This week I want to talk about economic recovery. Paul Krugman is an economist and syndicated columnist. He is a darling of the Obama Left and he worships John Maynard Keynes. Keynes was an economist of some renown. He was an architect of President Roosevelt’s New Deal and was a champion of deficit spending in hard economic times to help stimulate the national economy. What Milton Friedman was to free markets, John Maynard Keynes was to government spending.
Krugman recently wrote in his syndicated column that John Maynard Keynes was right – that everyone worried about deficit spending over the past four years was up in the night and that the reason the American economy hasn’t recovered faster is because the Obama spending spree hasn’t gone far enough. It was Keynes who taught “the boom, not the slump, is the right time for austerity at the Treasury,” meaning lots of government spending is good when the economy is down. Krugman believes that and so does President Obama.
The problem is that both Krugman and President Obama haven’t quite got the hang of the second part of that calculus: cutting government spending when the economy is good. To be fair, they really haven’t had a chance to experience the other side of Keynes’ theory. The economy has been in the tank since Obama took office. So I guess we’ll never know what he’d do when the economy recovers because it will never recover as long as his and Krugman’s borrow-and-spend habits continue.
I know it sounds cliché, only because we’re told incessantly that “regular people” can’t possibly be right about doing the smart thing, but if you want to know what to do about the American economy, just look at your own family finances.
How long can your family survive on a credit-card budget? It can’t for long before it turns into a personal Ponzi scheme using the credit of one lender to pay the debts of another. And yet, that financial strategy is exactly the policy of Keynes, Krugman and Obama. While a family has its credit limits, liberals in Washington, D.C., don’t think that governments do. What if your family had endless credit? There’s a pretty good chance that your family budget would be a spending machine because there would never be any consequences to the spending. You’d simply keep borrowing money to pay for your debts.
This is what the federal government is doing. Congress is the enabler in this addiction. They do it because it buys votes, as crude and cynical a judgment as that might seem. It’s also cast as the humane thing to do, which gives such poor economic decisions a tinge of righteousness. We can’t let poor people suffer, so let’s give them a job, and if the private sector can’t create jobs, government must.
The problem is that governments can’t create jobs. They certainly can put people to work – people can hold signs to slow traffic as government-contracted companies pave our streets. But governments have no way to determine economic value; hence, governments have no way to create jobs to give and get real value.
Now, I need to clarify something. I’ve heard defenders of the free market and limited government express deep disgust for government work programs. Generally, I agree with them. But I disagree that there is no value in work for work’s sake. I’m sure I would have opposed the New Deal at the time, but I wouldn’t have opposed it on the grounds that work for work’s sake isn’t important. It is. I don’t mind work programs for work’s sake when the alternative is a man sitting at home doing nothing. I do, however, mind how we provide work for our neighbors in need. And I certainly mind when governments act to create disincentives to long-term employment.
President Obama’s economic stimulus hasn’t worked because socialism doesn’t work. Borrow and spend doesn’t work. We can’t borrow and spend our way to prosperity. Prosperity, whether for a family or a nation, only comes through savings and investment, which are the opposites of what Keynes, Krugman and Obama have preached.
For Sutherland Institute, I’m Paul Mero.