Keynesianism Can't Save the Economy

As TIME magazine has noted, "we are all Keynesians"... again. Mr. Keynes has certainly made quite the comeback from the graveyard, and his reanimated fingers are slipping back into the modern economic pie. This is taken as a 'good thing,' a point which we won't belabour. However, if the shuffling zombie of Mr. Keynes were able to take stock of his economic surroundings, he might notice things are a little different now, than in the 1930's.

In 1930, according to usgovernmentspending.com, the United States government's direct spending was 13.22% of the national economy, up from 11.29% the year before. By 1939, at the bottom of the 1929 Depression, government spending was 20.66% of GDP. Not a whole lot by today's standards, as 2008 saw direct spending of 36.59% (guesstimated on the site), but about double the percentage of 1929. Doubling government spending was indeed a shock at the time.

As a vignette of Mr. Keynes makes clear, shock value was very important to him. He was all-around an economic shock jock, as his disciple Paul Krugman puts plainly. Shock is what makes Keynesianism work: the shock of a sudden expansion of government spending in the private economy.

We seem to remember a quote from President-elect Obama (although we cannot remember the source) stating that whatever Mr. Krugman wants, Mr. Krugman will get. He's the Nobel laureate, after all... and he's screaming, "spend!"

Right now, though, the so-called 'economy' of the United States is already about 40% government spending. The "jump-start" effect that Keynesianism looks for may require a doubling of government spending in an economy. At the same time, the United States economy is shrinking rapidly... so the end result of a proper Keynesian shock could leave the U.S. government as 100% of the economy, give or take.

Does this new Congress, or the President-elect, or both, have the political will to turn this country into a new Soviet Union? We truly do not know, but if the economy became the government's, the United States would be as Red as Red could be.

Energy Independence the Hard Way, Part 1

The Year of Our Depression 2008 is quickly grinding towards a smouldering ruin of finality, and already we sense that there is great hope that 2009 will be the turn-around year. Great faith seems to be place in President-elect Barack Obama's multi-hundred-billion-dollar make-work programmes. It seems to us that Mr. Obama is considered the man who can lead this nation to a better future.

Mr. Obama's transition website paints a starry, starry picture of energy independence: 1 million plug-in hybrids purring about by 2015; 10% renewable energy by 2012; 5 million jobs and $150 bullion over ten years. How lovely, but we point out to the President-elect that $150 billion is chump change; the Federal Reserve has 'injected' over $1 trillion, and that hasn't done squat. What can a measly $150 billion do for energy?

We posit a different scenario for energy independence, although it won't be appearing on change.gov anytime soon. In a decade, the government will have spent more money than we have the vocabulary to describe - but all for naught; infrastructure programmes will have been started, and abandoned. In essence, the United States will be so poor, its domestically-produced oil (currently about 25% of supply) will be all that is needed.

Cliffhanger? You bet. Part 2 tomorrow.

Did We Say 2008? Hahahahaha...

It's now official, folks: according to the National Bureau of Economic Research, the United States is in a recession... which started in December 2007. Actually, the recession is really a depression, but that's a detail; the illusion that things are just 'slow' has been eradicated, a year into the problem. Whatever the case, we wish the Depression a happy first birthday!

It is customary to name a depression after the year in which it started, so officially the United States is in the 2007 Depression. We resist the temptation to retcon our previous posts to fit the present circumstances, but we will use 2007 Depression from now on. It is the way this depression will be remembered in the history books, and who are we to argue with history?

Now that the economic situation is 'official,' let's look at what this may mean. One thing we feel is certain: fear is going to be much stronger than before. As an example, news has broken that credit card companies are thinking of cutting $2 trillion in consumer credit. Although we aren't convinced the banks will actually do this, it's a sign of increased tension and fear.

Fear will also help drive President-elect Barack Obama's sweeping social programmes with neck-snapping speed. In the manner of President Franklin Roosevelt before him, we believe Mr. Obama will be coming out swinging... and one doesn't want to be in his way. We fear his new policies, like Roosevelt's inept and destructive New Deal, will only serve to worsen and prolong the 2007 Depression.