“Men of experience succeed even better than those who have theory without experience…If, then, a man has the theory without the experience, and recognizes the universal but does not know the individual included in this, he will often fail to cure; for it is the individual that is to be cured.” –Aristotle
Aristotle’s wise words from 2,500 years ago gives us the precise reason why the president’s statist economic policies are failing miserably. Keynesian economists like New York Times columnist and Nobel Prize winner Paul Krugman believe that during times of economic slowdown, it is the government’s responsibility to jump start the economy and spur economic growth by the government itself spending large sums of borrowed money – usually on make work public works projects. The theory goes that when the government spends large sums of money during a slowdown, this will somehow motivate businesses and consumers to spend money as well.
Two years after the president’s ‘stimulus’ plan, with consumer confidence at all time lows and with unemployment at 9.2% and rising, the plan has obviously been a failure. That is why it is difficult to understand why someone of Krugman’s stature, as late as July of this year, would argue for more stimulus spending and downplay the need to address our massive national debt when it’s obvious that the stimulus package has failed:
“What I keep hearing from Washington is one of two arguments: either (1) the stimulus has failed, unemployment is still rising, so we shouldn’t do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don’t need to do any more. The truth, which is that the stimulus was too little of a good thing — that it helped, but it wasn’t big enough — seems to be too complicated for an era of sound-bite politics.’
“So no, I mean, the deficit doesn’t matter. The economy matters. And that’s why somehow or other, Obama has got to get jobs being created.”
“Men of experience succeed even better than those who have theory without experience”
Professor Krugman has spent his entire professional life in academia and liberal journalism, I doubt he has ever had a true private sector job in his life. If he had, he would understand that the theory of stimulus spending doesn’t work (and it hasn’t worked anywhere its been tried in the world). The theory is deeply flawed because it fails to heed Aristotle’s wise words of recognizing the individual in the marketplace.
The free market system is a complex system of individual buyers and sellers engaging in commerce with prices determined by what someone is willing to pay for a product and what a seller is willing to sell his product for. “The Invisible Hand”. It is also a market that consists of infallible human beings who make decisions that are not always logical and that you can fit into an academic equation. The theory of stimulus spending/Keynesian economics does not take into account a marketplace that now consists of consumers who are worried about their economic futures and businessman and wealthy investors worried about the government excessively taxing them to make up for budget shortfalls caused by new spending such as the president’s healthcare mandate. In addition to a debt crisis that could potentially have the United States default on it’s debt.
I say potentially because the default rhetoric the liberals are using to scare seniors and veterans doesn’t seem to be the same type of default that occurred in Greece, Ireland and Mexico. These countries were unable to make their financial obligations unless they received bailouts from the International Monetary Fund and from wealthy countries. The United States doesn’t need a bailout (yet), the government simply needs the authority to borrow more money to pay for the programs the $200 billion a month in revenue the government receives doesn’t cover. The United States accounts for one-fifth of global output expansion. We are still the safest place for investors to invest their capital. We have plenty of revenue coming in, it’s our spending that is out of control. We cannot sustain borrowing 43 cents of every dollar we spend.
National Public Radio disclosed a dirty little secret the other day on why the bond markets may be secretly rooting for a “default” because it would mean bond yields on U.S. Treasury’s will probably rise. Here’s an excerpt from an interview NPR had with PIMCO founder Bill Gross on July 26th. Pimco sold their entire portfolio of Treasury bonds last March.
SIEGEL: So at this point, as you say, as long as the U.S. is getting away with a rating that you think we really don’t deserve, treasuries aren’t attractive. But if the U.S. actually manages to blow through the debt ceiling, that’s a different story. The treasuries might be more attractive at 3 percent.
GROSS: Well, I think so. I don’t mean to suggest that we hope that they blow through the credit rating. That’s not up to us. It’s up to the rating agencies and ultimately, as you know, up to the Congress and the executive, in terms of what they do. But there are countries, Robert, such as Canada and such as Australia, that offer higher yields than the United States, and that have triple-A ratings as well, but lower debt as a percentage of GDP.
Gross’ comments puts back in mind the wise words of Aristotle that I started this piece with: “Men of experience succeed even better than those who have theory without experience. If Mr. Gross, with all of his experience in investing, believes that America’s debt is becoming worthless, then why should ordinary citizens and business people risk their capital in such uncertain times?