Friday, September 14, 2012

Which of These Keynesian Stimuli Isn't Like The Others?

Since WWII, there has been "roughly" three major "Keynesian Stimuli" of expansionary fiscal policy.

The first one was WWII itself.  Arguably the godfather of all Keynesian stimuli, it got us out of the Great Depression.

The second was Ronald Reagan.  Reagan, despite his reputation was a HAYOOOGE spender, driving up deficits to the point the debt had to be addressed.  Regardless, that got us out of the of oil-embargo/lazy-hippie-infestation/generally crappy 70's economy.

The third is today with what I will intellectually-honestly call "Bush-Obama" because Obama merely took Bush's deficit spending and magnified it.  Still Keynesian, still deficit spending, still expansionary, BUT....

One key thing missing.

A recovery.

Now I know three instances or case studies of Keynesian economic policy does not make a trend, but there is a difference between the Keynesian stimuluses of WWII and Reagan versus that of Bush/Obama.

And it is the same reason why this galactic DF of a stimulus has failed.

Anybody care to guess what that reason is?

I'll give you a clue.  Modern day Keynesians are focusing too much on economics and not something else.

POST-POST - Ok,it seems people are missing the forest from the trees.  I am playing devil's advocate and using liberal arguments and assumptions to only further my point.  So let's just "assume" it was WWII and other Keynesian type things that got us out of these recessions.  What is missing from this current Keynesian splurgefest that explains the lack of recovery.


El Borak said...

Existing debt.

Mike C said...

No promise of stable future = no reason to invest, lend or produce, ever.

Eric said...

Production? In WWII factories churned out tanks and planes to fight the Axis. During Reagan, we produced stuff to force the Soviets to try to match us, which they couldn't and they collapsed their economy trying. Now, we're not producing anything.

sth_txs said...

If you count the Federal Jobs (civilian and military), local, county, state jobs, plus the top 10 to 20 defense contractors, and whatever other stupidity subsidized by the federal government, it would surprise me if 50% of the American economy was actually government.

MDN said...

Is this a trick question?

WWII itself got the US out of the great depression? Pure Keynesian nonsense. What got America out of the great depression was the fact that just about every other industrialized nation’s infrastructure was destroyed by the war.

And Reagan’s spending may have gotten the US economy to look better on the surface but there is an argument to be made that there has been no real economic growth in the US for the past 30 years, starting with the insane deficit spending of the Reagan presidency:

So to answer your question, there is no difference between these two examples and what is going on now, Keynesian stimulus never works and it will always fail.

kurt9 said...

Reagan's stimulus was the result of his log-rolling with congressional democrats to get his defense build-up approved.

Dwight House said...

Hold on a second. I'm no economist, but I read and watch a handful (including you). I specifically remember Milton Friedman, Thomas DiLorenzo, and historian Stephen Davies talking about the war having little to do with the actual recovery. (You can make your unemployment numbers look fantastic if you employ by force millions of young men to fight and often die on foreign soil.) If you strip away the artificial effects war has on economic numbers, the recovery didn't occur until after the war had ended and the government cut spending by 2/3rds.

Anonymous said...

Paraphrasing Rogoff and Reinhart: the Debt to GDP ratio matters above ~ 80-90% ....

Anonymous said...

Come on Captain you are amarter than that, ww2 really? It was the spending that brought us out? How about the US had the only surviving industrial base in the world.

If military spending and blowing men and resources up worked the the the ultimate form of stimulus would be to bomb our own cities and sink our own ships. Think of the construction boom if blew ourselves back to the stone age!

kfritz said...

Tax rate?

kfritz said...

Tax rate?

Anonymous said...

Is the answer: an enemy?

During those other two, we were (relatively) unified against a consensus external enemy. Obviously WW2 had a defined enemy and a specific end. Meanwhile the Cold War had us viewing the Soviets as our enemy, which was a consensus that actually survived intact through party transitions.

Today, although we have Islamic terror etc., there is no real unity about that fact let alone consensus what to do about them, indeed our policy is totally schizophrenic.

Anonymous said...

My guess is demographics. The older are no longer consuming enough to keep a debt driven ecomony going. The young people are so fucked due to the economy, lack of credit, jobs, student debt ect that they cant feed the monster any longer.

Anonymous said...

I think deficit spending can help up to a point. It stops helping when interest on previous debt becomes your single biggest expense. - minuteman

Aeoli Pera said...

Part of the problem is the way the money was spent*.

*Where tax cuts to individuals and small businesses may or may not include McDonald's and Goldman Sachs.

Aeoli Pera said...

The other commenters seem to have it right.

-The debt thing has been around since WWII, albeit attenuated. That's a small part of it.

-What is there to invest in? Facebook? Web 2.0?

-We don't produce. When Fedgov subsidizes manufacturing, it creates other countries.

-There is no common enemy, though we're trying real hard to make one out of "terror". (Not those peace-loving muslims though. Racist.)

-The demographics are at war for bigger shares of the handouts. It's old vs. young, black rights vs. gay rights, etc.

But I think they're missing the most important reason. The reason that escapes all reason:

Why the fuck would anyone try to work for their living in this fucking country?

(All due respect, I did follow the blog rules on swearing.)

Anonymous said...

Cappy McCap, what is missing this time is PRIVATE SECTOR economic hiring / growth. In WW2 thr govt bought all that military equipment from the PRIVATE sector. And private sector growth exploded upward under Reagan. But the ONLY growth from this bout of Keynesian excess has been growth of GOVERNMENT ... which is UNPRODUCTIVE growth! Only PRIVATE sector growth is actually PRODUCTIVE. For the government to improve America's productivity it would have to SHRINK in size / cost / spending, and it's doing the exact opposite.

Barrie, Ontario

Anonymous said...

Answer should be starting debt levels. Even with the FDR Facist model of spending the overall debt was lower because the private sector had almost none. Reagan kicked off a boom in both private and public debt which had room to grow. In 08the the private sector smashed into a wall leaving only the government to drink from the heady waters of debt.

Fun answer, Reagan died in 04 with his soul upon the earth no debt orgy would have the "desired" goals.

But argueing with a Keynesian wont work. They will just claim "it would have worked if it had been bigger" example see Paul Krugman. The Feb could be doubling tbeir balance sheet hourly and the Fed gov taking on quadrillions in debt per dayse and Krugman would still be screaming "MOAR!!!"

T and A Man said...

Where the money went is the difference. Trickle down is a furphy, aggregated micro-economics only counts in so far that proper macro is more akin to to a vine crawling up, and enterprise clips a margin.

With perfect competition, the enterprise that either clips the smallest margin, or offers the superior product remains. The current issue with the U.S is aggregate demand, it is insufficient, and that is because wage share is too small, and unfortunately for the Reagan groupies, the rot started with him.

Since Reagan, and arguably a few years before him, wage share diminished and profit share increased, wealth redistribution from labour to capital, and more so economics rents. Labour share is now less than 50% of GNI for the first time since WWII. Those who sole enterprise is the selling of their labour can't afford to buy any more. The supplanted their incomes with debt levels, but now Joe public is at peak debt. They can not afford any more product, thus business will not create any more product.

U.S. are near record profits and sit on record levels of inert cash, but as I said, when their customers can't afford any more, it is futile to bring it to market.

This time around, the stimulus is to exchange the impaired bank bonds with un-impaired reserves, because the Chicago school dopes thinks with fresh reserves, they can go on their merry way and trickle down once again. These actions DO NOT increase demand anywhere, and aggregate demand is the core of Keynesian stimulus.

Anonymous said...

An actual measurable goal?

Maintaining the status quo is not a goal, its the original problem.

Anonymous said...

The biggest difference between then and now is the inflexibility of the labor market, caused in part by regulations, and in part by a cultural preference for "highly educated" (aka credentialed) workers.

Along with that, technological innovation is reducing the need for labor in areas where stimulus would ultimately translate into higher wages.

The end result: a mismatch between where labor needs to go from an economic POV, and where it can go legally. The labor market pricing mechanism is broken, and the Keynesians sabotaged it.

I think the reflections of William H. Hutt are relevant to the current situation: