Wisdom of the Ages Applies to Today’s Budget Blowout, by Christopher Arps

arps_sm“Men of experience succeed even better than those who have theory without experience… If, then, a man has the theory without the experience, and recognizes the universal but does not know the individual included in this, he will often fail to cure; for it is the individual that is to be cured.” — Aristotle

Aristotle’s 2,500-year-old wisdom shows why President Obama’s statist economic policies are failing miserably today.

Followers of economist John Maynard Keynes, including Paul Krugman, believe governments can jump-start economies in times of slowdown by injecting large sums of borrowed money that fund largely make-work projects. This theory of “Keynesian economics” says that spending will somehow motivate businesses and consumers to similarly spend money.

But two years after the Obama’s own “stimulus” plan, consumer confidence is low and unemployment is at 9.2 percent. Obama’s stimulus was a failure. So it’s difficult to understand why Keynesians want more stimulus spending and downplay the national debt. Krugman, for example, has said “the truth, which is that the stimulus was too little of a good thing — that it helped, but it wasn’t big enough” in his New York Times column and “the deficit doesn’t matter — the economy matters” on “This Week” on ABC.

But remember what Aristotle said: “Men of experience succeed even better than those who have theory without experience.”

Krugman’s professional life has been in academia, government and liberal journalism. His resume appears devoid of a truly responsible private sector job. If he had ever created a private sector job, he might realize why the theory of stimulus spending doesn’t really work.

Indiscriminate stimulus spending is a deeply-flawed strategy because it fails to heed Aristotle’s wisdom of recognizing the individual in the marketplace. The free market is a complex system of buyers and sellers, with prices determined by a willingness to engage. The market consists of people who make decisions that are not always logical nor fit into an academic equation.

Keynesian economics isn’t prepared for situations such as America’s current marketplace, in which consumers are worried about their economic futures and businessman and investors worry about government excessively regulating and taxing them to address budget shortfalls (such as the Obamacare mandate).

Add to this a debt crisis that threatens the nation’s credit rating.

Liberals embrace and exploit the recent debt crisis, as they do budget-based government shutdowns, because default rhetoric scares seniors and veterans. But Washington’s most recent crisis was not the same type of default as in Greece, Ireland and Mexico. Those countries couldn’t meet their financial obligations without bailouts. America doesn’t yet need a bailout — just the authority to borrow more money to pay for programs that $200 billion a month in revenue still can’t cover.

America accounts for one-fifth of global output expansion and is still the safest place to invest. There is plenty of revenue coming in — it’s spending that is out of control. Borrowing 43 cents of every dollar spent cannot be sustained.

A National Public Radio program recently disclosed that some in the bond markets like reckless behavior because bond yields on U.S. treasury securities — which collectively have lost about a percentage point during the Obama presidency — might rise. Bill Gross, the founder of Pimco (which sold its entire portfolio of treasury bonds last March), said as much to NPR host Robert Siegel on July 26:

SIEGEL: So at this point, as you say, as long as the U.S. is getting away with a rating that you think we really don’t deserve, treasuries aren’t attractive. But if the U.S. actually manages to blow through the debt ceiling, that’s a different story. The treasuries might be more attractive at three percent.

GROSS: Well, I think so… [T]here are countries, Robert, such as Canada and such as Australia, that offer higher yields than the United States, and that have triple-A ratings as well, but lower debt as a percentage of GDP.

Gross’ comments again endorse Aristotle’s wise words. If Gross, with all of his investing experience, believes that America’s debt is becoming a threat, then why shouldn’t ordinary citizens and businessmen be wary of their capital in such uncertain times?

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Christopher Arps is a member of the Project 21 black leadership network and is a co-founder of Move-On-Up.org. Comments may be sent to [email protected].

Published by the National Center for Public Policy Research. Reprints permitted provided source is credited. New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21, other Project 21 members, or the National Center for Public Policy Research, its board or staff.

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