Is Obama Really a Keynesian?

Posted on November 21, 2011 by Shout Bits

Last week, NPR concluded its series on influential economic philosophers with the left’s favorite son, John Maynard Keynes. Unsurprisingly, it was a fawning piece filled with left-wing Democrats voicing praise and allegiance. More interestingly, the piece flatly admitted that Pres. Obama’s policies are Keynesian – most left-wing pundits have declined to tie Obama’s philosophies with the largely discredited Keynes. Politicians and their backers shy away from tying themselves to polarizing figures like Keynes, Hayek, or Friedman because those figures’ stances are inflexible; politicians like to twist with the winds of populism. Obama uses code words for Keynesianism and socialism, but won’t put the actual words on his teleprompter. So, NPR says Obama is a Keynesian, but is he really?

Keynes’s main theory was that, during recessions, government spending and fiscal looseness could engage unused resources so that they would themselves consume other resources (i.e. government intervention to ‘prime the pump’ of an economy). Likewise, when resources are nearly fully employed, the government should cut its spending and tighten fiscal policies to slow an overheated boom. Keynes saw the government as a rudder to a nation’s economic ship, never letting the economy fall too low or overheat into a bubble.

Of course politicians of all stripes ignore the Keynesian dictate to cut spending during booms. Instead, as Pres. George W. Bush put it in 2000, “We will use these good times for great goals.” Bush then went on the greatest spending orgy in US history. Politicians use Keynes as a foil to enjoy their wont – increasing spending during all economic seasons.

The bottom fell out of government stimulus in the real estate and financial sector just in time for Obama’s inauguration. True to his ill-disguised Keynesianism, Obama called for a massive stimulus. Stimulus would put the economy to right by putting America back to work. Of course the stimulus was a failure. The Weekly Standard
reported that for each new job created, the stimulus spent $278K. Economic growth, already weakly positive by the implementation of the stimulus, remained weakly positive. Unemployment went up, not down.

What happened? For starters, Keynesianism is a failed philosophy. Stimulus simply directs productive assets toward unprofitable ends. The classic example of make-work stimulus is employing dozens of workers to mow a lawn with scissors. While one man could mow the lawn with a tractor, and three men could mow the lawn with push mowers, 100 men could mow the lawn with scissors. Make work suggests that these are improvements in employment, but rational economics seeks to maximize output, not employment. Employment is a byproduct of economic output, not the other way around. When protestors shout ‘people before profits,’ they use code words for make work programs.

Just as important, Obama never really sought to stimulate the economy. The stimulus money, like most government spending, went to political paybacks. Obama earmarked union bailouts and green energy initiatives. Indeed, in order to receive much of the stimulus, States were required to commit to future elevated union spending even without Federal support. Unions, by their nature, reduce employment. They seek to force competition aside to elevate their own compensation, thus lowering both total output and employment. Funding union jobs is defunding the broader employment base. Likewise, green jobs are anti-employment. Green energy seeks to replace perfectly useful regular energy, only with higher prices. Such drains on disposable income only reduce commerce and employment. Not only does stimulus not work in general, Obama’s stimulus was actively anti-employment.

Keynes was a misguided elitist who saw those of his order as generals marshaling the output of poor ignorants who could not fend for themselves. Central planning, intervention, and control are the tools of a Keynesian, but they are also the tools of cynical politicians for whom these tools are also their life goals. Perhaps Obama the Keynesian is too kind a moniker. NPR may as well have called him Obama, the cynical crony politician.

Worker Participation Is The Writing On The Wall

Posted on November 15, 2011 by Shout Bits

We’ve been a little bit lazy, I think, over the last couple of decades. – Pres. Obama

Pres. Obama was talking about his government’s laziness in attracting foreign investment (hint Mr. President: less government efforts actually attract investment, not more), but he may as well have been talking about the US in general since he took office. Of course Americans are far from lazy, they just respond to market signals like taxes and regulations, and the percent of adults who now work or wish to work portends doomsday.

Worker Participation Rate (%) By Year (1976-present)
Source: Bureau of Labor Statistics

Worker participation is the percent of adults (16 and over) who are either working or are seeking work. As the chart shows, workforce participation drops off during recessions because some people give up on seeking work and either retire or join a shadow unmeasured economy. Significant drops in participation can be seen during the 1980-82 recession, the 1990 recession, and the 2001 recession, but they all pale to the collapse of worker participation over the past three years. In all the years measuring this metric, there has never been such a dramatic collapse in the percent of people who contribute to the measured economy.

The difference between an adult who works and who does not is the story of the US’s recent troubles. Workers pay taxes and consume fewer public resources like Food Stamps, Medicaid, Section 8, and Unemployment Insurance. Workers support the retired through Social Security and Medicare taxes. The arc of worker participation over the past 35 years mirrors the rise and fall of US prosperity and global standing.

The dramatic rise throughout the ’60s and ’70s reflects women joining the workforce, and followed the Regan revolution of unprecedented prosperity, basically paying for an ever growing government budget and runaway entitlement programs. However, worker participation fell off a cliff almost immediately after Obama took office. Possibly a coincidence, but his brutal FDR-like rhetorical assault on private enterprise, his hyper-regulatory legislation, and his partisan pro-union policies sent a message to employers to stop hiring.

This is not to say that people outside of the workforce do not contribute. For example, a dual income family that once used daycare or a nanny for their children might decide that the mother’s after-tax income would barely cover the cost of these services. When the mother decides to leave the workforce, she takes the worthwhile job of daycare or the nanny, but now all of these parties are not reporting income and paying taxes. By burdening businesses with regulation, taxes, and now the mandate to provide health care, many people find a way to get by outside of the workforce system.

The baby-boom generation that brought the US such fiscal gems as Medicare is retiring, creating a powerful drain on worker participation. The boomers are about a quarter of the US’s population, and without their employment, the US simply cannot pay its bills. Either boomers need to work longer or the US needs qualified immigrants in huge numbers over the next decade; without a workforce to support the retirement of the boomers, the US cannot survive as is.

The US’s worker participation rate is falling to that of socialized Europe. What the world generally sees as European laziness may actually be a rational response to socialism that discourages workforce participation. The US federal debt is likewise approaching that of Europe’s failed economies such as Greece and Italy. US debt is as much caused by overspending as it is anemic economic growth, much like Europe. Rather than a warning that anti-capitalism and over regulation lead to ruin, Europe’s example is a role model for Washington and the Obama administration. If the US’s economy ever rights itself, look to worker participation as the key measure of the turnaround.

RIP 60 Minutes

Posted on November 7, 2011 by Shout Bits

Last week Andy Rooney passed away after living a full, if curmudgeonly life. Rooney was, of course, famous for his monologues that concluded CBS’s weekly program 60 Minutes. Many people tolerated the boredom of the main program just to hear what triviality would set off Rooney. Rooney was the cranky neighbor, except viewers got him in manageable doses. Unfortunately, 60 Minutes and its producers represented the worst in Old Time Media bias with their general disgust for US capitalism. Rooney was the comic relief that, at the end of each show, soothed people’s skepticism and brought them back for another dose of indoctrination.

The 60 Minutes formula was fairly simple: Hit US industry for being competitive. Blame capitalists for the fact that life is hard and unfair. Give prime-time exposure to spokespeople for the outrageous extremes of left-wing viewpoints. Cut industry response time so short that their point seemed trivial. Finally, most programs included a puff piece about a celebrity doing good or an athlete overcoming a tough childhood – a tear jerker to loosen up viewer skepticism. Mix it up, but always one or two tough exposes on companies that should have somehow focused on more than earning a profit.

There was competition for 60 Minutes, of course, such as ABC’s 20/20, but CBS had the more popular formula with Rooney. 20/20 was more balanced with John Stossel’s migration toward capitalist champion, but CBS had Rooney – the lollypop after visiting the dentist. Even when Rooney made mildly racist comments in 1990 and 1997, CBS knew it could not afford to let him go. Rooney was 60 Minutes’s clandestine backbone; he was the foil that allowed 60 Minutes to viciously attack capitalism and conservatives while maintaining a prime-time slot.

The loss of Rooney is not 60 Minutes’s only problem. Sensationalism and lack of balance is a dark art that cannot survive in the light provided by internet journalists. 60 Minutes II and Dan Rather were surprised to learn that their claims would be scrutinized when they presented the fake George W. Bush National Guard letters. Not only do internet journalists prevent lies from standing, they also scoop programs constrained by weekly scheduling and high production values. 60 Minutes never covered the Kelly Thomas story – a police brutality case custom made for their sensibilities. Instead, the story was developed and broken by local internet journalists. Again and again, the real news is on the internet and beyond the control of the OTM

To survive, OTM programming must either offer timely reporting or a unique perspective, and 60 Minutes offers neither. Not only do internet journalists debunk blatant and defamatory lies, they get the news out weeks before the OTM can produce a slick hack job. US consumers and voters are fortunate that 60 Minutes will never recapture the number one rating it enjoyed while fraudulently manufacturing defects in Audi cars. The old formula of hit pieces, puff pieces, and Andy Rooney will never work again, so RIP Andy Rooney, and (hopefully soon) good riddance 60 Minutes.