David R. Henderson  

Are We Getting to Him?

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During President Obama's press conference on Monday, the first question was:

Can you talk about what you know or what you're hearing that would lead you to say that our recession might be permanent when others in our history have not? And do you think that you risk losing some credibility or even talking down the economy by using dire language like that?

Obama spent close to 10 minutes answering these questions and little of his answer directly addressed either question. In his answer, though, he said something interesting:

You have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace.
And in fact there are several who have suggested that FDR was wrong to intervene back in the New Deal. They're fighting battles that I thought were resolved a pretty long time ago.

He said this in that incredulous way that he has refined to a fine art. But that just plays to his base. I think it's great that he's raising this issue.


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COMMENTS (34 to date)
Randy writes:

Loved that first question. And watching President Obama back away from his earlier statement made it pretty clear to me that much of what is happening now is political opportunism.

MHodak writes:

Randy is right. Obama could not give the forthright answer: "We're using the pretense of settled economics to support this massive spending, but who knows if it will really help? So, we're treating the arguments of spending opponents as dismissively as possible, or otherwise putting the burden of proof on them that this spending won't help. Why? Because we won."

Greg Ransom writes:

Obama spent most of his college years taking classes from Marxists and other socialists.

Obama spent much of his time at Harvard Law taking classes from left wing law professors, folks who taught Marxist inspired "Critical Legal Studies" or who taught Critical Race Theory or some such.

His mentor and ideological guide in high school was a member of the Communist Party, U.S.A.

His mother and grandmother went to "the little Red church on the hill" -- a left wing Unitarian church, still very left wing to this day.

Obama attended socialist conference, hung out with far left friends, involved himself in left wing political organizations, attended a far left church for 20 years, and on and on.

Left wing ideas are all he's been exposed to.

Get used to it.

Zac writes:

Dr Henderson is being too kind. I don't think he is just playing to his base - I think he is ridiculing free market ideas as both reactionary and absurd.

Although I guess ignoring it and saying that there is no one who thinks that way, as he has done recently, is even worse.

reaganaut writes:

Time to go back to basics, Ronald Reagan. Oh!Bummer should study and ponder these quotes:


Government always finds a need for whatever money it gets.

Government does not solve problems; it subsidizes them.

Government exists to protect us from each other. Where government has gone beyond its limits is in deciding to protect us from ourselves.

Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.

Government's first duty is to protect the people, not run their lives.

Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

Governments tend not to solve problems, only to rearrange them.

Daniel writes:

I agree with Dr Henderson. If Obama wanted merely to be critical toward the free market, he might as well said nothing about the critics of the plan. Or at least nothing major. And certainly nothing as in depth as to acknowledge FDR skeptics. The median voter wants to see something DONE no matter the cost - sad as that is, and for neoclassicals to get a shout out at least admits some attention is being paid to dissenting viewpoints.

El Presidente writes:

All together now: "Shun the unbeliever! SHUUUUUUUUUUUUN!"

You seem to think the question accurately depicted his previous statements, the public's perception of and reaction to them, and that it is THE relevant economic question. You conveniently ignored his emphasis on driving the PRIVATE sector to boost employment. Maybe you don't believe that is relevant. Maybe 8% unemployment sounds just fine to you. Have you entertained the possibility that knowledge is leverage and that achieving his policy objectives requires that he have the advantage of knowledge to maintain the initiative? But that's the problem, isn't it? Forcing markets to do what is generally in the public interest is heretical, right? It violates the sacred dogma. Shun the unbeliever.

If we are going to have a debate about whether or not the government should intervene, then I would like to hear the ARGUMENTS on the "no" side (i.e. logically formulated thoughts beginning with explicit premises, employing logic in a syllogism, and arriving at conclusions).

Here's a question I would like you all to answer directly since you're so fond of forthright Q&A:

Does a change in the comparative leverage of negotiating parties change the terms of exchange?

If you answer anything other than "yes", you're wrong. If you answer "yes", then you need to come back to reality and stop berating people who are concerned about the distribution of income and wealth. Labeling somebody's academic pedigree as socialist or Marxist instead of offering credible arguments of your own is decidely unacademic. It is known variously as argumentum ad hominem, argumentum ad personam, and being a jerk.

Barbar writes:

Ronald Reagan was awesome. Didn't do anything to reduce government spending, but he made us feel good about the idea of small government.

RL writes:

I agree he's merely playing to his base. Problem is his base is a huge chunk of the American public...

Classic liberal writes:

"You have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace."

Why does he say "philosophically"? Is he trying to say that non-interventionist economists doesn't care about reality?

Michael D. Tanner (http://www.cato-at-liberty.org/2009/01/29/so-what-is-wrong-with-ideology/) has already noted something similar about the use of the word "ideology".

The Snob writes:

Was having drinks last night in Harvard Square with 4 friends of mine, all of them freelance journalists, all well to the left of center. As the debate ranged and one went off on why we needed the New New Deal, two others chimed in to say "but there are economists who say that did very little to get us out of the Depression." I almost fell off my chair.

So, yes, I think word is getting out, slowly. This is why the bill is getting the ramrod treatment.

The Student writes:

What I can't stand is how the various right wingers on this blog, regardless of the school they belong to, equate Keynesian advice on how to break out of a recession to the New Deal.

This seems like a stretch, consider Keynes published the General Theory in 1937...

Now, Obama is right when he says there are a good deal of people who philosophically cannot support the stimulus, given that they believe it is a suppression of individual freedom. AnrgyBear had a very good post on this same subject recently http://angrybear.blogspot.com/2009/02/freedom-vs-four-freedoms.html

I can respect those who oppose expansion of the government because they honestly believe that it suppresses freedom ACCORDING TO THEIR DEFINITION. That's a respectable point of view, that boils down to a fundamental difference that cannot be resolved except via persuasion.

But there is indeed a shining example of Keynesian economics during the Great Depression, and it came from an unlikely source.
Hitler!
Oh, I know, how treasonous. But Hitler went nutso on the deficit spending and it drove Germany straight out of the depression and into European economic and military dominance. Check the facts. No one ever seems to wonder by Germany was more powerful than the combined strength of many other European countries?

But other than that, yes, OBAMA IS A POLITICIAN. Expect him to act like one, and stop complaining. He will sound as dire as possible in order to get the stimulus bill passed and his objectives achieved. Shouldn't the right already be happy with $400 billion in tax cuts?

Jayson Virissimo writes:

The Student, why does the date of publication of The General Theory matter? Keynes didn't invent fiscal stimulus, he only gave it a stronger theoretical foundation.

Also, you point out that some people are opposed to fiscal stimulus on grounds of loss of freedom and then try to convince those people that fiscal stimulus 'worked' in Nazi Germany. Do you not see the problem here? In a sense it did 'work', but not in a way that people worried about freedom would want.

RisingTide writes:

Long live Mises.
Yes, the liberal is liking the Austrian School Economist.
I feel sorry for Kling, who is a Keynesian. Keynesianism seems ever more vanishingly inappropriate, as the time wears on.

Then again, whatelse do we have?
Haikuwriting, apparently.

AB writes:

The Student has a very interesting perspective worth studying. My only issue is that right wingers are not the only ones that equate Keynesian advice on how to break out of a recession to the New Deal. Left wingers everywhere are starting to refer to the massive deficit spending (oops I mean "stimulus") plan as the "New New Deal", and then hold up Keynes as their model economist.

Also, yes Obama is a politician, but to say that we should "expect him to act like one and stop complaining" is a bit much. I could have told every left winger in the country the same thing about G.W. Bush. Perhaps we the people have to complain more loudly so that our voices can be heard. After all, it seems to work well for special interest groups.

Ian Dunois writes:

Student,

You can not equate that it was the policies alone that allowed Nazy Germany to rise. Much of the wealth the nation acquired for its policies were acquired by theft as they collected all the material wealth of those they sent to the concentration camps.

Indiana Jones and the Last Crusade has a good demonstration of this when the Germans tried to bribe the Middle Eastern ruler with a chest full of gold and silver.
Granted he takes the German vehicle, but the money must come from somewhere before it can be spent.
In Obama's case, there will be more taxes for all his policies. He plans on giving what he calls private sector jobs by creating work for those who labor on roads, buildings, and bridges. Is this not in comparison to FDR's New Deal?

Classic liberal writes:

"Obama is right when he says there are a good deal of people who philosophically cannot support the stimulus, given that they believe it is a suppression of individual freedom".

Of course there are people who don't support the so called "stimulus" because they believe it's against the individual freedom. There are also loads of economists (at least 300 who signed Cato's advert) who stand against it because it's bad for the economy. Mr. Obama's allusion to the "philosophers" isn't but a new "no economist is against this", as the one Cato's advert was directed to. In my opinion, what he tries to point out is that the stimulus is economically good and hence it can just be opposed from a philosophical point of view.

I haven't read the full transcript, but I'm suprised to know that journalist make those kind of questions (e.g. that one which quoted mr. Henderson here). I'm from Spain and here journalists don't care about massive government spending. high taxes and debt and so forth. And, just like journalists, most people don't (want to) know about the risks of this kind of policies.

The Student writes:

To Jayson-
Clearly you do not know the history of the new deal, nor of the shifting power of economic schools in America. Nor of the decision process involved in the New Deal. Classical Economics held almost complete sway over academic economic thought in America. Deficit spending was righteously declared as bad for the economy. The New Deal was a partially economic, partially political, and partially social progressivism project. (I know that phrasing doesn't make sense.) FDR himself was scared of deficits, as evidenced by the budget trimming of 1936-37, which (in my mind and many others), plunged us back into the depression.

Only when WWII rolled around with a "legitimate" reason for deficit spending was it truly embraced, and it pulled us out of the depression. Of course, that's the historical narrative that I offer, not the one that, for example, Prof. Henderson would offer.

To Ian
This viewpoint you offer seems, to me, ridiculous. The historical example of the mercantilist competition between Spain, France, and Britain comes to mind. As history shows, the winner is not the one with the most money or greatest purchasing ability, it is the one who can produce the most. Britain triumphed over Spain precisely because while Spain was plundering for gold, Britain gained the lead in both technology and productive capacity. By this view, didn't Germany penalize itself by destroying human and physical capital through it's suppression of the Jews?

To AB,
I can agree with this view. But again, political speak doesn't equal academic speak. The New Deal is continually popular among the public, and appealing t it is an effective way of garnering support. And Liberals appeal to Keynes in the same way right wingers with no economic training appeal to Friedman.
ANd my point is that you cannot equate political speeches with true policy direction or intellectual belief. If we held Bush to his words, there would be no Iraq War, Bin Laden would be dead, and the economy would be a lot better than it is now.

Ian Dunois writes:

Student,

The short term gain from Keynesian policies only look good in the short term before they twist themselves with the unintended consequences. To which the answer can only be more policies, and there the vicious cycle begins.

Mises in Liberalism had stated:
"It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error."

Your point is that Nazi Germany demonstrates a working of Keynesian policies.
My point to you is that the Keynesian policies alone are not what attributed to the rise. They must have the funds in order to support their plans otherwise they are simply plans that amount to nothing.
One must save in order to spend. Children all used to work in the fields in the U.S. As capital increased within society, the children were able to attend school and machines invented to do the hard labor.

In Human Action Mises states, "An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself."

Phillip writes:

The whole thing was very disappointing, for several reasons. First of all, I hate the way he calls on reporters from a pre-screened list. This practice borders on deceptive and is only a few steps from soviet-ness. He referred to the current recession as the “most profound economic emergency since the Great Depression.” I’m genuinely curious. By what standards does he judge this? It’s certainly not by job loss or output, which were worse in the 80’s and are leaps and bounds above the Great Depression.

I like how he addressed people who philosophically disagree with the Recovery and Reinvestment Act of 2009. But, what about the people who pragmatically disagree with it? It seems that Obama thinks our criticisms are all valid, as long as they save or create 4 million jobs. Apparently, there’s an ideal amount of people who should be employed and we are 4 million people short of that. Criticisms about the growing debt are not valid because, because as Obama stated, “it's a little hard for me to take criticism from folks, about this recovery package, after they presided over a doubling of the national debt. I'm not sure they have a lot of credibility when it comes to fiscal responsibility.” No? Then does the CBO have any credibility?

Regarding the effectiveness of the bill, as it was on Wednesday the 4th, the CBO stated that the massive amounts of debt would crowd out private investment, leading to less output than no stimulus at all (tinyurl.com/b6e4hx). Some investments might partially offset that crowding out, but still “each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital.” Granted, the bill has changed since then and will change still. However, the price tag hasn’t changed significantly. Without some incredibly smart investing on the part of the federal government, this will be a situation that they should stay out of.

The Student writes:

Ian, I fail to see the relevance of your post. Fascism isn't Keynesian by definition. This is the exact sort of equivalence that turns academic debate into political positioning. I admit, there are many difficulties involved in shrinking the size of any given government, but I believe Clinton found the adequate way was to just not expand it, and wait for growth to diminish the relative size.

But pushing past that, you are merely raising the philosophical point I (and Obama) raised, which is that one can easily be philosophically opposed to the stimulus, as you appear to be. I understand that you view government power expansion as an infringement on your rights, that's a respectable viewpoint.

But don't equate big government with fascism, especially big government in economic matters.

Your point about Nazi Germany is absurd, by definition, if Germany was deficit spending, it did not have the "funds necessary to support its plans". And to claim that confiscations of wealth from a rather small minority of the population is ridiculous. They rose from the ashes of the Great Depression faster than everyone else because they deficit spent themselves out of it.

Randy writes:

El Presidente,

"Does a change in the comparative leverage of negotiating parties change the terms of exchange?"

Yes. Of course. Especially when an organization with a monopoly on the use of force weighs in on one side.

Your turn. Does an unequal outcome necessarily demonstrate the presence of an injustice? Or, does an equal outcome necessarily demonstrate the presence of justice?

El Presidente writes:

Randy,

Oh boy! It's my turn.

Does an unequal outcome necessarily demonstrate the presence of an injustice? Or, does an equal outcome necessarily demonstrate the presence of justice?

No, and no. Not only that, but rigid equality of wealth and income would be suboptimal, inefficient, and boring. However, when a high degree of inequality causes reservation prices to diverge dramatically and threatens to depress the rate at which goods and services are exchanged (as can be measured in the sharply declining velocity of money) it goes too far and is likewise suboptimal and inefficient, if slightly less boring. Now call me a socialist or communist or whatever. I dare you. :-)

Mike Moore writes:

Student,

If Nazi Germany is the best example of deficit spending out of a recession/depression than we can conclude that Hayek was correct and put the issue aside in favor of longer depressions but more political and economic freedom.

The more causative variable during the great depression was monetary policy. Since conventional monetary policy has run its course for this crisis, there are few lessons to be learned from that period.

Mike

Randy writes:

El Presidente,

"...when a high degree of inequality causes reservation prices to diverge dramatically and threatens to depress the rate at which goods and services are exchanged (as can be measured in the sharply declining velocity of money) it goes too far and is likewise suboptimal and inefficient..."

Lots of big words. But it doesn't sound like cause and effect to me. It sounds like propaganda to justify political activity. In fact, the use of the word "suboptimal" pretty much seals it. The economy doesn't have an objective. That's a political concept.

The Student writes:

You're point is invalid, Mike Moore. Saying that Keynesian deficit spending causes Fascism or Natzism is like me saying that free market principles will lead to anarchy. There is no equivalent.

The Communism Karl Marx espoused would have looked almost entirely unlike Chinese communism or Russian Communism. Capitalism takes many forms around the world, and Keynesianism is just another form. Political decisions about individual freedoms have little to do with economic decisions about taxation.

Are you positing that there is somehow a slippery slope from 40% marginal tax rates to abolition of religion, virulent nationalism, and racism?

Kind of a... unintelligent assumption, if I must say.

El Presidente writes:

Randy,

Lots of big words.

Sorry.

But it doesn't sound like cause and effect to me. It sounds like propaganda to justify political activity. In fact, the use of the word "suboptimal" pretty much seals it. The economy doesn't have an objective. That's a political concept.

So you're O.K. with me saying that uniform distribution is suboptimal, but not if I say the same thing about wildly divergent distribution? Or, do you object to both pronouncements? I only ask because the typical positive (empirical/theoretical) argument against government intervention appeals to the concept of efficiency loss, something which we would have to discard if that was not an acceptable basis for evaluating the performance of an economy or government policies. If we discard the notion of efficiency loss, then we would have to choose another normative value on which to base our goals and standards besides maximizing output per capita. What would you choose?

AB writes:

Student,

"...political speak doesn't equal academic speak."

"...you cannot equate political speeches with true policy direction or intellectual belief."

I agree, I'm glad we see eye to eye on those things, but that is also the point many economists are making about the stimulus package. Was the legislation written by economists, or politicians? How are we to trust that the political speeches will match up with true policy direction? Are most of the proposals being made actually Keynesian style stimulators, or just a way of exploiting a government spending (or expansion) opportunity? There are too many questions looming to just simply trust one politicians answer.

Randy writes:

El Presidente,

"...the typical positive (empirical/theoretical) argument against government intervention appeals to the concept of efficiency loss..."

That is one approach. It seems like a rationalization to me.

"If we discard the notion of efficiency loss, then we would have to choose another normative value on which to base our goals and standards besides maximizing output per capita. What would you choose?"

I think we discussed my being a neo-Marxist? Maybe not. But I agree with Marx that labor (the productive class) should retain the full value of their production. That is, I oppose exploitation - for any reason.

Dezakin writes:

I find it fascinating and depressing that the prevailing view on a blog supposedly run by economists is more obsessed with political ideology than observed economics.

Randy writes:

Dezakin,

Micro or Macro? Because Micro is, as you say, "observed economics", but Macro is Politics. So, while Micro is hardly worth a blog (there are plenty of great textbooks), Macro cannot possibly avoid the political implications.

Ian Dunois writes:

Student,

I don't think it is debatable that Nazism is a form of Fascism.

You tied yourself to the Nazi Germany argument; I am only trying to disprove your take on it.

Keynes would have opposed Nazi Germany.
The below link is Hayek, who had known Keynes, stating that Keynes would have agreed with Hayek's argument. According to Hayek, Keynes would have believed that the policies were only needed at a certain time. Keynes was upset by his pupils expanding on it.

http://consultingbyrpm.com/files

click on Hayek Firing Line.

http://consultingbyrpm.com/files/Hayek%20Firing%20Line%20on%20Keynes.mp3

THe Student writes:

Stop twisting my words Ian, I never said that Nazism wasn't fascism. But you are trying to draw a link between the economics policies of Nazism and the political and social policies, where is fact no causation effect exists. Of course Keynes would have opposed Nazi Germany on the basis of its political and social policies, but it carried through Keynesian economics better than any country did, and ended up dominating Europe.

Like I said, saying Keynesianism leads to fascism is euqivalent to saying libertarianism leads to anarchy. Come up with a better argument.

Mike Moore writes:

Student,

In throwing out The New Deal as a legitimate vehicle of Keynesian spending, and positing yourself the success of Nazi Germany, you've tied yourself to the state that lead Hayek to write "The Road to Serfdom" .

I don't really believe Hayek's argument is correct, outside of a few special historic examples, but if Nazi deficit spending is an example of fiscal stimulus than we must accept that there is some risk to the government planning and directing the entire economy at some point in the future. If you would like to retract such an example, than by all means.

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