What We Need Is A Fresh Round of STIMULUS and QE

Jobs report really negative today. I was paging through the Wall Street Journal and looked at all the headlines. I didn’t see one positive one on any economic front from anywhere in the world. The only person in any photo smiling was John Edwards.

How’s that stimulus working now? QE? Hey, I know, it’s the Federal Reserve’s “twist” that will save us.

Back in the 1930’s, the federal response to the poor economic situation was to create a huge federal bureaucracy that we are stuck with today. It was the first attempt at Keynesian policies. It didn’t work then, and it is not working today.

The stock market began to fall out of bed in 1937. The evidence was that the stock market was only good as long as the government was going to buy it. Then, World War Two started and factories that were idle were pushed into production.

This leads people to think that wars are good for economic outcomes, and further leads them down the logical path that lots of defense spending is good for economic output. That logic is terribly flawed.
Even the great Paul Krugman penned an article wishing that aliens would invade Earth so we could come together and fight something. Amazingly dense.

The broken window theory of economics never works. We are always better off without wars or huge cataclysmic events.

So, what is the real answer in this case? It’s not stimulus or more quantitative ease. It’s not twisting. The answer is counter intuitive.

The American government needs to stop spending so much money. It needs to drastically shrink in size. That’s good “austerity”. Then, it needs to tax less. The private sector will fill the voids.

Instead, we get Luddite’s like Tom Harkin proposing a 220% increase in minimum wages for workers that get tips.

Can’t anyone think out of the box anymore? I know a gazillion entrepreneurs that can. Please turn over the reins of the economy to them. Then, get out of the way.

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tip of the hat to The Daily Crux

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  • http://www.pointsandfigures.com pointsnfigures

    They also increased taxes, and never had much to build off of.  Spain unemployment is close to 50% in some segments of the population. 

  • http://www.pointsandfigures.com pointsnfigures

    thanks, fixed

  • http://www.pointsandfigures.com pointsnfigures

    FDR wasn’t the reason for a booming economy.  It was the banking sector getting healthy and the private sector employing people.  If you recall, post WW2 we had a recession.  

  • http://www.facebook.com/steadfastkarl Karl Zimmerman

    Obviously you can’t think outside the box.  You’re proposing exactly what Britain has been doing, which has now lead them into a 2nd recession.  Which country is doing best in Europe, Sweden, which has both increased government spending, far exceeding our spending rate, AND cutting taxes.

    What happened in 1937, before the economy dipped, government spending decreased.  What got us out of the Great Depression then, massive government spending in the form of WWII.  Now, what has happened now, just as growth is slowing (after having among the highest GDP growth of developed nations), stimulus money is running out.  All of this seems to prove Keynesian policies work, where are you seeing the failures of Keynesian policies?

    • http://www.pointsandfigures.com pointsnfigures

      Britain is heavily regulated and has pretty high costs of employment.  Not really a comparison-and their economy is far less dynamic than the US economy.  

      Any country in Europe is a textbook case on what not to do.  Austerity with high taxes and regulation.  

      You are incorrect about WW2, been debunked many a time. If you are correct, we should just blow things up when we get in recession to get the economy started.  Maybe we could kill 65M people too to create jobs.  Check out a history of monetary policy of the US, written back in 1962 by a young M Friedman and his co-author who’s name escapes me right now.

      • http://www.facebook.com/steadfastkarl Karl Zimmerman

        So the only countries that have attempted austerity have all failed, and are entering a second recession, but austerity is still the answer?  Yes, they didn’t do it exactly the same way that you’re proposing and the situations aren’t exactly the same, but if austerity worked, wouldn’t there be at least one success story?

        To say there is a clear answer on how we got out of the Great Depression is not really honest, though you act like it has been clearly answered.  Was it renewed Keynesian policies after the Roosevelt Recession, was it the significant increase in the monetary supply (likely, it was largely affected by WW2 and the events leading up to it), did it not actually recover until after the war (funded largely by government spending from soldiers benefits, etc.), not until the baby boomers started being born, increasing demand, or one of the other dozens of theories?  The fact is, after renewed Keynesian polices in 1938 and significant government spending we got out of the Great Depression, when we cut government spending, things just got worse (see Roosevelt Recession).  Were there other factors, certainly.  Is war the best way to do this, certainly not, no one is realistically suggesting it, focusing on education and infrastructure would make much more sense.

        • http://www.pointsandfigures.com pointsnfigures

          There is a clear way we got out of the Great Depression.  Milton Friedman did the research. http://www.amazon.com/Monetary-History-United-States-1867-1960/dp/0691003548

          When you raise taxes, you kill the private sector.  Most governments look at a tax hike in accounting terms.  Higher percentages bring more revenue. Actual data shows that line of thinking is incorrect.

          Lower taxes sometimes generate more revenue than higher taxes because there is more incentive to produce, and that generates more activity which brings in more revenue.  

          • Karl Zimmerman

            You’re right, the private sector was just destroyed in the 50’s with a top tax rate over 90%. Also, nice straw man. Who stated the definite that higher tax rates always equate to more revenue? It seems the right seems to be saying that lower tax rates always mean more revenue. Of course, neither is true. I’m not even sure how we got to taxes, as I made no proposal to raise taxes. I am entirely against raising taxes yet, as any true Keynesian would agree with.

  • http://www.pointsandfigures.com pointsnfigures

    Thanks, I appreciate it and I hope you share it with your friends.