Paul A. Samuelson, Who Reshaped Economics, Dies at 94 - Obituary (Obit) - NYTimes.com: "The textbook introduced generations of students to the revolutionary ideas of John Maynard Keynes, the British economist who in the 1930s developed the theory that modern market economies could become trapped in depression and would then need a strong push from government spending or tax cuts, in addition to lenient monetary policy, to restore them. Many economics students would never again rest comfortably with the 19th-century view that private markets would cure unemployment without need of government intervention."Too bad this guy died. I wish he had lived another 10 years so he could see just how wrong he truly was. But I don't think it would have worked. Japan has been following this nonsensical teaching for the last 20 years and all they have to show for it is increased debt and stagflation. So even in the face of evidence that government can not spend its way out of a recession Dr. Samuelson would still have been a believer.
If you read the whole article you'll see that Dr. Samuelson advised President Kennedy to cut taxes to get out of a recession. No doubt, leaving money in the economy, even at some cost to the government in terms of interest payments, might actually help, as the economy grows enough to cover the additional interest payments.
But just because it works once in a while and at a small scale does not mean that a government like ours with tens of trillions of dollars in public debt with a constituency with another tens of trillions in private debt can spend its way out of the sinkhole of debt that has been created. Japan, which 20 years ago had a huge surplus, and was therefore in a much stronger position to potentially stimulate their own economy, has utterly failed at the task.
The reason is simple - governments don't create productivity. Governments can spend money and governments and print money but governments don't generally create much of anything except paperwork.
Unfortunately the die is already cast. When the stock market crashes again and everyone once again panics we'll be told that we have a liquidity crisis and only intervention by the central banks can save us. They will print another couple of trillion dollars and give it to the banks who will use it once again to buy their own stock offerings. More savings by the middle class will be wiped out and another 10 million people will be out of work. In the meantime, useless politicians will tool around in limousines and pat themselves on the back for the important work they are doing. Ugh.
© 2005-2009 Stephen Clarke-Willson, Ph.D. - All Rights Reserved.