True North

If you have been reading the financial press lately you probably know that the old Carter era problem of stagflation has returned. Stagflation is when we have high inflation and low or negative growth in the economy. It shouldn't surprise anyone that we have this problem as we have been using the Keynesian model of government for the last 20 years.

Keynesian economics, also Keynesianism and Keynesian Theory, is an economictheory based on the ideas of twentieth-century British economist John Maynard Keynes. Keynesian economics promotes a mixed economy where both the state and the private sector have important roles. Keynesian economics seeks to provide solutions to what some consider failures of laissez-faireeconomic liberalism, which advocates that markets and the private sector operate best without state intervention.

In Keynes' theory, macroeconomic trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous improvement in potential output, as most classical economists had believed from the late 1700s on, Keynes asserted the importance of aggregate demand for goods as the driving factor of the economy, especially in periods of downturn. From this he argued that government policies could be used to promote demand at a macro level, to fight high unemployment and deflation of the sort seen during the 1930s. Keynes argued that the solution to depression was to stimulate the economy ("inducement to invest") through some combination of two approaches :

1. a reduction in interest rates.

2. Government investment in infrastructure - the injection of income results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.

A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels. This conclusion conflicts with the tenets of classical economics, and those schools, such as supply-side economics or the Austrian School, which assume a general tendency towards a welcome equilibrium in a restrained money-creating economy.

Sound familiar? It should as it's the reasoning behind the $7 billion tax increase in MN and Compassionate Conservatism.

There is just one huge problem; Keynesian economics no longer work. Everyone over 40 should remember the Carter Era with gas lines, run-away inflation and massive layoffs. The natural result of Keynesian economics is Stagflation, not prosperity.

The solution to our current problem is listed above: Supply side economics. Cut taxes, cut regulations and cur government expenditures. Reagan broke the grip of stagflation whihc should have discreditted Keynesian for good. Unfortunately our legislators have learning disabilities. Many of them listen to PhD's that have spent their lives in Ivory Towers. Liberals have never forgiven Reagan for fixing our nations economy and have spend the last 20 years undoing the great work one man did in 8 years (All while he was winning the cold war!)

The answer to our current mess isn't stimulus packages funded from borrowed money, it a return to the supply side economics that kicked off the largest boom economy that the world has ever seen. Supply side economics has suffered a death by a thousand cuts: Sarbanes Oxley, increased deficit spending and massive entitlement growths being just a few of the factors.

The liberals on this site and elsewhere don't seem to realize that it takes a healthy economy to fund our government. The Liberals in MN still refuse to admit that thier taxes and regualtions are chocking our state to death. But the proof is in the numbers.

It's not too early to look for a true fiscal conservative to run in 2012. By then the nation may be screaming for relief, just like we were in 1979.

Cross-posted at Anti-Strib. Comments welcome.