Outcomes:
Obama vs. Reagan
After all is said and done, the only thing that really matters now is how we fix and redirect a badly broken economic engine that is currently chugging its way off a fiscal cliff. Whatever theory of economics one subscribes to, the focus of tax and spending policy should be solely about how to create enough wealth and the revenues it provides to the treasury to prevent our country from going bankrupt. As I have shown, there is no question that we need to cut spending and dramatically change the structure of failing entitlement programs in the long term. However, we must also raise revenues by dramatically increasing economic growth. As we have seen, you could tax every dollar of income of the wealthy, the near wealthy and the just doing fines and you might be able to pay the bills for one year. But then what?
We can intellectualize and
theorize and use our own common sense like we did in the last two chapters and that's all well and good. We can argue about whether the theory of Supply Side economics is intellectually superior to Keynesianism or Annieism till the cows come home and that's the problem with ideas and theories, they can't be proven, therefore, nothing would be solved. Or can they? Do we have any actual evidence about what works in reality? As my buddy "Fred" so eloquently pointed out to me once in his typically cynical fashion:
Have any of these philosophies worked yet? Does anybody know for sure? Whose statistics can you believe? On and on. It will never end
The only way we can determine whether anything has "worked" for "sure" is to go beyond theory and examine the data of what has happened when these theories have been applied in the real world and see if it that knowledge can help us in the future. To do this, we need to determine whether there are some actual numbers and data that we can agree upon that can be used as a basis for analysis.
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A couple of years ago, I was at the Thanksgiving table and one of the relatives (let's call him Bigmouth) wasn't liking the direction the discussion was going so he said something similar to what "Fred" said. "There are no such thing as 'facts' " Bigmouth blurted, "everyone makes up their own facts based upon their own perspective. It's all relative." Hearing that, you might guess that the guy was a liberal and was losing the argument, and you would be right. I replied that "last year (2010) David Wright hit 29 Homeruns for the Mets and batted .283. Would you agree that this is so? If so, then we can have a discussion about how good David Wright is compared to other players at his position and whether the Mets should re-sign him or let him walk as a free agent. But, until we at least agree on the validity of his statistics, we can't have any kind of worthwhile conversation." "Real life isn't baseball", Bigmouth gruffly responded.
This gentleman notwithstanding, economics is, in many ways, similar to baseball. It has numbers that are accurate enough so that we can use them to have a worthwhile discussion of what works and what doesn't in the real world. GDP growth rates, revenue numbers from the IRS and unemployment numbers are reliable enough, in my view, to be considered as useable data. Fortunately, we do have actual records and data on these vital indicators available to study the past one hundred years of economic history. Therefore, you don't have to take my word for it that Supply Side is better than Keynes or Annie. The facts can speak for themselves. So, let's go to the videotape as Warner Wolf used to say. Now that I've reminded myself of the guy I can't help but share this with you:
Have any of these philosophies worked yet? Does anybody know for sure? Whose statistics can you believe? On and on. It will never end
The only way we can determine whether anything has "worked" for "sure" is to go beyond theory and examine the data of what has happened when these theories have been applied in the real world and see if it that knowledge can help us in the future. To do this, we need to determine whether there are some actual numbers and data that we can agree upon that can be used as a basis for analysis.
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A couple of years ago, I was at the Thanksgiving table and one of the relatives (let's call him Bigmouth) wasn't liking the direction the discussion was going so he said something similar to what "Fred" said. "There are no such thing as 'facts' " Bigmouth blurted, "everyone makes up their own facts based upon their own perspective. It's all relative." Hearing that, you might guess that the guy was a liberal and was losing the argument, and you would be right. I replied that "last year (2010) David Wright hit 29 Homeruns for the Mets and batted .283. Would you agree that this is so? If so, then we can have a discussion about how good David Wright is compared to other players at his position and whether the Mets should re-sign him or let him walk as a free agent. But, until we at least agree on the validity of his statistics, we can't have any kind of worthwhile conversation." "Real life isn't baseball", Bigmouth gruffly responded.
This gentleman notwithstanding, economics is, in many ways, similar to baseball. It has numbers that are accurate enough so that we can use them to have a worthwhile discussion of what works and what doesn't in the real world. GDP growth rates, revenue numbers from the IRS and unemployment numbers are reliable enough, in my view, to be considered as useable data. Fortunately, we do have actual records and data on these vital indicators available to study the past one hundred years of economic history. Therefore, you don't have to take my word for it that Supply Side is better than Keynes or Annie. The facts can speak for themselves. So, let's go to the videotape as Warner Wolf used to say. Now that I've reminded myself of the guy I can't help but share this with you:
Awww, heck, let's see some more:
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Apparently, Bill Whittle has had enough of people like Bigmouth too. He has a unique take on this subject that I think sheds a lot of light on whether truth is relative or whether facts can rule the day:
Apparently, Bill Whittle has had enough of people like Bigmouth too. He has a unique take on this subject that I think sheds a lot of light on whether truth is relative or whether facts can rule the day:
Like Bill Whittle, I do believe that the truth is out there. I do believe that historical evidence is essential to determining that truth. I also believe that certain government statistics are close enough to the validity of baseball statistics that we can make use of them for proper analysis.
Now that we've determined that it is indeed possible to find out which economic theory actually works best in practice, let's get down to boring facts and figures shall we? To establish what policies have historically had what effect, the first thing we must do is to find comparable periods in history and see what has worked and what has not. In a study done to determine whether tax cuts or spending increases were more effective in promoting growth and whether spending cuts or tax increases were more effective in reducing deficits in developed countries, Alberto Alesina and Sylvia Ardagna did a very comprehensive study and found:
Now that we've determined that it is indeed possible to find out which economic theory actually works best in practice, let's get down to boring facts and figures shall we? To establish what policies have historically had what effect, the first thing we must do is to find comparable periods in history and see what has worked and what has not. In a study done to determine whether tax cuts or spending increases were more effective in promoting growth and whether spending cuts or tax increases were more effective in reducing deficits in developed countries, Alberto Alesina and Sylvia Ardagna did a very comprehensive study and found:
Tax cuts are best to stimulate growth and spending cuts are best to reduce deficits. Exactly what I indicated I believed in Theories. Okay, okay, I hear some of you saying that one extensive study does not make that assertion true. There may be other studies that say the exact opposite. Fine, I'll credit that. Besides, this is about the whole developed world and we need a fix for right here in America that has shown that it can work in our system and/or in this current economy.
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Therefore, let us limit ourselves to the United States and/or closely similar economic circumstances for the purposes of our evaluation. I would say that everyone would agree that we are in a very bad recession/recovery at the moment. It it also pretty clear that we are not in a depression, thank God. The only other time in modern economic history that the United States has suffered such a severe recession was in the early Eighties. Back then, we had negative economic growth, unemployment was well over ten percent, inflation in double digits, interest rates were near 20% and rising food and gasoline prices were a huge problem. Sound familiar? It should. In our current recession, we have had negative economic growth, unemployment over ten percent, rising food and gasoline prices and inflation beginning to rear its ugly head.
While there are obvious differences between the Eighties and today, these two recessions are very close in many respects. However, the response of the two Presidents to get the economy into recovery couldn't have been more different. In both cases, the American people elected someone who was on the clear ideological extreme of their political parties. No squishy moderates here. So, what data and theory did they use to determine their response to the economic calamity that they had inherited upon taking office?
Well, as we have seen, Barack Obama decided that the theories of John Maynard Keynes and Annie Leonard would be his guidepost. According to Keynesian theory, the correct response to high unemployment and slow growth was to increase government spending, lower taxes and borrow the money to pay for it. As we have seen, this has been liberal dogma since the time of FDR.
Many people credit Keynes' theories for Roosevelt's big spending policies which they claim got us out of the Great Depression. Other people have said, no, those policies only prolonged the suffering. Recently a poll was taken among economists and economic historians about whether the New Deal ended the Great Depression or extended it, but unfortunately the participants were deadlocked in their opinion. 51% said it helped and 49% said it made it worse. Others have argued that it wasn't FDR's policies that got the US out of the Depression but World War Two. This has been nicely refuted by those that said it was indeed government spending in massive amounts for the war effort that finally did the trick. That thesis was then ridiculed by other economists who have said, well fine, let's just start an imaginary war and hire factories to build tons of shiny new objects. Fine, say the Keynesians, that is just what we should do and that is actually the basic thrust behind the proposals of Paul Krugman to deal with our current recession.
What I find fascinating is that the head of FDR's own Treasury Department, Henry Morgenthau wrote this in his personal diary:
“We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!”
Pretty telling eh?
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While the effect of Keynesianism on the Great Depression is certainly debatable, its impact on the Japanese lost decade(s) is not. When the Japanese real estate bubble burst in 1992, the Japanese government responded with a massive Keynesian stimulus plan. How did that work out for them?:
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Therefore, let us limit ourselves to the United States and/or closely similar economic circumstances for the purposes of our evaluation. I would say that everyone would agree that we are in a very bad recession/recovery at the moment. It it also pretty clear that we are not in a depression, thank God. The only other time in modern economic history that the United States has suffered such a severe recession was in the early Eighties. Back then, we had negative economic growth, unemployment was well over ten percent, inflation in double digits, interest rates were near 20% and rising food and gasoline prices were a huge problem. Sound familiar? It should. In our current recession, we have had negative economic growth, unemployment over ten percent, rising food and gasoline prices and inflation beginning to rear its ugly head.
While there are obvious differences between the Eighties and today, these two recessions are very close in many respects. However, the response of the two Presidents to get the economy into recovery couldn't have been more different. In both cases, the American people elected someone who was on the clear ideological extreme of their political parties. No squishy moderates here. So, what data and theory did they use to determine their response to the economic calamity that they had inherited upon taking office?
Well, as we have seen, Barack Obama decided that the theories of John Maynard Keynes and Annie Leonard would be his guidepost. According to Keynesian theory, the correct response to high unemployment and slow growth was to increase government spending, lower taxes and borrow the money to pay for it. As we have seen, this has been liberal dogma since the time of FDR.
Many people credit Keynes' theories for Roosevelt's big spending policies which they claim got us out of the Great Depression. Other people have said, no, those policies only prolonged the suffering. Recently a poll was taken among economists and economic historians about whether the New Deal ended the Great Depression or extended it, but unfortunately the participants were deadlocked in their opinion. 51% said it helped and 49% said it made it worse. Others have argued that it wasn't FDR's policies that got the US out of the Depression but World War Two. This has been nicely refuted by those that said it was indeed government spending in massive amounts for the war effort that finally did the trick. That thesis was then ridiculed by other economists who have said, well fine, let's just start an imaginary war and hire factories to build tons of shiny new objects. Fine, say the Keynesians, that is just what we should do and that is actually the basic thrust behind the proposals of Paul Krugman to deal with our current recession.
What I find fascinating is that the head of FDR's own Treasury Department, Henry Morgenthau wrote this in his personal diary:
“We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!”
Pretty telling eh?
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While the effect of Keynesianism on the Great Depression is certainly debatable, its impact on the Japanese lost decade(s) is not. When the Japanese real estate bubble burst in 1992, the Japanese government responded with a massive Keynesian stimulus plan. How did that work out for them?:
Hmmm, that little experiment in Keynesianism didn't work out too well for Japan did it? And, now, Japanese debt has hit 200% of GDP and they are entering their twentieth year of economic malaise. But, hey, that's Japan. Yeah, they had a huge recession due to a real estate bubble too, but we are different. We are Americans. At least, so said Barack Obama and the Democrat party. Despite all the historical evidence of Japan's Keynesian failure and W's own failed Keynesian efforts to stimulate the economy with one shot tax rebates, the Democrats decided to repeat those ineffective experiments almost to the tee. Tax Rebates and High Speed rail anyone?
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Let's see how Obama's supply side critics thought his Keynesian stimulus scheme would work out:
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Let's see how Obama's supply side critics thought his Keynesian stimulus scheme would work out:
Well, who was right? Obama or his critics? Despite spending trillions on two stimulus packages, the TARP bailout and massively increased domestic discretionary spending, despite the Federal Reserve spending trillions buying up toxic mortgages, monetizing US debt and printing money like there's no tomorrow in QE's 1&2, economic growth is anemic.
As you look at the chart, remember that we need a minimum of 2.5% growth just to stay even. Wow, it doesn't look like spending all of those trillions has panned out so well, does it? Three and a half years into Obamanomics, we are growing at 1.7%? Are you freaking kidding me? This is recovery?
In fact, this is the worst recovery of the post World War Two era by far:
In fact, this is the worst recovery of the post World War Two era by far:
Let's face it, these numbers stink to high heaven:
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The facts are so clear and unavoidable that even the media-Matrix is forced to admit it:
The facts are so clear and unavoidable that even the media-Matrix is forced to admit it:
In addition, unemployment is higher today than when Obama took office. It is much higher than even he predicted it would be if we did absolutely nothing:
Or, to put it another way:
The amazing thing about the first chart is that it puts lie to the notion of the magic Keynesian "multiplier". The heavy blue line that shows what the unemployment rate should have been had Obama's stimulus plan worked according to theory is in marked contrast to what has actually happened. According to the experts in the Obama administration, the unemployment rate should be below 6% today. Instead, it is above 8%. Obama's top economists made these projections based upon their belief in the magic mulitplier. In this case, his economic team said that for each dollar of stimulus we "invested", we'd get back a dollar fifty in economic output. Clearly, the results show that this magic Keynesian number, the key to all of their policies and assumptions, is utter nonsense. Despite this clear and unequivocal repudiation of the magic "multiplier", Obama's administration still uses these numbers as the basis for all of their economic proposals including the newest and latest "jobs" plan introduced by the President a year ago before the Joint Session of Congress. The outcome of any economic program that relies on these fantasy numbers is, sadly, predictable. D'oh!
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The direct result of relying on discredited theories and assumptions is that the economy continues to be moribund. Rather than the rapid recovery they have been promising us for three years, we have seen the economy stagnate. Things have gotten so bad that recently the Commerce Department had to revise downward projections for both GDP growth and unemployment:
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The direct result of relying on discredited theories and assumptions is that the economy continues to be moribund. Rather than the rapid recovery they have been promising us for three years, we have seen the economy stagnate. Things have gotten so bad that recently the Commerce Department had to revise downward projections for both GDP growth and unemployment:
Some stimulus, eh? 1.7% growth last year and a whopping 1.9% this year with unemployment remaining virtually the same. Way to go Barry. Way to spend trillions, send us deeper into debt, ruin our credit rating and achieve virtually nothing. In fact, according to a study by Timothy Conley and Bill Dupor:
A grand net total, despite spending trillions of dollars, is a best case scenario of jobs created or saved of 659,000 jobs? Mainly in Government which is basically a leech on the private sector? Well that seems mighty pessimistic. Obviously, these guys are Republican stooges. Ok, fine, they are Republican Stooges and so is the head economist for the Federal Reserve's San Francisco office who said it created ZERO net jobs:
Yep, another stooge there. Well, let's see, we have a recent paper by highly respected Stanford Economist John Taylor, whose name has been bandied about as Chairman of the Federal Reserve. He says of the failure of the stimulus:
Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view. (Click here and read the whole report)
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Still convinced that all of these people are biased and slanted? Alright, no problem, let's take the Obama Administration's ridiculously absurd claim that three million jobs have been saved or created by his stimulus plan, massive increases in discretionary spending and the Fed printing money like there is no tomorrow. That works out to $266,000 per job (and that just counts stimulus money!) in even the rosiest of rosy scenarios. Economist Larry Lindsey put that type of economic performance best when he said:
"Government policies to “stimulate” growth have not done so. Everyone except flacks for the White House knows that the 2009 stimulus package failed miserably to produce the promised results. But even if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide.
This is an example of a program failing the Sharp Pencil Test. If you sit down and do a back of the envelope calculation of the program’s costs and benefits, there is no way to conjure up numbers that allow it to make sense."
Actually, even that was a very charitable estimate. Just the other day, Obama's Council of Economic Adviser's in their Seventh Quarterly Report on the economic impact of the stimulus were forced to admit that, so far, we have spent $278,000 per job. The CBO says that, actually, the stimulus cost more than advertised, but based on their numbers cost a mere $228,055 per job:
Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view. (Click here and read the whole report)
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Still convinced that all of these people are biased and slanted? Alright, no problem, let's take the Obama Administration's ridiculously absurd claim that three million jobs have been saved or created by his stimulus plan, massive increases in discretionary spending and the Fed printing money like there is no tomorrow. That works out to $266,000 per job (and that just counts stimulus money!) in even the rosiest of rosy scenarios. Economist Larry Lindsey put that type of economic performance best when he said:
"Government policies to “stimulate” growth have not done so. Everyone except flacks for the White House knows that the 2009 stimulus package failed miserably to produce the promised results. But even if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide.
This is an example of a program failing the Sharp Pencil Test. If you sit down and do a back of the envelope calculation of the program’s costs and benefits, there is no way to conjure up numbers that allow it to make sense."
Actually, even that was a very charitable estimate. Just the other day, Obama's Council of Economic Adviser's in their Seventh Quarterly Report on the economic impact of the stimulus were forced to admit that, so far, we have spent $278,000 per job. The CBO says that, actually, the stimulus cost more than advertised, but based on their numbers cost a mere $228,055 per job:
Wow! That's a lot of money for each job, eh? And we still have to pay all that money we borrowed back? Uh, oh! We'd better have some shiny new tanks and ships and planes to show for it? We don't? Millions of "green" windmills throughout the plains? A superconducting electricity grid? New nuclear power plants? One high speed train? No? Well, then what do we have to show for it? The truth is that unless you are in love with the Chevy Volt like my Annie Leonard brainwashed nieces seem to be, not a whole heck of a lot.
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Actually, I am mistaken. We do have more to show for it than some unsellable Chevy Volts in the Federal motor pool. We have expanded internet access to rural areas. A truly laudable goal and it will allow those not fully "connected" to the mainstream of the country the chance to participate as full citizens. It will increase productivity and bring new sources of information, business and access to millions of people left out by the information age. Sounds great, right? Just the kind of thing a stimulus program should do. But, then, this was done by government:
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Actually, I am mistaken. We do have more to show for it than some unsellable Chevy Volts in the Federal motor pool. We have expanded internet access to rural areas. A truly laudable goal and it will allow those not fully "connected" to the mainstream of the country the chance to participate as full citizens. It will increase productivity and bring new sources of information, business and access to millions of people left out by the information age. Sounds great, right? Just the kind of thing a stimulus program should do. But, then, this was done by government:
Yes, you did read that right. Seven million dollars for each household served! We could have bought each person a mansion, a Rolls Royce and a high tech satellite dish to receive their internet and still saved money. This kind of unmitigated nonsense is beyond insane. It is, however, what happens when government spends your money rather than letting you spend it yourself.
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And the bailouts? Do we have to pay that money back too? Don't even get me started on the bailouts. Between W's bailouts and Obama's bailouts, you'd think that the jackasses on Wall Street who made a really bad gamble on those "sure thing" mortgage back securities at 40 to 1 leverages and got screwed by the margin call when they all went south had bought and paid for both political parties lock stock and barrel. Wait a minute... they bought Crooks and then they bought Thieves? Ah, darn! That's exactly what they did. Looks to me like a lot of back scratching going on, eh? But what about us?
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And the bailouts? Do we have to pay that money back too? Don't even get me started on the bailouts. Between W's bailouts and Obama's bailouts, you'd think that the jackasses on Wall Street who made a really bad gamble on those "sure thing" mortgage back securities at 40 to 1 leverages and got screwed by the margin call when they all went south had bought and paid for both political parties lock stock and barrel. Wait a minute... they bought Crooks and then they bought Thieves? Ah, darn! That's exactly what they did. Looks to me like a lot of back scratching going on, eh? But what about us?
Now, I can hear some of you saying that Obama did exactly what the Republicans wanted and a third of the stimulus was devoted to tax cuts. The Democrats would desperately like you to believe this rather than believe that Obama's tax rebates was just the government playing Santa Claus and giving away presents to all its favorite peeps with that nice stash he got from a Christmas loan from the Red Chinese. Unfortunately, rather than being designed to help the economy in both the short run and the long run like Supply Side rate cuts, Obama's tax rebates, like W's failed tax rebates, were demand side one shots that do virtually nothing to promote growth after the money has been pissed away:
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Now, one can't blame Barry O and Joe Biden for trying to put the best face on this debacle. But, it was pretty clear that their claims that two summers ago was going to be the "recovery summer" when their great plan would finally bare fruit were pie in the sky fantasies. And last summer? Uh... nope, not that summer either. That was the downgrade, market crash summer. What about this summer? Nope, not this summer either. Not exactly what they promised us, eh? Instead of summer of recovery, we've been given the winter of our discontent.
No matter how much they try to repeat the tired old mantra that the stimulus package worked, there is no avoiding reality. Unless that is, you are still stuck in the Matrix with your head in the sand:
No matter how much they try to repeat the tired old mantra that the stimulus package worked, there is no avoiding reality. Unless that is, you are still stuck in the Matrix with your head in the sand:
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The Obamabots in the Matrix have put a brave face on it all. I'll give you that. But, the truth is they have been all over the place trying to spin the American people with idiocies like jobs "saved or created". As if that's ever going to be a real number. Then there was this website they had where they showed where all the money was going to go in an effort to be transparent with the American people. Well, that didn't work so well either. Turns out that among the jobs they claim they "saved and created" were in Congressional districts that don't even exist:
The Obamabots in the Matrix have put a brave face on it all. I'll give you that. But, the truth is they have been all over the place trying to spin the American people with idiocies like jobs "saved or created". As if that's ever going to be a real number. Then there was this website they had where they showed where all the money was going to go in an effort to be transparent with the American people. Well, that didn't work so well either. Turns out that among the jobs they claim they "saved and created" were in Congressional districts that don't even exist:
Oops! Oh, well, that mistake and many others were just the result of simple human error by folks working for the government with your stimulus dollars. I am sure there were no other glaring mistakes made with the rest of the money we borrowed from China to pay for all of this right? Right? I mean, it was totally necessary to spend $2.6 million in stimulus funds to teach Chinese prostitutes how to drink responsibly wasn't it? Oh, yes, that must have been more human error made by drunk politicians who came up with this brilliant idea while they were being given "happy endings" by Chinese hookers using borrowed communist money. Or something.... Anyhow, the Obama administration has about tied themselves into pretzels trying to explain away the failure of programs like this to create economic growth:
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No matter how hard they try to spin it, it is pretty evident that letting Nancy Pelosi, Harry Reid, Jeff Jones and folk like Annie write the stimulus package for him was not the brightest thing this man has ever done. Too much money was wasted on idiotic programs like these. The jobs they claimed were shovel ready were only shovel ready in their fantasies. The tax rebates went "poof" and then they were gone and bailing out the states only kept fat cat union employees in their cushy jobs for two extra years. And now, as a result of the Fed printing money like crazy in QE2 and QE3 to try and give another jump start to an economy that Obamanomics couldn't stimulate, we have the specter of inflation coming back to haunt us. All this debt and inflation too? This is certainly not what we were promised:
No matter how hard they try to spin it, it is pretty evident that letting Nancy Pelosi, Harry Reid, Jeff Jones and folk like Annie write the stimulus package for him was not the brightest thing this man has ever done. Too much money was wasted on idiotic programs like these. The jobs they claimed were shovel ready were only shovel ready in their fantasies. The tax rebates went "poof" and then they were gone and bailing out the states only kept fat cat union employees in their cushy jobs for two extra years. And now, as a result of the Fed printing money like crazy in QE2 and QE3 to try and give another jump start to an economy that Obamanomics couldn't stimulate, we have the specter of inflation coming back to haunt us. All this debt and inflation too? This is certainly not what we were promised:
Look, all kidding and snarky sarcasm aside, here's the sad reality. Whether you want to attribute this failure to Keynesianism, Annieism or just plain idiocy and incompetence, the plain and undeniable truth of the matter is that Barack Obama and the Democrats in Congress spent boatloads and boatloads of money, but it just didn't work:
I guess Obamanomics really hasn't shown much promise as a program to create the kind of wealth we will need in the future if we are to avoid bankruptcy, has it? No matter how they and their apologists try to spin it, we are further in debt, unemployment is too high, economic growth is too low and inflation is coming back. This plan has been a complete failure. Can we at least agree on that fact?
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What about the other President who faced a similar economic recession in our history? What did he decide to do to get the economy moving and promote long term growth? Well, if you can imagine doing exactly the opposite of what President Obama is doing, then you'll have a pretty good idea about the plan that Ronald Reagan followed.
Rather than regulating 1/6th of the economy with health care reform, the financial market with 2000+ pages of Dodd/Frank regulations and just about everything else that moves with the EPA, Reagan was about deregulation and the cutting of as much red tape as he could. Rather than proposing to massively increase the amount of government spending on redistributionist policies, Reagan was about cutting domestic outlays while, at the same, time rebuilding the military to win the Cold War with the Soviet Union. Rather than promote an inflationary monetary policy, Reagan and Paul Volcker bravely and resolutely followed a tight money policy even though it meant short term pain of another recession before the country would be back on the right track. Rather than always proposing to raise taxes on the rich and evil corporations, Reagan supported a 25% across the board tax cut for the whole country. Doesn't look like you could get more opposite in philosophy does it?
Many of Reagan's policies weren't controversial given the "conventional wisdom" of the day. Cutting spending and fiscal discipline were old Republican standbys. Deregulation of the economy started with Jimmy Carter and Volcker's tight money policy was well within the mainstream of economic thought at the time. The bitter medicine, so to speak. What was really controversial, however, were the Reagan tax cuts. Even Reagan's own Vice President George H. W. Bush had ridiculed it in the presidential primaries as "voodoo economics". It was derided and demagogued on the left by liberals like Teddy Kennedy as "trickle-down" economics. But, Reagan was confident that this policy would work. Why?
Well, unlike President Obama, Reagan had some powerful examples from history to show real world evidence of the salutary effects of tax cuts on the American economy. Little known by most people, in the 1920's we didn't just have a recession, we had a full blown depression. After eight long years of the progressive (and evil racist SOB) Woodrow Wilson, we had taxed and spent ourselves right into the economic sewer. So, what did Warren G. Harding and later Calvin Coolidge do? They cut spending and they cut taxes. Imagine that!
According to data from the Cato Institute:
When the federal income tax was enacted in 1913, the top rate was just 7 percent. However, by the end of World War I, rates had been greatly increased at all income levels, with the top rate jacked up to 77 percent (for income over $1 million). After five years of very high tax rates, rates were cut sharply under the Revenue Acts of 1921, 1924, and 1926 under Warren G. Harding and then Calvin Coolidge. The combined top marginal normal and surtax rate fell from 73 percent to 58 percent in 1922, and then to 50 percent in 1923 (income over $200,000). In 1924, the top tax rate fell to 46 percent (income over $500,000). The top rate was just 25 percent (income over $100,000) from 1925 to 1928, and then fell to 24 percent in 1929.
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The results:
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What about the other President who faced a similar economic recession in our history? What did he decide to do to get the economy moving and promote long term growth? Well, if you can imagine doing exactly the opposite of what President Obama is doing, then you'll have a pretty good idea about the plan that Ronald Reagan followed.
Rather than regulating 1/6th of the economy with health care reform, the financial market with 2000+ pages of Dodd/Frank regulations and just about everything else that moves with the EPA, Reagan was about deregulation and the cutting of as much red tape as he could. Rather than proposing to massively increase the amount of government spending on redistributionist policies, Reagan was about cutting domestic outlays while, at the same, time rebuilding the military to win the Cold War with the Soviet Union. Rather than promote an inflationary monetary policy, Reagan and Paul Volcker bravely and resolutely followed a tight money policy even though it meant short term pain of another recession before the country would be back on the right track. Rather than always proposing to raise taxes on the rich and evil corporations, Reagan supported a 25% across the board tax cut for the whole country. Doesn't look like you could get more opposite in philosophy does it?
Many of Reagan's policies weren't controversial given the "conventional wisdom" of the day. Cutting spending and fiscal discipline were old Republican standbys. Deregulation of the economy started with Jimmy Carter and Volcker's tight money policy was well within the mainstream of economic thought at the time. The bitter medicine, so to speak. What was really controversial, however, were the Reagan tax cuts. Even Reagan's own Vice President George H. W. Bush had ridiculed it in the presidential primaries as "voodoo economics". It was derided and demagogued on the left by liberals like Teddy Kennedy as "trickle-down" economics. But, Reagan was confident that this policy would work. Why?
Well, unlike President Obama, Reagan had some powerful examples from history to show real world evidence of the salutary effects of tax cuts on the American economy. Little known by most people, in the 1920's we didn't just have a recession, we had a full blown depression. After eight long years of the progressive (and evil racist SOB) Woodrow Wilson, we had taxed and spent ourselves right into the economic sewer. So, what did Warren G. Harding and later Calvin Coolidge do? They cut spending and they cut taxes. Imagine that!
According to data from the Cato Institute:
When the federal income tax was enacted in 1913, the top rate was just 7 percent. However, by the end of World War I, rates had been greatly increased at all income levels, with the top rate jacked up to 77 percent (for income over $1 million). After five years of very high tax rates, rates were cut sharply under the Revenue Acts of 1921, 1924, and 1926 under Warren G. Harding and then Calvin Coolidge. The combined top marginal normal and surtax rate fell from 73 percent to 58 percent in 1922, and then to 50 percent in 1923 (income over $200,000). In 1924, the top tax rate fell to 46 percent (income over $500,000). The top rate was just 25 percent (income over $100,000) from 1925 to 1928, and then fell to 24 percent in 1929.
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The results:
Again from Cato's analysis:
The tax cuts allowed the U.S. economy to grow rapidly during the mid- and late-1920s. Between 1922 and 1929, real gross national product grew at an annual average rate of 4.7 percent and the unemployment rate fell from 6.7 percent to 3.2 percent. The Mellon tax cuts restored incentives to work, save, and invest, and discouraged the use of tax shelters.
The rising tide of strong economic growth lifted all boats. At the top end, total income grew as a result of many more people becoming prosperous, rather than a fixed number of high earners getting greatly richer. For example, between 1922 and 1928, the average income reported on tax returns of those earning more than $100,000 increased 15 percent, but the number of taxpayers in that group almost quadrupled. During the same period, the number of taxpayers earning between $10,000 and $100,000 increased 84 percent, while the number reporting income of less than $10,000 fell.
The decade of the 1920s had started with very high tax rates and an economic recession. Tax rates were massively increased in 1917 at all income levels. Rates were increased again in 1918. Real GNP fell in 1919, 1920, and 1921 with a total three-year fall of 16 percent. (Deflation between 1920 and 1922 may also help explain the drop in tax revenues in those years, evident in Table 1).
As tax rates were cut in the mid-1920s, total tax revenues initially fell. But as the economy responded and began growing quickly, revenues soared as incomes rose. By 1928, revenues had surpassed the 1920 level even though tax rates had been dramatically cut.
This period of massive economic expansion was known as the "Roaring Twenties". The decade boasted a real growth rate of 4.6%/year with a total growth of 40.6%. Pretty impressive, don't you think? Had Hoover not been such an idiot and totally botched the stock market crash of 1929 and raised taxes, raised government spending and started a trade war with the Smoot/Hawley tarriff act, the Twenties might be looked upon more favorably than they are today. However, purely as an example of how cutting marginal tax rates can positively affect the economy by promoting robust GDP growth while, at the same, boosting revenue to the treasury, it provides many lessons for us today. Think about that. They cut taxes from 77% to 24% and yet saw a net inflation adjusted gain in tax revenue. Kind of makes you rethink some of your economic assumptions, doesn't it?
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However, the sterling example of success provided by Calvin Coolidge and his treasury secretary Andrew Mellon, was not the only example that President Reagan had to look back upon for guidance. There were also the tax cuts of liberal icon John Fitzgerald Kennedy. Many people are shocked when they find out that it was Kennedy who was really the first supply sider of the modern age. Time and time again, he talked about how a rising tide lifts all boats, which was his way of explaining how the "trickle-down" theory, that his brother Teddy would later disparage, would make everyone, not just the rich, more prosperous.
Few people remember, but JFK ran against the Eisenhower recession that lasted from April of 1960 to February of 1961. A recovery began shortly after his inauguration, but Kennedy had big plans for our country and for increasing government spending on programs that he favored. He realized that in order to finance his dreams of helping the poor, he needed to raise a lot more revenue for the federal treasury. He could do that by simply raising taxes, but that would have deleterious economic consequences and make any income redistribution plans he had in mind that much more unpopular. Instead, he decided to enact a pro-growth tax policy that would expand the economy and, thus, increase revenue. What? Are you saying that a Kennedy said that lowering taxes increases revenue? Hard to believe, eh? Check it out:
The tax cuts allowed the U.S. economy to grow rapidly during the mid- and late-1920s. Between 1922 and 1929, real gross national product grew at an annual average rate of 4.7 percent and the unemployment rate fell from 6.7 percent to 3.2 percent. The Mellon tax cuts restored incentives to work, save, and invest, and discouraged the use of tax shelters.
The rising tide of strong economic growth lifted all boats. At the top end, total income grew as a result of many more people becoming prosperous, rather than a fixed number of high earners getting greatly richer. For example, between 1922 and 1928, the average income reported on tax returns of those earning more than $100,000 increased 15 percent, but the number of taxpayers in that group almost quadrupled. During the same period, the number of taxpayers earning between $10,000 and $100,000 increased 84 percent, while the number reporting income of less than $10,000 fell.
The decade of the 1920s had started with very high tax rates and an economic recession. Tax rates were massively increased in 1917 at all income levels. Rates were increased again in 1918. Real GNP fell in 1919, 1920, and 1921 with a total three-year fall of 16 percent. (Deflation between 1920 and 1922 may also help explain the drop in tax revenues in those years, evident in Table 1).
As tax rates were cut in the mid-1920s, total tax revenues initially fell. But as the economy responded and began growing quickly, revenues soared as incomes rose. By 1928, revenues had surpassed the 1920 level even though tax rates had been dramatically cut.
This period of massive economic expansion was known as the "Roaring Twenties". The decade boasted a real growth rate of 4.6%/year with a total growth of 40.6%. Pretty impressive, don't you think? Had Hoover not been such an idiot and totally botched the stock market crash of 1929 and raised taxes, raised government spending and started a trade war with the Smoot/Hawley tarriff act, the Twenties might be looked upon more favorably than they are today. However, purely as an example of how cutting marginal tax rates can positively affect the economy by promoting robust GDP growth while, at the same, boosting revenue to the treasury, it provides many lessons for us today. Think about that. They cut taxes from 77% to 24% and yet saw a net inflation adjusted gain in tax revenue. Kind of makes you rethink some of your economic assumptions, doesn't it?
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However, the sterling example of success provided by Calvin Coolidge and his treasury secretary Andrew Mellon, was not the only example that President Reagan had to look back upon for guidance. There were also the tax cuts of liberal icon John Fitzgerald Kennedy. Many people are shocked when they find out that it was Kennedy who was really the first supply sider of the modern age. Time and time again, he talked about how a rising tide lifts all boats, which was his way of explaining how the "trickle-down" theory, that his brother Teddy would later disparage, would make everyone, not just the rich, more prosperous.
Few people remember, but JFK ran against the Eisenhower recession that lasted from April of 1960 to February of 1961. A recovery began shortly after his inauguration, but Kennedy had big plans for our country and for increasing government spending on programs that he favored. He realized that in order to finance his dreams of helping the poor, he needed to raise a lot more revenue for the federal treasury. He could do that by simply raising taxes, but that would have deleterious economic consequences and make any income redistribution plans he had in mind that much more unpopular. Instead, he decided to enact a pro-growth tax policy that would expand the economy and, thus, increase revenue. What? Are you saying that a Kennedy said that lowering taxes increases revenue? Hard to believe, eh? Check it out:
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Did it work? Indeed it did. Starting immediately in 1962, JFK and Congress enacted these cuts:
Did it work? Indeed it did. Starting immediately in 1962, JFK and Congress enacted these cuts:
And then the economy took off:
Quite a nice little ride huh? Kennedy cut taxes and the economy took off to some of the best rates of growth in modern American history. Note something on the last chart. Do you see how the economy begins to slow down at the end of the decade? Do you want to take a guess why? Yep, tax hikes in the form of higher payroll taxes and surtaxes to fund the war in Vietnam. Nothing like increased government spending and taxation to ruin the economic party. Unfortunately, you'll find a long history of Presidents who succeed Supply Siders gumming up the work of their predecessors.
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But what about revenue? Kennedy said that tax cuts would bring in more revenues because it would lead to full employment. Was he right? Take a look:
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But what about revenue? Kennedy said that tax cuts would bring in more revenues because it would lead to full employment. Was he right? Take a look:
Let's see, revenue up, GDP up, unemployment down. Looks to me like JFK knew his economics. I guess his brother Teddy's derision of Supply Side as "trickle-down" economics showed he was just an ignorant, bloviating bag of wind. As you can see, there is no doubt whatsoever that Kennedy's tax cuts were every bit as successful as the Coolidge/Mellon tax cuts of the Twenties. Perhaps even more so. While it is true that there were many other favorable economic factors at work in the US economy during the Sixties, it cannot be denied that JFK's supply side economic plan worked like a charm and exactly as he predicted it would.
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Did history repeat itself for Ronald Reagan? Indeed it did. Reagan's economic policy centered on supply side tax cuts of 25% across the board literally ignited the economy:
If one were even to be slightly charitable, and discount the extremely mild 1990-1991 recession, the expansion actually continues for another ten years for a total of 17 years. If you are not feeling particularly generous today, it was still the longest expansion during peace time in modern history. And, with Reagan's military buildup, we won the Cold War to boot!
Now, why should we be charitable and give Ronnie credit for an extra ten years of expansion? Well, let's call it the curse of the Supply Side successor. Hoover raised taxes and tariffs after succeeding Coolidge and an already bad economy due to the crash of '29 sank like as stone. LBJ and Tricky Dick Nixon both raised taxes in the late Sixties and Kennedy's great economy quickly headed downhill into recession in 1969. Not being the student of history that Reagan was, George H. W. Bush went back on his "read my lips" pledge of no new taxes in return for a promise from the Democrat Congress to cut spending (which of course never materialized) that sent the economy into recession and Bush back to Kennebunkport, like Hoover, as a one term President. Given the curse of the successor, it was amazing how short lived and shallow the recession of '90-'91 was. The economy that Reagan had built up was so strong that once it got over the speed bump of higher taxes and the S &L crisis, it would motor on for another ten years. Pretty impressive eh?
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Because I think looking at the actual numbers, facts and figures is essential for understanding history and economics, here are some charts of the Reagan Boom for you to peruse so you can verify what I am telling you. Like Reagan always said, trust, but verify:
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Did history repeat itself for Ronald Reagan? Indeed it did. Reagan's economic policy centered on supply side tax cuts of 25% across the board literally ignited the economy:
- Total federal revenues doubled from just over $517 billion in 1980 to more than $1 trillion in 1990. In constant inflation-adjusted dollars, this was a 28 percent increase in revenue.3
- As a percentage of the gross domestic product (GDP), federal revenues declined only slightly from 18.9 percent in 1980 to 18 percent in 1990.4
- Revenues from individual income taxes climbed from just over $244 billion in 1980 to nearly $467 billion in 1990.5 In inflation-adjusted dollars, this amounts to a 25 percent increase.
- This economic boom lasted 92 months without a recession, from November 1982 to July 1990, the longest period of sustained growth during peacetime and the second-longest period of sustained growth in U.S. history. The growth in the economy lasted more than twice as long as the average period of expansions since World War II.10
- The American economy grew by about one-third in real inflation-adjusted terms. This was the equivalent of adding the entire economy of East and West Germany or two-thirds of Japan's economy to the U.S. economy.11
- From 1950 to 1973, real economic growth in the U.S. economy averaged 3.6 percent per year. From 1973 to 1982, it averaged only 1.6 percent. The Reagan economic boom restored the more usual growth rate as the economy averaged 3.5 percent in real growth from the beginning of 1983 to the end of 1990.12
If one were even to be slightly charitable, and discount the extremely mild 1990-1991 recession, the expansion actually continues for another ten years for a total of 17 years. If you are not feeling particularly generous today, it was still the longest expansion during peace time in modern history. And, with Reagan's military buildup, we won the Cold War to boot!
Now, why should we be charitable and give Ronnie credit for an extra ten years of expansion? Well, let's call it the curse of the Supply Side successor. Hoover raised taxes and tariffs after succeeding Coolidge and an already bad economy due to the crash of '29 sank like as stone. LBJ and Tricky Dick Nixon both raised taxes in the late Sixties and Kennedy's great economy quickly headed downhill into recession in 1969. Not being the student of history that Reagan was, George H. W. Bush went back on his "read my lips" pledge of no new taxes in return for a promise from the Democrat Congress to cut spending (which of course never materialized) that sent the economy into recession and Bush back to Kennebunkport, like Hoover, as a one term President. Given the curse of the successor, it was amazing how short lived and shallow the recession of '90-'91 was. The economy that Reagan had built up was so strong that once it got over the speed bump of higher taxes and the S &L crisis, it would motor on for another ten years. Pretty impressive eh?
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Because I think looking at the actual numbers, facts and figures is essential for understanding history and economics, here are some charts of the Reagan Boom for you to peruse so you can verify what I am telling you. Like Reagan always said, trust, but verify:
As you can see from the above chart, taxes were cut, real revenues to the treasury increased and GDP growth shot through the roof vaulting the US economy out of a horrible recession into a full V shaped recovery. And, it was not a jobless recovery either:
To get an idea as to the magnitude of Reagan's challenge, note that the unemployment rate at the height of the recession was a staggering 10.8% and was down to near 5% at the end of his term after the creation of between 16 million and 20 million jobs. That'd be like a gazillion jobs "saved or created" using Obama numbers.
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In the chart below we find something that is truly astounding given our argument of Supply Side vs. Keynesian economics:
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In the chart below we find something that is truly astounding given our argument of Supply Side vs. Keynesian economics:
Well, well, lookee here. The above chart shows that GDP growth takes off like a rocket at the same time that Reagan and Volcker kick the crap out of inflation. If you remember, the Phillips Curve from the Theories section, this was not supposed to be able to happen. Remember that wage/price spiral nonsense that the Keynesians were so fond of? Looks to me like heating up the economy didn't create inflation by driving up wages which then spiked up prices like they claimed. No, it just looks like when you stop printing money, you stop having too much currency chasing after a finite number of goods and inflation goes down because the money is sound again. And sound money is good for the economy. Imagine!
Reagan and Volcker shutting down the printing presses broke the back of inflation. Those who were not alive then cannot begin to understand what a cancer the inflation of the Seventies was and how tumultuous it made the decade in both an economic sense and on the national psyche. Many believed that our best days were over and that as President Carter told us in the famous "malaise" speech:
It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.
The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.
By the end of Regan's term, inflation had been tamed and Americans were proud and confident again. For those of us who had been paying attention to the criticisms and predictions of Reagan's liberal detractors, it was a complete and total refutation of Keynesianism. From both the Supply Side approach to economic expansion out of a recession and from an understanding that inflation is caused by the printing press, Reagan's policies turned fifty years of conventional Keynesian wisdom on its face.
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All was not lollipops and roses, however. Unfortunately, Reagan and the Democrats in Congress could never agree on the budget. Despite all the tax revenue increase from the expanding economy, the government was still running deficits. However, now, instead of printing the money, we sold treasury bonds to the Arabs and the Japanese and whoever else wanted to lend us cash. Thus, despite the deficits, the currency remained sound and inflation was held in check.
While it is true that Reagan ran huge deficits during his Presidency, let it be noted that he did so with the same Democratic majority in the House of Representatives that bilked Bush over the spending cuts. Twice during his Presidency, Reagan made deals with Congress to raise taxes in return for spending cuts, and those cuts just never materialized. Imagine that! I guess that really goes to show that Bush 41 should have paid better attention to history during his lifetime, eh? Voodoo Economics, my ass!
Another reason Reagan ran such huge deficits was that he went on a crash military buildup to face down the Soviets in the cold war. In the end, we defeated Communism without firing a shot and then used those weapons that Reagan bought to decisively kick the living snot out of Saddam Hussein. With the Soviet threat eliminated by Reagan's policies, the new global reality allowed the Clinton Administration and the Gingrich Congress to dramatically cut defense spending in the nineties. So, if you were being really charitable, you could say that the Clinton/Gingrich surplus was really Ronald Reagan's surplus. Doubt me? Look it up.
So what does all this mean? Other than that I am a huge fan of Ronald Reagan? Well, I think that if you are intellectually honest you will have to accept that the numbers, not my opinions, but the numbers, the actual facts and figures show some pretty conclusive things. First of all, it shows that Ronald Reagan's program of sound money, cutting government spending, deregulating the economy and lowering marginal tax rates has been more effective that Barack Obama's hyper-regulation (health care, EPA and Carbon Caps, Finanical Reform among others), loose money and massive government spending. How much more effective?
Here is some data from Investors Business Daily:
• GDP. In the seven quarters after the 1981-82 recession ended, the economy cranked out quarterly growth rates that averaged 7.1%. Under Obama, GDP growth has averaged a mere 2.8%.
• Unemployment. Under Reagan, the unemployment rate had fallen to 7.5% by this point in the recovery. Under Obama, it's still stuck at 8.8%.
• Long-term unemployment. There were far fewer long-term unemployed by this point in the Reagan recovery; just 18% of the unemployed had been without a job 27 weeks or more. Under Obama, that figure is an astonishing 45%.
• Consumer confidence. By this point in the Reagan recovery, the Conference Board's Consumer Confidence Index had hit 100. Today, the index stands at just 65.4.
• Deficits. Under Reagan, the federal deficit was trimmed to 4.8% of GDP by 1984. Under Obama, the deficit is expected to climb to 10.9% of GDP this year.
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To get a better perspective on this, take a look at this chart:
It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.
The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.
By the end of Regan's term, inflation had been tamed and Americans were proud and confident again. For those of us who had been paying attention to the criticisms and predictions of Reagan's liberal detractors, it was a complete and total refutation of Keynesianism. From both the Supply Side approach to economic expansion out of a recession and from an understanding that inflation is caused by the printing press, Reagan's policies turned fifty years of conventional Keynesian wisdom on its face.
23====================================================================================================
All was not lollipops and roses, however. Unfortunately, Reagan and the Democrats in Congress could never agree on the budget. Despite all the tax revenue increase from the expanding economy, the government was still running deficits. However, now, instead of printing the money, we sold treasury bonds to the Arabs and the Japanese and whoever else wanted to lend us cash. Thus, despite the deficits, the currency remained sound and inflation was held in check.
While it is true that Reagan ran huge deficits during his Presidency, let it be noted that he did so with the same Democratic majority in the House of Representatives that bilked Bush over the spending cuts. Twice during his Presidency, Reagan made deals with Congress to raise taxes in return for spending cuts, and those cuts just never materialized. Imagine that! I guess that really goes to show that Bush 41 should have paid better attention to history during his lifetime, eh? Voodoo Economics, my ass!
Another reason Reagan ran such huge deficits was that he went on a crash military buildup to face down the Soviets in the cold war. In the end, we defeated Communism without firing a shot and then used those weapons that Reagan bought to decisively kick the living snot out of Saddam Hussein. With the Soviet threat eliminated by Reagan's policies, the new global reality allowed the Clinton Administration and the Gingrich Congress to dramatically cut defense spending in the nineties. So, if you were being really charitable, you could say that the Clinton/Gingrich surplus was really Ronald Reagan's surplus. Doubt me? Look it up.
So what does all this mean? Other than that I am a huge fan of Ronald Reagan? Well, I think that if you are intellectually honest you will have to accept that the numbers, not my opinions, but the numbers, the actual facts and figures show some pretty conclusive things. First of all, it shows that Ronald Reagan's program of sound money, cutting government spending, deregulating the economy and lowering marginal tax rates has been more effective that Barack Obama's hyper-regulation (health care, EPA and Carbon Caps, Finanical Reform among others), loose money and massive government spending. How much more effective?
Here is some data from Investors Business Daily:
• GDP. In the seven quarters after the 1981-82 recession ended, the economy cranked out quarterly growth rates that averaged 7.1%. Under Obama, GDP growth has averaged a mere 2.8%.
• Unemployment. Under Reagan, the unemployment rate had fallen to 7.5% by this point in the recovery. Under Obama, it's still stuck at 8.8%.
• Long-term unemployment. There were far fewer long-term unemployed by this point in the Reagan recovery; just 18% of the unemployed had been without a job 27 weeks or more. Under Obama, that figure is an astonishing 45%.
• Consumer confidence. By this point in the Reagan recovery, the Conference Board's Consumer Confidence Index had hit 100. Today, the index stands at just 65.4.
• Deficits. Under Reagan, the federal deficit was trimmed to 4.8% of GDP by 1984. Under Obama, the deficit is expected to climb to 10.9% of GDP this year.
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To get a better perspective on this, take a look at this chart:
I don't think that there can be any doubt that Reagan's economic policies were more effective than the Keynesian and "Story of Stuff" policies of Barack Obama. While I am willing to accept that there are some major differences between the two recessions, the simple fact remains that, historically, greater GDP growth translates to lower unemployment. Therefore, high GDP growth is the holy grail of economics, particularly during times of recessions and depression. It is the be all and end all of economic policy. The evidence also shows that David Wright is currently hitting .226 and increased GDP growth follows cuts in marginal tax rates. Not once, not twice, not even three times in the last 100 years, but four times.
Government spending and deficits, on the other hand, does not necessarily correlate to GDP growth. You don't have to take my word for it, the evidence speaks for itself:
Government spending and deficits, on the other hand, does not necessarily correlate to GDP growth. You don't have to take my word for it, the evidence speaks for itself:
History tells us that there have been two depressions in the past 100 years. The approach that was effective in launching the economy out of depression were a combination of spending cuts and tax cuts. The one that prolonged the suffering was a program of Keynesian spending by FDR whose own Treasury Secretary said it had been a failed experiment. There have been two "great" Recessions, one was ended by spending cuts, sound money, de-regulation and tax cuts which launched the nation into two decades of prosperity. The other one, well... Let's just say it hasn't lived up to the hype.
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Obamanomics:
And Now For Something Completely Different
More than anything else in this world, I believe in the concept of facts over theories. Many theories and ideas sound wonderful and logical, but they just don't cut it when put into practice. I would say that the distorted version of Keynesian economics practiced by Barack Obama falls into that category. As we enter into the fourth year of Obamanomics, the economy is still suck in neutral, millions are still unemployed and we face the prospect of a double dip recession. If one were to look solely at the evidence of the past four years of Obama's policies, then a change of course would seem warranted.
However, the President insists that we need to double down on his policies. Following failure with more failure seems ridiculous on its face. The evidence from the US and Japanese Keynesian efforts clearly shows that government cannot spend us out of recession. Even the Chancellor of Germany, Angela Merkel, doesn't buy into long term Keynesian pump priming any longer. In the run up to a recent G20 Summit, President Obama was urging all the nations gathered to follow his lead and adopt a course of further stimulus spending instead of the more fiscally responsible approach favored by Germany and the UK among others. In a tone almost dripping with contempt for Obama's blind naivete concerning economic policy, Merkel responded:
However, the President insists that we need to double down on his policies. Following failure with more failure seems ridiculous on its face. The evidence from the US and Japanese Keynesian efforts clearly shows that government cannot spend us out of recession. Even the Chancellor of Germany, Angela Merkel, doesn't buy into long term Keynesian pump priming any longer. In the run up to a recent G20 Summit, President Obama was urging all the nations gathered to follow his lead and adopt a course of further stimulus spending instead of the more fiscally responsible approach favored by Germany and the UK among others. In a tone almost dripping with contempt for Obama's blind naivete concerning economic policy, Merkel responded:
So, who was right? Was Merkel's policy of sound money and fiscal restraint the right course or was continued stimulus spending the way to go:
When even the quasi-socialist Europeans, reject Keynesian stimulus as a long term solution to a recession, you know the idea has become passe.
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However, some people just don't seem to get the message:
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However, some people just don't seem to get the message:
Could an article ever be more revealing of cognitive dissonance than this? Despite the abject failure of two prior rounds (plus the third round which includes the
extension of unemployment to an unheard of 99 weeks and a payroll tax
"holiday") to help the economy, Democratic Leaders call for a fourth round of stimulus spending on the same day that the CBO issued a report to warn them that, if we don't change our spending trajectory, we are going to have a debt crisis. Oblivious to all evidence to the contrary, Democrats want to keep on spending. Someone once said that the definition of insanity was doing the same thing over and over again and expecting a different result. Duh.
It would almost be funny if the stakes weren't so important:
It would almost be funny if the stakes weren't so important:
Indeed! What planet are they on?!!? We seem to have entered the realm of unreality. The Democrats are claiming that cutting spending would be a terrible thing to do at this point because they posit that it would "slow" the economy at a crucial juncture. However, to pay for the new spending programs, they say we need to raise taxes which, unfortunately, also has the effect of slowing the economy as well. But, never mind that inconvenient detail, the Crooks and Thieves tell us, letting you keep the money you earn to spend in a manner of your choosing is not as good for the economy as the wise choices we would make on your behalf. Like high speed rail for instance? Or perhaps more toilets for our national parks?
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Heedless, to all inconvenient truths to the contrary, the left still desperately clings to the notion that spending more money is the answer to saving the economy. They are joined in this belief by their stenographers at The New York Times:
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Heedless, to all inconvenient truths to the contrary, the left still desperately clings to the notion that spending more money is the answer to saving the economy. They are joined in this belief by their stenographers at The New York Times:
Considering the utter failure of the two stimulus bills before Republicans came to power in the House, and the piddly budget cuts the GOP has been able to extract from Obama and the Democrats since then, I'd say the Times is delusional in saying that we are suffering the current lousy economy because of Republicans. But, does their essential contention that reducing spending will slow the economy have any merit? Is another dose of Keynesianism actually the answer to our continued economic problems?
First, let's be charitable and ignore for a moment the recent history of Germany and spending reductions which refutes the notion that slowing spending will necessarily slow the economy. Let's ignore the fact that when states lay off workers who are no longer needed for essential functions, it puts less of a drain on the resources of the private sector which is good for the economy. Let's ignore the basic principle that government borrowing and printing trillions of dollars is creating inflation (and higher oil and food prices which squeezes out consumer spending on other items) and which also crowds out the credit market which leaves less money for banks to lend to the private sector and that both of these factors slow the economy. Let's ignore that our precarious debt position makes people question whether we are going to become the next Greece the moment China and the bond market realize that we can't actually pay the massive debt we are racking up and that uncertainty also slows the economy. Let's ignore all this other slowing and accept their premise for a moment. The evil Republicans are to blame for the bad jobs numbers because they stopped the Democrats spending soiree. Boo! Party Poopers!
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According to the Times, we should boost spending even further to try to inject more money into the economy. They say we should immediately resume spending hundreds of billions of dollars (of which we are borrowing 42 cents/dollar) to bail the states out so they don't have to lay off unionized state employees:
First, let's be charitable and ignore for a moment the recent history of Germany and spending reductions which refutes the notion that slowing spending will necessarily slow the economy. Let's ignore the fact that when states lay off workers who are no longer needed for essential functions, it puts less of a drain on the resources of the private sector which is good for the economy. Let's ignore the basic principle that government borrowing and printing trillions of dollars is creating inflation (and higher oil and food prices which squeezes out consumer spending on other items) and which also crowds out the credit market which leaves less money for banks to lend to the private sector and that both of these factors slow the economy. Let's ignore that our precarious debt position makes people question whether we are going to become the next Greece the moment China and the bond market realize that we can't actually pay the massive debt we are racking up and that uncertainty also slows the economy. Let's ignore all this other slowing and accept their premise for a moment. The evil Republicans are to blame for the bad jobs numbers because they stopped the Democrats spending soiree. Boo! Party Poopers!
4=====================================================================================================
According to the Times, we should boost spending even further to try to inject more money into the economy. They say we should immediately resume spending hundreds of billions of dollars (of which we are borrowing 42 cents/dollar) to bail the states out so they don't have to lay off unionized state employees:
Here is what I think is the ultimate example of what an economic ignoramus the President is. The private sector is not producing enough jobs to match population growth let alone lower the unemployment rate. Considering that we are supposed to be in a recovery, it is clearly not doing fine. According to the smartest man ever to be President, the problem with our economy is that the states are laying off too many employees they can no longer afford to maintain. Therefore, if the Federal government would just spend more money and help spendthrift states keep their current level of employees, all would be hunky dory. Uh, huh. Yeah. Sending money to the failed blue economic models of California and Illinois is going to save our economy. Yep. And pigs can fly.
However, the most important part in understanding what an economic lackwit this President can be is when he talks about why the states aren't able to afford to maintain their payrolls. It couldn't be that they are profligate and using failed economic models. Oh, no! That couldn't be it. No, the real reason is that states don't have the same kind of "flexibility" that the Federal government has. Do you know why? Because they don't have access to printing presses!
Now, take a moment and think about what President Obama is saying. Despite the fact that states like California, Illinois and Maryland have so destroyed their own economies and state budgets with high spending and high taxes, we should subsidize them so they can continue to pursue the same failed policies. Why? Because government is the engine of economic growth. Besides, we can borrow the money to hire these people today and send our children and grandchildren the bill. This is unmistakably what the President is saying in this video. This statement is the very essence of Obamanomics:
Barack Obama and the Democrat party believe that government is the engine of economic growth. Their economists all tell them that there is a "magic-multiplier" that grows every dollar that they spend. Therefore, the more government employees that are hired and maintained, the better the economy will do. They support this idea irregardless of whether those jobs are still sustainable given the new economic reality and shrinking tax bases that states now have to confront. According to these economic geniuses actual wealth creation by the private sector is absolutely irrelevant to economic growth. The private sector is doing fine. What is needed is more money to be spent by the government so that it can be magically multiplied. That will do the trick!
In other words, says the full chorus of the left, we need another massive stimulus package. As you can see from the articles above, Democrat Senators and the President would be absolutely delighted to throw another huge spending fiesta. The New York Times' favorite economist and uber Keynesian, Paul Krugman, goes one step further and wishes that aliens would attack so we would go into ultra-spending mode to combat them:
However, the most important part in understanding what an economic lackwit this President can be is when he talks about why the states aren't able to afford to maintain their payrolls. It couldn't be that they are profligate and using failed economic models. Oh, no! That couldn't be it. No, the real reason is that states don't have the same kind of "flexibility" that the Federal government has. Do you know why? Because they don't have access to printing presses!
Now, take a moment and think about what President Obama is saying. Despite the fact that states like California, Illinois and Maryland have so destroyed their own economies and state budgets with high spending and high taxes, we should subsidize them so they can continue to pursue the same failed policies. Why? Because government is the engine of economic growth. Besides, we can borrow the money to hire these people today and send our children and grandchildren the bill. This is unmistakably what the President is saying in this video. This statement is the very essence of Obamanomics:
- The private sector is fine and can withstand even more regulations and tax increases.
- Follow the failed blue economic models of California and Illinois and borrow whatever money it takes to do so.
- It may not be working now.
- It may be bankrupting the states (the country), but it will start working.
- Soon.
- Sometime.
- Maybe...
- Trust us!
Barack Obama and the Democrat party believe that government is the engine of economic growth. Their economists all tell them that there is a "magic-multiplier" that grows every dollar that they spend. Therefore, the more government employees that are hired and maintained, the better the economy will do. They support this idea irregardless of whether those jobs are still sustainable given the new economic reality and shrinking tax bases that states now have to confront. According to these economic geniuses actual wealth creation by the private sector is absolutely irrelevant to economic growth. The private sector is doing fine. What is needed is more money to be spent by the government so that it can be magically multiplied. That will do the trick!
In other words, says the full chorus of the left, we need another massive stimulus package. As you can see from the articles above, Democrat Senators and the President would be absolutely delighted to throw another huge spending fiesta. The New York Times' favorite economist and uber Keynesian, Paul Krugman, goes one step further and wishes that aliens would attack so we would go into ultra-spending mode to combat them:
Alas, for them, no UFO's have appeared in the sky and the left's spending ambitions are being foiled by those nasty party poopers in the Republican party. Boo!
6=====================================================================================================
In the pursuit of their supposed Keynesian aims, the Democrats even claim to be in favor of certain tax cuts. After all, Keynes recommended reducing taxes as a means of injecting more money into the economy. Ever the eager pupil and intent on giving his economic program a Keynesian stamp of approval, President Obama has often touted the benefits of extending the payroll tax holiday and proudly proclaimed that it is a good thing that he has “provided at least 16 tax cuts to small businesses who have needed a lot of help and have been struggling" . To amplify this point and prove his Keynesian bona fides, Obama has also said that raising taxes in the midst of a recession is a bad idea:
6=====================================================================================================
In the pursuit of their supposed Keynesian aims, the Democrats even claim to be in favor of certain tax cuts. After all, Keynes recommended reducing taxes as a means of injecting more money into the economy. Ever the eager pupil and intent on giving his economic program a Keynesian stamp of approval, President Obama has often touted the benefits of extending the payroll tax holiday and proudly proclaimed that it is a good thing that he has “provided at least 16 tax cuts to small businesses who have needed a lot of help and have been struggling" . To amplify this point and prove his Keynesian bona fides, Obama has also said that raising taxes in the midst of a recession is a bad idea:
So, far so good as far as Keynesian theory is concerned. Keep up spending, don't raise taxes. Keep as much money as possible flowing into the economy and keep that spending party going. Heck, let's even ramp up the volume a few notches. Sure, we've reached our credit limit, but we should get an extension on all of our cards and then max them all out again and then, finally, we will get real economic growth. Okay, I get that. I don't buy it for one second. It sounds insane to me, but I do understand it from a theoretical perspective. All of this is pure Keynesian economics, and while I disagree with it, it is at least consistent.
However, when I listen to Barack Obama speak about the economy and I look at the ideas he proposes, I begin to wonder whether he is really, in fact, a disciple of John Maynard Keynes. The Times, yes. Paul Krugman, absolutely. But, Obama? It seems to me that his oratory and his actions are inconsistent with Keynesian theory. For instance, if a Keynesian approach says that we need to inject more money into the economy to spark a recovery, then why has Obama also been warning about the dangers of running deficits since he was a Senator, throughout his campaign for the Presidency and from the very day he was inaugurated? Can it be that he is just cynically spouting platitudes in order to appease an electorate uncomfortable with the idea of massive borrowing from China, or does he really believe it? If we take him at his word, how does he intellectually justify both the need to reduce the deficit and his Keynesian economic beliefs? Shouldn't he be rejecting both spending cuts and all tax increases until the magic of Keynesian multiplier cures the economy like his buddies at the Times recommend? Isn't the solution to our debt problem, as Joe Biden insists, that we must spend more money to avoid going bankrupt?
7=====================================================================================================
Indeed, if Obama were really committed to Keynesian theory, and he and his party convinced us to wager the nation's economic future on that bet, then clearly the deficit should be addressed only when all of this current spending by a wise and benevolent government has produced prosperity for all. As his buddies at the Times suggest, cutting spending now would be the worst thing to do to the economy. By the same logic, any reading of Keynes and his own comments on the subject would also conclude that now is also not the time to raise taxes. It should then follow that Obama would focus on making a persuasive case to the American people to ignore the calls of deficit hawks and tax raisers.
However, this is not what Obama has been saying publicly, is it? Remember this from the campaign:
However, when I listen to Barack Obama speak about the economy and I look at the ideas he proposes, I begin to wonder whether he is really, in fact, a disciple of John Maynard Keynes. The Times, yes. Paul Krugman, absolutely. But, Obama? It seems to me that his oratory and his actions are inconsistent with Keynesian theory. For instance, if a Keynesian approach says that we need to inject more money into the economy to spark a recovery, then why has Obama also been warning about the dangers of running deficits since he was a Senator, throughout his campaign for the Presidency and from the very day he was inaugurated? Can it be that he is just cynically spouting platitudes in order to appease an electorate uncomfortable with the idea of massive borrowing from China, or does he really believe it? If we take him at his word, how does he intellectually justify both the need to reduce the deficit and his Keynesian economic beliefs? Shouldn't he be rejecting both spending cuts and all tax increases until the magic of Keynesian multiplier cures the economy like his buddies at the Times recommend? Isn't the solution to our debt problem, as Joe Biden insists, that we must spend more money to avoid going bankrupt?
7=====================================================================================================
Indeed, if Obama were really committed to Keynesian theory, and he and his party convinced us to wager the nation's economic future on that bet, then clearly the deficit should be addressed only when all of this current spending by a wise and benevolent government has produced prosperity for all. As his buddies at the Times suggest, cutting spending now would be the worst thing to do to the economy. By the same logic, any reading of Keynes and his own comments on the subject would also conclude that now is also not the time to raise taxes. It should then follow that Obama would focus on making a persuasive case to the American people to ignore the calls of deficit hawks and tax raisers.
However, this is not what Obama has been saying publicly, is it? Remember this from the campaign:
Never mind that Obama has increased the debt five trillion dollars in just four short years compared to the eight under Bush. Note, the outrage over the concept of deficit spending. However, once elected, Obama relegated this rhetoric to platitudes and bromides found deep in his speeches. Until, recently that is. Today, he claims to be in the forefront of "reasonable" debate on how to solve the problem.
Perhaps this contradiction between this kind of anti-deficit rhetoric and the fundamental principles of Keynesian theory is caused by the fact that hard cold reality has caught up with Obama. The political landscape is vastly different today than it was when he was elected. Having shot his load in the first three stimulus attempts and accumulated massive deficits along the way, it would seem that we have reached the end of our nation's patience to continue with the Keynesian experiment. With the party pooping Republicans now in control of the House and those grumpy ratings agencies breathing down his neck about unsustainable deficits, it would seem Obama has no options left but to pursue some sort of deficit reduction plan. No longer can the One have his cake and eat it too. The party is over. Aren't those Republicans mean? Isn't the Tea Party acting like a bunch of terrorists by holding his big government dreams and, thus, America's future hostage?
Therefore, it would seem Obama has no choice but to acquiesce to the mood of the public and the warning of the ratings agencies and talk the talk about the need for deficit reduction. In that vein, he makes it clear that this problem should be addressed with a "balanced" approach that includes immediate increases in taxes and spending cuts to occur in future years. If the economy were sailing along as he promised it would, this approach might make sense from a Keynesian perspective. After all, Keynes did recommend raising taxes and/or cutting spending and borrowing once the economy recovered from recession. However, we've engaged in this Keynesian pump priming for three and a half years already (four if you count W's feckless Keynesian efforts) and the economy is still moribund. Given that fact, how would taking money out the economy through a tax increase be a wise Keynesian response? As we continue with this stagnant economy, with the prospect of a double dip recession always raising its ugly head, how can it be intellectually justifiable to raise taxes? Didn't Keynes say that raising taxes was counterproductive to stimulus?
8===================================================================================================
Indeed, if all of this were to be solely in the light of pure Keynesian theory, then surely raising taxes at this juncture would be a mistake in the same way that the Times believes cutting government spending would be. However, to view Obama's policies in this light would be to misunderstand the man and his vision. The truth is that Obamanomics is merely a hybrid offshoot of Keynesian theory much like David Koresh's Branch Davidians were an offshoot of the 7'th Day Adventists. To truly understand the economic policies of this President you have to understand what his goals are and the means that are his disposal to bring them about.
True to his deep ideological commitment to the concept of "social justice" and his faith that the power of the Federal government can be instrumental in bringing this new world of hope and change about, President Obama used the current recession as an excuse to massively raise spending, not just on stimulus, but in every nook and cranny of the Federal government. Except the military of course. That he was more than happy to cut. Remember when Rahm Emmanuel said never let a crisis go to waste? Well, this is what he was talking about. Spending by the federal government has gone from20% of GDP when the Democrats took over Congress to 25% of GDP today.
Many believe that most of the increase in the deficit is due to stimulus, TARP, spending on Food Stamps, Unemployment Insurance and Medicaid to soften the blow for the jobless and vastly lowered revenues caused by the economic downturn. But that's only part of the story as Byron York explains:
A lot of the higher spending has stemmed directly from the downturn. There is, for example, spending on what is called "income security" -- that is, for unemployment compensation, food stamps and related programs. In 2007, the government spent $365 billion on income security. In 2011, it's estimated to spend $622 billion. That's an increase of $257 billion.
Then there is Medicaid, the health care program for lower-income Americans. A lot of people had lower incomes due to the economic downturn, and federal expenditures on Medicaid -- its costs are shared with the states -- went from $190 billion in 2007 to an estimated $276 billion in 2011, an increase of $86 billion. Put that together with the $257 billion increase in income security spending, and you have $343 billion.
Add to that the $338 billion in decreased revenues, and you get $681 billion -- which means nearly half of the current deficit can be clearly attributed to the downturn.
That's a deficit increase that would have happened in an economic crisis whether Republicans or Democrats controlled Washington. But it was the specific spending excesses of President Obama and the Democrats that shot the deficit into the stratosphere.
Therefore, a huge percentage of our deficit spending went into growing the size and scope of government at all levels. Since then, the primary focus of Barry, Harry and Nancy is to make sure that spending continues at these new "crisis" levels forever. To get an idea of how much Obama and the Democrats have increased spending, take a look at this chart:
Perhaps this contradiction between this kind of anti-deficit rhetoric and the fundamental principles of Keynesian theory is caused by the fact that hard cold reality has caught up with Obama. The political landscape is vastly different today than it was when he was elected. Having shot his load in the first three stimulus attempts and accumulated massive deficits along the way, it would seem that we have reached the end of our nation's patience to continue with the Keynesian experiment. With the party pooping Republicans now in control of the House and those grumpy ratings agencies breathing down his neck about unsustainable deficits, it would seem Obama has no options left but to pursue some sort of deficit reduction plan. No longer can the One have his cake and eat it too. The party is over. Aren't those Republicans mean? Isn't the Tea Party acting like a bunch of terrorists by holding his big government dreams and, thus, America's future hostage?
Therefore, it would seem Obama has no choice but to acquiesce to the mood of the public and the warning of the ratings agencies and talk the talk about the need for deficit reduction. In that vein, he makes it clear that this problem should be addressed with a "balanced" approach that includes immediate increases in taxes and spending cuts to occur in future years. If the economy were sailing along as he promised it would, this approach might make sense from a Keynesian perspective. After all, Keynes did recommend raising taxes and/or cutting spending and borrowing once the economy recovered from recession. However, we've engaged in this Keynesian pump priming for three and a half years already (four if you count W's feckless Keynesian efforts) and the economy is still moribund. Given that fact, how would taking money out the economy through a tax increase be a wise Keynesian response? As we continue with this stagnant economy, with the prospect of a double dip recession always raising its ugly head, how can it be intellectually justifiable to raise taxes? Didn't Keynes say that raising taxes was counterproductive to stimulus?
8===================================================================================================
Indeed, if all of this were to be solely in the light of pure Keynesian theory, then surely raising taxes at this juncture would be a mistake in the same way that the Times believes cutting government spending would be. However, to view Obama's policies in this light would be to misunderstand the man and his vision. The truth is that Obamanomics is merely a hybrid offshoot of Keynesian theory much like David Koresh's Branch Davidians were an offshoot of the 7'th Day Adventists. To truly understand the economic policies of this President you have to understand what his goals are and the means that are his disposal to bring them about.
True to his deep ideological commitment to the concept of "social justice" and his faith that the power of the Federal government can be instrumental in bringing this new world of hope and change about, President Obama used the current recession as an excuse to massively raise spending, not just on stimulus, but in every nook and cranny of the Federal government. Except the military of course. That he was more than happy to cut. Remember when Rahm Emmanuel said never let a crisis go to waste? Well, this is what he was talking about. Spending by the federal government has gone from20% of GDP when the Democrats took over Congress to 25% of GDP today.
Many believe that most of the increase in the deficit is due to stimulus, TARP, spending on Food Stamps, Unemployment Insurance and Medicaid to soften the blow for the jobless and vastly lowered revenues caused by the economic downturn. But that's only part of the story as Byron York explains:
A lot of the higher spending has stemmed directly from the downturn. There is, for example, spending on what is called "income security" -- that is, for unemployment compensation, food stamps and related programs. In 2007, the government spent $365 billion on income security. In 2011, it's estimated to spend $622 billion. That's an increase of $257 billion.
Then there is Medicaid, the health care program for lower-income Americans. A lot of people had lower incomes due to the economic downturn, and federal expenditures on Medicaid -- its costs are shared with the states -- went from $190 billion in 2007 to an estimated $276 billion in 2011, an increase of $86 billion. Put that together with the $257 billion increase in income security spending, and you have $343 billion.
Add to that the $338 billion in decreased revenues, and you get $681 billion -- which means nearly half of the current deficit can be clearly attributed to the downturn.
That's a deficit increase that would have happened in an economic crisis whether Republicans or Democrats controlled Washington. But it was the specific spending excesses of President Obama and the Democrats that shot the deficit into the stratosphere.
Therefore, a huge percentage of our deficit spending went into growing the size and scope of government at all levels. Since then, the primary focus of Barry, Harry and Nancy is to make sure that spending continues at these new "crisis" levels forever. To get an idea of how much Obama and the Democrats have increased spending, take a look at this chart:
Notice the massive jump in spending once Nancy and Harry took power in '07 and produced their first budget for 2008. Once Obama is inaugurated, it skyrockets from there and has remained at these insanely high levels despite the fact that most of the stimulus money has been spent. However such massive spending has resulted in equally massive deficits.
9====================================================================================================
From the very beginning, Democrats have understood that this kind of spending can't go on forever unless they can find the revenues to pay for it. Thus, it is convincing the public to give them those tax increases that is the focus of every ounce of their rhetoric when they make pious statements about fiscal responsibility. Therefore, all of their talk about the dangers of deficits is merely an attempt to spin the public with the meme that high deficits are caused, not by their spending, but by the rich not paying their fair share.
This kind of spin has worked for them for most of the last twenty five years. When Obama was elected and he and his party jacked up spending to create their big government nirvana, they believed they had everything figured out. The plan was to let the Bush tax cuts expire in 2010 in order to deal counteract the increasing deficits they would create with higher spending. They would then be able to blame the past decades deficits solely on W's tax cuts. Thus, the responsibility for high deficits would be transferred from their recent spending binge to the irresponsibility of W's 'giveaways" to the hated rich folk making more than $200k a year, better known as "millionaires and billionaires" in Obamaland.
However that was just going to be the beginning of the tax increases needed to pay for the new and permanent levels of spending they envisioned. The left also had ambitious plans to gain hundreds and billions of dollars in additional funding from their Cap and Trade scheme. Democrats tried to explain to the public that they really didn't want to raise everyone's cost of energy through higher taxes, but they were "forced" to do it in order to protect those poor innocent polar bears. Aren't the Democrats are the greatest thing since sliced bread? They will fix the deficit problem and save the planet! What a great little spin, for the perfect plan, eh? Higher taxes, bigger government, more dues paying union bureaucracy and more power. What more could a Democrat ask for? Thus, the truth is that when Democrats talked about the deficit in the 2006 and 2008 campaigns, it was just the rhetorical device they used to try to convince the public of the necessity of raising taxes.
Unfortunately for them, both of those plans were thwarted by an electorate that did not see the wisdom of higher electric and gasoline bills and higher income taxes in the midst of a recession. This accounts for much of the rage you see today among Democrats on Capitol Hill. Their great plan was foiled and they are very unhappy campers. Now that the political tide has turned against them, they must protect all of the new spending they waited decades to enact with every method and trick at their disposal. They know that there is no way that Republicans will ever go along with tax hikes large enough to fund a government spending at 25% of GDP.
10====================================================================================================
Undeterred by this reality, Democrats still have one card left to play in their negotiations with a Republican party intent upon reducing spending back to fiscally sustainable pre-recession levels. That is to keep going with the old class warfare playbook and demand "sacrifice" from "millionaires and billionaires", Big Oil, corporate jet owners and other exploiters of loopholes in the tax code in exchange for budget cuts that come at some time in the future. In other words, they are proposing the same trap that they've used successfully in this identical situation twice before. Tax hikes now. Spending cuts that never come. It doesn't matter whether Democrats promise a 20-1 cuts/taxes ratio. Unless those cuts come in the first two years, those promises are meaningless. The spending cuts will never come at all if Democrats have anything to say about it.
Are the Democrats really that cynical? To answer that question, it is instructive to examine the track record of the Democratic party. Numerous times before, they have hoodwinked Republican Presidents into enacting immediate tax increases in exchange for spending cuts that never materialize. President Reagan and President Bush the elder were both promised two to one, three to one and, yes, four to one spending cuts/tax increases. It all looked good on paper and Reagan and Bush reluctantly signed these "compromise" agreements. But, there was a catch. With Democrats and spending, there is always a catch. You see, the spending cuts were always delayed into the "future". Conveniently, the law says that one Congress is not bound by the actions of a prior Congress. Sorry Ron, sorry George, sorry future President, it was that other Congress that promised you they'd make cuts, but we are a different Congress and the people who elected us would never countenance any of those draconian cuts. Too bad, no cuts for you.
Now, if you understand this history and then tie that knowledge with the fact that the main goal of the Democrat party is to redistribute wealth and power to their favored constituents, it becomes obvious that when Obama looks at taxation, he doesn’t see it solely in terms of what kind of an impact it will have from a Keynesian perspective. He mostly looks at it as a vehicle to finance his dream of a more just and equitable society and as a means to feed the Democrat vote buying pump. This future of hope and change can only come from the benevolence of a larger and more caring (read intrusive) government. Keynes and his theories be damned. When you begin to see this clearly, everything the Democrats do when it comes to tax and economic policy makes perfect sense.
For instance, it isn't that Obama and the Democrats hate all tax cuts or think they are all bad. They freely admit that there are examples in which allowing us to keep our own money might be good for the economy and jobs. However, this is only true if they approve of the people the money goes to. If it goes to the middle class and the poor and that helps them "buy" votes, that's perfectly ok, but if it goes to the wealthy that's evil and must not be countenanced. They don't deserve it because, as Michael Moore says, their wealth is really "our" money. To paraphrase Barack Obama, they didn't build that.
While, Obama admits that certain tax cuts for business are good for easing unemployment, he knows he still needs to raise income taxes on those same businesses in order to fund his utopian dreams. Are you following this? One hand giveth, the other taketh away. And this will be good for the economy and encourage companies to hire? Seriously? Of course not! To Democrats, the contradiction inherent in their tax policies are irrelevant. But, rest assured, whatever the tax policy happens to be, the overriding principle, as far as they are concerned, must be that the Crooks and Thieves in government are the ones in control. Your masters in Washington will be the ones to decide who gets what.
11====================================================================================================
To be fair, Democrats are not just focused on cynical calculation and power grabbing. Most principled Democrats really do believe that redistributing wealth is moral and just:
9====================================================================================================
From the very beginning, Democrats have understood that this kind of spending can't go on forever unless they can find the revenues to pay for it. Thus, it is convincing the public to give them those tax increases that is the focus of every ounce of their rhetoric when they make pious statements about fiscal responsibility. Therefore, all of their talk about the dangers of deficits is merely an attempt to spin the public with the meme that high deficits are caused, not by their spending, but by the rich not paying their fair share.
This kind of spin has worked for them for most of the last twenty five years. When Obama was elected and he and his party jacked up spending to create their big government nirvana, they believed they had everything figured out. The plan was to let the Bush tax cuts expire in 2010 in order to deal counteract the increasing deficits they would create with higher spending. They would then be able to blame the past decades deficits solely on W's tax cuts. Thus, the responsibility for high deficits would be transferred from their recent spending binge to the irresponsibility of W's 'giveaways" to the hated rich folk making more than $200k a year, better known as "millionaires and billionaires" in Obamaland.
However that was just going to be the beginning of the tax increases needed to pay for the new and permanent levels of spending they envisioned. The left also had ambitious plans to gain hundreds and billions of dollars in additional funding from their Cap and Trade scheme. Democrats tried to explain to the public that they really didn't want to raise everyone's cost of energy through higher taxes, but they were "forced" to do it in order to protect those poor innocent polar bears. Aren't the Democrats are the greatest thing since sliced bread? They will fix the deficit problem and save the planet! What a great little spin, for the perfect plan, eh? Higher taxes, bigger government, more dues paying union bureaucracy and more power. What more could a Democrat ask for? Thus, the truth is that when Democrats talked about the deficit in the 2006 and 2008 campaigns, it was just the rhetorical device they used to try to convince the public of the necessity of raising taxes.
Unfortunately for them, both of those plans were thwarted by an electorate that did not see the wisdom of higher electric and gasoline bills and higher income taxes in the midst of a recession. This accounts for much of the rage you see today among Democrats on Capitol Hill. Their great plan was foiled and they are very unhappy campers. Now that the political tide has turned against them, they must protect all of the new spending they waited decades to enact with every method and trick at their disposal. They know that there is no way that Republicans will ever go along with tax hikes large enough to fund a government spending at 25% of GDP.
10====================================================================================================
Undeterred by this reality, Democrats still have one card left to play in their negotiations with a Republican party intent upon reducing spending back to fiscally sustainable pre-recession levels. That is to keep going with the old class warfare playbook and demand "sacrifice" from "millionaires and billionaires", Big Oil, corporate jet owners and other exploiters of loopholes in the tax code in exchange for budget cuts that come at some time in the future. In other words, they are proposing the same trap that they've used successfully in this identical situation twice before. Tax hikes now. Spending cuts that never come. It doesn't matter whether Democrats promise a 20-1 cuts/taxes ratio. Unless those cuts come in the first two years, those promises are meaningless. The spending cuts will never come at all if Democrats have anything to say about it.
Are the Democrats really that cynical? To answer that question, it is instructive to examine the track record of the Democratic party. Numerous times before, they have hoodwinked Republican Presidents into enacting immediate tax increases in exchange for spending cuts that never materialize. President Reagan and President Bush the elder were both promised two to one, three to one and, yes, four to one spending cuts/tax increases. It all looked good on paper and Reagan and Bush reluctantly signed these "compromise" agreements. But, there was a catch. With Democrats and spending, there is always a catch. You see, the spending cuts were always delayed into the "future". Conveniently, the law says that one Congress is not bound by the actions of a prior Congress. Sorry Ron, sorry George, sorry future President, it was that other Congress that promised you they'd make cuts, but we are a different Congress and the people who elected us would never countenance any of those draconian cuts. Too bad, no cuts for you.
Now, if you understand this history and then tie that knowledge with the fact that the main goal of the Democrat party is to redistribute wealth and power to their favored constituents, it becomes obvious that when Obama looks at taxation, he doesn’t see it solely in terms of what kind of an impact it will have from a Keynesian perspective. He mostly looks at it as a vehicle to finance his dream of a more just and equitable society and as a means to feed the Democrat vote buying pump. This future of hope and change can only come from the benevolence of a larger and more caring (read intrusive) government. Keynes and his theories be damned. When you begin to see this clearly, everything the Democrats do when it comes to tax and economic policy makes perfect sense.
For instance, it isn't that Obama and the Democrats hate all tax cuts or think they are all bad. They freely admit that there are examples in which allowing us to keep our own money might be good for the economy and jobs. However, this is only true if they approve of the people the money goes to. If it goes to the middle class and the poor and that helps them "buy" votes, that's perfectly ok, but if it goes to the wealthy that's evil and must not be countenanced. They don't deserve it because, as Michael Moore says, their wealth is really "our" money. To paraphrase Barack Obama, they didn't build that.
While, Obama admits that certain tax cuts for business are good for easing unemployment, he knows he still needs to raise income taxes on those same businesses in order to fund his utopian dreams. Are you following this? One hand giveth, the other taketh away. And this will be good for the economy and encourage companies to hire? Seriously? Of course not! To Democrats, the contradiction inherent in their tax policies are irrelevant. But, rest assured, whatever the tax policy happens to be, the overriding principle, as far as they are concerned, must be that the Crooks and Thieves in government are the ones in control. Your masters in Washington will be the ones to decide who gets what.
11====================================================================================================
To be fair, Democrats are not just focused on cynical calculation and power grabbing. Most principled Democrats really do believe that redistributing wealth is moral and just:
This isn't the first time the President has revealed what he really thinks about who deserves to keep what when it comes to tax policy. As you might recall, in a rare moment of candor during an exchange with Charlie Gibson about capital gains taxes, Senator Obama revealed his true feelings about how he approaches the subject of taxation. According to him, it isn't the effect on the economy positive or negative that he cares about, it is "fairness". It is Social Justice! That is why, every day, in every way, in every place, in every speech and in every press conference all you will hear from President Obama is diatribes about tax loopholes for Big Oil, tax loop holes for corporate jet owners, and how, now that he has more than enough money himself, everyone else who is "rich" should be forced to "sacrifice" more for their country.
Therefore, despite telling F. Chuck Todd that the last thing you want to do in the middle of a recession is increase taxes, President Obama fought tooth and nail to raise taxes on the top bracket in late 2010, when the Bush Tax cuts were set to expire, even though the economy had not yet recovered:
"President Obama will make a strong case for permanently extending tax cuts for the middle class. But the president will make clear that he opposes the Republican plan to extend tax cuts for the top 2 percent..." said White House spokeswoman Jennifer Psaki.
So, you see, despite the fact that he is contradicting the Keynesian principles he claims to espouse, his paramount priority is to do what he considers to be the moral thing and raise taxes to finance his big government agenda. To spread the wealth around as he puts it:
Therefore, despite telling F. Chuck Todd that the last thing you want to do in the middle of a recession is increase taxes, President Obama fought tooth and nail to raise taxes on the top bracket in late 2010, when the Bush Tax cuts were set to expire, even though the economy had not yet recovered:
"President Obama will make a strong case for permanently extending tax cuts for the middle class. But the president will make clear that he opposes the Republican plan to extend tax cuts for the top 2 percent..." said White House spokeswoman Jennifer Psaki.
So, you see, despite the fact that he is contradicting the Keynesian principles he claims to espouse, his paramount priority is to do what he considers to be the moral thing and raise taxes to finance his big government agenda. To spread the wealth around as he puts it:
Barack Obama is so ideologically bound to the notion that raising taxes on the wealthy is righteous and necessary to a "fair" society, that it has become his holy grail. During the debt ceiling debate, he was on the verge of crafting a "grand bargain" debt reduction deal with the Republicans that would have forestalled a downgrade by Standard and Poor's and insulated him, in his campaign for reelection, from charges he was a profligate spender and didn't care about the deficit. The deal was based on "agreed upon" spending cuts, minor tinkering to entitlement programs and a tax increase of $800 Billion achieved by closing loopholes in exchange for lowering rates.
However, at the last minute, he reneged on that deal and demanded that Republicans accept another fifty percent increase in taxes (an extra $400 Billion) on the wealthy. Stunned and frustrated by the President's last minute changes in their deal, Speaker John Boehner walked out on the talks saying: "Dealing with the White House is like dealing with a bowl of jello," they keep changing the goal posts. Because of Obama's stubborn insistence on raising taxes on the rich, a great opportunity was lost for bi-partisan cooperation. In the end, the President could have had what would have been a major coup for him and his prospects for reelection. Instead, he threw it all away, along with our nation's credit rating, for the sake of the "fairness" his ideology demands.
12==================================================================================================
Even today, like Ahab, he remains steadfast in his quest for the Great White Whale of tax increases in the name of fairness. If the President has his way, the Bush tax cuts will expire in 2013 and another huge tax hike will occur in 2014 to pay for Obamacare. Given that every estimate I've seen calls for slow growth for the next two years, wouldn't his Keynesian philosophy tell him that this would crush the recovery before it even got started? Shouldn't he at least delay the implementation of Obamacare, or any tax hike for that matter, until the economy is well on the way to recovery as Keynes would advise? Of course, not. Obama's decisions about taxes has nothing to do with a true Keynesian economic policy focused on job creation. It is about a moral crusade in the name of fairness and social justice. It is about the vote buying machine. It is the economics of Saul Alinsky's Rules For Radicals! and Annie Leonard's "Story of Stuff". It is the economic policy of a community organizer from Chicago.
When you examine it closely, Keynesianism is just the rhetorical vehicle that Obama and the Democrats have been using to justify their desires to redistribute income and promote their vision of environmental nirvana. If you want to see what a real Keynesian believes, read the columns of Paul Krugman. There you will find ideas that rely on huge national projects that focus on the building of things. As we saw in the above video, Krugman talks about how the economy would improve greatly if we were to mobilize for war against an alien invasion. Money would be spent on manufacturing real objects which would result in the building of shiny new factories and the hiring of new employees to staff them. That's why Krugman always points to World War Two as the ultimate example of successful Keynesian economics at work.
But this isn't the type of stimulus that Obama/Reid/Pelosi crafted or that the President and his party propose for the future. To be cynical, the first stimulus package they created was basically a wish list of every Democratic desire that had gone unfulfilled during their many years out of power. It was a mish mash of programs with virtually no focus and direction at all except to reward their union buddies and campaign donors. While it is true that some funds were directed towards "green" energy projects and shovel ready infrastructure jobs that weren't quite shovel ready, most of the borrowed money was spent on redistribution of wealth in one shot vote buying tax rebates and towards their union friends in government and construction. That isn't really what Keynes had in mind. Keynes did famously say that spending money on burying cash in a mine and then paying people to dig it out was preferable to doing nothing, but he did emphasize that what he recommended was that the spending be used to build things like houses. This is what Krugman has been recommending all along. That's a real Keynesian stimulus program.
Perhaps it is possible that Keynes would say that borrowing money to pay unemployment benefits and bailing out cash strapped states was preferable to doing nothing, but I am not convinced that he would say that such spending was a better alternative for the economy than keeping taxes low and leaving that money in the private sector. After all, Keynes did believe in the power of the free market to drive the economy. His policies were designed to give fuel to the engine of the private sector, not take it away. His objective was not to permanently increase the size of government, but to add enough fuel to the private sector to "spark" it back to life and, once that ignition was achieved, he said it was imperative to reduce the extra fuel back to pre-recession levels and then pay back the debt.
13====================================================================================================
The truth is that the way Obamanomics has been implemented is actually contrary to the teachings of John Maynard Keynes:
However, at the last minute, he reneged on that deal and demanded that Republicans accept another fifty percent increase in taxes (an extra $400 Billion) on the wealthy. Stunned and frustrated by the President's last minute changes in their deal, Speaker John Boehner walked out on the talks saying: "Dealing with the White House is like dealing with a bowl of jello," they keep changing the goal posts. Because of Obama's stubborn insistence on raising taxes on the rich, a great opportunity was lost for bi-partisan cooperation. In the end, the President could have had what would have been a major coup for him and his prospects for reelection. Instead, he threw it all away, along with our nation's credit rating, for the sake of the "fairness" his ideology demands.
12==================================================================================================
Even today, like Ahab, he remains steadfast in his quest for the Great White Whale of tax increases in the name of fairness. If the President has his way, the Bush tax cuts will expire in 2013 and another huge tax hike will occur in 2014 to pay for Obamacare. Given that every estimate I've seen calls for slow growth for the next two years, wouldn't his Keynesian philosophy tell him that this would crush the recovery before it even got started? Shouldn't he at least delay the implementation of Obamacare, or any tax hike for that matter, until the economy is well on the way to recovery as Keynes would advise? Of course, not. Obama's decisions about taxes has nothing to do with a true Keynesian economic policy focused on job creation. It is about a moral crusade in the name of fairness and social justice. It is about the vote buying machine. It is the economics of Saul Alinsky's Rules For Radicals! and Annie Leonard's "Story of Stuff". It is the economic policy of a community organizer from Chicago.
When you examine it closely, Keynesianism is just the rhetorical vehicle that Obama and the Democrats have been using to justify their desires to redistribute income and promote their vision of environmental nirvana. If you want to see what a real Keynesian believes, read the columns of Paul Krugman. There you will find ideas that rely on huge national projects that focus on the building of things. As we saw in the above video, Krugman talks about how the economy would improve greatly if we were to mobilize for war against an alien invasion. Money would be spent on manufacturing real objects which would result in the building of shiny new factories and the hiring of new employees to staff them. That's why Krugman always points to World War Two as the ultimate example of successful Keynesian economics at work.
But this isn't the type of stimulus that Obama/Reid/Pelosi crafted or that the President and his party propose for the future. To be cynical, the first stimulus package they created was basically a wish list of every Democratic desire that had gone unfulfilled during their many years out of power. It was a mish mash of programs with virtually no focus and direction at all except to reward their union buddies and campaign donors. While it is true that some funds were directed towards "green" energy projects and shovel ready infrastructure jobs that weren't quite shovel ready, most of the borrowed money was spent on redistribution of wealth in one shot vote buying tax rebates and towards their union friends in government and construction. That isn't really what Keynes had in mind. Keynes did famously say that spending money on burying cash in a mine and then paying people to dig it out was preferable to doing nothing, but he did emphasize that what he recommended was that the spending be used to build things like houses. This is what Krugman has been recommending all along. That's a real Keynesian stimulus program.
Perhaps it is possible that Keynes would say that borrowing money to pay unemployment benefits and bailing out cash strapped states was preferable to doing nothing, but I am not convinced that he would say that such spending was a better alternative for the economy than keeping taxes low and leaving that money in the private sector. After all, Keynes did believe in the power of the free market to drive the economy. His policies were designed to give fuel to the engine of the private sector, not take it away. His objective was not to permanently increase the size of government, but to add enough fuel to the private sector to "spark" it back to life and, once that ignition was achieved, he said it was imperative to reduce the extra fuel back to pre-recession levels and then pay back the debt.
13====================================================================================================
The truth is that the way Obamanomics has been implemented is actually contrary to the teachings of John Maynard Keynes:
Therefore, the way that Obama and the Democrats have governed is actually a bastardization of Keynesian economics. As I said, it is a form of hybrid-Keynes with just enough of the original to obtain a veneer of respectability, but vastly different in its aims and methods. Obama and the Democrats craftily use Keynes' rhetoric of "demand side" economics in order to justify redistributing the wealth and increasing the power of the state, but they ignore Keynes' stress on private sector growth and spending directly designed to create jobs. The kind of economics Obama actually practices is more like socialism. It is about the transformation of America into a place that looks more like the quasi-Socialist nations of Europe.
Therefore, if forced to decide between researching the relationship between alcohol and prostitution in China on the one hand or raising taxes on millionaires and billionaires on the other, Obama sides with studying booze and hookers. The one part of the twisted version of economics that they've wholeheartedly adopted from Keynes' theories is the fanciful notion that there is a magical "multiplier" that says that you can create jobs when you take money from one person and give it to another. Otherwise, how could a President who claims he is focused like a laser beam on creating jobs believe that robbing the private sector of capital in the form of higher taxes to pay for things like NPR's "All Things Considered" makes any economic sense? Can he really believes that raising taxes create jobs?
Therefore, if forced to decide between researching the relationship between alcohol and prostitution in China on the one hand or raising taxes on millionaires and billionaires on the other, Obama sides with studying booze and hookers. The one part of the twisted version of economics that they've wholeheartedly adopted from Keynes' theories is the fanciful notion that there is a magical "multiplier" that says that you can create jobs when you take money from one person and give it to another. Otherwise, how could a President who claims he is focused like a laser beam on creating jobs believe that robbing the private sector of capital in the form of higher taxes to pay for things like NPR's "All Things Considered" makes any economic sense? Can he really believes that raising taxes create jobs?
As Marco Rubio points out, most businessmen aren't waiting with baited breath for the next tax increase or new regulation so that they can go out and hire someone. Let's be honest, raising taxes doesn't make much sense if job creation and economic growth is your objective. So far, even by the Obama administration's most optimistic estimate, each new job created by government spending during his tenure has cost $228,000. How can it be argued any longer that government, through its programs, is more effective in creating jobs than the private sector? How does the "sharp pencil" test get the math to add up that economic growth requires higher taxes so that government can spend more given the current lack of success of the magic multiplier so far? All the evidence we have so far says that it doesn't. However, for a man who taught Saul Alinsky's Rules For Radicals to law students, it is the only reasonable and logical thing to do.
14====================================================================================================
For those of us who have swallowed the red pill and see the world as it actually is, the utter failure of Obamanomics makes the stubbornness of its chief practitioner seem ridiculous. After the failure of three stimuluses and three quantitative easings, the President wants more of the same for the future. All those shovel ready jobs that Barry says will be created if only we give him the half a trillion dollars he requests in his newest "jobs plan"? Gary Johnson has the right of it:
14====================================================================================================
For those of us who have swallowed the red pill and see the world as it actually is, the utter failure of Obamanomics makes the stubbornness of its chief practitioner seem ridiculous. After the failure of three stimuluses and three quantitative easings, the President wants more of the same for the future. All those shovel ready jobs that Barry says will be created if only we give him the half a trillion dollars he requests in his newest "jobs plan"? Gary Johnson has the right of it:
By now, it should be obvious that Obama is really a big government socialist or whatever term you are comfortable with in describing someone who continues to promote massive government spending despite the record of abysmal results in job creation. As a "socialist" it is his deep conviction that government spends your money more wisely than you do. Despite all evidence to the contrary, he has total faith in the magic "multiplier". Thus, he comes to the completely illogical conclusion that extending unemployment insurance creates more jobs by taking more money from businesses and people who are actually creating real wealth rather than letting them decide how to spend it themselves.
Jay Carney recently tried to pass off this nonsense as fact:
From the Blaze:
Yesterday, a Journal reporter asked how the White House can claim that extending unemployment insurance actually creates jobs. Carney didn’t want to be challenged, and so he quickly attacked the messenger:
“Oh, uh, it is by, uh, I would expect a reporter from the Wall Street Journal would know this as part of the entrance exam.”
Ouch. After putting down his sword, he then went on to answer the question:
“It is one of the most direct ways to infuse money directly into the economy because people who are unemployed and obviously aren’t running a paycheck are going to spend the money that they get. They’re not going to save it, they’re going to spend it. And with unemployment insurance, that way, the money goes directly back into the economy, dollar for dollar virtually.
Let’s look at that a little closer. Unemployment checks — the money you get for not having a job — actually create jobs? Really? Money for not having a job creates jobs? Doesn’t that seem to be a bastardization of trickle-down economics, with a communist flavor? Aren’t businesses — not the unemployed — the job creators? And with that logic, should we just put everyone on the dole?
Bryan Preston over at Pajamas Media explains:
Here’s the thing. True, unemployment pays people money and they’re likely to spend it. But you’re also paying people not to work. Not to produce anything. The longer you pay them to not work, the longer they’re likely not to work. And the money to pay people not to work has to come from somewhere. Guess where (besides Jay Carney’s back side)?
That’s right — from people who are working, being productive, and who also are likely to spend the money. While unemployment insurance of some form and length is reasonable, the notion that it creates jobs is laughable on a Seinfeldian level. It’s a safety net, not an engine of our economic might.
Put it this way: If Carney’s logic held up, we should just carpet bomb the country in unemployment checks, forever. That would create a billion jobs and we’d all be swimming in prosperity.
You have to wonder who failed the entrance exam.
15====================================================================================================
Gee, Jay Carney sounds a lot like Nancy Pelosi doesn't he? It seems that they are all drinking from the same batch of Kool-aid these days. But wait! There's more! Just the other day another member of his administration had this bombshell to drop on the public:
Jay Carney recently tried to pass off this nonsense as fact:
From the Blaze:
Yesterday, a Journal reporter asked how the White House can claim that extending unemployment insurance actually creates jobs. Carney didn’t want to be challenged, and so he quickly attacked the messenger:
“Oh, uh, it is by, uh, I would expect a reporter from the Wall Street Journal would know this as part of the entrance exam.”
Ouch. After putting down his sword, he then went on to answer the question:
“It is one of the most direct ways to infuse money directly into the economy because people who are unemployed and obviously aren’t running a paycheck are going to spend the money that they get. They’re not going to save it, they’re going to spend it. And with unemployment insurance, that way, the money goes directly back into the economy, dollar for dollar virtually.
Let’s look at that a little closer. Unemployment checks — the money you get for not having a job — actually create jobs? Really? Money for not having a job creates jobs? Doesn’t that seem to be a bastardization of trickle-down economics, with a communist flavor? Aren’t businesses — not the unemployed — the job creators? And with that logic, should we just put everyone on the dole?
Bryan Preston over at Pajamas Media explains:
Here’s the thing. True, unemployment pays people money and they’re likely to spend it. But you’re also paying people not to work. Not to produce anything. The longer you pay them to not work, the longer they’re likely not to work. And the money to pay people not to work has to come from somewhere. Guess where (besides Jay Carney’s back side)?
That’s right — from people who are working, being productive, and who also are likely to spend the money. While unemployment insurance of some form and length is reasonable, the notion that it creates jobs is laughable on a Seinfeldian level. It’s a safety net, not an engine of our economic might.
Put it this way: If Carney’s logic held up, we should just carpet bomb the country in unemployment checks, forever. That would create a billion jobs and we’d all be swimming in prosperity.
You have to wonder who failed the entrance exam.
15====================================================================================================
Gee, Jay Carney sounds a lot like Nancy Pelosi doesn't he? It seems that they are all drinking from the same batch of Kool-aid these days. But wait! There's more! Just the other day another member of his administration had this bombshell to drop on the public:
To give the Secretary credit where it is due, he is right in saying that food stamps are one of the most direct forms of stimulus. However, I feel that he is being a bit disingenuous here. The more important point to be made isn't whether food stamps are an effective method of injecting money into the economy quickly, but whether it is effective in fostering economic growth. That really is the point of stimulating the economy isn't it?
It is one thing for members of this administration to say that extending unemployment insurance and giving people food during hard times is a noble thing to do. It is quite another to claim that they are an effective way of creating or "saving" jobs. After all, regardless of whether these people are receiving food from the government or relying on family, friends and charity, the vast, vast majority of them are still going to eat. Clearly, there will be less of a demand for food should there be no subsidy, but the dropoff is not going to be even close to a dollar for dollar basis. It is simply not logical to assume that there will be more jobs lost from a slightly lower demand for food than whatever jobs are created by allowing those people who are still productive members of the workforce and engaged in the creation of wealth to keep their own money and spend it as they wish.
Does not the person who is gainfully employed also use the money to buy things? Might they not use that money to buy a big ticket item like say a flat screen TV or a new Chevy Volt made by Government Motors? Wouldn't that be better for the economy? Doesn't allowing someone not to work by giving them free food, give them an incentive to keep being unproductive? And what about how much it costs the government to administer the program? And given the Secretary Vilsack's logic, why isn't, say the government giving everyone a "car stamp" to go and purchase automobiles made in America a more effective way to stimulate growth and create jobs? Wouldn't that be an even better direct form of stimulus? By the same token, wouldn't buying shiny new tanks, ships and planes be a better and more effective form of stimulus as well?
16====================================================================================================
The only slightly logical answer to these questions that the Obamabots have given is to point out that since 40 percent of this spending is borrowed, it is, therefore, "new" money that doesn't have to be extracted from the private sector. But, doesn't it cost us money to borrow too? Aren't most of the treasury notes we are selling short term? Even at low interest rates, doesn't it cost the government more to borrow the money in the short term than whatever positive economic value from stimulus we get from giving people free food? Won't future generations have to pay that money back? Doesn't printing money cause inflation whose costs will be borne most by those living on the margins?
Yes, they reply, but there is that wonderful mysterious thing called the magic "multiplier" (seems that it has replaced God given how much faith Democrats have in it)and according to Vilsack for each dollar we spend on food stamps, we get $1.84 back in the form of economic output. Therefore, the program will pay for itself. If as Michele Malkin suggests, this multiplier is in any way accurate:
"America’s economy will only be firing on all cylinders and have full employment when everybody is on food stamps and getting unemployment checks". At 1.84 to 1, we'd create zillions of new jobs. Recession over!
I can't help but the laugh at the insanity of people who really believe that unemployment benefits and food stamps are an effective way to spark the economy into a period of long term growth. The belief that an economy can grow by taxing the productive private sector in order to redistribute that money in the form of financial assistance to those who are not currently productive makes zero economic sense from the point of view of classical economic theory. Yet, despite all evidence to the contrary, Democrats are true believers in the absolute power of the magical multiplier. They are resolute an unwavering in their continued faith in this myth in the same way that Obama is stuck on the idea that we should increase taxes even if we get less revenue as a result. And that isn't economics, that's ideology. It's being stuck on stupid!
Despite the fact that they have been truly and completley wrong about how much the magic Keynesian multiplier would increase economic output and create jobs:
It is one thing for members of this administration to say that extending unemployment insurance and giving people food during hard times is a noble thing to do. It is quite another to claim that they are an effective way of creating or "saving" jobs. After all, regardless of whether these people are receiving food from the government or relying on family, friends and charity, the vast, vast majority of them are still going to eat. Clearly, there will be less of a demand for food should there be no subsidy, but the dropoff is not going to be even close to a dollar for dollar basis. It is simply not logical to assume that there will be more jobs lost from a slightly lower demand for food than whatever jobs are created by allowing those people who are still productive members of the workforce and engaged in the creation of wealth to keep their own money and spend it as they wish.
Does not the person who is gainfully employed also use the money to buy things? Might they not use that money to buy a big ticket item like say a flat screen TV or a new Chevy Volt made by Government Motors? Wouldn't that be better for the economy? Doesn't allowing someone not to work by giving them free food, give them an incentive to keep being unproductive? And what about how much it costs the government to administer the program? And given the Secretary Vilsack's logic, why isn't, say the government giving everyone a "car stamp" to go and purchase automobiles made in America a more effective way to stimulate growth and create jobs? Wouldn't that be an even better direct form of stimulus? By the same token, wouldn't buying shiny new tanks, ships and planes be a better and more effective form of stimulus as well?
16====================================================================================================
The only slightly logical answer to these questions that the Obamabots have given is to point out that since 40 percent of this spending is borrowed, it is, therefore, "new" money that doesn't have to be extracted from the private sector. But, doesn't it cost us money to borrow too? Aren't most of the treasury notes we are selling short term? Even at low interest rates, doesn't it cost the government more to borrow the money in the short term than whatever positive economic value from stimulus we get from giving people free food? Won't future generations have to pay that money back? Doesn't printing money cause inflation whose costs will be borne most by those living on the margins?
Yes, they reply, but there is that wonderful mysterious thing called the magic "multiplier" (seems that it has replaced God given how much faith Democrats have in it)and according to Vilsack for each dollar we spend on food stamps, we get $1.84 back in the form of economic output. Therefore, the program will pay for itself. If as Michele Malkin suggests, this multiplier is in any way accurate:
"America’s economy will only be firing on all cylinders and have full employment when everybody is on food stamps and getting unemployment checks". At 1.84 to 1, we'd create zillions of new jobs. Recession over!
I can't help but the laugh at the insanity of people who really believe that unemployment benefits and food stamps are an effective way to spark the economy into a period of long term growth. The belief that an economy can grow by taxing the productive private sector in order to redistribute that money in the form of financial assistance to those who are not currently productive makes zero economic sense from the point of view of classical economic theory. Yet, despite all evidence to the contrary, Democrats are true believers in the absolute power of the magical multiplier. They are resolute an unwavering in their continued faith in this myth in the same way that Obama is stuck on the idea that we should increase taxes even if we get less revenue as a result. And that isn't economics, that's ideology. It's being stuck on stupid!
Despite the fact that they have been truly and completley wrong about how much the magic Keynesian multiplier would increase economic output and create jobs:
They still believe in it to a degree usually reserved for the most devout members of a cult. How can one look at that chart and not come away with the impression that there is no "multiplier" anywhere near 1.5, much less Secretary Vilsack's 1.84? How can one look at that chart and continue with the fantasy that the "muliplier" means that government can spend us into prosperity? How can anyone who believes in what Keynes actually preached, think that now is a good time to raise taxes while, at the same time, saying with a straight face that you are one hundred percent committed to the creation of jobs, jobs, jobs? Truly, I was puzzled because even from a Keynesian perspective, these policies seem counterproductive to the aim of economic growth.
17====================================================================================================
Then I read an article by R. Clayton Strang and it hit me. I have been right all along. It really is all about ideology, just not the Keynesian ideology they allow to be propagandized in the Matrix.
Think about this...
According to Obama, paying people not to work creates jobs. Giving people free food creates jobs. Everyone should be given free health care if they can't afford it. Health care reform will create jobs (remember that doozy from our pal Nancy?). All of this should be paid for by taxing those wealth creators who have more than enough to provide a very comfortable life for themselves. People who are unemployed need and are entitled to that money. People who have no food need and are entitled to that money. People who have no health care need and are entitled to that money. Therefore, everyone should contribute to the greater good based on their ability to contribute and everyone should receive benefits based on what they need. Or to put it another way: "From each according to his ability, to each according to his needs."
Hey, that sounds like Karl Marx! Exactly. The same ideology that convinced people that communism would create a utopia on earth and that it was a more fair and effective economic model than capitalism, is based on the same principles that convinces Barak Obama, Tom Vilasack, Jay Carney and Nancy Pelosi that giving unproductive members of society unemployment insurance and food stamps at the expense of the productive creates jobs. I am not saying that they are communists. I am merely pointing out that their economic beliefs have more to do with Marxist and Socialist dogma than the theories of John Maynard Keynes.
17====================================================================================================
Then I read an article by R. Clayton Strang and it hit me. I have been right all along. It really is all about ideology, just not the Keynesian ideology they allow to be propagandized in the Matrix.
Think about this...
According to Obama, paying people not to work creates jobs. Giving people free food creates jobs. Everyone should be given free health care if they can't afford it. Health care reform will create jobs (remember that doozy from our pal Nancy?). All of this should be paid for by taxing those wealth creators who have more than enough to provide a very comfortable life for themselves. People who are unemployed need and are entitled to that money. People who have no food need and are entitled to that money. People who have no health care need and are entitled to that money. Therefore, everyone should contribute to the greater good based on their ability to contribute and everyone should receive benefits based on what they need. Or to put it another way: "From each according to his ability, to each according to his needs."
Hey, that sounds like Karl Marx! Exactly. The same ideology that convinced people that communism would create a utopia on earth and that it was a more fair and effective economic model than capitalism, is based on the same principles that convinces Barak Obama, Tom Vilasack, Jay Carney and Nancy Pelosi that giving unproductive members of society unemployment insurance and food stamps at the expense of the productive creates jobs. I am not saying that they are communists. I am merely pointing out that their economic beliefs have more to do with Marxist and Socialist dogma than the theories of John Maynard Keynes.
Therefore it is not surprising that as the economy remains stagnant, we approach the possibility of a double dip recession and the country clamors for new ideas on how to save the economy and deal with the unemployment crisis, Obama would rather scold everyone on the need for the millionaires and billionaires (and everyone making 200k a year or more) to contribute more and pay their fair share. Why? In order that we spend even more money on things like increased aid to the states, more unemployment insurance and additional non-shovel ready infrastructure projects. Given the fact that none of this spending has heretofore helped to spark a recovery, can the answer from our President really be more of the same old same old? This is the best the smartest man to ever occupy the oval office can come up with? Really? If, after four years of unmitigated failure, he still persists in banging his head up against the same wall, one must conclude that his economic decisions are not based on rational analysis, but on emotion and rigid ideology. And he and his sycophants in the media think the Tea Party are extremists?
18====================================================================================================
In less than four years Barack Obama has racked up close to five trillion dollars worth of credit card bills that our children and grandchildren will have to pay for. And like most big parties, this spending orgy has left us with nothing to show for it but a national hangover. Judging by his recent poll numbers, most Americans are reawakening to a simple fact of life. You can't spend your way to prosperity. But, Barry is still trying to sell us on having just one more soiree paid for with other people's money. The kicker is that he guarantees us it will work this time:
18====================================================================================================
In less than four years Barack Obama has racked up close to five trillion dollars worth of credit card bills that our children and grandchildren will have to pay for. And like most big parties, this spending orgy has left us with nothing to show for it but a national hangover. Judging by his recent poll numbers, most Americans are reawakening to a simple fact of life. You can't spend your way to prosperity. But, Barry is still trying to sell us on having just one more soiree paid for with other people's money. The kicker is that he guarantees us it will work this time:
And there you have the bottom line. According to Obama, the Democratic Party and The New York Times, allowing you to spend your own money isn't as good for the economy as allowing the government to confiscate your money and send it into its sausage creation factory to be transformed into new programs by the Crooks and Thieves in Washington. After all, they are so much smarter than we are. Given the utter failure of Obamanomics so far, does anybody not drinking the Kool-Aid actually still believe that? To add to their own self-parody, they'd like us to have absolute faith that Keynes is right on spending, but not on taxes. The deficit is bad, but we should keep spending. Three stimulus packages didn't work, so we need more stimulus. This is what passes for rational economic theory among the left today. Remember that definition of insanity I gave you?
Perhaps it is time to reconsider how "intelligent" Barack Obama really is. To continue to pursue policies which have proven to be totally ineffective is not the sign of someone capable of learning from their mistakes or adapting to changing circumstances. It is the actions of either a lesser intelligence or an ideology grown so rigid that it has calcified. Barack Obama might talk a great game, but as Bret Stephen's so aptly remarked:
But it takes actual smarts to understand that glibness and self-belief are not sufficient proof of genuine intelligence. Stupid is as stupid does, said the great philosopher Forrest Gump. The presidency of Barack Obama is a case study in stupid does.
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But it takes actual smarts to understand that glibness and self-belief are not sufficient proof of genuine intelligence. Stupid is as stupid does, said the great philosopher Forrest Gump. The presidency of Barack Obama is a case study in stupid does.
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Forward!:
Beyond Obama, Keynes and Annie
The failure of Keynesian economics to get us out of the Depression, its role in the economic insanity that was the 1970's, it's abject failure to successfully stimulate the Japanese economy makes a very compelling case that it is time to discard the ideas of John Maynard Keynes onto the ash heap of history along with the failed economic ideas of Marx and Lenin among others. Hopefully, the failure of Obamanomics will send Saul Alinsky and Annie Leonard off to join them soon!
With the misguided and failed theories of the left safely out of the discussion on how to produce economic growth and prosperity, we can actually begin to have a serious and productive conversation about what policies to enact if we are going to fix the economy. First, let's me repeat this truism about economic policy. No matter what the tax rate is, government revenues will remain fairly constant at around 18% of GDP and personal income taxes at around 8.5%:
With the misguided and failed theories of the left safely out of the discussion on how to produce economic growth and prosperity, we can actually begin to have a serious and productive conversation about what policies to enact if we are going to fix the economy. First, let's me repeat this truism about economic policy. No matter what the tax rate is, government revenues will remain fairly constant at around 18% of GDP and personal income taxes at around 8.5%:
At the same time, tax revenue has matched GDP almost exactly:
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Since the percentage of revenues/GDP remains relatively constant over time, we know that in order to create the extra revenue we need to solve our long term deficit problems, it is essential that all our efforts should be focused on growing the economic pie. Evidence from the Coolidge, Kennedy, Reagan and, yes, even the W experience that tax cuts do cause positive growth in GDP, would make this avenue of approach seem warranted. I would also say that when revenues begin to match spending as a percentage of GDP, as we have seen from the Clinton years, that is also conducive to both a higher rate of revenue and economic growth. Therefore, I would say that history has shown us pretty conclusively that increasing the incentive of the private sector to grow, save and invest, while at the same time balancing the budget and following a sound monetary policy is the way to go.
I believe that in our current economic situation, a huge part of the problem has to do with how the tax code distorts economic decisions rather than high rates per se. Currently, there so many deductions and loopholes in the tax code that you could drive a frigging truck through it. Even Obama agrees that this is so. Simpson/Bowles and Paul Ryan both put reforming the tax code at the top of their agendas because they recognize that too much money in the economy is badly utilized because of our insane tax laws. Now that increasing spending is off the table as a realistic solution to promoting economic growth, it is high time that we had a serious discussion about the tax code and how we can use our knowledge of what has worked in the past to come up with the right approach.
Truly a visionary, Ronald Reagan pushed for just that type of discussion almost twenty years ago. Unfortunately, the ink was barely dry on the agreement before George H.W. Bush and a Democrat Congress would muck it all up. However, his words were just as true then as they are today:
Since the percentage of revenues/GDP remains relatively constant over time, we know that in order to create the extra revenue we need to solve our long term deficit problems, it is essential that all our efforts should be focused on growing the economic pie. Evidence from the Coolidge, Kennedy, Reagan and, yes, even the W experience that tax cuts do cause positive growth in GDP, would make this avenue of approach seem warranted. I would also say that when revenues begin to match spending as a percentage of GDP, as we have seen from the Clinton years, that is also conducive to both a higher rate of revenue and economic growth. Therefore, I would say that history has shown us pretty conclusively that increasing the incentive of the private sector to grow, save and invest, while at the same time balancing the budget and following a sound monetary policy is the way to go.
I believe that in our current economic situation, a huge part of the problem has to do with how the tax code distorts economic decisions rather than high rates per se. Currently, there so many deductions and loopholes in the tax code that you could drive a frigging truck through it. Even Obama agrees that this is so. Simpson/Bowles and Paul Ryan both put reforming the tax code at the top of their agendas because they recognize that too much money in the economy is badly utilized because of our insane tax laws. Now that increasing spending is off the table as a realistic solution to promoting economic growth, it is high time that we had a serious discussion about the tax code and how we can use our knowledge of what has worked in the past to come up with the right approach.
Truly a visionary, Ronald Reagan pushed for just that type of discussion almost twenty years ago. Unfortunately, the ink was barely dry on the agreement before George H.W. Bush and a Democrat Congress would muck it all up. However, his words were just as true then as they are today:
Did you notice that all through this speech, Reagan is telling the country to "Go for it!", to create, build and invest and grow and he takes time to tell the young people that their President wants them to help bring the country into a golden era of prosperity: the age of the entrepreneur. Seeing this again, reminded me of something that I said earlier I was going to expand on.
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If you will recall from the Hayek vs. Keynes videos, there is a debate between these two economists about whether mal-investments caused by a loose monetary policy or "animal spirits" are responsible for boom and bust cycles. Well, as much as I respect Hayek and dismiss Keynes, I think they are both right. I didn't want to leave this discussion about how best to achieve prosperity without saying that it is my sincere belief that economics is greatly and sometimes critically influenced by perception. Now, a lot of us conservative folk would say that if Obama had done what Reagan did and cut spending and taxes while, at the same time, buying lots of nice military equipment or other useful shiny new objects made here in the good old USA then, voila, you'd have a nice V shaped recovery. And I'd say they'd be right but....
The biggest problem we face today is that our country is suffering from a crisis of confidence. A crisis, I would argue, that is exacerbated by the utter disconnect between the statist policies of Barack Obama and the American people's belief in the capitalist system. Jimmy Carter was actually right about something, if only thirty one years too early. We are suffering from a malaise brought about by a feeling that the government has become an obstacle in our path rather than a helping hand. That government is trying to punish success rather than reward it. Businesses aren't hiring because they have no idea where the heavy boot of government will fall next. Investors are keeping their money on the side because they don't see policies that make the risk worth the reward. Corporations are keeping trillions in foreign countries because the tax bite is too onerous to justify repatriating that money back home. Everyone is uncertain about the future. That is Barack Obama's America.
When the President of the United States actually says something like this:
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If you will recall from the Hayek vs. Keynes videos, there is a debate between these two economists about whether mal-investments caused by a loose monetary policy or "animal spirits" are responsible for boom and bust cycles. Well, as much as I respect Hayek and dismiss Keynes, I think they are both right. I didn't want to leave this discussion about how best to achieve prosperity without saying that it is my sincere belief that economics is greatly and sometimes critically influenced by perception. Now, a lot of us conservative folk would say that if Obama had done what Reagan did and cut spending and taxes while, at the same time, buying lots of nice military equipment or other useful shiny new objects made here in the good old USA then, voila, you'd have a nice V shaped recovery. And I'd say they'd be right but....
The biggest problem we face today is that our country is suffering from a crisis of confidence. A crisis, I would argue, that is exacerbated by the utter disconnect between the statist policies of Barack Obama and the American people's belief in the capitalist system. Jimmy Carter was actually right about something, if only thirty one years too early. We are suffering from a malaise brought about by a feeling that the government has become an obstacle in our path rather than a helping hand. That government is trying to punish success rather than reward it. Businesses aren't hiring because they have no idea where the heavy boot of government will fall next. Investors are keeping their money on the side because they don't see policies that make the risk worth the reward. Corporations are keeping trillions in foreign countries because the tax bite is too onerous to justify repatriating that money back home. Everyone is uncertain about the future. That is Barack Obama's America.
When the President of the United States actually says something like this:
Excuse me, Mr. President, but if you had spent any time in the private sector or knew even the tiniest bit about capitalism, you'd know that business is only in business to make money. It is either make a profit or die. This kind of backwards, radical thinking scares the living bejeezus out of business. As a result:
This is a huge reason why the US economy is in the doldrums. It is clear to anyone in business and anyone who has swallowed the red pill that we are being led either by a dyed in the wool socialist or an economic ignoramus. Thus, the impression that Barack Obama gives to people in the private sector is that they should be scared. What do people do when they are scared? They are cautious and pessimistic about the future. Since optimism is essential for economic growth, the rhetoric of Barack Obama stifles it utterly and completely.
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You see, the thing that really made Reagan special was that not only was he right on the economics, but his economic philosophy was inextricably linked with his belief in America, in it's people and in it's capitalist system. That conviction led him to say: Hey, we are Americans, we are the most entrepreneurial, industrious and productive people on this planet. If we get Government out of your way, I know you can do wonders. Reagan was the nation's number one cheerleader for capitalism and the American way and his enthusiasm was infectious.
Deep in our hearts, the vast, vast majority of us think this is the best place on earth and that Americans have an ingrained entrepreneurial spirit that breeds the confidence that we can do whatever we set our minds to if the shackles of taxes and red tape that prevent us from achieving our dreams are removed. That is precisely the attitude that Reagan fostered. People were all gung ho to go out and make money again! Democrats disparaged the Eighties as "the decade of greed", but it was truly the decade of entrepreneurship and hope for the future.
It is my belief that, sometimes, economics is 80% perception. If folk think things are hunky dory, they go out and spend like there's no tomorrow, but the minute that changes it's Katy-bar-the-door panic and an ever spiraling downward of confidence in the future. Right now, we are in a national funk. We've been told by just about every serious economist that we are on an unsustainable economic path and that we don't produce anything anymore. The numbers can no longer be denied or fudged over. Worse, the Chinese and the nations of the Pacific Rim are kicking our ass in manufacturing and have become our creditors. Could it ever have been imagined that the greatest capitalist nation in the world is in hock to its eyeballs to the largest communist nation? Heck, we can't even win wars anymore. Gasoline is too expensive and so is food. California is broke and soon the rest of us will be as well. Greece here we come!
That's the mood of the country. Yet, at the same time, we also have the best universities in the world, we are still the champs in Biotech, entertainment, software, pharmaceuticals, the making of processors, design, marketing and just about all areas of leading technological advance. We are living at a time of the greatest potential for economic wealth in history. We are still the greatest capitalists, the greatest innovators, the freest society on earth and we have the potential to kick the stomp out of the commie Chinese for the rest of this century. After all, we are Americans!
But, we have a President who apologizes for our country to every tin pot dictator and politically correct European in the world. We have a president who bows to the king of Saudi Arabia for crying out loud. We have a president that doesn't believe in American Exceptionalism, doesn't want American Exceptionalism and whose very actions convince more and more people with even the slightest amount of common sense that as long as he remains in office, we are completely screwed. Just look at his recent poll numbers on the economy. Abysmal!
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This goes to the very heart of my thinking on Obama and whether Keynesian theory is totally flawed or whether Obama's hybridization of it with Socialist Big Government objectives and theories and the resulting rhetorical tone is to blame for the sorry state we find ourselves in. It was easy for Reagan to paint a sunny and optimistic picture of our country. After all, he did believe in the system that our founders created. It was at the core of his being. But for Obama, the idea of American Exceptionalism is an anathema. Limited government with clearly defined powers? The sovereignty of the people to pursue their own happiness unencumbered by the "advice" , "guidance" and "restrictions" of a benevolent Federal government? Nonsense!
Obama and all the other lefty Columbia and Ivy types I knew when I was attending that institution of "higher" learning thought Reagan's speeches about American Exceptionalism and how we were a Shining City Upon A Hill was just dangerous nationalism of the Hitler type. They thought us all rubes and hicks for loving our country. Now Harvard eggheads are saying that Fourth of July celebrations are turning our kids into Republicans and that they boost adult turnout for the GOP on election day. The horror! No more parades! That is what the multiculturalism and diversity training supported by Ivy League eggheads like Obama is designed to root out. You think are better than other people? You think America is exceptional? You racist, bigot, sexist, judgmental homophobe you. How dare you!
The amazing thing is that while I am not a believer that Keynesian economics is the right solution for our country, now or ever, there is actually a way to make it work. At least a little bit. Paul Krugman is not totally insane when he says that perhaps an alien invasion is just the kick in the pants our economy needs. I'd say that our ability to borrow the trillions of dollars necessary to wage such a war is no longer feasible or politically attainable as it was in World War Two, but the evidence of that period is testament to the notion that it could conceivably work. That is, if you can set the right tone and energize the populace's "animal spirits". Had Obama, spoken to the nation during the worst of the recession and said something like:
"I believe in this country and this people. I believe we can do whatever we set our minds to. We are down but we are definitely not out. I, like you, am sick and tired of sending our hard earned dollars to a bunch of terrorist supporting nations and tin pot dictators for their oil. I now propose that we open up the totality of Federal land for the drilling of oil and gas. I propose that we spend X trillion dollars to change over a huge part of our transportation network to natural gas powered railroads, trucks and cars and build 50 nuclear plants in the US in the next five years. In addition, I want to completely overhaul the power grid for a new century. In the long term I want to spend another X billion dollars to research and obtain the world's first successful fusion reactor. We can do this. We will do this. After all, we are Americans."
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Had Obama mobilized the country to a specific purpose, towards something concrete and achievable and good for the country in both the short and the long term, it is possible that this kind of Government spending would have had the positive economic impact we all desired. Had he set the nation on a national mission that would have spent the same trillion plus bucks that we wasted with his stimulus on an endeavor that would have the potential to pay for itself over time in reduced foreign imports of oil, he could have mobilized the country. A bold and well thought out move such as this has the potential to unite the country and get us thinking that we were all working together towards a common goal and that the goal would pay off in spades for us in the future. In other words, the gains we would reap from this project would pay for the borrowing needed to fund it over the long term. Had he done something like this, Obama might have been able to make the whole Keynesian thing work. By inspiring us to a higher purpose, that because we are Americans we can do it, the President could have changed our perception of ourselves and who we are and want to be in the Twenty First century.
When he took office, Obama had it all! He had the country behind him with massive majorities in congress and the ability to do just about any one thing he wanted. He could have been a transformative leader like Reagan. He could have offered a transcendent vision of America's future. He could have been what the media kept trying to convince us he was: an FDR, JFK or a Lincoln. He could have made an argument for how government spending can be the answer in times of recession by actually using governments enormous ability to raise and spend money to achieve a goal that can only be achieved by a massive and focused national effort like a war or a moon mission.
Instead, because the man is basically an empty suit without an original idea of his own, he cannot inspire us to greater things. Because his mind and vision are not exceptional, the only focused effort of the stimulus was devoted to the nirvana of "green" jobs for a future that only exists in leftist fantasy and Annie Leonard videos. Because he doesn't really believe in American exceptionalism, he has no vision that is consistent with what most of us see as the truth that has made America great. Therefore, he could not unite the country to embark on any effective form of Keynesianism and his rigid ideology prevented him from following the historically successful examples of Reagan and Coolidge. Instead he spent his political capital on a stimulus that didn't stimulate and an unpopular health care plan that doesn't achieve its stated goal of bending the cost curve. Instead of grand ideas that the country could unite behind in a bi-partisan effort, he devoted his Presidency to achieving the fifty year old wish list of the Democratic party. As a result, he threw away a golden historic opportunity and trillions of dollars of our money down the tubes. Instead of an FDR or a JFK, he gave us BO.
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In the end, I believe that the facts show that only a very massive and focused kind of Keynesian stimulus has ever been successful. Supply side theory, on the other hand, has a proven track record of historical success. It will be up to another President to promote this policy and learn, like Reagan, how to express it in a way that inspires. If this country is to regain its confidence, to get back our destiny as Americans, the world's champions of freedom and capitalism, we will need a leader who understands the basic essence of our country the way Reagan did.
When the history books are written and people ask why Reagan was so successful in getting us out of an economic crisis and Obama such a dismal failure, the true answer will not just be that they followed a particular economic theory, but their grasp of what really makes our country special. America is great, not because our land is so much more wonderful than others, or our people particularly smarter, but because our Constitution is the greatest governing document man has ever invented. The land where liberty is held most dear is the land where prosperity shall spring forth. This concept is something that Reagan believed with all his heart and that Obama doesn't have even the slightest clue about. He'd rather we be more like a Europe he thinks are more "enlightened" then we are. That's why Obama cannot inspire the nation to the path of prosperity. Not only is there no prosperity to point to in the quasi-socialist nations of the old world, their type of economics and thinking is what so many people fled from to come to America where real opportunity could be had. As Marco Rubio pointed out in his 2012 RNC speech:
These are tired and old big government ideas. Ideas that people come to America to get away from. Ideas that threaten to make America more like the rest of the world, instead of helping the world become more like America.
Not only are Barack Obama's ideas incompatible with historically sound fundamental economics, but he cannot lead a nation to a place is has never wanted to go. That's why Obamanomics suffers from a huge failure of the national morale. And that's the bottom line. If you cannot instill real hope and optimism through your leadership by calling upon shared economic values, then your programs are destined to fail.
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While, I have emphasized the value of perception in economics, there is no question that fundamental economic theory is the ultimate factor in whether an economy shrinks or expands long term. I am fully aware that the degree to which economic theories can engender positive results because of their soundness can create the public mood all by themselves without need for cheerleading from our political leaders. However, I am sure you will agree, expansions become greater, recessions deeper and contraction and recovery stronger due to popular perception. Thus, the point I am making is that sometimes the spark needed to ignite an expansion or to set off a panic can come from a leader's vision and his connection with the country. Sometimes without those sparks there is just a continuation of the status-quo, regardless of the economic policies undertaken. Sometimes coming up with the WIN button just doesn't cut it. I think that there is no question that this is true.
I would also argue that the media Matrix's role in shaping public perception has a massive impact as well. In my opinion, one of the fundamental causes of the economic collapse in '08 was a two year campaign by Democrats and their willing stenographers in the media to claim we were in recession. Long before there were any economic clouds on the horizon, you would see stories about how unemployment fell "unexpectedly" or a focus only on the certain sectors of a growing economy that were hurting. Day after day for two years came the media drumbeat of negative and mostly untrue stories about W, the war in Iraq, Katrina and the economy. Eventually, as the mood of the public began to sour, the economy did as well turning a falling housing market into diving one.
This isn't to say that the fundamentals weren't bad, but that the media influenced public sentiment that the good times were over pushed the economy over the tipping point from slight growth to negative growth. And once the recession started the ball rolling on all the bad decisions made by government and financial institutions, the crash that resulted was accelerated by the instant panic of the public after W's disastrous speech in favor of TARP. The media led frenzy that followed that ill-advised Presidential address caused an outright panic that blew up in our faces and made things much worse.
I do not believe I can emphasize enough how the media's bias shapes public opinion towards their favored outcomes or how their ratings driven sensationalist reporting magnifies events well out of proportion. It is fascinating to recall the role the media played in trying to prop up Clinton in '96 for his election and in '98 during Monicagate by propagandizing the news that the economy was roaring and that we should elect ('96) or forgive our President ('98) because our wallets were full and times never better. The positive stories on the economy were endless and the media narrative became: who cares about a little sex when times are so good. Go talk to anyone who loves Clinton and they'll all tell you first about how great the economy was. When you hear every day about how great the president is and how masterfully he and Greenspan are managing the economy, it creates the impression that the ball will keep rolling.. and rolling.. and rolling... into "irrational exuberance" until it eventually falls off the cliff as it did in the dot-com tech bubble.
At the same time, an ill timed and phrased speech by a leader can have the same effect. The W speech before the crash greatly accelerated everyone's panic, and in my opinion was the biggest fundamental mistake of his administration. To panic people for 700 billion dollars which, in the end, they didn't even spend is the height of stupidity. On the other hand, Reagan's economic program would not have caught fire in quite the same way had he droned on to the people about how our best days were behind us as Carter did. You just cannot have a thriving economy if the public is convinced that the world is coming to an end.
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Animal spirits! Here's one for Keynes who, even if he got everything else wrong, at least understood that sometimes public perception is, indeed, 80% of the game. It is also true that in the long term, the public cannot be fed constant lies forever and continue unaffected. Bad economic policy will always overcome even the best cheerleading. However, it is important to note that during WW2, Stalin was able to make communism work well enough to build innumerable T-34 tanks and Yak fighters to beat off the Nazis. For the same reasons, Roosevelt was able to produce untold quantities of war materiel because the animal spirits of our nation was increased to a fever pitch of patriotism and survival instinct as a result of the war. Could it have been sustained forever? No. It surely couldn't in Uncle Joe's Soviet Union where the fundamental and fatal flaws of that economic system led to an economic debacle. But, often it doesn't have to be. Once the spark is lit, the fire rages if the economics are sound.
Therefore, if we are going to fix our economy by eschewing Keynes and adopting a model that has a proven track record, like making the tax code friendlier to entrepreneurship and investing, we also need to express the optimism and faith in the philosophical principles that underlies it. We need to understand that Supply Side theory is basically an extension of the American Constitution which limits governments power and places the real power (and money) in the hands of the people. That is what created the American Dream: real people, by the millions and millions following their own particular pursuits of happiness. It surely wasn't the failed policy of the Keynesians who gave us the New Deal, the Great Society, the inflation of the Seventies and the idiocy of Obamanomics.
In the final analysis, when it comes to economic policy and how we maximize revenues to get them more in synch with our levels of spending, any truthful examination of the facts will come to certain inescapable conclusions. The higher the GDP growth the more revenue goes into the treasury. Regardless of the tax rate, the American people will only contribute around 18% of their income to the Federal Government. To avoid paying any more money to the government than they themselves deem to be their "fair share", they will refuse to work extra hours, they will shelter their money, they will barter and conduct transactions in cash and do whatever it takes to avoid having their pockets picked by the IRS. But whether the tax rate is 92% or 28%, the amount of revenue that goes into the treasury is still inexorably tied to the GDP rate. The more you alter the tax code to incentivize business, reward investment and allow capital to be allocated to its most productive purposes rather than the avoidance of taxes, the higher GDP growth will be. This has been proven time and time and time again. If the goal is to maximize revenue to the treasury, the answer can never be the raising of taxes.
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You see, the thing that really made Reagan special was that not only was he right on the economics, but his economic philosophy was inextricably linked with his belief in America, in it's people and in it's capitalist system. That conviction led him to say: Hey, we are Americans, we are the most entrepreneurial, industrious and productive people on this planet. If we get Government out of your way, I know you can do wonders. Reagan was the nation's number one cheerleader for capitalism and the American way and his enthusiasm was infectious.
Deep in our hearts, the vast, vast majority of us think this is the best place on earth and that Americans have an ingrained entrepreneurial spirit that breeds the confidence that we can do whatever we set our minds to if the shackles of taxes and red tape that prevent us from achieving our dreams are removed. That is precisely the attitude that Reagan fostered. People were all gung ho to go out and make money again! Democrats disparaged the Eighties as "the decade of greed", but it was truly the decade of entrepreneurship and hope for the future.
It is my belief that, sometimes, economics is 80% perception. If folk think things are hunky dory, they go out and spend like there's no tomorrow, but the minute that changes it's Katy-bar-the-door panic and an ever spiraling downward of confidence in the future. Right now, we are in a national funk. We've been told by just about every serious economist that we are on an unsustainable economic path and that we don't produce anything anymore. The numbers can no longer be denied or fudged over. Worse, the Chinese and the nations of the Pacific Rim are kicking our ass in manufacturing and have become our creditors. Could it ever have been imagined that the greatest capitalist nation in the world is in hock to its eyeballs to the largest communist nation? Heck, we can't even win wars anymore. Gasoline is too expensive and so is food. California is broke and soon the rest of us will be as well. Greece here we come!
That's the mood of the country. Yet, at the same time, we also have the best universities in the world, we are still the champs in Biotech, entertainment, software, pharmaceuticals, the making of processors, design, marketing and just about all areas of leading technological advance. We are living at a time of the greatest potential for economic wealth in history. We are still the greatest capitalists, the greatest innovators, the freest society on earth and we have the potential to kick the stomp out of the commie Chinese for the rest of this century. After all, we are Americans!
But, we have a President who apologizes for our country to every tin pot dictator and politically correct European in the world. We have a president who bows to the king of Saudi Arabia for crying out loud. We have a president that doesn't believe in American Exceptionalism, doesn't want American Exceptionalism and whose very actions convince more and more people with even the slightest amount of common sense that as long as he remains in office, we are completely screwed. Just look at his recent poll numbers on the economy. Abysmal!
5=====================================================================================================
This goes to the very heart of my thinking on Obama and whether Keynesian theory is totally flawed or whether Obama's hybridization of it with Socialist Big Government objectives and theories and the resulting rhetorical tone is to blame for the sorry state we find ourselves in. It was easy for Reagan to paint a sunny and optimistic picture of our country. After all, he did believe in the system that our founders created. It was at the core of his being. But for Obama, the idea of American Exceptionalism is an anathema. Limited government with clearly defined powers? The sovereignty of the people to pursue their own happiness unencumbered by the "advice" , "guidance" and "restrictions" of a benevolent Federal government? Nonsense!
Obama and all the other lefty Columbia and Ivy types I knew when I was attending that institution of "higher" learning thought Reagan's speeches about American Exceptionalism and how we were a Shining City Upon A Hill was just dangerous nationalism of the Hitler type. They thought us all rubes and hicks for loving our country. Now Harvard eggheads are saying that Fourth of July celebrations are turning our kids into Republicans and that they boost adult turnout for the GOP on election day. The horror! No more parades! That is what the multiculturalism and diversity training supported by Ivy League eggheads like Obama is designed to root out. You think are better than other people? You think America is exceptional? You racist, bigot, sexist, judgmental homophobe you. How dare you!
The amazing thing is that while I am not a believer that Keynesian economics is the right solution for our country, now or ever, there is actually a way to make it work. At least a little bit. Paul Krugman is not totally insane when he says that perhaps an alien invasion is just the kick in the pants our economy needs. I'd say that our ability to borrow the trillions of dollars necessary to wage such a war is no longer feasible or politically attainable as it was in World War Two, but the evidence of that period is testament to the notion that it could conceivably work. That is, if you can set the right tone and energize the populace's "animal spirits". Had Obama, spoken to the nation during the worst of the recession and said something like:
"I believe in this country and this people. I believe we can do whatever we set our minds to. We are down but we are definitely not out. I, like you, am sick and tired of sending our hard earned dollars to a bunch of terrorist supporting nations and tin pot dictators for their oil. I now propose that we open up the totality of Federal land for the drilling of oil and gas. I propose that we spend X trillion dollars to change over a huge part of our transportation network to natural gas powered railroads, trucks and cars and build 50 nuclear plants in the US in the next five years. In addition, I want to completely overhaul the power grid for a new century. In the long term I want to spend another X billion dollars to research and obtain the world's first successful fusion reactor. We can do this. We will do this. After all, we are Americans."
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Had Obama mobilized the country to a specific purpose, towards something concrete and achievable and good for the country in both the short and the long term, it is possible that this kind of Government spending would have had the positive economic impact we all desired. Had he set the nation on a national mission that would have spent the same trillion plus bucks that we wasted with his stimulus on an endeavor that would have the potential to pay for itself over time in reduced foreign imports of oil, he could have mobilized the country. A bold and well thought out move such as this has the potential to unite the country and get us thinking that we were all working together towards a common goal and that the goal would pay off in spades for us in the future. In other words, the gains we would reap from this project would pay for the borrowing needed to fund it over the long term. Had he done something like this, Obama might have been able to make the whole Keynesian thing work. By inspiring us to a higher purpose, that because we are Americans we can do it, the President could have changed our perception of ourselves and who we are and want to be in the Twenty First century.
When he took office, Obama had it all! He had the country behind him with massive majorities in congress and the ability to do just about any one thing he wanted. He could have been a transformative leader like Reagan. He could have offered a transcendent vision of America's future. He could have been what the media kept trying to convince us he was: an FDR, JFK or a Lincoln. He could have made an argument for how government spending can be the answer in times of recession by actually using governments enormous ability to raise and spend money to achieve a goal that can only be achieved by a massive and focused national effort like a war or a moon mission.
Instead, because the man is basically an empty suit without an original idea of his own, he cannot inspire us to greater things. Because his mind and vision are not exceptional, the only focused effort of the stimulus was devoted to the nirvana of "green" jobs for a future that only exists in leftist fantasy and Annie Leonard videos. Because he doesn't really believe in American exceptionalism, he has no vision that is consistent with what most of us see as the truth that has made America great. Therefore, he could not unite the country to embark on any effective form of Keynesianism and his rigid ideology prevented him from following the historically successful examples of Reagan and Coolidge. Instead he spent his political capital on a stimulus that didn't stimulate and an unpopular health care plan that doesn't achieve its stated goal of bending the cost curve. Instead of grand ideas that the country could unite behind in a bi-partisan effort, he devoted his Presidency to achieving the fifty year old wish list of the Democratic party. As a result, he threw away a golden historic opportunity and trillions of dollars of our money down the tubes. Instead of an FDR or a JFK, he gave us BO.
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In the end, I believe that the facts show that only a very massive and focused kind of Keynesian stimulus has ever been successful. Supply side theory, on the other hand, has a proven track record of historical success. It will be up to another President to promote this policy and learn, like Reagan, how to express it in a way that inspires. If this country is to regain its confidence, to get back our destiny as Americans, the world's champions of freedom and capitalism, we will need a leader who understands the basic essence of our country the way Reagan did.
When the history books are written and people ask why Reagan was so successful in getting us out of an economic crisis and Obama such a dismal failure, the true answer will not just be that they followed a particular economic theory, but their grasp of what really makes our country special. America is great, not because our land is so much more wonderful than others, or our people particularly smarter, but because our Constitution is the greatest governing document man has ever invented. The land where liberty is held most dear is the land where prosperity shall spring forth. This concept is something that Reagan believed with all his heart and that Obama doesn't have even the slightest clue about. He'd rather we be more like a Europe he thinks are more "enlightened" then we are. That's why Obama cannot inspire the nation to the path of prosperity. Not only is there no prosperity to point to in the quasi-socialist nations of the old world, their type of economics and thinking is what so many people fled from to come to America where real opportunity could be had. As Marco Rubio pointed out in his 2012 RNC speech:
These are tired and old big government ideas. Ideas that people come to America to get away from. Ideas that threaten to make America more like the rest of the world, instead of helping the world become more like America.
Not only are Barack Obama's ideas incompatible with historically sound fundamental economics, but he cannot lead a nation to a place is has never wanted to go. That's why Obamanomics suffers from a huge failure of the national morale. And that's the bottom line. If you cannot instill real hope and optimism through your leadership by calling upon shared economic values, then your programs are destined to fail.
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While, I have emphasized the value of perception in economics, there is no question that fundamental economic theory is the ultimate factor in whether an economy shrinks or expands long term. I am fully aware that the degree to which economic theories can engender positive results because of their soundness can create the public mood all by themselves without need for cheerleading from our political leaders. However, I am sure you will agree, expansions become greater, recessions deeper and contraction and recovery stronger due to popular perception. Thus, the point I am making is that sometimes the spark needed to ignite an expansion or to set off a panic can come from a leader's vision and his connection with the country. Sometimes without those sparks there is just a continuation of the status-quo, regardless of the economic policies undertaken. Sometimes coming up with the WIN button just doesn't cut it. I think that there is no question that this is true.
I would also argue that the media Matrix's role in shaping public perception has a massive impact as well. In my opinion, one of the fundamental causes of the economic collapse in '08 was a two year campaign by Democrats and their willing stenographers in the media to claim we were in recession. Long before there were any economic clouds on the horizon, you would see stories about how unemployment fell "unexpectedly" or a focus only on the certain sectors of a growing economy that were hurting. Day after day for two years came the media drumbeat of negative and mostly untrue stories about W, the war in Iraq, Katrina and the economy. Eventually, as the mood of the public began to sour, the economy did as well turning a falling housing market into diving one.
This isn't to say that the fundamentals weren't bad, but that the media influenced public sentiment that the good times were over pushed the economy over the tipping point from slight growth to negative growth. And once the recession started the ball rolling on all the bad decisions made by government and financial institutions, the crash that resulted was accelerated by the instant panic of the public after W's disastrous speech in favor of TARP. The media led frenzy that followed that ill-advised Presidential address caused an outright panic that blew up in our faces and made things much worse.
I do not believe I can emphasize enough how the media's bias shapes public opinion towards their favored outcomes or how their ratings driven sensationalist reporting magnifies events well out of proportion. It is fascinating to recall the role the media played in trying to prop up Clinton in '96 for his election and in '98 during Monicagate by propagandizing the news that the economy was roaring and that we should elect ('96) or forgive our President ('98) because our wallets were full and times never better. The positive stories on the economy were endless and the media narrative became: who cares about a little sex when times are so good. Go talk to anyone who loves Clinton and they'll all tell you first about how great the economy was. When you hear every day about how great the president is and how masterfully he and Greenspan are managing the economy, it creates the impression that the ball will keep rolling.. and rolling.. and rolling... into "irrational exuberance" until it eventually falls off the cliff as it did in the dot-com tech bubble.
At the same time, an ill timed and phrased speech by a leader can have the same effect. The W speech before the crash greatly accelerated everyone's panic, and in my opinion was the biggest fundamental mistake of his administration. To panic people for 700 billion dollars which, in the end, they didn't even spend is the height of stupidity. On the other hand, Reagan's economic program would not have caught fire in quite the same way had he droned on to the people about how our best days were behind us as Carter did. You just cannot have a thriving economy if the public is convinced that the world is coming to an end.
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Animal spirits! Here's one for Keynes who, even if he got everything else wrong, at least understood that sometimes public perception is, indeed, 80% of the game. It is also true that in the long term, the public cannot be fed constant lies forever and continue unaffected. Bad economic policy will always overcome even the best cheerleading. However, it is important to note that during WW2, Stalin was able to make communism work well enough to build innumerable T-34 tanks and Yak fighters to beat off the Nazis. For the same reasons, Roosevelt was able to produce untold quantities of war materiel because the animal spirits of our nation was increased to a fever pitch of patriotism and survival instinct as a result of the war. Could it have been sustained forever? No. It surely couldn't in Uncle Joe's Soviet Union where the fundamental and fatal flaws of that economic system led to an economic debacle. But, often it doesn't have to be. Once the spark is lit, the fire rages if the economics are sound.
Therefore, if we are going to fix our economy by eschewing Keynes and adopting a model that has a proven track record, like making the tax code friendlier to entrepreneurship and investing, we also need to express the optimism and faith in the philosophical principles that underlies it. We need to understand that Supply Side theory is basically an extension of the American Constitution which limits governments power and places the real power (and money) in the hands of the people. That is what created the American Dream: real people, by the millions and millions following their own particular pursuits of happiness. It surely wasn't the failed policy of the Keynesians who gave us the New Deal, the Great Society, the inflation of the Seventies and the idiocy of Obamanomics.
In the final analysis, when it comes to economic policy and how we maximize revenues to get them more in synch with our levels of spending, any truthful examination of the facts will come to certain inescapable conclusions. The higher the GDP growth the more revenue goes into the treasury. Regardless of the tax rate, the American people will only contribute around 18% of their income to the Federal Government. To avoid paying any more money to the government than they themselves deem to be their "fair share", they will refuse to work extra hours, they will shelter their money, they will barter and conduct transactions in cash and do whatever it takes to avoid having their pockets picked by the IRS. But whether the tax rate is 92% or 28%, the amount of revenue that goes into the treasury is still inexorably tied to the GDP rate. The more you alter the tax code to incentivize business, reward investment and allow capital to be allocated to its most productive purposes rather than the avoidance of taxes, the higher GDP growth will be. This has been proven time and time and time again. If the goal is to maximize revenue to the treasury, the answer can never be the raising of taxes.
Therefore, the only answer to increasing revenues to the treasury is to make the allocation of capital in our economy the most productive it can be. It is to nourish the hopes and dreams of entrepreneurs, inventors and risk takers to be the next Henry Ford, Steve Jobs and Thomas Edison. This means that economic policy should never be about "justice" or "fairness" or getting even with the evil rich, but solely upon what will foster the expansion of the economy. The facts are that when we encourage our people through pro-growth policies, their natural reaction is to "go for it"they will produce a wealth and abundance never before seen in human history. We the people, making our own decisions and following our own enlightened self interest are the real engines of prosperity. The sooner we all realize that, the sooner we accept the facts, the quicker we will thrive.