Was John Maynard Keynes right? Was John Kenneth Galbraith? What about Arthur Laffer? Milton Friedman?
All of these men were esteemed (or at least highly regarded) economists in their day. And each professed a different approach to economic travails such as the United States is currently experiencing.
Keynes revolutionized economic thinking in the 1930s by arguing that free markets alone could not be counted on to provide recoveries in times of high unemployment. He believed that at such times, demand needed to be increased, and he urged the kind of government programs that Franklin Roosevelt adopted to curtail the worst effects of the Great Depression.
Galbraith was a Keynesian with a decided iconoclastic bent. He cared far less about technical measurements and much more about what a society needed as the measure of what economic policies should be pursued. He had the ear of John Kennedy and Lyndon Johnson in the 1960s and influenced greatly the concept of a “Great Society” that Johnson promoted during his presidency.
Laffer was the “napkin” author (so-called because he allegedly detailed his theory on a restaurant napkin). That theory was that lowering tax rates would actually raise government revenues, because as entrepreneurs were able to keep more of their profits, they would produce more revenue, thereby increasing actual tax revenues. His theory, referred to as “supply-side economics” was adopted by Ronald Reagan and has been part of the Republican Party’s mantra on taxes ever since.
Friedman was the founder of the Chicago School of Economics. As the leading academic at the University of Chicago he called for a rejection of Keynesian principles in favor of a return to a pure market-driven economy. His views found favor in the Reagan years and were adopted much more aggressively during the administration of George W. Bush.
Or are none of these positions absolutely correct? There are certainly other theories on how economies can best be managed (or not managed) to provide for the greatest wealth and prosperity for the greatest number of citizens. And let’s not forget the over-riding influence of the Federal Reserve and its Board of Governors. They are a force unto themselves, free to act without any oversight of any kind, the closest thing to an oligarchy within a democratic republic history may have ever known.
Stripped of all the political rhetoric, much of which is aimed solely at putting one party in power over the other, the debate (such as it is) today is largely over economic theories. No one denies that the American economy is struggling to recover as another summer winds down.
A growing number of observers are mouthing concerns about a possible, if not likely, double-dip recession, which would potentially make the 9.5 percent unemployment figures the Labor Department repeatedly reports of late seem like good news.
Of course, it isn’t good news, especially since the “real unemployment” (that measure of the actual number of able-bodied Americans who are out of work) is most likely closer to 17 or 18 percent, which means that at least one out of every six eligible workers are spending their time in non-income producing activities.
And those figures absolutely soar when the demographics are focused on minority populations, with upwards of one quarter (or more!) of all African-Americans unemployed. That kind of statistic sounds more like something from a third-world nation than the greatest economic engine the world has ever known.
But the figures don’t lie, nor do the lines at the unemployment offices across the land. People are hurting, businesses are hurting, charities are hurting, local governments are hurting, state governments are hurting, and the elected folks in Washington, DC are squabbling about how to fix it all.
On one side of the debate are those who favor as little government “intrusion” into the system as possible. Their remedy is to lower taxes, reduce government spending, reduce government regulations, and generally allow the markets to straighten themselves out. Advocates of this position have no trouble arguing against an increase in unemployment benefits while they insist that the tax cuts for the wealthiest citizens that were promulgated in 2001 must be maintained (even though they are scheduled by law to expire at the end of this year).
On the other side are those who favor a massive increase in government “initiatives” to increase employment and to put more money in the pockets of the country’s consumers. Advocates of this position have no trouble arguing for even larger deficits (the country is already in the red to the tune of over one trillion dollars a year) and a national debt that might exceed the entire gross national product in a very few years.
Who’s right? Who’s wrong?
If you’re the president of the country, you have to worry about those questions. Moreover, you have to worry about whether the electorate believes you have the answers.
Thus far in his presidency, Barack Obama has been a mix of conflicting economic theories. His two top advisors (Treasury Secretary Tim Geithner and National Economic Council Director Larry Summers) have prior ties to Wall Street and are generally assumed to be most protective of the financial markets.
Others in his inner circle may tilt more clearly to the Keynesian side of the spectrum, but their voices have not been as dominant as those on the right might claim.
The big stimulus package that Obama and his allies in Congress pushed through last year was far less aggressive than many liberal economists wanted. Its price tag of $787 billion was far less than Paul Krugman, recent recipient for Nobel Prize Economics, had lobbied for. He now urges a second stimulus bill to forestall that feared double-dip recession.
He won’t get it, of course, and maybe it would be throwing good money after bad anyway.
Who knows? Everyone has a theory, but no one really knows how to get the economy back on track. It may be, as they teach in college, the most scientific of the humanities, but it is still very much the most inexact of the sciences.