Thursday, February 5, 2009

The So-Called “Stimulus” Is “About Politics and Power, Not Sound Economics”

For the liberal elite, their economics is a means to an end rather than empiricism buttressed with logic and common sense. They value, above all else, forced economic equality for the masses (but not of course for themselves – they want their dachas); they embrace the collectivism, the central control to achieve this end. Their economics must serve this creed; it must prove up the necessity for pervasive command and control by an ever enlarging federal government. Their economics serves their politics, rather than their politics deriving from those economic principles that have led to our economic prosperity and individual liberty.

Dick Armey, a former economics professor and former Republican majority leader of the House of Representatives, writes in yesterday’s Wall Street Journal (link):
"In the long run, we are all dead," John Maynard Keynes once quipped. An influential British economist, Keynes used the line to dodge the problematic long-term implications of his policy proposals…. President Barack Obama and congressional Democrats … have dug up the dead economist's convenient justification for deficit spending in defense of their bloated stimulus legislation. But none ask the most important question: Was Keynes right?

Keynes argued that government should intervene in the economy to maintain aggregate demand and full employment, with the goal of smoothing out business cycles. During recessions, he asserted, government should borrow money and spend it…. Nobel laureate James Buchanan, argues that the great flaw in Keynesianism is that it ignores the obvious, self-interested incentives of government actors implementing fiscal policy and creates intellectual cover for what would otherwise be viewed as self-serving and irresponsible behavior by politicians [i.e., enlarging the size and scope of the central government]. It is also very difficult to turn off the spigot in better economic times, and Keynes blithely ignored the long-term effects of financing an expanded deficit.

It's clear why Keynes's popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there…. The problem with government attempts to manipulate the economy through fiscal policy -- spending that takes resources away from those who are productive and redistributes it to politically favored interests -- is that it is audacious. It assumes that government knows better how to spend and invest than individuals acting in their families' best interest…. The charade of the current stimulus package, chockablock with earmarks to favored pet constituencies and virtually devoid of national policy considerations, is the logical consequence of Keynesianism in action. It is about politics and power, not sound economics….
Economics professor N. Gregory Mankiw wrote last month in the New York Times (link):
All these questions [about the validity of Keynesian economic theory] should give Congress pause as it considers whether to increase spending to stimulate the economy. But don’t expect such qualms to stop the juggernaut. The prevailing orthodoxy among the nation’s elite holds that increased government spending is the right medicine for what ails the economy. [Economist Paul] Samuelson once said, “I don’t care who writes a nation’s laws or crafts its advanced treaties, if I can write its economics textbooks.”

John M Greco