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September 3, 2011
Conservatives vs. the Keynesian Purists
By J.D. Thorpe
With a stagnant economy and bad economic news surfacing almost daily, liberals continue to cling to the strategy of ignoring substance in favor of demonizing conservatives with labels like "extremists," "radicals," and "free-market purists."
But consider the following: over the past century, the U.S. government has grown ever closer to the Hobbesian vision of the Leviathan state. Through incremental expansion, the size and scope of government has exploded. Since 1920, total government spending has grown as a share of our economic output from 11 percent to 43.9 percent in 2010.
When conservatives oppose expansion of government, they aren't behaving as rigid doctrinaires; they simply want to return to the constitutionally limited government our Founders created.
And to achieve this objective, it is essential to oppose the further growth of government and work to eliminate government's superfluous parts.
However, there has been a growing trend to label conservatives with the misnomer "free-market purists" -- a notion devoid of intellectual honesty. In order to truly qualify as a free=market purist, one would have to accept the basic premise of anarchism -- a society without a government that is constituted entirely by voluntary decisions.
This description runs contrary to conservatism. Conservatives hold free=market principles as a general rule -- allowing for the existence of a limited number of public goods such as defense, law enforcement, court systems, etc. They want limited government, not the elimination of all government.
If you move beyond the political rhetoric and public relations spin and delve into the deeper motivations of both sides, it becomes apparent that the current crop of liberal Keynesians are the real extremists and purists.
Just before the U.S. had its AAA credit rating downgraded to AA+ by Standard and Poor's, New York Times columnist Paul Krugman said, "We shouldn't even be talking about spending cuts at all now."
This is an astonishing admission by Krugman since S&P established a $4-trillion deficit-reduction target for the next 10 years in order for the U.S. to avoid a downgrade. This means that short of pushing for a $4-trillion tax hike over this period, Krugman's plan inevitably would have led to a downgrade.
And although it would have been impolitic for him to speak as candidly as Krugman, President Obama's initial position on the debt ceiling was in sync with Krugman's -- asking for a "clean bill" with no spending cuts attached.
Obama shares Krugman's convictions, but as a skillful politician and rhetorician, he is able to portray himself falsely as ideologically pliable.
But Obama is far from a pragmatic Clintonian. Preliminary reports suggest that Obama is already abandoning the deficit-reduction rhetoric he used during the debt ceiling discussions and will push for further stimulus measures as part of his new jobs plan.
The plan, which will be released after Labor Day, will apparently call for a two-year extension of long-term unemployment benefits, and $109 billion in new spending for road and bridge construction.
This new proposal shouldn't come as a shock. For Keynesian purists, the only options available to them during a bad economy are spending money and printing money.
And over the past 80 years, Keynesians have consistently followed these prescriptions to the detriment of the economy.
In an attempt to validate their theory, many liberals, like Krugman, engage in revisionist history of the Great Depression. In 2008 Krugman opined in The New York Times that "[n]o modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession."
Yet the facts do not support this statement. Between 1929 and 1932 -- the years of Hoover's presidency -- total federal spending increased and federal spending as a percentage of GNP nearly doubled. During this period, the public debt rose from $16.9 billion to $19.5 billion.
As a result of the terrible government fiscal situation under Hoover, part of FDR's platform in 1932 was to balance the budget.
Of course, in practice, FDR didn't live up to his fiscal responsibility rhetoric. In the pre-war stage of his presidency between 1933 and 1940, federal spending spiked twofold, and the public debt more than doubled to $50.7 billion. And despite all of this deficit spending, the economy remained in abysmal shape with an unemployment rate of 19 percent as late as 1938.
Unlike the depression of 1920-21 which ended in 18 months, the Great Depression was exacerbated by the overreaching Keynesian policies of the Hoover and FDR administrations.
However, Keynesians purists will never concede that their policies are failures. And regardless of how bad the fiscal situation is, Keynesian purists will always support more spending. They have an inherent lack of faith in the private sector and by extension the American people.
In defense of the disastrous results of their policies, Keynesians offer mostly conjecture and counterfactual analysis. When confronted with the current 9.1-percent unemployment rate and the disastrous economic conditions, Krugman states that the stimulus and big-government spending programs weren't large enough. Along the same lines, President Obama and his administration often state that the economy would be much worse had they not passed the stimulus.
How else can Keynesians defend their policies in practice? It's hard to argue against the facts and the facts invalidate their policies. When the president took office, the unemployment rate was at 7.3 percent; now it's stuck at a rate that's consistently above 9 percent.
Obama faces a major dilemma as he prepares for his reelection bid. He can pursue the same failed Keynesian policies which will exacerbate our debt crisis and cause our nation to continue its trajectory towards a double-dip recession. Or he can turn his back on his Keynesian roots and take a pro-growth approach -- pursuing spending and tax cuts.
For a Keynesian purist, the latter course is unthinkable. Thus performing his role as a dutiful captain, Obama will go down with the Keynesian ship.