Keynesian Failure: 2008 – 2009

When the economy began to collapse former president, George Walker Bush, said “I’ve abandoned free market principles to save the free market system”¹ on a CNN interview regarding the Bailouts and the Bush Stimulus or also known as the $152 billion Economic Stimulus Act of 2008² and the $300 billion Housing Recovery Act of 2008³. President Bush also passed several bailouts through the Emergency Economic Stabilization Act of 2008⁴, which included the highly controversial TARP fund (Troubled Assist Relief Program) which cost the taxpayers $700 Billion dollars⁴. In the end, Bush’s actions led to our deficit increasing by $294.1 Billion in 2008⁵. The national deficit reached its highest deficit in history in 2008, after all the government spending was done. We were left with a deficit of $454.8 Billion⁵. And what did we gain? Absolutely nothing. Unemployment continued to climb, the stock market continued to fall, our GDP continued to shrink, revenues began to fall as businesses began to fail (thus shrinking the tax base.), consumer confidence continued to shrink, and economic production continued to fall. It seemed like the Bush Stimulus was not enough to cure the failing economy.
By the time President Barack Obama was inaugurated, our country faced a dim situation. He faced a country with a shattered moral, a country with 5.8% unemployment rate⁶, a falling stock market, a falling GDP, a country with a $454.8 Billion dollar deficit⁵, and a country which was still at war in two countries and facing some serious national debt problems. The Bush bailouts and stimuli failed to cure or even stop the economic ills our country was facing. Instead the bailouts and stimuli passed by President Bush ended up as dismal failures. Keynesian Economists, like Paul Krugman, along with Democrats in Congress demanded that a new stimulus be passed – one which threw more money at the problem. Many said the Bush stimulus was too small and that it needed to be larger to have any effect on our economy. Based on the arguments that demanded larger stimuli, President Obama acted in passing the $850 Billion Obama Stimulus of 2009⁷. The stimulus spent money on infrastructure and special interest groups⁷, all in hopes of creating numerous “Shovel Ready” jobs which would help to jumpstart the economy. The money was set up to be spent throughout the years 2009 and 2010. The Obama Stimulus differed from the Bush Stimulus in the way it spent the stimulus money. The Obama Stimulus injected the stimulus money into infrastructure and special interest groups, slowly over two years. The Bush Stimulus injected its money into the consumer through checks and the stimulus money itself was spent right away. The Obama Stimulus was also larger than the Bush Stimulus, but the Bush stimulus was truer to Keynesian Theory in the way the money was spent and where it was spent (Spent quickly, on the Consumer and businesses.) President Obama also passed other measures to cure the economy, like passing the famous Cash for Clunkers program, which cost the nation a mere $3 Billion dollars⁸. He also expanded funds for the Emergency Economic Stabilization Act of 2008⁴ or also known as the Bush bailouts.
Obama Economic Advisers, Christina Romer and Jared Bernstein, predicted that the nation would not see an unemployment rate above 8% if the Obama Stimulus was passed⁹. That prediction ended up being false, as unemployment eventually reached 10% in 2009. We did see growth in the stock market and eventually an increase in our GDP growth. Stock Market/DOW Jones growth went from a low of 7062.93 points in 2009 to a high of 11,008.61 points in 2010¹⁰. Many advocates of the Obama Economic policy used the growth in the Stock Market and GDP as “proof” of the Stimulus working. The second argument was that unemployment would be a “lagging” factor. The last argument was that without the stimulus, we’d be worse off. Sounds like a sound argument at first, until one looks at the numbers and logic. First of all we all were promised that the stimulus would keep us from reaching an unemployment rate higher than 8%⁹, which turned out to be a lie. The argument, or should I say talking point, that suggests we’d be worse off without the stimulus is an argument which is extremely illogical. No one can prove this to be true, which renders this argument to be without logic, since a hypothesis must be able to be tested to even be considered a proper hypothesis. Don’t forget we ended up with an unemployment rate of 10%, even when we were promised we’d never reach an unemployment rate that high. Anyone who suggests GDP growth and Stock Market growth is proof of an economic recovery is foolish, since in the Great Depression (1933-40) we saw both stock market and GDP growth but we never saw unemployment fall below 14%⁶. As for unemployment being a lagging factor, I doubt unemployment reaching 9.9% in 2010 is an indication of economic growth. If the stimulus was a “success” Economists like Paul Krugman wouldn’t be calling for a third stimulus.
The Stimuli under Bush and Obama failed in many ways. But one thing we can all agree on is the FACT that the increase in bailout spending, along with the $850 Billion dollar Obama Stimulus of 2009⁷, the fall in revenues to the federal government in 2008⁵, and the increase in Military spending in 2009 led to the $1.41 Trillion dollar deficit in 2009¹¹ (Which is now the largest deficit in American History.). The Obama deficit for 2009 was actually a 210% increase from the deficit in 2008, which was $454.8 Billion dollars⁵. Several advocates of the Obama Economic policy blamed Bush for the 2009 deficit, which was under the Bush budget – sadly, they never mention the fact that President Obama and his Democratic Congress added billions to that spending!
I don’t need to explain anything; the numbers speak for themselves – the Obama and Bush stimuli failed. The idea that “Shovel Ready” jobs could even help our economy recover is foolish, since low-income jobs don’t do much to help an economy expand. If the cure to this recession was all about creating jobs, then we’d be out of this mess easily if our President made us dig holes outside our house. Sadly, jobs alone do not solve economic problems. It is the quality of the jobs in an economy that counts, not the quantity. If a good economy was all about the quantity of jobs, an economic recession could easily be solved by having a dictator force us to dig holes outside our houses, with little pay. Low income jobs do not increase the standard of living by much. If you truly want your people to be wealthy, healthy, and happy – give them moderate to high income, quality jobs that actually increase the standard of living. As an example of why quantity is not how you help an economy, just look at the average standard of living for a Chinese or Indian citizen. They have all of the low-income jobs they could ever want, mainly through foreign business. Yet the people in those countries live like rats – the poor in America live like the middle class of both China and India. The Chinese economy is fueled mainly by European and American trade. It is important to try to reach Full Employment levels, but creating numerous, temporary low-income jobs is not the solution.
Most jobs created by the Obama stimulus were government jobs. What funds government jobs? The Free Market, of course. Let’s say one man is employed by the government. He is paid $100 in one week. He spends the money buying things from the cool Super-Mart. In theory, he just helped the economy – which is true. But we forget that the government had to take money away from someone or several people to pay for his salary. Let’s say the government took $20 dollars from five people to give the government employee his paycheck. That means now there are five people who are poorer, and who will spend $20 dollars less. There is no net growth in the economy, because the five people who lost their money will spend less. If the five people didn’t lose their money, $100 could’ve still been spent by all five (since all five had $20 taken, which they could have spent.). So if all those five people DID spend their money, the result would be the same as the one man spending his $100. As you see, there is no net growth. One man spends $100 more; five people collectively spend $100 less. Now if the government employee was hired in the Free Market there would be no redistribution of wealth. Therefore, there would actually be a net increase in economic growth, because the first five people would be able to spend their $20 while the additional former government worker would be able to spend his own money, without relying on the money from the Free Market to pay for his salary. The Free Market generates wealth – Government Jobs just redistribute the wealth – they change who has the money, they don’t create wealth. The government CAN help the FREE Market to create wealth, but by itself, the government and its jobs do not create wealth, because they rely on the Free Market’s wealth to operate. The same goes for the stimulus itself. The money for the stimulus was taken from one group of people, and given to another. You take $50 from Jack and give it to Jill. Jack spends $50 less and Jill spends $50 more – Jack is poorer, Jill is richer. There is no net growth in the economy – no real wealth generation.
Everything about the Obama Stimulus was wrong, especially the fact that it was not spent right away to help give the economy some shock therapy. Even with the Bush Stimulus being spent quickly and on the right sectors of the economy, it ended up being a failure. The year of 2008 and 2009 were CLEAR examples of Keynesian Theory failing in real life. The idea that a $850 Billion dollar stimulus could help fix an economy worth more than $14 Trillion is ridiculous. The stimuli under Bush and Obama were bound to fail, since both lacked any real logic in the first place. The numbers tell the story; it is obvious both Presidents failed in their attempt to fix the economy simply because they used an outdated and flawed economic theory which has been known to fail multiple times in the past. Lord Keynes is a fraud, let’s move on from that failed economic theory and move on to proven economic policies and theories, like Neo-Classical or Supply-Side Economics…

Sources:
1. Wilks, Austin. “Bush: “I’ve abandoned free market principles to save the free
market system”.” United Liberty. N.p., n.d. Web. 12 July 2010. http://www.unitedliberty.org/articles/bush-i-ve-abandoned-free-market-principles-to-save-the-free-market-system
2.”$152 billion Economic Stimulus Act of 2008 .” Wikipedia. N.p., n.d. Web. 12
July 2010. http://en.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008
3.”Housing and Economic Recovery Act of 2008.” Wikipedia. N.p., n.d. Web. 12 July
2010. <http://en.wikipedia.org/wiki/Housing_and_Economic_Recovery_Act_of_2008>.
4.”Emergency Economic Stabilization Act of 2008.” Wikipedia. N.p., n.d. Web. 12
July 2010. http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008
5. “Revenues, Outlays, Surpluses, Deficits, and Debt Held by the Public, 1969 to 2008.” Congressional Budget Office. N.p., Mar. 2009. Web. 3 Feb. 2010. http://www.cbo.gov/ftpdocs/100xx/doc10014/March2009_HistoricalTables.pdf
6. “Annual average unemployment rate, civilian labor force 16 years and over (percent).” Bureau of Labor Statistics. United States Department of Labor, n.d. Web. 5 Feb. 2010. http://www.bls.gov/cps/cpsaat1.pdf
7. “Read The Stimulus.” Read The Stimulus. N.p., n.d. Web. 4 Mar. 2010.
http://www.readthestimulus.org/
8. Johnson, Brian M. “Presidential Math: Cash for Clunkers Spent $3 Billion to Save
$375 Million .” Americans For Tax Reform. N.p., n.d. Web. 12 July 2010.
http://www.atr.org/presidential-math-cash-clunkers-spent-billion-a3816#
9.Christina Romer and Jared Bernstein, ”The Job Impact of the American Recovery and Reinvestment Plan”, January 10, 2009 http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf
10. . “Dow Jones Industrial Average (2000-Present Day) .” Stock Charts.Com N.p., n.d. Web. 1 Feb. 2010. http://stockcharts.com/charts/historical/djia2000.html
11.“Preliminary Analysis of the President’s 2011 Budget.” Congressional Budget
Office. US Government, n.d. Web. 8 Mar. 2010. http://www.cbo.gov/ftpdocs/112xx/doc11231/03-05-apb.pdf