Sunday, August 8, 2010

Keynesian; A Tool of the Progressives

No one can show the arrogance of the neo-Keynesian economics embraced by the Obama administration, then it’s loudest mouthpiece, Paul Krugman. This time he attacks Paul Ryan and his plan of reducing spending. Krugman’s main complaint, as always, is without high taxes, government will not be able to pay for it’s obligations, in this case, a $4 trillion short fall over 10 years, compared to the Obama alternate scenario. What Krugman will not acknowledge is the economy will grow if you cut taxes on business, that any attempt to cut taxes always shows up a zero sum gain; more taxes equals more tax revenue, less taxes equals less tax revenue. Never mind that in US economic history, especially in hard times, tax reductions resulted in the money being re-invested, record growth, higher profits and more employment; the taxes on these higher profits, even though it was a lower percentage, often results in higher tax revenues than with the higher tax rates. Further, the Obama is back loading the national debt, so by 2020 the GDP to debt is 87%, 2040- 233% and 2060- 433%!. This compared to Paul Ryan’s plan, which never exceeds 99% over the same time periods. (The Congressional Budget Office). Which scenario would you want? I guess it depends whether you want to start paying for the debt now or pass it on to your grandchildren.

Well the Neo-Keynesians (aka Paul Krugman) are beside themselves because, try as they will, no one will buy their snake oil anymore; we have come a long way since said Time magazine said, “We are all Keynesians now”. It (Keynesian economics) can, he said, achieve calculated prosperity by manipulating three main tools: tax policy, credit policy and budget policy. Their use would have the effect of strengthening private spending, investment and production”. $2 trillion worth of stimulus appear to have had little effect on the economies continuing to slide into a worsening recession. The Keynesians were well known for their dire warning that the GI’s returning from WWII would cause rampant unemployment and a clasped economy if not steered by their theories. The result, without Keynesian steering was the opposite, yet the Keynesians were so entrenched, they gave themselves credit for the prosperity that followed.

The inherit flaw in Keynesian theory is the human element. John Maynard Keynes assisted running the wartime economy during WWII and theorized that if the same type of government planned economy were to exist during peace time, then one could have the idealized government planned economy without sacrificing societal freedoms that occurred in Italy, Germany and the Soviet Union. The problem is, the British were sacrificing because their very existence was at stake. Take away that inducement, and citizens start questioning the extent of their sacrifice just for the good of the State. The welfare state the neo-Keynesians are now suggesting, has had to create a new entitlement that can only be defined as guaranteed employment. The result of their failed policies has resulted in 9.5% of the population actively looking for work and 16-20% unemployed. In order to address these near depression numbers, the federal government has extended the 6 month unemployment compensation to 2 years. In typical demand side idealism, the Keynesians claim with money in their hands, the unemployed with start spending again and the economy will pick-up. Reality of course is something quite different. When one is faced with living on 60% of their previous wages and no real relief in sight, the unemployed are going to cut back and save wherever they can. Further, it ignores one of the basic truths that exist between citizenry and government. If the government subsidizes something, the people will do it, be it home ownership and marriage, or Welfare and now unemployment; instead of unemployment being a cushion as Welfare was supposed to be, it will become a lifestyle.

In reality, Keynesian theory is just an obscure economic theory that was co-opted by the Progressives to justify big government and the welfare state. Keynesian theory, much like the Man Caused Global Warming scheme, is the classic scheme of an emerging totalitarian regime, using cult science to justify tyranny. Progressives are already talking up the imaginary separation between a planned economy and Democratic politics. "Such assurances are usually accompanied by the suggestion that by giving up freedom in the pursuit of higher values. On the ground people who abhor the idea of a political dictatorship, often clamor for a dictator in the economic field." (F.A. Haytek).

In a forum response to the first paragraph
printed in the Santa Cruz Sentential 8.15.2010 under the heading "Thanks for Krugman". The writer complained of failed Republican policies, this was my response.

"Bush 43 raised the debt 2.5 Trillion dollars in 8 years, Obama has exceeded that in 18 month. Bush 43 was a Progressive and a Keynesian, not a conservative, nor was his father. As with Reagan, his tax cuts were not offset with government spending cuts, but this time the economy could not absorb the debt so the economy floundered. With the exception of rhetoric, Obama has not only continued all of Bush 43 policies, he has accelerated them. One can rightfully blame Bush 43 for our economic mess, since he set in motion all of Obama's policies! As I wrote yesterday, to paraphrase the President, "The choice is whether we want to go forward or we want to go backwards to the same policies that got us into this mess in the first place....(Democrats) have not come up with a single, solitary, new idea to address the challenges of the American people. They don’t have a single idea that’s different from failed Keynesian tax and spend ideas -- not one".

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