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OVERSPENDING AND UNDERSPENDING – A KEYNESIAN VIEW

September 9, 2013

OVERSPENDING AND UNDERSPENDING – A KEYNESIAN VIEW

Politicians of all political stripes are quick to lecture you and me that “the government must live within its means,” “we can’t tax our way into prosperity” etc. The idea behind their themes expressed on the stump is based, however, on household budgets, not those of the government. With government, we Keynesians hold that just the reverse is true. Our means are not limited; only our will is.

Thus, when we in a household suffer loss of income caused by debilitating disease or condition not covered by insurance or any of a number of financial or physical reverses leading to less overall household income, we quite properly reduce our expenditures. It’s hamburger instead of steak and Junior will have to give up his Harvard dream for the local community college’s offerings. We do indeed have to live within our (limited) means. We must have equilibrium in our family budgets and everyone has to underspend until the crisis is past or softened by subsequent events (second jobs etc.).

The politicians have a point in re household budgeting, but they are wrong to try to sell us that such a budgetary scheme has any particular application to government budgets. We Keynesians hold that it is just the reverse and that it has been proven time and again to work under both Democratic and Republican presidents in a black and white history out there for all to see and understand.

The government should underspend during times of prosperity – when its budget is in surplus and its debt well-managed and when revenues to the our treasury are strong and steady and unemployment low and when the economy is humming along without any need for government help – and overspend (so to speak) in times of poor performance of a stagnant economy or one in recession (and certainly one in depression) such as the underperforming economy we are currently (and painfully) experiencing.

We do not need to give medicine to a healthy and robust person; we need to give medicine to the sick and diseased. Our economy at present (barely above recession status) can fairly said to be sick, and Keynesians such as I are very concerned with the austerity measures being proposed by both parties in Washington as “medicine” for what ails our economy. In my opinion, there could be no worse policy choice than austerity for our present economic troubles. It is exactly the wrong medicine and is toxic to economic recovery; it is (as I have blogged before) the equivalent of “bleeding the patient” as doctors routinely did into the 1800s. It is a recipe for long-term deflation (see the Japanese debacle).

This economy is in desperate need of a dose of Keynesianism. We have so much work to do and so many people looking for work but we cannot seem to agree on Keynesian pump-priming to match people to work out of some old and inapplicable political philosophy. We have to “live within our means,” you know. But just what are our “means?” We as a government have “means” families don’t have, and we as a government have few of the other limitations family budgets have. Our Fed can literally manufacture money. We can loan ourselves money for projects such as rebuilding our infrastructure, schools, educating our workforce etc. Families have no such abilities. Why are we just sitting here, mired in near recession, checkbook in hand, but unwilling to believe in ourselves and our future enough to take the bull by the horns, loan ourselves our OWN money, and make this economy hum? Why?

The answer apparently is: “Politics.” Unbelievable! What American would want to knowingly assist in deflating his country’s economy over the long term? I hope the answer to that is none, but I am not so sure. Some of these firebrand libertarian types these days who have infiltrated the Republican party seem more concerned with how we conduct the ride rather than a safe and sound arrival at our destination. They don’t seem to understand that austerity will bring about even less money in the marketplace (reduction in demand) with more bankruptcies, layoffs, less revenues to our treasury etc. The list is unending.

We are (whether we know it or not) gliding along in an emergency status; we are passively allowing events to control us instead of controlling events. We are not the masters of our own fate nor are we captains of our own ship. Someone else is. We need to make something happen, and soon, and we need to have faith in ourselves. We know that with a dose of Keynesianism injected into our economy we can pay back to ourselves what we borrowed to prosper. We need to have the “can do” optimism of a depression-busting FDR and an interstate road-building Eisenhower and get America on the road again.

I am beginning to suspect that there are other actors in this drama (real or pretended), like bondholders (who love the current situation), Wall Street bank welfare recipients, hedge funds et al. Moneybags (via their captive politicians) have to be behind continuing the present malaise, otherwise we would be hearing a propaganda tsunami for change. I am hearing nothing. It seems neither politicians nor the superrich are REALLY concerned with the millions of unemployed who go to bed hungry and despairing or (as in Minnesota) of Americans who died from a bridge collapse due to lack of maintenance.

What this boils down to, and it’s a statement you won’t see often, is this: “Underspending can be more dangerous to America and its economy than overspending.” As seen above, either choice can be the right one, depending upon the economic milieu at the time. If ever there was a time for an expansion of spending to right what’s wrong with America, this is the time. So let’s go.  GERALD  E

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