Obama’s Keynesian failures must never be repeated

Obama’s Keynesian failures must never be repeated

by Darrell Issa

Published: February 7 2011 22:07 | Last updated: February 7 2011 22:07

President Barack Obama’s $814bn economic expansion has woefully failed to reach each of its self-imposed targets. The president’s stimulus package promised (after adjusting for inflation) that gross domestic product in the fourth quarter of 2010 would be roughly $15,200bn. Yet the latest figures, released this month, fell short by some $400bn. Instead of being an important milestone for the global recovery, the data are just one further example of the failure of Mr Obama’s Keynesian misadventure.

The fourth quarter target was set in a now-infamous January 2009 report, written by Christina Romer and Jared Bernstein, then economic advisers to Mr Obama and vice-president Joe Biden. Their analysis also concluded that US unemployment would never surpass 8 per cent, and by now would be in the neighbourhood of 7 per cent. Payroll employment was also projected to be 137.6m. In fact, unemployment has stayed stubbornly above 9 per cent for 20 consecutive months, while employment is currently 6.8m below the target – and that is without even counting those who have given up looking for work.

The latest GDP numbers are especially illuminating because the administration has now begun to make a new argument – that economic growth has returned, but job growth has mysteriously failed to follow. The truth is that real GDP is just 3 percent larger than it was in the quarter just before the stimulus was passed, while the current employment situation is little short of dire. It is possible that the fourth quarter GDP numbers will be revised upwards, but certainly not anywhere close to what the administration promised.

The figures get worse the more you dig into them. Some 47 out of 50 US states, for instance, have lost jobs since the stimulus was passed. A recent report from the House Committee on Ways and Means also detailed further failures, in part using a composite measure of debt held by the public and the unemployment rate – dubbed the “Obama Misery Index” – which has increased by a staggering 70 per cent since January 2009.

The stimulus did not even deliver on the kinds of jobs it promised to fund. Mr Obama pledged that 90 per cent of the jobs the package “created or saved” – a dubious calculus already rejected by the body charged with stimulus oversight – would come from the private sector. Studies have since concluded that the majority of jobs funded were in the public sector.

Apologists for the plan now claim it failed because the economy turned out to be in worse shape than they had anticipated. In July 2009 Mr Biden said of the lacklustre results that the administration had initially “misread the economy”, implying that the package was not large enough. Yet the administration’s real mistake was a misreading of economics, not the economy.

The abysmal results came as no surprise to those who knew that the Keynesian doctrine of spending your way to prosperity had been discredited decades ago. Research conducted by Harvard economist Robert Barro, for instance, found that the extra economic impact of government spending – also known as the Keynesian multiplier effect, which must be greater than one for any fiscal stimulus to be effective – was “insignificantly different from zero”. The Romer-Bernstein report, however, dubiously assumed a multiplier of 1.57.

In response to the stimulus package Prof Barro said: “It would be unfortunate if the best Team Obama can offer is an unvarnished version of Keynes,” adding that “the financial crisis and possible depression do not invalidate everything we have learnt about macroeconomics since 1936”. Mr Obama and his advisers, however, appear to think that it did. Now their only regret is that they did not spend more. Yet even without adding to their initial folly, we are still facing the largest deficit since the second world war.

Assuming government can allocate resources and spur growth more effectively than market forces is a mistake America must never allow to happen again. The stimulus packages has left taxpayers $814bn out of pocket, plus interest. Mr Obama’s Keynesian experiment amounted to little more than an exercise in the redistribution of wealth from our grandchildren, to today’s special interest groups. Those responsible owe them some answers.

http://www.ft.com/cms/s/0/d949c6c8-32fc-11e0-9a61-00144feabdc0.html#axzz1DSyOwmM0

 

Keynesian practices would not be necessary if it were not for the de-regulation time bombs which were set in place by Ronnie Rayguns.
Ronnie was a master of kicking the ball down the road.

 

LOL tooth-fairy economics has never been the solution to anything except how to squander the wealth of a nation. :eek:

 

So you're saying Keynesian practices are necessary?

 

To a degree, yes. My post was more about why we're in this delima and if you look at the basic definition of Keynesian theory which is,
Cut & Paste from wikipedia:
Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.

I don't think anyone can argue that private sector decisions were not responsible for the mess we're in. What allowed the private sector to set this path of destruction? Deregulation! Who was the father of deregulation? Reagan! Did the government facilitate the practices of the private sector? Yes they did, which only goes to prove my claims that government and corporate America are merely different sides of the same coin.

So yes, some Keynesian practices will be required to set us on the right path again. The real question is where will the money be spent, and given the track record of the government I doubt it will be spent in the right places. Considering they've already given money to the very people that created the meltdown is proof of that.

 

It was mostly caused by government coercing banks, etc. to promote loans and housing to everyone. Even those who couldn't afford it. Thus, the eventual collapse in housing prices and bank balance sheets leading to the government bailing out everyone under the sun. Even Barney Frank, when bailing out his local minority bank, said it's our fault they are in this mess and our responsibility to bail them out. This started way back with Carter and accelerated under Clinton. The fault lies with government meddling in the market.

 

No doubt the government facilitated the mess, but my issue is the financial industry has been let off the hook much too easily for the role they played. They were willing participants in the scam and deregulation paved the path to ruin. It seems that many people, mostly republicans, are quick to blame the government, and rightly so, but somehow are quick to forget the policies of the Reagan administration that opened many doors for the hustlers to walk through.

 

When you remove failure from the equation, everything is off the table including regulation or deregulation.

 

Lets say that Reagan was responsible. How many different congresses and administrations were in power since then that could have corrected the problem, had they chose to? Are they not just as culpable?

I'm inclined to agree. IMO there is no such thing as "too big to fail".
And I'm generally opposed to government bailouts of any kind, regardless of party.

 

True enough! A policy that was set in place by the Bush administration and further endorsed by the Obama administration.