Obama's Economic Stall-Out or: How I Learned To Stop Worrying And Love the Keynesian Truth

Disclosure: While I often vote on all sides of the spectrum, I am a registered Democrat and I did vote for Barack Obama...take that how you will, whether I praise or criticize.

In the spirit of liberty that July 4th has just rekindled within me, I thought it was time for some honest-to-goodness stern analysis of the status quo. After all, John Adams didn't clam up when they told him to sit down (did that really happen, or was it just a song from 1776?).

But here's what frustrates me. As a dabbler in economics (I minored...I realize that's the equivalent of saying "I read about 15 books"), I'd like to think that the economy has ways of ideally working out, so I'll largely be talking about macroeconomics. Also, if you're into names, you I'll be talking about my economic idol of sorts - John Maynard Keynes.

One-sentence treatise on Keynes and how the man revolutionized the economics of depression: To get out of a depression, apply some combination of a reduction in interest rates and government infrastructural investment. 

If you recall the "stimulus package," you'll remember a significant debate on the second part of the Keynesian Two-Step (the economic protocol was more popular than the short-lived dance).

There was much to be said about money for public works, infrastructure, etc. You can find evidence of this right in our backyard - the bridge project for the City Avenue Bridge to Ridge Avenue and the repair of the Lincoln Drive Bridge was all funded by the American Recovery and Reinvestment Act, or ARRA (there's a nifty sign there to remind us, too).

How much? 105.3 billion dollars much, which makes about 13% of the ARRA. Not that impressive. That many billion dollars, stretched across these 50 states. 13% of the legislation, which includes far more for tax incentives. Can you tell this thing had to get through revisions in the House, Senate, and a conference committee?

That's food for thought on the infrastructure investment side, but what about interest rates? The Fed (Federal Reserve) influences this by working on what's called the Federal Funds Rate (FFR) - the rate at which banks borrow money from each other. Currently, and for the past year at least, the rate has been at 0.25%. This makes borrowing is cheap for the bank from the Fed, and thereby cheaper for you from your bank. To give you a context, it's the lowest it's ever been since 1955, which is as far back as I bothered to look.

The whole Keynesian bonus we're supposed to get from this is called the "multiplier." In basic terms, by giving people more money (from jobs owed to reinvestment in infrastructure and lowering of interest rates), they spend more. That's one dimension of economic increase. But from that, businesses need to provide more, so they hire more, create jobs, expand, etc. That's a second dimension, and onward, of economic increase.

Without getting more into Keynes and economics - we've but whet the appetite here - you can see that it lines up with what President Obama has attempted, and what worked for FDR to help the country recover from depression. So the questions now are: Is it working? If yes, why are we still hurting? If no, how long until we scrap the plan? If you have the answer - please see Timothy Geithner immediately, the President should hear what you have to say.

We've stalled out. The Federal Funds Rate has been at 0.25% since about 2009. The ARRA has been enacted from this point, too. Unemployment was 5% when Obama took office, it's now 9%, and has hovered there since about April 2009.

I can hear you wondering - didn't he say Keynesian Depression Policy (via the multiplier) held increasing employment close to its premise? Yes. I did. But I'll let you in on a secret: the rate cycles. Up and down, like a jagged little sine wave. Also - it's been higher. In 1982, it was at 10.8%.

The problem with the economy for me, and my impatient compatriots, is that it's not like cooking, or your stereo, or your car, or most anything else we operate. What is done today will most often not be seen for years. This is the macro in macroeconomics. To appreciate the many loops of that sine wave pattern for the unemployment rate, you need to look at it on a scale of decades, not months.

My message is this - stay the course. Things will come back around. Don't panic and say we need tax cuts (we don't, the government needs to be able to invest and it's broke as is - another article in itself). We don't need to vote to eliminate the rest of the stimulus that was unspent thus far.

In the words of Conan O'Brien, "keep cool, my babies."