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  • Keynesian Doublespeak

    President Obama with his economic advisers

    A year ago, President Obama warned the American people that the financial crisis was dire and required a whole new approach to government spending. Obama argued that the government must help America spend its way out of the recession, and his economists, using Keynesian multipliers, argued the “stimulus” would keep unemployment below 8.2 percent (PDF).

    Conservatives were skeptical, and pointed out that many of the government jobs would take a year or more to materialize, but Obama replied that we must be patient and keep spending. Conservatives pointed out that many of the stimulus projects were wasteful, and pork-ridden, but the consistent response from supporters of the President’s plan was that any stimulus is better than no stimulus. The economist behind the administration’s theory of stimulus pending, the late John Maynard Keynes, argued that any spending is better than no spending, famously saying that the government could bury money and let people dig it up and this would be superior to not spending at all. Obama supporter and Nobel laureate Paul Krugman has publicly endorsed this position.

    Since then Obama has promoted this idea consistently – stressing that his stimulus is “saving” jobs and boosting demand despite the growing gap between his promises and the reality. And Obama is still introducing new programs such as his “green jobs” program with the justification that they will “create jobs.” Despite failure after failure, the promises and rhetoric never changed…

    Until now.

    Now that the failure of the stimulus bill is becoming obvious, and public opinion has turned against it, Obama is touting a spending freeze in his 2011 budget:As we focus our efforts on spurring job creation and jumpstarting economic growth, we also have to change business as usual in Washington and restore fiscal responsibility.”

    Wait: If government spurs job creation by spending, even on digging holes and filling them up, then how can one advocate both the first part, and the second part, of that sentence? That kind of doublethink can hurt the brain.

    What new theory lies behind the timing of this sudden advocacy of budget restraint? It certainly is not Keynesian theory. Keynesian theory would suggest continued loose fiscal policy, since unemployment is still around 10 percent. Remember: digging holes and filling them in is “stimulus” and hence is better than nothing, for Keynesians.

    A spending freeze is “Hooverism” and is the worst thing that one can do during a recession; during a recession government must use deficit spending, and the more deficit spending the better. Now, in any case the spending freeze is tiny, but if it were a true attempt at fiscal responsibility, this would be a curious policy turnaround.

    Posted in Economics [slideshow_deploy]

    11 Responses to Keynesian Doublespeak

    1. Randy,SA TX says:

      Was bush and his administration conservative when he wanted the bailout? be careful of who points the finger becuz there three finger pointing right back.

    2. Ozzy6900, CT says:

      You know, only a complete idiot would continue to spend when there is no cash to spend. I guess that says volumes about our Government, doesn't it? There is no way you can spend your way out of financial ruin, any American with a 5th grade education knows that. But it seems our illustrious leader is not a 3rd grade graduate (or an American).

    3. Bobbie Jay says:

      I'm sorry. Who's in office? This man, Mr. Obama, has more faults he insists on heading forward with then any previous president.

      "saved or created?" Mr. Obama can't even specify which? He must be imagining America jobless, as his actions indicate this to be the goal. So, whatever job exists today, Mr. Obama takes all credit while he infiltrates DESTRUCTION ON THE REST OF THE PRIVATE SECTOR.

      The only jobs this man, Mr. Obama will CREATE or has CREATED ARE GOVERNMENT, BRAINLESS, NEEDLESS, TEMPORARY JOBS, NOT CAREER ORIENTED AS HE TOOK THAT OPPORTUNITY AWAY!

      Don't forget, Mr. Obama was in the exact senate you want to point your finger at President Bush for. Check out his good work there. He's been setting this country up! Mr. Obama and his NO ACCOUNTABILITY isn't a leader of the principles and values of this country. He has no dignity, or integrity.

      WAY TOO WEAK! CAN'T THINK WITHOUT RESEARCHING WHO HE CAN DESTROY AND LEAVE PENNILESS NEXT.

      Live happy in your government/society induced indoctrination. Your brain is worth more then that, but you'll have to figure that out for yourself, Randy!

    4. UNRR says:

      This post has been linked for the HOT5 Daily 2/9/2010, at The Unreligious Right

    5. stirling, Pennsylvan says:

      Its hard to listen and understand this president when he's speaking non-real world economics. Most people (not in government) understand clearly that overspending is bad, saving is good. Maybe in European Socialist Countries this is acceptable economics, but clearly it's a bunch of BS when it comes to this country. People understand that when you have an administration full of non-buisiness experience bearucrats running the economy (talking in Elite speak) that in lehmans terms it's like a bunch of monkeys trying to screw in a lightbulb to fix the problem (It just isn't going to happen.)

      Randy, Bush was wrong to start the bailouts, the problem was Obama decided to continue the abuses and even expand it to areas it was never supposed to be used. It was a door that never should of been opened in the first place.

    6. Concerned, Mequon WI says:

      The only way that people will spend again is when the job market improves. People are afraid of losing their jobs, thier homes etc. This administration should be focusing on nothing expect getting people back to work. Everything else can wait. They are on the wrong track and everyone knows it except them.

    7. Daverino Ft. Worth says:

      Fascinating!! We can put people on the moon, utilize laser surgery to non-invasively operate on fetuses, and definitively determine that Cadillac Escalades are causing the seas to rise–but we cannot figure out that a wealthy 46 year-old man who effectively bankrupted himself due to poor fiscal management and had to run home to his daddy, is potentially not the right person to model the world's largest economy after?

      But just in case he might've been slightly off on some of the details–we'll limit the number of holes we bury the money in, in the red states. Yeah that's it–we won't dig the holes in the states "that don't need the hot aeration."

      Have I mentioned for the first time in my adult life, I am no longer proud to be a citizen of this government, and I lived through the Clinton years?

    8. Puk, Denmark says:

      I agree with Concerned "The only way that people will spend again is when the job market improve", but where will these jobs come from? I'm a business man, I employ a few people. But I'm not in a position to just give a guy a job. If I do that then my kids don't get presents, or the missus won't get new dresses. Neither are good. So I'll concentrate on trying to keeping the guys that I have busy. So where will these jobs come from if the government doesn't create them?

      Actually spending your way out of a recession is a tried and trusted technique, its been practised in the US by Roosevelt. Whether you get money into folks pockets through public works (Keyners) or by pumping it through the banks (Friedman) the government has to spend it.

      I guess they don't teach this in the 5th grade?

    9. Tom/Georgia says:

      I believe that it helps greatly to place the writings of John Maynard Keynes in the context of the times in which his book was written: The World-wide Great Depression.

      Then you have to consider his specific recommendations: Building infrastructure such as roads and bridges: Spending that would enable the actual economy to operate with improved efficiency. Also, building better schools to provide an environment for a better education for the future work force thus having a more versitile, more flexible, more capable future work force.

      The immediate, short-term purpose for the recommended spending was to put people to work and provide pay checks that would support commerce: So-called demand side stimulus. Intermediate and long-term, it would be the supply side– the actual productive economy–that would be able to operate at a higher level of efficiency and proficiency from the infrastructure improvements and a better educated, more versatile work force. The results of the recommended demand side stimulus spending would ultimately result in a more diverse and more robust supply side: The actual economy.

      But that was then, this is now. There has been an almost total change in the systemic conditions that surround the current economic slowdown versus the systemic conditions that existed 75 to 80 years ago. The series of events that led up to the current slowdown were different enough from those that led up to all previous recessions that "recession" in the traditional sense may not be even the right word to use to characterize the current economic situation. This slowdown occurred after about 45 to 50 years of increasing deficit spending by our federal government: In effect, 45 to 50 years of increasing demand side stimulus. The increasing burden of the spending was, either directly or indirectly, being dumped on the businesses that constituted the actual economy: The supply side. So, today where are far too many of those businesses and the jobs that they provided? Try china and the rest of Asia? Latin America? You betcha. Also, check out the records for liquidation bankruptcy filings, especially over the past 20 years or so.

      The nation's goods and non-financial services economy produces and creates 100% of the nation's real economic value and in so doing produces 100% of the nation's real purchasing power. When the percentage of a nation's purchasing power that is being transferred to the nation's governments reaches an excessive level, the nation will be rendered unsustainable.

      Great nation's have never just died. They are assassinated by the un-thinking actions and the uncontrolled excesses of their own governments.

      I contend that if Keynes, who is reputed to have been, let's say somewhat abrupt and to the point, could come back and get a good look at the 21st century so-called stimulus plans he may ask a question such as, "Do you fools have even a clue about what you are trying to do?" And may say something like, "Stop blaming me for your own stupidity."

      That's just my opinion, of course. I won't pretend to be able to speak for Keynes.

      I do not believe that Keynes should be blamed for today's keynesianism: the over-simplified, over-politicized economic ideology that prescribes the same rote, formulaic response to a slowing economy while disregarding the differences in systemic conditions that led up to and that now surround the slowing economic activity.

    10. Ben C. Ann Arbor, MI says:

      Puk, Denmark

      "Actually spending your way out of a recession is a tried and trusted technique, its been practised in the US by Roosevelt. Whether you get money into folks pockets through public works (Keyners) or by pumping it through the banks (Friedman) the government has to spend it.".

      Your assumption is that it is "free money." At some point the borrowed money has to be paid back or the inflation death spiral ensues. Those of us that are fiscal conservatives realize this and with our unfunded liabilities at 100 trillion dollars we know that our country is on the road to self destruction. Keep spending and your kids and grandkids will pine for the lifestyle yoy enjoyed.

    11. Pingback: Reading Tea Leaves « ORBIS

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