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.)

Everything old is new again

Obama’s infatuated followers have taken to referring to him as a second FDR.  They envision him lifting us out of the coming depression, blithely unaware that FDR’s economic policies almost certain extended the Great Depression far beyond its natural lifespan.  What people also forget — or, if they’re true Progressives, what they probably embrace — was that FDR tried to invest in himself more power than any President before or since, and that’s including the nasty claims made at George Bush’s expense.

Turns out that, back in the 1930s, not everyone was that thrilled with FDR’s accretion of power.  Five years into FDR’s administration, H.L. Mencken, a once-famed satirist, decided to rewrite the Constitution to make it more consistent with the practical aspects of FDR’s presidency.  Read the following (which is reprinted at Lew Rockwell’s site), and tell me if it isn’t remarkably descriptive of the plans Obama and his followers have for his 21st Century White House:

The principal cause of the uproar in Washington is a conflict between the swift- moving idealism of the New Deal and the unyielding hunkerousness of the Constitution of 1788. What is needed, obviously, is a wholly new Constitution, drawn up with enough boldness and imagination to cover the whole program of the More Abundant Life, now and hereafter.

That is what I presume to offer here. The Constitution that follows is not my invention, and in more than. one detail I have unhappy doubts of its wisdom. But I believe that it sets forth with reasonable accuracy the plan of government that the More Abundant Life wizards have sought to substitute for the plan of the Fathers. They have themselves argued at one time or another, by word or deed, for everything contained herein:

PREAMBLE

We, the people of the United States, in order to form a more perfect union, establish social justice, draw the fangs of privilege, effect the redistribution of property, remove the burden of liberty from ourselves and our posterity, and insure the continuance of the New Deal, do ordain and establish this Constitution.

ARTICLE I

The Executive

All governmental power of whatever sort shall be vested in a President of the United States. He shall hold office during a series of terms of four years each, and shall take the following oath: “I do solemnly swear that I will (in so far as I deem it feasible and convenient) faithfully execute the office of President of the United States, and will (to the best of my recollection and in the light of experiment and second thought) carry out the pledges made by me during my campaign for election (or such of them as I may select).”

The President shall be commander-in-chief of the Army and Navy, and of the militia, Boy Scouts, C.I.O., People’s Front, and other armed forces of the nation.

The President shall have the power: To lay and collect taxes, and to expend the income of the United States in such manner as he may deem to be to their or his advantage;

To borrow money on the credit of the United States, and to provide for its repayment on such terms as he may fix;

To regulate all commerce with foreign nations, and among the several states, and within them; to license all persons engaged or proposing to engage in business; to regulate their affairs; to limit their profits by proclamation from time to time; and to fix wages, prices and hours of work;

To coin money, regulate the content and value thereof, and of foreign coin, and to amend or repudiate any contract requiring the payment by the United States, or by any private person, of coin of a given weight or fineness;

To repeal or amend, in his discretion, any so-called natural law, including Gresham’s law, the law of diminishing returns, and the law of gravitation.

The President shall be assisted by a Cabinet of eight or more persons, whose duties shall be to make speeches whenever so instructed and to expend the public funds in such manner as to guarantee the President’s continuance in office.

The President may establish such executive agencies as he deems necessary, and clothe them with such powers as he sees fit. No person shall be a member to any such bureau who has had any practical experience of the matters he is appointed to deal with.

One of the members of the Cabinet shall be an Attorney General. It shall be his duty to provide legal opinions certifying to the constitutionality of all measures undertaken by the President, and to gather evidence of the senility of judges.

ARTICLE II

The Legislature

The legislature of the United States shall consist of a Senate and a House of Representatives. Every bill shall be prepared under the direction of the President, and transmitted to the two Houses at his order by their presiding officers. No member shall propose any amendment to a bill without permission in writing from the President or one of his authorized agents. In case any member shall doubt the wisdom of a bill he may apply to the President for light upon it, and thereafter he shall be counted as voting aye. In all cases a majority of members shall be counted as voting aye.

Both Houses may appoint special committees to investigate the business practices, political views, and private lives of any persons known to be inimical to the President; and such committees shall publish at public cost any evidence discovered that appears to be damaging to the persons investigated.

Members of both Houses shall be agents of the President in the distribution of public offices, federal appropriations, and other gratuities in their several states, and shall be rewarded in ratio to their fidelity to his ideals and commands.

ARTICLE III

The Judiciary

The judges of the Supreme Court and of all inferior courts shall be appointed by the President, and shall hold their offices until he determines by proclamation that they have become senile. The number of judges appointed to the Supreme Court shall be prescribed by the President, and may be changed at his discretion. All decisions of the Supreme Court shall be unanimous.

The jurisdiction and powers of all courts shall he determined by the President. No act that he has approved shall be declared unconstitutional by any court.

ARTICLE IV

Bill of Rights

There shall be complete freedom of speech and of the press – subject to such regulations as the President or his agents may from time to time promulgate.

The freedom of communication by radio shall not be abridged; but the President and such persons as he may designate shall have the first call on the time of all stations.

In disputes between capital and labor, all the arbitrators shall be representatives of labor.

Every person whose annual income fans below a minimum to be fixed by the President shall receive from the public funds an amount sufficient to bring it up to that minimum.

No labor union shall be incorporated and no officer or member thereof shall be accountable for loss of life or damage to person or property during a strike.

All powers not delegated herein to the President are reserved to him, to be used at his discretion.

Hat tip:  Mark Levin

Condemning us to repeat the past

The liberal press and “economists” such as Paul Krugman are so excited:  Obama is looking to FDR for guidance.  Before Obama gets too carried away with that notion, conservatives should send him copies of Amity Shlaes’ The Forgotten Man : a New History of the Great Depression, in which she compellingly explains how FDR’s endless messing with the market and expansion of the government prolonged and worsened the Depression.  For a quick summary of the principles underlying Shlaes’ thesis, you can read this WSJ article she just wrote.