Obama once again proves he has more audacity than cranial capacity!
<SNIP> Correction, Mr. President. It has worked–time and time again throughout history. The trouble is, Mr. Obama has never tried it, and the Keynesian economic policies he enacted fell flat on their face, just as
they have throughout history.
It started with a massive $787 billion stimulus bill that White House economists predicted would create (not merely save) 3.3 million net jobs by 2010. It was Keynesian economics at its finest, based on the premise that government spending would spark demand and put Americans back to work.
It didn’t. Some 13.3 million Americans remain out of work, the unemployment rate has hovered between 8 and 10 percent throughout Obama’s presidency, and economic growth has been stuck on slow. In fact, today America is witnessing the longest stretch of such high unemployment in the postwar era. Meanwhile, job creation has hit a record low, as Heritage’s James Sherk
explains:
Fewer existing businesses are expanding, while fewer entrepreneurs are starting new businesses. In the first quarter of 2011, the number of workers hired in new business establishments fell to just 660,000, 27 percent fewer than when the recession began. This is the lowest number of workers hired at new businesses that the Bureau of Labor Statistics has ever recorded–lower even than the worst points of the recession.
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Interesting article. Let’s take a closer look.
(Excerpt) Congress cannot create new purchasing power out of thin air. If it funds new spending with taxes, it is simply redistributing existing purchasing power (while decreasing incentives to produce income and output). If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. (End)
Businesses have more money than ever before socked away and they are not using it.
(Excerpt) For example, many lawmakers claim that every $1 billion in highway stimulus can create 47,576 new construction jobs. But Congress must first borrow that $1 billion from the private economy, which will then lose at least as many jobs. Highway spending simply transfers jobs and income from one part of the economy to another. (End)
The money is not currently being used.
(Excerpt) First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. (End)
I am not intending to spend that dollar and companies have plenty of money so they do not want to borrow it.
(Excerpt) Second, investment is "spending" every bit as much as is consumption. Keynesian fiscal stimulus advocates want money spent on consumption, not saved. They evaluate past stimulus programs by whether people who got stimulus money spent it on consumption goods rather than save it. But the economy overall does not care if you buy a car, or if you lend money to a company that buys a forklift. (End)
True, IF a company does, indeed, buy a forklift but, again, companies are not spending.
(Excerpt) Answering the Critics
Critics' Objection No. 1: People Are Saving Instead of Spending, and banks Are Not Lending. By Borrowing and Spending these "Idle Savings," Government Can Circulate More Money Through the Economy.
This is the most common defense of government stimulus cited by policymakers. Indeed, among proponents of government spending there is a strong focus on whether people are spending or saving, with the implication that spending circulates through the economy while savings effectively drop out.
But savings do not drop out of the economy. Nearly all people put their savings in: (1) banks, which quickly lend the money to others to spend; (2) investments in stocks and bonds; or (3) personal debt reduction. In each of these situations, the financial system transfers one person's savings to someone else who can spend it. So all money is quickly spent regardless of whether it was initially consumed or saved. The only savings that drop out of the economy are those hoarded in mattresses and safes.
Advocates of the "idle savings" theory fail to specify the location of all these newly hoarded piles of dollar bills they believe have been shielded from spending in the financial system. (End)
It’s been specified exactly where those savings are shielded, in the coffers of large companies. Large businesses are sitting on more money than ever before. As for “someone” spending the money, yes, we’ve seen how the money was “spent”. It was spent on gambling, commonly known as financial instruments. Imagine buying stock, betting on that stock to fail and when it does the person makes money off the entity (individuals) who placed bets the stocks would rise in price. What products or services are produced?
(Excerpt) Critics' Objection No. 3: Government Spending Has a Multiplier Effect That Allows the Money to Re-circulate Through the Economy Multiple Times.
This point is correct but irrelevant to the question of stimulus. Yes, $100 in unemployment benefits can be spent at a grocery store, which, in turn, can use that $100 to pay salaries and support other jobs. The total amount of additional economic activity will be well above $100; but because government borrows the $100, that same money is now unavailable to the private sector--which would have spent the same $100 with the same multiplier effect. (End)
Wrong. People are saving more because of the worry of job loss. They’re putting off large purchases.
(Excerpt) Critics' Objection No. 4: During a Recession, Government Spending Can Put Unused Resources to Work.
This restates the overall spending fallacy. Yes, government spending can put under-utilized factories and individuals to work--but only by idling other resources in whatever part of the economy supplied the funds. If adding $1 billion would create 40,000 jobs in one depressed part of the economy, then losing $1 billion will cost roughly the same number of jobs in whatever part of the economy supplied Washington with the funds. It is a zero-sum transfer regardless of whether the unemployment rate is 5 percent or 50 percent. (End)
This is the most absurd objection. Let’s say a company is making toasters in Toledo and the government taxes the profits on that company to start a microwave factory in Miami. How does the toaster factory suffer? In other words if an employee is paid $20/hr, including benefits, and he produces $30/hr worth of work for the company the company is not taxed on the $30. It writes off all the expenses involved including the employee’s earnings so unless taxes are close to 100% the company makes a profit.
Taxes are on profits and a microwave factory will not, in any way, interfere with a toaster manufacturer.
(Excerpt) Conclusion
All recessions eventually end. The U.S. economy has proved resilient enough to eventually overcome even the most misguided economic policies of the past. (End)
Yes, the recession will end. However, people can’t wait a year to eat. Consider phoning ones mortgage company and telling them you’ll be temporarily stopping mortgage payments until the economy picks up.
People lose their homes plus the equity in them when the banks repossess them. They lose what they’ve worked for and already paid for. The same for an automobile. They may have paid three and a half years and have only six months to go on the loan but they lose the car/truck. It’s not just a matter of them facing a more austere future, cutting back on future purchases. They lose what they have already partially paid for.
Whether it’s stimulus by helping companies provide jobs or stimulus by extending unemployment the unemployed need help. We have to realize that lack of work does not translate into a lack of goods available. There was a time when if people didn’t work they didn’t have any food or housing because none were available. People had to produce what they required. That dynamic has changed. Technology has resulted in products/services being available even if large numbers of people don’t work. The obvious example is one person with a tractor and plow can prepare a field for planting that used to take dozens of men with shovels to prepare. The same with building materials and clothes and stoves and furniture and most everything else we use. So the problem is not a lack of goods due to a lack of work. The problem is a lack of money due to a lack of work. It’s a “crime” to deny people the basic necessities of life when plenty is available.
The old way of doing things, the old philosophy, the old paradigm has changed. Of course, those who have benefitted from the old ways and continue to do so resist any change but change is coming. Those who oppose the most viciously will inevitably suffer the most viciously.
