My, How Stimulating
There’s a fine essay by Alan Reynolds on the National Review site about all the Keynesian nonsense that’s passing for sophisticated discussion these days. He provides many examples of the current Keynesians contradicting their own statements and research. He also picks apart several of the underlying pieces of Keynesian fiscal policy.
The bottom line is that stimulus spending fails because it falsely assumes that any increase in employment, even if produced by government spending, will have a multiplying effect, leading to an increase in real income, when the newly employed spend money. But, as Reynolds says:
checks received for producing nothing are not real income. Real income per worker depends on real output per worker — incentives to produce, not incentives to spend.
And that is the core of the problem. There’s no additive value to economy inherent in stimulus spending. Just look at the horse trading going on in Congress right now. There’s no analysis of what would be useful or effective. The stimulus bill is just a pork filled mess, with something in it for specially chosen cronies. In fact, some in congress are taking the idea of stimulation a bit too literally.
It’s safe to say that when the economy recovers, it will be despite this not because of it.