The Keynesians Who Couldn't Shoot Straight.

When president Obama was elected, the Democratic controlled congress combined with the struggling economy dictated the dusting off of Keynesian policies, presented anew in the form of the stimulus package.

The only problem is, John Maynard Keynes would have never signed off on this plane crash. In his epic tome, "Theory of Employment, Interest and Money," Keynes argued that government intervention in the economy should induce two powerful human emotions which are vital to a recovering economy;  "Animal Spirits," and "Spontaneous Optimism."

Today, our animal spirits are reflected in our consumer confidence numbers.  Keynes would contend that no mathematical economic equation can be relied on to produce positive animal spirits, aka, consumer confidence.  This accounts for the dichotomy between rising corporate profits and falling consumer confidence numbers. The American consumer does not feel better about their own, or the country's economic future.  They feel no mojo.  When only 13% of Americans feel the stimulus plan has helped them personally, animal spirits have now become road kill.  

Keynes' description of spontaneous optimism is aimed at the entrepreneur.  In theory, he (or even more the case today, she) should be able to recognize when the government is about to stimulate or "pump prime" the economy, and thus throw caution to the wind and launch his start up company.  His fear of failure is tempered by the belief, and TRUST, that the government from a fiscal policy perspective is at least temporarily on his side.

Does anyone believe that today?

The presidents stimulus package is a boondoggle.  Can anyone honestly say that there is spontaneous optimism going on in the small business community in the United States of America? Understandably, there's a lot of optimism in DC., where Obama's approval rating is 85%. This is because the stimulus package was produced by government for the benefit of government.  One third of all stimulus money has gone to state and local governments in an effort to save public union jobs and keep the apparatchiks happy.  

This is unsustainable.  Just like one-quarter of all mortgages in the U.S, the country's balance sheet is beginning to go underwater.  Keynes tolerated short-term deficits with the belief that animal spirits and spontaneous optimism would produce revenues that would balance the budget over the near to medium term.

He obviously never met this president.