Diary

A Summit Which Won’t Do The Job

In what has to be the most astounding recognition of the obvious in recent political history, Barack Obama has come to the conclusion that he needs to create more jobs. This is blindingly obvious from his philosophical point of view, but it is also as pathetically wrong as it is erudite. Francis Cianfrocca takes to the PodCast waves to assail the risible qualities of his jobs summit quite effectively. I’ll endeavor to pick up the standard of economic ratiocination from where the Mighty Blackhedd left it planted, and advance it further forward.

Francis points out two key elements of why this jobs summit won’t be getting anything useful done. He argues that the people involved are too sycophantic to think outside the Obama Box. He also points out that even if forced to hear conflicting evidence, the President and his party have all but officially announced their pending decision. This conference is a validation and momentum-building exercise. Thus, classify the resulting expenditures under Marketing and Promotion; not R&D.

This unfortunate result stems from President Obama’s political philosophy and its limiting presuppositions of how an economy should work. He, like his philosophical mentor, John Maynard Keynes, uses the analogy of a physical system, under mechanical laws, to comprehend how the economy functions. He almost imagines a world economy like a Carnot Engine with pistons and valves that have to run smoothly in order for people like myself to be able to buy my three-year old child shoes whenever necessary.

Just as a Carnot engine works at optimal efficiency determined by the work performed divided by the calories injected into the system, the US economy should work at some optimal level defined by the Gross Domestic Productproduced, divided by the capital fed into its hypothetical blast furnaces. Thus, President Obama sees unemployment as a simple mechanical problem solved by feeding the blast furnaces money until the pistons start whirring in consonant harmony.

To a limited extent, Keynes had a point. If I were King Stephen I of America, I could make anything look temporarily more happy by funding it to the hilt. Where Keynes and therefore Obama fall short, and where the Imaginary Keynesian Carnot Engine of Political Economy overflows the reservoir, comes from the fact that no Keynesian every willingly admits that some limit exists to how big a mound of coal can be shoveled into the blast furnace.

They will admit this formally, like a scientist writing a theoretical paper. Keynes himself defines a state of inflation; under which government spending does more harm than good.
However, he defines that state in such a restrictive fashion that even the consecutive mal-administrations of Richard Nixon, Gerald Ford and Jimmy Carter couldn’t produce this horrifying state of reality. It was a check-the-block exercise. In the Keynesian Mind, there is no legitimate limit to either government spending or to fiscal expansion.

David Gordon describes an illustrative passage from Keynes’ primary text; The General Theory of Employment, Interest and Money. Keynes expounds on interest rate policy below.


In The General Theory, Keynes said: “The remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus leaving us in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.”

I had never before assumed that John Maynard Keynes and Allen Greenspan would share so much agreement on what the Federal Reserve should do with interest rates. Keynes wanted the economy in perpetual wash with circulating money, even at the expense of that currency’s underlying value. Keynes was also very particular about who should control where these funds got apportioned.

Keynes disrespected investors. Just as President Obama previously excoriated GM and Chrysler creditors and as predatory and feckless, John Maynard Keynes doubted both the motives and the faculties of the investor class of his day. Gordon describes the Keynesian theory of how investors operate below.

Keynes assumed without adequate basis that investors are driven by irrational “animal spirits.” Keynes condemned what he called “casino capitalism.” Investors, in his view, made irrational decisions based on what they guessed others would do.

In a manner similar to how Obama’s belief in Keynes limits the directions of his thoughts, Keynes’ assumptions regarding investor behavior overdetermined his views of how the government should interoperate with markets. Gordon lays out Keynes’ theories on the role of government below.

Keynes’s program went far beyond monetary expansion. He wanted the government to take control of investment. Wise planners would do much better in guiding the economy than the speculators of “casino capitalism.” He remarks in The General Theory that he favors “a somewhat comprehensive socialization of investment.” (p. 56)

As we approach our eagerly anticipated jobs summit with the baited breath and roiling anticipation we always feel when Barack Obama blesses us once more with his omnipresence in the media, keep several thing in mind. Obama, like Keynes, believes that the profit motive that animates private investment is nefarious and insufficient to optimize social outcomes.

Thus he agrees with Keynes about the central role of “wise planners” in telling the rest of us what we do and do not have the right to do with the fruits of our labors. I find it sadly ironic to find a Son of Illinois so morally opposed to the fundamental concept of Emancipation brought into law under President Abraham Lincoln.

Therefore, given the philosophical inclinations of the people we have elected, we are all blessed that President Obama is holding this jobs summit. Under the hyper-Keynesian policy conditions that his administration insists on promulgating, the US Federal government is about the only employer who will have the wherewithal to do any serious hiring.