Peter Ferrara has an interesting piece in the American Spectator that makes the argument that the administration and its advisers genuinely believe in a Keynesian solution to the US’s economic woes:

They believe that the way to promote economic growth and prosperity is through increased federal spending, deficits, and debt. That is not a caricature of their position. This is precisely what they are saying. And they are true to their words.

The policy, in fact, began within 30 days of President Obama taking office, with his so-called stimulus bill that increased federal spending by nearly a trillion dollars, which was supposed to create millions of jobs and promote economic recovery. It was followed by further spending increases that altogether have increased federal spending so far by nearly 30% since 2008, to an all time record.

President Obama’s own 2012 budget projects a federal deficit for this year of $1.645 trillion, the highest anywhere in world history by several times over. The President’s own budget documents project as well that by next year more debt will be run up in one term under President Obama than under all other Presidents in history — from George Washington to George Bush — combined…

The national debt is already the highest in history as a percent of GDP except for World War II, and on its current course will soar well past that record (109% of GDP). Indeed, our national debt as a percent of GDP is slated to soar past the level that triggered bankruptcy for Greece (115% of GDP), when the financial markets refused to lend the government enough money to cover its enormous annual deficit…

With the federal deficit this year at $1,645 billion, and federal spending at $3,819 billion, the Senate’s second ranking Democrat, Dick Durbin from Illinois, proclaimed on Fox News Sunday recently that $10 billion in cuts for 2011 was the absolute limit. If those wild-eyed Republicans were allowed to cut any more, Durbin claimed, the fragile economic recovery would be stalled, and America would lose the critical federal spending President Obama and the Democrats believe is essential to maintaining America’s competitiveness with China…

Keynesian doctrine holds that economic growth is stimulated by increased government spending, deficits, and debt. That is supposed to increase demand, which is supposed to lead to increased production to satisfy that demand, restoring economic growth. It never worked in the 1930s, as the recession of 1929 extended into the decade long Great Depression.

It was a proven failure by the 1970s, for anyone who was paying attention, as ever worsening cycles of inflation and recession culminated in double-digit inflation, double-digit unemployment, and double-digit interest rates. Under Keynesian economics, recession is caused by too little aggregate demand, and inflation is caused by excessive aggregate demand.

Since it is impossible to have both too much and too little demand at the same time, recession and inflation together are not supposed to be possible under Keynesian doctrine, and so the 1970s could not have actually happened. The “Progressive” Left has consequently decreed the 1970s to be cast down the memory hole, and rewritten as a classic time of great prosperity

We have argued that Keynesian pump-priming is a hopelessly flawed strategy for these times. When so many of our goods are made in China and elsewhere, it can’t possibly work to borrow money, spend it, and create jobs…….in China. Yet many people with advanced degrees apparently have computer models that suggest otherwise.

This entry was posted on Thursday, March 31st, 2011 at 4:17 am and is filed under business, China, Democrats, General, Republicans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.