Democrats & Liberals Archives

Republicans Against the Fed

Ben Bernanke, head of the Federal Reserve, was getting tired of waiting for Congress to do something to boost employment. So he decided to buy $600 billion of Treasury securities in order to create a new cycle of lending and hiring. Republicans, with Rep. Paul Ryan in the lead, denounced this as a recipe for inflation.

Ryan and his Republican cohorts do not care that inflation today is very low and does not need restriction. They do not care that the biggest problem the country faces is outrageously unacceptable unemployment. No, their total focus is on controlling inflation and they do not want the Fed to do anything to improve employment. In the Business section of JSOnline Paul Ryan speaks his mind:

Fighting inflation and boosting employment often are diametrical goals, he said.

"Basically the Fed is driving a car with two feet, one on the brakes and one on the gas pedal, and it's a real jerky ride," he said.

I don't know if "fighting inflation and boosting employment often are diametrical goals." But it does not matter. What matters is that Ryan is ready to go all out to reduce inflation even when inflation is very low because as he says keeping inflation down preserves wealth. Thus, those with wealth - the rich - can keep their wealth.

How about those without wealth, the people who have lost their jobs and their homes? Ryan says the Fed should not worry about them. They don't count. The Fed should forget about jobs and be concerned only with inflation.

Rep. Paul Ryan to the Fed: Take care of the rich. Leave the unemployed poor alone.

Republicans in general feel the same way. They keep talking about tax cuts for businesspeople. They say little or nothing about boosting employment or even helping the unemployed in any way.

Contrary to Ryan and his conservative friends, I think the primary purpose of the Fed should be optimum employment. Sure, it should fight inflation, which could ruin an economy. Of course, it should work to produce a growing economy. But what is the point of growth if 10% of the people are unemployed and in distress. A prosperous economy consists of thriving businesses and people with well-paying jobs.

Republicans are against the Fed (a conservative organization of bankers) because the Fed is trying to help President Obama in his effort to increase employment. Republicans have been working for 2 years to deprive Obama of a success in increasing employment, when the Fed double crosses them by helping Obama.

Ryan and Republicans are not really against the Fed. They are against Obama and anyone that helps Obama improve our economy.

Posted by Paul Siegel at November 23, 2010 7:22 PM
Comments
Comment #313907

Paul, Ryan is correct in saying the Fed’s move is a recipe for inflation.

And you are correct, that inflation at this moment is benign.

What is missing from your analysis is that the Congress charged the FED with the dual responsibility of maximizing employment and minimizing inflation. They can be diametrically opposing objectives, BUT, and this is where Ryan’s comments miss the mark, ONLY in in stagflation circumstances, which we are NOT in.

The other thing Ryan misses, and if he wants to critique the FED rationally he would need to do so in this way, the Fed’s 600 billion infusion will have little to NO effect on employment. It is a monetary solution to a fiscal problem.

Unemployment is being caused by a lack of aggregate consumer demand due to consumers have lost a good deal of their savings and millions of jobs, and their attempts to recover those savings while spending less. The Fed’s infusion is helpful ONLY to those wanting to borrow, and the consumers are not in a borrowing mood. Quite the reverse, they are saving and paying down debt in a big way. More than a trillion dollars in consumer debt has been written down in the last 2 years if I recall my figures correctly. Ergo, the Fed’s move will not stimulate consumer borrowing, which will in turn, not stimulate growth in aggregate demand, which in turn will NOT result in increasing employment.

At best, the Fed’s move will open the local and regional lender’s bottleneck or constricted lending to small business, resulting from the Big Banks failure to make loans to those regional and local banks for small business loans. And to that extent, the Fed’s move may modestly improve the hiring at the small business level, but, not by a lot. Regional and local bank small business lending criterion have been tightened up to offset the bad mortgage assets on regional and local bank’s balance sheets, as well, (no bailout for them).

The irony is, the path to significant job growth at a rapid pace is through a massive fiscal stimulus program not unlike that which employed millions of Americans with the ramping up for WWII, but, Republicans oppose such measures vehemently.

So, the bottom line is, Republicans are denying the nation the only path to increasing employment by opposing Stimulus spending, and reap the political reward of yelling how Democrats fail to produce jobs or even make it their number one priority. Real irony in that.

Ryan is playing a politically shrewd and savvy game of impeding job growth to lay blame for it on Democrats. And it worked in this month’s elections, so, don’t look for Ryan and his comrades to change their strategy anytime soon. Democrats haven’t a clue on how to fight this political strategy of Republicans. Which is truly bewildering, since the polling data has all the information Democrats need to fight Republican’s strategy and win.

Of course, this has been entirely predictable, since Democrats turned their backs on the public over the Public Option. When they did that, in deference to some other agenda, they lost sight of the fact that the public opinion was, is, and will always be, the greatest political strategy to use against Republicans, who have never had the general public’s interests as their guiding objectives.

Posted by: David R. Remer at November 23, 2010 8:49 PM
Comment #313927

David,

Excellent analysis of the Fed’s situation.

I do have one caveat to add. We are approaching a point of debt, where we have few options. Increasing the debt rather than being stimulative could become a situation of making our debt service so large that we cannot perform basic services.

The elephant in the room is those toxic assets. Deflating them in an orderly way is the key. Since a large portion of these are homeowner debts, they will tend to reduce the assets of the middle class. This is the problem with consumer spending. To me, the solution has to be a WPA or TVA type investment in infrastructure. This will stimulate the construction industry, and eventually add to property value. Of course, getting us out of Afghanistan and Iraq and reducing our deficit spending on non-infrastucture items is needed as well as fixing SS and health care.

Increasing debt service for an investment in infrastructure seems to me the only way out of this hole. Unfortunately, it is not an immediate fix, and requires long term planning.

Let’s just hope the fiscal stimulus doesn’t come in the form of nuclear war.

The FED cannot, I fear, dig us out alone.

Posted by: gergle at November 24, 2010 1:08 AM
Comment #313930

Why is Rep. Paul Ryan worried about what the Fed is doing when the entire Housing Market is in danger of falling apart as more and more citizens are becoming aware that the banks cannot foreclose on their homes due to the lack of proper paperwork.

Yes, the Fed might cause inflation; however, what is the cost to America if the banks cannot prove they hold proper title to the properties they made laons against and sold to others?

Seems to me that once again the Republicans are out in Left Field when the game is being played inside the bases. For though I agree $600 nillion will not cure the 10% unemployment rate, I wonder what will happen if the Courts decide the Homeowners do not owe the Banks for their home, but the banks owe the investors who bought their bundles of junk?

Posted by: Henry Schlatman at November 24, 2010 2:39 AM
Comment #313933

gergle said: “I do have one caveat to add. We are approaching a point of debt, where we have few options. Increasing the debt rather than being stimulative could become a situation of making our debt service so large that we cannot perform basic services.”

Couldn’t agree with you more, gergle. But, its not a dead end to stimulus. The easy trick to another massive stimulus bill would the politically impossible trick of cutting spending in a massive way to cover most of the cost of the Stimulus. Well, it is a dead end politically, for the moment obviously; I correct myself.

The clock on the debt is ticking. But, the heart of the debt issue is Medicare/Medicaid. That is the truck carrying the debt to 20 trillion at the end of this coming decade. And a 1 trillion dollar per year interest on that debt.

So, if our government will rein in health care inflation costs now eating up an enormous amount of consumer demand in other industries and businesses, (Public Option would have done that and still can, if passed by some political miracle), and if a host of desired but not emergency need discretionary spending is cut for several years (very possible and even likely) politically, and if the Bush tax cuts for the wealthiest can lapse, (a non-starter unless Democrats get their public relations act together) and a large stimulus bill is passed to start the creation of millions of infrastructure and energy innovation jobs, not only would the economy come back, dramatically increasing government revenues, (Republicans won’t allow that in this universe), that truck headed for 20 trillion national debt can be detoured or even reversed.

Needless to say, I don’t have a lot of confidence in America’s future being rescued by the hands of politicians. Our daughter will be fully prepared to find a new life and prosperous life in Brazil before 2020, as a result. Mom and Dad are preparing to follow her if need be. It ain’t gonna be pretty when it comes crashing down and American streets will not be safe for American living with 25 to 50% unemployment, making 2010 look like the Great Old Days.

Posted by: David R. Remer at November 24, 2010 5:35 AM
Comment #313934

gergle, I see your last 3 sentences in your comment in the same way.

“Increasing debt service for an investment in infrastructure seems to me the only way out of this hole. Unfortunately, it is not an immediate fix, and requires long term planning.

Let’s just hope the fiscal stimulus doesn’t come in the form of nuclear war.

The FED cannot, I fear, dig us out alone.”

Monetary tools can’t address fiscal problems effectively, nor vice versa. That is why the two financial systems exist mostly independent of each other. America was largely a cash/barter basis economy from its beginning through to the Reconstruction Era. But, around the beginning of the 20th century, that economic basis changed, dramatically, into one of high finance and leveraging, and corporations consuming massive amounts of money in equity share borrowing. A monetary system of regulation and control had to come into being at some point, and the financial system panics after the turn of the century, especially in 1907, was the impetus for its creation in 1913. Its beginning was flawed in design, but, remedied after the onset of the Great Depression and stock market crash of 1929.

It is our fiscal system that is now failing due to a broken political system. And that is far more threatening to our nation’s future.

Posted by: David R. Remer at November 24, 2010 5:52 AM
Comment #313935

Henry, Ryan wants to target the FED to put it on the defensive regarding the huge investigatory oversight and enforcement role the FED has undertaken since the Great Recession and the banking sector was rescued. The big banks and Wall St. are Ryan’s and his Parties constituents.

Corporations raked in their biggest haul of profits this last year in 60 years, when records of that sort were begun. And yet, all you hear from Wall St. and Republicans is what an enemy of business Obama is. Both can’t be true, and the profit figures are definitely not lying, since, corporations pay taxes on what they report. They aren’t about to volunteer profits they didn’t make and show evidence of.

Such is the nature of the Republican and Wall St. propaganda machine. Pretty damned effective too at pedaling lies, according to the public polling data. The majority of Americans believe Obama has raised taxes on business and themselves as well, when in fact, small business and citizens got a tax break under Obama’s Stimulus plan.

Democracy can’t work when the people are making their voting decisions on propaganda and lies.

Posted by: David R. Remer at November 24, 2010 6:27 AM
Comment #313944

Paul Ryan’s under the misapprehension that there’s actually inflation around to fight.

Posted by: Stephen Daugherty at November 24, 2010 12:57 PM
Comment #313948

Ryan is under the misapprehension that he actually knows the difference between an economy and a bank account.

Posted by: Marysdude at November 24, 2010 2:38 PM
Comment #313977

Marysdude, and he doesn’t know the difference between government and private enterprise, at least not rhetorically. He certainly knows the difference when it comes time to pay his contributors back with your, my, and our tax dollars. Something one doesn’t do in a private corporation that is honestly run.

Posted by: David R. Remer at November 24, 2010 9:09 PM
Comment #313981

DRR,

It isn’t done in a government that is honestly run either. Let’s face it, Ryan is not only misinforming us about the economy, but is not a very ethical person. If everyone in government was like Ryan, we’d never get anything done…oh…crap!

Posted by: Marysdude at November 24, 2010 10:10 PM
Comment #313996

David,
I agree that Rep. Ryan and his Parties constituents are clueless and will add that they are actually hurting those they say they represent.

For why the corporations say they are making profits (most from overseas) the fact the average American cannot purchase their products and services forcing them to purchase items created overseas should make one wonder who side has Americas’ Inherent Best Interest at heart.

No, give a corporation the ability to pay zero taxes provided they can prove they pay all their Employees here and aboard a “Sustianable Livable Wage” which can move them toward becoming economically viable and financially independent and I doubt if one Republican would vote for the bill.

No, instead Rep. Ryan and his Parties constituents are worried that inflation will force the Rich to increase the wages of workers in order to stop their own businesses from going under. So why the Fed move may cause inflation, how much of the profits made by Wall Street could be used to stop foreclosers simply by paying a Dollar for a Dollar worth of Labor?

BTW, Happy T. Day to you and your family.

Posted by: Henry Schlatman at November 25, 2010 4:13 AM
Comment #314009

DR said:

Unemployment is being caused by a lack of aggregate consumer demand due to consumers have lost a good deal of their savings and millions of jobs, and their attempts to recover those savings while spending less. The Fed’s infusion is helpful ONLY to those wanting to borrow, and the consumers are not in a borrowing mood. Quite the reverse, they are saving and paying down debt in a big way. More than a trillion dollars in consumer debt has been written down in the last 2 years if I recall my figures correctly. Ergo, the Fed’s move will not stimulate consumer borrowing, which will in turn, not stimulate growth in aggregate demand, which in turn will NOT result in increasing employment.

David, I agree 100% with the above assessment. However, we are diametrically oppossed on the following assessment:

The irony is, the path to significant job growth at a rapid pace is through a massive fiscal stimulus program not unlike that which employed millions of Americans with the ramping up for WWII, but, Republicans oppose such measures vehemently.

We are both on the opposite end of the ledger sheet. More ‘stimulus’ spending only exacerbates our unemployment problem. Stimulus spending is a band-aid that doesn’t target jobs; it mainly helps subsidize local and state governments in the short term. Once the money runs out (like it is all over the country from last years’ state government bailout, I mean , stimulus program), states are back in the red with no real plan (unless one does what governors like Chris Christie (NJ) and Mitch Daniels (IN) does). Cut spending, entitlements and privatize portions of state government like the state’s toll roads (brilliant outcome in Indiana, btw).

No, we need to help boost small business owners’ ability to hire more Americans by extending the Bush-Era tax cuts to those making ABOVE $250k per year. This group makes up 54% of individual tax return filers AND account for approximately 66% of business activity in the US. Why on God’s green earth would Obama and liberals in general want to hurt this important sector of our economy? The answer of: ‘but we can’t afford a 700 billion dollar tax break,’ rings hollow when one looks at reality on the ground.

The oxymoronic “it’s for ‘millionaires’ and ‘billionaires’” is so tired and old - AND incorrect. Wealth redistribution and class warfare are hardly an effective tool to deal with our jobs crisis.

But the biggest reason for extending these cuts to ALL taxpayer’s is: It’s their money! Stop spending ‘OPM’ and create an atmosphere where small business and entreprenuers can flourish.

Posted by: Kevin L. Lagola at November 25, 2010 1:15 PM
Comment #314010

I will be civil for a moment and wish EVERYONE a Happy Thanksgiving!

Posted by: Kevin L. Lagola at November 25, 2010 1:18 PM
Comment #314011

Kevin,

Just how long does it take for favorable taxes to translate to jobs and growth? What year did Cheney/Bush initiate the cuts we are talking about. Isn’t it obvious by now that tax cuts translate mostly to more empty air investments, off shore investments and more savings?

Why take money from the wealthy to help us out of this predicament? Because there is not enough middle class left to do the trick, and the poor can’t help.

It is all just a matter of pragmatism.

Posted by: Marysdude at November 25, 2010 2:22 PM
Comment #314012

Kevin Said: “We are both on the opposite end of the ledger sheet. More ‘stimulus’ spending only exacerbates our unemployment problem.”

Then, your comment reflects the wearing of blinders. Contact your state Governor’s office with an email asking about the Recovery and Reinvestment Act subsidized projects going on, or completed in your state. Those are jobs, Kevin, created by the Stimulus Act.

The object is to increase employment to the point that the paychecks of those newly employed, increase aggregate demand to the point that the private sector’s hiring balances with acceptable labor demand for employment. We can never fully employ the labor force for certain structural reasons, but, a range between 5.5% and 7% is in the historical average range.

It is simple math, Kevin. Stimulus employment increases aggregate consumer demand, which increases private sector demand for labor, which decreases the need for stimulus employment while raising government revenues to begin offsetting Stimulus employment costs.

Posted by: David R. Remer at November 25, 2010 2:27 PM
Comment #314017

Kevin, if you want to ignore reality and data in order to preserve your ideological talking points, that’s fine. But, the data paint an entirely different picture.

Only about 1/3 of the Stimulus of 2009 was allocated for job creation (275 billion for grants, contracts, and loans - i.e. jobs, and a small portion of the money allocated for education, health care and entitlements 224 billion, of which, approx. 25 billion was used by used to retain teachers.) It was sufficient to halt declining payrolls by 2009 to the point of percentage equilibrium at around 10.2% in Oct. 2009, to 9.6% in Sept. 2010 -seasonally adjusted).

Of course, prior to the Stimulus, the unemployment rate had risen from 4.6% in 2007 to 6.1% by Sept. 2008 and rising fast. Obama didn’t take office until Jan. 2009. By October 2009, the seasonally adjusted unemployment rate hit its peak, and began dropping from that 10.2% rate, thereafter.

The Recovery & Reinvestment Act (Stimulus bill) was not signed into law until Feb. 17, 2009. It took many months for the first monies to become available for actual job retention and hiring for schools and infrastructural jobs. But, obviously, its effect reached its peak Nov. 2009 when the seasonally adjusted unemployment rate began to drop.

Now, the thing to remember here is, only about 300 billion was allocated for job stimulus and retention, and that was spread out over a two year period for a number of reasons not the least of which was that not all those jobs to be created could be implemented at the drop of hat (not shovel ready). Approx. 160,000 recipients of these Grants, Contracts, and Loans for jobs received monies for job creation by the end of the 3rd quarter 2009. That number of recipients hit 250,000 by the 3rd quarter 2010.

So, if you graph the outlays against the unemployment chart, there is a very direct correlation between them, with unemployment dropping immediately following the 3rd quarter 2009 when the critical 160,000 recipients of Stimulus dollars had been reached. And it has been dropping ever since on average, seasonally adjusted, despite the fact that the entire labor force (new young entrants to the labor force less retiring or leaving workers) rose by nearly a million jobs from the end of 2007 to 2009. It has shrunk a bit this year with the advent growth of the unemployed dropping off the unemployment rolls.

The stimulus, by hard data, created jobs and prevented the unemployment rate from going much higher in its absence. The data clearly reflects that.

If you want to argue that stimulus deficits cost jobs, the only way you can make that argument is in the future tense. But, of course, the economy is improving, and that will offset effects of stimulus deficits on job growth in the future as a result of those deficits.

Posted by: David R. Remer at November 25, 2010 4:11 PM
Comment #314030

To marysdude,

What you fail to understand is that the so-called Bush-Cheney tax cuts began ‘outside’ of a horrific recession. The ‘Great’ Recession began in December of 2007. Tax increases, as proposed to take place on Jan 1, 2011, is the absolute wrong time to ignore such facts. You are, as David likes to opine often, throwing out liberal-minded talking points.

In other words, just because job growth, according to your calculations did not occur from 2001/2003 until now does NOT mean that allowing them to expire during a ‘JOBLESS’ recovery makes smart business sense. It does not. Well over 50% of all Americans believe that to be true. Your viewpoint is your viewpoint. It does not mean your viewpoint is correct and mine is incorrect.

To David,

I never argued that the Stimulus plan cost jobs. I merely stated that, in my opinion, and along with tens of millions of other free-market thinkers and economists, I believe the Stimulus was poorly designed (especially for its size) and inefficient in its application. For some reason, you are a died-in-wool Keynesian without prejudice.

For $787 Billion dollars (ergo $814 Billion, revised), we did not get our money’s worth. That’s serious money! Yeah, I know we were/are in a difficult situation economically, but the ‘Plan’ was suppossed to hold the unemployment rate at 8%. It did not come close and that’s indisputable. You cannot change the ‘goal’ of the Stimulus to fit your hypothesis of what the plan was actually suppossed to do after the fact. It does not work that way. In science, such ad hoc gyrations are an athema.

To be sure, I never once indicated that I was against deficit spending or stumulus during a recession. I’ve simply stated that ‘this’ stimulus plan did not do anything near what it was supposed to do. Thus, in essence, the Stimulus Plan did not do what it was supposed to do vis-a-vis ‘other’ options like ‘real’ corporate tax cuts. Ireland, for example, in the heat of IMF and European bailout money, decided to cut their corporate tax rate to 12.5%!!! AND, they decided on doing ‘real’ cuts elswhere, like lowering the minimum wage there. Talk about decisiveness and real-world governing.

I’ve perused Recovery.org numerous times to see what’s going on. If the stimulus is so great, why are governors all over the US, refusing to take the money for their states? Because it’s an unfundated mandate where governors and state legislatures will be left ‘holding the bag’ after the project money dries up. Tim Palenty, Mitch Daniels, Chris Christie and governor’s in many other states are refusing this wasteful spending.

Posted by: Kevin L. Lagola at November 26, 2010 12:12 AM
Comment #314031

Kevin L. Lagola,
You might be right about the Recovery and Reinvestment Act not doing what was first proposed by President Obama; however, wasn’t it the Republicans that demand more Tax Cuts than creating jobs by buildings roads or making Federal Buildings more Energy Efficient?

No, $800 billion dollars may not have been enough to insure every American Business get back on their feet; nevertheless, after 10 years of Bush Tax Cuts can you point out one sector of private business that has created growth here in America?

So why personally I would have liked to seen the money go only toward building renewable energy projects and advanced transportation like Mr. T. Boone Pickens idea about 18 wheelers; nonetheless, I can understand the tax credits for clunkers and home appliances working for other sectors of private business. Thus, I have to ask which sebtor of private business would you support with Recovery moeny and why?

As far as cutting corporate tax rate to 12.5%!!! AND, they decided on doing ‘real’ cuts elswhere, like lowering the minimum wage. Who is suppose to make up the difference in the Market when 50% of Americans cannot afford to purchase their Basic Needs? Would it really help increase demand if I was to cut your paycheck (ourchasing power) in half.

Posted by: Henry Schlatman at November 26, 2010 4:09 AM
Comment #314037

Kevin,

The Cheney/Bush tax cuts did NOTHING to improve your ‘horrific’ (paltry) 2001 recession, nor did it improve job growth for the following eight years. It likely contributed to the 2007 crisis, and is still holding us back from recovery. What part of ‘taking money out of circulation during recessionary times is a bad idea’ don’t you understand?

Starve a fever, feed a cold. Starve an inflation, feed a recession.

Money circulation is the key to successful recessionary recovery, because those who provide depend on those who purchase to stay in business. Those tax cuts you are so proud of never circulated through the economy, thus starvation set in. Without the military spending on two useless wars, we’d likely have sunk sooner. I wonder if America’s dependence on war to pull us out of bad economic times is an indication of a warmonger state…hmmm…

Posted by: Marysdude at November 26, 2010 7:06 AM
Comment #314133

Kevin said: “I never argued that the Stimulus plan cost jobs.”

Yeah, you did. You said, and I quote: “More ‘stimulus’ spending only exacerbates our unemployment problem.”

That sentence construction equates stimulus with UNemployment. When in fact, the Stimulus saved and created jobs, as every State governor and many a mayor in this country is well aware.

You said: “I merely stated that, in my opinion, and along with tens of millions of other free-market thinkers and economists,…”

Tens of millions of people once thought the Earth was flat and the Sun revolved around the earth, too. Numbers of believers does not make the belief accurate or true.

Then, Kevin, you said something we agree on: ” I believe the Stimulus was poorly designed (especially for its size) and inefficient in its application.”

Though we surely disagree on just how it was poorly designed and its relative inefficiency given the political circumstances of its passage.

“For some reason, you are a died-in-wool Keynesian without prejudice.”

I am without prejudice when it comes to economics, but, attaching the label Keynesian to my view of economics is to fail utterly to understand my perspective on economics which is empirically and historically based, not ideologically based. I don’t give a crap about either Keynes or Friedman, they were both ideologues building their theories on assumptions about human nature and sociological nature and context, that have proven far too many times, to be dead wrong.

A good student of economics reads Keynes and Friedman, and especially their published protoge’s with enormous skepticism, precisely because of their assumptions. The economic theory of Keynes is dated, (1930’s), and most folks critical of Keynes are today not even aware of, let alone rational about their critique of what has evolved from Keynes in the new Keynesian economic theoretical constructs advanced by Robert Lucas, Thomas J. Sargent, and Robert Barro, for example.

Friedman’s protege’s evolved classical theory as well, now championing a clearly and demonstrably false notion on the assumption that wages and prices are flexible. They believe that prices clear markets and balance supply and demand by adjusting quickly, which clearly and demonstrably has not always been the case historically (1929 - 1932), or contemporarily, with the advent of globalization of the marketplace (oil or gold prices for example).

So, your statement about my subscribing to Keynesian theory, with or, without prejudice, is itself prejudiced, it would appear. There are mechanics in both Keynesian and Friedman economics that are sound and empirically demonstrable. Which is another way of saying that Keynes and Friedman both use the same mathematical systems of measures in assessing real world economic events. How they interpret that data, however, follows from an assumption set which has a nasty habit of being invalidated by predictions which fail to realize.

I am an economic machinist. Not a theoretician. I look to economic measures and relationship constructs which are historically present and meaningful in context. I care not whether the massive deficit spending investment in massive labor force mobilization and growth with the onset of WWII was Keynesian or Friedman in origin. I care that it worked in producing a massive growth in employment and prosperity and provided the means to roll back deficit spending and national debt growth in the 1950’s, for example.

Economists of the latest Keynesian evolution continue to serve as predicate for government intervention in the economy; counter cyclical monetary or fiscal policy, as a means of preventing excessive and avoidable human suffering resulting from hands off market self-correcting mechanisms, like economic recessions and depression.

Modern Friedman economists preserve their assumption, regardless of the data and complete absence of real world demonstration, that the least harm is done human beings when the marketplace is free to allow its players to act and react without interference in a Darwinian fashion, entirely ignoring the human cost of economic recessions and depressions which they argue are self-correcting mechanisms. Of course, the obvious implication of such a theory is that wealth accumulation by any means is its own justification for the means by which that wealth was accumulated. Laissez-Faire at its most fundamental philosophical underpinning, or, in other words, a rich person’s, or rich person wannabe’s, theory of economics.

At its core, economics is a political discipline. Which is why, in the real world, there can never be a divorce between economics (distribution of finite resources amidst infinite demand) and politics (the struggle over who will determine the distribution schema of those finite resources).

Theory is built upon a projection of a world that doesn’t exist, attempting to hold infinite variables static for predictive purpose; when in reality, the universe and all the variables within it, are anything but static. The world that was true for Keynes in 1930 is no longer true for neo-Keynesian economists, who btw, are divided amongst themselves on theoretical assumptions and constructs like ‘sticky’ pricing. The same is true of Classical economists whose world no longer resembles, in substantive ways, that of Milton Friedman in the 1960’s who touted natural rate of unemployment and argued government could not micromanage the economy because consumers would realize what the government was doing and change their behavior in contradiction to such policy. Today, the consumer public is far more ignorant of public policy which destroys Friedman’s argument.

Posted by: David R. Remer at November 27, 2010 6:09 PM
Post a comment