Posts Tagged ‘Stimulus Spending’

Ben Bernanke Invents Supply Side Keynesian Economics

Monday, May 22nd, 2017

Ben Bernanke is back, having been interviewed during the past month by The New York Times, NPR, CNNMoney, The Hill, Bloomberg, CNBC and other media. That his book, The Courage to Act: A Memoir of a Crisis and Its Aftermath, is out in paperback could have something to do with it.

When the hardcover version was released, Bernanke, former chair of the Federal Reserve Board, wrote a piece for The Wall Street Journal titled, “How the Fed Saved the Economy.” Having taken credit for saving the economy after the financial crisis, he’s now giving advice about how to continue saving it. His comments, in which he poses as a supply sider while advocating for still more Keynesian stimulus are almost as unintentionally humorous as his Journal op-ed.

In an interview with The Hill, he said, “What we want to do is try to improve the supply side of the economy, make it grow faster, have greater potential. And I think that probably that to do that, I would think that on the fiscal side, that infrastructure spending that improves our roads, our bridges, our schools, and tax reform, not necessarily tax cuts, but reform that makes the system simpler, more efficient, those would probably be the highest-return fiscal actions in terms of getting higher growth.”

We’re not sure how you can reform the massive federal tax code without cutting taxes for someone, but supply side stimulus spending is an oxymoron. Supply siders would deregulate and cut taxes to encourage business investment. (more…)

Pick One: More Government or Lower Taxes

Monday, May 8th, 2017

What’s the best way to boost economic growth – more government spending or lower taxes?

Government spending is the Keynesian approach, which was taken over the past eight years. Build a road, start a war or buy lots of bonds and the spending allegedly will stimulate the economy. In addition to the government jobs created, the money spent will work its way through the economy and create additional jobs while the economy grows.

But the economy doesn’t necessarily work that way. Government spending has to be paid for with higher taxes or more debt. If taxes are higher, consumers have less to spend, which slows economic growth. If the government accumulates more debt without raising taxes, interest on the principal accumulates. Interest must be paid off regularly to keep the country’s credit rating high, so it can continue borrowing at low rates.

Ironically, the only way to keep interest from becoming overwhelming is to cut spending, raise taxes or both, which can stunt economic growth. So, long term, the impact of stimulus spending can be negative.

Another problem with government stimulus programs is that jobs created with government funding disappear if and when the funding expires. It rarely does; instead it becomes an added cost on an ongoing basis, increasing government spending permanently.

How Money Is Spent Matters

How the government spends your money also matters. The American Recovery and Reinvestment Act of 2009, passed to overcome the financial crisis, was the largest stimulus effort ever, but much of the money went to programs that may have had either no positive economic impact or hampered economic recovery. (more…)

Land of the Setting Sun

Friday, November 21st, 2014

Let’s pretend that the United States economy is a football team.  The coach calls the play.  The running back runs right up the middle and is thrown for a loss.  What does the coach do on the next play?  Run the ball up the middle for a loss.  And the play after that?  Run the ball up the middle for a loss.  And the play after that?  Run the ball up the middle for a loss.

Other teams see what’s happening to the U.S. economy.  So what do they do?  Run the ball up the middle for a loss.  In Japan, in Europe and elsewhere the losses mount.  What’s the conclusion?

  1. Running the ball up the middle every play will result in a loss, or
  2. We need to run the ball up the middle more often.

JapanThe answer, if you’re paying attention to central banks and the actions of Japanese Prime Minister Shinzo Abe is, of course, B., as logic and politics rarely travel on the same highway.

Formerly the world’s number two economy behind the U.S., Japan’s future couldn’t have been brighter back in the ’80s, when “Japan Inc.” was all the rage.  Today, if there really was a Japan Inc., it would have long ago declared bankruptcy.  The “Land of the Rising Sun” has become the “Land of the Setting Sun.”

(more…)