Keynesian Economics; Why It Should Have Worked But Didn’t
Back in January 2010 I wrote a post here titled Five Ways To Spur The Economy. It was a follow up to a post I wrote almost a year earlier, offering my ideas on ways to get the economy going.
The basic principle behind most of my ideas was something known as Keynesian economics, an idea created by John Keynes, which basically is a financial principle where government works with the private sector to help stimulate economic growth. It’s the model that was used by President Roosevelt when he took office during the depression and a few other leaders since. The last time it was tried began with President Bush II and President Obama.
Overall, I support this type of economic growth if it’s done the way I had explained it in the post above. For instance, my first idea was for communities to work with builders by having both commercial and residential building projects to not only help build up crumbling infrastructure but to also create jobs. The way I saw it was that if the contracts made it mandatory for builders to hire at least half the workers for these projects from the local area that it would give those citizens an opportunity for jobs that paid pretty well and perhaps teach them some skills. It would also help stimulate taxation, which either can’t occur or occurs at minimal rates in depressed areas. And, by extension, it would create other jobs and businesses because those people would have to be fed and would now have new income to spend locally.
The way I saw it, the federal government could have looked at the top 50 to 100 communities in the nation and doled out money to those cities, or sent the money to the states those cities were in. Then those governments would put it out to bid with the types of stipulations I mentioned, and we’d be good to go. Once building started, as commercial areas were improved more home builders would come around and upgrade those same areas, and life would be good. True, it wouldn’t be perfect everywhere, but it would have been a start.
What happened instead? The federal government did dole out money to communities around the country to help stimulate growth. However, what most organizations did was use the money to retain as many people as they already had rather than create new jobs. Even the bank bailouts didn’t create any new jobs, but instead gave banks a chance to reorganize themselves to get on a firmer financial footing, while at the same time forgetting to reduce the salaries of the fat cats at the top (I’m not sure they could have legally done that, although it was debated later on).
The same thing happened with the bailout of the automobile industry. Almost no new jobs were created, but companies were able to keep people they had. And it happened in other industries as well, as I know that locally a nonprofit organization on whose board I sit used their money to retain 3 positions they’d been contemplating getting rid of.
One would have thought that some economists would have been on top of this one and encouraged both presidents to look deeper at this issue to determine how to better spend the money. Then again, President Truman once said “If you took 100 economists and put them in a room they’d all point in a different direction.”
Still, I believe at least that idea is still sound in many ways. Take a look at that first post I linked to and let me know your thoughts on my previous ideas.