The Job Creation/Debt Paradox
Jobs… Jobs… Jobs. That is the rallying cry of the Keynesians.
More jobs, more taxes and less debt. Seems simple enough. Job creation is job one! Just ask the President.
But is their logic for creating jobs correct? Or is there another, better way than Keynesianism to create jobs? What the heck is Keynesianism, anyway? How do debt and deficits fit into the jobs jigsaw puzzle?
And the really big question:
How do we tackle both debt and job creation at the same time?
The answers to those questions defines the crux of political gridlock paralyzing Washington DC today.
That is what the so-called super committee will have to deal with.
Who are the Keynesians and Why Should I care?
If you wanna impress a buxom babe at a dinner party when the scary topic of stock losses comes up then look her directly in the eyes and categorically state with grim awareness that what we need to recover our economy is counter-cyclical demand management.
With this great insight you’ll whisk her into bed faster than an expensive dinner at New York’s Eleven Madison Park. You’ll be sooo Keynesian and get very counter-cyclical, ifn ya get my drift!
Counter-cyclical demand management is a policy concept evolved from the work of the great British economist John Maynard Keynes. His crowning achievement is “The General Theory of Employment, Interest and Money” published in 1936. His followers are called Keynesians.
When production capability is high but demand low then Keynesianism calls for massive government deficit spending to boost demand.
Its called counter-cyclical because government policy flows in the opposite direction of the economy.
When demand is down, government infuses money into the system to create jobs and make the citizenry flush with new cash which, in turn, increases demand to bring an economy back up to snuff and able to support full production again.
After the economy is recovered then the acquired debt is repaid from increased tax revenues. Pretty cool, huh?
Politicians Love Keynes!
Politicians, mostly Democrats, embrace Keynesianism.
That is because it calls on government action and big spending to solve economic problems. Politicians like anything that gives big government more power and a wider reach.
Generally speaking, they are bipartisan in that regard. Politicians are addicted to power!
Keynesianism has dominated government economic policy for over 70 years.
Obama’s “American Recovery and Re-investment Act of 2009“, the so-called “stimulus”, is the last major Keynesian solution to be applied to the U.S. economy.
Not Everyone Loves Keynes
The more conservative among Republicans are anti-Keynes.
Conservative Republicans generally believe in self reliance over government intervention. They believe in less government, lower taxes and less government interference in our lives.
Conservatives believe the private sector has more control over the national economy than government ever will. They believe government spends money wastefully.
They believe taxes should be lowered for both citizens and corporations during a recession. Less taxes provides consumers more money to spend. Less corporate taxes and less regulation allows corporations to do what they do best, create jobs and grow an economy.
In other words, conservatives believe in good old fashioned capitalism.
In short, conservatives and their pesky little Tea Party Movement friends pretty much believe the opposite of Keynesians!
The Bush tax cuts of 2001 and 2003 were in response to the recession caused when the Internet dot com bubble burst in the late 1990s and early 2000s. It is the last major capitalist solution to be applied to the U.S. economy.
The Weakness Of Keynesianism
According to Keynesian macroeconomic theory deficit spending is not the cause of economic problems, it is the solution!
You’ll never hear Nobel Prize winner Paul Krugman ever bad mouth deficits. In fact he is highly critical of President Obama because he feels Obama has not deficit spent enough to stimulate the economy! See article “Falling Into the Economic Chasm“.
Here is the problem… though government readily throws vast sums of money at economic recoveries in Keynesian ways, it never pays down debt after a recovery occurs.
That is how this nation has acquired a $14.6 trillion national debt(as of this writing). U.S. debt is currently racing upward at an Olympic Games pace of about $3.67 billion/day!
The Current World Economic Crisis
The Great Recession of 2008 and associated stock market crash was driven by the collapse of the housing mortgage bubble.
The current world economic crisis of 2011 and associated stock market crash is totally different. It is debt-driven!
Starting with Greece in 2009-2010 the Eurozone has sunk into a deepening financial crisis that is spreading through Europe like The Plague.
The $64,000 question in European financial markets is will the Euro be destroyed by its member state’s growing debt load? Is there enough money in the Eurozone to bail out the ones in trouble? What austerity measures must be taken to reduce debt? Whose next?
Throw in excessive U.S. debt and its credit downgrade and you get… welll… what we got right now… a mess!
Deficits and Debts and Jobs… Oh, My!
An old business edict says, ‘you have to spend money to make money’. The same holds true for creating jobs.
During recessions there is a contracted economy. That is why jobs disappear.
When a government has high debt and deficits it strangles job creation. Debt and deficits must be eventually paid down and when you do your not expanding and creating any jobs.
Keynesians say to trust government to create jobs through deficit spending. Damn the deficits, full steam ahead!
Capitalists say to trust citizens and the private sector to create jobs from money retained by them via less taxation.
And therein lies the paradox of deficit reduction and job creation.
So which is it? Do you fight recession and create jobs with massive government deficit spending as the Keynesian’s advocate, or do you rely on good old fashioned capitalism to cure our economic ills?
The whole business is complicated by the world situation that seems to be telling us that the time has come to pay the piper and reduce deficits and debt.
Is excessive debt our nation’s problem? And even if it is do we need to face the debt problem at the same time we struggle to create jobs?
These are all very heady questions that the so-called super committee will have to deal with.
Those issues, though huge, will only play a minor roll in the super committee’s ultimate failure.
We are into the next election cycle and no politician will agree to anything even remotely controversial that might jeopardize their chances for re-election.
Posted on Aug 11, 2011, in 2012 Elections, ARRA, capitalism, Debt, Deficit, Deficit Reduction Committee, Economy, Election, Elections, Job Creation, Jobs, Keynes, Keynesianism, Keynesians, National Debt, Obama, Politics, Super Committee, Tax Hikes, Taxes, The Stimulus. Bookmark the permalink. 2 Comments.