ron paul will take us back to a repeat of 1937

Discussion in 'Politics' started by Free Thinker, Dec 30, 2011.


    Keynes Was Right
    “The boom, not the slump, is the right time for austerity at the Treasury.” So declared John Maynard Keynes in 1937, even as F.D.R. was about to prove him right by trying to balance the budget too soon, sending the United States economy — which had been steadily recovering up to that point — into a severe recession. Slashing government spending in a depressed economy depresses the economy further; austerity should wait until a strong recovery is well under way.

    Unfortunately, in late 2010 and early 2011, politicians and policy makers in much of the Western world believed that they knew better, that we should focus on deficits, not jobs, even though our economies had barely begun to recover from the slump that followed the financial crisis. And by acting on that anti-Keynesian belief, they ended up proving Keynes right all over again.

    In declaring Keynesian economics vindicated I am, of course, at odds with conventional wisdom. In Washington, in particular, the failure of the Obama stimulus package to produce an employment boom is generally seen as having proved that government spending can’t create jobs. But those of us who did the math realized, right from the beginning, that the Recovery and Reinvestment Act of 2009 (more than a third of which, by the way, took the relatively ineffective form of tax cuts) was much too small given the depth of the slump. And we also predicted the resulting political backlash.

    So the real test of Keynesian economics hasn’t come from the half-hearted efforts of the U.S. federal government to boost the economy, which were largely offset by cuts at the state and local levels. It has, instead, come from European nations like Greece and Ireland that had to impose savage fiscal austerity as a condition for receiving emergency loans — and have suffered Depression-level economic slumps, with real G.D.P. in both countries down by double digits.

    This wasn’t supposed to happen, according to the ideology that dominates much of our political discourse. In March 2011, the Republican staff of Congress’s Joint Economic Committee released a report titled “Spend Less, Owe Less, Grow the Economy.” It ridiculed concerns that cutting spending in a slump would worsen that slump, arguing that spending cuts would improve consumer and business confidence, and that this might well lead to faster, not slower, growth.

    They should have known better even at the time: the alleged historical examples of “expansionary austerity” they used to make their case had already been thoroughly debunked. And there was also the embarrassing fact that many on the right had prematurely declared Ireland a success story, demonstrating the virtues of spending cuts, in mid-2010, only to see the Irish slump deepen and whatever confidence investors might have felt evaporate.

    Amazingly, by the way, it happened all over again this year. There were widespread proclamations that Ireland had turned the corner, proving that austerity works — and then the numbers came in, and they were as dismal as before.

    Yet the insistence on immediate spending cuts continued to dominate the political landscape, with malign effects on the U.S. economy. True, there weren’t major new austerity measures at the federal level, but there was a lot of “passive” austerity as the Obama stimulus faded out and cash-strapped state and local governments continued to cut.

    Now, you could argue that Greece and Ireland had no choice about imposing austerity, or, at any rate, no choices other than defaulting on their debts and leaving the euro. But another lesson of 2011 was that America did and does have a choice; Washington may be obsessed with the deficit, but financial markets are, if anything, signaling that we should borrow more.

    Again, this wasn’t supposed to happen. We entered 2011 amid dire warnings about a Greek-style debt crisis that would happen as soon as the Federal Reserve stopped buying bonds, or the rating agencies ended our triple-A status, or the superdupercommittee failed to reach a deal, or something. But the Fed ended its bond-purchase program in June; Standard & Poor’s downgraded America in August; the supercommittee deadlocked in November; and U.S. borrowing costs just kept falling. In fact, at this point, inflation-protected U.S. bonds pay negative interest: investors are willing to pay America to hold their money.

    The bottom line is that 2011 was a year in which our political elite obsessed over short-term deficits that aren’t actually a problem and, in the process, made the real problem — a depressed economy and mass unemployment — worse.

    The good news, such as it is, is that President Obama has finally gone back to fighting against premature austerity — and he seems to be winning the political battle. And one of these years we might actually end up taking Keynes’s advice, which is every bit as valid now as it was 75 years ago.
  2. Mvector


    go back and vote for obama - this is "better" to you ----->

    According to the GAO audit, $16.1 trillion in secret loans were made by the Federal Reserve between December 1, 2007 and July 21, 2010. The following list of firms and the amount of money that they received was taken directly frompage 131 of the GAO audit report….

    Citigroup – $2.513 trillion
    Morgan Stanley – $2.041 trillion
    Merrill Lynch – $1.949 trillion
    Bank of America – $1.344 trillion
    Barclays PLC – $868 billion
    Bear Sterns – $853 billion
    Goldman Sachs – $814 billion
    Royal Bank of Scotland – $541 billion
    JP Morgan Chase – $391 billion
    Deutsche Bank – $354 billion
    UBS – $287 billion
    Credit Suisse – $262 billion
    Lehman Brothers – $183 billion
    Bank of Scotland – $181 billion
    BNP Paribas – $175 billion
    Wells Fargo – $159 billion
    Dexia – $159 billion
    Wachovia – $142 billion
    Dresdner Bank – $135 billion
    Societe Generale – $124 billion
    “All Other Borrowers” – $2.639 trillion
  3. Max E.

    Max E.

    Stopped reading the article right there, as only a complete buffoon could look at where keynesian economics has gotten us and say that he was right about anything......

  4. Ricter


    You'll have to refute Keynes with real-world data (and a more complete understanding, he was never "bigger government is better") if you want to be taken seriously.
  5. Keynes and his followers think monetary policy is impotent against downturns of the sort we saw in the Great Depression, and the one in 2008.
    Events have proven them correct.
    Fiscal policy, on the other hand, is quite effective. Unfortunately, it's subject to politics, which means even total ignorant fools (libertarians, classical and neo-classical economists, all of whom have this stupid model of an economy in their heads where debt and the uncertainty that goes with issuing it is an add-on, rather than the basis for the entire economy) get to say whether it gets to be used and how, and pols looking out for their posteriors get to say where the money is spent.
    None of which proves Keynes wrong.
    Not that any of you ever actually read him. Or Adam Smith. I've proved that to my satisfaction many times.
    Go back to reading and that asshole Lew Rockwell. Right up your alley, and not confusing at all.
  6. Lucrum


    You're right of course, just don't try to tell a socialist. His head will explode.
    Very messy.

    Did you say recently you'd never fired a firearm?

    If you ever get to the Atlanta area let me know. We'll get that item checked off of your bucket list.
  7. Max E.

    Max E.

    Sure thing, ill supply the beer if you supply the guns. I will bring some of my old economics text books from college that taught keynesian economics and we can use them for target practice since that is about all they are good for. :D

  8. Ricter


    There might a footnote or two in those, re Hayek. :D
  9. rew


    When criticized for his policies of solving the problems of excessive debt by creating more debt, with the obvious long term problems that causes, Keynes replied, "In the long run we are all dead."

    Well, Keynes is dead. But we aren't, and the long run has arrived.
  10. Ricter


    #10     Dec 30, 2011