During the first half of the 20th Century, two economists dominated their field, Friedrich August von Hayek and John Maynard Keynes.
Both men addressed the challenge of the Great Depression.
Keynes argued that the classical theories of supply and demand and the invisible hand were not always adequate to reverse a downturn, and proposed that governments undertake programs of spending and job creation to stimulate the economy. Hayek argued that only time could reverse a serious recession or depression. Democrats tend to favor a Keynesian model, while Republicans retain a belief in Hayeks theories.
Adam Bitely, writing in NetRightDaily said Hayek knew that ... only markets, free of government involvement and comprised of willing buyers and sellers who had no barriers to entry and exit, could figure out the best ways for resources to be allocated. Its based on these beliefs that Republicans can argue and vote against President Obamas job programs while continuing to argue in favor of more tax cuts and less regulation.
They point to the relative failure of Roosevelts stimulus programs and Obamas 2009 stimulus package as evidence that deficit spending to stimulate the economy doesnt work.
Programs like the Civilian Conservation Corps and the National Recovery Administration were showing results, but in 1937, Roosevelt erroneously believed that the work had been successful and raised taxes. It was too soon, and the economy went back into decline.
However, World War II, the largest program of deficit spending ever seen, did break the country out of the depression.
It was a terrible way to prove a theory, but it worked, and led to the prosperity of the 1950s. Roosevelts programs worked, albeit slowly.
In the 1930s there was inadequate experience with the idea of economic stimulus. Obamas programs also worked, sort of, but at that time there was inadequate experience with Republican intransigence. The initial stimulus package was smaller than it should have been, and too heavily weighted in favor of tax cuts, in the hope of getting bipartisan support.
Christina Romer, one of President Obamas economic advisors and later his chief advisor, has said they thought that if the first round didnt work, they could go back to Congress and ask for more funding. Instead, as Paul Krugman of Princeton University and the New York Times predicted, the Republicans argued that the failure of the initial stimulus program proved that stimulus is ineffective and have blocked all further efforts at job creation. The people at Fox News have even learned to say stimulus with the air of an gourmet handed a baloney sandwich.
Hayek was wrong even a simple thought experiment will show that.
Most of the time a downturn will be self correcting, but when its too severe, as it is now, businesses lay off too many people and theres an acute shortage of customers. Businesses wont spend to hire more people because they already have all the production capacity that they need.
The Republican attitude towards economic stimulus is not an attempt to sabotage the economy in order to defeat President Obama Republicans actually believe in Hayek, and dont believe government should, or even can, revive the economy. They dont understand countercyclic budgeting and their vote to reaffirm the motto In God We Trust shows that they dont have trust in government or even in people.
If elected they will, as an article of economic belief, sit around and do nothing. They offer businessmen as candidates, claiming they know how to create jobs, when all they know is how to reduce staff and yet theyre sincere in their misunderstanding of macroeconomics 101. We can watch the Republican debates and feel secure in the knowledge that if any of these people are elected well have four years of business friendly legislation while the invisible hand sucks its thumb.
Recent polls show President Obama with a 45-47 percent approval rating (Gallup 45, Quinnipiac University 47) and thats up a lot from the previous polls but John Maynard Keynes should have an approval rating of 100%, and if its an election between Keynes and Hayek, then Keynes deserves to win.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email firstname.lastname@example.org.
From The Progressive Populist, December 1, 2011
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