Friday, October 31, 2008

Who would Shel Silverstein like to have a beer with: Keynes or Hayek and Friedman?

Wikipedia says of Shel Silverstein's Where the Sidwalk Ends, "The book's poems address many common childhood concerns, as well as presenting purely fanciful stories."

When economists write fanciful stories about their concerns, they call it theory.

One such theorist was John Maynard Keynes. Keynes' theory generally goes as follows: during boom times, you save money, and during bust times, you spend it. The squirrel knows this. The farmer knows this. Your Grandmother knows this. Keynes felt that the government can--an should--act as a buffer: during boom times the government should have policies that inhibit growth and during bust times they should promote it. The government would run surpluses during the booms, and deficits during the busts. This fanciful story helped get us out of the Great Depression.

Then along came Hayek and Friedman. They disagreed with Keynes. They emphasized free markets and something called monetarism, which focuses on the supply and cost of money and currency. Essentially, they felt that the private market would do best if left to spend its money on its own, rather than have the government do it for. The Federal Reserve, through multiple instruments that they have been using a lot lately, could affect the cost of debt and money. In this way, they could encourage (or discourage) people to borrow money and spend it. Their story got us out of the 'stagflation' of the 70's.

So what happens now? What story do we have to guide us through these scary times?

When the cost of money went chaotic during the credit crisis, the Fed opened the spigots and used all their most powerful tools to stop it, but they could not. Banks refused to lend to each other and were hoarding cash, rather than using it to make the loans that would stimulate the economy. So what of Keynesian theory? Have you heard of 'ear-marks'? Everyone knows that earmarks are bad news. You end up building "Bridges to Nowhere" and expensive planetary projectors. However, these are the same tools we used in the Great Depression to get out of 25% unemployment. We use them differently now. This is where Barack wants to go: to tie in the War on Terrorism or National Security into energy independce, renewable energy and greenhouse emissions, but he could--and should--drop the last one. This would need to be a national effort, as opposed to the piecemeal process that we use earmarks for currently. So Keynes' tool box might work, but we would have to do some major 'job training' of the Congress to show them how to use the tools properly. And there are major pitfalls associated with Keynes.

Unfortunately, we don't have any savings. George W. Bush tax cuts during boom years took care of that. We have deficit spending, but then we might run into run into Hayek and Friedman. Huge deficit spending could cause bad things to happen to interest rates and currency exchange rates, such as working to further lower home prices, greatly increase inflation, and rapidly weaken the dollar's status as the reserve currency of choice.

So far, what we have actually done none-of-the-above. We are using the Chinese method in reverse. China is a mixture of state owned and privately owned companies. Currently, China is working to privatise its companies. In the US, we are now buying companies and turning them into state-owned enterprise to prevent the economy from collapsing.

So we are all concerned. Our staid theories and gospel stories are not working as they once did, and we have yet to create anything new.

We have arrived at the point where the sidewalk ends. I should would like to have a beer--or several--with Silverstein, Hayek, Friedman and Keynes.

Barack Obama, a true friend of the conservative

Barack Obama looks to win the election. True conservatives should hope that he does, for history suggests that a leftward swing is in our future, and he appears to be extremely thoughtful, knowledgeable, and curious. His star power will ensure that he, as a President who must appeal to Virginians, Coloradans, Ohioans others in swing states in 2012, will be more beholden to the center voters than he will be to the district that elects Nancy Pelosi.

In other words, conservative family members, you could do a lot worse. Barack wants to win the President to be the President and have an impact. Sure, his views are left of center, but I have no reason to doubt that he means it when he said recently that he intentionally does not criticise the Republican party, because there are too many issues America will need cooperation on.

Lets take the contrary view that Obama is campaigning as a moderate, but when he gets to the White House it will be Liberals Gone Crazy. They will wreck our financial house. They will weaken us internationally. They will bring back the fairness doctrine to eliminate right wing radio. They will encourage abortion. They will tax us so much, there will be no incentive to want to make a lot of money, or be an entrepeneur.

Weakened Financial House: Bush et al have already taken care of this. True, Democrats had a hand in it as well, but the electorate has rightly assigned blame on conservative economic principals supported by Hayek and Friedman. Either way, the house is wrecked, and Americans rightfully don't trust McCain and Palin to fix it. McCain and Palin are economically uncurious, as McCain has admitted multiple times. When you are not curious and are not an expert, you default to the party line, and this line has cost us a lot, and would cost us even more if allowed to continue. Obama, as an intellectual, does not have a pre-defined economic ideology beyond the idea that he believes in a progressive tax code: one where people that make lots get taxed at a hire rate than people that make less. We can argue until we are blue (or red) in the face, but history will show you that when the wealthy get too wealthy, and the poor get too poor, the poor rise up and kick the shit out the wealthy. This does not happen in America, because we have a progressive tax code. If you are well fed, it is hard to have a revolution. Obama He does have relationships with Volcker and Buffett. This is good for America.

They will weaken us internationally: Again, already been done. I have little to say except that it was a poor strategy for Bush to unite our enemies and divide our allies. Symbolically, I believe that only the most cynical of European America haters could not be impressed by what it means historically to elect Barack Hussein Obama. Obama was roundly mocked by the GOP for drawing 200,000 to Berlin. Last I checked, Germany is a democracy, and an ally. Using simple math, if German voters love Barack Obama, then German voters will love German politicians who agree with Obama, therefore, German politicians will have an incentive to cooperate with American policies because it will give them oppotunities for photoops for Obama, rather than having to oppose American policies because Bush is associated with them, and German voters hate Bush. Got that?

They will take away right wing AM radio through the fairness doctrine This is the most absurd. Everyone knows that the right wing dominates the airwaves of the AM radio. If Obama wants to ensure electoral defeat by pissing off all the rural voters in the swing states of 2012, then he will sign the fairness doctrine back into law.

Abortion: Liberals don't like abortion. They just don't like government telling them what to do based on religion even less. Somehow, 'small-government' conservatives aligned with religious conservatives to create a majority in the first part of the new millennium. Historians in the future will wonder at how an alliance between small government conservatives and religious conservatives--who want an expansion of law into what many families now consider there own private life--ever lasted this long.

Now that does not sound so bad, does it? The alternative is for an intellectually bankrupt party lead by someone too old and too young to win. The backlash to that party would be way to the left of Obama, and would likely be an angry leftist ideologue--something that Obama is surely not.