About Me & This Website
My Positions
On Facebook
Contact Me

  DougCo School Board Loss
  Pro-Caucus Chairman
  Free the Delegates
  Clinton Surplus Myth
  Taxes, Rich & Poor
  Clinton Surplus Myth, Pt. 2
  Financial Crisis
  Obama's Economy
  More articles...

World Awakening to Failure of Keynesian Economics   June 28th, 2010
Everywhere except the U.S.       


More observations...

It is being noted in the blogosphere that the G8 and G20 meetings in Canada would seem to suggest that Keynesian theory is being discarded, at least in Europe. This may end up being a pivotal moment in economic history--when the world started to awakenen to the fact that borrowing and spending more money to address the problem of too much debt actually isn't good policy.

One would think this would just be common sense, but countries have been engaging in deficit spending for decades--and when that unsustainable economic "plan" hit a brick wall in 2008, the solution of governments around the world was to engage in even more Keynesian "stimulus" spending.

Leaders of the world's most important economies agreed to ambitious targets for getting deficits under control, pledging to cut them in half by 2013, according to a statement made following the G-20 summit this weekend in Toronto...

The United States had been vocal about the need for governments to continue pressing for growth, while Europe -- fresh off its own debt crisis -- has been taking steps toward austerity...

The debate has highlighted differences between the Obama administration and European leaders.

Amazingly--or maybe not--after decades of Eurosocialism, it would appear that Europe is now pursuing a fiscal plan that is more conservative than where President Obama wants to take the United States. The Eurosocialist countries are now recognizing that reality is forcing them to make significant changes. This is the inevitable endgame of any country that leans in the socialist direction: As British Prime Minister Margaret Thatcher once said, "The trouble with socialism is that eventually you run out of other people's money."

As it turns out, Thatcher's observation was not just humorous, it was completely accurate; and the degree of socialism determines just how quickly you run out of that money. The Soviet Union ran out of money in the 90's and collapsed. Eurosocialist states--which were not as socialist as the Soviet Union--were able to survive longer, but now reality is catching up with them, too. And the abject poverty of countries like North Korea demonstrate what happens when a country runs out of other people's money but refuses to succumb to reality and collapse.

The United States has lasted longer because, historically, we've had less socialism than the other countries that have already failed (or are now struggling), and because we've had the benefit of owning the printing press to the world's primary reserve currency.

But as other countries run out of other people's money, Obama seems intent on taking us even further off that same cliff. There's a tipping point of socialism beyond which a country's economy spirals down. The Soviet Union went far beyond it, and collapsed. Europe has recognized it's gone too far and would appear to be trying to reverse course. Meanwhile, Obama seems to be applying the accelerator so we can catch up with Europe while Europe makes a U-Turn and goes in the exact opposite direction.

There's plenty to be learned from Greece, Spain, Portugal, and Europe. Europe seems to be in the process of actually learning from experience and trying to correct mistakes. The United States, with Obama in charge, seems intent on repeating those mistakes.

Indeed, Paul Krugman has once again written commentary that defies logic:

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost -- to the world economy and, above all, to the millions of lives blighted by the absence of jobs -- will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world -- most recently at last weekend's deeply discouraging G-20 meeting -- governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

The whole world understands the problem of massive deficits and, probably more importantly, huge debts. Yes, we could get by with 10% deficits for a few years if we didn't already have a national debt that was approaching 100% of GDP. But Greece shows us what happens when a country borrows so much money that creditors no longer have faith they'll get paid back: Not surprisingly, the creditors stop loaning money at affordable rates.

The 2008 financial crisis was, ultimately, triggered by too much debt being carried by individuals that could not pay back what they owed. The current crisis, which became apparent earlier this year with Greece, is being triggered by too much debt being carried by countries that cannot pay back what they owe. Now we're spending more than a trillion dollars per year that we don't have and Krugman's complaint is that the "real problem is inadequate spending?" It would be absolutely amazing this guy received a Nobel Prize if it weren't for the fact that Obama also received a Nobel Prize for doing nothing.

Yet this is precisely the kind of thinking that we have in control of the White House and in both chambers of Congress. Liberals don't think the problem is too much spending and too much debt, they think the problem is that there isn't enough.

Obama's Keynesian argument was essentially rejected in Canada this weekend: Instead of more borrowing and spending, the G-20 committed to cutting deficits in half by 2013. Europe has hit reality. The United States hasn't yet. But we can either start adopting fiscal conservatism now or we can wait until economic reality forces us to--when the change will be far more abrupt and painful. Unlike Greece, there will be no-one to bail out the United States if we wait too long.

It's shameful that Europe is now leading the world when it comes to a move towards more responsible government finances and, most likely, less socialism. One would hope--and normally expect--that that kind of leadership would come from the United States.

 Go to the article list