Wednesday, September 1, 2010

Idealism vs Economic Theory

At some point, no matter what your opinion, you have to ask yourself three questions. #1 What exactly did Bush do to screw up the economy that we need to reverse? I mean, we blame Bush for the economy, so there must be something he was doing that he alone (or with the Republicans) was doing; some of which I covered this in my recent article, It Wasn't All Bush You can still “blame Bush,” but a more important question is(#2) , What are we going to do about it? And the #3 question is, after 20 months of Obama’s economic recovery plan, with no evidence that the economy has recovered at all, is it reasonable to ask, is Obama’s plan a failure? Should we be looking to do something else? Certainly, if you interject $500 billion into the economy and loan $800 billion to the banks, it is going to have a temporary and positive effect on the economy; and it did. But the economy is slipping back into what some are falsely calling a double dip economy. But this double dip recession appears to be the same recession less the temporary affects of the stimulus; as Ron Paul said, “You can’t have a double dip recession if the first recession never came to an end.”

Presidents like to posture that they are following some economic strategy; Reagan had “supply side”economics and Obama has Keynesian theory. But what usually happens, due to perceived political necessity like Reagan or a re-distributive ideology as with Obama, these strategies become political road kill. When Reagan compromised with the Democrats and allowed high deficits along with his tax cuts, he simply redistributed taxes as debt (and his key economic adviser David Stockman resigned). This is not to condemn what occurred, it just wasn’t supply side economics. The same with President Obama, the key to his economic reform is a Keynesian stimulus to prime the economic pump. But the President’s stimulus was not injected into areas of the economy that would result in any jobs. Rather the stimulus was written by the ultra-left Apollo Alliance to fund those areas of the economy that met with their political agenda. Even Paul Krugman had to agree, “..for all the talk of a failed stimulus, if you look at government spending as a whole you see hardly any stimulus at all.” While FDR also ran up the debt and may have extended the Great Depression, at least he had something to show for it. Where are all the work projects? Where are the dams and bridges and highways? Where are all those “shovel ready “jobs?

The Whitehouse said they saved 3 million jobs, but there are still 8 million jobs lost! Because a Keynesian stimulus is not designed specifically to create jobs, the stimulus simply disappeared in the $34 trillion of private dept. What Keynesian theory has never dealt with before are such large amounts of private debt. People are willing to maintain a rather high debt levels if they are employed, but these safety-net programs like unemployment insurance, are recognized by the unemployed as temporary. So rather than breaking us loose from the "liquidity trap," people are paying off debt and increasing their savings, hoping for the best but preparing for the worst; contrary to Nancy Pelosi saying that unemployment insurance will stimulate the economy and create jobs. This is the fatal flaw that eventually shows itself with Keynesian theory; the inability to factor in unanticipated human behavior. But even with this, the President never gave the stimulus a chance; it was more important for the Apollo Alliance to fund its progressive agenda, than to create jobs or improve the economy, which makes this the coming attraction for Cap and Trade.

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