Oblama's "Stimulus" Is Textbook Failed Keynesian Economics

By DemocracyRules

Seven minutes to enlightenment: What's wrong with Obama's Keynesian approach?

More on Keynes' obsolete theory here

Keynes in a nutshell: "Borrow money and give it to the poor, because they will spend it.  That will stimulate the economy".  Keynes was a socialist, and in practice, his theory never worked.  Roosevelt followed Keynes, which made the depression worse.

In contrast, in a normal free-market economy, government isn't borrowing much money, but successful businesses are.  They're successful because they have figured out a way to make money. 

They're so good at it, they can even make money on borrowed money.  So they get a loan, and they hire a bunch of people to help them, and they repay the loan, and everyone benefits.  Free-market recessions are short because the system self-corrects.  For example in the depression, one entrepreneurial butcher switched to baloney, and made a bundle.

Keynes didn't understand that to spend a lot of money, government has to borrow it.  When that happens, loans and mortgages are harder to get, because the banks are lending so much money to the government.  Businesses who know how to make money, can't make full use of their skills because they can't get loans.  So they hire fewer workers, and unemployment goes up.  Then the economy goes down.

That's precisely what's happening in the US right now.  Bush borrowed a bunch of money from the banks and then gave it to the banks(!) Keynesians are scratching their heads about why loans and mortgages are still hard to get. They don't realize that if banks can lend money to the government, which has good credit, why would they bother lending money  to the average business or consumer?  This would be funny if it wasn't so sad: "Despite $700B bailout, banks still tightening credit."

But Obama has an even dumber idea.  Borrow a bunch of money from the banks and give it to poor people who will waste it.  Meanwhile, successful businesses will have an even harder time getting loans!  Arrrgh.

The CATO Institute has more about Keynes.

Now Peter Schiff takes a direct shot at Obama.  Schiff precisely predicted the current crisis.  At the time, everyone ignored him.  Schiff explains the coming Keynes-style meltdown to this CNN interviewer, who has no clue. 

She doesn't realize that to spend a trillion dollars, Obama will have to borrow it.  When the government is getting huge loans, they will be in competition with other borrowers, who are also trying to get loans and mortgages.  Consumers can often wait to buy things, but businesses will be in deep trouble, because they vitally need loans to make money. 

That's exactly what happened in the depression.

Pro Patria

Comments

[btenney]

Obama desperately needs something like, maybe a Chief of Staff or Advisor or something.
Wonder if Rush would help.

[Dean]

The problem is people studying macroeconomics are still being taught Keynesianism. I'm a first year student and our studies are heavily focused on Keynesian ideas. There are very few people who actually think about what they're putting in their brain at this point and eventually the stuff the majority of people learned is passed through.

It's gonna take some major catastrophes to even make criticizing Keynesianism acceptable to most idiots who follow it.

[Naruto Figure]

very impressing post,i hope to see his crash.

[comsense08]

It's not so much that businesses "can't get loans" as it is "why borrow if I'm not certain of the future of my business"? No one is going to borrow money to hire someone, to make a product no one is going to buy. Uncertainty in the market place causes businesses to be cautious. Then because of the big bank issue, smart banks are really going to evaluate who they loan to. They will look harder at the numbers and if the numbers don't work out, they won't lend. It's not that the loans aren't there, it's just that businesses are going to have to show how they are going to pay it back, and how are they going to do that when they don't have a clue what the future holds for them?

Uncertainty has to be removed. Best way to do that is get Government out of the picture.

[www.google.com/accounts/o8/id?id=AItOawnH1zaM-JNgXsRWD2zgqSeQ2U8VhyWaqTQ]

“Keynes was a socialist”. Oh yes?
According to Robert Skidelsky (a Professor of economics who wrote a biography of Keynes), the latter did not want government spending to rise much above 25% of GDP. That puts Keynes firmly in the political right, in my books. See: http://standpointmag.co.uk/node/2423/full and search for “25”.

Moreover, an individual’s political leanings are irrelevant, as long they keep their politics out of their economics. And when reading Keynes’s General Theory, I didn’t notice anything much of a political nature. Also Keynes made a lot of money on the stock exchange: not something I would expect a “socialist” to do.

[BMW]

very important point of view, President OBama is heading to big economic problem if he continue dealing by this way with the crisis.

BMW