Reply #13: Reich, Keynes and stimulus

[bstender]

first off, Thompson in this video is dead-on 100% right, the response to our current financial crisis is ass-backwards. it seems that many DU-ers are no more immune to the fallacy of confusing the person with the message than the denizens of the Free Republic.

What is wrong with Keynesian philosophy in this situation is that the economy is sitting on trillions of dollars of bad loans and bad derivatives based on those bad loans. this means that the declared value of everything is not correct. those loans that are bad have to fail and the economics of every project has to be rethought with the present reality factored in. this is why people are retreating, saving and realigning, not because govt. isn't redistributing enough of people's money.

The govt. response, "Keynesian" according to Reich in this piece, is to try and force everyone to believe that this situation isn't really happening, the thinking is that we should all go back to spending money and believing that everything is fine....and then it will be fine! that strategy has worked several times in the past but it keeps pushing the inevitable rebalancing of accounts off to a future day...with interest. this latest govt.-created bubble has again burst, and it is predictably bigger than the last one and so they are throwing the kitchen sink at it. Thompson is making fun of that simple stupidity.

in other words, that previous govt. intervention did not _really_ work. it is safe to assume that this latest intervention will not work, even if it staves off the rebalancing for another few years. it is also a fact that our economy is highly Keynesian, the Federal Reserve prevents any attempt to allow free market forces to balance the economy.

Reich covers his ass by acknowledging the classic rebuttal to Keynesian theory: "The real challenge will be for government to spend it wisely — avoiding special-interest pleadings and pork projects such as bridges to nowhere. We’ll need a true capital budget that lays out the nation’s priorities rather than the priorities of powerful Washington lobbies. How exactly to achieve this?"

We're waiting Robert, anytime you want to solve that conundrum, the world is all ears.

--- an aside, spending on infrastructure is a wise investment, but considering it only as 'economic stimulus' points directly to the whole problem of central govt. planning.and to why so much resource has gone elsewhere.