Austerity has become a household word. It’s been mentioned and repeated so many times that Merriam-Webster’s Dictionary honored the term as its word of the year in 2010 — that’s how many web searches were conducted on the “austerity”.

Fiscal austerity is simply a means by the government to control spending and increase revenue. Presumably, this is done by reducing the amount of money it borrows in order to cut the fiscal deficit, find new and fun ways to raise taxes, while simultaneously cutting government programs. However, this is usually done during tough economic times. Those most affected by unfavorable economic conditions will also be hit the hardest by the newer tax burden and cuts in goods and services.

IBD editorial:

When Republicans took control of the House in January, they pledged to make deep cuts in federal spending, and in April they succeeded in passing a bill advertised as cutting $38 billion from fiscal 2011′s budget. Then in August, they pushed for a deal to cut an additional $2.4 trillion over the next decade. …

But data released by the Treasury Department on Friday show that, so far, there haven’t been any spending cuts at all.

In fact, in the first nine months of this year, federal spending was $120 billion higher than in the same period in 2010, the data show. That’s an increase of almost 5%. And deficits during this time were $23.5 billion higher.

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Below are excerpts from President Obama’s latest address to the nation concerning the debt and deficit talks, followed by “subtitles,” which perhaps provide a more accurate perspective of the points he made:

“For the last decade, we have spent more money than we take in.”

- I won’t mention, of course, that I have added more to the national debt in just my first 19 months in office than all presidents from Washington through Reagan combined.

“In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation’s credit card.”

-Well, no, the nearly trillion dollars in the Stimulus, bailing out the banks, and the auto companies- this was important money spent that could have otherwise been used to pay down the debt if I really wanted to. So, that money doesn’t count…And those Bush tax cuts have been a thorn in my side…I really began to lose my base on that agreement to extend them…And about those wars, I’m referring to the ones in Iraq and Afghanistan that Bush started…not the ones in Libya and Yemen I’ve gotten us involved in… Oops, I probably shouldn’t have dissed that senior prescription drug program because later on in my speech I try to use the seniors as pawns again to get them frightened about how Republicans want to cut their Medicare.

“To make matters worse, the recession meant that there was less money coming in, and it required us to spend even more.”

- That’s this neat Keynesian economics I learned in college. I thought I’d try it out on the country when I became president. We have less money, so we spend more. It really works!

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It was sad to watch Federal Reserve Chairman Ben Bernanke being forced to hold a political press conference for the first time in the Fed’s 102 year history. Bernanke nervously defended the merit of the Fed subsidizing $3 trillion in Congressional deficit spending and $2 trillion in Wall Street bail-outs; but he looked tired and defeated. He should have just apologized that the Fed’s policies had the unintended consequences of exporting American jobs, igniting world-wide inflation, impoverishing seniors and now threatening the destruction of the AAA credit rating of the United States. Perhaps then he could he could have honestly asked Americans: “Please allow Congress to raise the debt ceiling, so we can continue to spend money.”

Bernanke was a Princeton academic before serving as a Governor of Fed from 2002 to 2005, where he gained notoriety for developing the “Bernanke Doctrine”. The professor theorized the world had entered a period of “Great Moderation” where brilliant economists, like himself, could reduce fluctuations such as industrial production, unemployment, and GDP by “1) improved government economic stabilization policy, 2) financial innovation and global integration, 3) improved inventory control and supply chain management, and 4) and economic good luck.”

After the “9-11” terrorist attack in New York, Ben Bernanke gave a speech that reassured bankers and hedge funds the Fed could manage any shock to the economy titled: “Deflation: Making Sure “It” Doesn’t Happen Here.” The professor stated the Fed “has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief”. He stated that “recession, rising unemployment, and financial stress” could be countered by:

1) increase the money supply through the “printing press”;
2) “print money and distribute it willy-nilly”;
3) lower interest rates – all the way down to 0 per cent to “be able to generate inflation”;
4) control corporate bond yields by lending to banks at 0% and accepting bonds as collateral;
5) “devaluation and the rapid increase in money supply”
6) buy foreign currencies on a massive scale to depreciate the dollar;
7) finance the Treasury’s purchase of U.S. companies with “newly created money”.

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Standard & Poors (S&P), the credit rating agency that started in business more than 150 years ago and operates in 23 countries, issued the ultimate in realty checks this week when they downgraded its credit outlook for the United States.  S&P cited a “material risk” that policymakers may not reach agreement on a plan to trim the large federal budget deficit.

While the agency maintained the country’s top AAA credit rating, it said “Authorities have not made clear how they will tackle long-term fiscal pressures.” S&P said the move signals there is at least a one-in-three chance that it could cut its long-term AAA rating on the United States within two years.

What would a credit rating downgrade mean to the average citizen?  Immediately following a downgrade, the interest required to refinance our debt would climb dramatically and the Federal Reserve would have to print more money resulting in a sharp devaluation of the dollar.  If you think $4 per gallon for gasoline is an outrage, try $8 per gallon or higher.  If you think that your 401(k) took a hit in 2009, how about a permanent hit due to the United States currency losing its value?  Food, energy, clothing, housing and all other staples of life will experience sharp and permanent price increases.  Unemployment will also rise as businesses attempt to adjust to a new and uncertain economy.

It should be absolutely clear that the growing national debt and continued federal budget deficits are a threat to our economy and a clear and present danger to our way of life.  President Obama took office with a $10 trillion debt and a $740 billion federal budget deficit.  Two years later the national debt is $14.2 trillion and the federal budget deficit has reached $1.6 trillion.  Mr. Obama and the Democrats insist that we need to keep spending, even though our debt will exceed our Gross Domestic Product (GDP) before the end of this year.  They insist that rolling back the George Bush era tax cuts for those making more than $250,000 per year and reductions in defense spending is the path to a solution.

The truth is that the additional revenue potential from rolling back those cuts would only equal a maximum of $64 billion per year.  The risk to jobs in our economy by increasing tax rates on many small businesses that are taxed as individuals, S-Corporations, is extremely high.  There could easily be a spike in unemployment as those business owners adjust their planning to preserve their net income.

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The media are reporting that if a governmental shutdown occurs, it will affect only “nonessential services and personnel.” Now, call me superficial, but I have a question:

At a time when we face a $1.4 trillion deficit this year alone, why are we funding anything or anyone that is admittedly “nonessential”?

I have been pondering an analogy that ought to be easy for anyone to grasp. Let’s compare the current congressional battle over federal spending with a hypothetical family feud over your own household budget.

Suppose you and your spouse are arguing about your finances. You have discovered, to your horror, that you are spending $1,400 per month over and above your total household income. Terrified, you inform your spouse that this is completely insane and unsustainable, and that it must stop immediately.

Your spouse nods in nominal agreement — but then digs in his or her heels against every single specific spending cut that you propose.

Knowing of your partner’s stubborn, spendthrift ways, you eventually propose just $100 in reduced spending. That would still have you falling behind each month by $1300, but at least it’s a start. However, your spouse is outraged and rejects the figure out of hand; it’s “draconian,” and would undermine the profligate lifestyle to which you’ve become accustomed.

You argue, and argue, and argue. Getting nowhere, and desperate for any point of agreement, you say: “Look, can’t we cut just $61 from our monthly spending? We both know that this won’t even make a dent in our obligations, but at least it might slow our rush toward bankruptcy, if only by a few days.”

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The earthquake and tsunami that struck Japan on Friday has caused tragic devastation to lives and property, but Japan may soon be over-whelmed by a debt crisis tsunami of epic proportions. With crony deficit spending by the Japanese government having destroyed its economy over the last two decades; Japan now has a real national crisis that will force the government to engage in massive deficit spending. There is a strong risk of a financial melt-down in the world’s most indebted nation.

After the credit-induced boom in the late 1980s, Japan’s high rate of growth stumbled and bank loan defaults sky-rocketed. Over the last twenty years, asset prices are down by 65% for the Nikkei stock index, 50% for residential real estate, and 70% for commercial real estate. The centrally planned Japanese government responded to this crisis of falling asset values with wave after wave of colossal deficit spending stimulus. Japan’s public debt rose from virtually nothing to 225% of gross domestic product (GDP), but the economy has remained stagnant.

Japan has engaged in about the same level of 7% deficit spending as the US has averaged for the last two years, except Japan has sustained this level of spending for the last twenty years. Normally, heavy deficit spending quickly exhausts a nation’s internal markets to buy its own debt and the country is forced to auction bonds at higher and higher interest rates to outsiders; which also increases the costs of the debt and forces the nation to sell even more debt. At some point the country becomes so indebted that credit agencies downgrade the country’s quality rating to junk, foreigners refuse to buy new debt, and the country defaults. Japan has avoided this deficit financing end-game, because the nation has been able to finance 95% of its debt at home. Over the last year Greece with a third less and Ireland with less than half the debt to GDP ratio of Japan, imploded when foreigners refused to invest.

As deficit spending has remained extraordinarily high for such a long period, Japan has maintained a 41% corporate tax rate; the highest in the world, 10% above the US and Europe and triple the fast growing Asian economies of Taiwan and Singapore. This has made Japan an unattractive location for private investment. The complete lack job security for young workers who can only find temporary employment has made life difficult for new families and caused the birth rate for Japanese women to be cut in half. Lower family formation has caused the household savings rate for the thrifty Japanese to fall from 5% at the end of the 1990’s to just above 2% currently.

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Poor Robert Gibbs. In what are his apparently final days in the White House, you’d think he’d like to take some last wistful walks around the place and maybe stop by a going away party or two. Instead, it looks like much of his final time will be explaining why President Obama really thinks we should increase the debt ceiling now, having voted against increasing it in 2006.

Back then, total federal debt was about $8.5 trillion, just over 60% of GDP. Auditioning for the role of a fiscal hawk, then-Senator Obama took to the Senate floor:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

I gotta admit, the man had a point. We certainly did, and do, deserve better. Of course now that he’s in the White House, Obama thinks we absolutely must increase the debt ceiling. One his chief economic advisors recently went public, warning that if we don’t increase our ability to borrow money:

The impact on the economy would be catastrophic. I mean, that would be a worse financial economic crisis than anything we saw in 2008

So let me gets this straight, back when our debt was 60% of GDP Obama thought that an increase in the debt ceiling was a ‘failure of leadership’ and ’shifting the burden of bad choices.’ Now, our debt is over $14 trillion or, more ominously, just about 100% of GDP and Obama thinks that NOT increasing the debt ceiling would be an economic ‘catastrophe’?

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President Obama is on the campaign trail warning voters about “returning to the very same policies that failed us during the last decade.”

If he’s talking about bailouts, ineffective stimulus packages, and massive government spending, then we won’t be returning to them because we’ve never left in the first place. The continuities between George W. Bush and Barack Obama and their parties are far more disturbing than the differences.

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Each summer, Wall Street strategist Byron Wien convenes a meeting of high rollers to discuss the outlook for investment. This year’s meeting brought together fifty individuals, including more than ten billionaires.

Their expectations, as reported by CNBC, are gloomy:

“They saw the United States in a long-term slow growth environment with the near-term risk of recession quite real,” said Wien, in a commentary to Blackstone clients. “The Obama administration was viewed as hostile to business and that discouraged both hiring and investment. Companies and entrepreneurs were reluctant to add workers because they didn’t know what their healthcare costs or taxes were going to be.”

Add this report to the many similar ones to which my colleagues and I have called attention over the past two years.

Of course, for mainstream macroeconomists, such evidence means nothing. In fact, they hold it in complete contempt because (1) their formal mathematical models do not have a variable called “regime uncertainty,” and (2) even if they could be persuaded to take this factor into account, the canned data on which they rely—the product of the Commerce Department’s Bureau of Economic Analysis, for the most part—do not supply them with an “official” data set for their analysis. What you can’t measure, according to their “scientific” credo, does not exist. Their de facto motto (of which I have more than once been on the receiving end) is: you’ve got no formal model; you’ve got nothing.

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It must be a condition of employment that a journalist who writes about the current recession include in his article the statement, “consumption makes up more than two-thirds of the economy” or “consumption spending accounts for 70 percent of GDP.” This seemingly simple, factual statement, however, is nearly always intended to carry some explanatory weight, and on occasion the writer spells out this explanation by adding a statement such as, “unless consumers begin to open their wallets and spend more, recovery from the current recession will be impossible.”

At first glance, this journalistic commonplace appears to make sense. Anyone can understand that, say, a store at the mall will not hire additional employees unless its sales increase enough to justify the additional expense. Hence, would-be employees will remain unemployed; they will purchase fewer consumption goods than they would have purchased if they had jobs; and therefore the stores will not hire more workers; and so forth. The circle of a theory of income and employment seems to be closed, and thus an explanation provided for the lingering recession: consumers are not spending enough.

One does not need a Ph.D. in economics, however, to discover that something must be wrong with this way of thinking about prosperity and recession. Checking the national economic accounts produced by the Commerce Department’s Bureau of Economic Analysis (Table l.l.6), one finds, for example, that the most recent quarterly peak in real personal consumption expenditure occurred in the fourth quarter of 2007. This spending ($9,244 billion at an annual rate) equaled 69.2 percent of contemporary GDP ($13,364 billion at an annual rate)—where the data are expressed in dollars of 2005 purchasing power. Real GDP did not fall significantly until the third quarter of 2008. When it reached its trough in the second quarter of 2009, it had fallen to $12,810 billion, down about 4 percent. At that time, real personal consumption spending was $9,117 billion, down only 1.4 percent, and equal to about 71 percent of GDP. Thus, as usual over the course of a boom and bust, consumption spending varied proportionately less than GDP as a whole.

As every student of the business cycle learns early on, the most variable part of aggregate expenditure is private investment. When real gross private domestic investment peaked, in the first quarter of 2006, it was $2,265 billion, or 17.5 percent of GDP. When it hit bottom in the second quarter of 2009, it had fallen by 36 percent to $1,453 billion, or 11.3 percent of GDP. (Deducting investment expenditures aimed at compensating for depreciation of the private capital stock [Table 1.7.6], we find that real net private investment—the part that contributes to economic growth—in the most recent quarter was only one-third as great as it was at its peak in early 2006.) The ups and downs of the business cycle are obviously driven not by consumption spending, but by investment spending.

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Economists and pundits, who contend that the Federal Reserve System has little room to maneuver in using monetary policy to jump-start our anemic economy, often have claimed that America is mired in a Keynesian “liquidity trap”, a situation in which the demand for money is unresponsive to changes in market interest rates.

After all, those commentators emphasize, the Fed has adopted a target for the federal funds rate (the interest rate charged on overnight interbank loans) of between zero and 0.25 percent. The implication is that further reductions in that rate will have little or no effect on the incentives of businesses to invest in new plant and equipment or of consumers to borrow in order to finance the additional spending necessary to raise GDP growth above the (recently downwardly revised) estimate of 1.6 percent during the second quarter of 2010.

But those commentators overlook or ignore the easily verified reasoning of John Maynard Keynes, who defined a liquidity trap in terms of long-term rather than short–term interest rates. The long-term (ten- or 30-year) rate on Treasury securities now runs at about three percent, meaning that the Fed still has arrows in its quiver. Unfortunately, however, those arrows, the use of which would demand the central bank engage in further “quantitative easing”, requires it to purchase more under-performing, “toxic” assets from banks and other financial institutions that lent money to homeowners who could not repay their mortgages. Engaging in such transactions places more bad debts on the Fed’s balance sheet, constrains its ability to conduct monetary policy in the future and raises the specter of higher rates of future price inflation.

In his recent speech at Wood’s Hole, Wyoming, Fed Chairman Bernanke was right to say that economic recovery cannot depend solely on the policies of the central bank over which he presides. But the fiscal discipline (spending and tax cuts) required to achieve that goal is incompatible with the vote motives of incumbent politicians or their challengers for political office.

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With no shock and awe and little pomp and circumstance, China has declared war on the world.  Having watched the Gulf Wars on CNN, Americans are accustomed to wars fought with jets, battleships, tanks and infantry.  We constantly are on the look out for foreign enemies on our soil and the vigilance of our citizens has thwarted numerous terrorist attacks.  Unfortunately, Americans are not accustomed to recognize international weapons of economic mass destruction.  In the modern world, exports, deflation and economic competiveness are weapons far more powerful than cruise missiles.

Naive to this new deadly threat, the US government has launched wave after wave of assaults on the competiveness of American business.  Healthcare and financial service “reform” is driving business operating costs higher and credit availability down.  The soon-to-expire tax cuts will result in the largest tax increase in American history.  It should not be surprising that China would use tactics akin to economic guerrilla warfare to attack when our nation is most vulnerable.

China’s supply of young workers entering the labor force is peaking this year and will decline by one third over the next dozen years due to decades of population control.  But big increases in rural farm productivity are pushing huge numbers of the young off the farms and into the factories on the coast.  With factory worker suicides rampant and labor striking over wage rates too low to buy food, China panicked last year and increased its money supply by a spectacular 40% to quell dissent.  Given the threat from a sinking economy creating a revolutionary environment at home, communist China chose to invade world markets by exporting almost 40% of its gross domestic product.

Statistics just released have obliterated any hope that a meaningful economic expansion is under way in Europe, Japan or the US.  Business confidence, factory orders, auto sales and consumer product purchases are plummeting.  Meanwhile, Chinese exports grew a blistering 22% rate for the second quarter of 2010.  With their exports equaling 5% of the world’s gross domestic product (GDP), China’s capture of another 1% of the world’s economy will force producers in other countries to cut employment by approximately 10 million jobs.

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The near collapse of our financial institutions and the overall economy and the misguided notion that a few trillion dollars of additional federal spending would return us to prosperity moved us in early 2009 to suggest an alternate approach.  We proposed in an essay published in The American, the on-line journal of the American Enterprise Institute, a fifty percent tax credit up to a fixed limit for every taxpayer who purchased any consumer goods anywhere in the United States.

Our theory was that a robust economic recovery would be fueled by increased retail purchases, and that every dollar of cost to the treasury represented a prior retail purchase within the American economy. This, by definition, would have produced an immediate increase in revenues to our struggling business and manufacturing sectors.  That essay and the positive feedback it engendered provided the impetus for the establishment of the Of Thee I Sing 1776 website, the goal of which has been to produce weekly, timely, and hopefully, thought provoking essays.

This week we return to the subject of economic stimulus as more and more politicians from both sides of the aisle and columnists from left to right have pronounced the stimulus a disappointment, at best, and a disaster at worst.  More likely, given the nation’s accumulated debt, the latter may be the more apt description.

So is there a Plan B, so to speak, in the works?  The answer so far, based on bills recently considered and rejected by members of both parties in Congress, is that Mr. Obama would prefer to double down on the discredited Keynesian approach which didn’t work during the great depression and which failed miserably through the recently “ended” (at least by common definition) great recession.  Tell the 9.5% of the workforce who are still unemployed that the recession is over.  Tell that to those who have watched the average time the unemployed are out-of-work grow from six weeks to 12 weeks, to 25 weeks to 35 weeks.

The number of unemployed is essentially the same percentage of people who were unemployed before the Administration and the huge Democratic majority in Congress, in the name of “job creation”, started shoveling our tax money out the door (or as some might say burning it in a bonfire).  And just why won’t President Obama, Majority Leader Reid and Speaker Pelosi wake up and smell the fire that continues to burn?  The answer can be found in two very telling and, now, very familiar utterances of the president and his senior staff in the early days of the new Administration.  The president said he wanted to “fundamentally change America” and his chief of staff, Rahm Emanuel, when economic disaster was around the corner, famously said, “Never waste a crisis.”

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Despite Vice-President Biden’s claim, the reality shows that, despite costing more than the administration expected, the stimulus still hasn’t created the jobs they promised.

CLAIM:  Democrats assert stimulus failed because Republicans kept it small.

Democrats repeatedly promised their massive 2009 stimulus plan would create over 3 million new jobs.  It hasn’t.  Instead, unemployment climbed to 10 percent as over 2 million more jobs were eliminated.  This weekend Vice President Biden took the extraordinary step of suggesting stimulus failed because Republicans made it “too small”:

TAPPER: Was the stimulus, in retrospect, too small?

BIDEN: Look, there’s a lot of people at the time argued it was too small. Actually, we…

TAPPER: A lot of people in your administration.

BIDEN: — yes. A lot of people in our administration, a lot of — I mean, you know, even some Republican economists and some Nobel laureates like Paul Krugman, who continues to argue it was too small. But, you know, there was a reality. In order to get what we got passed, we had to find Republican votes. And we found three — three. And we finally got it passed. So there is the reality of whether or not the Republicans are willing to play, whether or not the Republicans are just about repeal and repeat the old policies or they’re really wanting to do something. And I — I’m not — I’m not — you know…

TAPPER: So if you didn’t have Republicans that you had — if you didn’t have the legislative reality…

BIDEN: I think what…

TAPPER: — it would have been bigger?

BIDEN: I think it would have been bigger. I think it would have been bigger. In fact, what we offered was slightly bigger than that…

FACTS:  Democrats’ stimulus bill failed on its own merits, not because – at $862 billion or nearly $3,000 for every man, woman and child in the U.S. – it was “too small.”

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Nobel Laureate Vernon Smith in The Daily Beast:

The case for government deficit spending was that idle unemployed labor and capital would be put to work to increase the output of goods and services. Hence, a dollar of government spending would produce more than a dollar of new output because of the “multiplier effect.” Robert Barro of Harvard has studied wartime and defense spending, and found a multiplier of only 0.8. But those were better times, when businesses, banks, and consumers were not primarily concerned to use new income to pay down debt or save to protect against income loss. Even in better times there wasn’t much bang for the buck.

So what has been the government’s response in the current crisis? Besides spending stimulus, it was tax incentives for new home buyers and cash for clunkers if you bought a new car. All three are programs for borrowing output, homes and cars from future production and sales. Using subsidies to pump up home sales beyond what people could afford was the problem that led to the crisis. Now the problem is touted as the solution.

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Paul Krugman has been on a roll the last two weeks. After announcing that America is in its “Third Depression” last week, he provided an encore last weekend, by blaming U.S. Federal Reserve Chairman Ben Bernanke for his concerns about the evils of deficit spending for failing to increase economic stimulation of the economy. During the Great Depression President Franklin Roosevelt brushed away concerns regarding the wisdom of deficit spending by saying; “If we can boondoggle ourselves out of this depression, that word is going to be enshrined in the hearts of the American people for years to come.” Perhaps Professor Krugman is frustrated that so many Americans have not enshrined the boondoggle of deficit spending in their hearts the same way he has.

Our good Professor just won the Nobel Prize for economics in October 2008, for his theory, that to be economically dominant, industries must concentrate their producers and suppliers into a common metropolitan area near their customers to maximize economies of scale and transportation savings. His model perfectly explained the 1950’s and 1960’s success of the U.S. auto industry’s tight concentration of assembly plants, steel foundries and parts suppliers in and around the city of Detroit; and within one days delivery to the bulk of their big city customers.

But Krugman’s theory of economic dominance through concentration has been rendered meaningless by modern supply chain management revolution that interconnects competitive vendors from across the globe. China has a massive balance of payments surplus because they can competitively ship products 10,000 miles to Detroit and beat local parts manufacturers on price and quality. Just nine months after our Nobel Laureate picked up his $1.8 million check and Norwegian hardware, General Motors, the poster child of the Professor’s industrial policy, filed the largest bankruptcy in the U.S. history in September 2009 with only $82 billion in assets, but $172 billion in debt.

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This week, I had the privilege to deliver the Weekly Republican Address.  In it, I talk about how Washington Democrats’ continued failure to end their out-of-control spending spree is scaring the hell out of the American people and hurting our economy.  The need for action could not be clearer: a $13 trillion debt, near-10 percent unemployment, and stagnant private sector growth.  Having run a small business, I can tell you that all this deficit spending, coupled with the new health care law’s burdensome mandates and tax hikes, is crushing these engines of our economy.

As bad as things are, Democrats don’t even intend to pass a budget, doing nothing instead of seizing this critical opportunity to provide the fiscal discipline that is sorely needed to create jobs and boost our economy.   Even after presenting President Obama with a statement signed by more than 100 economists that says just that, he still has not pressed leaders in his own party to take action.  Taxpayers have every right to be fed up with this stunning failure of leadership – the kind of leadership President Obama promised to provide.

These and other topics are discussed in the Weekly Republican Address:

“Hello – I’m John Boehner.  In these tough economic times, American families have done their level best to stay afloat – spending less and working more while trying to map out a financially sound future.  They deserve that same degree of discipline and vigilance from their government.

“But instead of bringing fiscal sanity to Washington like he promised, President Obama has spent taxpayer dollars with reckless abandon, refusing to make tough choices and pushing the burden on to future generations.  No price tag has been too high for Washington Democrats, and now we’re all paying the price.

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The Obama Administration announced that it will urge government agencies to trim five percent from their budgets by reining in wasteful and duplicative programs – and redirect how that money is spent.  Less than 20 minutes later, the Administration’s Budget Chief Peter Orszag admitted that the initiative was as much about spending as it is deficit reduction.  To be clear, the Administration did not commit to use those cuts to pay down the deficits.

Look, trimming these budgets is a good thing – as Republicans have said repeatedly.  But is giving the heads of these agencies the ability to redirect money really an indication that Washington is prepared to bring our deficits under control before the European debt crisis migrates across the Atlantic?  Or is it simply posturing?

The good news is that the administration, at least on the surface, is finally getting the message that the American people are fed up with the reckless culture of spending prevailing over Washington.  America has soured on an agenda that sets out to double the debt in five years and triple it in 10.  That is why we launched YouCut, an effort to begin to transform the culture in Washington from one focused entirely on spending to one that forces measures to cut waste and save money.

Now, after more than 700,000 YouCut votes have been cast to remove specific wasteful spending items in the budget, and three House votes later (that would have saved $85 billion had enough Democrats supported them), the President is beginning to talk about finding ways to save taxpayer money.

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Since the early twentieth century, periods of real or perceived national emergency have been “critical episodes” in the growth of government’s size, scope, and power in the United States and in many other countries. Hence, the concise conceptualization: Crisis and Leviathan (the main title of my 1987 book on the growth of government in the United States from the late nineteenth century to the late twentieth century).

In the past century, the first five such critical episodes in the United States were: World War I; the Great Depression; World War II; a multi-faceted set of crises associated with the civil-rights revolution and the Vietnam War, roughly coincident with the presidencies of Lyndon B. Johnson and Richard M. Nixon; and the post 9/11 events associated with the so-called War on Terror and the U.S. attacks on and occupations of Afghanistan and Iraq. We are now amid another such critical episode, which springs from the housing bust that began in 2006, the economic recession that began late in 2007, and the financial debacle that reached its climax in September 2008.

The current troubles are complex and raise a multitude of questions. Many books and articles no doubt will be written to analyze these various issues in scholarly depth and detail, and certainly anything we might say today must be regarded as preliminary, at best. I focus here on a few aspects of the present episode that relate closely to my own research on the growth of government, a field of study to which I have returned again and again over the past thirty years.

I

The current recession has elicited many comparisons with earlier business downturns, especially with the Great Depression. Federal Reserve chairman Ben Bernanke is often described as an expert on the Great Depression who takes its lessons, as he understands them, deeply into account as he formulates and implements Fed policies. Likewise, many other economists have revisited the Great Depression recently in search of lessons applicable to current policy-making. In all of these reflections, the mainstream economics profession in general has distinguished itself by an astonishing superficiality of historical knowledge and lack of theoretical prowess.

The swiftness with which a great many mainstream economists have reverted to the simplistic “vulgar Keynesianism” that had its heyday from the late 1940s to the late 1960s has been nothing short of shocking, given that by the end of the 1970s such old-fashioned Keynesianism seemed to have been completely discredited and superseded in the leading echelons of the mainstream economics profession. Now it has come roaring back.

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