As mentioned here before, statism is on the march. A drumbeat of commentary from the ascendant Left keeps pushing for more and more government/deficit spending: we can afford it, is the call. Nouriel Roubini, who says that he found his interest in economists from a prior interest in left-wing politics, has recently called for "command and control" of the economy by the Federal Government. Yale Professor Robert Shiller today has an opinion piece published in Bloomberg.com: Depression Lurks Unless There's More Stimulus that basically imagines all sorts of goals and that a big-spending government will restore confidence. Here's a sample:
In our analysis of the current economic crisis, we conclude that the government should have two targets. One would be a joint fiscal-monetary policy target. The same kind of expansionary policies embodied in the government expenditure stimulus and tax cuts that are already being tried have to be done on a big enough scale and for a long enough time in the future.
Following this target, aggregate demand should be sufficiently high that firms producing good products at a price the public would want to pay will be able to sell them. And if this target is met, skilled labor willing to work at a wage that makes it profitable to sell such products will be able to get a job.
(Ed.: Who determines what a good product is and what the right price is? This is lunacy.)
The government should also have a credit target. Once again, we are calling for more of the same kinds of existing policies, but there should be an explicit measure of their success, and until that is reached, the scale and time frame of such policies need to be extended.
The Federal Reserve has to be the lender of last resort and to provide credit in circumstances like we have today. Businesses and consumers, who in normal times would be good credit risks with legitimate needs, should find credit available at reasonable terms. Achieving this requires new approaches, like those announced by the Bernanke Fed and the Obama administration, but on a continuing and even larger scale.
(Ed.: More lunacy. The Debt Machine working overtime. Why should favored businesses and people find credit available on terms Dr. Shiller or some policy-maker deems "reasonable"? Doesn't the co-inventor of the Case-Shiller index of house prices fear more and more credit creation rather than true wealth creation?)
However, there are alternative points of view that EBR believes make more sense. For example, please read a historical review/opinion piece from February 2009 from a Der Spiegel columnist, titled: What Obama Could Learn from Germany.
The columnist, Gabor Steingart, points to the German economic "miracle" recovery after WW II as a result of savings and hard work and argues against large deficit spending:
It's a shame, though, that Obama hasn't shopped around a bit more. He could have looked to Germany for ideas -- its competing plan for rescuing the economy is certainly worth a look. It's cheaper and has a longer shelf life than a lot of the other products currently available on the intellectual market. It originated in the 1950s and is referred to as a "culture of stability."
It was the handiwork of former German Economics Minister Ludwig Erhard, better known as the father of the country's post-war Wirtschaftswunder ("economic miracle"). Erhard's model not only functions differently from FDR's, it also smells different -- namely of sweat.
His plan shuns excessive debt. His argument was that people would first make an effort when money became tight and, thus, more valuable. You get the best results, he found, if, in the tried and true manner of our forefathers, you work hard and don't forget to save. "The state can't afford anything that doesn't come from the strength of its own people," was the message. He also could have said: No pain, no gain.
The Roosevelt model is more generous in this respect -- one could also say more careless. The same rules apply which were standard until the beginning of the American real estate crisis: we'll give you the keys today, no down-payment necessary, we'll send you the bill later. Of course you can pay in installments.
Steingart goes on to quote FDR's Treasury Secretary Morgenthau as follows:
In court and in his own diary, Morgenthau told the truth. Toward the end of the 1930s, the treasury secretary reached the following gloomy conclusion in his personal records: "We are spending more than we have ever spent before, and it does not work ... I say after eight years of this administration, we have just as much unemployment as when we started -- and an enormous debt to boot."
Please also consider the words of Baron Callaghan of Cardiff, better known as James Callaghan, a prominent Labour Party British politician. From Wikiquote, here is Baron Callaghan as a 30-something year old:
Never let me hear anyone say again that a Socialist State cannot provide outlets for those with initiative. The rewards given to ability in the U.S.S.R. at all levels are far greater than those given to the employed in capitalist Britain. I have seen it and it works.
Reynolds News (17 March, 1946).
And as a 40-something year old:
I have not the slightest doubt that the economic measures and the Socialist measures which one will find in the countries of Eastern Europe, will become increasingly powerful against the unco-ordinated, planless society in which the West is living at present.
Hansard, House of Commons, 5th series, vol. 632, col. 679.
Speech in the House of Commons, 15 December 1960.
Now, here is a more-experienced James Callaghan, as a 60-something year old Prime Minister, following years of implementation of the policies he championed as described above:
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
Labour Party Annual Conference Report 1976, page 188.
Speech at the Labour Party Conference, 28 September 1976. This part of his speech was written by his son-in-law, future BBC Economics correspondent Peter Jay.
DoctoRx here. What is going on in America is a move toward Callaghan-omics of his younger years. Unfortunately, this mistake is being compounded with corporatism of the worst type, crony capitalism propping up Big Finance leaving in place the same overpaid bunglers who helped create the current mess. Working against this toxic mix is the common sense of the American people, who when faced with hard times are cutting their borrowing and spending. Many of them have their confidence in the future diminished by the Government that is following the Shiller prescription in direction if not in absolute quantity.
Left-of-center economists such as Robert Shiller and Nouriel Roubini know that production or employment for its own sake is not the goal of Government. That goal gets one to the broken windows or digging-filling ditches reductio ad absurdum examples. All these "liberals" either want to print money or borrow endlessly against the future in order to achieve short-term gains. But as Baron Callaghan admitted near the end of the line, with Britain, which not long before owned the reserve currency of the world, suddenly falling under the control of the International Monetary Fund that it helped to create and fund, tax cuts and government spending, which are exactly the current "solutions" to the banana economy, are hair-of-the-dog strategies of a government that cannot change its addiction to debt in the service of the Merchants of Debt and that we therefore cannot believe in.
Barack Obama has it wrong. Borrowing money from China or Arabia, or printing it to transfer to Big Finance so that it can leverage it at a profit to itself and its employees so that Americans and American businesses can borrow 8-10 times the initial amount the banks receive from this borrowed or printed money ultimately makes no sense. That option should no longer exist. It points the way to a culture of continued instability.
Copyright (C) Long Lake LLC 2009