Thursday, December 30, 2010

President Barack Obama and Speaker of the House Nancy Pelosi are Keynesians

President Barack Obama and Speaker of the House Nancy Pelosi are Keynesians. John Maynard Keynes encouraged deficit spending during economic downturns to increase aggregate demand. This is a hard theory to resist particularly for politicians who address every problem or potential problem with the same solution, to increase the power and size of the government. Keynes postulated that the multiplier effect would boost the economy. President Obama and Speaker Pelosi have stated many times that government money going to people who would immediately spend it was best, that is propensity to consume. So the candlestick maker gets some government money, and spends it promptly buying items from an Indian Chief, who promptly makes purchases from the baker, and on and on. The theory is that the economy grows.

Unbelievably, there is no consensus if President Franklin D. Roosevelt's New Deal Keynesian policies worked. Roosevelt took office March 4, 1933, and five years later the country still had 15% unemployment. Prior to the Great Depression, the U.S. economy suffered numerous financial panics and recessions. Despite little Federal Government intervention, the economy bounced back more quickly. So many economists believe that Roosevelt's Keynesian policies prolonged the Depression and delayed recovery.

More recently, Japan embraced Keynesian policies, primarily “investing” in infrastructure. A 2.4% budget surplus in 1991 turned into a deficit of 4.3% by 1996 and 10% by 1998, with the national debt to GDP ratio reaching over 200%. The Keynesian policies did not work and the two decade period is referred to as Japan’s lost decade.

Of course, if Keynesian theory worked, the government really does have to make payments, it could just drop money from helicopters and the economy would grow. Or the government could hire half the unemployed to dig ditches and then hire the other half to fill the ditches back up. The formerly unemployed having a high propensity to spend would then have the candlestick maker, Indian Chief, and baker’s businesses booming. If Keynesian theory worked, Zimbabwe would be a wealthy country.

During the 1930s depression, President Herbert Hoover and Roosevelt kept on increasing tax rates. Roosevelt kept on increasing regulations. Without certainty and a stable tax and regulatory environment, businesses cannot plan and determine which business expansions or new business enterprises will pencil out. President Obama and Speaker Pelosi have continued these practices. Imagine you have a business idea, and are using a spreadsheet to forecast your projected revenue and expenses. What do you put down as your expenses for taxes, health care costs, and thanks to proposed cap and trade legislation, energy costs?

The Bush tax cuts have been in place for nearly a decade. Some progressives have referred to this as Bush Tax Cuts for the Rich. However, President Obama said in his December 7, 2010 press conference "A typical working family faced a tax increase of over $3,000 on January 1st".

Congress and President Obama have agreed to extend the Bush tax cuts for two years. Hopefully, the Keynesian policies are at an end, and the government has now provided some certainty to taxpayers so entrepreneurs can consider expanding their current business or to start a new business. Let's hope so.

Yours truly,

Gene Felder

Labels: , ,

Monday, December 13, 2010

Government Unions vs. Taxpayers

See Wall Street Journal Monday, December 13, 2010 op/ed piece by Minnesota Governor Tim Pawlenty at
"Government Unions vs. Taxpayers The moral case for unions—protecting working families from exploitation—does not apply to public employment"

It includes:
"Public employee unions contribute mightily to the campaigns of liberal politicians ($91 million in the midterm elections alone) who vote to increase government pay and workers. As more government employees join the unions and pay dues, the union bosses pour ever more money and energy into liberal campaigns. The result is that certain states are now approaching default. Decades of overpromising and fiscal malpractice by state and local officials have created unfunded public employee benefit liabilities of more than $3 trillion."

"First, we need to bring public employee compensation back in line with the private sector and reduce the overall size of the federal civilian work force. Mr. Obama's proposal to freeze federal pay is a step in the right direction, but it falls well short of shrinking government and eliminating the pay premium enjoyed by federal employees.
Second, get the numbers right. Government should start using the same established accounting standards that private businesses are required to use, so we can accurately assess unfunded liabilities.
Third, we need to end defined-benefit retirement plans for government employees. Defined-benefit systems have created a financial albatross for taxpayers. The private sector dropped them years ago in favor of the clarity and predictability of defined-contribution models such as 401(k) plans. This change alone can save taxpayers trillions of dollars."

Labels: ,

Monday, December 06, 2010

Bush Tax Cut for the Typical American Family

From the President's press conference:
"Allowing taxes to go up on all Americans would have raised taxes by $3,000 for the typical American family,"
"And that could cost our economy well over a million jobs."
President Barack Obama Dec 6, 2010

What happened to always calling it Bush Tax Cuts for the Rich?

Labels: , ,

Thursday, December 02, 2010

Obama Sabotages Republican Leaders Press Conference

Is President Obama cool? Or is he cold? Or is he quite petty, hypocritical and disingenuous?

What do you make of this in Dana Milbank’s column?


“Slurpee Summit full of empty calories” by Dana Milbank Washington Post column Wednesday, December 1, 2010
“Republicans made plans to speak to TV cameras in the White House driveway immediately after the session, but then the White House announced that Obama would be making a televised statement at 12:20. Republican leaders, in response, announced a news conference on Capitol Hill for 12:30. Obama then delayed his 12:20 statement, and, before Republicans could complete their news conference, he began his dueling statement - forcing the cable networks to ditch the GOP event.
The White House, in turn, did its best to make sure the visiting Republican leaders wouldn't get a chance at the spotlight. Photographers and TV cameras were not admitted to the room for the customary ‘spray’ - a few seconds to shoot photos or roll tape. And the ‘stakeout’ location in the West Wing driveway - the spot where White House visitors address the cameras - was rendered inhospitable by a fleet of backhoes and cement trucks working on a construction project.
That was about the time Obama began his competing statement, which included a lament about the ‘hyperpartisan climate’ in which ‘both sides come to the table. They read their talking points. Then they head out to the microphones, trying to win the news cycle instead of solving problems.’ Obama called that ‘a game that we can't afford.’
The statement might have carried more weight if Obama hadn't just preempted his opponents' news conference.”