Keep Your Eye on the Ball

Last night, President Obama gave his State of the Union speech (full video below). The speech marked the end of President Obama's Keynesian phase and his rebirth as a neoclassical growth economist. In his Keynesian phase, it was all deficit spending and employment. In his neoclassical growth phase, it will be all technology, capital investment and competitiveness.

The graphic above shows a causal diagram of neoclassical economic growth theory. Everybody that can work is fully employed. Production involves the combination of capital, labor and technology within a free market system. But wait, how does that work? Neoclassical growth theory is about the long-run. Unemployment is still above 9% (here). Is neoclassical growth theory really applicable? And, doesn't more production mean more greenhouse gas (GHG) emissions (what ever happened to cap-and-trade and Carol Browner)?

If the Financial crisis of 2007-2011 is over, maybe it's time to forget bailouts and stimulus packages and think about the long run (take our eye off the ball?). A lot of people are more than happy to forget Keynesian economics. Whether you agree or not with John Maynard Keynes, however, he did produce some great quotes:

"The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."
— John Maynard Keynes

"The long run is a misleading guide to current affairs. In the long run we are all dead"
— John Maynard Keynes