The Bottom Line: Stimulus plan relies on defunct economic theory
Dan Clements
Issue date: 2/10/09 Section: Opinion
John Maynard Keynes once said, "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist." For someone who rode to the White House with a banner of change and a new way of doing things, one would assume our new president would not be hung up on disproven, outdated theory. However, the reasoning behind the stimulus package which President Obama has been so urgently lobbying for is rooted in none other than the defunct theories of Keynes himself. Not only will this stimulus plan fail to remedy our economy, but it will bring with it detrimental side effects, to boot.
So far, the plan consists of about a trillion dollars in new spending on a vast array of goodies such as tax credits, infrastructure, health care, education and dozens of pet projects, such as a gargantuan $2 billion for FutureGen to build a new power plant - the most expensive earmark in history. This plan contains a diverse mix of economic relief, new spending ventures, immediate spending and long-term spending. The whole rationale behind this enormous spending spree goes to back to Keynesian economic theory which advises a quick, temporary increase in government spending to alleviate economic downturns.
However, it has come to pass that Keynesianism has been tried and failed. Thanks to the discoveries of economists Milton Friedman and Edmund Phelps, we now know that when the government tries to stimulate the economy, it may cause a short-lived reprieve, but in the long run, only results in inflation. The attempt of our government to continuously pump-prime our economy per Keynesian theory led to the stagflation of the 1970s and the subsequent abandonment of its practice. Another drawback to the implementation of Keynesianism is that the use of fiscal policy - that is, the government's power to tax and spend - as an economic tool is now regarded as ineffective. This current stimulus plan best embodies its flaws. Fiscal policy works too slow and is often too late to offer relief when it is most needed. Any proposal must first endure painstaking procedure of getting a bill passed after dealing with the bickering and debating of our Congressmen. Then it must pass through a vast web of bureaucracy to be executed. In fact, the Congressional Budget Office estimates that only 21 percent of the stimulus package will actually be spent by next year. Too little, too late.
So far, the plan consists of about a trillion dollars in new spending on a vast array of goodies such as tax credits, infrastructure, health care, education and dozens of pet projects, such as a gargantuan $2 billion for FutureGen to build a new power plant - the most expensive earmark in history. This plan contains a diverse mix of economic relief, new spending ventures, immediate spending and long-term spending. The whole rationale behind this enormous spending spree goes to back to Keynesian economic theory which advises a quick, temporary increase in government spending to alleviate economic downturns.
However, it has come to pass that Keynesianism has been tried and failed. Thanks to the discoveries of economists Milton Friedman and Edmund Phelps, we now know that when the government tries to stimulate the economy, it may cause a short-lived reprieve, but in the long run, only results in inflation. The attempt of our government to continuously pump-prime our economy per Keynesian theory led to the stagflation of the 1970s and the subsequent abandonment of its practice. Another drawback to the implementation of Keynesianism is that the use of fiscal policy - that is, the government's power to tax and spend - as an economic tool is now regarded as ineffective. This current stimulus plan best embodies its flaws. Fiscal policy works too slow and is often too late to offer relief when it is most needed. Any proposal must first endure painstaking procedure of getting a bill passed after dealing with the bickering and debating of our Congressmen. Then it must pass through a vast web of bureaucracy to be executed. In fact, the Congressional Budget Office estimates that only 21 percent of the stimulus package will actually be spent by next year. Too little, too late.
Viewing Comments 1 - 1 of 4
Jack
posted 2/11/09 @ 9:21 PM EST
Dave,
In your rush to pronounce an ongoing economic debate long over, you let the soft underbelly of your argument show. Nowhere in any draft of the stiumlus are $2 billion earmarked for FutureGen, a clean coal initiative spearheaded by the Bush administration. (Continued…)
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