I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four. We could lose a generation of potential and promise, as more young Americans are forced to forgo dreams of college or the chance to train for the jobs of the future. And our nation could lose the competitive edge that has served as a foundation for our strength and standing in the world.
In short, a bad situation could become dramatically worse.
And our solution seems to be to turn on the printing presses and pring fiat money, which will saddle our grandchildren and great-grandchildren with a debt they likely cannot begin to pay.
I don’t like it very much.
Just one big credit card.
I think my children and grandchildren would be happy that I had a job and that they had health care in the early part of their lives.
Why is it so easy to pay for bombs, and so hard to pay for another man’s bread?
John, because most of the money doesn’t go anywhere near bread. It goes to bureaucrats who write reports about bread-making, and to others who determine who gets how much bread, and so forth. If we want someone to have bread, then we ought to do what Jesus told His disciples to do, when they were concerned about the hungry, on that hillside in Galilee: “You feed them.” Jesus never came anywhere near to suggesting: “Find a government agency, or create one, and let them feed them.”
4 – unfortunately, as Augustine noted, we rarely feed them. We are called to, but we are sinners. We never give enough. As sinners, we hoard, and people suffer.
Further, businesses aren’t hiring. They are firing. Nobody is lending. Nobody is spending. Therefore somebody needs to hire. Somebody needs to lend. Somebody needs to spend. If we do it together, as a country, for one another, we can ensure that people have jobs, creating a ripple effect in the economy.
What a terrible idea, John. Precisely the wrong approach. What is needed is for prices to be allowed to fall instead of mortgaging our children’s lives. When they have fallen enough, the economy will recover. Trying to print our way into prosperity will turn us into Zimbabwe.
Jeffersonian is right on. John, who will supply the wealth to pay the wages of those we “hire’, as a country, to ensure that people have ‘jobs?” The only ones who have wealth, in any society that is not printing money as fiat, are those who have real jobs which produce real wealth. Government jobs do not do that, with rare exceptions. And, even in those exceptions, it is often possible for the private sector to surpass them in efficiency and with less cost. As Jeffersonian wrote, John, and with great respect to you as a human being who cares, yours is not a good idea. It does appear, however, that is what we are going to do. We will rue the day.
E-yep, they are not hiring, so we should raise their corporate tax rates and force them to spread their ill-gotten obscene profits around some more. Then they will hire! By golly or we will force them to!
Except, then they will either have gone out of business or moved to another country with a lower tax rate and lower wages and no unions.
Jefferson, I can understand the Hyperbole. You’ve been calling Obama a Marxist for a while. But it looks like there will be a couple million jobs lost, and a lot of misery. And in that case, I don’t think its a problem for the government to help people. There are many ways the government can do this.
Currently we fund a lot of prisons and military contractors. They are private businesses. But the govenment pays them. We’ve been doing this on the basis of deficit spending for a while. The only difference is that instead of spending it on bombs, we spend it on companies that build hospitals, bridges, schools, and roads – things that benefit businesses. If we had actually spent money on a few auditors and fund, say, some regulatory agencies instead of thinking we could do it on the cheap, me might have actually saved some money along the way.
But I think I understand where you’re coming from. If you don’t believe in government, you might as well run it poorly. Which is exactly what Bush and his friends did. Mismanage it as badly as you can, and then blame the government for doing a bad job.
It’s one way of doing it.
And look, if we can spend more than 3 Trillion on a war that barely helps Americans, 1 trillion doesn’t seem to matter. I’d rather have my grandchildren paying for roads, hospitals and schools that they’d use than bombs.
There’s no hyperbole, John. Why do you think Zimbabwe’s inflation is what it is if not for the printing presses running full blast? We’re doing precisely what I said: borrowing against the prosperity of future generations for the temporary and fleeting benefit of a relative few. And why? To keep doing what brought about this crisis in the first place: lending to those who are not credit-worthy.
Japan did this in the late ’80s and early ’90s, and all it got them was bullet trains to nowhere and the same stagnant economy dragged low with “zombie” businesses. Are there public works projects worthy of funding? Sure there are, but not nearly of the scope Obama is proposing. What we’ll wind up with are white elephants that fail to pay for themselves, take decades to pay off and which are perpetual drains on the public purse (I predicted as much with a recently-completed mass transit boondoggle here in St. Louis…they’ve spent nearly $1 billion on it and it is now sinking the transit authority in red ink. It will be a perpetual hole in our pockets)
You paint your statist hopes and desires with the colors of compassion and generosity, John, but the sad reality is that your nostrums are a prescription for long-term pain and misery in America.
Jefferson, the difference is that I think we should jump start so that we have prosperity now.
There might be a risk. There will be boondoggles. But we’ll survive them. We’ll survive the eight year boondoggle that was Iraq. We’ll survive the waste that is in the US military. I’d rather have “waste” in the public realm than just spend it on bombs.
Zimbabwe simply doesn’t have the size or infrastructure that the US does. They have little to sell. It’s completely different.
You may be right about Japan. Obama will have to have a little luck and creativity, but the alternative – because business simply aren’t investing, the rate is at Zero, is that nothing will happen. When Franklin tried to balance the budget by cutting spending and raising taxes, the economy tanked; and when Japan did the same thing in 1996-97 it did the same as well.
But investment in infrastructure, as was done in the 1940’s and 1950’s led to the greatest boom in the history of the US. The GI bill, Roads, and the investment in universities helped spur generations of economic growth and lots of new businesses.
Perhaps Mr. Obama’s real solution to the ugly realities of the laws of economics is to repeal them an take us into a fully socialist utopia. The solutions now in the works don’t inspire confidence and confidence is the only thing that gives nantional economies the life they need to work.
Brad Drell has an interesting comment on the efficacy of government’s active participation in commerce:
“Here is the best description of why the bail outs won’t work.
“Back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it.
“They failed and it closed.
“Now, we are trusting the economy of our country and 800+ Billion Dollars to a pack of nit-wits who couldn’t make money running a whore house and selling booze.”
And that is it in a nutshell.
Dilbert, given the way capitalists have been running the show for the last 8 years, you’ll have to do a bit better than that. Imagine if we had actually privatized social security. The money would have disappeared due to the brilliance of fat cat capitalists.
On the other hand, the government did do a poor job running things during Katrina and… the Iraq war.
There will be some mistakes. A government that decides to build a bridge means they will be paying a private contractor to build a bridge. That private contractor will hire people.
But I understand what you’re thinking: if you don’t believe in government, why would you expect someone to run it well? That’s what we’ve seen over the last 8 years: people who mismanage government so that they can accuse it of being useless.
JW, we tried this approach before as FDR’s Keynesian answer in the ’30’s and our economy tanked horribly for years. Recovery came only after the confidence that followed victory in WWII along with the partial reapplication of free market economic principles that allowed the pent up demand to achieve our economic success that followed in the ’50’s. Japan tried the FDR Keynesian approach in the ’90’s and their economy tanked. It has never really recovered.
To look at another area of free market ideology against Progressive/Socialist dogma, it is a historic fact that tax revenues [b]increased[/b] under the Reagan and Bush (43) programs of [b]reduced[/b] income tax rates and that tax revenue [b]decreased[/b] under the Clinton program of [b]increased[/b] income tax rates.
I believe that the free market solution really hasn’t been in place in the US for a number of years, so I agree with you that the good, but few free market actions of the past haven’t been the whole answer to the problem. This has been the case under both Repbulican administrations which have paid lip service to the idea and Democrat administrations which have actively opposed it. But the Keynsian/socialist approach Mr. Obama seems to be advancing is a road to perdition in the sense that his approach will be an abrogation of the principles on which our nation was founded – life liberty and the [b] pursuit[/b] of happiness. ‘Pursuit’ implies the opportunity for the individual to seek to achieve, not the state dictated guarantee that government will provide, happiness.
When questioned why so many Progressive/Socialist programs have not achieved the desired result – public housing, welfare, public education, etc. – the consistent answer is that the application of resources has been insufficient to assure success. I pose to you a similar, but slightly different answer to the reason ‘capitalism’ (as you and Marx put it) has not been a glowing success. Free market capitalism has never really been allowed to work as it could because Progressive/Socialist components in government and society have managed to corrupt very good free market programs to blunt their good impacts. Given a true and free opportunity to work, free market economics in our constitutional republic would give every citizen a full, free and fair opportunity to achieve everything he or she is capable of.
And I do recognize the need for Federalist government to provide for the ‘general welfare’ embodied in infrastructure projects. But those projects must, to my mind, be accomplished within a sound budgetary process and not as the result of ‘earmark’ pork or as make work projects.
We seem to hold different views on the role of government in our lives and our society. My view is that if government is the only answer, the question was probably pretty stupid.
Dilbertnomore: I think the last eight years have been good examples of people endorsing supply side economics and the free market. The bankers were deregulated. Tax cuts were made, with the assumpion they would pay for themselves.
But the better example of Keynesianism working is WWII. It was the investment in the economy that changed things. Remember Keynes’ letter to FDR in 1937 asking why FDR had decided NOT to pursue such policies and had basically raised taxes and stopped deficit spending. That’s what returned the economy back to a recession: not applying Keynes.
I think you are putting Keynes and socialism in similar camps, which I don’t know many economists do. Keynes did not advocate government intervention all the time, but in times of depression. He was not a socialist, although he did say that if there has to be a choice between the tenant and the landlord, one should choose the tenant.
There is a big difference between the two. The idea is that the government then enters the market where capitalists (because they think short term) refuse to. Business could try to hire, they could try to build, but they aren’t getting any money from banks. It’s stuck. AFter ten years of misery, people might begin again, but in the long run, we’re all dead.
I do think that the free market has been “tested.” You could try Chile for example, or Argentina. Both, however, had mixed results. They both had to suffer through political tyranny. Further, the financial system over the last 20 years was pretty actively deregulated. It was a pretty good example of what happens when there’s a free market. People screw others because nobody’s watching.
As far as the tax revenues increasing after tax cuts, there is some evidence that this works in the short term. In the long run, revenues decrease. And tax cuts do not always spur the economy (sometimes they do, sometimes they don’t). Targeted tax cuts may work. But targeted taxes also work as well. But tax cuts don’t pay for themselves, as Mankiw once noted.
In the end, the image of the free market you espouse is pretty utopian.
As far as my own thinking, I’m more interested in Distributivism and Henry George. But I’m certain that supply side economics has failed, and that the “free market” exists in the same place as anarchism or communism does: in the minds of its truest believers.
Recovery came only after the confidence that followed victory in WWII along with the partial reapplication of free market economic principles that allowed the pent up demand to achieve our economic success that followed in the ‘50’s.
Then why do the people who lived through it keep telling me that things were already significantly better before 1940???
Free market capitalism has never really been allowed to work as it could because Progressive/Socialist components in government and society have managed to corrupt very good free market programs to blunt their good impacts.
While I am in favor of free market capitalism, I do sincerely believe it needs *some* government checks. To see how free market capitalism worked before it was “corrupted” by humane considerations check British mining, textile mills and other industries in the early industrial age. Unmitigated free market capitalism doesn’t care if employees die, as long as more can be found. And I say that, truly, as a believer in the necessity and benefits of a capitalist society – with a watchful government.
[i]Then why do the people who lived through it keep telling me that things were already significantly better before 1940??? [/i]
Perhaps because we were already gearing our industries up for wartime production with the lend-lease act? (i.e., sending arms and supplies to England and other allied countries.)
[i] Then why do the people who lived through it keep telling me that things were already significantly better before 1940??? [/i] —Sherri2 [#17]
Because by the late 1930s—before World War II even began—the United States had in many respects recovered from the Great Depression. Consider the facts:
— GNP fell 33% between 1929 and 1933. But by 1937 it had exceeded its 1929 level. That would seem to qualify as a recovery.
— Unemployment rose from 3.1% in 1929 to 16.1% in 1931 and then to a staggering 25.2% in 1933. It fell steadily from then until 1937, when it reached 13.8%.
— From 1933 to 1940, GNP rose 65% in constant dollars, industrial production rose 82%, exports rose 140%, and unemployment fell 45% (to 13.9%). GNP exceeded its 1929 level by 15%.
JW, just a few points.
Keynes in his solutions to revive sick economies recommended stimulation from both government spending and tax reduction. Seems the incoming administration is shaping up to embrace the former and eschew the latter. If Keynes is good economics it appears he is also bad Democrat politics, at least in part.
Regarding reduced taxes and increased revenue working only for a limited time, remember the first law of economics – In the long term were all dead. And it should be noted that in those years where tax revenue increased Congress (putting one over on Reagan and with Bush’s complicity) caused spending to run wild completely smothering the good that could have been achieved under a more constrained set of budgets.
Finally, the Bush administration has been no shining light of free market economics or sound fiscal management. Compassionate conservatism is no fit substitute for a proper application of free marktet principles.
Sherri2, the fruits of FDR’s failed approach to taming the Great Depression can be seen in stats that not only didn’t return to 1929 levels until the late 1930’s when war was starting in Europe and the US became the Britain’s supply house and arsenal, but that the length and depth of the depression was such that when the loss of 6-8 years of GNP growth while FDR’s plan fizzled and sputtered is taken into account, the US economy didn’t catch up to what should have been until the 1950’s. This is what happens when crass politicians put partisan ideology before the real needs of the nation. I hope we don’t see a repeat of the FDR years in the next administration.
President – elect Obama has apparently said, recently (or so it is reported in the press): “We will spend our way out of this.”
That is a recipe for complete disaster. We could ‘save’ our way out of it, with appropriate discipline; we will never spend our way to anywhere but economic oblivion. Indeed, we spend our way into this mess. And Obama’s spend – spend – spend outlook (if, indeed, he is correctly quoted) is sure-fire disaster, perhaps even the end of the republic.
#22 – We will spend our way out of this was the point of the Bush refunds, remember.
Spending has to be deliberate. It can’t be through “stimulus checks.” It has to be through spending on big items that have long term consequences. For many years this has been done through military spending. All that needs to be done is extend this to other elements of the economy.
Obama has, to the consternation of democrats, advocated for tax cuts and greater spending, making him a good Keynesian. As I said, targeted tax cuts are better than general tax cuts. Sometimes raising taxes forces businesses to invest in their long-term interests rather than making something poor and then selling it for a quick buck. There is plenty of evidence to show that raising some taxes is actually healthy for the economy to a level where it isn’t a disincentive for working.
And I’m all for a very high tax for those making $4 million dollars a year. At that point, their either greedy, or they’d be working for love anyway. A good tax is a disincentive for greed. That might have helped over the last several years.