Detroit, Europe and Krugman-defined optional austerity

| July 31 2013
Mike DeVine

DebtGDPDecreases in annual increases of big government budgets do not “austerity” measures make and are not the reason that the, rightly-named-by-Nobel-Prize-winning-economist Paul Krugman, economic Depression continues in most of Europe and the United States.

President Richard Nixon actually didn’t say that “We are all Keynesians now” after taking the United States off the gold standard in 1971 and otherwise ensuring that Hubert Humphrey-Democrats got the next best thing; but despite protestations to the contrary from This Week with George Stephanopoulos’ Anti-George Will, most of the policy makers in the Bankruptcy Court otherwise know as the EU and supposed-Ebenezer Scrooges aka Boehners and Obamas, still are.

Amid the mostly mean-spirited, partisan liberal Democrat-hackneyed, non-news penned by Paul Krugman and deemed fit to print by the Gray Lady, this conservative is pleased to find that at least he doesn’t wear rose-colored glasses when casting his eyes upon the plight of non-fracking Americans playing hunger games outside the Capitol City and off Wall Street. Krugman and, coincidentally former Clinton Administration Labor Secretary Robert Reich, have laudably been unrelenting in their  refusal to characterize America’s economy as “in recovery” at any time since the 2008 bursting of the housing bubble-initiated financial crisis. Moreover, both bemoan the bailouts of Wall Street and the failure of the Obama-Pelosi-Reid “stimulus” to fund shovel-ready infrastructure jobs or otherwise facilitate the middle class to bail themselves out.

But sadly, both regularly lapse into demonizing Republicans as cold-hearted towards the poor for refusing to favor an ever larger welfare state as the obvious post-New Deal remedy for what ails us, e.g.:

So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused.

Now, just to be clear, this is not a case for more government spending and larger budget deficits under all circumstances — and the claim that people like me always want bigger deficits is just false. For the economy isn’t always like this — in fact, situations like the one we’re in are fairly rare. By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity…

Is the story really that simple, and would it really be that easy to end the scourge of unemployment? Yes — but powerful people don’t want to believe it. Some of them have a visceral sense that suffering is good, that we must pay a price for past sins (even if the sinners then and the sufferers now are very different groups of people). Some of them see the crisis as an opportunity to dismantle the social safety net. And just about everyone in the policy elite takes cues from a wealthy minority that isn’t actually feeling much pain.

So according to Krugman, ending the scourge of unemployment is simple: above-normal government spending until the private sector is willing to spend again. I just wish that Obama and the Democrats had increased spending above normal levels on Social Security, Medicare, Medicaid, unemployment compensation, food stamps and other welfare entitlements when they held plenary power of the purse from 2009-2010 and that Republicans had gone along with even more from 2011-today. Except that they did! Contrary to Democrat Media-fueled popular belief, Republicans have never proposed a bill actually cutting anything, ever, save for defense. Yes, Democrats always insist on spending more while insisting that “merely” spending the amounts their party spent in years past qualify one as a hater of the poor, but I digress.

Simply put, Krugman’s simple unemployment-scourge-ending plan has been in place continuously since at least 2008 and, depending upon one’s definition of “normal” government spending, arguably since at least 1968. Yet, neither the business cycle nor private sector-aversion to government tax and regulatory distortions of the market, were repealed. And it would be helpful if self-identifying Keynesians shared the actual views of the preeminent 20th Century economist they purport to tout, not only in opposing anti-business policies but even on the propriety of deficit government spending as a supposed panacea for any and all non-optimal economic ills.

Keynes deficit-spending-during-recessions remedy was always dependent upon surpluses built up during recoveries and he publicly parted company with many anti-entrepreneurial New Deal policies. In fact, even FDR’s best friend and Treasury Secretary Henry Morgenthau rendered the following verdict concerning the policies he helped advance while testifying before the House Ways and Means Committee in May 1939 against erstwhile Krugmanism:

“I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot”…When he spoke, unemployment exceeded 20 percent.

As President Obama embarks upon his latest re-re-re-focus-on-the-economy tour, let us recall his seemingly-schizophrenic September 2012 declarations of  the private sector as “fine” while  also announcing his intention to continue to follow the time-honored FDR-New Deal “experimentation” model to “solve challenges that [had] built up over decades.” I say seemingly because I assume that a “fine” private sector economy wouldn’t require gargantuan government intervention such as his full-time-to-part-time-employee conversion program otherwise known as Obamacare and a War on Coal.

But first let’s examine an economy limping along with anemic 2-2.5% annual growth and less Americans working today than were employed when he was first Inaugurated as being fine by Obama’s standards. And given the glorification of the New Deal as having saved America from the Great Depression, we assume that it was also fine by Obama and his fellow liberal Democrat-myth-makers that unemployment never dropped below 14% while Americans listened to pre-Pearl Harbor Day Fireside Chats?

Fine to Obama and his party seems to mean that so long as Americans formerly employed full-time for middle class-level wages are working part-time, receiving extended unemployment benefits and food stamps or are on disability, Alfred E. Neuman isn’t the only “MAD” man declaring: “What, me worry?”

Given the massive destruction wreaked upon the American economy by liberal Democrats since the late 1960s, and especially over the past five years, I honestly believe that they are only able to rationalize their policies to themselves so they can sleep at night by congratulating themselves for taxing and spending other people’s money to provide a minimalist existence to their dependent voters much as zoo-keepers justify caging up animals born free.

But at least the animals have PETA and others to limit experimentation to the humane. Meanwhile, homo-sapiens across the Fruited Plain are guinea pigs for experiments in doctor shortages, skyrocketing energy costs and the IRS as a prayer-scrutinizing political branch of the Democratic Party.

One experiment we haven’t tried is anything resembling Krugman-loathed “austerity”, and except for the bankrupt Greeks and nearly so Spaniards, Portuguese and Italians; neither has any European nation. We see no evidence that Keynesian government deficit spending has ever turned economic downturns into recoveries, but we do think that FDR-style infrastructure spending was wise as a jobs program during the Great Depression and would have been a real stimulus had Obama’s bill by that name actually got jobs ready for shovels. But of course to do that, Obama would have to forego the ongoing experiments that protect us from dangerous Keystone XL pipelines and every species in danger of extinction except for the two-legged American-seeking-a-job variety.

Before U.S. debt exceeded GDP, America had the options of austerity or not, yet we have nearly always chosen “not” given the non-stop growth of the welfare state since WWII. Yes, discretionary domestic spending under both Reagan and Clinton-Gingrich remained relatively flat and defense was cut under the latter, but the root “austere” implies the foregoing of luxuries and the saddling of the next generation with debt to fund current conspicuous consumption of the idle and their government minders is an immoral luxury.

But one city government in America is about to experience the true meaning of the austerity that chose so many of We the People over the past five years, and it just happens to be the best example of a U.S. jurisdiction immersed in Krugman-Keynesianism for the past 45+ years: Bankrupt Detroit. Atlases had been shrugging their way out of Motown with every Wagner Act-enabled concession to luxurious labor union pensions and EPA environmental regulations for decades until finally there weren’t enough of the “rich” to tax to continue the experiment in the emasculation of an exceptional America that creates wealth.

At some point, even Nobel prize winners at the New York Times must realize that austerity will be imposed by the laws of nature if government makes it impossible to create enough wealth to generate income sufficient to tax to pay creditors.

Mike DeVine‘s Right.com

“One man with courage makes a majority.” – Andrew Jackson

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