Deficit Spending -- A Necessary Evil

John Maynard Keynes was not the only world class economist who told us that huge deficit spending is imperative in order to pump life back into a recessed, depressed, catastrophically mismanaged economy.

Last month, more than three hundred of the world's best economists led by several Nobel Prize winners, created a road map for Barack Obama that basically said two things. First, they tell us that we have only begun to feel the pain of W's political and economic policies. Secondly, they stated that if Obama does not undertake stellar deficit spending, America's economy will spin into a global economic catastrophe.
Several of those economists, including the Nobel Prize winning economist Paul Krugman, went as far as to say that it would take as much as a steady $600 billion a year to make serious inroads toward saving capitalism. Obama is already undertaking a course of action that appears consistent with Krugman's advice. Fortunately, Obama has been a defacto president for more than a month now.

But conservative think tank geniuses, like Newt Gingrich -- who by the way helped put us here -- are telling us that the sky will fall if Obama gets his way. It shouldn't be much of a news flash to point out to that wildly discredited crowd that W's misfit teams of political and economic advisors already have heaven crumbling down around us.

In the 1930's the political and fiscal conservatives of that time plunged America into an abysmal depression and then attacked Franklin Roosevelt when he undertook the Herculean effort to clean up their mess. Twelve years of Herbert Hoover and Warren Harding-style Republican presidential stewardship almost obliterated capitalism in America.

During those years, Keynes' theory of deficit spending as a way to save capitalism was regarded as socialist witchcraft. But fortunately, FDR ignored the protests of the conservatives who brought us the Great Depression. FDR forged ahead with infrastructure and World War military spending that moved the deficit to levels that had never been seen by any nation in the world.

Similarly, Obama has inherited the deregulated, mismanaged, corrupt mess created by the Hoover-like dullards of our day, and now he already is under attack by that same crowd as he searches for a way out.

As Obama steps into this quicksand economy, he seems to realize that short-term stimulus plans are only a Band-Aid solution for a gaping, almost mortal wound. Corporate welfare money divided up among a few corrupt and inept investment bankers, and Wall Street money changers will not stop the bleeding this economy has only begun to experience.

Long-term stimulus will require astronomical levels of spending that will naturally leave us with a queasy feeling when we see all those zeroes in newsprint. But it is going to require all those zeroes to rebuild our economy, one job, one road, one bridge, and one new technological advancement at a time. According to three hundred of the world's best economists, every move Obama needs to make to save this economy will require the weight and scale of a Manhattan project or an Apollo program if we are to pull through these economic dark years still ahead.

Comments

[SpencerKent]

Great article Mike! I just posted it on the Stimulus Plan newsladder - http://stimulusplan.newsladder.net/

[larrywash]

Solving a U.S. depression caused by trillions of dollars of irresponsible loans by saddling the American taxpayer with additional trillions of dollars of debt, is hardly a solution that should be proposed by a responsible American president.

Presently the only way the U.S. can regain its lost economic power is for America to earn more money than it spends. Once again, American products of the highest quality made to be sold at competitive prices must reappear throughout the world,.

Can such a seemingly impossible miracle be achieved ?
4
I believe it can by an inspirational appeal by Mr. Obama to launch a National Rebuild America Program - the NRAP. Under this program the billions of dollars will be spent to rebuild and redesign America’s factories and industries and give them an incentive to recapture our lost markets. To manage and run this program he should ask for a volunteer corps of twenty million
Americans - everyone from the most experienced engineers, managers and executives to the very lowest level of employee , all of whom will agree to work for minimum wages in return for shares of NRAP stock..

For example the NRAP could take over some General Motors factories, re-design their production lines with the latest of robotic machine tools and build a hybrid, four cylinder “Obama Car” to be sold internationally at under ten thousand dollars.

Let us do something productive rather than increasing our massive debt.

[joebhed]

Deficit spending necessary? NOT !

This ain't just about squeezing the bad paper out of the economy.
Too many economic contributors have their head in the business school sand.
It's the MONEY SYSTEM, STUPID.

The MONEY SYSTEM. Debt- money has us ALL by the shorthairs.
Deficit spending is UNNECESSARY.

It's not the economy that is the problem.
It's the MONEY SYSTEM.
I have no problem with the SPENDING of the TRILLION dollars.
If properly done.

It's the BORROWING of the TRILLION dollars that is the problem.

Google Treasury System versus Federal Reserve System, Papa Tony.
I know you're out on the hook here, papa, but jeezum man, it ain't between Keynes and Hayek that the debate should take place.
Keynes admitted many of his errors after gaining his fame.

Milton Friedman was more of a "money-man" than Keynes.
Forget a lot of what he wrote, free-markets, yadda, yadda..
But he advocated a sustainable "quantity theory" of government-issue, debt-free money, which is what we REALLY need, and he advocated 100 percent reserve banking, which provides soundness to our financial system.

Read the Chicago Plan again.
Debt-free money.

respectamente.

[research]

Check out Obama's stimulus plan!

It's a great investment.

Solar and Wind can already have ROI's 200%-500% over 20 years.

The General Welfare is what needs stimulus.

Jobs.

[cylindar]

Keynes was right for some situations but wrong for others. The problem with Keynes is that money does not grow on trees. In our case it comes from China. So in order to put Keynes in the mix would require us to sell this country to the Chinese one debt note at a time. So personally I think Keynes is bullshit and the only way out is to let the economy collapse to a certain point so that restructuring would be more realistic. To try to shore up what we have now is never ever going to work. The world has changed and the people of the US are going to have to learn to live a wee bit differently. NAFTA, Globalization and all the other crap that has been sold to the American people are nothing but good scams for multi-nationals and a very poor way to go for the average person who has to work for a living.

[joebhed]

Milton Friedman for progressives.
Get your head around it.

A Monetary and Fiscal Framework for Economic Stability.
That's his book.
It includes

".... a reform of the monetary and banking system to eliminate both the private creation and destruction of money"

it includes "........ the discretionary control of the QUANTITY of money by central bank authorities".(my emphasis).

Milton Friedman advocated the necessary reforms to the monetary system to prevent just the financial and economic instability we are now facing.

100 percent reserve banking - banks actually lend the real money they have in their vaults, like "It's A Wonderful Life".

Treasury issue of the money supply, debt-free, direct issue through payments for government services of all kinds.

OK, progressives.

Tell me, what part of that monetary system is unacceptable as a basis for our nation's future economic sustainability.
Please.
Otherwise, let's get on with it.

[research]

You can't stop the Conservative Hooverville peanut gallery.

They will never accept the proper solution to this depression.

They will lie deceive and kick and scream all the way to the recovery and past.

No matter how it works out, the conservative Hoovervilles will claim they were right and FDR and Obama were wrong.

Their brains are damaged.

[WeTellTheTruth]

research

EXAMPLE: If a single person made $50,000 a year and had $20,000 disposable income a year but was $100,000 + interest in debt would you advise that person to go out and borrow another $100,000 + interest in order to get out of debt?

[cylindar]

I hate to tell you this but that is just what everyone has already done.

[WeTellTheTruth]

cylindar

Thats right....... and now the federal government in going to make the same mistake.

[research]

governments print money.

[WeTellTheTruth]

research

Your ad hominem attacks and name calling do not serve you well. It does not make your point of view any more correct and in fact it shows that you really have nothing to contribute except name calling.

[research]

Simply pointing out the facts. (except for the brain damaged part, it's true but harsh).

[WeTellTheTruth]

Borrow and spend in order to fix the problem of too much borrowing and spending......that's worked really well for Japan.....NOT

[joebhed]

please see my comment and reply.
thanks.

[WeTellTheTruth]

Would these be the same 300 best economists that have been advising us for the last 20 years?

[research]

No it wouldn't. Those economists believed in the unregulated market.

[WeTellTheTruth]

research,

That's right...... the same best 300 economists that believed in unregulated markets are NOW advising us to borrow and spend our way out of the mess they created.

[research]

The Historians some 90% behind the spending stimulus got us out of the depression camp.

The GOP conservatives created a new bunch of no regulation free marketer "economist".

This caused polls of "economists" to show that about 30% of them thought FDR was wrong. Now most of them have changed their mind. Only George will and few blind true believes in the unregulated market keep at it.

[DuganS1]

"Twelve years of Herbert Hoover and Warren Harding-style Republican presidential stewardship almost obliterated capitalism in America."

This is completely untrue. What almost obliterated capitalism was the WW1 war debt and the incompetent folks at the Federal Reserve. You could also add the congressmen who got the Smoot-Hawley bill passed which made the war debt situation infinitely worse and caused a further collapse in agricultural prices (as well as to a lesser degree our export and trade related industries).

I'll also add that the huge deficit spending didn't get the US out of depression because private investment never came back to levels which would have gotten us out of it - this was because of the large amount of anti-business legislation that FDR and congress passed, as well as the large amount of anti-business rhetoric and business witch trials (the NRA trials).

[Veri]

What actually caused the collapse in agricultural prices was a phenomena called "The Dust Bowl". Banks, during the 1920's loaned farms money to buy equipment. Then, "The Dust Bowl" happened. A freak weather system that turned the Midwest into a... dust bowl. Since farmers where not able to raise crops and sell them to pay off their debt, banks called in the loans.

Also, in 1929, the stock market collapsed, a concerted effort was organized among the very wealthy. The Fed, ultimate issuer of all money, called in all loans. At the time, investors were able to leverage their small money to buy even larger options in stock. Sound familiar? Investors, now called to account by banks who answered to The Fed's call, sold their stock to repay The Fed. Causing a run on Wall Street. In effect, causing a panic. This led to "The Great Depression" in 1932-1933. The very wealthy, knowing in advance, had already exited the market.

The WWI debt is easily rectified. Germany suffered harm due to The Treaty of Versailles.

What has happened now is that The Fed has hyper-inflated the money supply of The United States. $8.5 trillion dollars in six months. What happens when the crash comes? The Fed is very well aware of what they have done. To suggest otherwise is a fool's reality. These are trained economists. They have set the conditions for a new "Great Depression". Except, this time, it will be global. If it happens.

[DuganS1]

No, the collapse in agriculture prices occurred after Europeans started to grow crops again right after the Great War. Crop prices were depressed through much of the 1920s which led to many bank collapses. The dust bowl didn't happen until the mid 1930s.

http://en.wikipedia.org/wiki/Dust_Bowl

About the stock market, most the October 1929 losses were recovered by spring 1930. That October 29 collapse in no way led to the Great Depression.

[joebhed]

Reductions in the nation's basic money supplies is the definition of "downturn" in the so-called capitalist business cycles.
All of them.
All controlled by the private banking cartel known jingo-istically as the federal reserve banking system.
I do agree that adding more debt to the death-by-debt policies of the private banking cartel is wrong.
Thus, the solution is debt-free money.
Government-issue.

The government of we the sovereign people of the United States of America do not need to borrow money to provide a means of exchange for productive goods and services.
The money of this country is rightly based on the full faith and credit of the American people to make it good.
Let the bankers lend real money - not create it out of thin air.
Google Treasury System versus Federal Reserve System.
Debt-free money.
Washington, Adams, Jefferson, Madison, VanBuren, Lincoln, Garfield.
All "People's Money" advocates.

[DuganS1]

"It shouldn't be much of a news flash to point out to that wildly discredited crowd that W's misfit teams of political and economic advisors already have heaven crumbling down around us."

So far Obama's team of economic advisors is made up mostly of the same people as President Bush's team.

About Hoover, he increased public works spending dramatically during his time in office and that was something that have never been done before. Hoover also created the RFC was a core program the New Dealers expanded upon. Hoover was hardly considered a fiscal conservative at the time. In fact, Roosevelt bashed Hoover for the budget deficit and increased spending. That turned out kind of ironic considering the massive amount of spending FDR later did.

[Veri]

History repeats itself. History has become a formula used to manipulate the masses.

[LeftRight]

I LOVE that the same people who claimed that Clinton raising taxes on the wealthiest Americans would ruin the economy are the same people claiming that Obama raising taxes will do the same thing! Not only that but the American people, generally speaking, are smart enough to figure that one out!