The future of the GOP: Fire Marshall Bill or Smokey Bear?

Turning Keynesian economics on its head
By Ikeonic

For decades, John Maynard Keynes' policies have been used with arguable success to moderate the effects of the bust part of the bust/boom cycle. It's a very simple concept. When individuals and business stop spending and afraid to invest, the government is the only party left that can spend money to create jobs and get the economy moving again.

Time Magazine famously declared in December 1965, "We Are All Keynesians Now". In lauding the accomplishment of applying Keynesian policies, Time said:

In Washington the men who formulate the nation's economic policies have used Keynesian principles not only to avoid the violent cycles of prewar days but to produce a phenomenal economic growth and to achieve remarkably stable prices. In 1965 they skillfully applied Keynes's ideas—together with a number of their own invention—to lift the nation through the fifth, and best, consecutive year of the most sizable, prolonged and widely distributed prosperity in history.

Well, if only Time could have predicted how the next 20 years turned out. Guess they were too busy predicting the next ice age. Unemployment began a slow rise from 1966 to 1983 before finally topping out around 11% during the Volcker recession in 1982-83.

More from that Time article:

Says Budget Director Charles L. Schultze: "We can't prevent every little wiggle in the economic cycle, but we now can prevent a major slide." A slide, of course, is not what the U.S. Government's economic managers have been worrying about in 1965; they have been pursuing a strongly expansionist policy.

The chief cause of the economic malaise after 1965 was Lyndon Baines Johnson. LBJ couldn't manage prosperity as Eisenhower and Kennedy had done and he spent like a drunken sailor on his Great Society and his one arm tied behind the back boondoggle in Vietnam. The results were predictably catastrophic. In a somewhat similar fashion, George W. Bush failed miserably to rein in spending, save and pay down debt.

Things may be bigger and better in Texas but that is not what the economy needs from the federal government during times of economic prosperity. Both Texans' tenures should be textbook examples of how government can run the economy into the ditch. Time even linked Bush and LBJ together in 2007 by sarcastically saying "on the whole, [the Bush Administration] has been the most spendthrift Administration since Lyndon Johnson's". You don't say!

More from Time:

The man whose counsel will carry the most weight with Lyndon Johnson and who must make the delicate decisions in the next few weeks is the President's quiet, effective and Keynesian-minded chief economic strategist, Gardner Ackley. "We're learning to live with prosperity," says Ackley, "and frankly, we don't know as much about managing prosperity as getting there."

Keynesians like Paul Krugman are correct in asserting (much as it pains me to agree with anything Krugman says) that fiscal policy can speed economic recovery (preventing that "major slide") when private investment is insufficient or lacking. Most Keynesians are Democrats because Democrats have no problem spending money to stimulate the economy and FDR was the first President who first implemented Keynesian theories. The Democrats are the party best suited to implement Keynesian fiscal stimulus because they are the party who spends, spends, spends. I will grant them that.

However, what isn't clear to me is that the Democrats, particularly liberals like Obama, get that during boom times, Keynes essentially argued for the inverse of his prescription for recessions. If borrowing and spending are required during busts to get the economy moving, then surely saving, paying down debt and reining in government spending would be required during boom times to keep the economy from overheating and imploding.

Republicans failed during the last eight years to be fiscally conservative. We are supposed to be the party that knows how to manage prosperity! Instead of save, save, save we were the party that spends slightly less than the Democrats and finances it all by borrowing. See why we lost in the 2008 elections?

If the GOP had saved, payed off debt and cut spending during the boom times, we wouldn't be in the mess we're in now. But as the Time article makes painfully clear, we humans have only learned to celebrate fixing the mess and haven't learned too well how to avoid creating the mess in the first place. We celebrate the diet that sheds the unwanted pounds but don't celebrate keeping the weight off in the first place.

We've had a fire fighting mentality instead of a Smokey Bear mentality. Only Republicans can prevent forest fires and instead George Bush laid the groundwork for a massive fire by borrowing and spending the nation's treasury like a drunken college student on an all night binge using Daddy's credit card at every strip club for his bachelor party. We've just woken up to discover we've got a very, very big hangover and a big bill to show for it that sooner or later we must pay. Daddy is not a happy camper.

Back to Keynes. As much as we learned from Keynes, we never quite learned to manage the prosperity. So I support the current administration's efforts to right the economic ship in the short run while I may disagree with Obama on where and what we should invest that stimulus spending. Let's get out of the ditch first and then we can argue about who should drive and how to get there.

When the economy recovers, which party is best suited to take the helm? In times of prosperity, which party is most likely to save, pay down debt and cut government spending? Which party has promised an ever expanding welfare state?

When times are good and the economy is rolling, people look to the Republicans to be that party to hold the line on spending, save and pay down debt. To win back the trust of the people, we must be the party that not only champions fiscal conservatism but proves it by our deeds. We must prevent fires, not provide the fuel that starts the next fire. We need Smokey Bear, not Fire Marshall Bill.

To win back the White House and Congress, Republicans would do well to heed the wisdom of the GOP of the 1950s, which rode Ike's coattails on the message of reform, fiscal conservatism and living within our means. You see, Ike was the last Republican who for eight years saved, paid down debt and kept spending in check, even as the Cold War simmered. He should have and could have done more (Goldwater and Taft attacked Ike frequently) but compared to Bush, Ike looks the author of the Tightwad Gazette.

One more reason I'm an Eisenhower Republican...

Ikeonic, is a Dwight D. Eisenhower Republican, a Catholic conservative and has no tolerance for fair weather Susan Eisenhower Republicans. Please visit his blog at ikeonic.blogspot.com.