Posted on 04/17/2009 7:21:27 PM PDT by sickoflibs
In a speech this week summarizing his administration's economic policies, President Obama grossly overstated the support these policies enjoy by claiming, "economists on the left and right agree that the last thing the government should do during a recession is cut back on spending." There are a great many economists who were surprised to learn that, apparently, they now agree with the President.
Reading straight from the Keynesian playbook, Obama justified the creation of multi-trillion dollar deficits by asserting that the government must fill the spending void left by the contraction of consumer and business spending. As one of those mythical economists who do not agree with the President, I argue that it is precisely this type of boneheaded thinking that got us into this mess, and it's the reason we are now headed for an inflationary depression.
We do not need, nor should we attempt, to replace lost demand. As Obama himself pointed out in the same speech, Americans have been borrowing and spending too much money. These actions created artificial demand, underpinned by the illusion of real wealth in overvalued stock and real estate markets. Given his intelligence and rhetorical training, it is hard to fathom how President Obama cannot notice the inherent contradiction in his argument.
While Obama commended millions of American families for making the hard choices to reduce spending, pay down debt and replenish savings, he later outlined the government's intention to spend every American household deeper into debt, thereby undermining all the good that personal austerity would have otherwise produced.
Obama also made the clear-eyed observation that the foundation of our economy was unsound and that a sturdier one needed to be laid. To do this, he even asserted that we need to import less and export more. This has been one of my fundamental points. Our economy is unsound precisely because it is built on a foundation of consumer debt. Instead of spending for today, we need to invest for tomorrow. However, we cannot save more unless we spend less. Production requires capital, which only comes into existence when resources are not consumed.
However, by interfering with this process, Obama prevents the very transformation he acknowledges must take place. When the government spends what individuals save, private investment is crowded out. Society is deprived of the benefits such savings would otherwise have brought about. How can we lay a solid foundation if the government takes away all our cement?
This brings up an oft-repeated, but oft-forgotten, point: government does not have any money of its own. It only has what it takes from the rest of us. If individuals repay their debts, but their government takes on additional debt, we are all simply swimming against the tide. All forward progress is lost as private debt is replaced by public debt, which must be repaid by private individuals. Whatever gains individuals hope to achieve are negated by the higher taxes or increased inflation necessary to repay their share of a larger national debt.
Obama claims that much of the additional debt is not going to finance consumption, but rather "critical investment". This is a vain hope. In the first place, much of what he categorizes as investment, such as additional spending on education, is not investment at all. Yes, an educated workforce is important, but throwing more government money at education will do nothing to achieve this goal. Spending money on education and calling it an investment squanders resources that otherwise would have financed real investments. In the second place, to the extent some government money is invested, those investments will likely be less efficient than those the private sector might otherwise have financed. There is absolutely no evidence that governments have the foresight or incentives to make investments that facilitate real economic growth. "Five year plans" didn't work in the Soviet Union and they won't work here. If the government simply builds bridges to nowhere, society gains nothing.
If we are going to rebuild our economy on a solid foundation, the market, not the government, needs to draw the plans. When private citizens invest their own capital, those who invest wisely are rewarded with profits, while those who do not are punished with losses. Bad investments are therefore abandoned, with capital reallocated to more successful ventures. Conversely, when governments invest money, these checks and balances do not exist. There is nothing to correct bad investments, as losses are endlessly subsidized by taxpayers. In fact, the more a government plan fails, the more it tends to be funded in the hope that additional resources will finally achieve success. Obama himself proves this by allocating still more funds to government-run schools and student loan subsidies. Other examples, such as Amtrak, the New York MTA, the U.S. Postal Service, Fannie/Freddie, and countless others, prove this process is never-ending - until perhaps the bureaucracy collapses under its own weight.
When it comes to government making tough choices, Obama talks a good game, but refuses to actually make any. However, once the dollar finally begins its collapse, he will have no choice but to match his rhetoric with action. It's unfortunate that we cannot make these tough choices on our own terms, rather than waiting for our creditors to force our hand.
If you realize both parties in Washington think our money is theirs and you trust them to do the wrong thing, this list is for you.
If you think there is a Santa Claus who is going to get elected in Washington and cut a few taxes and spend a few trillion and jump start the economy, and get our lost money back, this list is not for you.
You can read past posts by clicking on : schifflist , I try to tag all relevant threads with the keyword : schifflist.
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Sample: "If we are going to rebuild our economy on a solid foundation, the market, not the government, needs to draw the plans. When private citizens invest their own capital, those who invest wisely are rewarded with profits, while those who do not are punished with losses. Bad investments are therefore abandoned, with capital reallocated to more successful ventures. Conversely, when governments invest money, these checks and balances do not exist. There is nothing to correct bad investments, as losses are endlessly subsidized by taxpayers. In fact, the more a government plan fails, the more it tends to be funded in the hope that additional resources will finally achieve success. "
I’m sure they told Obama at Harvard that we’re all Keynesians now. But we aren’t. Paul Krugman does not speak for the entire field.
There may be some truth to it. Look at the poor advice Republican economist give to their own leaders. Ppl like Art Laffer, Steve Forbes, Kudlow. Republicans to be sure, but they’re all crap at economics
This sound so much like Ronald Reagon’s Time of Choosing speech. “As more the government plan fails, the more the government plan”
I don’t believe a word of this crap. If my household, my village, my county, or my state proposed to operate on such silly pills, I would oppose it. Where does Obamaitchkinovski get off with such communism, socialism, fascism and general ignoramusism? Is this an Ivy League disease? Is there a cure for this crap? Do highly educated people just automatically cash in whatever brains they might have had in their youth for the celebrity of degrees from what have become wealthy, but very peculiar, colleges and universities dedicated to reducing the bright and able to idiocy in only a few years?
lonestar67 : “I am just pointing out that your arguments are sold out to the Democratic party and its radical Left Wing. I thought you would want to know. The Bush economy was quite good and there is precious little you can do to change that fact. I am personally thrilled that the tanking of the economy coincides with the emergence of Obama as the presumed leader of the nation. What we ought to wonder is what purpose is served by sickoflibs’ arguments.I argue that sickoflibs arguments serve the purpose of diminishing powerful conservative voices in favor of an anonymous internet voice.”
http://www.freerepublic.com/focus/news/2230877/posts?page=48#48
***If the government simply builds bridges to nowhere, society gains nothing.***
Don’t tell the Keynesians.
Forbes is a businessman, not an economist. I don’t follow Kudlow, so I can’t speak to his latent Keynesianism. I can’t say what Laffer contributed policywise, but I’ve heard him speak since the meltdown, and have found him to be reliably free-market.
Not to say that there aren’t Keynesian Republicans. i’m sure they’re out there, and I’m sure they’re the ones that rose to the surface when Bush took power, like a bloated body in the Potomac.
Thanks for the ping.
“Don’t tell the Keynesians.”
They already know, and don’t care. I’m pretty sure Keynes himself actually came out and said we could dig holes and fill them in, so long as money is spent.
Why dont we have someone as articulate at Schiff in Republican(democrat light ) party.
Well, as they say go big or go home and that applies to flat out lying so why wouldn’t he say this? When the premise is to roll over the useful idiots with “facts” that they can then robotically repeat over and over again it doesn’t really matter much what the truth of the story is...
3 years, 9 months to go until we can come together as a conservative movement and vote out this lunacy!!
WWII got us out of the great depression, not Keynesian policies or the New Deal, they just prolonged it. Apparently we need WWV to get us out of this great recession.
Bambi can say it b ut we don’t gotta believe it...
RE “Apparently we need WWV to get us out of this great recession.”
WWII We had a high savings rate and a low trade deficit and after the war world industry was destroyed except ours. Now we owe everyone and have only more debt to offer,
Now we owe everyone and have only more debt to offer... and have little industry, by comparison.
***3 years, 9 months to go until we can come together as a conservative movement and vote out this lunacy!!***
I’m planning a revolution well before then :)
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