Working in Washington is a frustrating experience for many reasons, but my personal nightmare is that bad ideas refuse to die. Keynesian economics is a perfect example. It doesn’t matter that Keynesian deficit spending didn’t work for Hoover and Roosevelt. It doesn’t matter that it didn’t work for the Japanese all through the 1990s. It doesn’t matter that it didn’t work for Bush in 2008. And it doesn’t matter that it hasn’t worked for Obama. The statists simply shrug their shoulders and say there wasn’t enough spending. Or that the economy would have been even worse with all the so-called stimulus. With this in mind, I was initially excited to read Kevin Hassett’s obituary for Keynesianism, but then I sobered up and realized that evidence is not enough to win this debate. Like a vampire or a Freddy Krueger movie, the bad guy (or bad idea) keeps getting resurrected. So while Kevin’s article is very compelling, I don’t expect that it will stop politicians from doing the wrong thing in the future.
…some Keynesians who supported Barack Obama’s $862 billion stimulus now claim it fell short of their goals not because the idea was flawed, but because the spending package was too small. Christina Romer, the departing chairman of Obama’s Council of Economic Advisers, has become a minor cult hero to the Keynesians, thanks to news reports that said her analysis in 2009 suggested the stimulus should be in the range of $1.2 trillion, or 40 percent larger than it turned out to be. The notion that a much-larger U.S. stimulus would have been more successful isn’t backed up by evidence. Maybe there would be an argument if some countries were now booming because their stimulus packages were larger. Or if some previous U.S. administration had tried a bigger stimulus and had better luck. The fact is, the U.S. stimulus was the largest among members of the Organization for Economic Cooperation and Development, and the biggest ever tried in the U.S. Nor does the academic literature support what we might call these Not-Enough Keynesians. A 2002 study by economists Richard Hemming, Selma Mahfouz and Axel Schimmelpfennig of recessions in 27 developed economies from 1971 to 1998 found that increased spending by government had, in almost all cases, a barely noticeable impact, and sometimes a negative one. Heavily indebted countries that spent more in recessions grew about 0.5 percent less, relative to trend, than countries that didn’t, the study found. …Supporters of this type of stimulus are either unfamiliar with the literature or willing to ignore it. The result is policy that is harmful to our country and inconsistent with modern economic science. If the Obama economic team were medical doctors, they would be pushing the use of medicine not approved by the Food and Drug Administration. As the economic data again head south, it will be much harder to devise successful economic policies because of the budgetary hole that the Keynesians have dug for us. In all likelihood, the data will soon be so convincingly bad that we’ll again debate the need for an economic stimulus. Let’s hope that when that begins, all will finally concede that the ideas of John Maynard Keynes are as dead as the man himself, and that Keynesianism is the real voodoo economics.
To be fair, Roosevelt in his New Deal was not so much a Keynesian, but preferred to spend AND tax. He believed in a balanced budget.
I think the fact that the stimuli are massive wealth redistribution schemes is what will keep certain people returning to this well, regardless of the success or failure of the stimulation.
[...] debunked Keynesian analysis so often that I feel that I deserve some sort of lifetime exemption from dealing with this nonsense, but I’ll give it another try. Borrowing money from some people in the economy and giving it [...]
I believe that “Keynesian economics” or FDR economics, whatever you want to call it, is able to get such a following, especially among young people and average Americans because of the educational system in the United States. I am 24 years old and am only aware of Reagan and supply side economics because I went out of my way to study them. Most Americans graduate high school thinking that FDR is the greatest president ever and that the New Deal worked. Therefore, any time a commentator or a politician links FDR with Obama they viewer or reader assumes that Obama’s policies will work because they believe that FDR’s worked. I went through college not learning a thing about Reagan, supply side economics, laffer curves whatever and I was a political science major. College poly sci courses and economic courses rarely mention Reagan and if they do then they are bashing it. This leads to a large segment of the population without knowledge of Reagan and why his policies work.
I also believe that while many GOP politicians use Reagan as a catch phrase and as an alternative to FDR-Obama, very few actually take the time to explain why Reaganomics works and why free markets work.
This leaves many Americans and young Americans with only their economic knowledge from school, which is pro FDR/OBAMA and pro Keynes.
[...] debunked Keynesian analysis so often that I feel that I deserve some sort of lifetime exemption from dealing with this nonsense, but I’ll give it another try. Borrowing money from some people in the economy and giving it to [...]
That’s ridiculous. Keynes was right about the way to fight recessions. If not for the New Deal, we would still be in the Great Depression. Government in itself is not good nor bad, but rather a tool that should be used properly in a democratic state. When the free market fails (as it did in the 30s and as it did 2 years ago), a democraticaly elected government absolutely could and should do all it can to increase aggregate demand and return the economy to healthy levels, including low unemployment and low inflation (rather than deflation). The reason Keynesian economics doesn’t go away is that it’s more in touch with the real world than perfect-market myths.
Actually, Obama is more like Hoover than FDR. In the New Deal, FDR including Relief which was missing from the Stimulus bill. I’m still pro-Keynes. Years of tax cuts have done nothing.
[...] works, and he is wrong is claming that it is the only option. Regarding the first point, there is no successful example of Keynesian economics. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t [...]
[...] works, and he is wrong is claming that it is the only option. Regarding the first point, there is no successful example of Keynesian economics. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for [...]
[...] The main reason, however, that socialists think that Keynesian economics is the best thing since sliced bread, is that it grows government. Keynesian economics and the massive growth of government bureaucracy go together like graft and Congress. And the Far Left, as well as their “mini-me” cousins, the liberals, just love big government—the bigger the better. (Link) (Link) [...]
[...] Why is Keynesian Economics Like a Freddy Krueger Movie [...]
[...] certainly have waded into the so-called stimulus fight, addressing the issue over and over and over again. But I generally try to comment on the underlying economic and political issues while avoiding [...]
Another proof that Dan Mitchell needs to revisit his economics courses. What a maroon.
[...] Last week in New York City, during my Intelligence Squared debate about stimulus, I pointed out that Germany is doing better than the United States and explained that they largely avoided any Bush/Obama Keynesian spending binges. [...]
[...] Last week in New York City, during my Intelligence Squared debate about stimulus, I pointed out that Germany is doing better than the United States and explained that they largely avoided any Bush/Obama Keynesian spending binges. [...]
[...] is remarkable. One would think that the past three years have proven, once and for all, that Keynesian spending is a sedative rather than a stimulus. Yet the IMF thinks recessions are caused by smaller [...]
[...] is remarkable. One would think that the past three years have proven, once and for all, that Keynesian spending is a sedative rather than a stimulus. Yet the IMF thinks recessions are caused by smaller [...]
[...] j'ai souligné le fait que l'Allemagne s'en sort mieux que les États-Unis et qu’elle évite les politiques immodérées des deux derniers présidents keynésiens américains: Bush et [...]