STAFF NEWS & ANALYSIS
Martin Feldstein: Recovery Is Grossly Exaggerated
By Staff News & Analysis - December 12, 2009

Reports of the economic rebound in the U.S. have been greatly exaggerated, opines Harvard University economics professor Dr. Martin Feldstein, a former White House economic adviser. During a talk in New York City, Feldstein noted that the current recession "has been the longest, the deepest, and the most damaging" of all recessions the U.S. has suffered in its history, a report in the Yeshiva University student newspaper indicated. Feldstein reckons that President Obama's $800 billion-dollar stimulus package is the source of all the continuing economic malaise. The Obama stimulus plan was inspired by the idea of the "Keynesian Multiplier" – that the economy is best stimulated by government spending, Feldstein says. But the only time this has really worked in U.S. history was during World War II. "For the typical recession, the Keynesian Multiplier doesn't work," says Dr. Feldstein, observing that a peak-to-trough recession is when a strong economy rapidly descends into a recession. – MoneyNews

Dominant Social Theme: It's serious folks.

Free-Market Analysis: From our point of view, economists like Dr. Martin Feldstein serve a purpose, but it's not one of honest dialogue. We'll present Feldstein's bio to you in a moment, but the point we're trying to make is that without types like Feldstein mainstream economics has no credibility. In other words, Feldstein (and we know this is harsh) is an enabler of the current Western economic system with all its various kinds of ruin and cyclical recessions and (now) depressions. OK, here's Feldstein's bio as we have culled it from Wikipedia (abbreviated):

Martin Stuart "Marty" Feldstein (born November 25, 1939) is a conservative American economist. He is currently the George F. Baker Professor of Economics at Harvard University, and the president emeritus of the National Bureau of Economic Research (NBER). He served as President and Chief Executive Officer of the NBER from 1978 through 2008. From 1982 to 1984, Feldstein served as chairman of the Council of Economic Advisers and as chief economic advisor to President Ronald Reagan (where his deficit hawk views clashed with Reagan administration economic policies). He has also been a member of the Washington-based financial advisory body the Group of Thirty since 2003. … He is among the 10 most influential economists in the world according to IDEAS/RePEc. He is the author of more than 300 research articles in economics and is known primarily for his work on macroeconomics and public finance. He has pioneered much of the research on the working mechanism and sustainability of public pension systems.

And what is the Group of Thirty?

The Group of Thirty, often abbreviated to G30, is an international body of leading financiers and academics which aims to deepen understanding of economic and financial issues and to examine consequences of decisions made in the public and private sectors related to these issues. … The group consists of thirty members and includes the heads of major private banks and central banks, as well as members from academia and international institutions. It holds two full meetings each year and also organizes seminars, symposia, and study groups. It is based in Washington, D.C. The Group of Thirty was founded in 1978 by Geoffrey Bell at the initiative of the Rockefeller Foundation, which also provided initial funding for the body. Its first chairman was Johannes Witteveen, the former managing director of the International Monetary Fund. Its current chairman of trustees is Paul Volcker.

So we can see from the above that the usual suspects are gathered. The chairman of the Group of Thirty is apparently Paul Volcker (really now, who else would it be?) and this group of central bankers and economists meets at regular intervals to discuss the state of the world. From such platforms as these are launched "hawks" such as Feldstein who seems disparaging of Keynesiansm.

But what would Feldstein put in its place? We haven't checked too closely, but we figure it's some form of tax cutting procedure combined with steady interest rates, etc., federal cost-containment, "privatization," etc. (Or certainly it was during the Reagan years when he served as a top advisor to that administration.) After all that's what the dialectic calls for. On one side are Keynesians and on the other are those who want very DISCIPLINED government socialism and a highly restrained central banking system. In this way the third option never surfaces – which is to do away with socialism and central banking altogether.

The Hegelian dialectic is VERY important to power elite promotions, which can be easily discarded if they don't seem credible. So if you want to have an honest (by 20th century standards) economic career in academia, the dialectic provided you with a way out. The establishment needed your voice, so long as you didn't go too far and call for a gold standard or something crazy like a rethink of socialism. But you could certainly stand on the sidelines and snipe about low interest rates, easy money and central banking irresponsibility. You could even be mildly critical (as Feldstein is) of a variety of public welfare policies and call for their "privatization" – which really has nothing much to do with free-markets at all.

At any rate, economists like Feldstein are more important than ever these days as the dominant social theme of a central-banking economy continues to collapse. Feldstein has won many major honors (for what we're not sure) and if anyone doubts that Harvard is a hotbed of conservative, hard-money types … well, there's always Feldstein to point to. See the mainstream economic establishment really does have two points of view. There Keynesians and then there's people like Feldstein … telling it like it is!

After Thoughts

We haven't addressed the nub of Feldstein's point in the article excerpt that began this interview. But that's only because we made it many times before – stimulus packages routed through banks merely prop up an already rotted economy in severe crashes such as this one. They may push up the stock market, but the unwinding is too great and the damage too egregious. So the Western economy will be very slow to recover from what has actually been a full unraveling of the Western fiat dollar. What Feldstein didn't say, of course, when pointing out that Keynesian stimuli doesn't work is that central banking doesn't work either. But if he'd said that big Paul Volcker might have hunted him down and kicked him out of the Group of Thirty.

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