The Ghost of John Maynard Keynes

Over the last few months I have repeatedly voiced my concerns regarding what is popularly known as "Barak Obama's Economic Recovery Plan." In the absence of any plausible refutation to my position, I remain convinced that this so-called "Recovery Legislation" is nothing more than a repayment of political debts and an attempt at "Social Engineering," the likes of which have not been seen since Franklin Roosevelt's failed "New Deal."

As evidence that I am not alone in my distrust of President Obama's so-called "Economic Stimulus Plan," I call your attention to an essay recently published in the online edition of Canada's Financial Post. The title of this essay, "Barack Obama's Keynesian Mistake," and its subtitle, "The stimulus plan would impose a large debt on young Americans without helping the economy,"says much about its content.

In that essay, authors Ike Brannon, a former Senior Advisor at the U.S. Treasury, and Chris Edwards, the Director of Tax Policy Studies at the Cato Institute, state that "...the revival of old-fashioned Keynesianism to fight the recession seems to stem more from political expediency than modern economic theory or historical experience." They further comment that:

"Keynes argued that market economies can get stuck in a deep rut and that only large infusions of government stimulus can revive growth. He posited that high unemployment in the Great Depression was due to 'sticky wages' and other market problems that prevented the return of full-employment equilibrium. Interestingly, Keynes did not offer any evidence that sticky wages were a serious problem, and later research indicated that wages actually fell substantially during the 1930s."

The "Keynes" in the above-mentioned "Keynesian Mistake" is, of course, a reference to the philosophy of the eminent economist John Maynard Keynes (1883-1946). Of Keynes' many works, only one is relevant to the purpose of this essay: The General Theory of Employment, Interest, and Money.

Since his death, Keynes has become something of a Patron Saint to those of the Far Left that yearn for the return of the New Deal and an appropriately messianic True Believer. In its Centennial Edition, Time Magazine named Keynes as one of the "100 Most Important People of the Century." Given the editorial leanings of Time, this is not surprising since it also bestowed that accolade upon such titans of the 20^th Century as Che Guevara, Vladimir Lenin, Harvey Milk, Marilyn Monroe, and Bart Simpson.

As noted in the quote above, Keynes' General Theory held that during an economic depression the only "cure" for such a condition was to dramatically increase government spending on "public works" projects to "boost employment." Keynes' answer to those who questioned how this could be accomplished during a period of decreased government revenue from taxes collected was quite simple: spend money that the government doesn't have! In other words, just print more money and you can worry about the economic consequences later.

The consequence of that boost in the national monetary supply was that there was suddenly more money available to purchase goods and services. Even Keynes himself admitted that "more money than things available for purchase" was the classic definition of price inflation, a demon that made its presence known from the conclusion of World War II until the end of the century.

Every reputable economic historian, and most conspiracy nuts or other such crackpots, will admit that the only reason the New Deal didn't disappear beneath a tsunami of inflation was because the Roosevelt Administration had "sold out" the best interests of the workers to a cabal of organized labor and the industrial giants of that day following the passage of the National Industrial Recovery Act. Even though that legislation was later declared unconstitutional (see The Blue Eagle and the Sick Chickens), Roosevelt simply turned a blind eye and allowed the previous wage- and price-fixing to remain in force until the outbreak of the Second World War.

If I were asked to name one characteristic that best described Franklin Roosevelt's persona in his attempts to "cure" the Great Depression, I would not hesitate in naming it "arrogance." Unfortunately, his most recent successor in office is equally as arrogant but glaringly lacks the intellectual talents of the man he seeks to emulate.