Failed Keynesian Economic Policies

Keynesian Economics:  One of the major tenets of Keynesian Economics is that you can stimulate an underperforming economy via government infrastructure spending (often called "shovel ready projects").

Obama Stimulus Plan:  When Obama signed his $830B stimulus plan in January 2009, he said that unemployment would never go above 8%, and that by the end of his term, it would be back to 5.6%.  Both predictions were incorrect, unemployment went as high as 10%, and his first term is ending with unemployment at nearly 8%.  He also promised GDP would grow by approximately 4% a year.  Instead it's been hovering at around 2% a year. 

Discussion:

     Shovel Ready Projects:  Government investment in infrastructure - while these projects almost certainly do have at least some temporary stimulatory effect on the economy - the jobs aren't permanent, and of course, these projects expend taxpayer dollars.
     Supplementing State Budgets:  While supplementing state budgets does have some stimulatory effect (since people don't lose their jobs), it's only a temporary fix that delays the inevitable downsizing actions required by the states, and these efforts expend taxpayer dollars.
     Green Energy Projects:   Make work projects - companies like Solyndra (which almost always failed) - they add few jobs/have little value, their benefits are only temporary, and they mostly just end up wasting taxpayer dollars. 
     Cash for Clunkers/Other Expenditures:  This form of stimulus is,  at best, very short-lived.  It mostly just adjusts procurement timeframes from one quarter to the next quarter - and wasting taxpayer dollars.
    
All of the above compound our already out of control deficit situation.

Politics:   Having politicians involved involved in making decisions to stimulate the economy opens the door to "pet projects" - bright ideas by politicians who have their own agenda (which sometimes includes favors owed to campaign contributors) ................ see Green Energy Projects above.

Bottom Line:  Further stimulus packages need to be nixed.  With a $16T deficit, we simply cannot afford such.  Things are bad enough as they are without exacerbating the problem.  Even true "shovel ready" jobs can no longer be seriously considered.   NOTE:  With our deficit being as high as it is, additional green energy investment is practically fiscal treason.

We need to grow our economy the old-fashioned way - via private enterprise:

Capitalism "is an economic system that is based on private ownership of the means of production of goods or services for profit".

Adam Smith's "Invisible Hand": A philosophy of economic behavior whereby each individual, out to do the best they can for themselves - by filling needs for goods and services that they see in society - they inadvertently benefit the entire society, and thereby optimize the economic growth and capacity of their country. Put another way, "greed works".

For Capitalism to be it's most effective, we need to maximize investment, decrease entitlement spending, limit taxation and regulation, and decrease the size of the government in general.

Investment: We need to maximize investment. For the rich, they need to feel that there is a probability of making a profit, without which, they will not invest. For the middle/lower class, they need to be able to obtain loans to start their new businesses, and, again, to feel that there is probability of success. The likelihood of the rich, or the middle/lower class, investing is diminished if there is uncertainty. Currently, the following are factors causing uncertainty:

Obamacare: A cost driver requiring businesses to either provide health care, pay a penalty, or make employees work part time.

Tax hikes: Another uncertainty would be the administration's proposed increase in the current income tax rate for the upper class.

Capital gains tax increases: Which would lower the profit potential (while the risk of losing money on the new investment remains constant) also decreases the likelihood of investment.

Uncertainty is not an inducement for investment - it needs to be removed from the equation.

Loans: For the middle/lower classes, they need to be able to get a loan to start their new business. Excessive banking regulations (Dodd/Frank) that inhibits, or prevents, the ability of people to get loans hurt job growth. We need to make sure that reasonable business ventures "get a shot" at being created and becoming a success.

Attitude and expectations play an extremely important role in job growth. Investors need to feel optimistic about the future - that their possible fiscal venture has a reasonable chance of success. Our goal needs to be to do everything we can to make the climate favorable for investment, business creation, and job growth. Without this investment, these businesses will simply not get built, and therefore the new jobs won't be forthcoming. For, in new startups, they "did build that".

Free Stuff versus the Deficit: "Free Stuff" - large, and growing expenditures for entitlements (social security, medicare, medicaid, unemployment, food stamps, housing subsidies) , exacerbate our deficit shortfall in two ways - it encourages people not to work - which reduces our tax base, and it also increases the federal outlays for entitlements . If you'd like a pictorial description of our deficit - it's like a snowball, rolling down a hill, getting bigger and bigger, rolling faster and faster - as we race toward becoming the next Greece - riots and all.

Welfare/Unemployment Benefits Recipients: Many people on welfare (foodstamps/housing subsidies) and on unemployment choose to sit at home rather than go to work at the "Walmart"'s of this world. Comment: This is one of the major factors relating to our current economic woes. In order to get people off the dole, and save at least some of the billions being poured into these entitlement areas, we need to do one of the following:

a.) Directly reduce entitlement dollars: Make the pay/benefit differential between "Walmart", and welfare/unemployment greater by reducing the entitlement payments, and/or reducing the timeframes that the entitlement payments are allowable, or

b) Enforce Entitlement Rules: We need to ensure enforcement of the Clinton era requirement for people on welfare or unemployment to actually look for/accept semi-suitable employment, or

Entitlement Programs: Changes need to be made to social security, medicare and medicaid. In the first four years of Obama's Presidency, he hasn't taken any actions to fix the long term problems inherent in our entitlement programs - and to ensure their viability into the future. Solving the entitlement problem is the most significant issue in resolving the deficit problem.

Trend toward greater and greater dependency: Support for a lifestyle/culture of dependency - making it easier to get and stay on food stamps, extending employment benefits way beyond the amount of time originally intended, contribute/lead to a culture of dependency and sadly restore the state of affairs that existed prior to Bill Clinton's signing of the Welfare Reform Act which helped alleviate this situation back in the 1990's. While having people become/remain dependent garners the Democratic Party votes, it breeds a culture of hopelessness and despair, and helps keep people in a downtrodden (unemployed) state.

Working Poor: Heretofore, I've been a supporter of not charging federal income taxes to individuals/families below a certain income level. Since their income was low, and it's typically a struggle to make ends meet, thought that this was most humane way to approach things. The fact that these individuals/families weren't contributing anything to cover the necessary expenses to run our country, was, well, just the way it had to be.

However, after seeing what the Democrats have managed to do - bribe people with money that we don't even have, now believe that a change needs to be made. We really need to adjust the income tax brackets so that everyone pays federal income taxes. There's simply no other way to ensure that everyone has "skin in the game", and is concerned about federal spending/the deficit - i.e., that it's just not "someone else's problem".

Final Comment on "free stuff"/voting patterns: By making every working person pay federal income taxes, am confident that we can get a more mature/rational voting pattern, and therefore make real strides toward solving our economic problems.

Government's Role: Before retiring I was a Comptroller of a organization with approximately 800 employees, and $400M/year in revenue. I sort of liken overhead costs at our organization with the function of the federal government. With the federal government being the overhead to the private sector. The federal govt has numerous vital functions - national defense, the courts, providing for the safety net, social security, etc. However, in general, believe that overhead at an activity and the role of the federal govt are basically the same - provide for vital functions for the organization/country at the lowest possible cost.

When I say provide vital functions - this does not in any way include make work projects just to get people off the unemployment roles. This also does not mean farming out monies for the Solyndra's of this world - or for PBS for that matter. Vital means vital. If it isn't absolutely necessary, you don't do it. We need government to be as small as it can be. Keeping costs down will help with the deficit, and free up taxpayer monies for taxpayer usage. We need to grow the private sector (which will help even more with the deficit), not the government sector. Growing the government sector just increases our debt.

Resource Utilization: "The United States has largest energy reserves on Earth. 

We need to fully utilize our natural resources - coal, oil, natural gas. We need to build additional nuclear power plants. We need to try to figure out a way to get nuclear fusion to work. We need to approve the Keystone pipeline. NOTE: The above actions will have the very important side benefit of creating at least 1 million new jobs.

We simply need to make ourselves energy independent. We need to be rid ourselves of our dependency on countries that we are not friends with (middle east countries/Venezuela). We have huge supplies of energy (coal, gas, oil) within this country. Now, with our new recovery techniques (such as fracking), it's time to garner and utilize this energy.

The energy is out there, and countries will garner and use it. Energy is what makes the world run, and there is simply and ever growing need for it. If Obama is truly concerned about greenhouse emissions and their adverse effect on our planet, he should want the country that is in the best position to garner these resources in as climate friendly of a manner as possible to be the one doing so - and that would be us - certainly not a Russia, a China, a Saudi Arabia, a Venezuela, or a Brazil.

Consolidation: Recently moved to the Pittsburgh area. Anyway, was looking at a Pittsburgh county map, and noticed that there were in excess of 50 townships (or they might call them bureaus).

Started thinking about the above. You have 50+ of everything - political officials, township bldgs, police bldgs, administrative support personnel, utility bills, school districts, etc, etc, etc. Have to believe that if states (I'm assuming that the Pittsburgh area is not unique in this situation) would consolidate to the maximum extent possible, huge savings would be garnered for the taxpayers.

Consolidation should also be practiced within the federal government to the maximum extent possible. The BRAC closings done by the Department of Defense in the 1980s and 1990s are perfect examples.

Too big to fail: We need to fix this situation. Nothing should be too big to fail. If a bank is so big that we (the United States) can't afford to let it fail because of its probable adverse affects on the economy, it needs to be broken up. NOTE: An example of breaking up companies is Teddy Roosevelt back in the early 1900s. Believe they called it trustbusting.

Once the "too big to fail" banks are broken up, banks will know that a bail-out is no longer an option, and they will exercise due discretion in their business transactions.

Indeed, the housing bubble that caused "The Great Recession" was related to overvalued housing prices and bad mortgages - and not George Bush/Corporate greed - as Democrats are prone to say. The over valued housing prices set us up for a fall, but it was the bad mortgages - a plan pushed by our federal government since the Clinton administration that forced banks to make loans to people who would not normally qualify for home loans that caused the recession. While getting people in their own homes is a laudable goal, getting people who can't afford their mortgage payments in a home was a recipe for disaster, and is what caused the recession. Some Democrats like to blame the practice of bundling of mortgages as one of the main causes of the recession. Untrue, bundling good mortgages is not a problem, and would never cause a problem, it's the bundling of bad mortgages that created a mess.

Unions: Unionization in general is fine, but union members, and specifically union management, need to keep in mind that excessive demands, that make the companies/industries that their union members work for uncompetitive, is totally counterproductive - i.e., not in the best interests of, the union members that they are representing. On a totally related aside, kneejerk support by Democrats of unreasonable union demands is NOT in the best long term interests of anyone.

Summary on Capitalism: To optimize GDP growth/job creation under Capitalism, we need to incentivize people to invest in new business ventures, and we need to disincentivize people from sitting on the sidelines and receiving entitlement benefits (see paragraphs above).

Once we increase investment, the people working the new jobs will spend additional money in society, and their new spending will lead to the creation of more jobs - and so on, and so on, in a never-ending snowballing effect - as we gradually turn our nation into a more affluent society. Likewise, people going back to work (coming off welfare/unemployment) also create new jobs - in the same snowballing effect - AND reduce the deficit through a larger tax base (more workers)/fewer entitlement costs accruing against our federal budget.