European Woes Telling U.S. Hard Truths

Member Group : Jerry Shenk

Since 1980, America’s left wing has disparaged the Laffer Curve, a tax theory that postulates that some tax-rate reductions will "pay" for themselves by stimulating additional economic activity, thereby increasing Treasury receipts.
The left is fond of quoting then-presidential candidate George H.W. Bush, who branded the theory "voodoo economics" before accepting the vice presidential nomination on a ticket headed by Ronald Reagan. Reagan’s supply-side economic success launched Bush’s presidency.

Though they don’t see the irony, many of the liberals who ridicule the Laffer Curve embrace Keynesian economics, a leap-of-faith economic scheme that has been discredited by history. The Keynesian model was recently revisited by President Barack Obama in a speech that urged an additional nearly half-trillion dollars in federal spending to "create jobs."

The president ignored that his first trillion-dollar stimulus (including accumulated interest) failed to hold unemployment below 8 percent as he promised it would. America’s jobless rate stands at 9.1 percent even after the massive accumulation of additional debt.

The president’s Keynesian fantasy posits that immediate deficit-financed federal spending will increase economic growth and that the growth will generate more tax revenues. Investor’s Business Daily brands the Keynesian scheme "A Laffer Curve For Liberals."

The president speechified mightily but submitted no new bill. Nor was one drafted by a Democratic member of Congress. Nonetheless, the president has been on the (campaign trail) road demanding that Congress "Pass this bill!"
Mark Steyn got it right: "There is no bill, it won’t ‘create’ any jobs, and it will be paid for with money we don’t have."

In July, America was gripped by a debt-ceiling debate drama following which Congress agreed to strip a mere $7 billion or so from the 2012 budget. Barely six weeks later, Obama proposed raising the deficit by a half-trillion dollars. What debt-ceiling deal?

In the circular reasoning that substitutes for logic among liberals, the only reason the first Democratic stimulus failed was because it wasn’t large enough, so "let’s do it again." You see? Heads they win, tails they win.

The fundamental difference between the Laffer Curve and Keynesian policies is that the former allows taxpayers to keep some of their money to spend or invest as they wish, and the latter requires government confiscation of larger amounts of taxpayer assets to permit politicians and bureaucrats to spend it. To embrace Keynesian doctrine one must accept that the same federal politicians and functionaries who lose billions annually running the Post Office and Amtrak and pay out additional billions in tax and medical benefits to illegal aliens know how to spend American citizens’ cash better than citizens do.

Listen to the experts. Pacific Investment Management Co. is the world’s largest manager of bonds. PIMCO employs more than 1,400 highly experienced professional investment analysts and degreed economists managing many billions of dollars in client assets. The Federal Reserve hired PIMCO to manage $500 billion in distressed mortgages. At one time PIMCO directed some of their investors’ assets into Keynesian-style pump-primed investments: politically favored, government-subsidized projects, industries and businesses.

But PIMCO has recently released an analysis entitled: "Saying No to Keynes and Fiscal Folly." PIMCO’s experts have aligned with a sensible American public opposed to Keynesian government spending by a two to one margin.
Unshakable, Keynesian economists tell us that spending and debt aren’t a problem, that S&P’s downgrade of American debt was "political." To learn the truth, one need only look across the Atlantic.

A year ago, it was revealed that Greece, a Keynesian poster child, had overspent and needed a bailout. The European Central Bank and the International Monetary Fund (which gets nearly 20 percent of its funds from American taxpayers) "took care" of the problem. Since then there have been bailouts for Ireland, Portugal and a second bailout for Greece.

Additionally, the European Central Bank has begun buying Spanish and Italian bonds. European commercial banks (and some American banks) own bonds from all these failing nations, so, to avoid a banking crisis, the European Central Bank has been purchasing toxic bonds from banks, too. It can’t end well.

The European problem is that too much government spending has resulted in too much government debt, which their economies cannot service. Oppressively high taxes remove assets from the productive elements of European economies, too, so it’s no coincidence that unemployment is high in the failing countries. Because of the excessive profligacy of some, all twenty-two nations using the euro are economically fragile, and the value of the euro is threatened.

The same things can happen – are happening – in America. Americans are witnessing the same failures of liberal governance here, policy failures that have destroyed lives in our inner cities; overregulated the businesses that create jobs; frozen capital and caused our economy to stagnate. We are witnessing the same liberal hubris that insists we continue to make the same mistakes over and over.

No American politician advocating the expansion of government and government spending will mention the failures of European socialism or the imminent failures of Greece, Portugal, Italy, Spain or Ireland.

When Keynesian-influenced politicians tell us that the American economy needs more government spending, look at how it’s working out in Europe.