Archive for June 10th, 2010

In the early 1970’s, Richard Nixon had a disastrous dance with Keynsian “economics”. The President put in price controls on a wide range of goods and watched the associated economic chaos ensue. Specifically, this graph shows the rapid increase in the need for government to become a larger source of personal income. Of course, President Nixon’s price controls had followed a major expansion of social programs (aka welfare) under the previous Johnson Administration’s “Great Society” programs. You’ll note that the percent of Americans unable to earn for themselves never recovered from this early 1970’s doubing as the economic malaise of the late 1970’s (which was caused by Presidents Johnson & Nixon messing with competitive market forces). The Reagan era tax reform, once again, began a downward trend only to be stopped by Presidents Bush 41 & Clinton, where the percent stabilized until President Obama’s crew entered the White House.

Of course, if Keynes was correct, after the economic crisis subsided in the early 1980’s, “aggregate demand” in the private economy would have expanded and replaced the need for the government expansion. The percent of government transfer payments should have dropped back to sub-10%. However, this did not happen. Why? Because the government’s spending and assumption as the role of caretaker for millions of Americans eliminated the need and, more importantly, the ability of the private sector to retake its role. Government does not create wealth. Government only pulls forward future private sector wealth. Today’s debt is tomorrow’s tax increase.

Move forward to the present… The current administration’s economic advisors are full of Keynsians, who believe that they can control/maintain “aggregate demand”. So, through “stimulus”, extension of unemployment benefits, TARP, quantitative easing, special access to Fed funds for Wall Street’s investment banks, etc., the President has hobbled the economy to such an extent that there is no increase in employment. More importantly, there will be no significant increase in employment because there is no need to increase employment (either by companies or by individuals) — the government will handle it, but at the expense of future economic growth and vitality.

The chart above is a picture of the destruction of the labor market. But worse than that, it is a picture of the destruction of self-esteem, personal drive, and personal self-worth. Can anyone say “malaise”, Mr. Carter?


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