In the spring of 2005 a panel of “conservative scholars and policy leaders” was asked to identify the most dangerous books of the 19th and 20th centuries. You can get a sense of the panel’s leanings by the fact that both Charles Darwin and Betty Friedan ranked high on the list. But The General Theory of Employment, Interest, and Money did very well, too. In fact, John Maynard Keynes beat out V.I. Lenin and Frantz Fanon. Keynes, who declared in the book’s oft-quoted conclusion that “soon or late, it is ideas, not vested interests, which are dangerous for good or evil,” (Keynes, 384) would probably have been pleased. (Paul Krugman in The General Theory)
"American history has seen the pendulum swing repeatedly between laissez-faire principles and demands for government regulation of both types." says former Wall Street Journal editor Christopher Conte in The Outline of US Economics provided by the US Embassy.
This is a common and legitimate analysis of 20th century American economic history. The economy transitioned from laissez-faire in the Gilded Age, to regulation with the Progressive Presidents, to laissez-faire in the 1920s with Warren Harding's "Return to Normalcy" which in turn ended with The Great Depression and the New Deal, which was obviously an example of regulation.
The fact that this is often referred to as the cycle of Boom and Bust is indicative of the nature of transitional periods. Laissez-faire periods almost always end in an economic collapse. Regulative periods nearly always result in an economic boom, which lures government into a false sense of security, regulations roll back and the economy collapses as a result.
The 1950s are typically seen as an era of laissez-faire. There has not been a true period of laissez-faire since the New Deal, but there have been periods of relatively limited regulation, and with many New Deal policies being rolled back, and Truman's Fair Deal failing to pass most of it's policy, the 1950s were definitely one of these periods.
Analysts attempting to discredit Keyensian economics will usually point to the boom experienced in this time of limited government. Many supply-side economists will even argue that Keynesian economics prolonged the Depression, pointing to the Roosevelt Recession of 1937, a period in which growth slowed an unemployment spiked temporarily in the midst of the New Deal, as evidence. The recession however occurred during a low point in spending, when the Roosevelt administration was pressured to balance the budget. This reduction in spending is actually what caused the relatively slight decline, not government overspending as conservative economists would claim.
The fact of the matter is that the idea that the New Deal prolonged the Depression is cherry picking of data at best, and revisionist history at worst.
The relative boom of the 1950s, then, was not as a result of any reduction in regulation, it was as a result of a positive economic climate created by the New Deal and World War II. The GI Bill, among other things, boosted a huge section of the US Population to the middle class by providing for things such as housing an education, increasing the amount that consumers had to spend, thereby necessitating increased production of consumer goods, which insured unemployment would remain low, allowing workers to buy more consumer goods, so on and so forth.
This is the opposite of supply-side economics, also known as trickle-down theory, it is government subsidizing the consumer to increase demand, a classic tenant of Keynesian economics.
Return now to the political discourse of today. A contemporary edition of Outline of US Economics says the following with regard to the Obama presidency said this with regard to the candidacy of Barrack Obama.
"Barack Obama's candidacy for president was historically unique in many ways, but his economic platform was rooted deeply in America's political history. Many observers saw in his victory a swing of political pendulum from Reagan-era limited government and light regulations of markets back toward Franklin Roosevelt's New Deal era of government economic intervention." (Cronte, 140)
Thus it is not a stretch to claim that the controversial 2008 Stimulus Package is a successor to the New Deal (as well as Lyndon B. Johnson's Great Society) and adopted similar sets of policies, focusing on demand-side economics as opposed to trickle-down economics famously invoked by Reagan. And partisanship has obscured the admittedly slow but measurable recovery brought about the Stimulus Package, as well as other actions taken by the current administration.
In a speech at Waterloo, Iowa in the 2012 election season, after outlining the platform of the opposition President Obama said the following of trickle-down economics, specifically of a five trillion dollar tax cut for Americans making more than three million dollars a year:
"Now, here’s the thing -- we’ve tried this before. We tried this trickle-down fairy dust before. And guess what -- it didn’t work then, it won’t work now. It’s not a plan to create jobs. It’s not a plan to lower the deficit. It’s not a plan to move our economy forward. It’s not a plan to revive the middle class. We do not need more tax cuts for the wealthiest Americans. We need to give tax relief to working families who are trying to raise their kids, keep them healthy, send them to college, keep a roof over their heads. That’s the choice in this election. That’s one of the reasons I’m running for a second term as President." (Obama)
Opposition, principally economist Art Laffer, former adviser of Ronald Reagan was quick to denounce President Obama by claiming Reagan's policies were effective.
"It worked under Harding and Coolidge, we had the roaring twenties..." Art Shaffer says in an interview with Fox News. However the conditions of the 1920s are what led to the inevitable Bust of every laissez-faire boom built on an era of government regulation.
Laffer goes on to compare President Obama with President Bush, a president who championed a more Reagan style system. He claims that the rich are stifled by taxes.
"I mean, these are the people who create the jobs, the output, the employment -- so if you tax them into closing down their factories, closing down their operations, you're going to get exactly what Obama has got, which is the highest unemployment."
These arguments against ultimately the very idea of Keynesian economics ultimately do not hold water. Unemployment remains high, but not as high as it had been under the Bush administration, which championed massive tax cuts.
Indeed, Reagan's economic system is a darling of those who propose limited government, but while Wall Street boomed, homelessness rose, wage inequality began to increase (though not at the levels later experienced in the 21st Century Recession, or Panic of 2008), and Federal Deficit increased significantly as a result of massive military spending.
All economics involves multifaceted causes and effects, no Recession is the direct result of a single set of policy, or a single great man, but an understanding of the New Deal's effects on the present, and of the pendulum of American economics in general can be summed up with the fate of Glass-Steagall.
Glass-Steagall, separated commercial banks from speculative investment banks. It was a response to the bubble and burst of the 1920s, which was called by many a "mad orgy of speculation". The 1920s bubbled as a result of the production of new consumer goods, which caused stock prices to skyrocket. Expecting that they will continue to skyrocket, speculation occurred and stocks were bought for ever higher prices. Eventually, the bubble burst, the demand for consumer goods tapered off, and this caused a plummet in price. Glass Steagall sought to prevent this, but curtailing speculation by commercial banks. People needed to feel secure placing their money in banks, and so they needed to know their savings wouldn't be lost on the stock market.
It is a familiar story eerily paralleled by the Housing Crisis, after Glass-Steagall was repealed in a period of limited government. A complex series of events resulted in what was essentially a crash, the bursting of a bubble, and because of the lack of separation between investment and commercial banks, many people lost their savings. This alone did not cause the Great Recession, like the Great Depression it was a result of a variety of interlocking factors, but it is an illustration of the short-sighted economics so common in a period of relative prosperity. Regulations roll back, the collective guard of the American people is let down, and the lessons learned from history are forgotten, or downplayed by special interest.
When the economy collapsed however, it did not take long for the the government to take action. The responsibility of government is now to protect the economic interests of the people. No longer do rights simply amount to the "right to be left alone" rather they have expanded, and the government has in turn expanded to accommodate the provision of these rights. No president, no matter how conservative, has truly shrunk the government. Still there are periods of reduced intervention, but "big government" is for better or worse our reality now. As Milton Friedman said, "We are all Keynesian Now."
"American history has seen the pendulum swing repeatedly between laissez-faire principles and demands for government regulation of both types." says former Wall Street Journal editor Christopher Conte in The Outline of US Economics provided by the US Embassy.
This is a common and legitimate analysis of 20th century American economic history. The economy transitioned from laissez-faire in the Gilded Age, to regulation with the Progressive Presidents, to laissez-faire in the 1920s with Warren Harding's "Return to Normalcy" which in turn ended with The Great Depression and the New Deal, which was obviously an example of regulation.
The fact that this is often referred to as the cycle of Boom and Bust is indicative of the nature of transitional periods. Laissez-faire periods almost always end in an economic collapse. Regulative periods nearly always result in an economic boom, which lures government into a false sense of security, regulations roll back and the economy collapses as a result.
The 1950s are typically seen as an era of laissez-faire. There has not been a true period of laissez-faire since the New Deal, but there have been periods of relatively limited regulation, and with many New Deal policies being rolled back, and Truman's Fair Deal failing to pass most of it's policy, the 1950s were definitely one of these periods.
Analysts attempting to discredit Keyensian economics will usually point to the boom experienced in this time of limited government. Many supply-side economists will even argue that Keynesian economics prolonged the Depression, pointing to the Roosevelt Recession of 1937, a period in which growth slowed an unemployment spiked temporarily in the midst of the New Deal, as evidence. The recession however occurred during a low point in spending, when the Roosevelt administration was pressured to balance the budget. This reduction in spending is actually what caused the relatively slight decline, not government overspending as conservative economists would claim.
The fact of the matter is that the idea that the New Deal prolonged the Depression is cherry picking of data at best, and revisionist history at worst.
The relative boom of the 1950s, then, was not as a result of any reduction in regulation, it was as a result of a positive economic climate created by the New Deal and World War II. The GI Bill, among other things, boosted a huge section of the US Population to the middle class by providing for things such as housing an education, increasing the amount that consumers had to spend, thereby necessitating increased production of consumer goods, which insured unemployment would remain low, allowing workers to buy more consumer goods, so on and so forth.
This is the opposite of supply-side economics, also known as trickle-down theory, it is government subsidizing the consumer to increase demand, a classic tenant of Keynesian economics.
Return now to the political discourse of today. A contemporary edition of Outline of US Economics says the following with regard to the Obama presidency said this with regard to the candidacy of Barrack Obama.
"Barack Obama's candidacy for president was historically unique in many ways, but his economic platform was rooted deeply in America's political history. Many observers saw in his victory a swing of political pendulum from Reagan-era limited government and light regulations of markets back toward Franklin Roosevelt's New Deal era of government economic intervention." (Cronte, 140)
Thus it is not a stretch to claim that the controversial 2008 Stimulus Package is a successor to the New Deal (as well as Lyndon B. Johnson's Great Society) and adopted similar sets of policies, focusing on demand-side economics as opposed to trickle-down economics famously invoked by Reagan. And partisanship has obscured the admittedly slow but measurable recovery brought about the Stimulus Package, as well as other actions taken by the current administration.
In a speech at Waterloo, Iowa in the 2012 election season, after outlining the platform of the opposition President Obama said the following of trickle-down economics, specifically of a five trillion dollar tax cut for Americans making more than three million dollars a year:
"Now, here’s the thing -- we’ve tried this before. We tried this trickle-down fairy dust before. And guess what -- it didn’t work then, it won’t work now. It’s not a plan to create jobs. It’s not a plan to lower the deficit. It’s not a plan to move our economy forward. It’s not a plan to revive the middle class. We do not need more tax cuts for the wealthiest Americans. We need to give tax relief to working families who are trying to raise their kids, keep them healthy, send them to college, keep a roof over their heads. That’s the choice in this election. That’s one of the reasons I’m running for a second term as President." (Obama)
Opposition, principally economist Art Laffer, former adviser of Ronald Reagan was quick to denounce President Obama by claiming Reagan's policies were effective.
"It worked under Harding and Coolidge, we had the roaring twenties..." Art Shaffer says in an interview with Fox News. However the conditions of the 1920s are what led to the inevitable Bust of every laissez-faire boom built on an era of government regulation.
Laffer goes on to compare President Obama with President Bush, a president who championed a more Reagan style system. He claims that the rich are stifled by taxes.
"I mean, these are the people who create the jobs, the output, the employment -- so if you tax them into closing down their factories, closing down their operations, you're going to get exactly what Obama has got, which is the highest unemployment."
These arguments against ultimately the very idea of Keynesian economics ultimately do not hold water. Unemployment remains high, but not as high as it had been under the Bush administration, which championed massive tax cuts.
Indeed, Reagan's economic system is a darling of those who propose limited government, but while Wall Street boomed, homelessness rose, wage inequality began to increase (though not at the levels later experienced in the 21st Century Recession, or Panic of 2008), and Federal Deficit increased significantly as a result of massive military spending.
All economics involves multifaceted causes and effects, no Recession is the direct result of a single set of policy, or a single great man, but an understanding of the New Deal's effects on the present, and of the pendulum of American economics in general can be summed up with the fate of Glass-Steagall.
Glass-Steagall, separated commercial banks from speculative investment banks. It was a response to the bubble and burst of the 1920s, which was called by many a "mad orgy of speculation". The 1920s bubbled as a result of the production of new consumer goods, which caused stock prices to skyrocket. Expecting that they will continue to skyrocket, speculation occurred and stocks were bought for ever higher prices. Eventually, the bubble burst, the demand for consumer goods tapered off, and this caused a plummet in price. Glass Steagall sought to prevent this, but curtailing speculation by commercial banks. People needed to feel secure placing their money in banks, and so they needed to know their savings wouldn't be lost on the stock market.
It is a familiar story eerily paralleled by the Housing Crisis, after Glass-Steagall was repealed in a period of limited government. A complex series of events resulted in what was essentially a crash, the bursting of a bubble, and because of the lack of separation between investment and commercial banks, many people lost their savings. This alone did not cause the Great Recession, like the Great Depression it was a result of a variety of interlocking factors, but it is an illustration of the short-sighted economics so common in a period of relative prosperity. Regulations roll back, the collective guard of the American people is let down, and the lessons learned from history are forgotten, or downplayed by special interest.
When the economy collapsed however, it did not take long for the the government to take action. The responsibility of government is now to protect the economic interests of the people. No longer do rights simply amount to the "right to be left alone" rather they have expanded, and the government has in turn expanded to accommodate the provision of these rights. No president, no matter how conservative, has truly shrunk the government. Still there are periods of reduced intervention, but "big government" is for better or worse our reality now. As Milton Friedman said, "We are all Keynesian Now."