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I believe that we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer. Do what we may have to do to inject life into our ailing economic order, we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income.

Franklin D. Roosevelt, Commencement Address at Oglethorpe University, May 22, 1932

I grew up in a family that wasn't typical.  Sunday dinners were an occasion for loud political debates and a favorite topic was whether FDR ended the Depression.

My siblings and I would roll our eyes across the table from each other as the adults argued about matters that occurred before we were born.  Twenty-five years had passed since Roosevelt died.  The disagreements about him raged on.

My dad was an opinionated New York City blue-collar union Democrat.  Politics strayed into the conversation often.  If a distant relative or a family friend who came to dinner happened to suggest that Roosevelt never ended the Depression, the War did, that was my dad's cue.  His voice got loud and emphatic.  For a few minutes, all the adults yelled at each other until there was a lull.  That's when my grandmother would proclaim in her deepest and most serious voice, "If it wasn't for FDR, we would have starved."  My sisters and I heard it so many times; we'd finish the sentence for her.  

Plus ça change, plus c’est la même chose.

Republicans still favor the privileged few over the many and they're still wrong about everything.  They said Roosevelt was a communist or a socialist; his policies were a failure.  Now they say it about President Obama.  They said if it hadn't been for the War, the Depression never would have ended.  

Despite what Republicans say, it is clear that Keynesian economic policy works.  During the years from 1933 to 1936, Government spending brought recovery.  A lull in spending during 1937 and 1938 hindered progress.  When spending resumed again in 1939 and 1940, the recovery resumed.  

When Roosevelt implemented Keynesian economic policy the tax code was also adjusted to make it more progressive.  From 1933 to 1940, the marginal tax rate on income over $1 million (in today's dollars) was increased from 34% to 51%. During the same period, the marginal tax rate on income from $0 - $65,000 (in today’s dollars) remained steady at 4%.  

What were the results?  GDP was declining steeply before Keynesian economics was implemented.  From 1930 to 1933 GDP was down 41%.  GDP increased steadily from 1933 to 1936 when Keynesian policy was implemented.  The recovery stalled in the two years after Keynesian policy was halted.  In 1939 and 1940, GDP increased again when Keynesian policy was reinstated.  Here's a chart that shows GDP performance, government spending, and the size of the deficit from 1930 to 1940.

Economic statistics from the Great Depression
In the chart above, government spending (red line) was approaching $10 billion in 1940.  It reached $13.5 billion in 1941.  GDP was getting close to $100 billion in 1940.  It had gained back all that was lost and it was about equal to its 1930 level.   It increased to $114 billion in 1941.  The deficit increased from $3 billion in 1940 to $5 billion in 1941.  These numbers clearly show that Keynesian economic policy was  working.  The temporary reversal of Keynesian policy in 1937 and 1938 only delayed the recovery.

After 1941 the US converted to a wartime economy with massive government spending that was unprecedented at the time.  For example, government spending increased from $13.5 billion to $35 billion in 1942.  I don't introduce wartime numbers into the discussion about Keynes for a couple of reasons.  The period before the War already illustrates perfectly the effect of Keynesian policy with the respite from it in 1937 and 1938 acting as a control on what could be considered an experiment.  The economy improved when Keynesian policy was implemented and it flat lined when the policy was withdrawn.  

Today Republicans like to cite a 14.6% unemployment rate in 1940 as evidence of FDR's failure with Keynesian policy.  The rate fell to 9.9% in 1941 which was still pre-war.  Don't expect Republicans to cut any slack on that figure either because it sounds terrible compared to average rates before the 2008 economic meltdown.   An unemployment rate of 9.9% in 1941 was a significant improvement over the 24.9% rate in 1933.  During the two lost years when Keynesian policy was interrupted, unemployment rose from 14.3% to 19%, adding to my conclusion.  The War intervened in 1942 and unemployment fell to 4.7% that year.  We'll never be able to say whether that would have been achieved without the War.  If Republicans want to chalk up full recovery from the Depression to the War, it still goes to show that a nation can indeed spend its way out of economic problems.  What was the war, after all, if not a huge government-sponsored economic stimulus project?  

In the end, these are all just statistics and by themselves they’re probably not enough to convince anyone of anything.  People respond to emotions instead of facts and figures.  So here’s something to put a smile on your face. It’s FDR again, doing an impression of Mitt Romney or Paul Ryan (you decide which) way back in 1936.

Mon Aug 20, 2012 at 10:15 AM PT: Well what a pleasant surprise!  Checking in to see whether my diary was noticed at all and amazingly it was.  Spotlighted even.  I love it.  Thank you, Rescue Rangers.  

Originally posted to leftreborn on Sun Aug 19, 2012 at 07:20 PM PDT.

Also republished by Community Spotlight.

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Comment Preferences

  •  They believe in Keynesianism, too (12+ / 0-)

    They just pretend not to because their paychecks come from billionaires who want to destroy the modern American state and replace it with a neo-feudalist plutocracy.

    Toto, I've a feeling we're not in Kansas anymore

    by Minerva on Sun Aug 19, 2012 at 07:44:49 PM PDT

    •  A year ago, when ever I made a comment like yours (5+ / 0-)

      people said I was on drugs.  Now it's conventional wisdom.   Not that I'm trying to be Mr. Ahead of the Curve.  It's just disturbing how many people see what's ahead and yet there are enough Americans cheering for their country's demise that these bastards have a chance.

      "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

      by leftreborn on Sun Aug 19, 2012 at 07:51:50 PM PDT

      [ Parent ]

      •  One nit to pick in this superb diary (5+ / 0-)

        You quoted the Lebergott unemployment #s when Darby is more accurate. Darby has unemployment dropping from 20.6% in '33 to 9.5% in '40.  Darby includes WPA workers as being employed while Lebergott doesn't.

        Some men see things as they are and ask why. I dream of things that never were and ask why not?

        by RFK Lives on Sun Aug 19, 2012 at 08:10:07 PM PDT

        [ Parent ]

        •  Oh arghhh - unemployment numbers from the '30s ... (3+ / 0-)

          I didn't put unemployment numbers on my little amateur graph because I'm ambivalent about them.  I wasn't even going to mention unemployment rates because there is disagreement on the true numbers.  However I felt it left a gap in the diary that couldn't be ignored.  

          Thanks so much for the link.  I will take a look at that.  I really like that you used the word 'superb.'

          "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

          by leftreborn on Sun Aug 19, 2012 at 08:34:26 PM PDT

          [ Parent ]

  •  Keynes' resurrection (9+ / 0-)

    For years economists have been lauding the death of Keynesian theory.  If fact most of them would scoff and laugh at it's mention.

    They had so much mathematical proof that supply creates it's own demand and that a completely free market was inherently stable - they were too busy patting themselves on the back to notice these theories fail when practically applied.

    Who employs economists?  

    Its a toss up.  Half are employed by banks and/or financial institutions of some sort.  The other half?  The government.

    So when did Keynes die?  The sickness spread widely during Clinton and really became virulent and died during Bush, but the exposure happened during Reagan (or Nixon/Goldwater if you want to be technical).  

    As much as these paid henchmen, er, I mean economists, argue against Keynsian Theory, they can't avoid the truth inherent in the results of implementing supply-side policy.  

    When one realizes that the people that employ those that formulate supply-side theory are the same people who benefit from supply-side theory - it's not that much of a logical leap to see the conflict of interest and the understand why there are flawed results.

    When these economists laughed at the mention of Keynes, it was probably a nervous laugh, because such talk was a threat to one's livelihood.

    Supply-siders are completely full of shit.  Of course Keynes was right - as was FDR - and Keynsian Theory will live long after the trickle down lie is forgotten.

    Are there no prisons? No workhouses?

    by meatballs on Sun Aug 19, 2012 at 07:55:24 PM PDT

    •  Bravo! I may re-use one of your lines (8+ / 0-)

      in a modified form:

      Those who favor supply-side are the same ones who benefit from it.

      Supply-side goes back to Milton Friedman who supposedly formulated his economic 'theory' during the 1950s.  It infected Goldwater and Reagan who was Governor of California in 1966.  It became conventional wisdom by the '90s even though it's nothing more than a high stakes con job.

      Since there's nothing new under the sun, supply-side predates Milton too.  That's why you see FDR talking about 'producers' and 'consumer' in 1932.  Supply-side was once known as 'horse-and-sparrow' during the robber baron era (1880 -1907 approx) because if the horse is given plenty of oats to eat it will leave some behind in its droppings for the sparrows.  Take that, you people.

      "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

      by leftreborn on Sun Aug 19, 2012 at 08:46:58 PM PDT

      [ Parent ]

      •  The game, the contest... (10+ / 0-)

        Of capitalism is one essentially of winners and losers.  Left to it's own devices, eventually the population of winners shrinks.  Rarely do the losers get the same opportunities as the winners do, so the contest sets winner vs winner.  16 becomes 8, 8 becomes 4, 4 becomes 2 and so on...  

        Think of a demolition derby, if you will...  Because these contests happen generally unrestrained and without order.  Think of the gated fence and wall that surrounds the derby as the market.  Eventually, through ingenuity, engineering and skill a single car is left - the final winner.

        Economists call this process consolidation.  The natural result of consolidation is the condensed, accelerated collection of capital (more money is collected).  Seeing that the goal of executive leadership that governs a single "player" in the game is to increase the value of said "player" it governs, as it rotates resources through it's process it retains a portion of said resources in the form of monetary credit.  As the worth of the "player" is increased, the owners of the player transfer that wealth into their personal holdings.  This wealth accumulation - it accumulates out of the reach of the losers (if you will).  The amount of resources (money) available to everyone else shrinks.  

        That's not trickling down.  That's absorption into stagnant wealth.  Keynes called that a "leakage".  One way of arresting some of the leakage is to tax that absorption process and divert some of the absorbed resources towards things the "losers" need - like infrastructure, law enforcement, healthcare and education.  The natural result of redirecting resources away from absorption and towards the public good is that those resources are put back into play - because "losers" (or "less-efficient winners" if you want) have much slower rates of wealth absorption.  Those resources cascade through the market.  Keynes called that a multiplier.  Often they go right back to the "more efficient winners" and cycled through the distribution process again and again.

        If the game arbiter decides little or no taxation on wealth absorption is necessary, then the choice becomes to either starve out the losers (ouch) and shrink the game or make more resources (print money).  The latter choice creates inflation (wealth is worth less because money is more abundant).  Then when inflation happens, certain players can intimate that demand is too high (too many winners, not enough losers) when that isn't the case at all.  The former is called recession (or sometimes depression).

        The whole notion that the game becomes most perpetual when wealth absorption stops getting taxed for the public good and the rules governing fairness, honesty and safety are removed - is incredibly (and very purposefully) disingenuous.  

        Obviously that lie was created by the guy who is getting his condensed accelerated wealth absorption taxed.  He likes winning.  He doesn't think it is fair that he has to share with everyone in the game when he wins.  He is blinded by his own success, apparently.  It's simple calculus he refuses to admit to himself, a convergent series, more precisely.  Since has has plenty of resources to spare - he can pick and choose who he shares with and do a quid pro quo: "You lie for me, I'll share with you."  

        For the big winner, its a matter of opportunity cost.  Picking and choosing who to trade resources for lies with requires only a fraction of what is required to keep the game perpetual and safe for the public.  

        Some of us dirty losers see the entire game for what it is and know what needs to be done to keep it as perpetual (stable) as possible.  We know the liars are liars.

        Are there no prisons? No workhouses?

        by meatballs on Sun Aug 19, 2012 at 11:14:54 PM PDT

        [ Parent ]

      •  Supply side is a hoax. (6+ / 0-)

        In real life, the Reagan administration oversaw a huge increase in deficit spending, govt spending overall, and tax cuts. His program was completely Keynesian.
        "Supply side" was, as Reagan administration Budget Director David Stockman said at the outset, a Trojan horse for tax cuts for the rich.

      •  You're forgetting (2+ / 0-)
        Recommended by:
        Apost8, meatballs

        those who were brainwashed by those benefiting from supply-side. If the only supporters of trickle-down theory were the 1%, there would be no support at all!

        I recall seeing a meme floating around the internet of Bush Sr. and other Republicans having wine. The caption read "We told them wealth would trickle down!" They were all laughing.

  •  Unfortunately, We Don't Have FDR Now (5+ / 0-)

    When we need him the most.

    Instead, Pres. Obama seems to agree with the anti-Keynesians that cutting federal spending is important right now and he has done just that by reducing the federal work force.  He started talking about the federal government's need to tighten its belt back in April of 2009 when the Great Recession was at its nadir.

    FDR had a much better understanding of economics and government.

    •  We have FDR in his words and in audio and video (2+ / 0-)
      Recommended by:
      eztempo, sponson

      recordings that survive.  I enjoy his theatrical speaking style even though it sounds very dated.  He used it to great effect.  Few people could get away speaking like that.  It only works if the speaker has something of consequence to say.  Which he did.

      I make it a practice to never criticize President Obama in public.  I would defeat my own purpose if I did that.  As much as I'd like a President whose policies match my own agenda perfectly, I recognize that the executive branch is supposed to preside over all Americans.  Obama pursued that tradition as far as he needed.  

      Now, he uses a line often in his campaign speeches about the failure of "top-down economics."  He made the tax code more progressive by extending it at the lower end so that some low-income earners benefit from a negative effective tax rate.  For example, $2000 in child tax credits has been available to those who qualify with a household income under $110,000 and two dependents under age 17.  Some low-income earners had to forego the full credit because they didn't have $2000 in tax liability to apply it against (after other deductions and credits.)  With Obama, it was made refundable.  If there isn't enough liability to absorb a $2000 credit, the difference is paid and it creates a "negative tax liability."   This type of policy enrages some people who label it socialism though they don't seem to mind socialism if it's for the rich.

      Obama reminds me of a line from the I Ching, Chinese philosophy, that says, "Hide your brilliance like a lantern under an overturned bushel."

      "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

      by leftreborn on Sun Aug 19, 2012 at 09:14:22 PM PDT

      [ Parent ]

    •  A Forgotten tenant of Keynesian Economics... (10+ / 0-)

      Save for a rainy day.

      It is extremely important during times of economic expansion that the Government actually run budget surpluses and pay down any outstanding debt.

      That we've failed to do that except for a few short years during the Clinton era is why we're in the debt debacle that we're in.

      We fail to do that because we've cut our taxes significantly and more importantly, we've cut a number of foundational taxes designed to rebalance the distribution of wealth.

      Estate Taxes were discontinued under Bush and they may or may not come back. These are essential to making sure that wealth does not continue to flow to the top.

      Excess Retained Earnings taxes - these were designed to force corporations to either invest in capital expenditures and Research and Development  or dividend their retained earnings so they can be taxed.

      Capital Gains taxes, are at an ultra low rate these days, they should return to be comparable to ordinary income.  This is why Mitt only pays 13% in taxes.  

      It's going to take retaining the White House AND capturing back the Congress to get this done.

      --Mr. President, you have to earn my vote every day. Not take it for granted. --

      by chipoliwog on Sun Aug 19, 2012 at 09:32:28 PM PDT

      [ Parent ]

      •  That's the key to Keynes. (10+ / 0-)

        When I talk Keynes and people ask me if I'm nuts I have to remind them that deficit spending wouldn't have been normalized if we followed Keynes for the last 32 years instead of Voodoo Economics.

        The Congressional Budget Office produced a report in June
        to review what it projected in 2001 for the ten-year period 2002-2011.  It expected $5.6 trillion in cumulative surplus during that period (which would have covered most if not all of the debt at that time.) Instead there was $6.1 trillion in cumulative deficits which were added to the debt.  The CBO pointed out that the numbers reflect a swing of $11.7 trillion from what it projected, and it traced the sources of the discrepancy.  

        It's good reading if you know anyone who doubts the magnitude of the disaster known as the Bush Administration.

        http://www.cbo.gov/...

        "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

        by leftreborn on Sun Aug 19, 2012 at 10:27:58 PM PDT

        [ Parent ]

  •  Thanks (2+ / 0-)
    Recommended by:
    leftreborn, eztempo

    Great post.  Well done!

  •  Very interesting diary (3+ / 0-)
    Recommended by:
    leftreborn, Gorette, happymisanthropy

    I'm not an economics wonk and it makes things easier to understand for me. I wonder, though, if you could see your way clear to providing links?

    Thank your stars you're not that way/Turn your back and walk away/Don't even pause and ask them why/Turn around and say 'goodbye'/Just wish them well.....

    by Purple Priestess on Sun Aug 19, 2012 at 09:31:38 PM PDT

  •  Here is why tax breaks for the 1% don't work. (14+ / 0-)

    . I will also explain what might generate more jobs.
    Low tax rates do not cause anyone to invest, because just holding the profits costs the low tax percentage, and there is NO RISK.  At a 10% tax rate, $1.00 profits pays $0.10 tax, and owner keeps $0.90.  At ZERO tax rate, as Paul Ryan would institute for capital gains, there is ABSOLUTELY NO INCENTIVE to invest any of the gains in a business, when you can spend them on YOURSELF, and pay NO TAXES.

    During the Eisenhower, Kennedy, Johnson and Nixon Administrations, the top individual income tax rates ranged from 92 % in 1952 to 70 % in 1980, and the economy grew.  Link:  http://www.ntu.org/...
    In the same time period, the top corporate rates ranged from 52 % to 46 %.  Link: http://www.taxpolicycenter.org/...

    HIGH tax rates, (say 50% or above) would force a business owner to make the following decision:
    A. Hold $1.00 in profits and pay $0.50 in tax, keep $0.50; or
    B. Invest some of the profits in growing the business (new equipment, additional wages, additional advertising, whatever additional business expense), deduct the expenses from profits, and pay taxes only on the remaining profits.
    Example: $1.00 in profits, less business expense of N percent of profits (say N = 30%) leave $0.70 taxable. Tax at 50% = $0.35. That leaves $0.30 invested (tax free) plus $0.35 cash profits remaining.
    Investing all the profits (assuming the owner takes a salary which is already subtracted from profits) runs the business tax bill to ZERO.
    Pass through entities (S Corps, partnerships, LLCs) already pay no business tax.  All the profits flow through untaxed to the owners.  Investing some of the profits cuts the owner's personal tax bill in such an instance.

    So, to summarize:

    If you are in the 1% and make a bundle and you get a tax cut, there is no risk involved with putting aside the EXTRA money the tax cut provides in as RISK-FREE a vehicle as you can find (for example in a nice, safe investment like a T-bill or a tax free government guaranteed municipal bond).  Why invest in a business unless the investment will generate additional income?  But a business investment involves RISK.  You might invest in a loser. (Facebook stock, anybody?)  If there is insufficient demand, there is no reason at all to invest in business activity, if you will increase your risk.

    However, if tax rates are raised, there is an incentive to shelter income or profits by investing that extra money in business activities (i.e., buy property, buy equipment, hire more workers, etc.) because only PROFITS net of business expenses are taxed.  But then you take on RISK.  The question then becomes whether the tax savings are sufficient to take on the extra risk of the investment. But at least there is a reason to look for some useful application of the money, because letting it sit as profits only guarantees that you are subjected to taxes.  

    The higher the taxes on income and profits, the bigger the incentive to invest.
    The Republicans have their argument UPSIDE DOWN. Under their argument, the owner wins, and does not have to invest ANYTHING to keep his profits (which generates NO JOBS). And THEY want to run the business tax rate to ZERO.

    "The battle, sir, is not to the strong alone; it is to the vigilant, the active, the brave." -- Patrick Henry

    by BornDuringWWII on Sun Aug 19, 2012 at 10:26:56 PM PDT

    •  Republicans are bluff and bluster. Nothing else./ (2+ / 0-)
      Recommended by:
      kyril, Orinoco

      "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

      by leftreborn on Sun Aug 19, 2012 at 10:41:11 PM PDT

      [ Parent ]

    •  Ancient history (2+ / 0-)
      Recommended by:
      congenitalefty, Calamity Jean

      Back in the days of high marginal tax rates, business executives did not give themselves bragging rights on their income or stock options. They gave themselves bragging rights on how many employees they supervised. A boss with 1000 subordinates was 10 times better than a boss with 100 subordinates.

      Middle managers looked for ways to add jobs to their departments, sometimes adding product lines or improving sales and marketing, sometimes poaching work (and employees) from another middle manager.  

      This was called 'empire building' and was frowned upon when it resulted in inter-company poaching and infighting. But it seems it had much more social utility than attempting to line one's pockets by draining a pension fund or off shoring production. After all, a lot of 'empire building' was in fact actual job creation.

      "The problems of incompetent, corrupt, corporatist government are incompetence, corruption and corporatism, not government." Jerome a Paris

      by Orinoco on Mon Aug 20, 2012 at 11:42:13 AM PDT

      [ Parent ]

    •  Long gone are the days (3+ / 0-)

      Where CPAs go to business owners and say "You gotta spend some money on your company or you are going to lose it in taxes."

      At the Bush Tax Rates - such opportunity costs are mitigated.

      Are there no prisons? No workhouses?

      by meatballs on Mon Aug 20, 2012 at 02:38:30 PM PDT

      [ Parent ]

  •  There is no country (11+ / 0-)

    in the history of the world that has a large middle class that did not practice the following four things.

    1. Highly progressive income tax
    2. Financial regulations
    3. Fair labor laws
    4 Keynesian economics

    That has been the Human history

    Join the War on Thinking. Watch Fox News- John Lucas

    by Jlukes on Mon Aug 20, 2012 at 02:53:16 AM PDT

  •  This is the key point (10+ / 0-)
    If Republicans want to chalk up full recovery from the Depression to the War, it still goes to show that a nation can indeed spend its way out of economic problems.  What was the war, after all, if not a huge government-sponsored economic stimulus project?
    The war was Keynesian economics in action. It was massive (massive) government spending.

    Any time they try to make that argument, they're making our point for us. They just have to be brought to understand that there's nothing particularly special about war spending - in the absence of the war, we could just as well have dumped all the cash we spent on it into infrastructure projects, research, mass direct employment of a huge proportion of the country's young men and women in some sort of public service project, and mass college scholarships and subsidized home loans to follow it.

    The economic result would have been exactly the same (or possibly better, since we could have directed the money at the sorts of research/infrastructure/manufacturing that would spur innovation and reduce the costs of doing business, rather than blowing stuff up. And we'd have saved the costs of war casualties.)

    Anyone who thinks the war cured the Depression should be demanding huge, massive, enormous spikes in government spending. And if they really hate domestic infrastructure spending that much, we could instead do some other sort of massive project. Dump a few trillion dollars into the space program. Do you know what NASA could do with that kind of cash? They got us to the Moon in the '60s on 33 million/year (2007 dollars). Hand them a world-war-sized budget and they'll be building f'ing colony ships.

    "Let’s just move on, treat everybody with firmness, fairness, dignity, compassion and respect. Let’s be Marines." - Sgt. Maj Michael Barrett on DADT repeal

    by kyril on Mon Aug 20, 2012 at 08:32:25 AM PDT

    •  Wouldn't it be nice (3+ / 0-)
      Recommended by:
      IreGyre, Hirodog, kyril

      if we could send all the wingnuts to colonize Mars.   I was talking with one of them not long ago about NASA.  I find it astonishing that the first moon landing was in 1969 and only 12 years later Reagan proclaimed in his first inaugural that government isn't the solution to our problem, government is the problem.  This wingnut tried to claim that it was private corporations that got the US to the moon.

      "Those who deny freedom to others, deserve it not for themselves." - Abraham Lincoln

      by leftreborn on Mon Aug 20, 2012 at 09:44:29 AM PDT

      [ Parent ]

  •  I agree with you. (10+ / 0-)

    Keynes made his reputation as a British delegate to the reparations discussions in the aftermath of WWI. He was appalled at the vengeance that the victors forced on the losers. When he returned to England he wrote a book in which he predicted that the losers of the war had no hope of ever making the heavy, punishing payments and this would ultimately lead to another war. He was right.

    The punishing philosophy of the elites at that time imposed extreme austerity on the losers which was a real-world economic experiment. It proved incontrovertibly that austerity does not work and cannot work. Keynes was right then and he is right now.

    In addition, F. A. Hayek was an admirer of Keynes in those postwar days. He saw first hand the ruination of his own family and the hyperinflation that destroyed his nation, Austria. These early experiences burned into his soul a hatred for inflation and his economic theories were primarily aimed at preventing inflation. He was a one trick pony, and his followers have one track minds as well. Hayek’s theories have no tools for dealing with the kinds of economic crises that we have faced in the last hundred years. He believed that the only way out of a depression is to try to get through it as best you can. He was one messed up guy, understandably so. His formative years were desperate and terrifying in which he saw many loved ones suffer enormously. My parents and their siblings went through similar hardships in their early years, but they believed in Keynesian stimulus even though they did not know his name. They saw what FDR’s policies did.

    Hayek was in a tough spot. He wanted to achieve success as an economist, but he agreed with Keynes. That would not make him famous or rich so he came up with an economic system of his own design, and the late Milton Friedman embraced it, because he also wanted to be rich and famous. But, and this is an important but, if economics has any elements of scientific processes that can be applied to solve macro problems it is the processes of Keynes, not those of Hayek. If Keynes is right then Hayek is wrong. If stimulus works then austerity does not. Just look at Hoover and his policies, and remember the fate of the nations who lost WWI. Austerity on a grand scale was forced on them and they did not recover until the victorious allies of WWII gave Europe a huge stimulus through the Marshall Plan and we rebuilt Japan, another stimulus.

    So, I challenge anyone who believes in Hayek’s ideas to provide an example where such policies have ever worked. Keynes was right then, he is right now, and he will always be right.

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Mon Aug 20, 2012 at 09:00:04 AM PDT

  •  The American public will never learn this (3+ / 0-)
    Recommended by:
    leftreborn, Hirodog, a2nite

    as long as it's called Keynesian economics. We need to craft a shorter, more accessible term that stacks the deck against the opposition like 'tax relief,' etc.

  •  Correlation is not causation (0+ / 0-)

    Some of the most fun times in your life are had when you are spending yourself to death on your credit card. Then bankruptcy comes and you're living on ramen.

    The piper always gets paid.

    (-5.50,-6.67): Left Libertarian
    Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

    by Sparhawk on Mon Aug 20, 2012 at 05:54:07 PM PDT

    •  On the flip side (0+ / 0-)

      Generally every entity takes on debt in order to grow.

      It's a business axiom...  You know risk and all that.  

      You see the idea is you borrow to invest in an asset that can be used to make revenue above and beyond the cost of it's debt and interest.

      So when applied macroeconomically, the idea is to build something that gives you a return.  What you are building is an economy.

      Also...

      If you go broke and then do nothing - you stay broke plus interest.

      Are there no prisons? No workhouses?

      by meatballs on Mon Aug 20, 2012 at 07:59:57 PM PDT

      [ Parent ]

      •  We aren't doing that here (0+ / 0-)

        Medicare and SS are dead economic losses, not one iota of investment (I support these programs, but this is the reality).

        Defense and space have some investment value, but not a huge amount (better just not to fight wars).

        Police and fire are dead losses. Health care is mostly a dead loss. Fixing infrastructure is just a loss: you had a bridge before and now you still have a bridge.

        Where is all this supposed 'investment'?

        (-5.50,-6.67): Left Libertarian
        Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

        by Sparhawk on Mon Aug 20, 2012 at 08:15:48 PM PDT

        [ Parent ]

        •  The investment is (0+ / 0-)

          in the lowering of the static cost of living for the majority of Americans.

          The lower the median static cost of living is - the more the broad majority of Americans have to spend in the economy and the more vibrant the economy becomes.

          If the middle class (or what's left of it) has to spend larger amounts of its earnings on static costs (goods/services with extremely inelastic demand controlled by consolidated private interests) larger percentages of the economy will be siphoned into savings held by a very small percentage of the population (wealth disparity).  

          When the government defines certain services as serving the public interest and either flat out pays for them or subsidizes them - those costs are alleviated from the middle and poorer classes.  They are then, in turn, free to spend that discretionary money in the liquid economy.  More money is injected to the economy and less is lost to consolidated savings.

          This is macroeconomics.

          The "investment asset" is aggregate demand.  We're not talking about buying real estate or a physical implement seperately or together as a means of production.  What is happenning is that money gets dispersed in a different way - capital flows differently- in a way more suitable to keeping the economy stable and perpetual.  

          Are there no prisons? No workhouses?

          by meatballs on Mon Aug 20, 2012 at 09:31:21 PM PDT

          [ Parent ]

  •  See my signature (0+ / 0-)

    It truly astounds me how anyone could not be a Keynesian. An even basic understanding of economics should make anyone understand that modern "recessions" and "depressions" are entirely a result of under-utilization of capacity, whether that be labor, capital, land, technology, or skills.

    Keynesianism can indeed by criticized-- from an environmentalist standpoint. Our natural resources are limited.

    But the libertarians? The austerians? The Paulites? Their 'understanding' of economics is so childish, infantile, twisted, and almost horrifyingly wrong. And they believe in it so passionately. It really does come as a shock.

    "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

    by randomfacts on Mon Aug 20, 2012 at 07:38:34 PM PDT

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