06.30.2010 0

TimesCheck.com: Economic Arguments Against Keynesian Proposals Can Balance Out Pro-Spending Coverage

  • On: 07/15/2010 20:24:49
  • In: Uncategorized
  • Economic Arguments Against Keynesian Proposals Can Balance Out Pro-Spending Coverage

    By Kevin Mooney

    “Deficit Hawks” who are ambitious to roll back the Obama Administration’s spending binge could jeopardize job creation and further sink the economy, according to lawmakers, union officials and public policy analysts who have been quoted recently in The New York Times.

    When Congress reconvenes, it will only have one month to pass additional spending programs before leaving for the August recess. Keynesian economists who believe government spending spurs economic activity are alarmed because legislative efforts typically stall during election seasons.

    Although budget cutters now appear to have the upper hand politically, the reporting suggests that Republicans who obstruct new spending initiatives could delay economic recovery and antagonize voters.

    “Somehow the politically correct position on the deficit has become cut, cut, cut, irrespective of the economic consequences,” Representative Carolyn B. Maloney, a New York Democrat is quoted as saying. “Most economists agree the economy is too fragile to sustain the kinds of spending cuts politicians are talking about now.”

    Alan Krueger, the treasury department’s chief economist, favors tax increases over spending cuts as a way to alleviate rising deficits and to boost jobs. He offered congressional testimony in May that has been cited in the New York Times as a rejoinder to law makers who favor less spending.

    “He testified that the tax cuts enacted in 2001 and 2003 ‘did not result in better performance in the labor market than was achieved in the 1990s, a period when government revenue increased, and the deficit was reduced and eventually eliminated,’” the Times reported.

    The report continues, “Whether that perspective will shape the policy debate will become clear in the coming months. In the meantime, some experts say that job creation and deficit reduction are not mutually exclusive.”

    Other key sources here include Mark Zandi, chief economist at Moody’s Economy.Com, who has argued in favor of “additional temporary stimulus to the economy.”

    There are sharp divisions here between those who favor additional government expenditures and those who see deficit reduction as the more paramount concern. The Times deserves credit for providing prominent Republicans with an opportunity to voice their concerns and make the case for fiscal restraint. Rep. Kevin Brady (R-Texas) and Rep. Paul Ryan (R-Wis.) both make some pointed observations that bring balance to the reports.

    However, there is an implication made here that the prevailing view among economists is in sympathy with plans to advance spending programs. This is most certainly not the case and future reports should include the perspective of free market scholars who have debunked Keynesian thinking.

    Russell Roberts, an economist with George Mason University, offered testimony before the U.S. Senate that addresses the current economic climate and argues against government intervention. Some of the following comments should find their way into future reports that also cite Keynesians.

    “While politicians may not be good at creating confidence, they can be very good at creating increased uncertainty,” Roberts explained. “Right now, the government is either intervening in numerous parts of the economy or considering expanded intervention in major ways…In the areas where the government has already intervened, the timing and nature of the exit strategy is up in the air. In the areas where the government is considering major intervention, the timing and entrance strategy are equally uncertain. This uncertainty discourages the risk-taking needed to get the economy going.”

    Another proponent of parsimonious government spending patterns that deserves notice and attention is Howard Rich, Chairman of Americans for Limited Government. In response to a New York Times column by Paul Krugman, one of the leading lights of Keynesian theory, Rich correctly notes that government was already growing “by leaps and bounds” before the severe recession took hold.

    “This is not rocket science, it is common sense,” he observed. “The more government grows, the more the economy suffocates. Conversely, the more government contracts, the freer we will be as a nation to prosper.”

    A strong case can be made that the Republic will be much safer if Congress declines to take any further action. However, that’s not the view of progressive economists connected with the Center for American Progress (CAP) and with top labor leaders who are often quoted in the Times.

    “It is a national disgrace that members of Congress are heading home to celebrate our nation’s birthday after having voted repeatedly not to create jobs or to extend unemployment aid,” Richard Trumka, president of the AFL-CIO said prior to Congress’ July recess.

    Given how well positioned Trumka is with the Obama White House it is certainly helpful for readers to have an understanding of his policy stance. But what are the economic arguments for and against expanded government benefits?

    There’s another option open for subsequent reports that defer to Keynesian thinking. The International Monetary Fund (IMF) has issued a new report that also takes jaundiced view of so-called stimulus plans. The organization has been a consistent and revered source for The Times and should figure into policy debates. Although its language is measured, the IMF clearly favors frugality in America and Europe.

    “Lower risk appetite could initially reduce capital flows to emerging and developing economies,” the report says. “But relatively more robust growth prospects and low public debt could eventually result in higher capital flows, as some emerging economies become more attractive investment destination than advanced economies… At a global level, policies should focus on implementing credible plans to lower fiscal deficits over the medium term…such plans…should emphasize policy measures that reform pension entitlements and public health systems, make permanent reductions in non-entitlement spending, improve tax structures and strengthen fiscal institutions.”

    But that might not fit into The Times’ narrow, Keynesian view, where only government expansion can solve any problem.

    Kevin Mooney is a contributing editor to ALG News Bureau and the Executive Editor of TimesCheck.com.

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