Do federal spending, deficits, and debt promote economic growth and prosperity?
If you listen to President Obama and his Democrat and liberal/left cronies carefully, a clear, consistent message comes through on what they think promotes economic growth and jobs. They believe that the way to promote economic growth and prosperity is through increased federal spending, deficits, and debt.
That is not a caricature of their position. This is precisely what they are saying. And they are true to their words.
Still Another Failure of Keynesian Economics
The policy, in fact, began within 30 days of President Obama taking office, with his so-called stimulus bill that increased federal spending by nearly a trillion dollars, which was supposed to create millions of jobs and promote economic recovery. It was followed by further spending increases that altogether have increased federal spending so far by nearly 30% since 2008, to an all time record.
President Obama’s own 2012 budget projects a federal deficit for this year of $1.645 trillion, the highest anywhere in world history by several times over. The President’s own budget documents project as well that by next year more debt will be run up in one term under President Obama than under all other Presidents in history — from George Washington to George Bush — combined. On March 18, the Congressional Budget Office issued a report concluding that federal deficits over the next 10 years under President Obama’s budget would soar by nearly a third more than he estimated, totaling nearly $10 trillion over those 10 years, which would double the national debt again to $21 trillion by 2021.
The national debt is already the highest in history as a percent of GDP except for World War II, and on its current course will soar well past that record (109% of GDP). Indeed, our national debt as a percent of GDP is slated to soar past the level that triggered bankruptcy for Greece (115% of GDP), when the financial markets refused to lend the government enough money to cover its enormous annual deficit.
Yet, Paul Krugman has argued in his New York Times column that all of President Obama’s increased spending, deficits and debt were not going to be nearly enough to bring back real economic recovery, and that they all should be increased much more. If the definition of insanity is doing the same thing over and over and expecting a different result, then Krugman’s columns literally exhibit raving insanity.
In his State of the Union Address earlier this year, President Obama followed Krugman in arguing for still more federal spending as the key to economic growth, jobs, and prosperity. That includes increased spending for high speed trains, high cost bureaucratic education, and higher and longer unemployment benefits, which former House Speaker Nancy Pelosi tells us produce the most bang for the buck in jobs and economic growth. It includes increased spending for a new energy industry based on corporate welfare and bailouts for economic survival, producing high cost energy that will prevent the rest of the economy from surviving, while he shuts off proven reliable energy sources.
Now when Tea Party Republicans move to cut federal spending, deficits and debt, Democrats and their liberal left fellow travelers cry that will wreck the economy and jobs. With the federal deficit this year at $1,645 billion, and federal spending at $3,819 billion, the Senate’s second ranking Democrat, Dick Durbin from Illinois, proclaimed on Fox News Sunday recently that $10 billion in cuts for 2011 was the absolute limit. If those wild-eyed Republicans were allowed to cut any more, Durbin claimed, the fragile economic recovery would be stalled, and America would lose the critical federal spending President Obama and the Democrats believe is essential to maintaining America’s competitiveness with China.
Rep. Chris Van Hollen (D-MD), ranking Democrat on the House Budget Committee, predicted on CBS’s Face the Nation on February 20 that implementing the GOP’s full $100 billion spending cut for fiscal year 2011 would cause a loss of 800,000 jobs. Senator Chuck Schumer (D-NY) claimed the GOP spending cuts would risk a double dip recession.
And regularly on The Larry Kudlow Show on CNBC Robert Reich pops up to argue the same, saying that cutting federal spending, deficits, and debt now would impair the recovery. Recently, Ezra Klein of the Washington Post appeared on the show taking the generational baton to argue as well, so confident of establishment authority, that all the federal spending, deficits and debt were essential to propping the economy up right now.
This is not new Democrat propaganda spin. In fact, it reflects precisely the oldest, establishment, hoary, outdated in fact, Keynesian thinking dredged up from the 1970s and even the 1930s.
When Will They Ever Learn?
Keynesian doctrine holds that economic growth is stimulated by increased government spending, deficits, and debt. That is supposed to increase demand, which is supposed to lead to increased production to satisfy that demand, restoring economic growth. It never worked in the 1930s, as the recession of 1929 extended into the decade long Great Depression.
It was a proven failure by the 1970s, for anyone who was paying attention, as ever worsening cycles of inflation and recession culminated in double-digit inflation, double-digit unemployment, and double-digit interest rates. Under Keynesian economics, recession is caused by too little aggregate demand, and inflation is caused by excessive aggregate demand. Since it is impossible to have both too much and too little demand at the same time, recession and inflation together are not supposed to be possible under Keynesian doctrine, and so the 1970s could not have actually happened. The “Progressive” Left has consequently decreed the 1970s to be cast down the memory hole, and rewritten as a classic time of great prosperity, with anyone who refuses to play along shouted down.