Mr. Obama's $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents -- from George Washington to George W. Bush -- combined. WSJ
If you want to say that President Bush's mistakes forced President Obama to do this, please explain why Bush's spending was bad for the economy and Obama's is good.
More whiskey is not the smartest cure for a hangover.
Though I'm not a leftie, I will offer this explanation from Steven Pearlstein in the Washington Post:
ReplyDelete"By the middle of 2008, American households had build up debt of $13.9 trillion, more than double what it was a decade before. Businesses had accumulated debt of $10.9 trillion, also doubling in a decade. And financial institutions had piled up debt of $16.6 trillion, up from $6.3 trillion in 1998.
And the federal government? During that same period -- drum roll -- its debt rose from $3.8 trillion to $5.3 trillion."
Now, as the party comes to an end, and production, investing, lending, and spending goes into a necessary retreat, something needs to happen to continue fueling the economy's engines. So, as business, banks, and consumers step back and begin deleveraging, we have a problem because they are all doing it at once. So:
"That's where the government comes in. For if the government is increasing its borrowing, its spending and its lending at the very moment that everyone else is cutting back, it has the salutory effect of slowing down and smoothing out the adjustment process, reducing the risk of a vicious downward spiral that leads to a decade-long depression. Let the private sector adjust first and get itself back into balance." Then, the government can de-leverage as well.
"Remember also that to the extent that this extra government borrowing is used to create something of lasting economic value -- a road, a better-educated worker, a system of electronic medical records -- that will be a gift to the grandkids, not a burden. It will increase the productivity of their labor and their capital and thereby raise their incomes higher than they would have been if that money had never been borrowed and spent. Not all the $2 trillion falls into this worthwhile investment category, but a good chunk of it does."
While there are ideological objections to this, there are practical economic realities at work. In this case, doing something is better than doing nothing.
But that's just an opinion.
Don't we have one historical example of this attempt, and wasn't the result an absolute failure at ending the economic crisis of the time? I've previously blogged about the UCLA economists who have determined that Roosevelt's policies extended the Great Depression by 7 years.
ReplyDeleteWhile you've blogged about FDR's spending policies, that was not the general conclusion from the economists. The relief that came up to 1937 was knocked back by FDR's naive attempt to balance the budget and cut the deficit at that time by raising taxes. Additionally, the effects of the protectionist tariffs happening world-wide cannot be understated. That philosophy was paramount in extending the Depression. The lack of solvency in banks is also significant - and only alleviated by backing from the federal government. The Depression was a complex financial meltdown resulting from a myriad of factors in "perfect storm." To point to spending as the cause is far too myopic.
ReplyDeleteSubsequently, economists and political ideologues alike always point to WWII as bringing the world out of the depression, led by the US. Logically, there is only one conclusion. The economy was kick-started by huge war-time production. Yet, who was paying for it? Consequently, the economy was revived by massive government spending, the likes of which had never been seen. After the war ended, and the trade barriers came down as economy's rebuilt, the private sector took over.
That is indisputable.
Darren, the lefties don't want to hear those kinds of facts. I have read several articles debating and labeling the study about FDR's action prolonging the depression. Given their hellbent attitude of funding all the frills and healthcare and green stuff, I don't think these folks will stop until we are literally in the middle of a depression-both economically and emotionally. It's already stated that 25% of the population is having trouble sleeping due to fears of what will happen. Team Obama has given us NOTHING to hang onto, but proposes yet more taxes on energy and supports programs which in no way will improve the economy. I just have to wonder-are these people idiots? Revolutions have been created from less. I would suggest some reading on Caligula's reign and his ultimate failure to survive despite the many circuses he paid for-with people's taxes.
ReplyDeleteIf war-time spending was what got us out of the depression shouldn't there have been a resumption of the Depression after war-time government spending collapsed in the aftermath of WWII?
ReplyDeleteNo, what got us out of the Great Depression was that the survival of the nation put an end to FDR's incompetent economic meddling.
National survival dictated taking economic decisions out of the hands of people who had little regard for the suffering their ideas created. That's what ended the Great Depression and why the economy didn't collapse after the war when government war spending abruptly cut off.
"The suffering their ideas created?"
ReplyDeleteRegardless of whether you want to argue the New Deal extended the Depression, it certainly didn't cause it. That makes absolutely no sense whatsoever.
"National survival" (which is what exactly?) dictated what?
No, there wouldn't be (and wasn't) a resumption of the Depression after the war ended because, as I noted before, the government spending, which continued well into the rebuilding of Europe, continued until the private sector - backed by the government - was strong and solvent enough to pick up the slack. And then the government de-leveraged and put its financial house in order, setting off twenty-five years of growth and prosperity.
That is exactly what happened, and no respected economist, no matter how conservative, will dispute that result. That reality is the theory by which the current stimulus operates.
That's pretty clear. Much clearer than "the survival of the nation put an end to FDR's meddling." So, we survived by surviving?
That's really profound, Socrates.
The reason the depression ended is that the United States was the only nation left with any manufacturing facilities that weren't destroyed in the war. We were the only ones that could build stuff. That's why it ended. It had nothing to do with spending, it had everything to do with manufacturing, building, doing. That's why this one is going to be a doozy - we have no manufacturing to begin with, not like before. How are we going to build our way out of it when we don't have anything to build? We are screwed.
ReplyDeleteThat's a valid point about the 1940s, socalmike. It's an interesting and rather fatalistic point about the twenty-first century. Of course, if you are right - and we haven't had heavy blue-collar manufacturing for twenty-five years (though you have some research to do about the manufacturing sector in general), then we were screwed not because of the debt and stimulus plan, but regardless of any plan, and there would no alternative. I highly doubt that's true, but I guess we'll see in about a decade. There are a lot of people who have for years been talking about the end of the American empire and civilization. I've always considered that a bit excessive, as I have a lot more faith in the American people - Republican and Democrat, liberal and conservative. The true magic of America has always been its adaptability. Its ability to change and grow and see "where to, what's next" is what always has and always will carry it through.
ReplyDeleteAt least that's what I believe - without two hundred years as evidence.
Since the New Deal most certainly did extend and deepen the Great Depression that's the suffering caused by the ideas of the dilettantes, among whom was FDR, who were responsible for the New Deal and its attendant suffering.
ReplyDelete> "National survival" (which is what exactly?) dictated what?
"Word War II" was the national survival issue that pried the well-manicured hands of the various "friends of the working man" off the working man's throat. If not for the imminence of war FDR might have been about business of reshaping the US into a working-man's utopia yet. He'd certainly done his utmost to turn the U.S. into a banana republic up until it became pretty damned obvious that the world was in for a bloodbath.
In fact, the idea that war is economically stimulative is idiotic on its face.
What do you think is being produced during, and for, war?
It's complex and expensive stuff that's supposed to be blown to pieces. You want to come up with some reason why building technically-advanced products that consume vast amounts of high-quality materials and lots of skilled labor, only to be blown up, is economically advantageous? And what are lots of guys doing during war? They're not building factories, roads and bridges. They're busy killing each other. Care to explain the economic advantages of that particular line of work?
If war's so economically advantageous why don't we just build F-22s, roll them out into a field and blow them up? We could also sop up all that worthless labor that's roaming around the countryside looking for work and have them sit around barracks. Unless there's some inobvious economic need to have soldiers actually killing each other?
No, the only reason WWII was economically stimulative was because an icon of the left, FDR, was in charge of the country and he botched things up so badly that the only thing that could be done with the man was to try to make a hero out of him.
You'll note that up until WWII wars were seen as economic disasters that could only be justified by seizure of valuable enemy assets or national defense unless, of course, you were a monarch. "Cause I wanna" was justification enough for monarchs then just as it is for liberals now.