Danivon:

The key policies to adopt (one would think) would be those that reduce unemployment – while still making employment pay. I think we agree that the way to do this is to encourage economic growth (I understand we are unlikely to agree on the ‘how’, but can we find some common ground here?). At the same time, if that is done, then the effect on the deficit over the next few years should be in the right direction.

I think that's right. There will be all sorts of political gamesmanship from both sides. They will each point to terrible things that the other side said: The Tea Party showed a clip from The Town; many Democrats call the Tea Party terrorists. etc., etc. But in the end, the question is which policies are better for creating economic growth: higher government spending to juice the economy, or more frugal government policies to enable the private sector to do its job.

I think that higher government spending is seductive, but it is not a mid term or a long term solution. It either results in debt or taxes, neither of which are good for an economy. Also, at some point the government spending has to end, resulting in a de-stimulus. The notion that government with its political and election cycles is good at timing these things makes no sense to me. It stimulates too late and it has a hard time stopping.

Yes, in an emergency such as 2008, and maybe you can argue early 2009, it makes sense for the government to prime the pump. However they did time it incorrectly in 2009; the stimulus bill passed, and a few days later the economy was on the mend, but the stimulus was approved and the government wasn't going to stop it.

But we are not in an emergency as it relates to employment or growth. It's slow but it's not deadly. However, we are in an emergency as it relates to government debt.

The other issue is that the government spending creates all sorts of distortions and inefficiencies. It is demoralizing and it is typically inefficient. From the Volt, to the medicaid waste, to the bridge to nowhere, and on and on and on, it is usually very inefficient.

It's interesting to me that people accuse companies of playing to the next quarter, but they want to do a stimulus to create better unemployment numbers for next month. I think we have to construct long term rational economic policies that include less government regulation (except where it is truly needed), less government spending, and less confusion for the private sector. That is the right answer mid term and long term. Keynesianism may be a theoretical economic construct that works in limited circumstances, but it's true legacy is an enabler for politicians to spend other people's money so they can tell us how wonderful they are.

Ray Jay wrote:Keynesianism may be a theoretical economic construct that works in limited circumstances, but it's true legacy is an enabler for politicians to spend other people's money so they can tell us how wonderful they are.

On your main point here: true.

On the ancillary issue of Keynesianism generally: I do question whether we can know if Keynes himself would favor a stimulus in the face of a massive debt problem.

I think our problem is structural. Over the last 50 years, the idea of borrowing has become the "norm." There's nothing normal about it. It ought to be a last resort. Instead, it has become as natural as breathing.

I agree. Keynes major works were written in the 30's when we were suffering from a massive depression, and looking for a solution that was not communism, and not fascism, and not socialism. Under the circumstances, he was the right guy at the right time.

It's hard to imagine that such a great thinker would not develop his views with 80 more years of economic data.

Keynesianism has not been "practiced" or "followed" by Us Administrations since 1980. How is it you gentlemen feel you can blame an economic theory for troubles that were in no way the result of the use of the theory? (The stimulus package is Keynsian, yes. But following 25 years of the antithesis with a patch to an enomous failure, is a bit rich. Besides, without the stimulus most economists predicted a deeper and longer recession.
If Keynes were followed Reagan would have run surpluses in 6 of 8 years. Bush and Clinton too. And Bush the younger would have also run surpluses, although it could be argued that he may have run deficits one year. And perhaps rationalized the war deficits, although its the first time that wars were fought by the US without tax rises to pay for them... (I don't think thats Keynesian...)

When Steve says that "borrowing " is the new normal, he's right. But that "new normal began in 1980 by so-called conservatives. . Most economists beleive that the deficit reduction package just enacted will actually dampen the economy.Since the most basic premise of Keynes is that you grow your way out of deficits in good times, its anti-Keynes.
Without taxation at the 2001 levels, (was it so bad?) efforts to cut the deficit are doomed when (if?) the economy falters. One should also be required to justify the assumption that tax cuts create jobs or boost the economy. The evidence is that sometimes they do, and sometimes they don't. The Bush tax cuts of 2001 had no discernable effect on jobs over their term...
Consider that Obama is in the position to fight an election on a class basis the way FDR did through the 30s'. Whether he has the balls to do so, is another thing. But if he does indeed have this in mind, and the passion to deliver it the way FDR did ...then the effect of the budget cutting will be important. Will it, cause more economic pain? And if so who takes the blame?
Could this be a case of republicans being seen to win, short term, and setting themselves up for a big loss? (The 1873 US recession is also instructive of what happens politically when economic disparity reaches a high point...)
Be that as it may...don't be blaming the ideas of Keynes for your problems. No one was following his ideas for most of the deficit build. If they bhad, by the time 2008 came around the US would have been debt free. (Bush worried about having No Debt if he didn't cut taxes in 2001....)
By the way, socialist nations (by your definitions) that have followed Keynes have a pretty good fiscal picture right now after building enormous deficits that crippled their economies in the early 90's (Canada and Sweden) . Both nations were scolded in the pages of the Wall Street Journal for huge deficits and too much goivernment spending. Both adhered to austerity measures and growth that reversed that trend. And both have managed to have the discipline to maintain their focus.In fact, the automatic "stimulus" that occurs in the fairly libral (or lavish) social safety nets meant that money to stimulate the economies when the crash hit, automatically flowed...As a result their recessions were less and shorter... Success for Keynes!
Interesting analysis on the tax measures required to actually reduce the budget deficit by Ezra Klein...

http://www.washingtonpost.com/business/ ... ory_1.html

Ricky,
"(The stimulus package is Keynsian, yes. But following 25 years of the antithesis with a patch to an enomous failure, is a bit rich. Besides, without the stimulus most economists predicted a deeper and longer recession."

I don't think we really got out of the recession, most will agree with that. Still have 9.2 unemployment,(U3), 17-18% unemployment(U6). Economy is super sluggish, to the point of not growing now, our spending now equals our GDP.
You can try and justify the Keynesian policy but the stats in the last two and half years are not supporting any success. Where is any success except fot the convenient answer, "well it could have been worse", don't know do we, but we do know we increased our deficit exponentially. We are going in the wrong direct, no qustion there.

I can use the same argument that, because of the Bush tax cuts, it delayed the housing bust, don't know do we and btw, yes I was much better off after the Bush tax cuts, example marriage penalty, decent relief to me disposable income. We do know that Bush had, what about 5% unemployment rate throughout the vast majority of his presidency until the housing bubble imploded on us. Did Greece use the Keynesian policy? How about Spain, Italy, Ireland, this is not a rhetorical question, I am asking it.

You have to run a country as you would a household, balance budget and put it into law. Or this happens. You have child with credit card in the presidency and you are seeing the result.

Ricky:

Keynesianism has not been "practiced" or "followed" by Us Administrations since 1980. How is it you gentlemen feel you can blame an economic theory for troubles that were in no way the result of the use of the theory? (The stimulus package is Keynsian, yes.

The US spends $1 for every 60 cents it taxes. Doesn't that seem like Keynesian spending to you?

I think the central point is that Keynes's economic philosophies, whether or not they work on an economic basis, are a disaster on a political basis because they enable governments to spend monies they don't have. In the US context this is very hard to stop because we get to print the world's reserve currency (for now).

The debate reminds me of the mid-30s. People declared Keynes a failure, the budget was cut and then the US went back into recession.

I think having monetarist policy for 30 years, ending in a historically deep recession and then giving a kind-of Keynesian fix a couple of years before deciding it's failed because it hasn't resulted in a perfect position is a bit rich.

Oh, and Keynes did recommend stimulus even with high debt. I see this meme repeatedly from people who clearly don't get what he wrote in his General Theory...

His point was that growth will repay the debt, or render it less painful.

Much of the current deficit is due to the recession.

rickyp wrote:Keynesianism has not been "practiced" or "followed" by Us Administrations since 1980. How is it you gentlemen feel you can blame an economic theory for troubles that were in no way the result of the use of the theory?

Let me get this right... You are saying that the economy under Carter was Keynesian?

The US spends $1 for every 60 cents it taxes. Doesn't that seem like Keynesian spending to you?

No.
In Keynes view you run surpluses and deficits. The surpluses in good time. Positive economic growth.
In bad times, you spend to stimulate the economy.

If the US had continued to follow Keynes through the 80s 90s and 00's you would have no real debt by the time the collapse occurred. Then you could have endured a period where perhaps the debt would have grown but it wouldn't be at the level it is now...
Spending beyond revenues is only "Keynesian" when you've funded that by creating surpluses and only when required to ensure the economy isn't cratered by the downward cycle.
It is interesting that 30 years of radical conservative policy that eventually required a Keynesian fix is not held responsible but the imperfect result of a poorly applied stimulus is supposed to discredit Keynes. Keep taking the WSJ at its word...
Look to Sweden. When the recession hit, its lavish social programs automatically pumped money into the economy and they hardly noticed. They paid for that deficit with 10 years of consistent surpluses prior to the needed debt. And for them the recession was a blip as they are close to surpluses again.
You guys are like a man who for thirty years has over eaten, never exercised and smoked...and when the heart attack hits and the expensive cardiac surgery (stimulus) saves your life you now complain that you don't feel as fit as you did 30 years ago. Its not the fault of the surgery that you don't feel great. Its the lack of discipline before that.
The idea that deficits don't matter is attributed to Dick Cheney. Inappropriately actually because he actually meant that they didn't matter politically. That Reagan running deficits in growth years didn't suffer political consequences meant that forwith US federal governments felt they could ignore Keynes/ That's not conservative but really radical thought.
Except that Reagan wasn't really that crazy. He may have initiated the largest tax cut in US history but when revenues fell too much he later brought in the largest tax increases. Except for Carter he was the first president to run deficits since 1945. And he did it in good times. (Carter ran his in recession B)
And somewhere the right became unhinged to the idea that deficits matter, because they never paid a political price. They forgot that fiscal responsibility is two edged. It means that taxation has to be adequate as well as meaning that spending must be cautious. Reagan still knew that or he wouldn't have folowed his tax cuts with increases... But now; When "all tax cuts pay for themselves" and tax cuts always create jobs becomes common knowledge - when experience has shown that neither statement is true (or false) all of the time, then you have a problem.
I can point to two nations that followed Keynesian policies through the 90s And both grew down enormous debts. Higher than the current US accumulated debt a %GDP. Both are not what US would call "limited government" nations. Both had lavish (by American standards) social safety nets that cut in as soon as the recession hit. As a result their economies receded less, and came out quicker. And both are on stream to surpluses again... Neither had to sacrifice a significant part of their social safety net to achieve this....
I think the US is in a much tougher spot. Without taxation at least at the level that George Bush inherited I doubt you can achieve fiscal sanity. The cuts are going to negatively affect growth diminishing the ability to grow our of debt - and the accumulated wealth in the top 1 to 5% isn't being put to use to create demand in a market place that won't react until demand occurs. (The opposite of supply side economics which is also a whacko notion.)
Politically this creates a real issue where a passionate leader could take advantage and create a majority of the lesser 95%. I understand that Americans like to believe that one day they too will be one of the 5% and that works against the FDR strategy. Its a kind of narcissism really. All evidence suggests that social mobility is lower in the US than in more socialist nations, (not truly socialist like Danivon but in an American sense socialist) and yet the "belief" that one can buck the odds keeps FDR's strategy of pitting the poor and middle class against the elite hasn't been tried because of that.
Perhaps the pendulum has swung too far this time for even a dispassionate man like Obama to eschew the strategy?

danivon wrote:His point was that growth will repay the debt, or render it less painful.

So, dumping money on States, so they can temporarily keep a few employees is a good investment? The Stimulus was a well-done Keynesian boost to the economy?

If someone forced me to spend $800B in an effort to boost the economy, I can guarantee you I would not have done what the Democrats did. There are many things they could have done that would have had long-lasting effects. For example: how about putting power lines in the Northeast underground? How about getting the Northeast off of heating oil and onto natural gas (yes, I know, heating oil is not the same as regular oil, but we are the Saudi Arabia of natural gas and it is far more reliable than oil, which has to be delivered, etc.)? How about actually improving the infrastructure that Obama is NOW crying about?

Instead, the money was dumped down a hole, any positive effect it could have had was dissipated because of the non-design of it.

The question, Dan, is this: is there ever a tipping point? Is there a point at which borrowing more money does irretrievable damage?

If not, then why not just go for it? Borrow like there are no consequences!

If so, then what is it? Might this be a good question to consider before longing for more Stimulus?

If endless spending and borrowing is ideal, then what of the failing European states? Did they do something wrong? Haven't they done what rickyp and you appear to be advocating?

Dan:

The debate reminds me of the mid-30s. People declared Keynes a failure, the budget was cut and then the US went back into recession.

As far as I can tell, the budget hasn't been cut. No cuts were made to 2011. Cuts were made for 2012, but only relative to an increase based on inflation and demographics. Even on an un-inflated basis, 2012 spending is higher than 2011 is higher than 2010. No real cuts have been made in spite of what the media and politicians are telling us.

Ricky:

No.
In Keynes view you run surpluses and deficits. The surpluses in good time. Positive economic growth.
In bad times, you spend to stimulate the economy.

Okay, but we live now. We spend $1 for every 60 cents that we take in. Are you guys recommending that we spend $1.10 for every 60 cents that we take in? Are you saying that we should run a deficit that is closer to $2 trillion?

rickyp wrote:It is interesting that 30 years of radical conservative policy that eventually required a Keynesian fix is not held responsible but the imperfect result of a poorly applied stimulus is supposed to discredit Keynes.

You usually post gibberish, but this is nearly an all-time low.

First, what is "radical conservative policy?"

Today it means "cut government," but I don't think that's what you mean. So, instead of us guessing, why don't you explain what you mean by "radical conservative policy?"

Second, was Clinton a radical conservative?

Third, how many years did the GOP control Congress during the last 30?

Was Nancy Pelosi a proponent of "radical conservative policy?"

Is Harry Reid?

Pathetic.

Look to Sweden. When the recession hit, its lavish social programs automatically pumped money into the economy and they hardly noticed.

Great point. Great comparison. We know all about Pax Swedenica. I'm shocked with their huge military that they can also afford these generous safety nets.

That Reagan running deficits in growth years didn't suffer political consequences meant that forwith US federal governments felt they could ignore Keynes/ That's not conservative but really radical thought.

I don't know how you can compare the Cold War to now. Well, I suppose you can . . .

I think the US is in a much tougher spot. Without taxation at least at the level that George Bush inherited I doubt you can achieve fiscal sanity. The cuts are going to negatively affect growth diminishing the ability to grow our of debt - and the accumulated wealth in the top 1 to 5% isn't being put to use to create demand in a market place that won't react until demand occurs. (The opposite of supply side economics which is also a whacko notion.)

Challenge: add together ALL the tax increases Democrats are proposing with ALL the loopholes they want to close, assume they have NO impact on the economy, and then tell me how much they reduce the deficit. They won't come anywhere near balancing it.

Furthermore, they want to spend MORE! Right now!

Credit rating? They don't care.

Politically this creates a real issue where a passionate leader could take advantage and create a majority of the lesser 95%. I understand that Americans like to believe that one day they too will be one of the 5% and that works against the FDR strategy. Its a kind of narcissism really. All evidence suggests that social mobility is lower in the US than in more socialist nations, (not truly socialist like Danivon but in an American sense socialist) and yet the "belief" that one can buck the odds keeps FDR's strategy of pitting the poor and middle class against the elite hasn't been tried because of that.
Perhaps the pendulum has swung too far this time for even a dispassionate man like Obama to eschew the strategy?

I don't think you mean "eschew." I think you mean "espouse."

I don't think class warfare will work. It hasn't in recent history. And, it's not because Americans like me are delusional. It's because we don't hate the rich. Mondale ran on raising taxes. That went pretty well, didn't it? I hope Obama follows your advice. He could suffer the most embarrassing loss since Carter--and he'll deserve it.

Ray Jay wrote:As far as I can tell, the budget hasn't been cut. No cuts were made to 2011. Cuts were made for 2012, but only relative to an increase based on inflation and demographics. Even on an un-inflated basis, 2012 spending is higher than 2011 is higher than 2010. No real cuts have been made in spite of what the media and politicians are telling us.

Spot on. And, if Obama is reelected and by some miracle Democrats regain control of the House and maintain the Senate, it's Katie bar the door. They will ramp up spending and taxation. We will make Greece and Italy look solvent.

"I think the US is in a much tougher spot. Without taxation at least at the level that George Bush inherited I doubt you can achieve fiscal sanity. The cuts are going to negatively affect growth diminishing the ability to grow our of debt - and the accumulated wealth in the top 1 to 5% isn't being put to use to create demand in a market place that won't react until demand occurs"

Wow, you guys just can't find a way without increasing taxes, spend us into oblivion and then say we need to tax you more. What a plan. Lets not look at cutting costs, because everything the Fed's spending is legitimate and needed. Like Doc Fate says, when does it end. And the top 1 to 5% aren't re-investing, that is true, but why, Rick. Because they are unsure of how this super liberal anti-business president is going to hinder their operations whether new taxes, like that in Obamacare or new and more stringent regulations. No different than the fiscal responsible familys right now, not spending until they can see what is going to happen. In other words everybody is on hold until we have confidence, and it sure isn't coming from our fearless leader trying to produce a nanny state.

DEFIANT wrote:"And the top 1 to 5% aren't re-investing, that is true, but why, Rick. Because they are unsure of how this super liberal anti-business president is going to hinder their operations whether new taxes, like that in Obamacare or new and more stringent regulations. No different than the fiscal responsible familys right now, not spending until they can see what is going to happen. In other words everybody is on hold until we have confidence, and it sure isn't coming from our fealess leader trying to produce a nanny state.

Obamacare is a real economic issue and so are the regulations, thus this next paragraph.

I know, I know, it's Bill O'Reilly. However, for those on the Left, may I just say I disagree with O'Reilly all the time? He is anything but a "conservative." He believes in government. He is the one calling for investigations into oil prices and all manner of Big Government. So, this video from last night (I think) is a bit of a shock.