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Prof. Blinder Believes He and Obama are Keynesians But Keynes Would Disown Them
In the Wall Street Journal 7-19-10, Alan S. Blinder, a professor of economics and public affairs at Princeton University writes in an opinion piece entitled “Obama’s Fiscal Priorities Are Right”, writes: that the “deficit hawks” believe the federal budget deficit is already too large and that the first stimulus failed. He disagrees. He writes, “The hawks have even dug in their heels against extending unemployment insurance benefits at a time when the unemployment rate is 9.5%, or helping states and localities avoid laying off teachers in September. That’s pretty anti-Keynesian thinking.” The first part is not even true; the Republican leadership wants Congress to specify the source of the funds. Why not the Tarp program or the economic stimulus bill? They are loaded with billions of unspent funds. Why are the Democrats against specifying the source of the funds? And while it may not be popular in the polls to say so, many economists believe, that many, not all, receiving unemployment compensation are really not making a serious effort to find work. And these economists could be Keynesians and they include Prof. Blinder. Prof. Blinder’s answer later in his piece is that “the right level of unemployment insurance means balancing these costs and benefits—a tricky calculation.”
As for school districts that the economic stimulus plan is supporting, not a single new job has been created supporting them. Yes, Prof. Blinder, we believe the economic stimulus bill has been a failure. We believe the money should have been used to stimulate private investment in new factories and equipment. New factories create sustained employment and have a real multiplier effect.
In fact, we agree with Keynes about trade. Keynes wrote that he would be in favor of tariffs if the UK’s trading partners were pursuing beggar-thy-neighbor policies, putting Englishmen out of work. Prof. Blinder is a free trader and has ignored the closing of thousands of American factories and the firing of millions of manufacturing workers by countries imposing artificial barriers to our exports. Here is what the Professor has to say: “The TV manufacturing industry really started here, and at one point employed many workers. But as TV sets became ‘just a commodity,’ their production moved offshore to locations with much lower wages. And nowadays the number of television sets manufactured in the U.S. is zero. A failure? No, a success.” (Italics mine.) Looks like Prof. Blinder only supports Keynesian policies that don’t work. Like Keynes we would impose a tariff on imports from those countries with which we have been experiencing chronic trade deficits. It would stimulate manufacturing in this country.
He argues that $1 given as an increase in unemployment benefits is a greater stimulus to the economy than a $1 tax cut to someone earning $5 million. Pres. G.W. Bush gave every taxpaying household a $500 rebate and Pres. Obama gave every household a similar rebate. Neither stimulated the economy. All the rebates for energy-saving appliances and insulation, payments for klunkers, had any stimulating effect. The truth is that spending money foolishly does not stimulate the economy. Keynesians like Blinder believes it does not matter what the borrowed money is spent on, it will have a multiplier effect. The only real experiment was Roosevelt’s New Deal and it was a complete failure. Not until American industry started to produce new products like tanks, and ships, and jeeps, and guns did the U.S. economy take off. And in 1946, Keynesians and leftists said capitalism had no future. They gave up but businessmen did not and we had an economic boom.
Prof. Blinder recommends what Obama has proposed, reversing the tax cuts on households making more than $250,000 per year and spending the increased revenues estimated at $75 billion over the next two years and spend it on unemployment benefits, food stamps and the like. He states it would add almost $100 billion to aggregate demand over the same period. “That translates to about 500,000 more jobs each year.” He makes no mention of the fact that the trade deficits of $500 to $800 billion per year have cost us 5 to 8 million jobs. As a free trader he has no solution. He does not believe we should fabricate “commodities” like television sets again. How about trucks that run on natural gas with which we are blessed? Are those commodities? Prof. Blinder may think he is a Keynesian. But he advocates policies that would make Lord Keynes roll over in his ashes on Tilton Downs.
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