Capitolism

Independent in All Things, Neutral in Nothing

The Desperation of Keynesianism

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By Guest Blogger Ryan Berg

Shortly after Barack Obama became President, his first legislative victory was passage of a nearly $1 trillion stimulus package with various infrastructure projects, state aid, and pork-barrel projects.  Senators McCain and Coburn have come up with a list of 100 particularly egregious spending projects in the stimulus package—my personal favorites being money for:

  • Improved methods to predict the weather on other planets
  • The emotional response of monkeys to inequality
  • $700,000 for Northwestern University researchers to develop “machine generated humor” (finally a reliable joke machine!).

Instances like this do not help President Obama’s recent endeavor to sell his legislative victories and their efficacy to the American people.  In fact, they contribute to the sense of urgency involved in his coordinated and timely resale effort.

However, there is a bigger debate, surprisingly, than where hard-earned, taxpayer dollars are frittered away in government spending.  The debate about the guiding philosophy of the stimulus package is more important than its constitutive projects, namely, whether Keynesian economics works or not.  Keynesians maintain that in tough economic times, governments should cut interest rates, induce consumer spending over saving, increase government spending, and ignore public debt until economic woes have ceased.  This view, I believe, will be on referendum in November.

While Republicans have maintained that the Obama stimulus has not worked, Democrats have vociferously defended it and other government spending.  Employment remains at about 10% nationally, and nearly 20% in some states, not to mention those who have altogether stopped looking for jobs (who are usually excluded in the monthly unemployment statistics).  However, the White House and top economists promised that passage of the stimulus package would drop national unemployment figures to 8% or lower.  White House promises have failed to come to fruition after the government took resources from the private sector and misallocated them in the public sector.

Democrats have even started to air political ads lauding the stimulus package.  In the most difficult political climate of their careers, Senator Russ Feingold and Majority Leader Harry Reid have both aired ads recently touting the stimulus package.  Both Feingold and Reid feature ads commending the stimulus package for “putting people back to work.”  Yet, some simple background research on both candidates’ ads revealed several incredulous claims.  Reid’s ad features a schoolteacher, Bridget Zick, whose job was allegedly saved by the stimulus package.  However, the Las Vegas Review Journal reports that Ms. Zick’s job was not saved by the stimulus package.  The principal of the school says that the local elementary school at which Zick teaches did not receive any stimulus funding, nor did it lay off any of its 65 teachers.

It gets better.  Feingold’s ad claims that America needs to move “forward,” together, with him.  Feingold narrates his ad, citing statistics about the stimulus package “putting people back to work” (that phrase again!).  In one particular scene, the ad features nameplates being placed outside office cubicles.  “Elizabeth Ackland,” one of the plates reads.  Straight forward; sounds plausible enough, no? Well Elizabeth Ackland does not exist in Wisconsin—not in voter databases, Lexus-Nexus, nor Facebook and other social media.  In fact, the only Elizabeth Ackland to live in Wisconsin died in 1877.  Why couldn’t Reid or Feingold find somebody for their political ads who was really helped by the stimulus package?

No doubt, people have kept their jobs because of the stimulus package.  But at what cost? How much more efficient could the same amount of money have been in the private sector? How much more permanent would these jobs be? This is our counterfactual problem.  Keynesianism had a problem remaining relevant prior to our most recent economic malaise.  Now, Keynesianism has a problem proving its effectiveness in a financial downturn.  The end of the Keynesian era, starting with Ronald Reagan’s free market policies—including tax cuts—brought us economic expansion that lasted for a quarter of a century.  While these policies were not perfect, Keynesians cannot pretend that the policies that aided our economic growth of the last twenty-five years did not happen or are no longer relevant.  These spurious claims about the stimulus package indicate how far Democrats are willing to go to substantiate the Keynesian philosophy and make it relevant again.  Since average voters, not policy wonks, decide elections, will they, too, reject this attempt at relevancy?

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Written by Russell S.

August 28, 2010 at 4:51 pm

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