In “Exit Keynes, stage right”, columnist Gil Smart opines:
“But the idea that a bigger stimulus would have ‘fixed’ the structural problems back in 2009, or that an additional stimulus would solve them today just seems to me wrongheaded. I understand and appreciate the Keynesian impulse — that government action can prevent or mitigate the pain of economic dislocation. But there’s no political will for it anymore.”
“Last week government debt topped 100 percent of GDP for the first time since 1947, just after World War II. The age of Keynes is over.”…
WATCHDOG: We invite Smart and our readers to view the chart tracking “U. S. Total Government Debt Since 1900”. What becomes apparent is that Keynesian economics had little if anything to do with our current fiscal deficit. A sharp increase started during the Republican Reagan /Bush Sr. years in the 1980s as a result of tax cuts for the wealthy, declined during the prosperity and sound fiscal management of the Democrat Clinton years, and then skyrocketed during Republican President George W. Bush’s tenure in office. (Amazing, isn’t it, how President Obama gets the blame!)
“W” brought us large tax cuts tax rates for the wealthy, an unfunded increase in Medicare prescription payments, and a ‘guns and butter’ (no tax payer sacrifice) approach to the senseless war in Iraq and mismanaged war in Afghanistan. (We went there to punish Al-Qaida and then involved ourselves in nation building for the worst candidate in the world –given the terrain and history – for such an effort.)
“W” also left office with the nation in its most dire recession since the 1930s. President Barack Obama had no choice but to continue the emergency deficit funding started with the ‘W’ bi-partisan “TARP” rescue of the banking system which has been fully repaid, and the highly successful General Motors rescue and the Recovery Act during the first year of the Obama administration. The Act was under funded at $800 million and unwisely structured with too much in short term tax cuts and long term planning and too little in infrastructure expenditures. Nevertheless, it likely prevented the nation from sinking into depression.
Smart has lost faith in Keynesian economics, but provides no suggestion as to what we are to do to climb out of the recession. The silence implies either resignation to a decade of doom or a misguided faith that laying people off is the way to combat high unemployment and underemployment.
Smart acknowledges that he is a columnist, not an economist. Nearly all reputable economists have maintained and now are shouting that ‘jobs’ and greater consumer demand are the keys to recovery. This can only be accelerated by another ambitious recovery act, this time a trillion dollars and aimed at getting workers in the hardest hit sectors of the economy back to work. This will reduce government expenditures on social programs and, over time, generate huge tax revenues.
Note that the deficit grew beyond annual GNP during World War Two and how, buoyed by full employment afterwards, it was paid down over the subsequent decade. Once we return to a more normal 4% unemployment rate and with cautionary expenditures, the deficit will soon cease to be at a level of concern.
It seems the young tend to lose faith while the old, tempered by time and having lived through so many ups and downs, marshal on.
And one political persuasion always blames the other…….neither will accept any responsibility when times are tough nor give any accollades to the other when times are good. Ahh……politics…….”ain’t they great”????