Tuesday, October 18, 2011

Followup: Keynes is Still Dead

Fact Checking President Downgrade Obama on Government Creating Jobs:

More proof that Keynesian Economics is Dead,  John Stossel asserts that the Government is actually the biggest job killer
President Obama says government will have to build the nation out of the economic trough.
"We're the country that built the intercontinental railroad," Obama says. "So how can we now sit back and let China build the best railroads?"  Ironic that he mentions the Chinese. Progressives used to complain that to build the railroad, bosses abused Chinese workers -- called them "coolies" and treated them badly. Now this is big success?
I guess Obama doesn't know that the Transcontinental Railroad was a Solyndra-like Big Government scandal. The railroad didn't make economic sense at the time, so the government subsidized construction and gave the companies huge quantities of the best land on the continent.  As we should expect, without market discipline -- profit and loss -- contractors ripped off the taxpayers. After all, if you get paid by the amount of track you lay, you'll lay more track than necessary.
Credit Mobilier, the first rail construction company, made enormous profits by overcharging for its work. To keep the subsidies flowing, it made big contributions to congressmen.
Where have we heard that recently?  The transcontinental railroad lost tons of money. The government never covered its costs, and most rail lines that used the tracks went bankrupt or continued to be subsidized by taxpayers. The Union Pacific and Northern Pacific -- all those rail lines we learned about in history class -- milked the taxpayer and then went broke.
One line worked. The Great Northern never went bankrupt. It was the railroad that got no subsidies.
Yes -- OK you get the point, railroads were all in cahoots with the feds.  So what?  How does that take away jobs?  I mean, aside from the fraud, waste and abuse.  (Note:  The only sure way to reduce government fraud, waste and abuse is to make government smaller.)

Stossel says:
We need infrastructure, but the beauty of leaving most of these things to the private sector -- without subsidies, bailouts and other privileges -- is that they would have to be justified by the profit-and-loss test.  In a truly free market, when private companies make bad choices, investors lose their own money. This tends to make them careful.  By contrast, when government loses money, it just spends more and raises your taxes, or borrows more, or inflates. Building giant government projects is no way to create jobs.  When government spends on infrastructure, it takes money away from projects that consumers might think are more important.
Yes, the profit motive, capitalism works.  Is that the only way the government kills jobs?
When government isn't killing jobs by sucking money out of the private sector, it kills jobs by smothering the private sector with regulation. I talked to Peter Schiff about all this.
Schiff is a good authority because he was one of the few people to warn of the housing bust. Now he's had a run-in with the federal government over job creation.
Schiff, ... operates a brokerage firm with 150 employees... [continues]
People don't appreciate the number of regulations entrepreneurs face. Schiff pays 10 people just to try to figure out if his company is obeying the rules.  "You can't just act very quickly, because everything has to be done through this maze of compliance. Even my brokers ... find out that maybe 20 percent, 30 percent of their day is involved in compliance-related activity, activity that is inhibiting their productivity. ... All around the country, people are complying with regulations instead of producing, instead of investing and growing the economy. They're trying to survive the regulations."  This is no way to create jobs or wealth. Keynesian pundits and politicians can't understand why businesses sit on cash rather than invest and hire unemployed workers. It's really no mystery. Government is in the way.
So ten people full time on compliance, plus 20-30% of a broker's day is on compliance?  How is this helping the economy?

 It isn't.

Keynesian economics were officially discarded by the British Government in 1979. Why are we still even considering them?  President Downgrade Obama wants to 'do something' for the economy.  Well, Mr. President, deregulation would be a bonanza for jobs.

Also see the ten things Carl wants the government to do to kill the deficit, several of which include deregulation.  

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