Another blow to Keynesianism

A wonderfully written blow-by-blow takedown of our current Keynesian economic practices and why they are failing. From Louis Woodhill writing at Real Clear Markets:

Another Nail In the Keynesian Coffin
The coffin of Keynesianism has so many nails in it now that it is practically surfaced in steel. The notion that government deficits "stimulate" demand, has been proved wrong so many times, and in so many ways, that you would have to be Paul Krugman to still believe in it. However, in its April 28 news release on 1Q2011 GDP, the BEA drove yet another factual wooden stake into Keynesianism's vampire heart - a stake that no one seems to have noticed. What happened should also serve as a warning to Republicans that are still in the grip of the Keynesian superstition.

The BEA reported that its first estimate of 1Q2011 real GDP growth was 1.8%. This represented a dramatic fall from 4Q2010 growth of 3.1%. What no one seems to have noticed is that the slowdown occurred in the face of another large dose of Keynesian stimulus.

Part of the leverage that Republicans had during the negotiation of the compromise on the Bush tax cuts was that the Democrats (Keynesians all) were concerned that Obama's $814 billion "stimulus" program was winding down. The Republicans ultimately got Obama to agree to extend the tax cuts for high earners for an additional two years in return for additional "stimulus", in the form of a one-year, two percentage point cut in the payroll taxes paid by workers.

In 1Q2011, this stimulus amounted to about $110 billion on an annualized basis, or about 0.73% of GDP. Given the Keynesian belief in "multipliers", the result should have been to increase 1Q2011 real GDP growth significantly over that of 4Q2010. Instead, the real growth rate fell, thus providing one more real-world confirmation that Keynesian stimulus doesn't work.

More at the site. The BEA is the Bureau of Economic Analysis The report referenced is here: Gross Domestic Product, 1st quarter 2011 (advance estimate) Louis closes with this paragraph:

We have a word to describe the combination of falling real growth and rising inflation. That word is "stagflation". This was what Keynesian policies produced in the 1970s, and it is what Keynesian policies are producing now. Let's hope that the Republicans figure this out before the 2012 elections.

That prayer is on my lips as well...