By Peter Ferrara Keynesian economics was born in the 1930s, the brainchild of British economist John Maynard Keynes. It argued that the way to stimulate a flagging economy back into growth was to increase government spending and deficits. The extra demand for goods and services from that increased spending would induce increased production to meet the demand, restoring full employment and growth.... [more]
By Peter Ferrara
Keynesian economics was born in the 1930s, the brainchild of British economist John Maynard Keynes. It argued that the way to stimulate a flagging economy back into growth was to increase government spending and deficits. The extra demand for goods and services from that increased spending would induce increased production to meet the demand, restoring full employment and growth.
The concept was quickly embraced by politicians and lefty academics because it justified exactly what they wanted. For the liberal/left politicians dominant in Washington at the time, it gave them cover for the record government spending they wanted to buy votes, without having to raise taxes fully to pay for it. For the lefty academics, it gave them cover for their wish list of runaway government spending policies.
There was just one problem. It never worked to revive economic growth and end the Depression. Rather, as demonstrated by Amity Shlaes in her landmark book The Forgotten Man, it was one component of a slew of Big Government policies that put the "Great" into the "Great Depression," keeping unemployment absurdly high and preventing any natural, cyclical recovery for more than a decade.
The fallacies of Keynesian economics were exposed decades ago by Friedrich Hayek and Milton Friedman. Keynesian thinking was then fully discredited in the 1970s, when the Keynesians could offer no explanation and no cure for the double digit inflation, interest rates, and unemployment, and the persistent stagnation, that resulted from their policies. President Reagan formally dumped Keynesianism in favor of free-market and supply-side policies that produced a 25-year global economic boom.
Yet, President Obama showed up in early 2009 with the dismissive certitude that none of this history ever happened, and national economic policy was decidedly back in the 1930s.
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Response by LICComment
over 15 years ago
Posts: 3610
Member since: Dec 2007
Rather than promoting recovery, the Keynesian economic policies adopted by both Obama and Bush since the beginning of this recession have more likely delayed it, by borrowing hundreds of billions and ultimately trillions in investment capital out of the private economy, and destroying the jobs that would have resulted from that money in the private economy.
Cycles Naturally Go Up As Well As Down
Remember the term business cycle? The sweeping, pro-growth policies adopted by President Reagan were so successful in preventing any major downturn for 25 years that we don't seem to remember what that term means anymore. But it implies that along with periodic downturns the economic cycle will naturally turn up as well. Every morning the American people wake up and throw themselves into restoring the economic viability of their businesses, or finding themselves jobs. This is the primary factor in causing the economy eventually to turn back up.
The Keynesian economic policies adopted by Obama and Bush do nothing to help these businessmen and working people cure the economy. Borrowing close to a trillion dollars from the private economy to increase government spending by close to a trillion dollars does nothing to expand the economy on net. Indeed, it may well result in a net loss of jobs due to government carrying costs and the economic friction resulting from moving all of that money around. Moreover, again this policy does nothing to increase incentives for investment, starting new businesses, expanding businesses, creating new jobs, or entrepreneurship. For these reasons, the best estimate of the number of jobs saved or created by the Obama stimulus is exactly zero.
The result of the willfully blind, throwback, untutored Keynesian economic policies continued and wildly expanded by President Obama is the longest recession since World War II dragging on for around 20 months now, and maybe still more.
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Response by LICComment
over 15 years ago
Posts: 3610
Member since: Dec 2007
Rejecting Obama's rigid, doctrinaire Keynesianism, France and Germany saw economic growth return in the second quarter, with India, Brazil, and even communist China enjoying reviving growth as well. Clearly, what we have suffered in America is the failure of Keynesian economics yet again.
The Free Market Restores Economic Growth
The slowdown in economic decline we have recently experienced, and the actual recovery we will see soon, is due to the natural, curative process of the free market, not big government spending, deficits and debt, for the reasons discussed above. As Alan Reynolds explained in the Wall Street Journal on August 21:
It's clear that U.S. history does not support the theory that Big Government means shorter and milder recessions. In reality, recessions always ended without government prodding, long before anyone heard of Keynes and long before the Fed existed. What's more, recessions ended more quickly before the New Deal's push for Big Government than they have in the past three decades. The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers.
Indeed, in that same article Reynolds goes on to show that countries with higher government spending relative to GDP suffered deeper recessions over the past year and a half, while countries with lower government spending experienced shallower recessions or none at all. So, again, Keynesian spending stimulus does not seem to promote economic recovery.
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Rather than promoting recovery, the Keynesian economic policies adopted by both Obama and Bush since the beginning of this recession have more likely delayed it, by borrowing hundreds of billions and ultimately trillions in investment capital out of the private economy, and destroying the jobs that would have resulted from that money in the private economy.
Cycles Naturally Go Up As Well As Down
Remember the term business cycle? The sweeping, pro-growth policies adopted by President Reagan were so successful in preventing any major downturn for 25 years that we don't seem to remember what that term means anymore. But it implies that along with periodic downturns the economic cycle will naturally turn up as well. Every morning the American people wake up and throw themselves into restoring the economic viability of their businesses, or finding themselves jobs. This is the primary factor in causing the economy eventually to turn back up.
The Keynesian economic policies adopted by Obama and Bush do nothing to help these businessmen and working people cure the economy. Borrowing close to a trillion dollars from the private economy to increase government spending by close to a trillion dollars does nothing to expand the economy on net. Indeed, it may well result in a net loss of jobs due to government carrying costs and the economic friction resulting from moving all of that money around. Moreover, again this policy does nothing to increase incentives for investment, starting new businesses, expanding businesses, creating new jobs, or entrepreneurship. For these reasons, the best estimate of the number of jobs saved or created by the Obama stimulus is exactly zero.
The result of the willfully blind, throwback, untutored Keynesian economic policies continued and wildly expanded by President Obama is the longest recession since World War II dragging on for around 20 months now, and maybe still more.
Rejecting Obama's rigid, doctrinaire Keynesianism, France and Germany saw economic growth return in the second quarter, with India, Brazil, and even communist China enjoying reviving growth as well. Clearly, what we have suffered in America is the failure of Keynesian economics yet again.
The Free Market Restores Economic Growth
The slowdown in economic decline we have recently experienced, and the actual recovery we will see soon, is due to the natural, curative process of the free market, not big government spending, deficits and debt, for the reasons discussed above. As Alan Reynolds explained in the Wall Street Journal on August 21:
It's clear that U.S. history does not support the theory that Big Government means shorter and milder recessions. In reality, recessions always ended without government prodding, long before anyone heard of Keynes and long before the Fed existed. What's more, recessions ended more quickly before the New Deal's push for Big Government than they have in the past three decades. The economy's natural recuperative powers before the 1930s proved superior to recent tinkering by Big Government economists, politicians and central bankers.
Indeed, in that same article Reynolds goes on to show that countries with higher government spending relative to GDP suffered deeper recessions over the past year and a half, while countries with lower government spending experienced shallower recessions or none at all. So, again, Keynesian spending stimulus does not seem to promote economic recovery.
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