Does Keynesian economics work in Olympia?
Since I’ve become involved in public office, I’ve wondered about a question of the relationship between state and federal governments on a core economic theory: Does Keynsian economics work at the state level when practiced by the state government?
President Obama forcefully accepts the idea that Keynsian economic theories work to a degree and make sense as a spark to rejuvenate our economy. It is, of course, the very foundation of the Obama Administration’s stimulus plan, and it’s hard to even fathom the devastation to our essential public services that we’d experience without federal support. Now that we face a full two year budget without meaningful federal support, we are confronting the cold hard truth of our economic crisis in the most blunt terms possible. Many economists argue that the investment has been far too little.
Yet as we look at the state’s role in proactively generating economic activity, I’d like to learn more about the incremental impact of STATE economic stimulus activity from STATE resources. Simply, is there a meaningful public benefit that comes from additional investment of public dollars in creating jobs that can be proven? Transportation is the most obvious category and is often cited as the area where the most construction-related jobs materialize from state investments. And while I have no data to suggest it isn’t incrementally valuable in terms of economic activity, I do wonder if we could create a better template or model to assess the true impact of our spending in this area.
One problem, however, is that so many of our construction jobs are from firms that specialize in public transportation projects and, in a sense, we are ‘keeping them employed’ by investing additional dollars more than creating ‘new’ jobs. Clearly with bid prices down anywhere from 20% to 40% across the state on state projects from community colleges to K-12 buildings to prisons and more, it’s obvious that the demand is stronger than ever to compete for valuable public sector funded projects. And with 40% of construction workers unemployed or underemployed, we face a massive crisis in this area.
The problem surfaces more forcefully when we realize that the state can’t go into deficit spending. While there is a compelling argument that the federal government can manage a modest degree of debt without reaching crisis proportions, and economists are currently battling it out over whether we’ve hit the China-funded tipping point, I do wonder about the impact on state government.
Is there a compelling case, with a strong return on investment in the short and long term, that state expenditures to stimulate the economy and create jobs play a marginally vital role in improving our overall economic health? Or is our global economy so overwhelming in scale that our STATE investments are too modest to generate meaningful economic activity as to warrant the investment of precious tax dollars?
The specific out of pocket ‘cost’ of spending precious state dollars on job-creating programs and projects is clear. The benefit is valuable and impacts real people living real lives. But I haven’t been able to quantify it. But I’m committed to doing this research. Is it so obviously valuable that the state should continue down this path without question or in fact invest more? This I do not know.
On the one hand economic theory says ‘yes,’ and on the other hand…. your thoughts welcome and appreciated.
Your partner in service,
Reuven.
Man, that’s a scary picture. Keynes just makes me quiver in my boots.
The fear is just, really- he is quite responsible for an economic philosophy that today’s politicians use as validation in running up ENORMOUS deficits. He has created a philosophy by which the Federal Government can now justify it’s manipulations of the markets, even though they haven’t the faintest of ideas on how to predict what the Market will really do. It is an end that justifies a means of spending beyond one’s ability to spend. IT IS A Politician’s dream. A tool to keep votes around by always giving the citizens “what they need”, regardless of the ability to pay for it.
Hmmm, Reuven. It sounds to me like this little Blog post could be briefly translated to something like this:
“We ain’t got no money. The Fed’s ain’t got no money, but they continue to spend and that’s just not fair! Whattya all think about the idea of your good ol’ state of Washington being able to cut “blank checks” and pay for things we can’t afford to pay for, all in the name of keeping ya’ll happy? That way we can borrow our way to prosperity and be just as successful as big Keynes followers like the President and the Democrats in Congress!”
Okay, okay. A bit dramatic, but I think if you read between the lines o’ Blog-readers, that’s essentially what is being said.
“…It is, of course, the very foundation of the Obama Administration’s stimulus plan, and it’s hard to even fathom the devastation to our essential public services that we’d experience without federal support.”
It is INDEED the basis of the Obama Administration, and what do we have to show for it????
Unprecedented unemployment. HUMONGOUS Trade Deficits. Low velocity of spending. A weakened dollar. Oh yeah, and RECORD deficits and even more National Debt, bringing things closer to $14 TRILLION. The reality is, if government taxes so it can spend more, people have less money in their pockets to spend. If the government borrows money so it can spend,that means there is less money for private borrowers, killing jobs and spending.
You asked for thoughts and I gave some.
Keynes’ popularity depends on BLIND FAITH IN THE STATE.
Keynes never mentions the excessive amounts of money that are created ” out of thin air”and why that happens, yet, criticizes the thought of “debauching” the currency.
Keynes’ theories didn’t hold up very well in the 70′s with stagflation.
It also certainly doesn’t hold up very well today, as we all are currently seeing. Record National Debt and unstable World Markets tied so intricately to ours create ethical problems for Keynesian advocates, IMHO. The current economic mess we are in from the housing bubble is essentially a result of relying on Keynesian manipulations of fiscal policy and the Fed’s manipulations of monetary policy
I think James Bovard said it best: “…Keynesian Economics are popular today for the same reason they have been in the past: he provided a pretext that politicians gleefully seized upon to justify increasing their own power and buying reelection with tax dollars to be collected in the distant (post-election) future. By portraying government spending as the key to economic growth, Keyne’s doctrines were invoked to sanction a vast expansion of government.”
Do we want to rely on this kind of ideal of “borrowing our way to prosperity”?
I would think we have learned our lessons, Reuven.
You flirting with the idea for our state in your Blog post is humorous at best, reckless at worst.
Hayek vs. Keynes Rap Anthem
“Washington DC is permeated by Keynesian economic thinking”
Mainstream theory will always yield the answer that whatever the political class wants is the correct answer.
If you really want to analyze what is actually going on you will have to drop the intellectual security blanket of pretending like your econ professor had any interest in truth. They are professional liberals now and if republicans were in power long enough they would be professional conservatives.
Don, you said it perfectly and clearly….Reuven, please hear what he’s saying and stop this reckless spending. Keynesian economics haven’t worked and never will!!!! Reuven, you’ve actually answered your own question and shown what you truly believe by your voting recored, i.e. voting “YES” on every new tax proposed by the legislature! You’re running unopposed, but we still don’t have to support your election!
construction jobs are on the rise again these days because the recession is almost over “..
This is eclxelent work, guys. Good for you.
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