The Ghost of Keynesians Past

A few months ago the Atlantic explained why no one should oppose extensions to unemployment insurance. The unemployed were jobless through no fault of their own. There were three applicants to every job but not enough jobs. There wasn’t enough demand for labor.  The labor market was “broken,” it explained. What was needed was to create a demand for jobs.


At least they never went as far as to suggest what Nancy Pelosi adventured: that unemployment insurance was itself a form of employment.

Talking to reporters, the House speaker was defending a jobless benefits extension against those who say it gives recipients little incentive to work. By her reasoning, those checks are helping give somebody a job.

“It injects demand into the economy,” Pelosi said, arguing that when families have money to spend it keeps the economy churning. “It creates jobs faster than almost any other initiative you can name.”

Pelosi said the aid has the “double benefit” of helping those who lost their jobs and acting as a “job creator” on the side.

Wow! It’s that simple. In answer to the question of where the money was going to come from, the answer was equally plain. The government would just increase the budget — from debt, it’s true — and all would be well.

The same solution has been advanced to cover the defects of Obamacare.  Its solution to insuring the uninsurable has been to expand Medicaid.  This was part of the strategy from the start. In National Federation of Independent Business v. Sebelius, the Supreme Court, in upholding the constitutionality of the individual mandate, also conceded the Feds could not compel the states to do things which in their judgement they could not afford.

The Supreme Court, in an opinion written by Chief Justice Roberts, upheld by a vote of 5 to 4 the individual mandate to buy health insurance as a constitutional exercise of Congress’s taxing power. A majority of the justices, including Chief Justice Roberts, agreed that the individual mandate was not a proper use of Congress’s Commerce Clause or Necessary and Proper Clause powers, though they did not join in a single opinion. A majority of the justices also agreed that another challenged provision of the Act, a significant expansion of Medicaid, was not a valid exercise of Congress’s spending power, as it would coerce states to either accept the expansion or risk losing existing Medicaid funding.


This is inconvenient, since Obamacare is doomed without Medicaid expansion. Unable to attract the Young Invincibles into its insurance pool, the new talking point for its advocates is that any state which doesn’t expand to align itself with Obamacare is guilty of mass murder. The Huffington Post writes:

27,000 May Die Next Year Because Republican Governors, Lawmakers Refuse to Expand Medicaid … A majority of Republican governors and state legislators, driven by relentless political opposition to the Affordable Care Act (ACA), have rejected billions in federal funding, denied millions needed health care and consigned thousands to premature death by refusing to extend Medicaid to their own residents.

Note the phrase “rejected billions in federal funding, denied millions needed health care and consigned thousands to premature death.” They’ve rejected all that free money! How stupid. Why didn’t they just take it? Yet Medicaid itself is bankrupt. Forbes noted in the middle of this year that:

The most obvious argument against Medicaid expansion is Medicaid itself. Decades of academic research point to the program’s poor track record of helping the working poor. Whether it’s Medicaid patients’ higher chances of re-occurrence for many types of cancer, their higher in-hospital mortality rates for strokes, heart attacks, and pneumonia, or their limited-and sometimes non-existent-options for many medical procedures, Medicaid has proven itself incapable of giving patients the care that they deserve-and too often, the care that they desperately need. Indeed, one in three doctors won’t take Medicaid patients, illustrating the difference between a government-provided insurance card, and actual health care.


Obamacare, you will recall, was supposed to save America from the bankruptcy of Medicaid. Now Medicaid is supposed to save Obamacare from the bankruptcy of Obamacare.

It turns out there isn’t unlimited free money. The Murray-Ryan budget deal axed extensions to unemployment insurance precisely to reduce the deficit and restore cuts to national defense.

The budget deal hashed out by congressional negotiators will pass the House on Thursday with the majority of Republicans supporting it, according to GOP leadership aides, although House Democrats have threatened a revolt over unemployment benefits.

Despite raising the level of discretionary spending over the next two years and replacing $63 billion in scheduled automatic cuts from the so-called sequester, House Republicans are largely supportive of the agreement reached by Rep. Paul Ryan (R-Wisc.) and Sen. Patty Murray (D-Wash.). It protects military spending, allows Congress to return to the regular congressional appropriations process, and reduces the deficit by roughly $85 billion over 10 years without raising taxes. There is also, of course, a political imperative.

Why was it necessary to reach a deal at all? Why not just abolish the debt ceiling and give President Obama carte blanche to run up America’s credit card?

Some actually believe that’s the way to go. With the year ending, there is an understandable outcry over the non-extension of unemployment benefits into the next. Some have warned — with good reason — that they’ll be rendered homeless. The Democrats have said the solution is obvious: extend the program by raising the deficit, which is exactly what the Murray-Ryan agreement was supposed to prevent.


Suppose it is the lack of money that is the root of all evil.  Then there is a very real danger that millions of Americans will enter 2014 with neither insurance nor unemployment benefits. Why? Because there isn’t enough money for everything. Something has got to give. The Democratic solution in each case has been, why not cover the gap with “free government money”?

But things have now come to the point where maybe there isn’t enough “free government money” to go around. We’re moving money from one pocket to the other as fast as we can and there still isn’t enough. At least not enough to pay for the insurance “risk corridors,” Obamacare subsidies, national defense, Medicaid expansion, unemployment extension, the bailout of Detroit, Obamphones, NASA, government student loats, etc.

Only Paul Krugman had the prescience to see things clearly. What we need, he said, is to think big. Let’s pretend that the aliens are about to invade the earth. Then we can print money to our heart’s content, increase the demand for jobs, reduce unemployment, pay unemployment benefits and in general put the world to rights. He actually said this.

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That is to a certain extent what the Obama administration has entirely been about. It’s been about borrowing and spending, albeit on a scale too modest for Krugman’s ambitious tastes. The results so far have not been encouraging and the reason is — we are told — we haven’t doubled down enough. So double down. Double-down. But the niggling question remains:what if Krugman and Obama are wrong?


Suppose we can’t laugh off the debt and print out our way out of trouble? What if debts are real and the world is real — what then? Then America is broke and everyone is in trouble.

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