Can Govt. Spend Us Out Of Recession?
July 28, 2016 at 4:25 p.m.
By Gary [email protected]
He was an early 20th century economist from Britain whose book, "The General Theory of Employment, Interest and Money" was published in 1936. It's kind of like a Bible for some economists.[[In-content Ad]]I think talking about him is relevant because Keynesian economics is pretty much what President O's stimulus package is all about.
Before Keynes, most economists believed that supply creates its own demand and that an oversupply of goods and resultant economic slowdown would be impossible.
Keynes suggested that during economic downturns, demand for goods might be insufficient, which would lead to unemployment and loss of output.
Keynes believed the actions of spending habits of individuals and the actions of businesses can lead to situations where an entire economy operates below its potential for growth.
Further, he argued that government policies could be used to increase demand, thereby increasing economic activity and reducing unemployment.
He said the way to bring a nation out of a recession or depression was through a combination of two things:
Reducing interest rates. (That's off the table as a way to stimulate the economy. Interest rates have been lowered just about as far as they can be lowered.)
Investment in infrastructure. (The injection of income results in more spending in the economy which stimulates production.)
Basically, Keynes thought government can spend a country out of a recession.
Keynes' theories are embraced by some economists and criticized by others.
It's not like this is something new. It's been tried before.
It didn't really work too well for President Roosevelt during the Great Depression. Hoover gave it a whirl in the '30s with little success. And Ford and Carter didn't have much luck with it in the '70s.
So the likelihood of it working now for O, I think, is pretty slim.
Let's be honest about this for a moment.
If government spending was a magic bullet for the economy, how did we get where we are right now?
The Bushies were the freest spenders in the history of mankind. W and his minions increased government spending more than any administration in history.
They sucked up $2.7 trillion in tax revenue in fiscal 2007 and still managed to run up a $500 billion deficit.
During precisely this same time period, the economy went into recession.
The only part of W's economic policy I liked was the revenue side. His tax policy generated record amounts of revenue to the treasury. That's a good thing. With a little fiscal restraint, and record levels of revenue coming in, the government could have paid down some debt.
But no.
They spent it all and then some. Then, when the economy turned sour, what was the answer?
Stimulus. Massive spending.
And where does the money come from? The government borrows it from foreign countries, running up the deficit and devaluing the dollar. All this is supposed to be paid back later by taxes after the economy is rolling again.
Comes now President O who is, essentially, planning to do the same thing W did. More massive spending. More government programs. Higher deficits.
O seems to think his spending is better than W's spending, and marginally, it may be.
But it's still spending. And it's government spending. That's a problem because the government can't spend billions upon billions of dollars without vast amounts of waste, fraud and worthless pet projects. (Again, O says his spending will be different - not wasteful. We will see.)
But my fear is O is going to put us another trillion dollars in debt with a marginal effect on the economy.
I'm just not convinced government spending is the solution. Seems to me it's more of the problem.
I think government needs to shrink. I think taxes need to be lowered.
Instead of drawing money out of the economy and squirting it back in through a maze of government programs, why not just leave it in the economy? Leave the money in the hands of businesses and individuals where it can do the most good.
Perhaps all this stimulus can jump-start the economy. But even if it can, we will go through these boom-and-bust cycles again and again.
To break free, we need to rethink the role of government.
Government has become a massive bureaucratic behemoth, gobbling up enormous chunks of the wealth of this nation.
The size and scope of government needs to be severely limited. Taxes need to be lowered, spending needs to be dramatically decreased.
I believe that's the path to lasting economic harmony. Unfortunately, I also believe it's the path our leaders are least likely to take.
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He was an early 20th century economist from Britain whose book, "The General Theory of Employment, Interest and Money" was published in 1936. It's kind of like a Bible for some economists.[[In-content Ad]]I think talking about him is relevant because Keynesian economics is pretty much what President O's stimulus package is all about.
Before Keynes, most economists believed that supply creates its own demand and that an oversupply of goods and resultant economic slowdown would be impossible.
Keynes suggested that during economic downturns, demand for goods might be insufficient, which would lead to unemployment and loss of output.
Keynes believed the actions of spending habits of individuals and the actions of businesses can lead to situations where an entire economy operates below its potential for growth.
Further, he argued that government policies could be used to increase demand, thereby increasing economic activity and reducing unemployment.
He said the way to bring a nation out of a recession or depression was through a combination of two things:
Reducing interest rates. (That's off the table as a way to stimulate the economy. Interest rates have been lowered just about as far as they can be lowered.)
Investment in infrastructure. (The injection of income results in more spending in the economy which stimulates production.)
Basically, Keynes thought government can spend a country out of a recession.
Keynes' theories are embraced by some economists and criticized by others.
It's not like this is something new. It's been tried before.
It didn't really work too well for President Roosevelt during the Great Depression. Hoover gave it a whirl in the '30s with little success. And Ford and Carter didn't have much luck with it in the '70s.
So the likelihood of it working now for O, I think, is pretty slim.
Let's be honest about this for a moment.
If government spending was a magic bullet for the economy, how did we get where we are right now?
The Bushies were the freest spenders in the history of mankind. W and his minions increased government spending more than any administration in history.
They sucked up $2.7 trillion in tax revenue in fiscal 2007 and still managed to run up a $500 billion deficit.
During precisely this same time period, the economy went into recession.
The only part of W's economic policy I liked was the revenue side. His tax policy generated record amounts of revenue to the treasury. That's a good thing. With a little fiscal restraint, and record levels of revenue coming in, the government could have paid down some debt.
But no.
They spent it all and then some. Then, when the economy turned sour, what was the answer?
Stimulus. Massive spending.
And where does the money come from? The government borrows it from foreign countries, running up the deficit and devaluing the dollar. All this is supposed to be paid back later by taxes after the economy is rolling again.
Comes now President O who is, essentially, planning to do the same thing W did. More massive spending. More government programs. Higher deficits.
O seems to think his spending is better than W's spending, and marginally, it may be.
But it's still spending. And it's government spending. That's a problem because the government can't spend billions upon billions of dollars without vast amounts of waste, fraud and worthless pet projects. (Again, O says his spending will be different - not wasteful. We will see.)
But my fear is O is going to put us another trillion dollars in debt with a marginal effect on the economy.
I'm just not convinced government spending is the solution. Seems to me it's more of the problem.
I think government needs to shrink. I think taxes need to be lowered.
Instead of drawing money out of the economy and squirting it back in through a maze of government programs, why not just leave it in the economy? Leave the money in the hands of businesses and individuals where it can do the most good.
Perhaps all this stimulus can jump-start the economy. But even if it can, we will go through these boom-and-bust cycles again and again.
To break free, we need to rethink the role of government.
Government has become a massive bureaucratic behemoth, gobbling up enormous chunks of the wealth of this nation.
The size and scope of government needs to be severely limited. Taxes need to be lowered, spending needs to be dramatically decreased.
I believe that's the path to lasting economic harmony. Unfortunately, I also believe it's the path our leaders are least likely to take.
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