will haunt her forever and likely damage her chances in 2016.  Like Obama, her misunderstanding of markets and economics make her unfit to hold the highest office in the land. 

Trickle-down economics is exactly what's driving economic growth today and corporations and businesses are creating all of the new jobs.  Liberals apparently don't understand how all of this works, or if they do understand (they think they do but really don't), they use this type of class warfare demagoguery to whip up support in their base for purely political purposes.   In my view, this intellectually dishonest approach will backfire because most Americans aren't that stupid.  Eventually they do catch up and this typically occurs before the moron politicians that spout this garbage understand what's going on. Political animals follow the herd and this is why they pander to their constituents by telling them what they think they want to hear - even if it is garbage.  The liberal media is simply along for the ride and only confuses the issues with inadequate and biased coverage.

The Federal Reserve, via quantitative easing (QE) and debt purchases, has kept the yield curve below where it would naturally be without the purchases. These purchases have ballooned the Fed's balance sheet to about $4.5 trillion from around $600 billion before the QE (figure 1). 

Figure 1: 

The reason for the QE? To reduce the cost of borrowing and to inflate asset values (housing, stocks and bonds). This in turn increases corporate profits and capital investment.  Higher profits and investment = higher personal consumption expenditures, which in turn drives GDP growth and job creation.   Additionally, lower interest rates = higher multiples of cash flows and earnings; this also inflates asset values for both individuals and corporations. Individuals benefit when their homes and investments go up in value. The increase in equity leads to the so-called "wealth-effect" that results in higher consumption expenditures that drive real GDP growth and job creation.   The Fed's QE policy, by definition, is trickle-down economics.  

Hillary's goofy and wrong-headed claim provides a great opportunity for the voting public to closely examine policies (especially Keynesian policies) that call for big government solutions that redistribute wealth via taxes and regulations that reduce the return on and growth in capital, which is the key driver to GDP growth and job creation,

Thank you, Hillary! 

Vaughn