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originally posted by: TheRedneck
The simple fact is that Obama's economic policies were Keynesian based. He apparently didn't understand the nature of Keynesian economics.
Keynes states in his theory that the government has a inherent role to play in stabilizing the economy. He further states that when an economy is growing too fast, the most effective way to slow growth is through taxation. When the economy is growing too slowly, the most effective way to stimulate the economy is through government spending. All that is true, to a point.
Keynesian economics only works while taxation/spending is within a certain range. Outside of that range, Keynesian economics fails, for obvious reasons. Every economy changes; every economy has ups and downs. If every time the economy moves down, government spending increases, and every time the economy moves up, taxation increases, there will come a point where taxation is so great that individual contributions to the economy are negligent and government spending is the sole source of economic stimulus. That leads to a stagnant economy, because even the financial might of the US government pales in comparison to the economic might of 300+ million enterprising Americans.
Another aspect of Keynesian economics is that the spending effects are assumed to be beneficial to the country's economy where the spending takes place. Excessive regulation destroys this assumption, since larger companies have the financial means to move their operations to other countries. When this happens, the stimulus provided by government spending is diluted because the benefits are going to other economies.
The recession Bush created was a direct result of a semi-crash, colloquially referred to as a "bubble." Bubbles are a direct consequence of Keynesian theory being applied along the boundary of applicability. They result from too many individuals competing too tightly in an industry that cannot sustain them all. In the "dot com" bubble, Internet companies became too appealing for the average person to ignore; the low overhead, low investment, and potential high returns sounded too good to be true. It was. So many companies were started online that the market was stretched too thin to support them, and the resulting competition, combined with poor business practices (I remember getting a ton of free stuff back then just for visiting websites I had no intention of ordering from) resulted in most of these online businesses failing along a short time frame. That is the definition of a bubble burst.
The 2008 recession was the result of a similar bubble bursting, but this particular bubble was actually created by the use of Keynesian theory outside applicable boundaries. Government increased spending by proxy via guarantees and incentives to banks to loan money to people who were incapable of repaying the loans. The first hurdle these people encountered then resulted in home foreclosures. These home foreclosures then over-saturated the housing market and drove prices down. At the same time, the lenders, saddled with these bad debts, tried to move them out of their inventory through bundling, leading to many investors losing their investment as well. It didn't take long until an entire industry, housing, ground to a standstill. The bubble burst, and as so many people were affected by either the loss of a home and credit rating or suffering losses due to housing investments, the rest of the economy began to tank as well.
At that point, we had two options: use Keynesian theory and try to stimulate the economy through direct government spending (which was Obama's approach) or revert to classical economic theory and stimulate via lower taxation and regulation. Had we reverted to classical theory, the recovery would have been fairly swift, but continuing to depend solely on Keynesian theory did not allow the economy to grow. Instead, combined with the regulation overload, companies moved out of the US economy and took the benefits that were intended for the American economy with them.
I will give Obama this: he was trapped. Bush created the recession and Obama inherited it. There was going to be a short period of economic pain no matter what he did. He could have passed a tax cut and suffered through the short term to become an economic hero to the American public, but he chose to continue using Keynesian theory and supplement it with social programs (which the US could not afford) for political gain.
Trump came along after the economy had stabilized at much lower levels than it should have. As a businessman, Trump understood the problem and immediately went to work trying to promote the US as a business-friendly environment. He used the regulation cuts to entice businesses to open inside the US, and used promises of future benefits to try and lure others back home. As soon as he could get Congress to act, he implemented tax cuts to stimulate the economy... the most important cuts were indeed to business, but individuals got a tax cut as well. That gave the economy a dual boost: a weekly bonus for individuals to use and an enhanced ability for businesses to expand to meet that new demand. The result was that US businesses were able to do what they should have been able to do within two years of Obama's administration.
That's what happened. Partisan identity politics be damned. Obama dropped the ball and kept the US in a stagnant state for 8 years, when he could have reversed the trend in two. Trump made the hard decisions and took the political heat, turning the economy around. There is still much to be done, but we now have an expanding base with which to work from... because of Donald Trump and in spite of Barrack Obama.
originally posted by: TheRedneck
a reply to: toysforadults
The very fact that Trump spearheaded a tax cut means he is not utilizing Keynesian economics. Keynes states the proper way to stimulate the economy is via government spending, not through tax cuts. Your statement seems to imply you are not familiar with the basics of the various economic theories.
You also seem to miss my points above. Keynesian theory is not good or bad... it is more efficient than classical theory in a certain range of variables. The problem is that it has been applied outside those boundaries and in conjunction with social policies that dilute its effectiveness. It has been used since FDR, on and off, but never so far outside its effective range.
The words "Too big to fail" make me want to become violently ill and start projectile vomiting!!!
originally posted by: TheRedneck
a reply to: ScepticScot
I'm sorry; that description is completely false.
Classical economic theory holds that the economy is self-correcting and the government's role in stabilizing it is unneeded. Keynesian economic theory took root with FDR's administration after the Great Depression, when popular thought was that the economy was obviously not inherently self-correcting. In truth, both approaches are correct, but applicable to different economic realities and conditions.
Keynes used mathematical deductive reasoning to determine the greatest return for moneys injected into the economy, whether those moneys be in the form of a tax cut or increased spending. According to the equations developed by Keynes, spending is a more efficient method of stimulating the economy than decreased taxation. In a similar manner, he calculated that increasing taxation is a more effective way of slowing economic growth than cutting spending. I'm not going into the mathematical details here, as it would simply cause confusion; if anyone is interested, they are readily available.
originally posted by: Lumenari
originally posted by: Subaeruginosa
a reply to: notsure1
But the tax cuts are only temporary... you fools.
It's seriously no different to a person taking out a 2nd mortgage on their house, for short term relief... Even though theirs no way they can afford the repayments in the long run.
Thankfully, for Trump...when it comes time to pay up, he'll be long gone and it'll be someone else's issue to deal with.
My company was drowning under stupid impossible regulations before Trump showed up.
Now I can't keep up and I am considered a green industry.
originally posted by: sligtlyskeptical
Trump gave you a small tax cut for 3 years, he gave the very rich a huge tax cut forever. FACT