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Allan Powell: Stimulus vital to recovery

October 25, 2012|By ALLAN POWELL

Ever since John M. Keynes proposed governmental influxes of money to stimulate ailing economies, there has been a steady flow of objections from free-market enthusiasts. They always use the same old arguments: continued unemployment and a pitifully slow recovery. But, the power of Keynes’ ideas and the eventual improvements verify the thoughts.

For one thing, they do not give Keynes’ multiplier effect enough time to work. This concept was incorporated by President Roosevelt in 1935 when unemployment had reached 25 percent. The stimulus provided by an emerging war economy was a most unorthodox way to apply a Keynesian idea. A dollar stimulus is indifferent to war or peace; it is still a government stimulus. We have now been in this “Great Recession” four years and are now seeing signs of improvement. We should never forget that the stimulus given stalled a potentially deeper collapse of the market.

Critics of a government stimulus also fail to recognize the lasting beneficial results of recovery investment.

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The Tennessee Valley projects, that eventually built about 30 hydroelectric dams, provided much-needed employment and began the electrification of the South. At the same time, the region reaped the benefits of flood control, irrigation and recreation. These monuments still contribute to higher living standards of the South and the West.

The Keynesian multiplier is a fact of life regardless of all attempts to minimize its effects on economic recovery. Keynes used the behavior of one dollar to show how it multiplied at least by three when spent. When released into the economy in a steady flow, by the billions, the economy would have a “jump start.”

If we trace a dollar from the first person who spends a dollar to the last person, before the dollar ceases to circulate, the total sum can “multiply” to nearly five dollars. It was Keynes who argued that if capitalists (in a seriously stalled economy) would not introduce new dollars into circulation, it was the responsibility of government to assume that role.

Republican politicians spend their energies finding all kinds of flaws in the stimulus plans of Keynes. It is their folly to be witness to periodic market failures and refuse to get to the heart of the causes and advance solutions for the cure. This guarantees a continuation of our periodic economic crises. They get their intellectual support from well-heeled, ivory tower apologists funded by the very rich. None of them has experienced the heart-rending struggle of working-class laborers who face the daily stress of sheer survival. Without government intervention for the unemployed, they have no hope. Those of us who lived during the Great Depression will never forget the widespread human suffering in the country.

It was Keynes who perceived (correctly) that the only cure for a stalled economy was a restored purchasing power across the nation. When workers cannot purchase products in the marketplace, the economy comes to a standstill. Keynes saw the real problem: lack of market demand, not a lack of supply.

If the capitalist cannot or will not create employment to generate effective demand, the government must step in and meet the need. On one thing you can bet: Every time there is a collapsed economy, there will be a rush to a Keynesian solution — a stimulus.

A sad fact inhibiting the full effect of the stimulus was the revelation (Washington Post, Oct. 19) that governors in all but 14 states have diverted large portions of the $2.5 billion aimed at helping struggling homeowners to retain possession of their homes. The money was diverted into the general funds of these states to help plug holes in their budgets. California, Florida and Texas are cited as the largest offenders in the reallocation of the funds intended for relief in the housing industry. Don’t blame a stimulus for being ineffective when the real culprits are politicians.

At this juncture in our history, there are certain facts of life that must be faced. First is that we have not solved the problem of periodic economic downturns serious enough to reach crisis levels. This means that, like it or not, our huge corporations — especially banking and investment — need realistic regulatory safeguards. They are too big to be talking about a “free” market. We are at their mercy and they have shown they cannot be trusted to act in the public interest. Their mismanagement is the real reason we even have to talk about a stimulus.

Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.

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