Tag: Keynesianism

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national politics & policies tax policy too much government

Avoid the Big Gov Trap

We do not face just one problem, but our many problems tend to come down to one thing: trying to do too much through government.

Last weekend, at Townhall, I noted that the most wildly popular economic policy doctrine of the last hundred years, Keynesianism, has not — its proponents say — been properly given a chance during the two biggest financial contractions of our time, the Great Depression and the recent mortgage-backed securities implosion. In both cases, more money was needed for proper “stimulus.”

Ironic, perhaps, since Keynesianism has been used as an excuse to run deficits and increase debt for scores of years.

Yes, even a doctrine designed to play into the hands of politicians gets abused by politicians.

The lesson: Excuses to grow government are not revolutionary insights, they’re traps.

Yesterday I talked about how the “Laffer Curve” point where raising the tax rate actually reduces revenue is lower for capital gains than for general income. But one consequence of a revenue-maximizing capital gains rate is that there would then be rich investors who wind up paying a smaller percentage of their incomes in taxes than do common laborers.

Tax fairness is an issue that should not be ceded to those caught in the clichés of the age. Think of tax fairness, instead, as a rationale for a limit. Not as an excuse to raise tax rates punitively, hatefully, foolishly (like the current president wants).

Bring all tax rates down to the level of the tax with the lowest revenue-maximizing rate. Don’t raise capital gains taxes, lower the income tax. 

Taxes would then be fair. And government would have to be reduced to accommodate the fairness, and thus more limited.

Less of a trap.

This is Common Sense. I’m Paul Jacob.

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Townhall — Sanity: Politically Possible?

Given the special interest politics at play in the U.S. and elsewhere, which policy — fiscal conservatism or Keynesianism — is more likely to be achieved in something like its pure form?

My Townhall column this weekend asks a question about political feasibility . . . of the most popular doctrine in 100 years. Take a look,

Continue reading “Townhall — Sanity: Politically Possible?”
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free trade & free markets ideological culture too much government

Estonia’s Success

When I was coming of age, the economic ideology of Keynesianism was going bust. Keynesians couldn’t explain the stagflation of the 1970s. Monetarists triumphed and the Austrian School experienced a resurgence.

Now, monetarist disputes are hard to follow, and the Austrian Theory of the Business Cycle is not exactly a piece of cake. But Austrian economists’ preferred policies possess a kind of common sense: The thing to do is prevent false booms. Once you hit bust, it’s too late: we are going to experience the pain of readjustment, “recalculation,” as we find new prices and levels. I riffed on this theme last weekend, in my column “Dead Hobo in Trunk.”

Keynesians, now back in the limelight, have it easier, promising “less pain.” They offer drugs to make us feel better: Borrow, go further into debt, and spend, spend, spend!

So you can see why today’s Keynesians would hate Austrian wisdom. Not inflating the money supply, not engaging in deficit spending? Risible! And “austerity”? Keynesian shill Paul Krugman never tires of pillorying that program.

Which brings us to Estonia.

The little post-Soviet Baltic state was one of the few countries to actually restrain spending after the 2008 bust, freezing pensions and cutting public employee salaries by 10 percent. Krugman infamously blogged about it, noting that the country’s current recovery hasn’t yet reached the height of the pre-bust boom. He thinks this tells against “austerity.”

But to Estonian economists, the height of the boom was a false prosperity that couldn’t last. They’re glad their country’s rid of it, and note that their current recovery is above the pre-2005 levels.

In other words, Estonians not only understand their country and their situation better than does Paul Krugman, they understand economics better.

This is Common Sense. I’m Paul Jacob.

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ideological culture national politics & policies

Blame for the Shutdown

A fascinating short account of what a “government shutdown” means, courtesy of the BBC, wraps up in an odd way: “If the U.S. government shuts down after 8 April, it will mostly be because Republicans believe that the government is too costly and inefficient.”

Really?

It’s not because Congress can’t balance budgets? It’s not because last year’s Democratic-controlled Congress couldn’t even cook up an unbalanced budget, instead relying on a series of makeshift “continuing resolutions”?

Why blame Republicans’ general view of government services, and not the political process described at the beginning of the report?

Well, the BBC’s Katie Connolly was stretching the truth so to get to a series of “ironies.” Government shutdowns are expensive, she writes. Inefficient.

Sure, sure. But if the government does indeed shut down because of a budget impasse, I don’t see that the “irony” of a shutdown accrues as blame only to Republicans.

Indeed, it seems a bit like flailing around, looking for usual suspects — not real culprits.

But if you want a reach. . . .

Politicians often pay homage to John Maynard Keynes to excuse their spending far over revenue. Stimulus and all that. Keynesianism: Politicians love it, because they love to over-spend.

But Keynes also said that governments should run at surplus during good times. Somehow the Rs and Ds in Washington never bring that up.

So blame the Ks.

The Keynesians allowed the misuse of their master’s nostrums, which put us where we are today.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets too much government

Head Over Heals for Stimulus

Which thinker is more relevant right now, Lord Keynes or Naomi Klein?

We’ve hit hard times. The Keynesian advice is to spend a lot of taxpayer money to make up for the lack of private spending, thereby jump-starting the injured market order.

Naomi Klein, on the other hand, is best known for her book “The Shock Doctrine,” in which she charged that free-marketers were conspiring to use social and economic crises as excuses to “take over” and remake the world in their favor.

Let’s look at the evidence, shall we? We’ve hit a crisis. The government has done the Keynesian thing. Unemployment went up, but . . . who has made the biggest gains?

USA Today reports that federal workers are enjoying a boom in both employment and salaries. “Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession’s first 18 months” — and that’s not counting overtime and bonuses!

It’s not markets being stimulated, here, but government.

Not only is this Keynesianism on its head, but Naomi-Kleinism, too. Those who have taken advantage of the crisis are the ultimate insiders. As a Washington Examiner editorial puts it, “bad times for the rest of us are good times for the federal establishment.”

We could wish Naomi Klein were right.

But things aren’t getting better because she’s wrong.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets too much government

Multiplication and Division

John Maynard Keynes’s most popular notion was his infamous “multiplier” effect. Spend some government (taxpayer) money, and the effects “multiply” in the economy, as if the Invisible Hand were on speed.

The truth is the reverse: “the divider” effect. Create government jobs and progress in the marketplace “divides” as a result of the increased taxes needed to support the jobs.

Our orator-in-chief also says he’s in the business of “saving jobs.” Like most politicians, he loves “multiplier” talk, because it gives him the green light to spend.

But, like the bank bailouts, what’s really happening with stimulus spending is that some people are getting raises and bonuses while the unemployment rate goes double-digit.

The actual multiplier effect regards talk. For every dollar government spends, politicians claim umpteen more jobs “saved.” It’s not reality. The multiplication effect occurs entirely in rhetoric and in PowerPoint presentations.

The New York Times tells us how “the federal government spent $1,047 in stimulus money to buy a rider mower” for a cemetery in Arkansas. Then, “a report on the government’s stimulus Web site improbably claims that that single lawn mower sale helped save or create 50 jobs.”

The magic of this sort of job creation doesn’t rest upon the logic of markets. Here the magic lies simply in the lying. The “multiplier” multiplies because politicians tell multiple lies.

This is Common Sense. I’m Paul Jacob.