With all the bailouts and Stimulus money floating around and the unimaginable amounts of money printed by the Fed being injected into our economy there is renewed debate about the best way to turn our economy around. Many, especially those in the current administration, tout the idea that we need to keep pouring on the money machine or things would be worse and that only Government, Inc. can lift the economy from its depths. Of course that is a political view as much as anything sense there are those who love big government and view it as benevolent and further they like the idea of folks being dependent upon government and placing all their faith in government. Paul Krugman is an advocate of such an approach. They are completely dedicated to the Keynesian model and method. That goes well beyond merely deficit spending for a short period. The government as the engine of growth and prosperity is their long-term goal. Consolidating command and control of the economy into D. C. is their vision of Nirvana.
Those of this view are already talking about even more stimulus and more government programs to revive the economy. They have floated the idea of bringing back a WPA type program. So far all the stimulus money has done the way I see it is to prop up banks and financial institutions that should have been allowed to fail and go out of existence, create even more government jobs, facilitate the takeover of the bulk of the auto industry and make the granting and marketing of mortgages a Federal government program and all the people with mortgages the wards of the State. Remember that more than 90% of all mortgage loans these days are made directly by the government (FHA, VA, etc) or held by the government (FHLB, Fannie and Freddie). That can’t be a good thing. The only growth industry these days is government. D. C. continues to grow, literally in population and the amount of our national resources that it consumes and the stimulus money has been utilized thus far to primarily attempt to bolster payrolls of other government employees at the State level. Now the push is on to completely control and regulate the health system, not merely insurance but the delivery of medical services.
Others prefer a so-called supply side approach to fix the current problems and as the best long- term program for expansion of our economy and the continued improvement in the standard of living for the people. That approach basically calls for less taxation, less regulation and a tax code that offers real monetary incentives for investment into new business ventures large and small. That was the approach that Reagan brought with him to the White House in 1980. We had to suffer the pain a bit by squeezing out the inflation and stagflation that had gripped the country for the preceeding decade. That same philosophy with a few ups and downs was followed by Clinton. He mostly followed it because the Congress had enough Republicans that they wouldn’t allow tax or budget changes that would gut that supply side approach. In fairness I believe he also thought it was a pretty good way to foster growth in the economy. We had remarkable growth and upward mobility throughout the ’80’s and the ’90’s. It was Clinton’s administration that repealed the Glass-Steagal Act to allow the commercial banks and investment banks to merge into one being and perform the complete gamut of financial services to the populace. Another day we can discuss the cause of the current problems. The biggest issue was 9/11 which is mostly forgotten by folks now. The economist seem to particularly overlook it. We were shut down and had to respond some way just as we did after Pearl Harbor. Government mandates about how money could be loaned and who it was loaned to also poured poison into the economic system because so many of those mortgage transactions were not made on sound financial reasoning but to fulfill government edicts. We reaped what Government, Inc. sowed.
Trying supply side economics is not something really all that new although to listen to some you w0uld think it had never been tried until 1980. They may know a lot about economics but they sure haven’t studied their history.
In the mid 5th century the Roman Empire was beginning to crumble. It had already been assailed by Attila and other barbarians and was now permenantly divided into the Eastern and Western Empires. Things were rather bleak to say the least. Roman power was diminished but it still had some swagger and the idea of a Roman Empire continued to command respect even if no longer deserved as before. It was a weakened giant. In this period one more citizen stepped forward to assume the mantel of the purple and rule as emperor over the Western empire, his name was Majorian. He probably was the last of strong and decent emperors. He wrote the Conscript Fathers of the Senate with his pledge to restore Rome. They were called conscript fathers because it had been viewed for centuries in the Roman world that the nobles had a duty to fulfill toward the Empire. They were “conscripted” to fill that duty as Senators to give back for the largesse they received as Roman citizens from the Empire. In those days many of the subject peoples still under the rule of Rome were required to not only pay taxes for mostly local use but also had to pay an annual tribute to Rome for the use of the central government. Upon taking power he required tax collectors to deal honestly and rooted out corruption and he also forgave the annual tribute payments to Rome from the provinces of Gaul. The past due tribute was forgiven and the future ones put on hold. Lo and behold, the revenues to Rome actually increased. The people had felt repressed and in despair over the burden imposed by these tribute payments; now they had hope for the future and felt their labors would be rewarded. The economy thrived for those brief years under Majorian. Alas, the decay and decadence of past regimes had eroded the foundations of Empire too far and the structure continued its decline. There really isn’t anything new under the Sun.
“Dictators always look good until the last minutes” T. Masaryk http://www.olcranky.wordpress.com