According to data from the Federal Reserve Bank of Philadelphia we are about to enter another recession. Of course, one would be hard-pressed to convince the over 20 million Americans who remain unemployed or underemployed that the last recession ever ended. But, I suppose, according to economists it technically did. Given the circumstance we are in, what can be concluded firmly is what this commentator has maintained all along: that Keynesianism is a complete and utter failure. Yes, it made many Americans feel like the political class cared about them because it spent so much money on their behalf in an attempt to “stimulate” the economy back to good health. And all the money infused into the economy either by government appropriations, monetized debt, or artificially low interest rates did indeed forestall an economic collapse. But, like the old Chiffon margarine commercial which warned its viewers that impending doom would befall those who fooled Mother Nature, doom is now ours because Bush, Bernanke, Geithner, Obama, and many members of Congress dared to fool the Free Market.
Naturally, Keynesian diehards will claim that the problem is that not enough money was spent to revive the declining economy. Well, that is an easy out given that more money could always be spent. In any event, more money spent would have probably forestalled the next recession even further into the future, but it wouldn’t have solved the systemic problems in the economy: price fixing by the Fed, government spending crowding out private investment, and overregulation. In fact, with the spending we have had, an even worse recession than the last is on the horizon; if more money had been spent, the next downturn would be that much larger.
The fact of the matter is that since 2008, we have racked up close to six trillion dollars more in debt, with nothing to show for it. The big spenders responsible will blame the greedy rich who they say do not pay their “fair share” of the tax burden. But, according to the IRS, in 2007 the richest one percent earned 22 percent of national income while paying 40 percent of all personal income taxes; the top five percent earned 37 percent and paid 61 percent of all income taxes; and the top 10 percent earned 48 percent and paid 71 percent of all income taxes. Meanwhile, the bottom 50 percent earned 12 percent of the nation’s income but only paid three percent of the nation’s income tax. So, I am not sure what the president and his coterie are talking about when they claim the rich need to be taxed more in order for them to pay their “fair share”?
Article comments
— go to most recent comments1 - Glenn Contrarian
And why is it, then, that every single first-world nation (other than certain OPEC nations) is a socialized democracy with what you think of as really high taxes, and in which the rich always pay a higher percentage than the poor?
If your 'the end is nigh' way of thinking is correct, then the market would show it - the nations that work on libertarian principles would be the first-world nations, and the socialized democracies would be the third-world nations.
Here's something to gripe you out, Kenn - in the macroeconomic view, the only tax dollars that are truly wasted are those that are spent or sent outside our borders.
2 - Kenn Jacobine
Glenn, have you been following the saga of the E.U.? It is bankrupt as well. All those great socialized economies you talk about - Greece, Spain, Italy, Portugal and there will be others. All of them are in the toilet. But the point is not other countries. My article was about the U.S. Of course, you distract from that because everything I wrote is true and things are as awful.
3 - Dr Dreadful
"The problem is that Americans want their Social Security, Medicare, and all the other goodies politicians promise them. And they don't seem to mind the endless wars and corporate favoritism coming out of Washington either. This can be concluded because they continue to reelect the same policymakers who have produced the mess we are in."
There's a simple reason for this: the phenomenon of the infallibility of self.
Take any random sample of Americans, and you'll most likely find that almost all of them agree that Congress consists of a bunch of useless, incompetent, self-serving twats who should all be bounced out of office at the earliest available opportunity.
With one exception: their congressman (or woman) - who is almost always a decent, principled human being who stands up for his or her constituents, and who isn't anything like all those other scumbags.
This, in a nutshell, is how 535 supposedly decent guys and gals consistently end up forming an assemblage of corrupt, self-serving corporate toadies.
4 - Glenn Contrarian
Um, Kenn -
Even as bad as their economies are performing right now, you know very well that they're ALL still a heck of a lot better off than most third-world nations, and are better off than ANY nation that tries to work on libertarian economic theory.
5 - Kenn Jacobine
Still insinuating that the Developing World is libertarian?? As the BRIC nations move towards the free market they will surpass Europe and the U.S. No Glenn, Zambia is not libertarian, but China is way more free market than it was 20 years ago and it is doing okay for itself today.
6 - Glenn Contrarian
Kenn -
Much of the third world DOES work on libertarian principles - but not by choice. They have far smaller, weaker governments, business is mostly unfettered, taxes are much lower (and even when they're nominally not lower, they're often unenforceable and largely ignored by the man on the street), there's very little regulation of business, much less of the environment.
And then you yourself go traveling through these places and you see the depth of the poverty and the corruption...and you never make the connection between the poverty and the corruption, and the smaller, weaker governments with the weak and often unenforceable tax structures.
And I made one other comment to which I'd like a reply: "in the macroeconomic view, the only tax dollars that are truly wasted are those that are spent or sent outside our borders."
7 - Not the liberal actor
Kenn, another great article, one that most Blogcritics readers will not specifically address, especially the taxes paid part. Perhaps they can tell us how taxes paid is "fair." I think your statement, "Given the circumstance we are in, what can be concluded firmly is what this commentator has maintained all along: that Keynesianism is a complete and utter failure." pretty well says it all.
8 - Kenn Jacobine
Glenn,
I guess the money given to Solyndra wasn't a waste? I suppose the billions given in corporate bailouts wasn't a waste? And let's not forget the huge military budget we have. I believe we spend more than all others combined on war and militarism.
9 - Glenn Contrarian
Kenn -
I see how you went from "Solyndra" to "billions". But that's besides the point.
Look again at what I said - "in the macroeconomic view". Now look at your favorite bugaboo, since you're focusing on that particular tree instead of seeing the forest as a whole. The money that went to Solyndra - what happened to it? Did it disappear? Did it just go 'poof'? Did somebody encase it in concrete and put it next to Jimmy Hoffa?
Of course not. The only money that gets 'lost' is that which is used to buy something of a certain value - whether stock, real estate, or candy bars - and then the value of that something goes down. But in the macroeconomic view, even then the taxes that might be used to purchase those things is not wasted does not disappear down some hole to oblivion. Why? Because the tax money that was received to purchase that something of value, the money that became the possession of the seller, was then used to purchase other items - subject to taxes, of course.
So as a result, the tax money that was used to purchase something of value not only resulted in the possession (at least initially) of that something (say, stock in GM) by the government, but also resulted in those taxpayer dollars not only being used to perpetuate the economy, but also as a source of more tax revenue. AND - as long as that something of value does not depreciate in value below the sum of the new value plus the incoming tax revenue (from the continued use of the money through the economy) plus one cent, the government actually makes a profit.
*somewhere over in Qatar, a loud explosion is heard, and terrorism response forces only find that Kenn's head had exploded in rage*
Kenn, this is why the taxpayer-funded economic stimulus that was WWII worked wonderfully for finally getting America out of the Depression. This is also why the opposite of taxpayer-funded economic stimulus - austerity measures - not only do NOT stimulate an economy but tear it down at the seams...and all you have to do is to look at the austerity measures that have been instituted in Europe to see that no, austerity measures don't work. Here's a country-by-country list of austerity measures that have been taken in Europe...and you yourself can see those countries aren't getting any better.
Kenn, all economies are driven by demand. When the oh-so-holy Job Creators with their untold billions of dollars (like the Walton family of Wal-Mart fame, which has MORE money than the bottom forty percent of Americans) decide where to build their factories or stores or distribution centers, they will only do it where there is demand...and when that bottom forty percent of Americans don't have the money to provide that demand, the oh-so-holy Job Creators won't build factories in their communities et al to give them jobs to earn money to provide that demand!
The demand MUST come first, Kenn - always has, always will. Slash the taxes and thus the government funding of everything from schools to roads to the EPA - most of which provide things of REAL value - and you keep money (which all winds up in the hands of middle- and lower-income people) out of the economy...which means they don't have money to spend, the oh-so-holy Job Creators don't see a profit in building businesses where they are...and there soon becomes fewer jobs available for more people.
It's a vicious circle, Kenn. Austerity doesn't work - if it did, the first-world nations of the world would NEVER have become first-world nations to begin with, and the third-world nations that run on libertarian principles because they have no other choice would have become greatly successful economies. The proof is all around you. Again, in the macroeconomic view, taxes that are not sent outside of a nation's borders are not wasted, but instead help to keep an economy going...the more so if said taxes are used to make or invest in something of real value - like schools and roads and, yes, even the EPA. In the end, YES, taxes ARE wealth redistribution like every good conservative claims, but it is that wealth redistribution that is used to make or invest in things of real value that keeps people employed, that keeps our economy going...
...and that's why first-world nations are first-world nations, Kenn.
10 - Dan(Miller)
Victor Davis Hanson has a good article here on some of the consequences of economic stimuli predicated on very low to zero interest rates.
The bigger problem, as I see it, lies in our culture of dependence on Government. What happens as those upon whom the Government itself depends for funding decline in number and revenue generation while those dependent upon Government increase? It's not pleasant to contemplate, but we should.
11 - Glenn Contrarian
Dan -
Perhaps you'd like to address the same conundrum that I've presented Kenn, namely, why is it that (other than certain OPEC nations) ALL first-world nations are socialized democracies that all have what you would consider cultures of dependence on government? And why is it that of all the nations whose economies are largely libertarian in nature (small, weak governments, little or no regulation, low taxes), none have risen above their station to the point where their people have a standard of living that compares to those of the traditional first-world nations?
I touched on this in comment #9, but my point is that whatever claims might be made by your references, the end result - which nations have the highest standards of living, and which don't - is inarguably in favor of socialized democracies with big government, more regulation, and high taxes. Why is that, Dan?
12 - Dan(Miller)
Glen,
Might I trouble you to identify the nations that you think are doing well? I assume they do not include Greece.
13 - Not the liberal actor
Dan, Glenn is very quick to offer his opinion. But when you ask him to be specific, as you have done in comment # 12, all he will offer is another opinion.
14 - Glenn Contrarian
Dan M. -
Might I trouble you in return to identify the third-world nations that have a standard of living as high as that of Greece? And sooner or later (depending on when this idiocy about 'austerity' goes away and the Grecian government strengthens its ability to go after tax cheats), Greece will recover and their standard of living will still be higher than that of any third-world nation I can think of - one sign of which is that their health care system is so sufficient that they are twenty places above America on the list of countries by life expectancy...and I think you'd have to agree that generally speaking, the longer the life expectancy of the people of a certain country, the better off that nation generally is when it comes to the standard of living for its people.
15 - Glenn Contrarian
Warren -
Perhaps you'd like to address the same conundrum that I've presented both Dan and Kenn, namely, why is it that (other than certain OPEC nations) ALL first-world nations are socialized democracies that all have what you would consider cultures of dependence on government? And why is it that of all the nations whose economies are largely libertarian in nature (small, weak governments, little or no regulation, low taxes), none have risen above their station to the point where their people have a standard of living that compares to those of the traditional first-world nations?
I touched on this in comment #9, but my point is that whatever claims might be made by your references, the end result - which nations have the highest standards of living, and which don't - is inarguably in favor of socialized democracies with big government, more regulation, and high taxes. Why is that, Warren?
16 - Dan(Miller)
Glen, Might I trouble you in return to identify the third-world nations that have a standard of living as high as that of Greece?
Is that now the test? I hadn't been aware that it was.
How about you go first and respond to my query? After all, I did ask first so it seems only "fair" that you do so.
17 - Glenn Contrarian
Dan -
You ask which nations I consider as 'doing well'. Okay, 'doing well' as compared to what? What's the metric? How do we measure 'doing well'?
I would say that whatever the economic headlines might be for the past few years, the metric should be - must be - the standard of living of the people...and the standard of living of all the nations of Western Europe (including Greece) is significantly higher than that of any third-world nation I can think of.
Unless, of course, you can think of a more appropriate metric of how to determine whether a nation's "doing well"...but bear in mind that a nation's condition shouldn't be judged on its current condition for the same reason that judging the value of a company shouldn't be made on the premise of its current performance. Take the long view, consider the condition of the nation as a whole over the decades...
...and then bear in mind what the condition of the nation will be when - when - its current economic troubles are finally under control. Do you really think it will have become a true third-world nation? Do you really? I don't think so.
In other words, when it comes to the condition of the nation and its people as a whole, the worst-off of the first-world nations is better off than the best-off of the third-world nations...
...and all the non-OPEC first-world nations are socialized democracies. Why is that?
Your turn.
18 - Not the liberal actor
Dan, see... Glenn tries to obfuscate rather than offer specifics. Besides, Glenn started this discussion with comment # 1.
19 - Glenn Contrarian
Warren -
In other words, you can't - or won't - answer the question, huh? The article was - like most of Kenn's articles - about the ever-impending failure of Keynesian economics, and my comment #1 addressed his assumption directly. But I guess the question in my comment #1 made you...uncomfortable.
You see, neither Kenn nor Dan M. nor you - nor any other B.C. conservative - has ever been able to answer the question I gave you in #15. It's a simple one, really: if the Keynesian economic system found in all socialized democracies were SO bad - you know, stimulus during recessions, using high taxes to provide a social safety net and health care for all, publicly-funded education, and so forth - then why, oh, WHY are ALL the non-OPEC first-world nations socialized democracies? And like I asked Dan M., why is the standard of living in the worst of the first-world nations - Greece - better than the standard of living in the best of the third-world nations?
I mean, after all, if socialized democracy was SO bad, then doesn't it make sense that NONE of the first-world nations would be socialized democracies? Doesn't it make sense that some kind of economic system other than socialized democracy would have risen to supremacy? But no other system has, has it?
These are just simple questions, Warren - are they really that hard to answer?
20 - Dan(Miller)
"For your information, let me ask you a question!"
21 - Igor
Kenn's claims fly in the face of the obvious. As anyone can see by looking at the Bush administration, which lead us into a disastrous recession, If we had followed Keynesian counter-cyclical policies we would have used the 2000 surpluses to pay off debt, not to give expensive tax gifts to the vry rich.
Given the circumstance we are in, what can be concluded firmly is what this commentator has maintained all along: that Keynesianism is a complete and utter failure.
Exactly wrong. Had we followed counter-cyclical policy as recommended by Keynes, we would have paid off debts, thus laying up credit for future financial problems, and we wouldn't have the massive deficits we actually got from the Bush administration.
Not only were the Clinton-era surpluses misapplied, but the tax gifts to the rich and corporations acted just like excessive spending and increased our debts.
The fact that we started to lose jobs during the Bush administration proves that the "Job Creators" are NOT employers and investors, but rather the customers who create demand for products. The 'little people'.
22 - Kenn Jacobine
Igor,
We were in a recession when Bush took office. He spent like a drunken sailor and the Fed lowered interest rates to effectively zero. Both brought on the housing bubble. That popped and we do the same thing again. Logically thinking we should be in for a bigger fall now. And we will be.
You write that counter-cyclical policy has been proven to be fact like the sun is 98 million miles from earth. It is crap. Keynes was wrong. There is no economic justification for his policy. He was a charlatan and political opportunist who was responsible for prolonging the Great Depression and whose policies are now responsible for prolonging and making worse our current crisis.
23 - Glenn Contrarian
Um, Kenn -
Have you yet figured out any nation that has small, weak governments, really low taxes, and little or no regulation that has a standard of living that even comes close to that of Greece, the 'poor man of the first world'? No? Why not?
Now if the market is always right, then if you are right that socialized democracies with big government, high taxes, and lots of regulation are a sure path to depression, then the market should have already driven the socialized democracies into depression...and the first world should already be comprised of those nations with small, weak governments, low taxes, and little or no regulation.
But it hasn't worked out that way, has it, Kenn? Why is that? Whywhywhywhy???? What is so frightening to you to directly address obvious facts that call into question your beliefs?
24 - Kenn Jacobine
Because we have been down this road before. Developing countries are not developed precisely because they are not libertarian. They have central banks, there is a big lack of property rights, and generations of corruption and dictatorial leaders have left the natives poor. I lived in Zambia and traveled to South Africa. The white populations in those countries live very well. Partly because their ancesters colonized those places and enslaved the masses. Then when their countries were turned back to them the colonizers left their puppets in charge. It is more complicated than you make it out to be.
25 - Igor
Actually, counter cyclical IS a fact. Ask any Control Systems engineer how he stablizes a closed loop control system, and he'll respond "negative feedback".
Stabilization also requires rooting out positive feedback, a more difficult task.
Monetary policy can only modify the effects of fiscal policy, thus manipulations of the interest rates are secondary to basic spending and taxing rules. The real 'action' is in fiscal policy.