Economy: History Timeline and Facts

Dinner Topics for Thursday

Month-Defining Moment

key“Keynesian” is the term for Liberal economic policy. If you try to find a definition of it, you will quickly get lost in all the liberal verbiage. Here, from American Thinker, is a definition in plain English. At the conclusion of this post you’ll find more information about why this philosophy has never worked.

Definitions

Sequester: Government Spending Cuts

Keynesian Economics: “Keynesian Economics” is the insane belief that the economy can be stimulated by government spending.  It provides the excuse to depart from common sense that allows politicians to ignore the alarm bells.  It is ludicrous mainly because our government doesn’t have any money to spend.

The New Deal was the largest real-world test of the Keynesian Myth in recent history. Franklin Roosevelt’s Treasury Secretary Henry Morgenthau confessed that the “New Deal” was a failure in sworn testimony before Congress on May 9, 1939. 

“We have tried spending money. We are spending more than we have ever spent before and it does not work.”

And FDR’s Treasury Secretary also told Congress:

“I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!”

debt-ceiling-obama-cartoonsToday

Facts

1. Sequester is a policy devised by the White House in the first place

2. The actual amount of the cut is 2.3 percent of $3.6 trillion budget in 2013

3. Discretionary spending budget is still 7 percent higher than when Obama took office

4. Federal employees earn 30 to 40 percent more in salary and benefits than comparable private sector workers

5. NBC/Wall Street Journal Poll: 53 percent of Americans support sequester or want even deeper slashes

Fantasy

Great Sequester Hysteria of 2013

 

Obama Regime Policy: Keynesian Economics

1. Government must never lose a dime

2. If Americans insist on reducing government, Americans must be punished by government

1944-1947 Post World War 2

Fantasy

Keynesian Predictions (Translate: “Budget Cut Hysteria of 1946”)

1. Depression in 1946, economic Armageddon

2. 35 percent jobless rate

Facts

1. 1946—Federal spending fell by 66 percent in one year

2. “The ‘Depression of 1946’ may be one of the most widely predicted events that never happened in American history.” ~ Jason E. Taylor, Richard K. Vedder, Cato Institute policy report

3. 1947—Budget surplus of over 5 percent of GDP

4. In the four years from peak World War II spending in 1944 to 1948, the U.S. government cut spending by $72 billion—a 75-percent reduction. It brought federal spending down from a peak of 44 percent of [GDP] in 1944 to only 8.9 percent in  1948, a drop of over 35 percentage points of [GDP]. While government spending fell like a stone, federal tax revenues fell only …10.6 percent. Yet, the economy boomed. September 1945 to December 1948, the average unemployment rate was only 3.5 percent. ~David R. Henderson, Mercatus Center at George Mason University

5. As government spending fell by 66 percent, private investment rose by 156 percent.  ~James Pethokoukis, American Enterprise Institute

6. “Why did the U.S. economy do so well in the years following World War II, given how badly it had done in the years preceding America’s entry into the war? The answer, in a nutshell, is that dramatically reducing government spending and deregulating an economy can take that economy from sickness to health.” ~ David R. Henderson, Mercatus Center at George Mason University

The Madness of Keynesian Economics

By Jonathon Moseley

American Thinker
President Barack Obama demands more stimulus spending to avoid the “fiscal cliff.”   Obama increased the national debt $6 trillion to $16 trillion.  Yet the Democrats’ ‘cure for what ails ya’ is even more spending.   Obama demands around $75 billion in new spending to stimulate the economy in 2013.

“Keynesian Economics” is the insane belief that the economy can be stimulated by government spending.  It provides the excuse to depart from common sense that allows politicians to ignore the alarm bells.  It is ludicrous mainly because our government doesn’t have any money to spend.

If the government had a surplus saved up, spending actual money might give our economy a short-term sugar high (with dubious long-term results).   But our Federal and state governments must first suck money out of the economy by borrowing it.

History has repeatedly proven that this is nonsense.  Yet Democrats will not let go of the Keynesian Myth.  The government is the center of society, America’s modern Democrats want to believe.  So they cannot shake the dogma that our entire economy depends upon government spending.

The New Deal was the largest real-world test of the Keynesian Myth in recent history. Franklin Roosevelt’s Treasury Secretary Henry Morgenthau confessed that the “New Deal” was a failure in sworn testimony before Congress on May 9, 1939. 

fdrnewdeal“We have tried spending money. We are spending more than we have ever spent before and it does not work.”

And FDR’s Treasury Secretary also told Congress:

“I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!”  (See:  Human Events    and The Heritage Foundation   

What’s more, Morgenthau was a friend and ally of FDR’s, not just the Treasury Secretary responsible for the finances of the New Deal.

Morgenthau made this “startling confession,” says historian Burton W. Folsom Jr., in the New Deal’s seventh year.   “In these words, Morgenthau summarized a decade of disaster, especially during the years Roosevelt was in power. Indeed average unemployment for the whole year in 1939 would be higher than that in 1931, the year before Roosevelt captured the presidency from Herbert Hoover,” Folsom’s book is “New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America.”

It’s like this:  You scoop water from the deep end of a swimming pool with a bucket, run around to the shallow end, and then pour the water into the shallow end of the pool.  Can you make the shallow end deeper?  The entire swimming pool is one inter-connected whole.  You are accomplishing nothing…  except spilling some water (waste) and using up energy (administrative overhead).

So our government vacuums money out of the economy by borrowing it.  The money is largely wasted because it is directed according to political goals and to benefit political cronies, not by sound economic criteria.  No one is accountable for good or bad results.  Some of the money is wasted on administrative overhead.  Some of the money is wasted on fraud or abuse or to line people’s pockets.

But nothing real has changed.  So the economy will end up right back where it was before — after a sugar rush hangover.  Salaries might be bigger only due to inflation lowering the value of the dollar.

For one thing, businesses and consumers do not change their behavior when they know that government actions are only temporary.   Only permanent changes in conditions affect economic dynamics, empirical evidence shows.

Advocates for the Keynesian Myth argue that unemployment dipped during the Great Depression from 20% to “only” 14% in 1938, before it jumped back up to 17% by 1939.  They insist that “austerity” budgets drove unemployment back up again to 17%.

So liberals admit that Keynesian Economics is a failure.  As soon as the government spending stops, the economy slumps back where it was before.  Nothing has actually changed.  The Keynesian Myth promises that the economy can be fundamentally improved.

Moreover, liberals ignore the massive debt they burden the country with.  Considering the whole picture, including the debt, the nation is left worse off than it was to start with.

Liberals argue that Roosevelt’s stimulus was not big enough and it took World War II to finally end the Great Depression.  However, Obama’s most out-spoken economist lets the truth slip:   The Great Depression ended partly because Adolf Hitler drove wealth out of Europe and into the United States.  As European war loomed in 1938 and 1939, genuine increases in real investments flowing from Europe fundamentally grew the economy.  This was real money invested in the country, not government manipulation.

Christina D. Romer is Obama’s most eager cheerleader for the Keynesian madness.  But she cannot avoid giving away the store in the process.  Romer was Chair of President Obama’s Council of Economic Advisers, and an economics professor at the University of California, Berkeley.

Romer reluctantly lets the cat out of the bag.  It was not World War II deficit spending but the military draft removing nearly 10 million men from the work force.   Nearly 10 million jobs needed to be back-filled.   Romer also reluctantly concedes that economic participation was driven by national survival.  In a recession, consumers pull back on spending out of fear and limited funds, while businesses wait for the economy to improve.  But when Japan bombed Pearl Harbor, and Germany declared war under their defense pact, national output soared out of patriotism.  After the war, many of America’s global competitors had been laid waste while the USA was untouched.

Economic historian Robert Higgs offers a detailed analysis in his book Depression, War and Cold War of how Roosevelt’s New Deal made the Great Depression longer and worse and how government deficit spending during World War II did not cure the Great Depression.  Higgs notes that Roosevelt stimulated manufacturing with some policies that are today Republican proposals:  Tax deferrals, contractual incentives, and capital and guarantees to convert their factors to defense manufacturing.

Top economists show us that the government cannot expand the economy through deficit spending because borrowing disrupts and displaces other economic activities, including Milton Freedman, E. Cary, John Taylor of Stanford, Gary Becker and Eugene Fama of the University of Chicago and Greg Mankiw and Robert Barro of Harvard. In the end, the government simply moves economic activity around (benefitting campaign donors) without any real improvement. As economist Hal Varian of the University of California at Berkeley points out, private investment  in the economy builds a foundation for long-term, sustainable growth and prosperity, whereas government spending does not.

When political cronies benefit, honest business building is demoralized and discouraged.  Economic growth is harmed by liberal meddling and government disruption of the private sector.

This author was reminded (scolded, really) that even John Maynard Keynes himself would never approve of the claptrap thrown around in his name.   Keynes argued that governments should run deficits in bad times but should also pay off those debts promptly in good times and run up surpluses to save for the future.  But since Keynes is not here anymore to defend his reputation, Keynes’ theories have become grossly perverted in the halls of Congress, the White House, and academia.]\

Now, the tea party cannot save the country without slaying the Keynesian dragon once and for all.  The tea party is fighting against out-of-control government spending as its most important priority.  Ordinary Americans were driven out of their living rooms and into the streets to form the tea party by the fiscal madness in Washington.  But the tea party cannot bring a stop to deficit spending without confronting the demon at its core.
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4 comments on “Economy: History Timeline and Facts

  1. I’m very happy to discover this web site. I wanted to thank you for your time for this particularly wonderful read!! I definitely liked every little bit of it and i also have you saved as a favorite to see new things on your site.

  2. “Keynesian Economics” is the insane belief that the economy can be stimulated by government spending. It provides the excuse to depart from common sense that allows politicians to ignore the alarm bells. It is ludicrous mainly because our government doesn’t have any money to spend.

  3. As has been proven repeatedly by history, Deficit spending does not help the economy. Certainly if deficit spending helped, with our $ 13 trillion+ debt, the economy should be roaring. Hmm. Now why doesn’t that work?

  4. The New Deal deficit spending helped boost the economy and bring the unemployment rate down to single-digit levels, but fear of deficits limited the scale of New Deal programs and caused Roosevelt to reverse course and cut back on spending in 1937, just as the economy was gaining momentum.

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