The View From 1776

Keynesian Model For Full Employment

Liberal-progressives use World War II’s command economy as their “proof” that full employment, the primary goal of Keynesian macroeconomics, is best attained by massive government spending that blankets the economy, pushing private enterprise into the role of subsidiaries to the Federal bureaucracy.

New York Times columnist Paul Krugman is one of the most prominent voices championing new government stimulus spending, bigger than Obama’s 2009 stimulus, the greatest in world history.  Only thus, he writes, can the economy regain traction and recover full employment.

Parenthetically, it is to be noted that liberal-progressives now are hypocritically claiming credit for the present slow rate of GDP recovery, while unemployment, the thrust of Keynesianism, remains near 10% (more than 17% if one counts people who have given up searching for jobs and dropped out of the work force).  Today’s GDP growth is at about half the rate of recovery experienced after President George Bush cut taxes in 2001.  Moreover, unemployment declined much more rapidly after the Bush tax cuts.

Measured by its primary goal, full employment, Keynesian economics has failed under President Obama.  The Federal Reserve expects unemployment to remain north of 8% for several more years, given the tiny rates of improvement currently experienced.

The eight-year failure of Franklin Roosevelt’s New Deal to end the Great Depression of the 1930s is the historical parallel that explains the failure of Obamanomics.  In the 1930s, Roosevelt was continually creating new regulatory bureaus, adding new layers of regulation, and raising personal and corporate taxes to confiscatory levels (some marginal rates around 90%).  Roosevelt repeatedly blamed his failures on private enterprise, describing businessmen as greedy and outmoded in the new socialist economy.

President Obama and his Democrat/Socialist Party leaders Pelosi and Reid went to great lengths consciously to replicate government policies of the 1930s, even styling themselves the New New Deal.  The plan was to seize the confusion and fear created by the Federal-Reserve-created financial meltdown as an opportunity to impose socialized medicine and regulatory control of our energy industry while voters were too distracted to resist.  Democrat/Socialists continually threatened or imposed higher taxes, higher energy costs, Obamacare, and millions of new regulations under hundreds of new apparatchik bureaus. 

Unemployment disappeared during World War II.  Twelve million men and women were in the armed forces and the remainder not already employed were working in defense industries.  Economist Robert Higgs explains why that period is not proof that government spending can end recessions and guarantee prosperity.

Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s


Relying on standard measures of macroeconomic performance, historians and economists believe that