Maggie's Farm

It wasn't Keynesian. Keynesianism is countercyclical. Big deficits come from procyclical policy; tax cuts, unfunded wars, new entitlements, all during an economic expansion, leading to an overheated economy and collapse.

A somewhat different point of view:

"Some people will say that words like scum and rotten are wrong for Objective Journalism — which is true, but they miss the point. It was the built-in blind spots of the Objective rules and dogma that allowed Nixon to slither into the White House in the first place."
http://www.mockpaperscissors.com/2013/01/09/happy-birthday-tricky-dick/

Because nothing says R-E-S-P-E-C-T like snapping your fingers at her.

mudbug: Keynesian Shemesian... Who cares about the adjective. The point is we're being played and our kids (you know the ones he cared about so much in 2006 and 2008) are going to foot the bill.

Well, it does matter to answering the question.

Taxes have been at one of their lowest points in modern history. The problem is the economic meltdown during the latter part of the Bush Administration. There is no easy solution because tax receipts have dropped precipitously, while everyone has been hoarding cash due to deflation and the threat of deflation.

Classically, the policy is to maintain the government budget in balance. So if the economy is growing, leading to increased tax receipts, cut taxes. If the economy is shrinking, causing reduced tax receipts, cut spending (or raise taxes). The problem is that this exasperates the market cycle, leading to booms and busts. Cutting taxes while the economy grows causes it to grow faster, leading to a bubble. When the bubble bursts, cutting spending (or raising taxes) accelerates the decline, leading to a dangerous, downward spiral.

During the expansion of the Bush Era, for instance, taxes were cut leading to deficits, while overstimulating the economy. Instead of spending the money through tax cuts, the U.S. might have put that money aside for a rainy day, in a “lock box.” Even if there had still been a financial shock, the U.S. would have been in a much better position to respond to the crisis.

Countercyclical policy means to run a surplus during times of plenty (seven fat cows), and run a deficit during times of famine (seven skinny cows). In a modern economy that may mean progressive taxes, which dampen growth as incomes rise, but reverses when the economy declines. Unemployment insurance and other safety net programs act as automatic stimuli. When there is a severe shock, this can require additional stimulus to stop the downward spiral in demand. Nevertheless, countercyclical policy can be and should be roughly revenue neutral, with the money spent during the contraction being equal to the money saved during the expansion.

mudbug: The thing he didn't say was that there are fewer people working now than when he took office

Yes, that's what happens when you break your economy.

mudbug: We're traveling the same road we did during the Great Depression

Average GDP growth from 1933-1939 was ≈8%.

That's right. GDP didn't start to grow again until Roosevelt instituted the New Deal in flurry of legislation in 1933.

DrTorch: Vague theories without the appropriate understanding of the fundamental mechanisms are simply restated superstitions.

Nearly all economics of the last century has been either extensions of Keynes or reactions to Keynes.

DrTorch: The economy was not stimulated by FDR's New Deal or WWII spending.

We mentioned a natural experiment. The Roosevelt Administration cut back on the New Deal in order to try and balance the budget. The economy went into a recession. Then they changed course again, and the economy grew. WWII was the Great Stimulus that capped the period.

DrTorch: Bush's tax rate cuts did not lead to tax revenue declines.

They were followed by revenue declines, and didn't recover until the height of the housing bubble.

DrTorch: If the economy is "broken" it's because of excessive regulation and bureaucracy.

The breakdown was due to a bubble in the unregulated shadow market in securities, which provided the liquidity for the bubble in real estate.

DrTorch: That is why Obama's trillions have done nothing to "stimulate" the economy and why unemployment is up.

The CBO and most economists disagree.
http://www.cbo.gov/publication/25099

That's right! GDP didn't start to grow again until Roosevelt instituted the New Deal in flurry of legislation in 1933.

The period provides a natural experiment. The Roosevelt Administration cut back on the New Deal in order to try and balance the budget. The economy went into a recession. Then they changed course again, and the economy grew. WWII was the Great Stimulus that capped the period.

buddy larsen: bottomed-out base, one third unemployment, gdp down by half from top --from bottom, growth bis inevitable.

That doesn't explain the on and off nature of the relationship. New Deal on, economy expands. New Deal off, economy contracts. New Deal on, economy expands again. War spending on, economy expands still more.

buddy larsen: You've got to look at a whole lot of inputs

Yes, there were a lot of factors, with some factors more important than others, and plenty of blame to go around; but you were the one who placed the main cause as the Democrats, who didn't even wield effect power during the runup.

mudbug: Are you saying you would like to go back to the Great Depression since the average growth was so great(without disputing your figures)?! Average unemployment was over 10%.

A lot higher than that!
http://www.examiner.com/images/blog/wysiwyg/image/depression%286%29.JPG

mudbug: The policies that encouraged ridiculous lending (CRA, Fannie, Freddie, etc.) was a large part of how it broke. Thank you Democrats!

The growth and collapse of the real estate bubble occurred during the Bush Administration.

mudbug: The causes of the Great Recession are beside the point of the column, too.

As the column was titled, "When Big Deficits Became Good", and as the author points to deficits during the Obama Administration, the Great Recession and the ensuing deficits are certainly significant.

mudbug: Saying the average unemployment rate during the Great Depression makes my point.

Is there a sentence there? In any case, unemployment dropped during the New Deal, rose when the New Deal was cut back to deal with the deficit, then rose again when the New Deal was reapplied, then dropped to near zero with the Great Stimulus of WWII.

mudbug: The cause mainly rests with the ridiculous policies of the Democrats regardless of when the bottom fell out.

The Democrats didn't have political control during the real estate bubble.

mudbug: After the crash in '29, the economy was recovering till the government intervened with Smoot-Hawley, increased spending on public works, and tax increases.

Interesting, because the U.S. economy shrank in every year from 1929-1933. Yes, Smoot-Hawley probably didn't help, but the Hoover Administration was very slow at addressing the problem, actually running a surplus in 1930.

Driving typically requires licensing for ability and knowledge of the law, along with vehicle registration and liability insurance.

Is that what you mean?

buddy larsen: {link to youtube democrats defend fannie Mae and Freddie Mac}

But Fannie and Freddie were not the primary cause of the bubble in subprime, but toxic securities originating on Wall Street. Rather, Fannie and Freddie were the 'greater fools'.

Yes, bring back the days when only white men of property could vote.