For a really spectacular example of muddle-headed Keynesianism, go no further than Louis Uchitelles’s NYT article today [read here].
For a snatch:
‘ In other downturns since World War II, the economy moved from healthy growth to contraction and back to healthy growth, all in less than two years. The downward swings were relatively easy to fix. The swings began when companies found themselves producing more goods and services than people bought. Inventories built up, particularly in manufacturing, and companies responded by cutting output until it was below demand. Rather than produce more, companies filled orders from stockpiles. As output declined, unemployment rose and wages stopped increasing. Capital spending also suffered. After all, why expand when the capacity to produce already exceeds demand?’
(Note there is no discussion of WHY this all took place!)
‘...But the damage did not last long. The Federal Reserve stepped in, cutting interest rates to encourage spending. Unemployment insurance, public spending, and sometimes tax cuts, helped resurrect demand. As spending picked up and inventories disappeared, prices began to rise, which encouraged more production. Hiring resumed, as did capital spending.’
Hey Presto! So what went wrong this time? Don’t blame Al, it’s all Fu Manchu’s fault, apparently!
‘The difficulty is that companies have a choice that was not as available in the last downturn 12 years ago. Rather than halt production at home, they shift it abroad to cut costs, particularly labor costs. They feel compelled to do this. If they did not, their competitors would upstage them with their own lower-cost, overseas production that takes away sales back home’
No mention of how US consumers can keep making all these purchases if they don’t have jobs, of course! But wait! Our Louis has the answer to the threat posed by those wily Oriental devils:
‘We could also force American companies, through regulations, to stay out of countries that fail to observe minimal labor and environmental standards. Regulation is not popular in America. But it could regain its popularity, if the alternative is a continual loss of jobs in every state.’
Ye gods!
