Wednesday, March 13, 2013

Right-Wing Economist Flails Miserably Trying To Discredit Keynesian Economics

Liberal radio host, Thom Hartmann invited the absolutely wretched conservative economist, Peter Ferrara, to his show the other day to debate the theory of Keynesian economics. Why Hartmann continuously invites this guy is an absolute mystery. It's not that he's a disingenuous right-wing hack, but rather he's an utterly obnoxious, disingenuous right-wing hack. Seriously, the guy is one of the rudest guests I've seen on a politically related talk show (and that's saying something!).

But that's an entirely separate complaint for another day. Getting back to the matter at hand, during the interview, Ferrara repeatedly made the argument that government spending does not lead to growth, to which, Hartmann (repeatedly) asked him how the U.S. got out of the Great Depression (skip to 4:25):

Ferrara amusingly stutters several times before finally blurting out WWII, as being what got us out of the Depression. Hartmann, was understandably confused. To make the argument that government spending doesn't help economic growth, only to follow up by using the biggest government spending initiative in our history as evidence, is indeed rather puzzling. After a few minutes, Ferrara too, realizes that he's undercut his own argument, and disavows his previous answer. His newest excuse to how we got out of the Great Depression was just simply that enough time had passed by, and the Depression basically tired itself out. Seriously.

Furthermore, he trots out the standard conservative line that FDR prolonged the Depression by going with "Obamanomics 1" and had he not done that, the Depression would have ended in 1929. But this too is a curious argument to make. First, it should be pointed out that Hoover was still president in 1929, and FDR wouldn't take office until 1933. Second of all, I could be mistaken, but I thought Hoover did exactly what Ferrara (and his ilk) is prescribing, letting the economy fix itself without having the government getting in the way and messing things up?

Okay, to be fair, perhaps Ferrara was referring to the tax hikes that both Hoover and FDR enacted. Even though the original subject was about spending, let's just play along. It's true that Hoover hiked taxes. The top rate went from 25% to 63%, and then FDR jacked up the rates even further to a height of 94% in 1944. Additionally, as time went on, federal spending absolutely exploded with the advent of WWII, going from $9.5 billion in 1940 to a whopping $92 billion in 1945. So here you have a conservative economist's worst nightmare: astronomically high tax rates* with astronomically high spending, which by all rights should have turned the U.S. into Somalia, right? Well...

Huh. Whaddya know? Apparently the job killing tax hikes* and job killing spending didn't do much job killing, despite FDR's best efforts. If conservative economic theory was correct, as long as taxation and spending was so high, the unemployment rate should never have come down, and instead remain sky high, regardless of how much time has passed until both issues were addressed. Let us also point out that revenues grew from $6.5 billion in 1940 to $45.2 billion in 1945. And so far we just mentioned the taxing and spending side and didn't even get into wage controls, price fixing and all the other freedom hating policies FDR enacted in addition to everything else.

But hey, points for effort I guess.

*Yes, I am aware that tax hikes aren't really Keynesian policies, but I thought I'd take the opportunity to rebut Ferrara on that front as well, since we were on the subject.

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