The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s ”” starting to cut spending and raise taxes before a recovery is assured ”” and hoping today’s situation is different enough to assure a different outcome.
In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.
On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.
Longer term, though, it’s still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.
Written like a true Keynesian. Wealth comes from the state. It can be created out of thin air. Money is infinitely available (so long as there is ink to print it with).
How about cutting spending and cutting taxes!
#2. Who will pay for the wars?
That’s what Ireland, Estonia and Latvia have done. They aren’t doing that well. Ireland’s followed the fantasies of the deficit crowd, and they’re miserable.
Why not extend credit to businesses, help the states balance their budgets, and help the working class by extending unemployement benefits? Why not help people spend. When people spend, they spend money in businesses. Who then hire other people. Who spend.
“Cutting spending and cutting taxes” is a slogan. Keynes, however, was right. Might want to reread Richard Posner’s conversion.
Yes, Keynes was finally right, at least, when he stated 10 days before his death:
[blockquote]”I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”[/blockquote]
You must respect a man for admitting his error. But be wary of those who still espouse the ideas that he finally admitted were flawed.
From the NYT:
[blockquote]As temporary Census jobs evaporated and the private sector added just 83,000 workers, the United States lost 125,000 jobs in June.[/blockquote]
Government creation of private wealth is of course working perfectly. We are taught it as a matter of faith by our schools and our rulers. And after trillions spent the Keynesian way, when headlines like the one above creep sheepishly onto the front pages of our propaganda rags, we are told simply by Krugman et al that we have not spent enough. Keynes on steroids hasn’t worked. Let’s try Keynes on IV.
actually, we didn’t try Keynes on steroids. Obama put in a fairly modest plan. What the Keynsians wanted was double. in fact, they argued that this wouldn’t prevent a double dip recession. They seem to have been proven correct.
What the stimulus package did do was ensure it wasn’t any worse. Conservatives – and democrats – underestimated how bad the economy was.
Creedal Episcopalian – your comment isn’t very precise. AFter all, in this day and age, Adam Smith himself would have been thrown out of the conservative pantheon if they read some of his other work (or read some of his critiques of businessmen). Keynes was always a capitalist. But he wasn’t an idealist about confidence. And, unlike most conservatives, he thought helping the working class was better than preaching deficits (Because, although in the long run it gets better, in the long run we are all dead). You’ll have to be more precise. Was he wrong about the multiplier effect? Was he wrong about the nature of confidence?
We’ve had for many years, if not state socialism. But it’s through the military.
For a counter to the Keynesian propaganda we were all fed in high school and college, I recommend looking into the Austrian school of economics (mises.org). Here is an entertaining rap video detailing the differences between Hayek and Keynes:
http://cafehayek.com/2010/01/keynes-vs-hayek-rap-video.html
Wilkins, we can argue about how much manufactured money constitutes Keynesian steroids. But we know that this is the biggest government financial “investment” in the US economy ever (I can provide numbers and graphs). Calling Keynes a Capitalist means little to me. The word first came into common parlance thanks to Marx. I prefer the term voluntary or free market.
As the Austrian school of economics so clearly predicted, ever cent “invested” by the government in one form or another is a cent taken from the voluntary market, the market that innovates, and creates jobs and wealth. George Bush infamously claimed that he could create wealth by waging war overseas, and Obama follows tidily in his footsteps by spawning armies of census takers and bureaucrats. One just has to read Frederic Bastiat’s fallacy of the Broken Window to realize that ever job created by blowing up Afghan buildings or sending out harassing census takers constitutes a job less in innovative industries.
I have to ask, if Keynes is right, if wealth can be created at government decree, why stop at Obama’s “modest” measures? Why not wage more wars, print more money, and “create” clean energy? If it is indeed that simple, it’s a shame not to employ everyone? (Government sector jobs are of course far more highly paid than their private sector counterparts.)
John Wilkens,
I fail to see how simply pointing out that, at the end of his life, even Keynes admitted that he had been wrong, is imprecise.
And we do not have state socialism. (yet..that does seem to be the direction the current but very temporary ruling clique is pushing us) We have however, since FDR and Keynes, been becoming fascist.
A trillion dollars or twelve and a debt to GDP ratio approaching 100% seems to me to be more than adequately steroidal. I pray often that we will still have a free nation when it becomes evident that the Keynesians have been deluded by noble-sounding sentiment into destroying the foundations of the developed worlds wealth.