Keynes and the current situation

Basic economics like Keynes has never been seriously disputed.

Expansionary and contractionary fiscal economic policy ALWAYS has an impact on the economy. Sometimes bigger sometimes smaller. When Republicans say "Tax cuts will stimulate the economy" that is Keynes.

The nutshell version of Keynes is: When the economy is shrinking [in a recession] the Government can spend more that in takes in and the extra money hitting the economy will make it move faster. [This can be done by reducing taxes or by increasing govt spending]
Of course this counts on the idea that a growing economy will increase tax collection and so while the economy grows the government will run a surplus, in essence saving up cash for the next downturn.

Well, Reagan ran a HUGE deficit during the early eighties, which wasn't such a bad idea because unemployment was rising steadily for the first two years of the Reagan administration. He had all sorts of goofy names for it, but what he really did was massive Keynesian expansionary fiscal policy. The trouble was when the economy started growing again Reagan didn't pull back. He kept spending like a mad man, and kept refusing to make the rich pay anything. His successor proposed cutting capital gains again [the rate was already too low]

In short we have had a succession of Republican administrations cutting taxes and spending massively [expansionary Keynesian fiscal policy] even while the economy is growing.... Wrong!!! That is like taking a little speed to help you wake up in the morning, but then continuing to take it all evening and all night and then all the next day and then... sooner or later you will collapse... and that is what happened.

"Pork"... is the wrong word here. "Pork" is too vague and ill-defined. A bridge to nowhere will certainly create jobs... building bridges takes manpower materials etc. That is a good thing. "Nowhere" may not be the most effective place to build it. Because economically it is better to actually get some benefit from the bridge.

On a different discussion site one angry rightwingwacko wrote "Explain to me how increasing financial aid to college students stimulates the economy"... Well that is easy... 3.6 million Americans have lost their jobs since the beginning of this recession. How many of those wanted to send their kids to college and now cannot, because they are unemployed??? How many will not send their kids to college because they fear losing their jobs in the next year or so??? Bad economic times means fewer college students. Fewer college students means less money for colleges. That means colleges cut back, cut jobs and more jobs are lost, a few of the grounds keepers, a couple of maintenance men, one of the parking lot attendants, now newly unemployed. Helping to keep our young people at a university somewhere is GOOD for the economy.

Nearly all government spending stimulates the economy one way or another, and we need massive stimulus in a hurry.

Tax cuts will not work in the current situation. Why? Well, the 3.6 million newly unemployed won't pay any taxes anyhow and they are the ones who need to get back into the economy most of all. Therefore ANY tax cut will miss the MOST IMPORTANT target.

Rich people like me will just take their tax cut and buy gold. [I know. I hang with lots of rich people] Buy gold and wait out this crisis. It will create NO jobs at all. It will not stimulate the economy at all.

Normal folks, have thousands of dollars in credit card debt and or a mortgage that they likely can't pay... They'll take a tax cut, pay off a small portion of their debt and continue to spend as little as possible until this thing is over.
Very very few people are going to go out and spend their tax cuts. Last year's attempt at "Tax Rebate" clearly showed that this strategy is futile. The theory was great, give people two thousand dollars cash they go out and spend and the economy rises... but it had NO effect at all. Likely because of the credit card debt thing. Times are tough and people are afraid to keep paying 20 or 30 percent interest on credit cards they don't need.

Buy a new car??? Nobody will. In recent years cars were being sold at a rate of 17 million per year. The market is flush with cars. Those who wanted a new car already have one. The number of those who really NEED a new car is tiny. Everybody bought two or three years ago. Those cars will run for another decade.

So, in short we actually need "Pork". We need lots and lots of "Pork". We need government building projects which will give those 3.6 million people a means to support themselves and their families. Let them keep their self-respect, do something productive for society. Give them a chance to make the house payment, stay in their homes, maintain a quality decent neighborhood.
And not all of it needs to be new spending. California is now bankrupt. California will have to lay off state workers soon. Let's try to save the job of the nurse at the psychiatric hospital. It is NOT her fault that the economy is in freefall. If the Federal government cuts taxes the California government will just raise them, and the average citizen will be no better off. [the situation is basically the same in every state. California is only a good example]
If that nurse loses her job she is much more likely to lose her home. So... when they forclose on her home nobody is likely to buy it, because nobody is giving mortgages these days. So the house is likely to remain empty and decay... losing value by the month... millions of homes... slowly becoming rubble, the collective loss of wealth to the USA is staggering... but whatever happens "Government" has no role to play in helping to remedy this situation. NO WAY!

Normally I would never say "Nationalize the banks"... I know the history of nationalized banking systems in France, for example. Normally I would say "Governments are lousy bankers and should stay out of the business". But Normally I would never say "Cut off your left leg"... but this is a disaster that comes along once in a hundred years, if that. This is such a horrible case of gangrene, that the only thing to do, the clear and obvious choice is to cut off that leg as soon as possible... and banking is better than legs, because commercial banks grow back in 5 to 10 years. Legs never do.

One other argument against the Keynesian Expansionary Fiscal Policy [running up the deficit, in this case by spending] is that the government will have to print money to do it, and that is inflationary... Hmmmmmm. Well, right now we are entering a period of Deflation, and Deflation is far worse than inflation. We need inflationary policies right now.

We need them now, just like we needed them in 1929 at the beginning of the first Republican Great Depression. Of course Herbert Hoover did NOTHING about the problem at all ever. Unemployment doubled every year of his presidency, and the only good thing that Republican Herbert Hoover did, was to lose the election of 1932.

Is there a risk that too much inflationary policy will cause the fall of the dollar, and result in the dollar losing it's very valuable status as the world's reserve currency? Yes, there is. Unfortunately we have no choice anymore. We should have [our leaders should have] thought of that back when the economy was good and yet Duyba insisted on cutting taxes at a time of war. When Dubya refused to cut governement "Pork" at a time when unemployment was low. Now it is too late. There really are no good options. Cut out that gangrene, spend like hell, and pray, because the Republican Great Depression II is coming quick to an American State near you.