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Keynesian in Nixon’s Insanium Cranium


Richard Nixon (conservative)

British economist, John Maynard Keynes, developed a new theory of economics that dominated macroeconomic thinking in the postwar era. Keynes presented his ideas in 1936, in a book called The General Theory of Employment, Interest, and Money.  He desired to develop a comprehensive explanation of economic forces. An explanation like this could give politicians and economists insightful information on ways to get out of economic crises like the Great Depression. This form of demand-side economics gained the favor of President Richard Nixon as he proudly declared himself “a Keynesian in economics,” on January 4, 1971. This was a rather unusual statement for the arch-conservative president because Keynes was viewed as being well to the left, both politically and economically. Regardless of his political party, the president aimed to balance the budget on a “full employment” basis, a Keynesian idea. Conservatives viewed this “as a license to run budget deficits forever,” according to the New York Times.

A key component to Keynes’s ideas is to see the economy in a broader view and focus on the economy as a whole. Keynes looked at the productive capacity of the entire economy, which is the maximum output that an economy can sustain over a period of time without large increases in inflation. The British economist attempted to answer a question concerning the Great Depression: why does the actual production in an economy sometimes fall short of its productive capacity. The answer Keynes proposed included the fact that neither consumers nor businesses had an incentive to spend enough to cause a rise in production. It did not make sense for a company during that time to spend money to increase production when no one else had enough money to buy the products. Also, unemployed consumers could not spend money that they did not have. Nixon became the first president to balance the budget based on “full employment” which meant the United States would “spend as if it were at full employment to bring about full employment, thus justifying an acceptable amount of deficit spending.”

According to the Congressional Budget Office, the “recent economic downturn has increased the budget deficit by about 2.5 percent of the gross domestic product annually since 2009.” The Congressional Budget Office also calculates that “if the economy were operating at its potential based on its productive capacity” (what used to be called “full employment”), gross domestic product would be $1 trillion larger this year.

John Keynes

John Keynes

“Conservatives do not like calculating the deficit any way except literally,” says Bruce Bartlett. “All of the adjustments to the deficit are assumed to be tricks to make it look smaller, they believe.” But back in 1971, having a Republican president adopt a left winged idea such as an expansionary budget policy and balancing the budget on a “full employment” basis was radical stuff indeed.

When Nixon first took office, he tried a conservative method to tighten the money supply, however this method did not work and the economy appeared to be heading into a recession.  With the American federal budget deficit totaled at $23.03 billion, combined with Nixon’s failure of obtaining more revenue through tax reform legislation in 1969 and rising unemployment (4.9 percent) and inflation (5.7 percent) rates in 1970, Nixon decided it was time for a change and proudly proclaimed himself to be a conservative Keynesian, hoping to turn things around. The administration then turned to fiscal policy solutions.

Nixon’s new Keynesian methods turned out to be a short-term domestic success.  His New Economic Policy “attempted to balance U.S. domestic concerns with wage and price controls and international ones devaluing the dollar.” N.E.P. worked so well that by early 1972, the output rose sharply and unemployment fell, however inflation increased. Nixon became the only president since World War II to bring about an economic upturn in a presidential election year. This astonishing fact contributed to his landslide re-election in 1972.

When President Nixon resigned in 1974, inflation was at 11 percent and unemployment rates increased to 5.6 percent; however the deficit was down to $6.14 billion. Although he was a conservative president, he adopted more liberal Keynesian methods and succeeded in his attempt to balance the budget on a “full employment” basis.

Categories: A3, Learning

Money Doesn’t Grow On Sprees

February 28, 2013 Leave a comment

In government class this year, we covered many topics ranging from elections to the judiciary. These topics allowed for the class to think critically about certain situations and to form our own opinions. In class, Mr. Ostroff provided an environment to promote our critical thinking with in-class assignments, blog posts, and debates. All of these assessments really helped me grasp the information being taught in class and helped me grow as a student. There were many specific topics I found interesting this year in government, but I particularly enjoyed the fiscal cliff project.

The fiscal cliff project was one assignment that really helped me to understand the economic crisis going on in our country today. For this project, the class was split up into groups and asked to firstly define the problem “what is the fiscal cliff.” After a little research we became acquainted with the national problem. The New York Times defined the fiscal cliff as a “collection of economic policies that are set to expire or be enacted at the start of 2013.” Another source, The Washington Post, called the fiscal cliff “much too austerity much too quickly.” Our group quickly realized that the fiscal cliff serves as a metaphor for the consequences of bad congressional decisions. The next step in the investigative process was to find out how the fiscal cliff happened. According to the Council on Foreign Relations, the fiscal cliff is the “culmination of a series of increasingly continuous showdowns between the Democratic and Republican parties over the last few years.” The United States credit rating was downgraded after a debt-ceiling fight in August of 2011, which threatened the United States’ ability to meet its financial obligations. The nation’s debt continues to increase as well as the interest on the debt. Republicans typically favor spending cute to achieve deficit reductions and Democrats usually support tax increases.

monWith all this knowledge we were then asked to develop a creative solution that would appeal to both parties. This task was a little more difficult because it was challenging to come up with bipartisan ideas. My group decided it would be beneficial for the nation to reduce spending. First we researched that the nation spends an enormous amount of money on military spending. By reducing warfare in foreign countries along with foreign interference, the nation could save an estimate of 852 billion dollars. Along with the military budget, my group found other places where the government could save some money instead of spending. We cut spending in other places as well and the grand total of money our group predicted the nation could save with our solution was $3268.8 billion. Reducing national spending is an idea that would typically appeal to the Republicans. To make our solution more appealing to the Democrats, my group also included a raise in taxes. For example, we decided to tax the worldwide income of United States’ corporations as it is earned. Our hypothetical solution in the end ended up to appeal to both political parties.

The final task of the project was to deliver a presentation to the class explaining our solutions in a persuasive way. Many good ideas were shared during these presentations and I enjoyed hearing why each group chose specific actions. At the end of our project, our fiscal cliff solution would have left the country with a 1.3 trillion dollar surplus. This role-playing project was a lot of fun and I thoroughly enjoyed every aspect of this project. This project allowed for creativity and freedom to solve the fiscal cliff any way that was reasonable. I am very glad this project was integrated into our government class because it has effectively taught me a great deal about the government and which ideas appeal to political parties.

Killing Constitution to Save Lives?

February 22, 2013 3 comments
Photo Credit: New York Daily News

Photo Credit: New York Daily News

In present day America, the government desires to restrict the second amendment for the future prevention of public shootings. The effectiveness of this action is questionable and can potentially cause more damage than save innocent lives. With all the media coverage and numerous debates between political parties it is undeniable that gun control is a major topic in modern-day America. The recent shootings in the nation have made gun laws a priority by the democrats as seen in President Obama’s recent State of the Union Address. Democrats feel as though if there were some limits on guns, there would be less shootings in our nation. Republicans on the other hand generally support the second amendment and the right to bear arms. Personally, I believe that just because the limits on guns increase, it does not reduce the number of the mentally ill people in the nation who take the lives of innocent civilians. There is no logical mathematical formula to try to reduce the number of people killed by the hands of the violent mentally ill. If the insanity of a person is so far gone to desire to kill people, they will find a way whether it be by gun or by hand.

If the democrats succeeded in persuading the country to vote in favor of gun control, the second amendment would go against the people’s rights. The second amendment protects the right of all American’s to keep and bear arms; it provides American’s protection and guarantees a constitutional way of defense. A recent post on the New York Times revealed the thoughts of the people who only view guns as an offensive weapon and as a danger to the public. Senator Christopher Murphy, a democrat of Connecticut “is haunted” by the tragedy that recently occurred in Newtown, Connecticut. As a democrat of a state that just witnessed a terrible event, he proposed limitations on the bullets in a magazine. He supports this idea with the thought that “amateurs have trouble switching between magazines,” thinking that the interval of time between switching magazines can potentially provide the critical time needed to disarm the gunman. Influential lawmakers of both political parties have shown openness to this idea of limitations on the magazines. The lawmakers open to this idea all agree that there is a “difference between limits on magazine size and assault weapons ban;” Senator Angus King Jr. of Maine states that “it is the difference between appearance and functionality.” The idea of magazine limits has been appealing for many Senate Democrats up for re-election in the states that generally support gun rights. These Senate Democrats are torn over whether “a restriction on ammunition erodes the rights of law-abiding gun owners,” or is a “mild annoyance for those owners in the name of public safety.”

Photo Credit: ABC News

Photo Credit: ABC News

A restriction on the size of magazines seems to be a logical solution to resolve the debate on gun control. The gun-supporting Republicans are able to still keep their firearms and the gun-restricting Democrats are able to feel as though they are sparring lives. A restriction on ammunition does not contradict the second amendment because the second amendment states it is the “right of the people to keep and bear arms,” it states nothing on the idea of ammunition. With ammunition laws, lives can potentially be spared and the second amendment can be preserved. Ammunition control as opposed to gun control serves as the bipartisan answer to help the nation agree on a solution.

The recent discussions about current events in government class this year have persuaded me to form my own ideas and propose possible solutions that would appeal to both political parties. The events in the country have furthered my knowledge on the course material being taught in class by seeing the actions of the government and understanding the reasoning behind the actions made by the politicians.

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