In a column entitled “The fight of the future”, Associate Editor Gil Smart starts with an excerpt from a letter he received from a disappointed reader:
“’I have been very disappointed in your column since you opted out of Keynesian economics. … It reads like you think the theory is wrong, which it certainly is not. … You have left yourself with nothing to offer as a solution, which de facto, lets the Republicans unchallenged with their false ideological-driven concepts that do not work.’
Smart responds:
“Were we experiencing a typical, cyclical economic trough, I might still wave the Keynesian flag. But that’s not what’s happening. Economist and New York Times columnist Paul Krugman comes right out and says it: This is a depression. And why not? Depressions have been a constant in U.S. history; it’s not like the Great Depression was the first. Why should it be the last?”
WATCHDOG: We are at a loss as to what Smart is talking about and we wonder from where he gets his presumptive expertise as an economist.
The New Deal spending programs almost brought the country out of the Great Depression by 1936 when they mistakenly moved to a program of austerity to balance the budget and thus plunged the nation into an even worse depression in 1937.
It took the massive deficit spending relating to the Second World War to return the economy to prosperity. And there it remained, more or less, for the next fifty-five years. Then came “W” with his deep tax cuts, especially for the wealthy, and senseless war in Iraq.
A basic understanding of Economics is that unemployed people cannot create wealth, rather they consume wealth and at least partly at the expense of the government. Furthermore they do not pay as much taxes, thus adding to the problem.
Once we get people back to work, they are productive thus adding to Gross National Product and they do not require governmental subsidies. Furthermore, a person who gets back to work spends more money than before which helps put other people to return to work. (The ‘Multiplier Effect’, approximately 2 to 1.)
As we experienced during the Clinton Years in the 1990’s, the nation not only was balancing its budget but rapidly reducing the national debt, to the extent there was fear that it would be totally eliminating thus undermining the banking system!
The American Recovery and Reinvestment Act of 2009 halted the rapid fall of the economy that was costing hundreds of thousands of jobs each month. But it was not enough to turn around the economy and by 2011 funding had been depleted and it became necessary for large layoffs of federal, state, local and school district employees with the resulting shrinking of the economy.
The vast majority of economists, including Noble Award recipients, endorsed additional federal stimulus in 2009 and 2010. Ignorant of basic economic theory or desirous of undermining the President and his administration, Republicans blocked this with the spurious argument that we needed austerity to prevent our going further into debt which they maintained would be a terrible thing. In other words, déjà vu 1936 / 1937.
Technically we are not in a ‘Depression’. If we were, Smart might be selling apples on a street corner with the rest of us. But we are in big problems, in large part because we departed from the valid remedies provided by Keynesian Economics.
In this case as is often the case with Letters to the Editors, be it the New York Times, the Sunday News or NewsLanc, the letter writer is better informed and carries the day.
I generally agreed with your commentary on Keynesian and the need for public spending to get the economy moving again. This seems so obvious yet it is debated.
But, I disagree with you putting all the blame on Bush. No doubt his tax cuts were a contributing factor and continue to be a problem for the federal budget, but Clinton deserves a lot of blame for the economic mess. His policies started the housing bubble by pushing lenders to loan loosely for home ownership. Perhaps he had a good intention — getting as many Americans as possible into home ownership — but that was the seed of the bubble. He rode that bubble and the Internet bubble to the surplus you mention. He was lucky to leave before the bubbles inevitably burst.
Even worse, his policies allowed the contagion of the burst bubble to create a massive economic meltdown. He ended Glass Stegall, decided that the derivatives market should not be regulated, put in place NAFTA and trade policies that empowered corporations at the expense of governments and created interlocking economies that brought the world down together. In many respects, I blame Clinton more than Bush for the extent of the economic damage. Yet, he tends to get off without blame — even with praise.
KZ