Bob Cropf

Keynesian approach might just dig a deeper hole

In economics, stimulus on February 12, 2009 at 11:27 AM

John Maynard Keynes has never been more popular; we may be about to learn whether he was right.

Whatever you think of the $827 billion economic stimulus bill that’s scheduled for a Senate vote today, you can’t argue with one thing: It’s the biggest Keynesian experiment ever tried.

The great economist argued that massive government spending was the only way out of a severe economic crisis like the Great Depression of the 1930s. Much simplified, his idea was that when consumers and businesses aren’t willing to spend, the government must.

The folks in Washington have heard that message loud and clear. They’re all too ready to abandon all fiscal discipline. The only debate has been just how much is enough, and how to divide the largesse between tax cuts and spending increases.

Keynes himself might have grown impatient with the partisan nature of this debate. He once said that the government could stimulate the economy by paying people to dig holes and fill them back in. In other words, any spending would do, no matter how wasteful.

The problem is, no one has had much opportunity to validate that part of Keynes’ theory. Some economists think government spending eased the pain of the Great Depression; others think it prolonged the agony. In any event, we haven’t had an opportunity to repeat the Keynesian experiment on a large scale.

Until now.

To listen to the Democrats in Congress, you’d think there should be no debate about the power of Keynesian deficit spending. Just do it, they say.

Plenty of economists, though, are still willing to engage in that debate. About 200 of them, including three Nobel Prize winners, signed an advertisement declaring that the huge spending package is a mistake.

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  1. I think this is a some wishful thinking on the part of some… what “fiscal discipline” is Washington abandoning??? Jon Stewart had a little montage of Rep. Congressmen talking about how wasteful this spending is but defending “spending” in Iraq 2 or 3 years ago. For example, one was talking about how wasteful one provision of the stimulus bill was but defended the LOSS (it just disappeared) of $12billion dollars (yes, that is billion with a B) in Iraq saying a couple thousand dollars per head in Iraq was not too much to spend for “freedom”. The money spent on Iraq is a nearly wholesale transfer of wealth from here to there (don’t get me wrong, we have a responsibility to develop their economy) and it has a virtually zero multiplier for the US economy because it is spent in Iraq not here (we aren’t even using much of it to replace the equipment that we took over there that is not worn down because of nearly 6 years of hard use in a desert environment). This totally leaves aside the semi-permanent tax cuts that were not off set by cuts in spending… fiscal responsibility… hmm…

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