December 17, 2011

Well, It Sure Seems Like Keynes Was Right

Henry Blodget, writing for Silicon Alley Insider:

“But let’s face it: Austerity doesn’t work.

At least, austerity doesn’t work to quickly fix the problem.

The reason austerity doesn’t work to quickly fix the problem is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy. And when you further reduce tax revenue, you increase the deficit and create the need for more austerity. And that even further clobbers the economy and tax revenue. And so on.”

Ya think?

Blodget is a firebrand, but he's a smart firebrand. US voters need to realize that today's inflamed talk about deficits and debt is nothing more than a political weapon, a smokescreen to conceal from voters what would clearly swing the upcoming elections in the Democrats' favor.

Deficits and debt were in check when Republican president George W. Bush was elected. His party controlled the White House and both houses of Congress for six of his eight years in office, until US voters woke up and realized that they had been lied to about the need for war in Iraq.

During Bush's tenure, federal tax revenue was slashed while spending increased. Lending and bank investment regulation were kept lax at the hands of Republican legislators, allowing unqualified borrowers to drown themselves in debt and investment banks to drown themselves in liability for that debt in the form of naked credit default swaps.

Current president Obama applied Keynesian principles in the form of economic stimulus to fight the resulting recession. That stimulus was far too small to fill the GDP gap because it was fought tooth-and-nail by the very political actors who had brought near-ruin upon the economy.

And now those bad actors blame the current president for the results of their ill behavior, preach austerity despite clear indication that similar practice is failing in Great Britain, and seek election (or re-election) to office to wreak that havoc here.

Except a clear-eyed assessment of the past decade reveals their duplicity and incompetence, just as Blodget's review finds about the virtues of John Maynard Keynes' theory.

To be clear: the US electorate should hand the GOP a minority in both houses of Congress next November, reject the lineup of (mostly) buffoons seeking the Republican nomination to run for the presidency, and give president Obama a strong mandate to finish the work he began in 2008, unfettered by an obstructionist Republican party.

And the GOP really, really needs to rid itself of the lunatics driving their party. They can offer no competent alternative to Democrats until they do.