“What the world has now reached…is a Keynesian dead end. We are told to let Congress continue to spend and borrow until the precise moment when Mr. Summers and Mark Zandi and the other architects of our current policy say it is time to raise taxes to reduce the huge deficits and debt that their spending has produced. Meanwhile, individuals and businesses are supposed to be unaffected by the prospect of future tax increases, higher interest rates, and more governmental control over nearly every area of the economy.” ‘The Keynesian Dead End’, The Wall Street Journal, June 26, 2010
Let us hope that President Obama and Treasury Secretary Timothy Geithner return from the G8 and G20 meetings in Toronto next week with blackened eyes and bloodied noses delivered by European leaders sick and tired of their fraudulent Keynesian nostrums that currently are clogging the arteries of the advanced nations with fat and bad cholesterol.
Let us further hope that a President who has found a taste for beating up fine generals will lay some solid punches into his retread Keynesian advisors as he runs them out of town. For it is high time to call them out for their failures of economic prediction and the serious harm that their their growth-retarding policies have imposed on regular Americans.
It is important to understand just how academically weak Obama’s leading economic advisors truly are. Lawrence Summers has ridden far on a great pedigree (related to two Nobel Prize winning economists and cloaked in the Harvard label). But he is now far- distanced from serious academic work, preferring instead to relax in the less intellectually pressured world of government and university administration. A lot of his early work quite frankly was pedestrian, much of it co-authored. There is clearly no Nobel Prize in economic Sciences in the offing for his contributions. Christina Romer is no path-breaker either, her best work co-authored with her much more impressive husband. Both Summers and Romer are recent Keynesian retreads, who spent most of their academic careers in the world of rational expectations and New Keynesian economics. Their recent return to the hydraulic Keynesian fold is as mystifying as it is unfortunate for the nation.
Summers was directly involved in Stimulus I, pressing President Bush and Congress for a temporary spending injection of $150 billion for 2008. The government responded with $168 billion in spending and one-time tax cuts. This injection failed to stop the financial crisis and economic contraction of September 2008. Summers and Romer, undeterred by failure, next pressed President Obama hard for Stimulus II early in 2009. The government responded with $862 billion in pork-laden outlays.
Summers and Romer went out on a limb, assuring the public that this spending would hold unemployment in the United States below 8 per cent. What a pair of losers! Seventeen months later, with the United States running a monetary furnace, the unemployment rate hovers at 9.7 per cent, with first quarter growth for the U.S. economy at an anaemic 2.7 per cent per annum, orders of magnitude worse than the Reagan recovery of 1983-84. Still undeterred by repeated failure, Summers and Romer now press for Stimulus III; and President Obama fully supports their nostrums.
Throw these losers out, Mr. President, while you still have time to shift the economic course of this nation towards more desirable waters. If you do not do so, they will surely take you down in 2012, together with the Democratic-controlled Congress that has blindly followed your administration on the road to economic ruin.
Tags: economic stimulus clogs the arteries of the economy, Summers and Romer as Keynesian retreads, the economic road to ruin, the failure of Keynesian economics
June 26, 2010 at 6:13 pm |
I would merely add, if I may, that it is shocking and tragic that often free market-oriented columnists for the “Financial Times” like Samuel Brittan and Martin Wolf have come out as almost “extreme” Keynesians with their opposition to the proposed government budget cuts in the British economy.
Their arguments are almost caricatures of old textbook Keynesians with calls for maintaining “aggregate demand,” the importance of deficit stimulus as the only means of restoring “full employment,” and their implicit attitude that “in the long run we are all dead,” so better to “prime-the-pump” for short-run gains. And worry about fiscal discipline and balancing the budget some time in the undefined future.
If these are the free market’s “friends.” well . . .
Richard Ebeling
June 28, 2010 at 2:21 am |
I agree with Richard, and I am talking from the Australian point of view since we have a spendthrift government as well.. there has been no real changing of the guard over here… we have replaced the covert Marxist for the overt Marxist who is busy trying to hide her Marxist pedigree…
As already discussed, I see a lot of similarity between the present situation and the situation in the 1970s when we were introduced to the term stagflation. My understanding of stagflation is: high unemployment, high interest rates and high inflation. It is hard to see that these conditions are being met because of the way that interest rates are being kept artificially low (except in Australia where the Reserve Bank has in fact increased the rate to soak up the inflationary pressures – then adding to the pressures at the same time)as well as the inflation figures being kept artificially low through the alterations to the basket of goods that is used for such measurement.
Keynesian theory was only useful under certain conditions. Those conditions did not exist at the beginning of 2008. Those conditions did exist in England during the Great Depression. I believe that what Keynes really meant is that any measures taken are meant to be temporary. This is why Keynesians of today are so hopelessly wrong. Keynes failed, and they have failed because they did not fully take into account the impact of Government spending overtaking private Investment.
Cameron and Clegg need to be strong in their approach and they need to give Obummer and Geithner the middle finger… also know as “the bird”