An enlightening piece from the WSJ on the theory so-called Progressives, like Obama, and liberals like Bush, relied on when implementing the now certifiably insane spending-our-way-out-of-debt tripe.
Keynes. Wrong.
Before you read the article in full, here’s some background on Keynesian economics which promotes the notion that the private sector is too inefficient economically so public section action and intervention is required.
Now as the G8 has closed and it’s clear Obama’s plea for the rest of the world to continue down his path of economic death and destruction was rejected, this may be the final blow to those who believe the private sector and free market aren’t good enough. Deep in one story about the conclusion of the G8 and their closing statement ‘communique’ of accomplishments notes this:
The statement addresses a range of development and aid issues, along with trade, and environmental issues. It does not contain any broad statement about how countries will pursue economic recovery, saying progress will be made by the G20 toward sustainable recovery of the global economic and financial system.
That’s because Obama wants one thing and the rest of the world another. Check this story from the Daily Mail about the differences between Obama and the rest of the world’s approach argued by UK PM Cameron. Additionally, the notion of a global bank tax has failed as well.
We saw the failure of Keynesian folly unleash itself in Carter’s stagflation of the 70s, but liberals don’t like history as it remind them that they are in fact, doomed to failure. So instead they decide to keep trying the thing history has proven not only will not work, but fails miserably and destroys peoples lives.
Rand. Right.
So instead of turning to the theories of Ayn Rand while implementing Reagan policy of empowering small business and the free market, both Bush and Obama rushed instead over into the Keynesian Flophouse of Throw-Money-At-It. Again it failed, and again, our entire nation is at risk because a few very rich, very Ivy league and very stupid Political elites thought they knew better than the average American small business owner.
It’s you–the stakeholders in this nation and her economy who have turned into Tea Party Patriots signaling that not only is the Progressive disaster of Keynesian economics toast, so is the establishment that thought it would be a good thing to bring it back.
Here’s just a snippet of the article. Please do read the whole thing. It’s a great analysis in a nutshell.
The Keynesian Dead End
Spending our way to prosperity is going out of style.
For going on three years, the developed world’s economic policy has been dominated by the revival of the old idea that vast amounts of public spending could prevent deflation, cure a recession, and ignite a new era of government-led prosperity. It hasn’t turned out that way…Now the political and fiscal bills are coming due even as the U.S. and European economies are merely muddling along. The Europeans have had enough and want to swear off the sauce, while the Obama Administration wants to keep running a bar tab…
The difference this time is that the Keynesian political consensus is cracking up. In Europe, the bond vigilantes have pulled the credit cards of Greece, Portugal and Spain, with Britain and Italy in their sights. Policy makers are now making a 180-degree turn from their own stimulus blowouts to cut spending and raise taxes. The austerity budget offered this month by the new British government is typical of Europe’s new consensus.
Meanwhile, in Congress, even many Democrats are revolting against Stimulus III. The original White House package of jobless benefits and aid to the states had to be watered down several times, and the latest version failed again in the Senate late this week. Mr. Obama is having his credit card pulled too—not by the bond markets, but by a voting public that sees the troubles in Europe and is telling pollsters that it doesn’t want a Grecian bath.
The larger lesson here is about policy. The original sin—and it was nearly global—was to revive the Keynesian economic model that had last cracked up in the 1970s, while forgetting the lessons of the long prosperity from 1982 through 2007. The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money. The spending restraint began to end in the late 1990s, sound money vanished earlier this decade, and now Democrats are promising a series of enormous tax increases.
What the world has now reached instead is a Keynesian dead end…Meanwhile, individuals and businesses are supposed to be unaffected by the prospect of future tax increases, higher interest rates, and more government control over nearly every area of the economy. Even the CEOs of the Business Roundtable now see the damage this is doing.
Talking about Ayn Rand is fine, but personally I would’ve pointed to Friedrich Hayek as a more substantial intellectual competitor to Keynes. Nothing against Rand. I think she and Hayek were birds of a feather, but Hayek was someone who could make a very robust case for the free market that would cause (some) academics and politicians to listen.
Hayek was an economist from “the Austrian School”, which believes that free markets work best, and government efforts to steer markets just screw them up, and in fact ultimately lead to political tyranny. One of his most famous books was, “The Road to Serfdom”, where he talked about this. Ronald Reagan was a big fan of Hayek, as was Margaret Thatcher. From the time Hayek became outspoken about his views shortly after WW II, until Reagan and Thatcher came to political power, he was an intellectual outcast in the world. Keynes’s theories ruled the academic world of economics (in fact they still do, unfortunately). Hayek worked for a time at a university in the UK, post-WW II. When he came looking for work in the U.S., the ONLY university that would hire him was the University of Chicago, where Milton Friedman taught. Ultimately Hayek returned to his homeland of Austria, where he lived out the remainder of his days.
Most people have never heard of Hayek, no matter their station in life. In my view he is right up there with Friedman in the importance of his theories on economics. He had some very good ideas about what worked.
I posted a link to a video earlier (on another TB post) showing a couple actors playing Keynes and Hayek explaining their theories in rap. The intriguing thing to me is the video shows that Hayek wrote about just the kind of boom and bust cycle we went through with the housing market, but he wrote about it many years earlier. He explained it as a consequence of using Keynes’s theory, trying to “keep the boom going”, by the Fed setting interest rates really low (as it did shortly after 9/11), and the government flooding the economy with its spending. This creates inflation. It creates “a false sense of growth” which ultimately collapses in on itself as the Fed raises interest rates, as it did. Yep, George W. Bush’s own out of control spending (he never vetoed a budget bill) contributed to it, but he was not the only culprit. The Fed/Greenspan must take some of the blame as well. In future years I’m sure we’ll be able to point to Bernanke as creating the same problem with what the Fed’s policies have been doing lately.
Hayek said that interest rates should be allowed to float, that no human institution should be deciding what interest rates will be, because doing so just interferes with the savings/investment/spending cycle, the economy’s natural tendency to create new areas of future growth. What this requires though is the American people accepting that there will be times when there needs to be more thrift, more austerity in the economy–a delaying of gratification, so that entrepreneurs and industry have time to take advantage of savings and investment to build a new economy, after which greater spending can ensue.
Artificial interest rates just keep the economy in “spend” mode all the time, and chokes off investment that contributes to the development of the economy. They’re mighty nice for politicians, though, because they allow the expansion of government spending. I’m beginning to think this is the reason Keynes’s theory has dominated academia. The politicos love it!
Dave Ramsey, a Christian financial counselor with his own radio show, should send Obummer a copy of his book, The Total Money Makeover. Perhaps Obummer would learn one can’t get rich by spending $10 for every $1 one makes.
I like Dave Ramsey; his is a rags-to-riches story. He has his own radio show and TV show on Fox Business Channel.
I’ve been so wishing that Suze Orman would have a “Can I Afford It?” segment with someone from the OMB. I’d love to see all the debt obligations listed on TV, along with all of the revenues for everyone to see, and then to have the guy/gal say, “We’d like to implement health reform. It will cost $800 billion…err…$1.2 trillion over the next 10 years, and we think the economy needs another $300 billion stimulus…” and then to see the shock and disgust cross Suze’s face, and to have her tell them, “ARE YOU KIDDING ME?? NO, YOU ARE SO DENIED!!! YOU CANNOT AFFORD IT!” That’s how I feel every time they propose a massive new spending bill.
If I was an optimist, I’d think this, along with the death of Senator Byrd, spells the death of the Financial “Reform” Bill (http://www.dailyfinance.com/story/death-of-senator-byrd-may-endanger-financial-reform-bill/19533303/), but I’m not, so it won’t.
News From The Near Future: WV Democrats change law in order to allow Senator Byrd’s replacement to serve until 2012 instead of Nov 2010.
No need to change the law — the governor could wait until July 3 to “declare” the seat vacant, and hence, appointing someone then to serve until 2012.
I wouldn’t put anything past the Democrats.
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