Tuesday, February 17, 2009

Jeff Jacoby De-Bunks Keynesian Bunk

Jeff Jacoby makes many of the same points as the previously posted Caroline Baum article. His take is well worth reading for the passion and clarity he brings to the subject.
There may be no reasoning on this subject with Obama, who has already raised the possibility of "trillion-dollar deficits for years to come." But reality is not optional: You do not become more prosperous by writing yourself a check. Economic growth is the result of creating new wealth, not redistributing existing wealth.

The federal government cannot conjure prosperity out of thin air. Any money it spends - whether on highways or Pell grants, Medicaid or tax rebates - it must first tax or borrow from somewhere else. A trillion dollars pumped into the economy tomorrow is a trillion dollars siphoned out of the economy today - a trillion dollars no longer available to the private sector for investment or consumption. Enlarging Washington's spending power will not enlarge the economy.
Best of all is the simple question he asks that explodes the whole myth, based on a very recent example.
Here is a question for Washington's Keynesians: If uninhibited deficit spending is the key to economic growth, how could the Bush administration's galloping budget increases and unbroken string of deficits have left the economy in recession? If Keynes was right, why didn't the enormous growth of government outlays stop the Great Depression in its tracks? Federal spending exploded under Herbert Hoover and exploded even more under Franklin Roosevelt, during whose first two terms the federal budget more than doubled. Where was the "stimulus" such furious expenditure should have produced?
Would that Larry Summers and Timothy Geithner had such a clear-eyed view of the subject and thought to ask themselves those questions.

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