Saturday, May 05, 2007
Keynes is STILL dead!
Yesterday, a program entitled Economics USA was featured on one of Nashville's public television stations. As I watched a parade of bad haircuts and even worse sport coats on said program, I reckoned that its original broadcast date occured sometime in 1985. I was off by three years: Economics USA was produced in 1982.
Each and every economist featured on Economics USA was a card-carrying Keynesian; and each and every one of them had nothing but good things to say about Keynes' demand-side economic theories. I couldn't help but chuckle knowing that in the years since Economics USA was produced, the Wall Street Journal famously chortled, "Keynes is still dead," and Keynes' theories have fallen like so many dominoes (think Phillip's Curve). Economics USA offered nothing but high comedy, indeed.
I can only hope that most of the shipdits who were producers and talking heads for the Economics USA program are still around to see how wrong they were. Again, the final nails were pounded into the Keynesian coffin many moons ago. I said as much 'bout this time three years ago. To wit:
Keynes is STILL dead
In the months leading up to the 1936 elections, Franklin Roosevelt and his Democratic allies in Congrss enacted new spending programs to create an artificial inflationary spurt in the economy. FDR was re-elected in a landslide; however, his left-wing economic plan pushed the U.S. into a painful recession in 1937-38. In his masterwork, The Roosevelt Myth, John T. Flynn dubs the machinations of Roosevelt and his cronies as "the dance of the crackpots."
We're now witnessing a new dance of the crackpots. The ten Democrats currently running for president have been offering increasingly silly and outdated proposals to counter President Bush tax-cuts. According to the Dems, we must - must! - do something to "stimulate demand." Their demand-stimulating ideas are basically warmed-over Keynesian claptrap that FDR's crackpots offered up sixty-five years ago. Unlike the present-day Keynesians in the Democrat Party, to borrow a line from Flynn, Roosevelt's crackpots had the excuse that most of their schemes had yet to be proven false.
Contrary to the crackpot theories of the neo-Keynesians, slow economic growth does not signify "too much supply and not enough demand." It signifies a mismatch between what companies are producing and what customers want. I'm sure there was excess supply in the candle industry when electric lighting became readily available. The answer to excess capacity in candle manufacturing was not for the government to stimulate demand for candles. It was to allow industry to make needed investments in the industries that were replacing wax and wick.
In times of slow economic growth, the government should focus its fiscal policy on removing barriers to investment. That's precisely what President Bush said when he offered a bold measure to reduce taxation. Bush's plan to eliminate the double-taxation of corporate dividends and his slashing of marginal tax rates was a good start. (GDP has been growing faster than expected.) However, accelerating depreciation schedules, lessening the tax burden on businesses, and slashing marginal tax rates on capital gains would help even more.
American consumers have been signaling for months that the current mix of investment is not generating what they want. Thus, financial and human capital must be redirected to new uses. This redirection will happen more rapidly if President Bush and Republicans ignore the new dance of the crackpots happening in the current Democratic presidential field and push hard for additional supply-side stimulus in the economy.
Each and every economist featured on Economics USA was a card-carrying Keynesian; and each and every one of them had nothing but good things to say about Keynes' demand-side economic theories. I couldn't help but chuckle knowing that in the years since Economics USA was produced, the Wall Street Journal famously chortled, "Keynes is still dead," and Keynes' theories have fallen like so many dominoes (think Phillip's Curve). Economics USA offered nothing but high comedy, indeed.
I can only hope that most of the shipdits who were producers and talking heads for the Economics USA program are still around to see how wrong they were. Again, the final nails were pounded into the Keynesian coffin many moons ago. I said as much 'bout this time three years ago. To wit:
Keynes is STILL dead
In the months leading up to the 1936 elections, Franklin Roosevelt and his Democratic allies in Congrss enacted new spending programs to create an artificial inflationary spurt in the economy. FDR was re-elected in a landslide; however, his left-wing economic plan pushed the U.S. into a painful recession in 1937-38. In his masterwork, The Roosevelt Myth, John T. Flynn dubs the machinations of Roosevelt and his cronies as "the dance of the crackpots."
We're now witnessing a new dance of the crackpots. The ten Democrats currently running for president have been offering increasingly silly and outdated proposals to counter President Bush tax-cuts. According to the Dems, we must - must! - do something to "stimulate demand." Their demand-stimulating ideas are basically warmed-over Keynesian claptrap that FDR's crackpots offered up sixty-five years ago. Unlike the present-day Keynesians in the Democrat Party, to borrow a line from Flynn, Roosevelt's crackpots had the excuse that most of their schemes had yet to be proven false.
Contrary to the crackpot theories of the neo-Keynesians, slow economic growth does not signify "too much supply and not enough demand." It signifies a mismatch between what companies are producing and what customers want. I'm sure there was excess supply in the candle industry when electric lighting became readily available. The answer to excess capacity in candle manufacturing was not for the government to stimulate demand for candles. It was to allow industry to make needed investments in the industries that were replacing wax and wick.
In times of slow economic growth, the government should focus its fiscal policy on removing barriers to investment. That's precisely what President Bush said when he offered a bold measure to reduce taxation. Bush's plan to eliminate the double-taxation of corporate dividends and his slashing of marginal tax rates was a good start. (GDP has been growing faster than expected.) However, accelerating depreciation schedules, lessening the tax burden on businesses, and slashing marginal tax rates on capital gains would help even more.
American consumers have been signaling for months that the current mix of investment is not generating what they want. Thus, financial and human capital must be redirected to new uses. This redirection will happen more rapidly if President Bush and Republicans ignore the new dance of the crackpots happening in the current Democratic presidential field and push hard for additional supply-side stimulus in the economy.
# posted by Joltin' Django @ Saturday, May 05, 2007 
