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.
By 1981, President Reagan explicitly scrapped Keynesian
economics for the more modern supply-side economics, which holds
that economic growth results from incentives for increased
production. The result was a 25 year economic boom with no
significant inflation, the greatest period of wealth creation in
the history of the planet, with more wealth created from 1982 to
2007 than in all prior American history combined.
But President Obama and his Rip Van Winkle Democrats have
cast all that down the memory hole as well, and taken American
economic policy right back to the 1970s as if nothing has happened
since then. The result of this irresponsible, heedless, public
policy malpractice has been disastrous for America’s working
people, African Americans, Hispanics, and youth.
Previously, since World War II, recessions have lasted an
average of 10 months, with the longest at 16 months. But by
December, three years after the last recession started,
the latest unemployment report showed the unemployment rate
increasing again, to 9.8%, capping 16 straight months of
unemployment at 9.5% or above, the longest such period since the
Great Depression.
Unemployment among African-Americans had persisted during
that period at 15% or above. Among Hispanics it persisted well into
double digits as well. Among teenagers it was stuck at 25%, 45% for
black teenagers. These groups were truly suffering a
depression.
The total army of the unemployed and underemployed stood
at over 26 million Americans. The BLS reported the U6 unemployment
rate, which includes the unemployed, those marginally attached to
the labor force (discouraged), and those working part time for
economic reasons, at 17%.
Historically, the deeper the recession the stronger the
recovery. But President Obama’s recovery has moped along at less
than half the rate of prior recoveries from similarly deep
recessions. By December, the economy should have been in its second
year of a raging recovery with booming economic growth. Instead, a
record 44 million were struggling in poverty, one in seven
Americans, the highest for the 51 years that the Census Bureau has
been tracking poverty, up 4 million over the prior year. The number
of Americans receiving food stamps also soared to an all time
record 40 million. CBO projects that Obamacare will ultimately put
nearly 100 million Americans on Medicaid, the health care program
for the poor.
As economist John Lott summarized at FoxNews.com, “For the
last couple of years, President Obama keeps claiming
that the recession was the worst economy since the Great
Depression. But this is not correct. This is the worst
‘recovery’ since the Great
Depression.”
President Obama, rebuked by the November political
shellacking, finally relented in December and agreed to extend the
Bush tax rate cuts for two years, for everyone. And that has
allowed the breathing room for the long overdue recovery to now
begin to sprout, with unemployment declining to 8.9% in the latest
report.
The Voters Have a Hammer
But the economy still has a long way to go before
traditional, booming, American economic growth is restored. The
labor force participation rate remains stuck at its lowest level in
25 years. With the same labor force participation as before the
recession, the unemployment rate would be 11.5% today. Those who
have given up and dropped out of the labor force are still not
working.
Even worse, the economy has just received a reprieve
rather than a permanent stay of execution. President Obama is still
pledging to raise the top tax rates of virtually every major
federal tax in 2013 for singles earning over $200,000 per year and
couples earning over $250,000, the bulk of the nation’s employers
and investors. The Obamacare tax increases go into effect that year
as well. The hammer will come down hardest as a result on working
people, African Americans, Hispanics, and the young who have
suffered the most under Obamanomics, as they continue to struggle
with unemployment, declining incomes, rising poverty, and now
rising inflation, just like in the 1970s.
But the voters have a hammer as well. Rest assured that
the very question — do federal spending, deficits, and debt
promote economic growth and prosperity? — will be taken to the
voters in the 2012 election. And then we will see if the voters
agree with President Obama, Nancy Pelosi, Dick Durbin, Paul
Krugman, Robert Reich and Ezra Klein, or whether they agree with
the Tea Party that federal spending, deficits, and debt are already
so out of control that they threaten the very bankruptcy of
America.
Rest assured that the voters will be asked in 2012 to
decide as well whether President Obama’s scheduled 2013 tax
increase tsunami should join his regulatory tsunami, or whether
they think that will swamp the American economy.
