Stockman: Keynesian Dream is Over

Robert Reich laid out the liberal fantasy on Sunday - the economy could be corrected if only the U.S. government would keep spending money it doesn't have to put people back to work. Reich seemed to feel his own brilliance as he explained all the wonderful things China's money could be spent on.

REICH: We have public parks, for example, that are closed. We have all kinds of needs with regard to teachers' aides, and in hospitals, many things that are – jobs that are not filled because we – nobody can afford them. The public cannot afford them.

Well, better to have people do these jobs directly than to have people sitting home, collecting unemployment insurance.

And David Stockman argued that the jig is up - we've blown all of our money, we've had our stimulus, and continued denial could result in a catastrophic tipping point being reached - even if being responsible means creating more unemployment.

STOCKMAN: That's just more of the same old Keynesian medicine that's failed. We may have public parks that are closed, but we also have a national balance sheet that is totally busted. The federal government and state and local governments are out of money, and so the Keynesian game is over, and there's really literally nothing that Washington can do about the job problem.

ZAKARIA: But David, you – you would accept that the consequence of that kind of tightening, that austerity, would be even more people would be unemployed and their forecast revenues would fall. I mean, in other words, there's a – there's – the scenario you're painting is pretty grim.

STOCKMAN: Yes. That's the dilemma that we're in. We're in a deflationary cycle. We can't afford to borrow more. We can't afford to create artificial demand and artificial employment. And so, therefore, we're likely to have unemployment in the teens for the balance of the teens, that is, for a decade or more.

That's the mess that we have created after 30 years of, you know, tax giveaways and lack of control on entitlements and running this massive $800 billion war budget that we don't need and can't afford. It sounds like very harsh medicine, but it happens to be reality. We cannot borrow our way out of this one, in my judgment. We're now facing the day of reckoning, literally.

What's unusual in this debate is that Stockman admits that the austerity that he recommmends - that he says is necessary - will result in "unemployment in the teens for the balance of the teens."

There's the debate. Which side do you come down on? I'm with Stockman.