The Final Nail in the Keynesian Coffin?

December 22, 2014

One can only hope. Although, to be fair, Keynes himself would probably criticize the way his acolytes apply his theories.

International Liberty

I wrote earlier this year about the “perplexing durability” of Keynesian economics. And I didn’t mince words.

Keynesian economics is a failure. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Japan in the 1990s. And it didn’t work for Bush or Obama in recent years. No matter where’s it’s been tried, it’s been a flop. So why, whenever there’s a downturn, do politicians resuscitate the idea that bigger government will “stimulate” the economy?

And I specifically challenged Keynesians in 2013 to explain why automatic budget cuts were supposedly a bad idea given that the American economy expanded when the burden of government spending shrank during the Reagan and Clinton years.

I also issued that same challenge one day earlier, asking Keynesians to justify their opposition to sequestration given that Canada’s economy prospered in the 1990s…

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Happy birthday, Stimulus!

February 17, 2012

Today is the third anniversary of the passage of President Obama’s Stimulus Pokulus bill, which was supposed to have us at below 6% unemployment by now. How’s that working out?

Whatever. Let’s not quibble over small details, such as being utterly, humiliatingly wrong. Instead, this is a time to celebrate Porkulus’ many accomplishments — the jobs and wealth created. How our (borrowed from China) money was wisely spent. Stories such as this one:

In an effort to stabilize the city’s real estate market, a federal stimulus program has spent nearly $1.5 million on eight Modesto homes that ended up being worth less than $1 million.

Example: Taxpayers paid $223,641 to buy and fix up a foreclosed south Modesto house that was built in 1992. But when the city’s 16-month renovation project was done, the home appraised and sold for only $114,000.

The government lost $109,641 on that just completed deal.

Taxpayers also have spent $109,494 to buy and renovate a 1948-vintage two-bedroom home in Modesto’s airport neighborhood. That house has appraised for only $55,000, and a buyer has yet to be found.

The federally funded Neighborhood Stabilization Program is being managed by the city of Modesto, which plans to resell an additional 18 or more rehabilitated homes this year.

The eight refurbished Modesto homes have cost taxpayers, on average, 34 percent more than appraisers determined they were worth after repairs were complete. That’s an average of $61,487 each.

In investing, that’s called “value destroyed.” And, as of the article’s writing, they weren’t finished!

Happy birthday, Porkulus! Just think of what President Obama can do with four more years!

via Elizabeth Emken for Senate

(Crossposted at Sister Toldjah)


Video: why the New Deal was a failure

December 13, 2011

Obama’s first term (1) saw a full-throated return to Keynesian economics — massive increases in government spending, debt, and (if they had gotten their way) taxes to try to stimulate the economy. As we all know, it failed miserably.

For the 2012 election, Obama has doubled-down on the Keynesianism to openly advocate policies of higher taxation, more regulation, more government-directed redistribution of income, and, yes, even more flushing tax money down the toilet stimulus spending. Obama and his people claim that this worked before under FDR, so we should do it again.

Wrong. The history of the New Deal (and its predecessor under Hoover) is almost the opposite of what we’ve been taught in school. The biggest misrepresentation of all is that it worked.

It didn’t. The New Deal was a failure that only made the misery worse, as this video from the Center for Freedom and Prosperity argues:

The real lesson we should take from the economic policies of the Hoover and FDR administrations is that big-government, statist interventions don’t work. Instead, they exacerbate the problem by hindering the self-healing properties of a free market.

In 2012, we have a choice between a party that advocates economic policies that are an empirical failure — the Democrats and the their Hoover/FDR interventionism– and one (2) offering those shown to be an empirical success, the policies of Ronald Reagan and, yes, Warren Harding.

For most voters (3), once armed with the facts, the choice becomes clear and easy.

RELATED: For more on the truth about Hoover, FDR and the New Deal, let me recommend the following:

  • Ohanian and Cole, “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis” (Journal of Political Economy, 2004) While behind online subscriber walls, you should be able to find it at any university library.
  • Amity Shlaes, The Forgotten Man
  • Jim Powell, FDR’s Folly

Footnotes:
(1) And, to be fair, the last year of Bush’s second term.
(2) Sure, the Republicans have been far from perfect, and the eventual nominee himself may be tempted by big-government “solutions,” but they’re still a far sight better than the (Social) Demcorats.
(3) Other than a certain core that, for whatever reason, prefers to cling bitterly to their cherished myths and bad ideas and be infantilized wards of the state.

(Crossposted at Sister Toldjah)


Sunday Book Review: FDR’s Folly

September 25, 2011

Many years ago, when I was doing my undergraduate degree in History, I read “The Historian’s Craft,” by the great French historian Marc Bloch. One lesson he taught that’s stuck with me all these years is that “objective” history is a myth; the historian, by declaring what is significant through his choice of what facts to include in his work, inevitably suffuse the work with a subjective viewpoint — his opinion.

Careful historians take this inevitable bias into account and look for facts that contradict their thesis, evaluating them against those that support the historian’s point of view and thus reaching a reasoned synthesis. But, again almost inevitably, certain perspectives gain wide enough acceptance that they go from being opinion and argument to unquestioned “received wisdom.”

The history of the New Deal is an example of this. According to the standard telling, the era of vast government intervention in the economy under Democratic President Franklin Delano Roosevelt saved the nation from economic collapse after the reckless laissez-faire economics of the 1920s and a series of “do nothing” Republican presidents. People found jobs, the hungry were fed, and labor gained their just rights. This was the orthodoxy pushed by liberal historians such as Arthur Schlesinger and Frank Friedel, whose works influence the teaching of history in high schools and colleges down to today.

In recent years, however, works by conservative and libertarian authors have challenged this orthodoxy to argue that the New Deal was not nearly as effective as proclaimed, perhaps even a total failure. Actually analyzing the application and results of New Deal policies, rather than just concentrating on the politics, a few years ago two UCLA economists published a study arguing that FDR’s policies lengthened the Depression by seven years. Journalist Amity Shlaes authored “The Forgotten Man,” an important revisionist history of the Great Depression that questions many of the standard assumptions.

Into this latter, revisionist literature in 2003 came Jim Powell’s “FDR’s Folly: how Roosevelt and his New Deal prolonged the Great Depression.” Powell is a scholar with the libertarian Cato Institute, and he approaches the New Deal with a very skeptical eye. His thesis is that the New Deal was a failure because its diagnosis of the problem, that the economic collapse was caused by prices (both of goods and labor) being too low and that the way to fix the problem was to regulate the economy to maintain prices at a higher-than-market value. He shows instead that this contributed to the problem by making labor too expensive, thus pricing less-skilled workers out of the market and thus keeping unemployment high. (By some estimates, unemployment never went below 13-15% during the Depression. If a program is to be judged by its results…)

Powell also criticizes the vast expansion of federal power under FDR, an expansion made necessary because of the administration’s belief that free markets had failed, that unrestrained competition had brought about the crisis, and that the only way out was to highly regulate all aspects of the economy. This had the effect, Powell argues (I think correctly), of severely weakening economic liberty, for example the freedom of two or more parties to agree to a contract, and the rights a property owner, such as  a factory owner, has over his own property. What had previously been the inherent rights of the individual guarded under the Ninth and Fourteenth Amendments were gutted by a succession of Supreme Court rulings, particularly after FDR was able to appoint several sympathetic Justices, who argued that “economic rights” were less important than political rights, such as free speech.

Powell organizes his book in a series of questions, which are then explored to attack one aspect or another of the New Deal orthodoxy. Here are some samples:

  • “What did FDR borrow from Hoover?” (1)
  • “Why did FDR triple taxes during the Great Depression?”
  • “Why did the New Dealers destroy all that food when people were hungry?”
  • “How did New Deal labor laws throw people out of work?”
  • “How did FDR’s Supreme Court subvert individual liberty?”
  • “How did New Deal policies cause the Depression of 1938?”

It’s become a cliché to describe a book as “eye-opening,” but that’s the effect Powell’s book had for me, clearing the scales of liberal orthodoxy away from my eyes by stepping outside the accepted history and daring to ask questions and hold the New Dealers accountable for the results of their policies. And, with the full-throated resurgence of statism under Obama and the progressives, this eight-year old book has a new relevance. Believe me, just change a few of the names and dates, and you’d swear Jim Powell was writing about Barack Obama.

Maybe Time was right to say Obama is the new FDR.

Summary: FDR’s Folly (2003, Three Rivers Press) — recommended.

Footnote:
(1) Yes, the orthodox view of a laissez-faire Hoover is all wrong.

(Crossposted at Sister Toldjah)


But… But… But, Obama said we had to spend to create jobs!

May 22, 2011

Oh, yeah? One graph measuring federal spending vs. the number of jobs shows us what a farce that is:

How's that spending binge working out for ya?

Via Power Line. Click through for more.


Why Keynesian economics is wrong

November 30, 2010

Progressive economics (and, sadly, the economics of some otherwise sensible Republicans) is based on the idea that, in an economic downturn, one relies on government spending to increase domestic consumption in order to stimulate the economy. Sadly, as the history of the 1930s, 1970s and, now, the early 21st century shows, that really doesn’t work. In this video from the Center for Freedom and Prosperity, the AEI’s Hiwa Alaghebandian explains how Keynesian economics, and thus the entire economic policy of the Obama administration, has it all backwards:

As her former internship supervisor, Dan Mitchell, writes:

The main insight of the mini-documentary is that Gross Domestic Product (GDP) only measures how national output is allocated between consumption, investment, and government. That’s useful information in many ways, but if we want more output, we should focus on Gross Domestic Income (GDI), which measures how national income is earned.

Focusing on GDI hopefully would lead lawmakers to consider ways of boosting employee compensation, corporate profits, small business income, and other components of national income. Focusing on GDP, by contrast, is misguided since any effort to boost consumption generally leads to less investment. This is why Keynesian policies only redistribute national income, but don’t boost overall output.

The analysis in this video also helps explain why Obama’s so-called stimulus was a flop. The White House genuinely seemed to think a bigger burden of government spending was going to create jobs, but the real-world numbers show higher joblessness.

The basic idea is that increased income leads to increased consumption, not the other way around. One would think this would be common sense, but that apparently assumes a level of economic literacy all too uncommon amongst our policy-makers.

LINKS: MEP Daniel Hannan sums it up in 11 words.

Via International Liberty

(Crossposted at Sister Toldjah)


When all else fails, do it again

September 6, 2010

So, let’s see. In 2009 President Obama asked for and got a pork fiesta $787 billion stimulus package from Congress, saying we needed it to keep unemployment from rising above 8% and to put America back to work.

It failed miserably. And that’s not even mentioning the pork-barrel spending and nonexistent zip codes.

So, when faced with the utter failure of Keynesian stimulus spending to stimulate anything other than the national debt, what’s a Lightworker President to do? Cut taxes? Cut spending? Ease the burden of regulation on small businesses? Allow a free market economy to do what it does best?

Dudes, don’t be silly.

The answer is obviously to spend more:

President Obama, looking for ways to jump-start the sagging economy and create new jobs, called on Congress on Monday to approve a far-reaching plan to rebuild and modernize the nation’s transportation networks — roads, rail and airport runways — over the next six years.

With Democrats facing increasingly bleak re-election prospects, Mr. Obama used a Labor Day visit to a union festival here to lay out the plan, which the White House says could begin creating jobs as early as 2011 if Congress moves quickly. But prospects for a hasty passage seem unlikely, given that lawmakers have only a few weeks before they go home to campaign and Republicans have little interest in giving Democrats any pre-election legislative victories.

“Over the next six years,” Mr. Obama promised “we are going to rebuild 150,000 miles of our roads — that’s enough to circle the world six times; that’s a lot of road. We’re going to lay and maintain 4,000 miles of our railways — enough to stretch coast-to-coast. We’re going to restore 150 miles of runways and advance a next-generation air-traffic control system to reduce travel time and delays for American travelers — I think everybody can agree on that.”

Mr. Obama vowed that the plan, which would include work on high-speed rail lines, would be “fully paid for” and not add to the deficit.

Gee, where have we heard that last one before?

Setting aside my complete lack of faith that this Congress and administration could spend the requested money wisely (based on their performance so far) and ignoring the consequences of adding to our staggering debt (Oh, heck. What’s another $50 billion among friends?), the proposal for a smaller, more tightly focused and controlled stimulus package is about 18 months too late:

While President Barack Obama goes on the road to shore up slipping popular support for the $1 trillion stimulus porkfest that he ordered up from Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi, Rep. Walt Minnick, a freshman Democrat from Idaho, is pushing a better idea: The Strategic Targeted American Recovery and Transition Act (START).

Minnick is a member of the Blue Dog caucus of occasionally conservative Democcrats. His START plan is a $170 billion “bare bones” pure stimulus approach that would put $100 billion immediately into the pockets of low- and middle-income Americans, then use the other $70 billion for basic infrastructure projects that create jobs. START requires that all funds not spent by 2010 be returned to the Treasury. START also stops stimulus spending when the nation’s Gross Domestic Product increases in two of three previous quarters, and all START payments are required to be posted on a public website.

While I’m opposed to Keynesian stimulus in general, and I think the record of history bears out its ineffectiveness, I could have supported the Minnick proposal as a reasonable compromise. To hear Obama come out with something similar only after all the damage his first stimulus has done calls for one response:

D’oh!  Doh

LINKS: More at MSNBC, International Liberty, and Hot Air.

(Crossposted at Sister Toldjah)