Cato Institute? Seriously?
The arguments in the video are a complete joke. The guy does have a set of facts, but he cites them out of context and without a solid theory in place, and so he’s unable to grasp the relevant information. The result is a wankfest propaganda piece.
At about 1:30 he claims that Keynesianism can’t work to put money into the economy without taking money out of the economy. After all, the government has to borrow money (i.e. take it out of the economy) in order to spend it, right? Except, of course, that he doesn’t understand velocity, which is how fast money changes hands. If the government borrows 1 dollar and spends it, and the person who receives that dollar spends it, and then the person who receives that dollar spends it, then the net increase to the economy is much more than just the $1 borrowed. This is called the fiscal multiplier. Even without the multiplier, though, a dollar borrowed and used for real production will contribute more than a dollar stuck in a bank vault or hidden in a mattress.
This is stuff you learn in undergraduate economics, 101. But we can’t expect this sort of knowledge from a partisan hack.
This sort of nonsense continues. He claims that politicians are aware now that you can’t just print money. He doesn’t seem to know that the politicians gave away their control over the money supply a long damn time ago, to the Federal Reserve. He also doesn’t seem to understand that expansionary monetary policy is also an appropriate response in certain situations. Fed Chair Ben Bernanke has in fact been “printing” money. He’s created over a trillion new dollars so far, ex nihilo, to combat this crisis, precisely for the purpose of getting money to move again. The Cato guy doesn’t even deal with that sort of response because he’s too ignorant to know about it.
He then cites the example of Hoover as “Keynesian” when Hoover raised taxes. Keynesian is about increasing the budget deficit, not balancing the budget. Tax increases are not part of the deal. FDR also fell prey to the same budget balancing desires with higher taxes, and economists state damn near unanimously that those tax increases were a mistake. They were unequivocally contrary to Keynesian policy. So why include the tax increases in a critique of Keynesianism? Because the Cato institute guy is a partisan douchebag who’s out to repeat conservative bugbears about high taxes and government spending. The actual economics is irrelevant to him.
Again, there are real facts here, but no coherent whole. It is true that Hoover sustained a budget deficit, but it wasn’t a large or well targeted budget deficit. Much of it was the result of the economic downturn, and whatever additional spending he approved was largely outweighed by his tax increases, not to mention the idiot tariffs. FDR was better, but he still wasn’t perfect. He did increase government spending, but not by nearly enough. Here’s a chart I provided in another thread, and from it you can easily see how comparatively little the budget deficits increased under FDR until WWII got us off our asses. WWII, of course, was the real example of large Keynesian stimulus, but that is of course ignored completely.
And in what might be the most intentionally misleading fact of all, the Cato guy then averages unemployment over the entire 1930s (including before Roosevelt took office) in order to claim that the Keynesian spending didn’t cut employment. What a fucking joke. These people are paid to lie, and that’s what they do. Wealthy conservatives have an incentive to muddy economics discussions with misinformation, and so according to economic theory itself, a supply of lies will be created to meet this demand.
Absolutely I can. (Although I don’t see this so much as a measure of bias as a measure of basic understanding of theory and history.)
Early on, economists used to try to balance the regular business cycle with timed increases in spending. However, there is a lag between noticing a problem and coming up with the plan to stop it, and there’s another lag between implementing a stimulus and seeing the results. Ordinarily recessions are typically too short to justify Keynesian stimulus. By the time the stimulus hits the economy, it can’t help any more, and then you’re stuck with all the costs and none of the benefits.
Incidentally, this point is prolly one reason why Sam Stone is confused about Keynesianism. It was actually used for a long time as an excuse to balance the business cycle like this. It makes sense on the face of it. Keep in mind, the theoretical mechanism that Keynes developed could be used for any kind of recession. The problem is that it’s incredibly difficult to time it correctly. So even though it would appear to be a proper solution for every recession, that’s not actually case.
The monetarists had their problems, but they were right in this regard. Monetary policy is usually more reliable than fiscal policy. Why use a fiscal stimulus when the Fed can just cut interest rates?
Even when dealing with this note of caution, though, what we’re dealing with now is not a small downturn. It’s a big damn recession, potentially a depression. The Fed has already cut short term interest rates to near zero. Thankfully, though, we have a roadmap out of this mess. We can still rely on a big damn stimulus, if we get it done right. The debt will suck, but we’ll survive. The US debt-to-GDP ratio got up to 120% during WWII, and yet economic growth was relatively strong in the 1950s and 60s. We just need to stomp on the debt once the present crisis is over. It’ll be a pain in the ass, but we should manage.
