I’ll paste in a few sections from Hassett’s article:
Initial claims for unemployment benefits surged to 500,000 in mid-August, a level more typical of a recession than a recovery. The bad news confirmed what conservative economists have been saying for some time: The biggest Keynesian stimulus in U.S. history was a bust.
But the Keynesians still weren’t fazed:
Incredibly, 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.
So where to turn for evidence for that claim? The US stimulus package was in fact the largest ever tried in that country and bigger than that tried by any other OECD country. Hassett asks Joe the plumber:
Why is the left so profoundly committed to stimulus-by-spending, even though there is scant evidence that it succeeds?
Joe the Plumber knows the answer: The left has become religiously Keynesian because that is the only corner of economics consistent with its redistributive ideology.
You remember Joe. During a campaign stop in the 2008 presidential election, Samuel Joseph Wurzelbacher asked Obama whether higher taxes would punish his business. Obama answered in part, “I think when you spread the wealth around, it’s good for everybody.”
Obama’s words captured Democrats’ ideology: outside of fairy tales, only government can play Robin Hood, taking money from the rich and giving it to the poor.
Joe the plumber won instant fame in the US after this exchange. The truth is Joe was right – higher taxes would punish his business. Tax cuts rather than tax increases are far more effective in a recession. Obama’s outgoing chief economic adviser recently said herself “tax increases are highly contractionary … tax cuts have very large and persistent positive output effects.” As Hassett notes, that fact is bad news for the Robin Hooders:
If you cut tax rates in a recession in order to stimulate the economy, then you are conceding that lower tax rates can be a good thing. And if that’s true, then higher tax rates will be harmful–something the left has always denied.
So the Obama economic team was left to rely totally on spending in its response to the recession.
Which turns out to be bad medicine:
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.
Indeed, as I wrote in my article, naïve Keynesian ideas have not survived the GFC well, and should never have been contemplated. Keynes once wrote:
“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise [to dig them up again] … there need be no more unemployment and … the real income of the community, and its capital wealth also, would probably become a great deal greater than it actually is.”
Few economists would take that proposition seriously today.
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.