Posted on | August 24, 2011 | 18 Comments
The frustrating thing about Ezra Klein is that, just when you think the Boy Genius of the Juicebox Mafia has gotten the scent of a clue, he goes running off on another liberal wild-goose chase:
When the financial markets collapsed [in 2008], household debt was nearly 100 percent of GDP. It’s now down to 90 percent. In 1982, which was the last time we had a big recession, the household-debt-to-GDP ratio was about 45 percent.
So far, so good: Ezra appears to have realized that the current recession reflects an underlying economic reality, rather than being a mere political construct. But then . . .
That means that in this crisis, indebted households can’t spend, which means businesses can’t spend, which means that unless government steps into the breach in a massive way or until households work through their debt burden, we can’t recover.
Sigh. How can we even begin to explain what’s wrong with Klein’s longing for interventionism? He could have been content, after all, to use the household-debt figures as an argument that the recession is not Obama’s fault. Yet his fanatical commitment to Keynesianism leads him inexorably to endorse “massive” intervention. I had hoped Ezra might be making progress a year ago, when he noticed that the stimulus was under-performing in terms of job creation, but now he’s backsliding.
Robert Barro today attacks one aspect of the Keynesian fallacy, the alleged “magic multiplier” of government spending. But make-believe math is evidently all the rage these days, including at the CBO. Ed Morrissey scoffs at their rosy scenario:
The CBO estimates that the US economy will finish this year at a 2.3% GDP growth rate for 2011, a neat trick for an economy that has grown at 0.8% in its first two quarters, and at 2.7% in 2012. JP Morgan estimates that it will finish at 1.5% this year and 1.3% next year, and the difference is significant in terms of revenues and deficit projections.
What seems to be taking hold is the Economics of Wishful Thinking, where people insert some gigantic absurd hypothetical “if” into their equations — “If the Federal Reserve were to buy $10,000 worth of Powerball tickets next week . . .” — and then present this as a feasible alternative to sound, practical policy. But fiscal rainbows and monetary unicorns won’t fix the problem and these delusional what-ifs serve only as a political distraction from the grim reality.
We have somehow managed to take a round-trip to 1979, the Waterloo of Keynesianism, and yet it is as if liberals learned nothing from that experience. Ezra Klein wasn’t even born then, so he can perhaps be forgiven for not understanding the error that has been repeated. (How’s that hopey-changey stuff workin’ out for ya, Ezra?) But if history is any guide, last year’ historic mid-term Republican landslide was merely the harbinger of an even more savage drubbing of Democrats next year.
BTW, the price of gold fell to $1,757.30 an ounce today, about $150 off its record high Monday, so if you’ve been wishing you’d bought in earlier, this might be a good chance to join the gold rush before it surges past $2,000. If you had bought at $1,200 an ounce in May 2010 and sold at $1,800 earlier this month, you would have cleared a 50% profit in 15 months. But even if you waited and were to buy in at today’s price, then get an opportunity to sell at $2,100 any time in the next six months, that would still be a sweet 20% profit.
Going a bit further into “what if” speculation: On Feb. 17, 2009 — the day Obama signed into law his $787 billion stimulus bill — gold was selling at $970 an ounce. For a mere $600 billion, we could have bought two ounces of gold for every man, woman and child in America, and the value of that investment would today be more than $1 trillion, or $3,514 per capita, a net gain of 81 percent.
Just a hypothetical, but at least it doesn’t involve rainbows and unicorns.
UPDATE: Welcome, Instapundit readers!