Friday, October 23, 2009

Why Keynes Theory Didn't Work

Keynes was an economist who believed that the depression could have been reduced if not avoided if the government would step in and spend money to keep the economy stimulated while the public sector catches its breath and then re-engages the market. This would greatly reduce the fall in the market place and keep the unemployment level down and the economy moving forward.

What went wrong?

First, look at debt load. Our nation was vastly in debt and increasing spending only magnified the debt and the gloom and doom associated with excessive debt. Instead of embracing the spending, the debt and the future payments on it, out weighed the possible benefit.

Second, the government was late to the party. The economy started tanking in 2007 but nothing was done until 2008. To add insult to injury, the key issue that started the negative downturn was debt. Personal debt, corporate debt, state debt and federal debt all these debts and others weighed down our economy. The Bush administration racked up a great deal of debt and the weight and cost of terrorism made the debt more magnified.

Third, Keynes made no suggestion of public bailouts and take overs. These excesses further depressed the notion of the public sector becoming re-engaged in the market place. Companies that have been financial fortresses for decades were suddenly easy prey for an over anxious government system. Big debt was bought and controlled by bigger debt. The actions of our government are stained by the impression of communism and careful review of those who are in charge, furthers the assessment.


Well we are now here and want out. We are seeing the governments lust for power starting to show in its recent encroachment on executive salaries and compensation. When will the government encroachment end and the people restore the confidence in the market. I have been saying that it will take the public at least six months to gain any confidence after the government stops playing around. That will include any hints of meddling. I believe recovery would have happened much quicker if the government would have allowed private business to fail and adaptive. If the strong or the new innovators could have moved in and stabilized the market all would be far better.
With the government constantly changing the business market and picking winners and losers at random, the economy will continue to suffer. No confidence can be created in the marketplace by fictitious propping of the government. Confidence just like respect is earned.

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9 Comments:

Blogger I ToldJah So said...

Do the Keynes have a *Return* policy?

7:25 AM, October 24, 2009  
Blogger Professor of Life said...

My friend, I'm sorry to say it but The damage is done, merely with the original consideration of such an imbecilic act of "investigation" and its announcement. Now the fat is in the fire. No one will be foolish enough to do their patriotic duty for this moronic democrat administration or future ones with the name democrat on it.

2:28 PM, October 25, 2009  
Blogger James' Muse said...

I agree with most of your post. But there are a few points missing:

1. Keynesian economic theory, or maybe more specifically Neo-Keynesians believe in trickle-up, not trickle down.

2. Adjusting executive compensation wasn't a bad idea. They only capped salaries on companies that sought out bailouts. I happen to agree; a CEO of a failing company, seeking taxpayer funds, shouldn't be allowed to make more than $500,000 a year (which is the cap, btw). Once the company has turned itself around and become weaned off public funds, the cap is lifted.

11:20 AM, October 26, 2009  
Blogger Joe said...

James' Muse: "I happen to agree; a CEO of a failing company, seeking taxpayer funds, shouldn't be allowed to make more than $500,000.

Why?

Why should taxpayers bail the company out in the first place, and why should the CEO make more than $7.50 (seven dollars and fifty cents) per year or less than $10,000,000 per year? Where does your $500,000 amount come from?

Is it arbitrary?

Who gets to set the amount and on what basis?

12:14 PM, October 26, 2009  
Blogger James' Muse said...

Joe:
The amount of $500,000 was set by Congress and the President. People were enraged that the government could cap the salary, but my point was that those companies that asked for bailouts shouldn't be whining about executive compensation being capped. They should be thankful they have a job.

I agree with you; I think they should have set the cap at minimum wage for CEOs of companies that took bailouts until the bailout is repaid. Then they can do what they want again.

4:25 PM, October 26, 2009  
Blogger James' Muse said...

The amount isn't arbritary though; the amount was set by congress. The President of the United States is the highest paid government official with a salary of around $400,000 a year. CEOs of taxpayer bailed out companies shouldn't make more than the highest paid government official. Why should the CEO still get $1,000,000+ a year when that's a large chunk of the bailout funds?

4:27 PM, October 26, 2009  
Blogger ablur said...

James & Joe

Top executives that know how to turn companies around aren't going to step up to these companies. Top talent costs money. If you are going to bail them out instead of allowing them to fail or pursue viability through chapter 11, then you better make sure we get our money back.

Capping the salary is only going to keep the company on the dole or lose us our money. I want the entire upper crust of these failed companies in the unemployment line. I want the best and the brightest leading these companies back to profit and paying off what they owe us.

9:55 PM, October 26, 2009  
Blogger James' Muse said...

Ablur,
maybe cap it for those that were in charge when they needed the bailout. But if they get fired, let the board decide the salary for who they bring on to replace/lead them to prosperity (also, make it a rule that they can't bring on executives from other bailed out companies).

10:43 AM, October 29, 2009  
Blogger ablur said...

James,

That's right No trading rotten apples around. The ones who got us where we are should go back to the line lead jobs where they can learn what it takes to make a business run.

11:33 AM, October 29, 2009  

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