Thursday, October 14, 2010

Keynesian Economists and Drug Addicts

One of the main Blame Bush talking points is that the economy was in such bad shape after the Bush meltdown, that it will take more than the last 18 months to turn the economy around; and there is some truth to this. The problem is Obama seems to be going in the same direction that Bush was going in when the economy failed. While the sub-prime banking failure pushed the economy over the edge, the economy was already suffering a slow down that caused Bush to institute a $300 billion stimulus plan. The cause of the economic slowdown was primarily the rising cost of oil, which had risen to from $45 a barrel at the end of 2006, to $80 a barrel at the end of 2007 (it would continue to rise to $135 a barrel in 2008). So one could argue that the recession and banking meltdown, while closely related at the time, are now two different problems. And with the banks repaying the TARP (Troubled Asset Relief Program) money and oil prices at least the same as 2007 levels, it would seem the economy was ripe for a Keynesian stimulus. The problem is Keynesian economics is a farce and stimuluses don't ever work.

President Obama poured over $800 billion into the American economy as a stimulus with almost nothing to show for it. He said this stimulus would be dealt out to shovel ready projects to get the economy going again. But what became obvious almost immediately, was the money instead disappeared into state coffers, unemployment insurance and left wing projects dreamed up by the Apollo Alliance (the liberal think tank that wrote the stimulus bill). This left even the heavily partisan Paul Krugman, to denounce in several of his Op-Ed pieces that the stimulus wasn’t a stimulus. Paul Krugman said that the $800 billion stimulus needed to be much larger and used more for stimulus projects, such a repairing and building infrastructure, such as a rail tunnel so workers in New Jersey will have less traffic when they drive to and from New York, even though both states have unemployment rates over 10%. While Krugman has not given a specific figure, one can suppose that he is talking trillions of dollars; this would be added to the $2.5 trillion debt left by 8 years of Bush Administration and the additional $2.5 trillion in debt already attributed to President Obama in his first two years. And of course, if a theoretical $1.5 trillion 2nd stimulus did not kick start the economy, than Krugman would say it’s because it was also not big enough. I would like to borrow a line from Krugmaniswrong.com who deconstructs every Paul Krugman Op-Ed piece. “They convince themselves that if only they had “more” everything would work perfect. Two types of people in this world have that mentality. Keynesian economists and drug addicts.”

But in a rare refreshing moment, President Obama in a recent interview with the New York Times, conceded that the shovel ready projects his stimulus was supposed fund, not only didn't exist, but there is "No such thing as shovel-ready projects". But it does make one wonder, then where did all the money really go? All that is necessary now is for the President to realize that government cannot create jobs; that borrowing large amounts of money to stimulate the economy and loan to bankers, makes about as much sense as cutting taxes without cutting spending, and simultaneously fighting two wars. And finally, while cutting taxes is not the answer to everything, increasing taxes is certainly the way to increase unemployment, especially raising taxes on the top 2% who are the ones that will most likely fund most of the new jobs. But I may be asking for way to much.

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