The View From 1776

Like a broken clock that displays the correct time twice a day, David Brooks gets it right.

Mr. Brooks is a liberal-progressive columnist for the New York Times, where, in contrast to his confreres, he sometimes appears to be a counter-balancing voice of conservatism.  As he notes, German political leaders have rebuffed President Obama’s insistent demands that they too open the money spigots and, following the advice of Paul Krugman, another New York Times columnist, drown the economy in debased fiat dollars.

Ironically, Germany has long been one of the world’s most consistently socialist nations.  In the middle 1800s, Ferdinand Lassalle created and led Europe’s strongest socialist political party, the General Union of German Workers.  Hitler’s political base in the 1920s onward was the National Socialist German Workers Party.  Even Ludwig Erhard’s “social market system” that revived Germany’s economy after World War II was a far-left welfare state with elements of fiscal conservatism.

That fiscal conservatism arises from Germany’s horrific hyperinflation in the 1920s and early 1930s, when Weimar Republic socialists employed the governmental deficit, stimulus spending model that John Maynard Keynes began to articulate after the end of World War I.  It was Weimar’s fiscal profligacy and its inevitable inflation that gave Hitler a strong boost.

Doing so would eliminate unemployment and would give the government plenary power to direct everyone into behavior paths prescribed by Iv League sociologists and Saul Alinsky-style community agitators like the president.  People who don’t toe the line can be excommunicated from the American church of secular materialism and set adrift to find residence in some other country.

Result, according to Paul Krugman’s Keynesian doctrine: a booming economy, because of zero private saving (another bit of Keynesian doctrine), one in which government spending is a new and improved variety of saving.

The multiplier effect of Obama’s $800+ billion stimulus plan was forecast to reduce unemployment to 8% and to jump start economic recovery.  It has done neither.

That is hardly surprising.  What magical quality could government confer upon the process of taking money from constituents who are out of favor and giving it to favored groups?

Many studies by American economists have discredited the multiplier effect.  Now even socialist Europe’s official institutions agree.  Read the Wall Street Journal’s report (if you happen to be an online subscriber).

Quote:

Will austerity sink European economies? Or will fiscal consolidation instead pave the way for faster growth? The debate divides policy makers, economists and voters. A key consideration is the size of the fiscal multiplier, or how much bang for its buck a government gets in terms of gross domestic product. Some evidence supports the cutters.

A fiscal multiplier above one implies a dollar of government spending generates more than a dollar of GDP; a fiscal multiplier below one implies that it is less effective. A working paper from the European Central Bank estimates that fiscal policy in the euro area has become less effective over time, with an increase in government spending of 1% of GDP generating a response of just over 0.5%, down from over 1% in the late 1980s.

A fiscal multiplier below one doesn’t automatically mean government-stimulus efforts are wasted, since the boost to GDP could still be important to counteract falling private demand. But the ECB paper argues that the decline in effectiveness is due to rising government debt; as private-sector concerns about the sustainability of public finances increase, individuals and companies rein back spending amid fears of future tax increases…

Treasury Secretary Timothy Geithner, in a New York Times op-ed piece, hails a non-existent economic recovery.  This when the Fed and everyone else is bemoaning a stalled economy and a possible double-dip recession.

Hitler would have been proud of Secretary Geithner’s disinformation, modeled on the Big Lie technique of liberal-progressive-socialist Joseph Goebbels, Hitler’s National Socialist (Nazi) party’s propaganda chief.  Tell a big enough lie, brazenly and often, and the mainstream liberal media, along with some of the people, will accept it as fact.

Adding another layer of surrealism to Secretary Geithner’s perspective is a news article in today’s Wall Street Journal:

Quote:

Extending tax cuts for the wealthiest Americans would imperil the fragile economic recovery, Treasury Secretary Timothy Geithner said Wednesday, as the Obama administration pushes to let the Bush-era policies expire at the end of the year.

Mr. Geithner, in remarks before the left-leaning Center for American Progress, said “there is no credible argument that the purpose of government is to borrow from future generations of Americans to finance an extension of tax cuts for the top 2%.”

In assessing failure to raise taxes as imperiling economic recovery, Geithner is seconding Paul Krugman’s false argument that higher taxes enacted under President Clinton were responsible for economic recovery at that time.

Equally bizarre is his argument that Federal debt is incurred to finance lower taxes.  It should be obvious that Federal deficits, funded by more Federal borrowing, result from excessive spending imposed by presidents through a willingly complicit Congress.  If politicians stop buying votes with welfare-state entitlement increases, there will be no need to balloon the Federal debt.

The two main tools with which the government and the central bank presume to do so are fiscal policy (the domain of Congress and the executive branch) and monetary policy (the domain of the Federal Reserve).

Fiscal policy is government spending such as Obama’s stimulus program, cash-for-clunkers, bonuses for home purchases, and TARP.  The only real product, in the end, is a much enlarged Federal deficit and an increased Federal debt that tends to crowd private businesses out of the bond and equity markets.  None of Obama’s fiscal policy initiatives has worked so far, but a further, vast increase in such spending is the recommendation of Paul Krugman and his fellow liberal-progressive-socialists.

Monetary policy is reducing interest rates by flooding the market with large amounts of surplus (and depreciating) fiat money.  Underlying such action, as well as fiscal policy spending, is the Keynesian assumption that human beings - individuals or private businesses - react mechanically by rushing out to spend Federal largesse or that businesses and individuals will automatically borrow more of the Fed’s increased supply of fiat money to buy things.  Thereby, according to Keynesian theory, the government and the central bankers can manipulate the economy as if it were a checkers game.

Neither Keynesian fiscal policy, nor the Fed’s monetary policy manipulations having put the economy back on a strong growth track, one can wonder if the Fed can do anything more.