The intellectual wellspring of so-called stimulus bills is the theories of John Maynard Keynes. Words like “pump-priming,” “stimulus,” and “expansionist” all relate to Keynes. In short, Keynesians believe that the normal business cycle can be managed by loose monetary policies and deficit spending during a recession. Likewise, restricting money and cutting government spending during a boom is advised, although politicians routinely ignore that side of Keynesianism.

Through such interventionist policies, Keynesians hope to abolish recessions and create stability. Government intervention is meant to act as a rudder, keeping the economy on course. Unfortunately, in all the decades of such experiments, Keynesianism has never worked. Most clearly, the US Great Depression lasted until at least 1938, and probably until 1941, despite deficit spending even greater than the Obama plan. What Keynes did deliver is creeping socialism. With each successive recession or even minor slowdown, politicians increase spending, pick business winners and losers, and generally tighten their grip over the private sector. Whether politicians’ motives are wholesome or just Emanuelesque exploitation of crises is largely academic.

That is not to say that the idea of an economic rudder is worthless. As usual, Milton Friedman has the answer. Friedman observed that consumer spending is uncorrelated with economic growth. Consumer spending does not increase as fast as the GDP during a boom, nor does it fall much during a bust. To allow this, the savings rate rises and falls with GDP growth. Friedman observed that consumer spending only increases once consumers perceive that their buying power has reliably increased. This sounds a lot like the Keynesian rudder, except consumers are vastly more careful of where they spend their money. Consumer spending is more efficient that government spending because consumers want value for their dollars, and politicians simply want power.

Better still, the consumer spending rudder is much larger than the Keynesians’. President Obama threw $785 billion at the current recession, while consumer spending represents 70% of the nearly $14 trillion US economy. No wonder a few far left economists say the Obama plan is too small; even if it were as efficient as consumer choice, it is still one twelfth the size of consumer spending. When people talk about the resilient US economy, they are mostly referring to the stability of consumer spending.

Interestingly, consumer spending is one of the reasons why FDR created the Great Depression. FDR’s failed attempts at micro-managing the economy caused a deflationary spiral that harmed consumer spending for decades to come. Other recessions, such as the “hungry” 1840′s, also correlate with the lack of stable consumer spending.

And now for the good news: consumer spending is rising. For the second month in a row, spending has increased, even as household income continues to slide. This is why the smart money suggests the recession has bottomed out (as evidenced by the recent broad rise in US securities). The natural sequence of economic recovery is GDP growth, later followed by higher employment, and later still higher real wages.

Still, politicians will clamor to “do more” to end the recession, even though it will probably be well over by the time the WPA shovels hit the dirt. So, if you feel a bit of springtime optimism, indulge yourself a little, for your feeling may be right. Also, tell the politicians that Keynes is no longer needed.

Since the posting of Stop Talking Down Business, Mr. President, part 1, Pres. Obama has announced his tepid opposition to the punitive AIG bonus tax bill working its way through Congress. The bill would tax bonuses paid by bailout recipients at up to 90%.

Thank you, Mr. President, you made the right call here. Furthermore, Obama’s general statement that the tax code should not be used to punish came right out of the free market handbook.

Mr. President, please keep the faith when considering your punitive new taxes on high earners. Government audits show that higher tax brackets will not meaningfully help close the budget deficit. Indeed, Obama’s near doubling of the capital gains tax will probably reduce government revenues.

If a tax adds little to nothing to the government coffers, its only purposes can be social engineering and class warfare. Let’s hope Obama has turned the corner on this very ugly aspect of Democrat politics.

The other thing that I would like to suggest to the whole business community — I know that there are some businesses that, themselves, are faced with troubles and can’t do this, but if a lot of businesses would take a look and see if they could hire just one person, it’d be interesting to see how much we could reduce those unemployment rolls. And there must be some that can’t, I know, because of their own troubles. But there must be others that could probably do even more than one — but if everyone would just simply look at it from the standpoint there are more businesses in the United States than there are unemployed.

• Ronald Reagan, December 23, 1982

The mainstream media – the only media at the time – lambasted Pres. Reagan’s call to arms for private business to help with the then serious unemployment problem. Relying on the private sector to solve society’s problems was the Reagan way, but an anathema to tenants of the ivory towers. Nonetheless, a recent Newsweek cover story suggests that Obama should do the same as Reagan: talk the US out of its recession. Reagan’s policies probably did more to help with the 1981-2 recession than his words, but he was the great communicator. While Obama lacks Reagan’s policy ethos (he fashions himself a pragmatist, A.KA. a finger to the wind populist), Obama is the great communicator of the left. That is why Obama should stop bashing AIG, and business in general.

Despite fashioning the language that allowed the AIG bonuses and signing it into law, Obama claims outrage. The AIG language was inserted entirely by Democrats without consulting Republicans. How the media allows people like Obama and Sen. Dodd to publically decry their own back room shenanigans is yet another case study in bias. Indeed why are Democrats and their media keeping this issue alive when all trails lead back to Washington and Hartford?

Obama can’t resist bashing AIG because it serves his strategy of keeping business on the ropes until they can be regulated into submission. Even though the AIG bonuses amount to 1/1000th of its bailout money, Democrat outrage keeps the door to new regulation wide open. Further, in this environment, lobbyists representing financial firms will fare as well Nazi cigarette manufacturing pornographers.

All this is part of the Emanuel doctrine of capitalizing on the crisis, but is it good for the economy? Of course not, and it is the exact opposite of the Reagan approach to his recession. Not only will the Obama government create all the new jobs, up to 3.5 million existing jobs will be “saved” by the government. By this twisted sound-bite, even if you have held a job for years, you still might owe it all to Washington.

People should question Obama and other Democratic leaders’ continued bashing of the economy and businesses when many leading indicators suggest things have already bottomed-out. This blog predicts that Obama will continue to bash business well after the recession by citing unemployment, which always lags a recovery. Such is the sad strategy of government expansionists operating free of any checks to their power.