Posted on 04/04/2009 5:32:53 AM PDT by IbJensen
I had a hard time sleeping the other night. I am worried.
The ghost of Keynes is hovering all over the ‘stimulus’ package. You know, that English economist who died in 1946 who wrote a book in 1936 about government deficit spending being good for the economy.
These ideas are the cornerstone of the current ‘stimulus’ plan. For some, it is a policy direction; for others an excuse for implementing socialistic government programs; and for most citizens of this great nation of ours, a hope and a prayer that this path is the road to recovery.
There are some thoughtful people, with me among them, who think Keynes may have been wrong. I read all the articles about this guy Keynes and his theory that government spending solves all downturns. I found it hard to believe that you can spend your way out of financial disaster.
I know my neighbor Harry, who was a plumber, thinks so. That gave me an idea to check around the neighborhood for an answer to my worries. I remembered that one of my neighbors had been a professor of economics at some big university. Everybody said he was famous, but to me, he was just a regular guy who walked around the neighborhood like I do. On my daily walk recently, I looked for him and found him in the park kibitzing some guys playing checkers. He was leaning over a bench when I went up to him.
“Doc”, I said, “have you ever heard of somebody called Keynes.”
He looked up at me with a strange look on his face and then burst out laughing. “Of course I have”, he said in between loud laughs, “he’s the god of economics. His full name is John Maynard Keynes. I gave courses about him for years. What do you want to know.”
With a sigh of relief, I felt I would finally have my fears put to rest. I blurted out, “How can we spend ourselves into prosperity?”
He laughed even harder. “That’s a simplified idiotic summary of his position”, Doc said. Then he went on. “Keynes was the foremost economist of his day. He virtually invented modern economic theory. His 1936 book, General Theory of Employment, Interest and Money studied the causes of unemployment and how to solve the problem. He presented a great deal of analysis showing how government expenditures were needed to prime the pump to create the jobs needed. His theories were put to work almost immediately, and were used for decades until the 1970s but they are now back in full support in the government. The current government policies fit the prescription Keynes suggested in his book and which were used many times in the past. Why did you ask?”
His words upset me. I just couldn’t see his point. I couldn’t help it. I’m not an economics professor, but I think I have a good sense of business — and that stroke of genius called common sense. “But Doc,” I said, “his theories didn’t work. I have read that he was a socialist, and that efforts at heavy government deficit spending never solved the Depression of the ’30s. Only the Second World War did that by causing a major gap between production for the home front and demand. Coupled with the 10-year downturn through the ’30s, there was a pent-up demand of 15 years that fueled the major economic expansion after war.
Then I read that Milton Friedman, a Nobel Laureate in Economics, panned Keynes and that’s why his theories were almost discarded in the 1970s. Then we had that massive economic expansion until a year ago. Keynes’s theory didn’t do that. Then I read that Keynes’s theories are being adopted by the current government. It doesn’t make sense. It scares me.“
Doc charged in before I could go on. “Hold it!. You can’t deny that government financial support is needed to prime the pump when nobody else is willing to step up to the plate.”
“Doc,” I interjected. “I agree. But priming the pump is one thing, and going in all directions and running up trillions of dollars in deficits is another. This government is proposing a 10-year deficit of almost $10 trillion; or about $33,000 for every man, woman and child in this country. Besides, these bills are loaded with pork and wasteful spending. That’s not priming the pump. That smacks of payback.”
Doc wasn’t smiling or laughing now. He looked downright angry. Through clenched teeth he almost yelled at me. “That’s crap,” he snarled. “This problem is more serious than most people realize. We haven’t touched bottom yet. There is no credit; there is no investment capital available; and nobody wants to spend whatever they have because they are afraid. Roosevelt had it right when he said, ‘All we have to fear is fear itself!’ The government has to prime the pump, get rid of the bad debts, fix up the balance sheets of the banks, insurance, and giant companies, and get the country moving again. That deficit will be returned many times in the future as we come roaring back.”
“I hope you’re right, Doc,” I said. “But I don’t see how or why we should take on three major initiatives while we are trying to fix the economy at the same time. It’s like me trying to rejuvenate my company, and then going out and starting three new ones at the same time, putting my capital into all four. The government plans for energy, education and health are all damn good, and needed. But do we need them now? And if we do, can we afford them all now? Maybe if we got rid of all the waste that’s in some of these swollen bills we might be able to pull it off. But we can’t just keep borrowing. The question is from whom? Our people. They’re hurting. And those with a lot of capital are sitting on the sidelines waiting for a good time to jump in and buy at wholesale prices and make a fortune. The Chinese? They question our currency value now. The Middle East? They have lots of our money, but I understand they are hurting bad themselves with oil at its current low price. Iran needs oil at over $90 a barrel to break even; and Saudi I understand needs $70 a barrel. We just can’t afford high-priced oil. Our people won’t buy it; they’ll just stop driving and keep the thermostat lower in the winter. Then what happens? ”
Doc sighed. “That’s why Keynes pointed to the government at the only solution to get the pump primed and running again.”
I couldn’t help being doubtful. “But Keynes developed his theories in the ’30. Sure he was brilliant, but he had only the knowledge and tools of the time. That’s when we flew DC-3 aircraft and it took two days to cross the country. Now we fly jets and do it in five or six hours. Now we have computers, and all kinds of information on economic behavior. We have simulations that we use to train pilots to fly; and we use simulated war games to test out theories for developing strategies against terrorists and other enemies. Keynes didn’t have all that. He was flying blind, but still came up with a theory that hasn’t changed much in over seventy years.“
Then I stopped and looked fixedly at Doc. Quietly I said, “Doc, I would feel a lot more comfortable if this government called a meeting of the smartest people in the world — economics, mathematics, simulation theory, political science or whatever — and got them to build a model of the economy and then worked different scenarios to see what interaction exists between all these different conflicting demands, ideas, solutions and policies. They could check out the potential impact of programs with tax benefits for creating jobs, for research and development, for creating new industries, for creating whole new ways of doing things. Such a group would think outside the box. After all, boxes usually have nothing but stale air and old ideas in them. We need new initiatives. That’s where government spending should go. That’s how to prime the pump. I still remember how government backing for Research created the computer, radar, antibiotics, launched satellites in space, created the Internet, and on and on. The miracles of Ireland, China and India attest to priming the pump to create jobs with special tax breaks. We don’t create jobs if we raise taxes on one hand, and dole out money with the other. A major simulation effort could investigate all of these before we act. It’s why we build wind tunnels. Can you imagine what we would waste if we built airplanes and flew them to find mistakes and never used a wind tunnel? Ridiculous isn’t it. But that’s what we are doing now. Flying without testing. We need testing. Maybe then I would feel more comfortable with what is going on.”
Doc was silent. He looked at me, a slight smiling starting at the corners of his mouth. “You sound like a modern economist,” he said. “I like your ideas. Keynes was right for his day. Maybe he is incomplete for today. I like your idea of a bunch of smart guys testing policies before we go breakneck into spending.” Then he looked a little sad and wistful. “If I was still teaching,” he continued, “I would set something like that going. Maybe I can call my buddies at the University. If they could get some government funding, they could take a crack at it.”
I couldn’t help it. I almost jumped up and down as I said, “Doc, that’s the kind of government spending we need.”
Then we both smiled, waved at each other, and walked our separate ways. That exchange of ideas made me feel a little better, but not much. It didn’t solve the problems, but at least I knew I wasn’t off base. I hope to see Doc again soon as I take my daily walk around the neighborhood.
It was bad then and much worse now. Obomba's administration is full of Keynesian imbeciles.
Keynes’ economic theories are a popular with politicians as Hugh Hefner’s social theories were with the baby boomers, and for the same reasons.
For what it’s worth, an interview with a fellow on Bill Moyers (I know, but it’s interesting)...he says it’s all one big conspiracy (Bush, Obama both implicated) to hide the fact that the banks are insolvent.
http://www.pbs.org/moyers/journal/04032009/watch.html
I have recently read a book called the Power of Gold.
In the thirties, the gtrat economic minds of the day, including bankers and business, considered a program of austerity the cure for the excesses of the day. Tight money, unemployment, failed banks, deflation were the cures.
Keynes argued differently. Massive government spending and lots of money were the solution.
They have been waiting for 60 years and finally have the chance to have their way.
God help us.
If one could spend one’s self inot prosperity, I would be the most prosperous sob in the world [hell with saying planet]. But I found out early on that every cent I spent had either to be earned or paid back.
LLS
Keynesians have long believed that a “little” inflation was good for the economy as it kept unemployment down ..the Phillips Curve. However, during the late 1970s (Jimmy Carter’s administration) the rising price of oil caused by an Arab oil embargo produced supply shocks that resulted in stagflation ...where unemployment and inflation rose simultaneously ...something that Keynesian economic theory said was impossible. The typical Keynesian remedy was to pump more government money into the economy during economic bad times which in this case produced an inflationary spiral. It was Ronald Reagan and ironically Obama economic advisor Paul Volker who at the time was chairman of the Fed who recognized the only remedy was to not pour government dollars into the economy.
The logic, or lack of it should be astonishing except nothing this administration does should be astonishing, no matter how astonishing. The astonishing fact is, no one in their right mind has ever run a business or a family in this manner without the same astonishing result.
You cannot spend your way to financial freedom, nor have the ability to pay your debts should they rise to a level higher than the dollars you just spent to stimulate your economy. To see idiots most of whom have families, and at least familiarity with business, throw the accepted family and business economic rules out the window in the false hope that they have been wrong in their thinking lo these many years, is even more astonishing.
It will not be astonishing in the least when the astonishment passes, and what remains is the failure to have taken history into account, and the resulting and not so astonishing financial crisis that will truly be a crisis. The prevailing economic law written in stone, says, only a crook, an idiot, or a politician, can turn a silk purse into a sows ear.
They have been waiting for 60 years and finally have the chance to have their way.
What do you mean they waited 60 years? Surely you know that Truman went into intervention in a big way? Roosevelt campaigned against Trumans profligate ways, and then reversed himself after election and became an even bigger interventionist.
The Keynes believers had it their way in the 30s and early 40s, and it didn't work. Keynes theories were tried, and they extend a depression into the Great Depression, which lasted longer here than in Europe and elsewhere.
Ombomba, America's first African-African, Marxist president (along with the rats he collected for his 'cabinet' from the sewers of DC) is a disgrace, an abomanation, and will function as America's Terminator.
It is, indeed, astonishing.
There are two things, however, in which Jimmy (appropriate nickname for a peanut-brained fool who could f—k up a steel ball with a soft rubber mallet)excelled: economics and coming up with positive results for communists running for elections in foreign countries.
Robert Reich has admitted to being a Keynesian socialist and he also said he wants the stimulus to be provided for minorities at the exclusion of white people. I don’t think even Keynes envisioned a stimulus to be used politically to benefit chosen supporters and punishing political opponents.
I have yet to read one valid explanation that supports what the Carter economic disaster created or that showed Keynes theories to have worked. This is, however, the first time I have heard liberals claim FDR did not spend enough in excusing the problems of government addressing the Great Depression. Nor do liberals want to remember that many of the FDR programs were intended to be temporay and not the entitlemenet we have today.
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