Monday, October 05, 2009

Economic Hopey Changey...CAN It Work?

Spengler's not too sure that the mixture is salutary.

...Panic is starting to take hold at the Obama White House over the relentless deterioration of the job market. US jobs in September declined by about 263,000 jobs, worse than the 175,000 drop expected by Wall Street economists. To the 15.1 million on the official unemployment count, add 9.2 million "involuntary part-time workers" and 2.2 million who were dropped from the tally because they had not sought work in the past month, and the unemployment rate would rise to 17.1 million. That doesn't include another three million long-term discouraged workers - those who want to work but who have long since stopped looking. That would take the number up to 20%.

In the Keynesian world of Larry Summers, director of the White House's National Economic Council, and the Obama economics team, the problem is that Americans save too much and spend too little.

Of course, their solution is Gummint Spending--a helluvalot of it, too.

There are two things terribly wrong with this notion. The first is that it is simply a matter of what John Maynard Keynes called the "marginal propensity to consume"

....which is not present.

The second problem is that even if the government borrows money, the money has to come from somewhere.

And it does! But that's not good news; half of the debt is purchased by US households.

And, of course, the banks are not lending to small business. SBA talks a good game, but there's a lot less cattle than hat in that happytalk, folks.

Lots more (and charts) at the link. It ain't pretty.

1 comment:

J. Strupp said...

You confuse me Dadster.

You post regularly about the massive global output gap and then link to bloggers who are still worried about "crowding out" by government spending. AIN'T GONNA HAPPEN. Government "crowding out" does not occur in any large capacity in time periods such as the 1930's and.........time periods like the one that began Sept. 2008.

The only thing the Obama team should be worried about right now is that their rather small stimulus package comes up short in addressing the massive slack in the labor market.

They need to spend MORE not less.