The View From 1776
Wednesday, July 21, 2010
There Are Limits
Keynesian economists at the Federal Reserve can’t create reality by dreaming of perfectly functioning, abstract economic systems. Human nature stands in the way.
For Keynesian economists, enthralled by the mysticism of computer-model-theories high in their ivory towers, the economy appears to be a simple game board, on which they can control all the pieces. Real life obviously is not so simple, as the abject failure of Obamanomics demonstrates.
Things haven’t worked even close to the predictions of Obama’s Keynesian economic advisors. Unemployment was supposed to be held under 8%. It’s actually more than double that number, counting people who have given up seeking jobs. Every dollar of Federal stimulus spending was supposed to increase GDP by $1.50, the so-called multiplier effect. To date there is no evidence of this magical effect, as the economy drags forward at a rate well below past recoveries jump-started with tax cuts.
Given our current economic becalming in the horse latitudes, Edmund L. Andrews’s essay on The Fiscal Times website asks What More Can Bernanke Do to Rev Up the Economy?
The answer: not much.
For Keynesian like New York Times propagandist Paul Krugman, the answer always is more Federal deficit spending, even though the recent Obama stimulus dispensation was greater than any such Federal intervention at earlier dates.
The simplistic Keynesian answer is that deficit spending by the Federal government is a form of saving, and there can never be too much of it. The lesson of Greece’s financial implosion, fomented by excessive deficit spending, and its undermining the foundation of the Euro currency bloc apparently can be ignored when Professor Krugman is in the driver’s seat.
What Mr. Andrews surprisingly fails to address is the elephant occupying most of the figurative room: massive uncertainty created by the president’s continual accusations against businessmen, his poor judgment in ramming hugely expensive, debt-producing new government control programs down our throats, promises to give labor unions even more extortionate control over business, and huge tax increases slated to smother the economy next year. Faced with frightening threats by the Obama administration and unable reliably to estimate future costs of doing business, businessmen wisely are opting for cash in the bank, not speculative spending.
No matter how much fiat money the Fed injects into the economic system, employers will continue to move very slowly and very cautiously in hiring new, full-time employees so long as Obama makes even short and medium-term business planning a complete gamble.