Keynesian Economics and the “stimulus” fiasco

According to Keynesian Economics, the answer to an economic recession is for the government to "make up" for the drop in GDP by stimulating the economy with spending, tax cuts, interest rates cuts or some combination of the above.  The British economist John Maynard Keynes published this theory during the Great Depression.  Based on these and similar ideas FDR spent vast sums on infrastructure projects, yet the recession continued on and on until America entered World War II.  When the failure of the "stimulus" failed to revive the economy year after year, Keynes complained that FDR simply had not spent enough!

He has been famously quoted as suggesting the government pay to "dig holes and fill them back up again."  Essentially ANY spending contributed to the GDP and hence was "good" from his point of view.

The Great Depression’s double digit unemployment ended only when America entered World War II.  Proponents of Keynesian Economics take this as evidence that Keynes was right:  FDR just had not spent enough until the war and military buildup guaranteed full employment!  Proponents of a massive stimulus like to point to the vast borrowing and spending during the war years as "proof" that Keynes was right!

This view of history forms the basis for the broad acceptance of Keynesian Economics in the 1950’s.  Two generations of politicians and economists believed that government could continue to "manage" the economy using these techniques.  Luckily, we’ve had no deep recessions to test the limits of this theory, until now.

In my humble opinion, dumb as I am, I think that killing off 53 MILLION foreign competitors and totally destroying the industrial and financial capacity of EVERY industrial nation in the WORLD, had something to do with our happy economic times in the 1950’s.

Somehow, proponents of ‘massive stimulus’ overlook that we survived World War II without damage to a single American factory, harbor or out house!  We lost about 410,000 soldiers, a terrible loss for sure.  But remember that the British, French, Germans, Italians, Russians, Japanese and many other nations suffered much greater losses!  To have a similar impact today, over 200 MILLION non-Americans would be killed and their towns, factories, bridges, and all other forms of infrastructure totally destroyed.

After World War II, we had new dams, power lines, factories, harbors, railroads, a well disciplined and trained workforce, new technology and access to all the technical advances of our enemies’ greatest scientists and engineers.  We also had the world’s largest remaining financial and legal system, drawing in all investment capital left in the world.  And one other thing…. NO FOREIGN COMPETITION!

I hope and pray this recession will NOT evolve like the Great Depression.  We certainly know better now… but we also do not have the security of the oceans to protect us this time.  When I hear of the riots overseas, when I see the labor unions in England, France, Greece and elsewhere start calling for an end to "foreign labor" and competition, I worry.  Our own congress put "Buy American" clauses into the stimulus proposals.  These have now been watered down to assure our foreign trade partners that we will not violate "free trade" rules imposed by the World Trade Organization through treaty commitments, but how long will our politicians stick to this if we start to see double digit unemployment?  …or other nations start to pull out of the WTO?

President Obama is correct that much of the economic downturn is due to a lack of trust.  Obviously, virtually every "expert" organization (CIA, DOD, SEC, World Bank, the Federal Banks and intelligence agencies of multiple nations, etc.) have demonstrated good reason for us to question their judgment!

President Obama is incorrect, however, if he thinks massive government spending solves our problem.  The inevitable fraud and abuse, coupled with the unavoidable legal and bureaucratic delays, will destroy hope and remind us that our lack of "trust" in the experts was well founded!

We need the discipline and willingness to sacrifice that took our parents a decade of depression plus a World War to learn.  And it helps if all the foreign competitors turn into hungry customers.  These are terrible requirements, but THEY are what allowed us to ultimately triumph over the Great Depression and World War II.  The "Greatest Generation" and what they suffered through made possible the American Era and crowned us "world leaders" for decades.

Unless we do much, much more than play political patronage games, we will see the whole world sink into a long, grinding depression.  And the Atlantic and Pacific oceans will not protect us this time.

We need a very quick and massive stimulus, NOW!  We need a stimulus that does NOT pit one faction against another.  We need a stimulus that STOPS businesses from laying off workers and ensures spending BY ORDINARY PEOPLE.  We don’t have time to micromanage the recovery from Washington.  What we need is for each individual worker and business to manage their OWN micro-economics, recover CONFIDENCE and HOPE in themselves and their fellow citizens.

You know the "FICA tax holiday" I’ve been talking about.  You know it satisfies these objectives.  And you know very well that neither the Republicans or the Democrats have the sense to put aside their egos and give money back to the working people of America.  They simply don’t trust us any more than they trust each other!  I’d hoped the President was enough of a "outside the box" thinker to shake things up, but his virtual surrender to the leadership of his party in the Congress seems to rule out any real "change".  We’ll have more of the same political bickering that got us here.

It is sad.  Our children will suffer.  Our children’s children will suffer.

Don’t just sit there!  Demand a simple, clean, massive and direct stimulus:  trust US, the citizens, with our own money!  Borrow only to keep the essential services of the government running:  Social Security, Defense, etc.  Turn back over to us the TRILLION you are about to waste on new projects, and we’ll give you new customers and new businesses of OUR OWN!  …a new, more vibrant economy will string up from the working people of this country.  These are the people who know what their children and neighbors need, far better than any Wall Street guru or ivy draped professor or elite lawyer.  Tell your congressman and senator…. demand they step out of the way and let us just succeed!

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