American Elephants


If You Keep Asking the Wrong Questions, You Don’t Get the Right Answers by The Elephant's Child

President Barack Obama does not understand how jobs are created. He believes that jobs are created by wise people in government directing the economy. When government “invests” money in the economy (it doesn’t much matter where) there is, according to Keynesian economics, a multiplier effect as that money passes from hand to hand. Democrats believe that Franklin Roosevelt’s use of Keynesian economics saved the republic from the horrors of the Great Depression, or at least made things better, and the Depression was finally ended by World War II.

In the throes of the Depression, people were encouraged by President Roosevelt’s efforts to “do something.” I just saw someone today urging Obama to reinstitute FDR’s Works Progress Administration (WPA), a make-work project of government that took money out of one pocket of the economy to put it back in another pocket. Economic studies have determined that President Roosevelt’s endless experimentation was not only ineffective, but often made things worse.

The war did not end the Depression, for the endless war materials that were produced were simply destroyed or used up. Recovery began some time after the end of the war, when pent-up demand for all the things needed during the war years were unavailable, and new housing was being developed with the need for new appliances and new cars. Because there was noting to spend money on during the war years, people has built up their savings, and had money to spend, even though  wages were controlled.

Richard Epstein explains the problem today in an essay in The Hoover Institution journal Defining Ideas titled “The Economic Ignorance of Barack Obama.”

President Obama had, of course, no doubts on what should be done. In his view, we should double down on the same policies that he has championed since coming into office. His new proposed budget modestly chips away at the cost-of-living increases in Social Security spending, which has drawn fierce resistance from his party’s incorrigible left-wing.

But his preferred long-term changes all cut in the opposite direction. The President has renewed his call for capping the charitable deduction at 28 percent—a dreadful idea—even as he tries to steepen the level of progressivity of the income tax. In addition, the President unveiled a proposal to slash the amount of money that individuals can keep in their tax-deferred retirement accounts to $3 million per person. Putting aside the transitional problems that dog this proposal, the simple point is that additional taxation is likely to further retard the creation of jobs and wealth, by shrinking the size of the largest pool of private investment funds in the United States. …

More stimulus programs cannot undo the malaise. These programs introduce yet another degree of uncertainty into the overall picture. The lower rates that help businesses hurt consumers, especially retirees living on fixed incomes. No one should buy into the Keynesian delusion that the current malaise stems only from shortfalls on the demand side. No one should think that choosing between austerity and deficits will move the needle much one way or the other. Current uncertainty hurts both the demand and the supply side, thereby driving down economic productivity and increasing the deficit. The losses here really matter.

Redistribution and stimulus will not create jobs. Every regulation imposed by the government whether the EPA, ObamaCare, Energy, Interior or the myriad of federal agencies distorts the competition and the normal functions of the free market. The Wall Street Journal has reported that the unemployment rate for people between 16 and 25 now stands at 16.2 percent, and rises to 22 percent when accounting for the young people who have quit looking or postponed the job search. Historically, the new entrants have always been the most vulnerable in downturns.

In his early careful observation of Barack Obama, who Professor Epstein knew at the University of Chicago, he said that Barack Obama does not change his mind. His ideas are set in concrete. He is sure that he is right.  Do read Epstein’s whole piece.  It explains a lot, even if it isn’t encouraging.  “The great shame of President Obama is that, owing to his incredible intellectual rigidity, he has not developed the economic wisdom or political courage to ditch, even in his second term” his union supporters. He does not ask the right questions, and thus does not get the right answers.


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The problem is all in your head

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Comment by Ebenezer Suresh




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