Insanity and the stimulus

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From the Wall Street Journal:
Washington and the Jobs Market
The U.S. needs to stop pouring money into a Keynesian cul-de-sac.

A familiar definition of insanity is to keep doing the same thing and expecting different results. So in the wake of yesterday's report that the national jobless rate climbed to 10.2% in October, we suppose we can expect the political class to demand another "stimulus." Maybe if Congress spends another $787 billion in the name of job creation, it can get the jobless rate up to 12% or 13%.

It's hard to imagine a more complete repudiation of Keynesian stimulus than the evidence of the last year's job market. We've now had two examples of such stimulus�President Bush's $160 billion effort in February 2008 and President Obama's mega-version a year later�and neither has made even the smallest dent in employment.
A bit more:
The White House says the stimulus created as many as one million new jobs, but this is single-entry economic bookkeeping. No one doubted that such spending would create some jobs and "save" others, especially in government. But such spending isn't free. Every dollar in new government spending is taxed or borrowed from the private economy, which might have put it to better use.

If the government takes $1 from Paul, who would have invested it in a new business, and gives it to Peter, who spends it on a new lawn mower, the government records it as a net gain for economic growth via consumption. But the economy is hardly more productive as a result. Especially with so much of the Obama stimulus going to transfer payments�such as Medicaid and jobless benefits�the net effect on job creation has probably been negative. The ballyhooed Keynesian multiplier that every dollar of government spending yields 1.5 times that in economic growth has been exposed again as false.
The alternative to the Keynesian School is the Austrian School. It doesn't lend itself to mathematical models as it takes people into account so today's crop of economists do not like to use it -- too squishy... It also has the advantage of working and working well much to the dismay of the Keynesians.

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This page contains a single entry by DaveH published on November 8, 2009 10:17 AM.

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