A famous and beloved Kossack has been writing diaries bashing Obama for his failure to stimulate the economy through further Keynesian (fiscal) stimulus. It is a appealing argument to make, because Keynesian economics did get us out of the Great Depression, about SEVENTY years ago --- though it took MANY, MANY years to do so. A chart in that recent diary seemed to show that 4 years after taking office, Roosevelt's unemployment rate was something like 14-16%, which is awful, except that it started at 25%.
But a few things have changed since 1941 --- and I'm not talking about ipads or ipods or tablets, or whatever it is you newfangled kids call technology these days.
No, the difference is that we live in a world economy now. An economy where places like Brazil, China and India really matter. An economy of shortages and panics over shortages in food, water and raw materials. A world where currency traders are critical....
None of this was true when WWII began. We effectively could print money in any way we wanted back then --- either through the Fed keeping rates low, or by deficit spending. Who would say no to the USA during the Depression? Europe was the only other real source of power, and they were rapidly heading straight into WWII. Europe was more screwed up than we were.
Now, no one knew that we could run up ginormous deficits and get away with it, because nothing like this had been tried before. So it took considerable guts for FDR to do what he did. And more power to him for doing it.
But even FDR had doubts about running up huge deficits year after year. So after he was re-elected in 1936, he listened to advisers who told him that it could NOT go on. FDR raised taxes to cut the deficit and promptly threw us back into the Depression.
Barack Obama doesn't face the Great Depression, but he faces a MUCH MORE complex situation. We can't simply print dollars any more; the Chinese own our debt and they are not willing to see the value of their holdings "inflated" away. You see, if our GDP is ~14T, and we print (say) 3T out of thin air, arithmetic tells us that the value of the dollar has lost 18% (3/17ths) of its value.
But even if the Chinese WOULD be willing to play ball (after all, they need us as much as we need them), we STILL couldn't do it --- because of the change in our currency value. If the dollar collapses, the price of imports skyrockets. The most important import of all is OIL.
When the economy began to recover this spring, oil speculators drove the price of oil to ~$120/ barrel. This immediately destroyed the recovery. Now, the problem of oil speculation is a very serious thing, and I will be happy if anyone knows how to prevent it...
But the point here is that a gigantic Keynesian stimulus would convince the world that we are trying to debase our currency -- that we are trying to print money to pay off our debts with worthless paper. They wouldn't care that it is an effective means of stimulating the economy. As a result, the dollar would tank, the price of oil would skyrocket, and the economy would grind to a halt ---- just as it did this spring, but potentially much worse...
The original Obama stimulus was a terrible piece of legislation because of idiotic tax cuts, etc. And it was undoubtedly too small...[we all felt that way at the time]...
But there is a limit to what we can do. The USA can no longer act unilaterally in financial matters. Obama faces a world that is so much more complicated than the world Roosevelt faced. And remember, Roosevelt didn't get it right even in those simpler times.
I've tried to raise this point a few times in these diaries, but no response...Thus a diary...
I am NOT an economist and I'll admit I might be wrong. But I do watch and listen carefully to money types and I think I understand how they operate. And to ignore how they think is just foolhardy. Like them or hate them, they have great power.
I always appreciate a diary that attempts to offer a solution, rather than calling politicians names. But if the solution creates its own set of (potentially serious) problems, we can't ignore them. That's what the other side does. We're better than that.