Barack Obama’a America: Keynesian economics on steroids

When I was in junior high school, high school, and college, my American history classes always preached the same message:  Franklin Roosevelt saved America by “priming the pump.”  That is, he took money away from the rich, filtered it through the government, and then used the brain-power built into government to decide upon the infrastructure projects we know and love today, everything from Hoover Dam, to the Tennessee Valley Authority, to the cool art deco post offices dotted around the nation.  It was only when I was in college that the teachers put a name to this wondrous system:  Keynesian economics.

Keynes wasn’t a communist.  He just wasn’t a believer in marketplace efficiency.  He advocated a privately-owned economy, with the government making the important decisions.  (The Nazis, incidentally, used this economic approach, which they called “National Socialism.”)  More than that, Keynes and his acolytes believed that, when times were tough, the only entity that could respond rationally and effectively to market chaos was the government.  Keynesians therefore believed that economic downturns should be met with higher taxes from the rich and more government spending directed at the poor.  The theory was that the poor would take this money and pour it back into the economy, thereby priming the pump.

Apparently Keynes and his friends had never read Frédéric Bastiat’s “broken window parable” or, if they had, they dismissed it as a foolishly simplistic parable that wouldn’t meet the demands of the Ivory Tower and elite governance:

A broken window is not an economic upswing

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

But back to history as I learned it.

Factory girls during world war ii

After their almost rote teaching about Roosevelt’s brilliant Keynesian save of the economy, my instructors would always add, sort of as an addendum that wasn’t really important, that WWII finally broke the Depression’s back.

War does represent the perfect Keynesian paradigm, with the government directing the whole private-sector economy towards a single martial goal.  Putting aside the twenty million dead, war was good for the Soviets too.  And right up until D-Day, the Germans weren’t doing so badly with a war economy either.

British rationing coupon from 1950

As the British discovered, though, once war is over, continuing a war-time economy (complete with government rationing) doesn’t work.  The government may be good when everyone’s efforts are directed to national survival, but it’s a lousy wealth creator during peace time.  Only when rationing ended in the 1960s did the British economy start to recover, and its real boom happened after Maggie Thatcher de-nationalized major industries.

In America, the post-War period was the anti-Keynesian period, and that — not Roosevelt’s taxing and spending — is what really broke the Depression’s back.  The late 40s and the 1950s celebrated American individualism, innovation, capitalism, and freedom.  With Communism as a foil, America was almost aggressively free.  And when it periodically tried to put the brakes on that freedom by raising taxes, the market foundered.  John F. Kennedy got it:

John F. Kennedy

“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.” — John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”

Although Kennedy did get his lower taxes, pressure from the Left resulted in another Keynesian experiment in the 1970s.  The economy cratered.  Reagan released the economy from tax pressure and it was revitalized.  Bush Sr. (“Read my lips:  no new taxes”) raised taxes again, and down the economy went.  Clinton, under pressure from Republicans, decreased spending, which helped the economy grow again.  Bush Jr. went one step further and lowered taxes, and the economy roared again — and that was true despite 9/11 and a long war.

Meanwhile, though, the Democrat controlled Congress that Bush got in 2006, while it didn’t address taxes, starting putting the government thumb on the scale again.  Rather than backing off of banks (as McCain and Bush suggested), it increasingly limited what they could and couldn’t do.  This government pressure resulted in banks being forced to give loans to people with no equity.  The banks got creative to avoid risk, packaged, and resold these loans.  It looked good for a while, and then, in 2008, the bubble burst.

Bankrupt Solyndra

Enter Barack Obama.  Obama spent the first half of his presidency doing classic Keynesian pump priming by pouring massive amounts of government money into his pal’s pet projects.  Many of those projects went bankrupt, others ran over cost, others never got off the ground.  Obama also laid the foundation for an ostensibly private, but still government-controlled medical sector (1/6 of the American economy).  The economy alternately stagnated or sagged.  Romney fully understood the problem, but was never able to articulate the solution.  Since he couldn’t sell the public on the free market (not to mention that he was trying to push back against the appalling character attacks leveled against him), the public in 2012 chose the devil it knew:  Obama.

Obama has now begun the second half of his presidency by doing Keynes on steroids:  on New Year’s Day, he got significant tax increases on producers, without in any way stopping his spending.  Obama, though, has done something Keynes never imagined.   Obama has not used the pump priming money to put shovels (or even spoons) in the hands of those who are supposed to reinvigorate the economy.  Doing that at least gives those receiving government money a job (which is good for the resume and a sense of self-worth) and it gives them an ownership interest by allowing them to create a lasting benefit to society.  What Obama is doing is just handing out money in the form of pure welfare.  He’s not creating a working class; he’s creating a parasite class.

Food shortages Great Depression

Classic Keynesian economics has never worked.  Obama is now trying the un-classic version.  If I were a betting woman, I’d say that, not only will Obama’s experiment fail, it will fail on a much vaster level even than Roosevelt’s Keynesian debacle.  (And if you want to know just how bad Roosevelt’s failure was — and how grossly misleading my public school history education was — you must read Amity Shlaes’ The Forgotten Man: A New History of the Great Depression. Roosevelt’s economic experiments were a disaster, and it was only through the aggressive propaganda flowing out of Hollywood, media, and educational institutions, propaganda that escalated after WWII, that we remember his presidency as an economic success.)

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  • jj

    A good history, and a good precis.  The only question remaining is: of what, exactly, is it a good precis?  That Americans are the morons of the known universe?  That despite that the lesson has been repeated again and again and again and again and again we as a nation are so goddamed stupid we never learn it?  I am surrounded – you probably are too – by old halfwits, who’ve carefully raised their children to be half-witted too, who will assure you most solemnly that Roosevelt stopped the depression.  (They generally skip noting the reality of the war’s contribution.  At least the ones around with whom you hung evidently mentioned it, if only in passing.)  That they believe this is a tribute to their education, no doubt – but there it is, and what the hell do we do about it?

  • David Foster

    Note also that “stimulus” to build something that has actual economic value, or something that will be needed sooner or later, is quite different from “stimulus” that is pure waste intended as pump-priming.
    Hence, building the TVA dams was a very different sort of thing from stimulus money sent to local governments to build un-needed projects, with a big part of the funding allocated for the signage announcing the wonderfulness of the government(s).
    Hence, building 5 warships which will be needed eventually as old ones wear out–but building them earlier than planned–is a very different kind of stimulus from hiring hundreds of university administrators who will never be needed at all.
    BTW, for anyone interested I have a post up on the B-29 bomber, the only (recently) flyable example of which is badly in need of contributions for engine work.

  • JKB

    Ah, the lies of state education.  A terrible misnomer, education.  As you become educated, the fact is you become aware of what you’ve been “taught” that was wrong and how much you don’t know.  You start to see the little pieces that color the caricature presented in school.  
    I’ve found great information reading contemporary histories that haven’t been homogenized by the prevailing ideology.  Below is from a history of the US from 1900-1950 published in 1950.  Thankfully, Reagan broke a lot of that government control and brought prosperity.  The Left hate him for it.  It is why they long for the 1950s, not the booming economy that covered it up but for the control by the so-called betters.
    Is the big and successful corporation its own master, then?  Not quite.
    To begin with, it is severely circumscribed by the government.  as Professor Sumner H. Slichter has said, one of the basic changes which have taken place in America during the last fifty years [1900-1950] is “the transformation of the economy form one of free enterprise to one of government guided enterprise….The new economy,” says Dr. Slichter, “operates on the principle that fundamental decisions on who has what incomes, what is produced, and at what prices it s sold are determined by public policies.”  The government interferes with the course of prices by putting a floor under some, a ceiling over others; it regulates in numerous ways how goods  may be advertised and sold, what businesses a corporation may be allowed to buy into, and how employees may be paid; in some states with Fair Employment laws it even has a say about who may be hired.  “When a piece of business comes up,’ writes Ed Tyng, “the first question is not likely to be ‘Should we do it?’ but ‘Can we do it, under existing rules and regulations?’ “He is writing about banking, but what he says hold good for many another business.  Furthermore, in the collection of corporate income taxes, withholding taxes, social security taxes, and other levies the government imposes upon the corporation an intricate series of bookkeeping tasks which in some cases may be as onerous as those it must undertake on its own behalf.  Thus the choices of enterprise are both hedged in and complicated by government.  

    This brings up a real problem.  The PhD in the useless majors.  In STEM there are great mysteries to solve.  In English, Political Science, Education there is mostly “reinterpretation”.  Funny how the reinterpretation always seems to be less objective and more politically influenced in these fields.  The difficulty is, Ph.Ds are suppose to come up with new ideas so they must promote their new fashion while seeking to suppress the past successful solutions.  They don’t advance scholarship as much as churn it for their advantage.

  • Danny Lemieux

    The flip side to Keynes that nobody likes to talk about is that during GOOD times, the government is supposed to pay down its accrued debt so that it is ready to pump-prime the economy when it hits the next cyclical downturn. This, of course, is the big fallacy in the theory – human nature being human nature, our government is incapable of paying down the debt and a surge of new revenues during an economic recovery is merely stimulation for the government to spend more and more. 

    Keynes was reputed to have repudiated his own theory just before his death as being unworkable, given the harsh, practical realities of the real world. 

    Of course, none of these harsh realities will make a jot of difference to the magical thinking processes of our Progressive utopians. As JJ so aptly put it, half-wits are far too smart and too busy “perfecting” the world to ever be able to learn.

  • JKB

    Danny Lemieux

    Funny how everything the Left seems to believe founders on the same rocks, human nature.  It all sounds good in their head, it all reads well in their “peer-reviewed” papers, but like their climate warming theories, they just ignore the boundary conditions.  In global warming, it is radiating heat into space.  In other endeavors, it is the human as sentient individuals with free choice.

  • Spartacus

    A quote that should be taught in junior high school, high school, and college:
    “No, gentlemen, we have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong, as far as I am concerned, somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…

    But why not let’s come to grips? And as I say, all I am interested in is to really see this country prosperous and this form of Government continue, because after eight years if we can’t make a success somebody else is going to claim the right to make it and he’s got the right to make the trial. I say after eight years of this Administration we have just as much unemployment as when we started.”
    Henry Morgenthau
    FDR’s Treasury Secretary
    May 9, 1939
    The crash was caused by a simple market correction.  The Depression was caused by someone saying, “I’m from the government, and I’m here to help!”

  • Danny Lemieux

    JKB, to take your astute comment one step further, once Leftist ideals founder on the reef called reality, then comes the temptation to force-fit reality to their ideological dream world aspirations. That’s when the bloodletting begins.

    I continue to be amazed at how many Leftwing Progressive ideologues that I know that remain cognitively blinded to the hatred and viciousness of their inner souls while totally convinced of their inner humanity and goodness. Thus it is that I see some who preach love of fellow man openly calling for violence against those with whom they disagree and refusing to give charity to those in need.

    One friend, a social justice priest, once openly told me that the moral and ethical sins of a Ted Kennedy or Al Gore didn’t matter because what mattered is what they “believed”.

    Spartacus, thanks for the entire Morgenthau quote. Yes…it should be required reading for all. I’ve posted it to my FB page with your recommendation.

  • JKB

    Your friend would probably be appalled at what Ted Kennedy and Al Gore “believe”.  They are just good at the BBD web spinning. (Bigger, Better Deal, sorry an old ’80s beach movie was on cable recently)  But perhaps your friend does the same, using his “social justice” to obscure deeper beliefs, i.e., not “beliefs”.
    Take this pleading from a Kenyan economics expert: Kenyan economics expert: Development aid is one reason for Africa’s problems, so for ‘God’s sake, please just stop’  linked to over at Carpe Diem.  The beneficiaries of all the aid are the corrupt, government bureaucrats.  While the people become beggars and are shut out of markets where they could build prosperity.  But as we see with our own ghettos, helping people become prosperous (and free) isn’t as satisfying to the Left as being lord of the manor or “dream-maker”. 
    Shikwati: Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent.In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa’s problems. If the West were to cancel these payments, normal Africans wouldn’t even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid.

  • roylofquist

    So, what are we to do? Individually we are powerless. All we can do is wait for the chickens to come home to roost.  Either the government runs out of money or living conditions deteriorate enough that a new direction is demanded. At that point we can only hope that the people remain powerful enough to set us on the right path.
    I think that that moment will arrive much, much sooner than most expect. The medical industry is going to get a brand, spanking new operating system come January 2014. At boot up all they’ll see is “blue screen of death”.

    The linchpin of that system is the insurance exchanges, both Federal and State. I was in the computer business for almost 50 years. That industry has seen far, far more failures than successes. The successful systems that we marvel at – credit cards, airline reservations, etc. – evolved over a period of 50 years. The exchanges are more complex than the planners can conceive. More complex than reservations or credit card processing. I confidently predict that not one of the exchanges will last more than a day before they crash and burn.
    Then what?

  • JKB

    Just read about this:  coyoteblog…the-perfect-keynesian-stimulus.html 
    Keynesian stimulus perfected
    A cargo train filled with biofuels crossed the border between the US and Canada 24 times between the 15th of June and the 28th of June 2010; not once did it unload its cargo, yet it still earned millions of dollars… The companies “made several million dollars importing and exporting the fuel to exploit a loophole in a U.S. green energy program.” Each time the loaded train crossed the border the cargo earned its owner a certain amount of Renewable Identification Numbers (RINs), which were awarded by the US EPA to “promote and track production and importation of renewable fuels such as ethanol and biodiesel.”
    No fuss, no muss.  Just weave across the border and Profit!  Best of all, none of that dirty old capitalism, just pure government stimulus.

  • Ymarsakar

    The LEft believes that all physical phenomenon can be affected merely by whipping the slave with the government rod. In some sense, they believe in Communist and radical terrorist beliefs that fear can make humans believe, and thus do, anything. Whatever that “anything” is.
    They have never given up on that belief, only changed the methods they use. Instead of using sexual slavery practices on their captives to brainwash them into believing in communist economic ideology, they now instead use a different sort of methodology. As ruled out in Alinsky’s manuals as well as others, like Noam Chomsky.
    If people can be made to believe whatever the Left tells them, then reality is no barrier to the power of the Leftist regime.
    Power does not come from the nation, but from its people. No people, no nation. The Left, if anything, understands this better than the Founding Fathers did. For the Left has focused almost all its efforts on enslaving Americans, one way or another, and stealing that power for their own agenda.

  • Ymarsakar

    Various feminists have said that the girl Kennedy drowned should be proud, since her sacrifice paved the way for his power and support of feminism. Eggs and omelets.
    Spartacus brings up an interesting bit of history. The Left has supreme power in propaganda partially because it steals the authority and power of the good, to use for the evil. When women’s rights was first getting along, the Left wasn’t for it. But when women’s rights were taken in victory and after hard fights, then the Left somehow became for feminism, and somehow became 90% of the membership to the point where the first generation leaders resigned (they were just puppets and realized it). The Left has even made previous generation’s success into vindication for their own ideological premises. For example, many blacks believe welfare and freedom from slavery came from Democrats. They forgot that the first people who even considered giving charity to black slaves were white abolitionist Christians and that Abraham Lincoln was elected by Republicans for Republicans, not Democrats.
    By stealing the mantle of authority from previous generations and using it for evil intents and goals in the present, Leftist propaganda has a visceral feel of “truth”, which doesn’t convince the populace when you attempt to deny it. Because it all makes sense, when looked at in the big picture. Unless you knew the “true” history of things.
    Nations and governments, including regimes, have often wrote histories tailor made as propaganda to bolster a people’s loyalty and morale. They did this before the internet and radio came online, and it was just as effective back then as it is today, if not more effective. Caesar (Nero+Caligula) was Divine and Pharaoh was Divinity made flesh. People believed it, and they were controlled by such beliefs better than chains and whips ever could have.
    You cannot expect to break the Left’s power base without also destroying their illusions. Just not feasible.