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Spengler

The Global Failure of Keynesianism

April 5th, 2013 - 8:07 am

Should we fear a catastrophic outcome, as former OMB director David Stockman claims? That is extremely unlikely. There is one great source of strength in the U.S. economy, namely the energy sector. With the United States poised to overtake Saudi Arabia as the world’s largest oil producer by 2020, the U.S. current account deficit is likely to settle in the 2% range, down from the 6% range during the mid-2000s. That will enhance America’s capacity to borrow overseas by reducing the risk of future dollar depreciation. The prospective improvement in America’s current account gives the Federal Reserve and the Obama administration a great deal more slack.

But it is fanciful to expect that energy alone will drive a U.S. economic boom. It’s great for North Dakota and a few other states, and it’s good for the current account balance and the U.S. dollar. We’ve already had a massive decline in natural gas prices and a massive increase in the proportion of our energy coming from natural gas, and the effect on overall economic output is small.

No magic bullet — not the Fed, not the energy boom, not the modest improvement in home prices- — is going to get the U.S. economy out of what Nobel Prize laureate Edmund Phelps calls a “structural slump.” This isn’t a new depression. It’s not even a double-dip recession. It’s just a permanent headache.

Graph of S&P Case-Shiller 20-City Home Price Index

The economy is stagnating, not recovering, and Americans are hurting. Republican leaders are playing small ball against the administration over budgetary issues. Getting out of the structural slump will require radical changes. It will probably take a drastic reduction on taxes on capital income, including corporate profits, capital gains, interest, and dividends to get investment going again. Slashing the defense budget, which has been the great driver of technological advances since the Second World War, is devastatingly wrong-headed by economic as well as national security criteria. Obamacare is killing small business. The National Federation of Independent Business’ Optimism Index remains at recession lows. The biggest negatives cited by small business owners are taxes and government regulation.

Small business optimism report for March 2013

 

The Republican Party needs to articulate the kind of broad vision for prosperity founded on free markets and American strength that we had under Reagan. Waiting for the pendulum to swing back in our direction just isn’t good enough.

More: Behind the Dismal Jobs Numbers: The ‘New’ Economy Takes Shape

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Top Rated Comments   
The brilliance of free market democracy is in allowing the market enough political oxygen to come to equilibrium.

In this country, we stumble, stammer and stutter every time we utter the words socialism, communism and other brand names for the strangulation of the free market by political ham-fisting it, under various pastel colored scams.

Obama can't run for President as a "small c communist", or even as a "soft, compassionate, Euro-Socialist". So, he must feign umbrage at being called what has defined him since he was sitting on a bar stool in a sleazy bar with Frank Marshall Davis.

When leftist politics runs fiscal policy, the free market is deprived of oxygen.

Keynes was a fool. And his followers are bigger fools. Never...in the history of mankind, has such an utterly abysmal batting average been championed as an All-Star in so many nations...as this mound of crapology by Keynes.

We have to begin to treat small c communism for what it is and we can't/won't because we fear the taunt of McCarthyism. It's the trump card that beats back any semblance of logic. Much like the race card, it is pulled out no matter what is said, argued or debated...as a shield and sword, by radical leftists.

And therein lies the rub. Republicans are terrified and cowed into submission because of the leftists trump cards and their iron-fisted lock on the propaganda machine in the mass "news" outlets, Hollywood and academia.

The barstool fools who dribble out nonsense about Wall Street being evil and the lemmings who wear their ignorance of radical leftism like a badge of honor...don't have a clue. Parliamentary governance is a messy affair. But, at least the additional choices would give a chance to a voice of clarity and sanity.

Right now, we have none of the former from Republicans and an utter void of the latter from the Democrats.
1 year ago
1 year ago Link To Comment
The problem is that 90%+ of the creatures who call themselves Republicans and who work inside the Beltway have no interest whatsoever in free markets. Without big government and crony capitalism, they don't have party favors to hand out to get big contributions to get re-elected over and over with (and cushy, high-paying jobs after politics via the revolving door). They're members of the Incumbent Party, just like Dems, only with a slightly different shopping list that they want to spend someone else's money on. For someone who is supposedly so astute, Mr. Goldman, I'd have thought you might have noticed this by now. They're not "articulating" a vision on free markets because they don't believe in them either.
1 year ago
1 year ago Link To Comment
All Comments   (46)
All Comments   (46)
Sort: Newest Oldest Top Rated
Are we going back to the pre-Reagan era of stagflation, which disproved Keynes? The Fed created an horrific recession by tightening money until all of the inflation was squeezed out of it. Reagan backed the Fed and urged Americans to "stay the course". It worked. Are we going back on this?

What President will be able to cure it? How can you run for office promising to create a recession?
1 year ago
1 year ago Link To Comment
No one here seems to see the benefit of a stable currency.
1 year ago
1 year ago Link To Comment
Oh the irony! "Slashing the defense budget, which has been the great driver of technological advances since the Second World War, is devastatingly wrong-headed by economic as well as national security criteria."

You do realize you're supporting Keynesian spending in an article titled, "The Global Failure of Keynesianism" right? Love it.
1 year ago
1 year ago Link To Comment
Keynes wanted government spending to increase demand. The beneficial impact of defense/NASA R&D has nothing to with demand in the Keynesian sense: it fosters innovations which private entrepreneurs can commercialize later. Pure free markets exist in the imagination of economists. There is a limited but indispensable role for government in the economy which has nothing to do with Keynes.
1 year ago
1 year ago Link To Comment
The brilliance of free market democracy is in allowing the market enough political oxygen to come to equilibrium.

In this country, we stumble, stammer and stutter every time we utter the words socialism, communism and other brand names for the strangulation of the free market by political ham-fisting it, under various pastel colored scams.

Obama can't run for President as a "small c communist", or even as a "soft, compassionate, Euro-Socialist". So, he must feign umbrage at being called what has defined him since he was sitting on a bar stool in a sleazy bar with Frank Marshall Davis.

When leftist politics runs fiscal policy, the free market is deprived of oxygen.

Keynes was a fool. And his followers are bigger fools. Never...in the history of mankind, has such an utterly abysmal batting average been championed as an All-Star in so many nations...as this mound of crapology by Keynes.

We have to begin to treat small c communism for what it is and we can't/won't because we fear the taunt of McCarthyism. It's the trump card that beats back any semblance of logic. Much like the race card, it is pulled out no matter what is said, argued or debated...as a shield and sword, by radical leftists.

And therein lies the rub. Republicans are terrified and cowed into submission because of the leftists trump cards and their iron-fisted lock on the propaganda machine in the mass "news" outlets, Hollywood and academia.

The barstool fools who dribble out nonsense about Wall Street being evil and the lemmings who wear their ignorance of radical leftism like a badge of honor...don't have a clue. Parliamentary governance is a messy affair. But, at least the additional choices would give a chance to a voice of clarity and sanity.

Right now, we have none of the former from Republicans and an utter void of the latter from the Democrats.
1 year ago
1 year ago Link To Comment
Good post. I would point out that while Keynesian policy has rarely worked to help an economy, it never fails to help politicians justify more spending and more government. Its real purpose, perhaps?

And I would argue that the intimidation factor for Republicans and conservatives is not the name calling by the left. It is the megaphone in the press that amplifies it to the exclusion of any other voice. We can argue with and best the progs, but we have no megaphone comparable to theirs.

That is the real problem facing the country. If we had balanced reporting, the political process would be self-correcting, as it was in this country for so long.

1 year ago
1 year ago Link To Comment
The problem for the freedom lover is that Keynesian economics dumps money on the unproductive in order to get them to invest in the economy. That just makes the unproductive want more free money. How does a world-view that emphasizes hard work and fiscal discipline compete with that? Nov 2012 was my epiphany. If a president can be reelected under the conditions that the country was (is) in, then my belief is, and i really hate to be a nattering nabob of negativism, that the event horizon has been crossed. Things are definitely going to get worse, government graft is going to literally have to dry up, and riots will ensue, before Uncle Humpty Sam can be put back together again.
1 year ago
1 year ago Link To Comment
What good will any of this do as long as the GOP is portrayed 24/7 as a virtual KKK? In case you haven't noticed it, that's where the info war's being fought, not with common sense. Liberal's voted for Obama with 4 years of 8% unemployment under his belt.

They simply blamed arch-Nazi Bush and transferred that to arch-racist Romney. Need I remind anyone that Yahoo and Politico fired two men for completely baseless racist accusations against Romney?

As long as the GOP doesn't truly understand what kind of a war they're in, they're gonna keep losing it, and graphs won't help.

We're I the GOP, I'd be filing hate-speech charges against American celebrities, bloggers, writers and other artists outside America. Is MSNBC and NBC fed outside America? Hit 'em. What are the Las Vegas odds Melissa Harris-Perry, Michael Eric Dyson and Al Sharpton just happen to peg whites as wrong 100% of the time? About the same as Nazis did Jews I'd say.

I'd start with the Council of Europe's European Commission against Racism and Intolerance in Strasbourg.

Then I'd hit the U.K. Ireland, Canada, Brazil and India. All those liberals extend their careers and web sites outside America. No career, no money. No money, no voice.
1 year ago
1 year ago Link To Comment
Don't forget British libel laws (and those derived of them, like in Israel) are much stricter than in the US, with our unique (exceptional) version of rights. If US laws were like British/Israeli, Ariel Sharon would have beaten Time magazine. Libe lsuits might be a good way to go.

But note that the system is rigged. The Left tends to control the courts. You may find your scheme backfiring.
1 year ago
1 year ago Link To Comment
The mixing of PC Left ideology and the reality beneath the propaganda (CF Bleachers writes about this better than anyone) with the reverse race card (the only actual race card being played in the US these days) makes a toxic formula. Resisting it within the bounds of play, within the mainstream airwaves, is futile apparently. The Romney's yield to it, like someone raising his arm to fend off a blow. Then add in the depth of corruption associated with Obama's Presidency, and the formula is really for societal dysfunction or even eventual civil war. What stops this in my opinion is that many of the average people just keep on keeping on, producing and cooperating in the face of the ideological madness and wars raging above and around them.
1 year ago
1 year ago Link To Comment
If the articulation of the very valid arguments and points that author Goldman raises in terms that the electorate will understand and appreciate, and base their voting actions upon, is the challenge ahead then I fear that we are doomed.

Possibly that is the Obama plan. Create a disaster so complex that the ignorant and propagandized electorate will never comprehend its causes and simply vote for the first idiot that offers to relieve their pain with the other guy’s money.
1 year ago
1 year ago Link To Comment
Keynesian economics fail because of simple math errors. At one point Keynes uses a ratio as a part of a division problem. This is partly how he manufactured the idea that government spending leads to prosperity (even though earlier he correctly stated that taxes were a drag on the economy). Later still he divides by zero in a substep of I think it's either his 6th or 7th point. This is where the supposed danger of runaway prosperity due to government spending comes from, though just how is a mystery since you can't divide by zero.

Still, since most politicians are smooth talking, self-aggrandizing morons with law degrees, you can't expect them to understand basic math let alone more advanced concepts.
1 year ago
1 year ago Link To Comment
The problem is that 90%+ of the creatures who call themselves Republicans and who work inside the Beltway have no interest whatsoever in free markets. Without big government and crony capitalism, they don't have party favors to hand out to get big contributions to get re-elected over and over with (and cushy, high-paying jobs after politics via the revolving door). They're members of the Incumbent Party, just like Dems, only with a slightly different shopping list that they want to spend someone else's money on. For someone who is supposedly so astute, Mr. Goldman, I'd have thought you might have noticed this by now. They're not "articulating" a vision on free markets because they don't believe in them either.
1 year ago
1 year ago Link To Comment
According to Dinesh D'Souza, one of the great exceptions to this was Dick Cheney. He would have made a great president. Too bad we let the Left speam him.
1 year ago
1 year ago Link To Comment
True,both groups are full of mud but the democrat's religion is economic ignorance while many republicans have seen the light.A democrat is at best a sociable animal,thinking that he is correctly running in a circle where republican can at least understand that a rich man spends all of his money buying items that others make.
1 year ago
1 year ago Link To Comment
David,you are right on with your comment.We the people have no real advocates in Washington.The Republicans in Washington are to the Democrats what the Vichy French were to Nazi Germany,partners in crime!
In my opinion,our society is way past minor cosmetic corrections at the fringes.Cosmetic corrections of little substance called for by the Republicans to lull the public back to sleep.The major changes needed would be somewhat revolutionary & would be a catastrophe for the careers of all the low-life bottom dwellers who grow rich in the Washington cesspool.This includes not only elected politicians but also lobbyists, media,& every other slimeball who deals in favors & backroom deals
PS: This is Why all of the political boot lickers & back stabbers are howling with fury at David Stockman.He has blown the lid off some of the financial corruption destroying this country.He has stated that the Emperor has no clothes,that the emperor is completely naked!Stockman has clued in the clueless & this has angered the human debris we mistakenly call our political representatives in Washington!
1 year ago
1 year ago Link To Comment
And how did you do when you last stood up and spoke at a political, town, county or school board meeting? How did your last run for local or state or federal office go?
LLIII is offering help.

I am not trying to diss your comment, but emphasizing that we must do more than simply complain.

Spring is here.
1 year ago
1 year ago Link To Comment
If American conservatives are to purge their minds of residual Keynesian ideas (as I hope) they'll have to do so consistently. That means, inter alia, recognizing that
* the current mess in Greece is due to successive Greek governments spending too much, not to Greece joining the eurozone;
* the current mess in Cyprus is due to Cypriot banks buying Greek treasuries, not to Cyprus joining the eurozone.
(Neither of the above means that setting up the eurozone was a good idea btw.)

Unfortunately the statements above cannot be accepted without a schism from British "conservatives", most of whom believe that what Greece and Cyprus need, is a competitive devaluation. (Which shows that British "conservatives" are more Keynesian than Greek Socialists are.)
1 year ago
1 year ago Link To Comment
A fire sale,by any other name.No one told me we were moving! Everything out of the house carried in cardboard boxes with wet bottoms.The dollar,based on what exactly? Faith in Obama? I wasn't looking for an idol. Had we been one of the few countries to have managed our spending and paid our bills the economics would have taken care of themselves.
I still remember Carter,and the lines that we all waited in that wrapped around the unemployment Office.I am guessing that those 3 million Republicans that SAT THIS ELECTION OUT had enough money in the bank.I trust that they bring their new found education to the poles in 2014!!!
1 year ago
1 year ago Link To Comment
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