Okay class, pay attention. I've actually time for a pretty detailed lesson today.
I think you guys need to go online and do a search for articles containing both the name "Franklin D. Roosevelt" and "John Maynard Keynes." Or just start here:
http://econ161.berkeley.edu/Economists/keynes.html
The government needs to balance its budget in the long run. But, the immediate ebb and flow is part of the market's natural fluctuation. And, the government is part of the market.
Governments must tax and collect to do at least one thing: provide for externalities. Some things do not exist without a central body to gather our dollars and buy them - roads and military for example. IMO, this is ALL governments should tax for, but that's MO.
Keynes came along and convinced FDR that in times of economic depression, the gov. should increase spending to "kick start" the economy. FDR used this idea to make sweeping reforms that DID in fact pull us out of the Great Depression, which is a big reason why he got re-elected to more terms than any other President. Hitler used the same idea of public spending to pull Germany out of its depression, which was worse tha America's and lasted longer, and it made him so popular that he literally got away with murder in years to follow.
But, Keynes has a flip side: in times of economic prosperity, the government should tighten its belts and draw money back in to balance things out. In this way a country avoids the drastic market ebb and flow.
All that said, FDR screwed things up from the beginning, because he didn't put a time limitation on some programs, like AFDC, which continues to be a horrible waste of money to this day. Plus like most of us, once Congress started spending it didn't know how to stop.
Now, back to 1993. No president or congress has *ever* done what Keynes advised regarding the "flip side" of his economic model. During Clinton's reign, he and COngress did a LOT to decrease spending, and while I don't think they did enough (remember it was a time of prosperity, and should have tightened their belts), he is actually the first president in decades to have run the country "in the black" for at least a year or two.
Note, Clinton put limitations on long-term welfare receipt -- limitations Bush is now cutting back on (because the jobs just aren't there for people to get). Clinton's medical reform plans never put costs of medicare at $400 billion, but then we didn't know as much about it then.
Back on point. In times of recession, the gov. should spend but only VERY MODERATELY (remember, it's not a
depression ). No president has spent moderately in years. Clinton did the best at slightly-worse-than-moderate spending, I would say.
But, I think the biggest dollar costs out of the programs Bush mentioned are:
1. tax cuts (and, yes, this does cost the gov. money): A perfect way to increase gov. spending in a moderate way in a recession, and one Bush feels has a positive market effect by increasing consumerism. I think the jury's still out on this, but I support it for now.
2. Medicare reform. This is fully 95% of the spending he proposed in his State of the Union. $400 billion?? We need to look at this more. If the increase is so gov't money can be invested in the stock market to support a program where seniors pay too much for drugs, it's crap. I think medicare reform comes with healthcare reform - and should fall on the shoulders of BigDrugCo and HMOs. A broken system I've preached about before that shackles and simultaneously bribes Doctors and, more importantly, their hospital administrators. This money is going to go down the toilet.
Okay, rant off [img]graemlins/rant.gif[/img]
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PS: On the socialism note. It's no secret that at least one of the Clintons (Hilary) has very socialist tendancies - read "It Takes a Village" someday if you doubt this. But, there is a very minute difference in the modern day between a Representative Republic that taxes 20-30% (America - don't forget to add an average 10% to this for state taxes) and a socialist government that taxes about 45% (e.g. Norway). Now, the cultures of these countries are different, but I'm talking just in terms of a government tax & spending model here, so don't fly off the handle on me.
The real differenc can be found in Lester Thurow's (yes, that's now 2 Harvard Economists in one post, and Lester is now at MIT - TL is a geek) book on the model three modern market giants - North America, Pacific Rim, and EU. Thurow finds a very small distinction between what he terms "Socialistic Market Practice" and "Capitalistic Market Practice." North Am. has a more capitalistic practice in that it does not directly subsidize industry and business (it will make loans, I'll point out - like SBA), whereas the more "socialistic" practices do.
NOTE HOW small THIS DISTINCITON IS.
And, I'll even toss out an argument that socialistic economic practices are better. In the late 80s/ early 90s United Airlines and AirBus were fighting for control of the European market for air travel. UA had a 1% margin. The EU countries (UK) subsidized AirBus by 1% - flipping control of the market to AirBus. UA soon pulled out of the European air travel market, losing a huge amount of business. Now UA is bankrupt. Nuff said.
One more example. When L. Iaccoca convinced congress to bail out Chrysler, he did it by pointing out it would cost 10X what he was asking the bust up the company and lose those jobs. He shrugged, knowing he was rich no matter what. Congress caved.
So, is there a real reason to bicker of socialism and capitalism these days. Not if you know the numbers.
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Drat - mean to insert Lester Thurow link:
http://www.lthurow.com
[ 01-30-2003, 11:15 AM: Message edited by: Timber Loftis ]