Skip to comments.White House Stimulus Report Based on “Keynesian Fairy Dust”
Posted on 02/22/2014 4:57:50 AM PST by Kaslin
Did you sing Happy Birthday?
The nation just celebrated the fifth anniversary of the signing of the so-called American Recovery and Reinvestment Act, more commonly referred to as the stimulus.
This experiment in Keynesian economics was controversial when it was enacted and its still controversial today.
The Obama Administration is telling us that the law was a big success, but I have a far more dour assessment of the Presidents spending binge.
Heres some of what I wrote about the topic for The Federalist.
The White House wants us to think the legislation was a success, publishing a report that claims the stimulus saved or created about 6 million job-years and raised the level of GDP by between 2 and 3 percent from late 2009 through mid-2011.
Sounds impressive, right?
Unfortunately, these numbers for jobs and growth are based on blackboard models that automatically assume rosy outcomes.
Heres how I explain it in the article.
how, pray tell, did the White House know what jobs and growth would have been in a hypothetical world with no stimulus? The simple answer is that they pulled numbers out of thin air based on economic models using Keynesian theory. Keynesian economics is the perpetual motion machine of the left. They build models that assume government spending is good for the economy and they assume that there are zero costs when the government takes money from the private sector. That type of model then automatically generates predictions that bigger government will stimulate growth and create jobs. The Keynesians are so confident in their approach that theyll sometimes even admit that they dont look at real world numbers. And thats what the White House did in its estimate. The jobs number (or, to be more technical, the job-years number) is built into the model. Its not a count of actual jobs.
In the real world, however, you can count jobs.
As part of my article, I looked at the Minneapolis Federal Reserve Banks interactive website and compared the current recovery to all business cycle expansions in the post-World War II era.
And I did that comparison for jobs and growth. Here are the numbers for the labor market. The current recovery is in red, and you can see that the nation is stumbling through the second-worst recovery for job creation in the post-WWII era.
And here are the Minneapolis Feds numbers for growth.
It doesnt seem possible, but GOP performance has been even worse than job performance. We are mired in stagnation. As I noted, the current recovery (red line) is the weakest expansion since World War II.
In other words, its very difficult to argue looking at the numbers that the Presidents main economic initiative was a success.
So why did it flop?
I pontificate in the article, pointing out three specific problems with Keynesian economics. I start with the elementary observation that the theory is based on the notion that you can become richer by taking money out of one pocket and putting it in another pocket.
there is an opportunity cost when government borrows money and spends it. Resources are diverted from the productive sector of the economy. This might not be a problem if government spent money wisely, but stimulus schemes tend to reward interest groups with the most political clout. So instead of outlays for physical and human capital, which at least theoretically might improve the economys productive capacity, the White House directed the bulk of the stimulus to redistribution programs and handouts to state governments.
I then make a critical observation about how you shouldnt try to solve one set of bad government policies with another layer of bad policy.
the Keynesians dont seem to appreciate that recessions generally are the result of bad government policies such as inflation, housing subsidies, etc that lead to fundamental and unsustainable economic imbalances. Unfortunately, more government spending often is designed to prop up these imbalances, which can create a longer and more painful period of adjustment.
But the clincher, at least for most people, is the simple fact that Keynesianism doesnt work.
But the biggest problem with Keynesianism is that the real-world evidence is so unfriendly. Consider, for instance, that the White House claimed that the unemployment would never climb above 8 percent if the stimulus was adopted. The following chart shows the actual unemployment projection put together by the Obama Administration, but modified to show the actual monthly unemployment rates the country experienced. And thats just the tip of the stimulus iceberg. Keynesian economics has a long track record of failure. It didnt work for Hoover and Roosevelt in the 1930s. It didnt work for Nixon, Ford, and Carter in the 1970s. It didnt work for Japan in the 1990s. And it hasnt worked this century for either Bush or Obama.
And guess what? Im going to make a very sad prediction that well get more Keynesian economics in the future, but its easy to predict right now that these future spending binges will fail just like previous stimulus schemes have flopped.
P.S. Heres my video on Keynesian economics and heres my video on Obamas failed stimulus.
P.P.S. If youd rather laugh than hear my voice, my favorite cartoons on Keynsianism can be viewed here and here.
Obama's trillion dollar stimulus scam is a huge unreported story.. In his new book "Extortion" author Peter Schweitzer writes about Obo, Holder (and other insiders), "weaponizing" the Justice Dept "and assorted govt agencies" to extort and steal billions of untraceable dollars....VP Joe Biden told BP Oil after the spill, that if they did not hand over $20 billion untraceable dollars, the Obamatons would do it for them.
ONCE UPON A TIME, OBAMA'S COS EMANUEL HAD TWO JOBS Soon as they occupied the WH, Obama and the Chicago con artists (a) took control of the US Census; (b) Obama placed his COS Rahm Emanuel in control of the US Dept of the Treasury.
PAUSE TO REFLECT Remember Obama had tight control of Treasury; Obama calculatedly placed his then-COS Rahm Emanuel in a dual role.......in the WH and at Treasury. Obama had a stranglehold on Treasury via COS Rahm Emanuel's dual role
STROLL DOWN MEMORY LANE Soon as they occupied the WH, Obama and the Chi/cons (a) took control of the US Census; Obama placed his COS Rahm Emanuel in control of the US Dept of the Treasury (including the conservative-suppressing IRS). Read on.
THE SMOKING GUN---WSJ REPORT--On Jan 20, 2009 Timothy Geithner was appointed Obama's Secy of the Treasury. But within three weeks, the Obama White House tightened its grip on Treasury. Obama put his COS, Rahm Emanuel, in charge of Treasury---Rahm Emanuel's dual role was an unusual move.
When he got to Treasury, WH COS Rahm Emanuel was so involved in the inner workings that the phrase "Rahm wants it" had become an unofficial mantra among subservient govt staffers, prostrate in obeisance, scurrying to accede to Rahm's wishes, according to Treasury government officials. Reported by WSJ / 05/31/09
More here: http://online.wsj.com/article/SB124113406528875137.html
MADOFF'S WALL STREET MO When he went to jail, investigators found Bernie Madoff had stashed billions offshore--- into a labyrinth of financial entities. Some $8.9 billion was funneled to Madoff through a dozen so-called feeder funds based in Europe, the Caribbean and Central America......a labyrinth of hedge funds, management companies and service providers that, to unsuspecting outsiders, seemed to compose a formidable system of checks and balances.
But the purpose of this complex architecture was just the opposite: the feeder funds provided different modes for directing money to Madoff in order to avoid scrutiny........and the MO generated hefty fees for the co-conspirators.
JMK was a Fabian socialist homosexual who wanted to “fundamentally transform” capitalism. Obama is the latest to carry the torch.
From Keynes At Harvard:
When John Maynard Keynes was seven years old (1890) his father authored a volume entitled the Scope and Method of Political Economy. The Keynesian method of double entendre was developed by the elder Keynes to a fine art. An economist who could write a 370 page book studded with Marxist-like metaphors without once mentioning the name of Marx must be credited at being a master of skillful literary concealment.
J.N. Keynes talent of assuming a respectable posture within an academic sanctuary while chipping away at the edifice of private enterprise, was passed on to his son. John Neville Keynes managed to smuggle in the marxist theme that, Schemes of socialism, moreover, as distinguished from pure communism, do not necessarily involve the entire abolition of free exchange.
J.N. Keynes illustrated through a most intricate web of subtle suggestions that the concept of private enterprise can be switched around to prove it either as desirable or a menace according to ones motives. He also made allusions to government regulations and the possible need for a world body to control the economic life of man thus predating his son John Maynard by 54 years on the same proposition.
J.N. Keynes had two fellow leftists to aid him in his book. One was Henry Sidgwick and the other was Alfred Marshall, both being socialists and mentors of young John Maynard Keynes.
The elder Keynes book was required reading among Fabian socialists and was listed for sale in the official organ of the American Fabian Society under the listing, Recommended books on Socialism and Social Reform. Thus John Maynard Keynes was nurtured on socialism and atheism practically from his mothers milk.
At the age of 21 Keynes was taken in hand by G. Lowes Dickinson, the effete Fabian socialist at Cambridge University. [NOTE: This is a polite reference to homosexual seduction of the young man by his elder.] There he was joined by Leonard Woolf, a life long Fabian and G.E. Moore the philosopher of the Fabian Society of socialists. John Maynard Keynes reported his activities dutifully to his father, who was a lecturer in moral science at the University.
The role of steering his son into the respectable facade of Fabian socialism has not been properly aired in biographical sketches of the elder Keynes. It is generally overlooked that John Neville Keynes was general overseer of his sons activities and associations at Cambridge.
It is reported that in 1905, A wave of Fabian socialism was soon sweeping over the new undergraduates, and politics, not psychological literature, became the principal topic of conversation among the intelligentsia. This new tide caught up many of Lyttons friendsincluding James, Maynard Keynes, and Brooke himself. (Lytton and James Strachey and Rupert Brooke. ed.)
James Strachey was a life long member of the Fabian Society and Rupert Brooke, an intimate of Keynes, became the president of the Cambridge Fabian Society. The teachings of Sydney and Beatrice Webb, as Fabian leaders, became the guide line for this group. In fact, every basic theme brought out by Keynes in later life can be traced to the economic and political principles taught by the Webbs many years before.
—Excerpts from KEYNES AT HARVARD, Economic Deception as a Political Credo
BY ZYGMUND DOBBS
The obamian Tooth Fairy comes in the dark of night, steals all your teath, and leaves behind an IOU and a coupon for peanuts.
Which has expired.
Curiously, Ann Barnhardt wrote about JM Keynes a few days ago.
OBAMA LIES, AMERICA DIES!