The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

Democrat Stimulus Drum Corps

Posted on | July 4, 2010 | 15 Comments

The Dow Jones Industrial Average is down more than 700 points since June 21, having lost more than 1,500 points (13.6%) from its late April peak at 11,205. The Dow closed Friday below 9,700 — a level not seen since early October 2009 — and talk of a “double-dip recession” is now far more common than when I discussed the possibility May 9 or again on June 1.

What to do about this? Robert Reich offers a familiar stew of his pet lefty schemes, and most liberals approach the double-dip problem in the same don’t-waste-a-crisis mode: “Hey, look! A good excuse for more deficit spending and economic regulation!”

Playing the devil’s advocate, Daniel Gross at Slate asks, “What’s so bad about deflation?” Which is to say, why not let the market work and take the slack out the economic sails, so that we can begin a real recovery based on a solid foundation?

“Unacceptable!” Matthew Yglesias screams. Yglesias has been maniacally beating the stimulus drums like Gene Krupa on meth.

Yglesias doesn’t understand economics, and he particularly doesn’t understand why the failure of Keynesian stimulus policies is so predictable.

The bursting of the housing bubble, which precipitated the October 2008 financial crisis, was the result of excessive private debt, people borrowing mortgage money they couldn’t afford to repay. The Keynesian “solution” is to increase public-sector debt via deficit spending intended to stimulate consumer demand. (This kind of illogic is why Nancy Pelosi thinks unemployment checks create jobs.)

What actually happens (what Keynesians can’t seem to grasp) is that deficit spending siphons capital out of the private sector, as bond sales soak up investor dollars that might otherwise have been invested in businesses, either as loans (corporate bonds) or stock purchases. You can’t make capitalism work without capital, and so private-sector job-creation fails to materialize — “unexpectedly,” as the MSM keeps saying, although it is only unexpected to people who didn’t pay attention to how Keynesian policies produced “stragflation” in the 1970s.

For a little more than a year, from March 2009 to April 2010, Obamanomics appeared to be working and the stock market almost doubled in value from its March 2009 low nearly 6,600. But that wasn’t really a recovery, it was a dead-cat bounce.

Now that the bounce is over, people are sobering up and recognizing that (a) Obamanomics hasn’t worked and (b) we are actually worse off as a nation than we would have been had we avoid all that “stimulus” spending. The FDIC has already closed 85 banks this year, and the worst of the commercial real-estate meltdown is still ahead of us.

All that Yglesias and the rest of the Democrat Stimulus Drum Corps care about is politics, using deficit spending to create the appearance of recovery, so as to limit their party’s mid-term losses. And they’re already preparing to blame Republicans for all that ails the country. Michael Laprarie at Wizbang:

Democrats can whine about “failed policies of the Bush Administration” until they are blue in the face, but nothing they say can disguise the dire economic straits that their own policies have directly led this country into.

Well, they’ll try to disguise it, and the MSM will be only too happy to assist. It’s just a damned shame that the Republicans don’t have a credible spokesman to call them to account for it.

Category: Economics

Comments

15 Responses to “Democrat Stimulus Drum Corps”

  1. SDN
    July 5th, 2010 @ 1:38 am

    Actually, Paul Ryan sounds pretty damned credible, as does Sarah Palin.

  2. SDN
    July 4th, 2010 @ 9:38 pm

    Actually, Paul Ryan sounds pretty damned credible, as does Sarah Palin.

  3. archer52
    July 5th, 2010 @ 3:03 am

    Well said. The trouble with the Keynesian theory is that humans are involved. It’s like communism in its pure form. So alluring because it can’t fail in theory, but in practice is dangerously close to some kind of holocaust, either in human terms or in economic destruction.

    I have an econ buddy who is MENSA bright. Even he favored the approach, but with the caveat that all spending be directed to infrastructure. His argument was that when the money was gone something was in its place that worked to the betterment of the economy. For example, building railroads or highways that opens access to new markets or speeds up the movement of freight. He also suggested the clean up and improvement of national parks. Again, leaving something better behind.

    The problem is workers. We could do those projects but to worm our way through unions, wages, red tape, etc. We aren’t that great nation filled with returning WWII veterans who know sacrifice and hard work and duty. We are spoiled.

    One of my posters mentioned a story she had heard. Seems an apple grower in Washington gets hammered for hiring illegals. So he has to hire certified American workers. He offers 12.00 an hour and gets no takers. None. Why? Twelve bucks isn’t bad if you aren’t work at all. Seems there are issues with breaks, time off, work conditions too. He’ll be out of business soon.

    I’ve seen the same thing happen where I live.

  4. archer52
    July 4th, 2010 @ 11:03 pm

    Well said. The trouble with the Keynesian theory is that humans are involved. It’s like communism in its pure form. So alluring because it can’t fail in theory, but in practice is dangerously close to some kind of holocaust, either in human terms or in economic destruction.

    I have an econ buddy who is MENSA bright. Even he favored the approach, but with the caveat that all spending be directed to infrastructure. His argument was that when the money was gone something was in its place that worked to the betterment of the economy. For example, building railroads or highways that opens access to new markets or speeds up the movement of freight. He also suggested the clean up and improvement of national parks. Again, leaving something better behind.

    The problem is workers. We could do those projects but to worm our way through unions, wages, red tape, etc. We aren’t that great nation filled with returning WWII veterans who know sacrifice and hard work and duty. We are spoiled.

    One of my posters mentioned a story she had heard. Seems an apple grower in Washington gets hammered for hiring illegals. So he has to hire certified American workers. He offers 12.00 an hour and gets no takers. None. Why? Twelve bucks isn’t bad if you aren’t work at all. Seems there are issues with breaks, time off, work conditions too. He’ll be out of business soon.

    I’ve seen the same thing happen where I live.

  5. Randy Rager
    July 5th, 2010 @ 4:06 am

    Progressives aren’t even wrong about economics. They don’t rise that far. They’re simply incoherent.

  6. Randy Rager
    July 5th, 2010 @ 12:06 am

    Progressives aren’t even wrong about economics. They don’t rise that far. They’re simply incoherent.

  7. Estragon
    July 5th, 2010 @ 4:41 am

    Yglesias is indeed completely incoherent on the details – he seems perhaps to confuse economic growth with the inflation rate, or something, or maybe he is just stupid. This is another “new thinking liberal intellect” brought to fame and fortune by the Short Pants Brigade at NRO (Motto: “This guy is really different!”) . . .

    But Gross is also stupid. Even a slight deflation can almost shut down an economy altogether and block the normal recovery mechanisms, as it did in the Great Depression. Just as inflation makes your dollars worth less tomorrow and next month and next year than today, deflation does the opposite. Prices are falling pretty much across the board.

    So there is a tremendous disincentive to economic activity. Why buy anything today unless you absolutely must? Your money will buy more next month.

    So while inflation is harmful to the currency, it really isn’t capable of causing too much damage at lower rates. People and businesses adjust for it. But you can’t plan in a deflationary period – it makes much more sense to hang onto your cash and wait it out. You gain a higher return on the money under your mattress than anywhere else.

    Of course, the real truth is that both Gross and Yglesias commonly write about subjects they know little of.

  8. Estragon
    July 5th, 2010 @ 12:41 am

    Yglesias is indeed completely incoherent on the details – he seems perhaps to confuse economic growth with the inflation rate, or something, or maybe he is just stupid. This is another “new thinking liberal intellect” brought to fame and fortune by the Short Pants Brigade at NRO (Motto: “This guy is really different!”) . . .

    But Gross is also stupid. Even a slight deflation can almost shut down an economy altogether and block the normal recovery mechanisms, as it did in the Great Depression. Just as inflation makes your dollars worth less tomorrow and next month and next year than today, deflation does the opposite. Prices are falling pretty much across the board.

    So there is a tremendous disincentive to economic activity. Why buy anything today unless you absolutely must? Your money will buy more next month.

    So while inflation is harmful to the currency, it really isn’t capable of causing too much damage at lower rates. People and businesses adjust for it. But you can’t plan in a deflationary period – it makes much more sense to hang onto your cash and wait it out. You gain a higher return on the money under your mattress than anywhere else.

    Of course, the real truth is that both Gross and Yglesias commonly write about subjects they know little of.

  9. Patrick in Detroit
    July 5th, 2010 @ 5:11 am

    “Unacceptable!” Matthew Yglesias screams. Yglesias has been maniacally beating the stimulus drums like Gene Krupa on meth.

    Hold it grandpa. If Gene Krupa was boned out on Meth, he wouldn’t be able to tell you what drumset is, much less be able to play ’em.

    🙂

    Now Speed that’s another story…

    Just keeping you up to speed. 😉

    -Pat

  10. Patrick in Detroit
    July 5th, 2010 @ 1:11 am

    “Unacceptable!” Matthew Yglesias screams. Yglesias has been maniacally beating the stimulus drums like Gene Krupa on meth.

    Hold it grandpa. If Gene Krupa was boned out on Meth, he wouldn’t be able to tell you what drumset is, much less be able to play ’em.

    🙂

    Now Speed that’s another story…

    Just keeping you up to speed. 😉

    -Pat

  11. Randy Rager
    July 5th, 2010 @ 4:29 pm

    Speed is the street name for Methamphetamine.

  12. Randy Rager
    July 5th, 2010 @ 12:29 pm

    Speed is the street name for Methamphetamine.

  13. The Reader’s Digest Condensed Version of "The Road to Serfdom" « Kuru Lounge
    July 5th, 2010 @ 2:15 pm

    […] I was looking up a quote on deflation, that I had seen previously, in response to a post I saw by R. S. McCain.  McCain seems to like the idea of deflation, whereas my understanding is that most economists […]

  14. Patrick in Detroit
    July 6th, 2010 @ 2:41 am

    Hmmmm… I thought Meth was a whole other drug…

    Okay… don’t claim to be a drug expert.

    😯

  15. Patrick in Detroit
    July 5th, 2010 @ 10:41 pm

    Hmmmm… I thought Meth was a whole other drug…

    Okay… don’t claim to be a drug expert.

    😯