In the face of the unprecedented congressional spending binge, President Obama has been asking Congress to spend even more. Not content with actively promoting the eventual bankruptcy of the United States, Mr. Obama is urging foreign leaders also to increase their government spending – which is truly bizarre. Look at the facts. All of the major European countries have been increasing government spending and deficits at unsustainable rates. The talk for the past couple of months has been about which countries would follow Greece in going over the financial cliff. Responsible economists, financial leaders and, most important, the markets have been telling European leaders they must cut government spending. …The president still seems to believe in the imaginary world of spending multipliers – whereby each dollar of additional spending results in something in the order of $1.40 in additional output. Proponents of such ideas normally refer to themselves as Keynesians (followers of the ideas of John Maynard Keynes, 1883-1946). …The Keynesians and socialists have run hundreds of experiments around the world for the past 70 years, inducing governments to try to spend themselves into prosperity. It doesn’t work. In the 1970s, Keynesian prescriptions led to “stagflation” in the U.S. and many other countries. It was only when Ronald Reagan, Margaret Thatcher and eventually many other leaders (using the ideas of F.A. Hayek and Milton Friedman) reversed course by cutting tax rates and curtailing spending growth that their economies began to grow rapidly without inflation. Mr. Obama seems to have never learned these lessons, and some of his advisers, who once understood what works and what doesn’t, seem to have forgotten. By nature, people like to spend other people’s money, and too many in Congress loved what was billed as Keynesian economic theory because it gave them a rationale to be irresponsible spenders.
Obama’s Fiscal Fantasyland
June 30, 2010 by Dan Mitchell
That’s the title of Richard Rahn’s new column in the Washington Times, which discusses the delusional Keynesian policy being advocated – in America and around the world – by the current administration. As Richard explains, the evidence is overwhelming that government spending does not promote prosperity.