Tag Archives: Keynesian stimulus

Political Catch Phrases Only Deter Real Economic Recovery

When starting my quest last November to determine a way to fix our country’s job problem, I hoped that I could draw on the strengths of the American public to collectively create the beginnings of a viable turnaround plan. I determined early on not to be dissuaded by all the catch phrases that both the Republican and Democratic parties used as spin to stop many of our frustrated electorate in their own quest to find the truth only to become dejected and more frustrated.

These spin phrases have worked in part because they have some “Truthiness” in them that wears down many from attempting to dig through the morass. One of the well worn phrases touts the principle that “It’s not the government’s place to create jobs for the masses. The government should limit itself to creating a confident and stable business environment and should otherwise stay clear of free enterprise.” On its surface, the thought has merit and has thus become a flagship of fiscal conservatives.

During periods of “normal” economic times, the government should in fact minimize its foot print and limit its use of the private sector’s capital to essential services. To do otherwise stymies future economic growth and can lead to job losses. Yet, during the peaks and troughs of normal economic cycles, government can help smooth out the highs and lows of the cycle by accelerating or slowing long term purchases of houses and cars and the like through interest rate manipulation and other monetary policy of the Fed. Government sometimes exacerbates the business cycle but nonetheless it can be a useful tool.

During larger recessions, government has sometimes attempted to “fix” the cycle through fiscal policy of Keynesian, government stimulus, big projects like road construction that by their nature add some jobs in certain industries as a “bonus”. In most of these government attempts through our history, the length of time required to enact and to implement such policies has invariably missed the trough of the business cycle and has actually harmed the economy through exacerbation of the already improving business cycle and through increasing our federal debt.

The 1930s of course were an exception in that the Great Depression was not the result of a normal business cycle but was the result of a monetary implosion much like we are experiencing today. While the works programs of the thirties did help feed a hungry nation, they did not heal the economy for several reasons. First, they created government jobs working on public infrastructure like parks that have been a blessing to future generations but that did not aid the economy, or they created government jobs that actually helped the future economy but did not help their current economy significantly. These jobs created business improving infrastructure like electric dams that created inexpensive power and flood control dams that aided future crop stability. Second, because these government jobs did not actually increase GDP, the Great Depression’s extended contraction was exacerbated by an increasing debt load. Third, even though some people now had government jobs, not enough jobs could be created by government and unemployment still remained exceedingly high throughout the Depression. Forth, even though some people now had jobs, these same people could not afford to stimulate the economy because their new pay barely covered debt loads that were incurred as they fell into the Great Depression. As a result, no pay was left over to create additional consumer demand for private sector companies to create more jobs. Fifth, even though some people had new government jobs, their credit ratings had been destroyed as the nation fell into the depression. Even though some new workers could now afford new loans that could increase consumer demand, it would take years for their credit to be restored in order for banks to make new loans to them. Finally sixth, even though some people had new jobs, the banks would not lend into a shaky economy where overall demand was low and unemployment was high.

The monetary implosion that began in 2008 is somewhat different than in the 1930s because many American businesses are multinational corporations that have been buoyed by the double digit growth of the East. As a result, America’s technical definition of a “depression” has not occurred. However, the 2008 monetary implosion has had a very similar impact on America’s middle class as did the 1930s. It has created excessive housing and consumer debt, destroyed credit and collapsed the demand for jobs. America’s free enterprise will not pull American families from this monetary implosion for another 15 years without fundamental restoration of our capitalist system. That necessarily requires government intervention to repair our international banking excesses.

The recent government programs that applied Keynesian stimulus and Fed monetary policies failed to right our economy because they attempted to fix the wrong problem. America is not in a recession. It is suffering from a monetary implosion and debt explosion. The government programs of the 1930s failed to quickly restore America because Government did not attempt to repair all of the failings of capitalism. My plan recognizes that we are not in a normal or even exaggerated business cycle that could be fixed by stimulus or monetary manipulation. It also recognizes that government make work will not fix the economy either. Instead it provides a holistic healing of our capitalistic economy.

My turnaround plan requires the banks to accept shared equity in housing in return for removing excess housing debt from homeowner’s notes. It requires the credit rating agencies to speed restoration of credit ratings for those caught by the 2008 depression so that additional credit is available to restore consumer and business demand. And it provides for simultaneous hiring of 10 million people into the private sector that otherwise would be collecting long term unemployment compensation. The compensation that they would have received for sitting out our economy instead passes through the hands of small domestic businesses, reducing their risk of hiring, lowering their costs of supply, improving their international competitiveness, and making their goods and services more affordable to the American public.

Rather than government make work or stimulus jobs targeted to a very few select industries, this turnaround plan allows people to be hired throughout the domestic, private, small business economy. All citizens have the opportunity to return to the workforce immediately. All have the opportunity to restore their credit. All have the opportunity to stay in their houses and to make affordable payments on their own property. All have the wherewithal to incrementally add to the nation’s consumer demand and to create worldwide demand for America’s products. All will help America return to prosperity.
All will become part of a holistic plan, endorsed and enforced by government, that will turnaround our country.

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Filed under American Politics, Job Voucher Plan, Jobs, U.S. Monetary Policy