If you are a loyal member of the “Yes We Can” army, it would probably be best if you backed away from my column today. We are unlikely to be on friendly terms when this is all said and done.
President Obama says he is going to save the United States economy through massive government spending and his ill-promised “trillion-dollar deficits.” It is going to fail. It has been tried before, and it has failed before. Only this time, it’s going to fail on a spectacularly massive scale, and here is a small explanation of why his policies have no chance whatsoever.
President Obama pushed through an economic stimulus package worth $819 billion in an effort to end the current economic recession.
In a speech on January 8, President Obama declared his intentions to fix the economy, and declared to the world that if the government didn’t take action soon, the recession might linger for years. Why does he assume that intervention is the solution?
The reason is Obama has blindly embraced Keynesian economics. Keynesian economics takes an overly simplistic approach. Vital to the interpretation of the Keynesian model is the idea that spending, whether consumer or government spending, generates income and drives the engine of our economy. Since consumers are largely unwilling to spend in the current market, the government must increase spending to offset the drop in aggregate demand. Keynesianism failed in the 1980’s with stagflation – increasing unemployment and inflation – but it stays alive because of its obvious simplicity.
Didn’t work then, won’t work now
President Obama, like John Maynard Keynes, believes government must manage the economy to a certain extent, contending that the free market is inherently unstable. Our new president has gone so far as to publicly announce his intentions to implement the second coming of the New Deal, more than likely because he believes only government intervention in the economy can “fix” our current economic situation.
The New Deal is largely regarded by many on the left to have been the cure for the Great Depression, and President Franklin Roosevelt is their saint. However, what most New Deal apologists ignore is that the New Deal did nothing to pull the country and the economy out of the Great Depression, but rather it made the situation vastly worse.
Most defenders fail to recognize that the real per capita GDP in 1939 was lower than it was in 1929. Unbelievably, through the “magic” of government intervention, in 1939 the United States had 17.2 percent unemployment – a higher rate than was present in 1931.
Add to this rampant inflation, monetary expansion at the rate of 100 percent, increased government regulations, and taxes that were three times higher than they were in 1931. When FDR ran for his first term, he did so by criticizing President Hoover for his expansionary government policies and campaigned as a small government liberal – one who promised to slash government spending and cut the bureaucracy. Just one more tidbit lost in the hero-worship that accompanies FDR on the left today.
Flash forward to the present and we see the problems that plagued us in the 1930’s are back again. Last year the Federal Reserve recklessly expanded the monetary supply in this country to the tune of $1.6 trillion. The Bush Administration passed through 700 billion dollars worth of bailouts to banks, automakers, and institutions that should have failed. We have increasing inflation and unemployment.
Ludwig von Mises, the founder of the Austrian School of Economics, promoted the idea that when given the choice between the free market and intervention in the economy, the government always chooses the latter. Now we have a president who openly embraces FDR and his economics of government intervention.
He champions wage rate increases when the market needs them to fall. He promises to prop up banks “too large to fail.” He vehemently encourages Americans to spend money at a time when saving is most needed. He promises to raise capital gains taxes even though a reduction would result in more government revenue. He promises to increase the estate tax.
He promises to raise marginal tax rates on “the rich” to help pay for his campaign promises of giving tax cuts to “the not rich.” His promises to raise taxes on the most productive members of society are asinine and counterintuitive. A government that robs Peter to pay Paul will always have the support of Paul, or in this case, a legion of militant “Yes We Can” chanters.
Can we think for ourselves?
It is obvious that we don’t have a president who believes in the free market. We don’t have a president who thinks that individuals have the power to choose what is best for themselves. What we do have is a president who wants to preside over the greatest forced redistribution of resources in the history of our country.
Austrian economist Henry Hazlitt argued that loose monetary policy, a real estate boom and an overly aggressive and speculatory stock market caused the depression.
He argued then that the recession was a natural market reaction that was needed to restore balance to the market. Recessions, according to Hazlitt, acted to fix the poor investments that plagued the economy, to reallocate labor resources to the most productive sectors and to drive prices down. Recession is the cure for a bad economy, not the problem.
At the same time Hazlitt was arguing for a recession, The Nation published an editorial in 1933 praising the intervention of FDR and calling for widespread national support. They said, “Mr. Roosevelt is attempting to preserve capitalism, to save it from itself by robbing it temporarily of several of its most fundamentally capitalistic prerogatives.”
The result of intervention in the 1930’s was Leviathan grew larger, the economic problems that plagued us in the beginning remained and the fundamentally capitalistic prerogatives permanently disappeared.
If President Obama really wanted to fix the economy today, he would be wise to adopt a few libertarian economic principles. He would cut marginal tax rates, cut payroll taxes, end the estate tax, reduce capital gains taxes, end corporate welfare and stop economic bailouts. He would also be wise to trim the federal budget by drastically reducing Social Security, Medicare, and “defense” allocations.
He won’t do this, however, mostly because even with that Harvard law degree, President Obama is an economic illiterate.
Today, we ostensibly know that government intervention is the only thing that can save us from a depression. Seventy years later, and we still haven’t learned our history lessons.
Joe Hunt is an economics and history senior. His column usually appears every other Wednesday.
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mfhayes 3 years, 3 months ago
More astonishing news: Joe Hunt can predict the future!!!
hurstky 3 years, 3 months ago
i think it's quite funny that liberals get mad when a media organization gives fair and balanced coverage, when most media outlets in the US are very liberal. give it a break. let him speak his mind, something liberals have a hard time doing with republicans
Bubba 3 years, 3 months ago
ooh, scary. Somehow "tax and spend" doesn't seem nearly as frightful as the "spend and vacation" administration we've labored under for years.
Dear Bush: You dropped Obama on me! Thank you!
-Bubba
impatient_with_ignorance 3 years, 3 months ago
As for my cheap shot at Alabama, I certainly don't hate Alabama, although I don't admire it and would never want to live there. My main point was that the fact that the Mises Institute is based in Alabama perfectly captures how marginal it is, very much like Ron Paul. Neither it nor he (nor the positions advocated by Joe Hunt) are going to have any effect whatsoever on the hugely important real debate that is happening right now in Washington. Both Japan and Sweden have faced similar collapses of their banking systems in recent years, and they pursued very different policies with very different results.
Again, what I think everyone who posted here should be thinking and writing about is HOW the US should actually respond to the current very scary and worsening crisis, and Mr. Hunt chooses again and again to be totally irrelevant to that debate. The choices the US makes in the next year or two are going to have profound consequences,m especially for young Americans. The Japanese in the 1990s went through more than 10 years of recession and stagnation (the so-called "last decade") and the US could make similar decisions that would produce similar results. Now that is a REAL problem and at present all the available realistic choices are incredibly complicated and all have very serious drawbacks. Doesn't our university community need to discuss this, and at the most serious and intellectual level of which we all are capable?
For liberals, that so many thoughtful and energetic conservatives are choosing to marginalize themselves and take positions that have no chance of serious support among either voters or Republican business interests is a godsend and a boon. Read the following very perceptive Wall Street Journal article to see how liberals and left-liberals are doing just the opposite: figuring out how to use the support they are winning because of the economic crisis to advance their long-standing and long-frustrated agenda:
http://online.wsj.com/article/SB123327719403931465.html
and for T_Money: I confess I do believe in and favor democracy, in spite of its huge and obvious flaws, and think it is far superior to the original Republic that kept women dependent and disenfranchised and openly sanctioned the slavery practiced by many of its white male founders. That you have disdain for democracy and the people is apparent.
Also for T_money: when you dismiss the fact that the huge majority of American citizens believe the freedom from fear given them by Social Security and Medicare is real and very meaningful freedom, you make the very same error that arrogant young left-wing Americans made in the late 1960's, or liberals make when they ask "What's the Matter With Kansas?" You are saying you know what is freedom for a person better than the person him/herself knows.
Charles 3 years, 3 months ago
Well that is hilarious. What really gets me chuckling though is that the Democrats control the White House and have majorities in both houses of congress which means that you can suck it.
How's that permanent Republican majority working out for you guys?
impatient_with_ignorance 3 years, 3 months ago
All six writers who post comments after mine make good points, and the fact that there is a political discussion even happening on our campus seems encouraging. I do think I said some things that were intemperate, and for that I apologize and feel it was fair and approproiate to be called on it. I think some other of my comments have been misinterpretd. My main argument was that a huge, deeply serious crisis is happening and within the limits imposed by political reality, there will be decisions made between choices ALL OF WHICH are very complicated and not entirely desirable. I do believe the OU paper and community should be discussing THOSE choices because we live within THAT reality. I don't admire the two-party system and have contempt for most of the leaders of both parties, but the last 150 years suggest that system is firmly entrenched, and the real decisions will be made within that system.
For T_Money: "moderating the Depression" means reducing the 1932 unemployment rate of 24 percent to the 1936 rate of 13 percent, and the 9 to 10 percent rate of annual real economic growth achieved in FDR's first six years. Everyone understands that things then got worse in 1936-37, when he shifted policies to cut spending and reduce the deficit, and that the huge deficit spending for WW II is what brought the economy fully back to life.
I in no way want to prevent Mr. Hunt from expressing his views; I do object to his being so repetitious over so many months, and, again, wish the DAILY would publish essays that argue both sides of the real policy debate (how SHOULD we save the banking system?) and that acknowledge the complex nuances of that debate. A university community deserves more than repeating left-wing and right-wing soundbites from cable TV.
fustigate: I do not misquote Hunt: he calls the President an economic illiterate BECAUSE he supports the same policies as Stiglitz and Krugman, and I'm saying that is definitely not illiteracy, it is just disgreeing with what Hunt wants.
impatient_with_ignorance 3 years, 3 months ago
It is both frustrating and astonishing that the DAILY continues to give so much space to Joe Hunt and his views on the economy. The simplest point is that he is totally out of touch with political reality. There are obvious reasons why almost no elected officials, liberal or conservative, Democratic or Republican, embrace the policies he recommends: since 1932, in the American democracy, a large majority of voters DEMAND that their government try to ameliorate severe recession and depression. So when Hunt advocates letting the so-called free market run its course, he advocates the currently very real possibility of a depression. He seems utterly unaware that in addition to what he sees as deserved economic hardship imposed on those who made bad investment and bad management decisions, this would also impose huge economic hardship -- joblessness, business failure, mortgage foreclosure -- on millions who did nothing wrong and who made no "bad" investment decisions. So much of his argument is so out of touch with history and current reality that one really has no clue where to begin to respond.
There are reasons why the capitalist right is now advancing the revisionism that the New Deal did not ameliorate or moderate the Depression of the 1930's, which it surely did. (This is not to say, that the New Deal "solved" or "fixed" the Depression; it definitely did not, but it MODERATED it, and that is obvious not just by many sets of data but by the obvious re-election of FDR three times.) These revisionists actually have to claim that a majority of Americans were "duped" by FDR, which perfectly captures their view of democracy and their respect of, and concern for, the general public.
impatient_with_ignorance 3 years, 3 months ago
One wonders if Hunt will EVER address the fact that the government's failure to "bail out" Lehman Brothers (a failure he favored) is recognized as a catastrophic "game changer" in this morning's FINANCIAL TIMES, and by almost all business leaders.
Our country is facing a complicated and extremely unpleasant choice on how to rescue a frozen banking system in danger of collapse, as happened in 1873, 1893, 1930 and more recently in Japan and Sweden, in which neither realistic alternative is very desirable: the government can nationalize the banks temporarily, or it can nationalize their bad investments and crappy assets, the value of which is totally unknown. These are two very complicated and unpleasant alternatives, so a discussion of them would be helpful and is badly needed. Instead, Hunt repeatedly writes long columns in which he manages to advocate a third alternative which is even worse than the two realistic ones, and continues to plod along in this silly parallel universe even though the alternative he proposes HAS NO REALISTIC POSSIBILITY OF BEING ACCEPTED BY OUR POLITICAL LEADERS BECAUSE IT WILL NOT BE ACCEPTED BY A MAJORITY OF THE VOTERS.
For a history major, Hunt seems unaware or unaffected by much historical knowledge. He should either read about Herbert Hoover and Alf Landon, or get his head out of the Austrian school (based at a think tank in Alabama, if that doesn't say it all) and just look out the window. If the DAILY continues to waste this much space on repetitious columns totally divorced from political reality, perhaps Hunt could write about his own willingness to endure economic hardship, based on any past record, or any reasoning why he thinks that might be desirable.
Last semester we had to endure Hunt writing a column about how Social Security and Medicare reduce individual's freedom. He is utterly unaffected by the fact that most recipients of these two programs fervently believe just the opposite. Hunt advocates the freedom to be poor and the freedom to be sick without health insurance. He has no conception that there are freedoms FROM these painful disasters, and a freedom from fear of poverty or fear of illness without health care are (a) very real freedoms, and (b) one that are deeply valued by a huge percentage of people.
impatient_with_ignorance 3 years, 3 months ago
A few other realities that Hunt seems incapable of confronting: very, very few business leaders and capitalists accept or favor "the free market" in their actual day-to-day practice, no matter what their rhetoric may sound like. The market is brutal, volatile, and often does not function according to the model because conditions differ from the assumptions on which the model is based, as almost any sophomore in a micro class knows, although often cannot express without some peril to his grade.
Economics is highly fragmented, with very little universal agreement on a body of knowledge. Obama's policies are supported by, or move in the direction advocated by, Joseph Stiglitz and Paul Krugman (to name just two) and these are both winners of the Nobel prize in economics. To call those who advocate such policies "economic illiterates" reflects not just the arrogance of Mister Hunt's position (anyone who disagrees with me is ignorant) but its supreme irony: what he repeatedly claims as economic literacy is embraced almost exclusively by academics and their misguided styudents, often free-market ideologues who are nonetheless government employees at state universities or students at government-subsidized state universities. It is not embraced by business leaders who are actually engaged in the economy nor by political leaders who must run for office.
A final point: those who claim to advocate a free market with minimum government actually deceive themselves and others. They want government to do a lot of things: protect property rights, enforce contracts, break strikes and prevent unionization. Markets cannot even exist without government.
T_Money 3 years, 3 months ago
LOL... not sure what moderating a depression really means? If moderating means expanding government power with tons of government programs I guess FDR was a genius. You didn't say but you should have that WW2 is the major reason why we overcame our depression not FDR's fiscal policies. So the proof for FDR's success is the fact that a majority of people voted him in a few times. This is part of the reason that the founding fathers set up a REPUBLIC and not a DEMOCRACY. They didn't trust the ignorance and gullibility of the masses.
And you are part of the problem if you think that these solutions are not realistic because they don't fit neatly into the democrat/republican talking points. That's a great attitude to have - change can't happen becuase we only have a two party system. I'm glad you weren't around when we won our freedom from the Brittish because realistically we no chance to defeat the most powerful country on Earth at that time.
You honestly believe that Social Security and Medicare enhance individual freedom? And these freedoms are real because a huge percentage say so? Thats a good argument.
In the meantime, go ahead and stand out on a huge limb and defend the status quo and the democratic/republican talking points. How brave of you.
dargus 3 years, 3 months ago
Mr. Hunt’s column is very interesting and makes some good points, although he is ignoring reality with his remedies. If we could create an economy from scratch, the Austrian or Chicago philosophies might operate quite well. The unfortunate reality is we already have a giant, interconnected economy and if the government turns a blind eye to this crisis a vast amount of wealth will be destroyed. If all the companies that have been bailed out to this point were allowed to fail, the stock market crash of the last quarter would appear as a minor tough. Economies are not tangible things and, like money, are worthless without faith in them. As large, “too big to fail” business failed, faith in the economy would plummet lower than it is today. When the large banks fail, credit markets dry up and companies can’t roll over their debt causing them to fail, which ripples through the economy destroying unimaginable amounts of wealth, which then causes even more companies to fail. Yes, this will clear out all of the fluff in the economy, by totally wiping it out and beginning anew. This is the point Joe fails to mention. Most people support intervention to avoid this very problem. While this might be a good thing for very young people who will be able to reap the eventual benefits when the economy begins to rebuild, anyone with skin in the current economy will have to begin anew as well. The suffering caused by this would be great, and following this ideology the government can’t help out. This is an idea called creative destruction and is very useful in contained parts of the economy. What do you do if you’re over 60 and your life savings were just wiped out? Sure, we can blame all these people suffering for putting their money in bonds or the stock market instead of hording gold, and convince ourselves they deserve to suffer for their ignorance. Even if this didn’t appear cruel prima facie, it would still be very difficult to deal with the realities of this situation. I agree that government intervention often isn’t the best solution, but right now there is a serious problem with economic faith and the government is the only entity with enough credibility to assuage the fear. The market is even telling us this now because government treasuries are strong. People still have faith in the government even as the markets tank. I agree with a lot of what Ron Paul says, I voted for him, and I am versed in Austrian economic theories. However, this time of crisis is not when the government should pull the rug out from under us. We need to address these issues once the economy shows some stability. You put out the fire before you rebuild the house.
fustigate 3 years, 3 months ago
@ impatient_with_ignorance: I really don't think Joe is out of touch with history. He's an economics and history major. Perhaps he simply has a different interpretation of history than you, Impatient.
And why the hatred toward Alabama? If I said someone was stupid or backward simply because they came from a certain state, that would viewed (if taken seriously) as a bigoted generalization. So your dismissal of the Austrian school (in part) because of the home state of a supporting think tank is baseless, irrelevant, and discredits the rest of your argument. I'm opposed to Keynessian economic theory because I don't like John Maynard Keynes's mustache.
Frankly, after the Alabama slight, I just skimmed the rest of your comments because I wasn't sure they would exhibit any actual thought but might continue with the half-formed sputter you were typing.
And don't stoop to misquoting the author. He did not call esteemed economists "economic illiterates." He called President Obama an economic illiterate.
"anyone who disagrees with me is ignorant" The thought occurs that you were aiming for some form of humor... Is this the case?
Just because someone doesn't share your beliefs (or submit to them...) does not mean the student paper should stop running their articles. If the Daily stopped running articles that I disagreed with, there would only be a couple pages for each edition. And you didn't have to "endure" his articles last semester. If you don't like them, don't read them. That's one of the great things about 'Merh-ca. We're not forced to believe anything and have forums to discuss them. It helps if they're kept professional and if we use reason and logic instead of raging emotion.
@ dargus: Thank you for an intelligent post.
roddack 3 years, 3 months ago
It is sad to see so many people favoring government intervention and running to leviathan to solve all of our problems as if it was a cure-all and failing to notice that the person they are buying it from happens to be a snake-oil salesman.
We have come to a point in our society where we want to privatize all the gains and socialize all the losses. We have also decided that the government should take care of us from cradle to grave. We no longer care what its purpose is only that everyone is mediocre instead of a few exceptional people. We are on the path to make sure that one day we have a Handicapper general in our brave new world
dave_shrugged 3 years, 3 months ago
Perception is such a powerful force when dealing with people that it is scary. When talking about FDR I remember talking with my Grandparents about him and how they felt that he, and him alone, brought this country out of the Great Depression. My Grandfather would say to me "a poor man remembers the last guy to give him a sandwich, and FDR gave us sandwiches to eat".
FDR had a powerful influence on my Grandparents generation (right or wrong) and because that influence was so strong it transfered on to my parents generation and then on to me. The problem is that the perception is what was strong - not the facts. A perception so strong as to what makes a great President that you have three generations of politicians trying to follow through with this perception of the "right thing to do". FDR Democrats feel that the governments job is to give the people something to fufill that phrase of my Grandfather, rather than work to ease the points of entry in the labor market. Economics is a backwards looking science that tries to predict what will happen in the future - kind of cool to me but I am an Econ major.
You look at the cause of the Great Depression and there are a lot of people who bear responsibility for it - the Federal Reserve, Government, and people - but for the most part the person who gets the blame is not the person most responsible.
Expansionist monetary policy by the Federal Reserve, lack of oversight by Congress, and poor decisions by the American people have led us to this current state of affairs. Just like a pendalum swings both ways a economy needs to swing back to have balance which will not happen if the Government keeps trying to hold the pendalum on one side.
Insanity is doing the same thing over and over and expecting different results. If we think that borrowing more money and spending more money will work this time where it has failed the last ten years then we all need to take our tuition money to Vegas, double down, and bet it all. We will have the same result.
econley 3 years, 3 months ago
Thank you... well said. I am a former student of Dr George Reisman, and I share you views... really it's more fact and logic than opinion. Even Dr jeffry Sachs points out that this is a formula for disaster. Obama is so focused in Micro economics and winning the popularity contest that he forged this plan without advice. Infact it was only last week that he formed an ecomomic advisory committee (yes-men) Of course they all agree with the package. The worse part is in words of Dr Sachs "it's an economic straight jacket" once you start these projects and things aren't working out... you can't change course and abandon them. Please note.. with the stimulus package all americans will given choice of an anchor or ball and chain engrave with "Yes we can" as a family airloom to be handed down to the next 7 generations.
JWThinkwright 3 years, 3 months ago
Joe is correct. Obama is an economic illiterate. Furthermore, all people who devote their lives to politics are economic illiterates. To understand why this is true,read Chapter 10, Economics versus Politics in 'Bye-Bye Sweet Liberty.' In the way of an argument, think about what Michelle Obama stated in an address to a graduating class at some snooty private women's college(paraphrased):"Don't get a job in the 'money economy,' go into public service, instead.
Can any of our readers imagine Teddy Kennedy doing the economic calculations of whether to install a diesel emergency generator or a natural gas emergency generator for a hospital?
Politics is the legal use of force. Economics is the use of skills to obtain benefits without the use of force.
Just remember a giant sociological experiment was carried out in Germany from 1945 to 1989. The people in both camps spoke the same language,were racially identical and started from a similar cultural background. The side that prospered favored the use of skill, industry, and economic pursuits. The side that failed favored the use of force, either police or military.
scottthinkwright 3 years, 2 months ago
Google:'politicians are clueless by el gringo'. once there, see further discussion on this topic. Follow links to other web pages.Thanks to Joe for starting this line of thought. --- JWThinkwright