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More Econonists Doubt Keynesian Stimulus   January 28th, 2009
While not widely reported, many economists are saying the same things I am       


More observations...

I found a really informative article with an uncharacteristically high number of skeptics to the stimulus package.


These statements add up to an important conclusion that has received too little attention: Many of the nation's top economists believe the deficit spending Washington is rushing to enact simply will not work. Instead of proving to be a potent stimulus, the legislation could prove to be a mild depressant.

Remember, the stimulus cash has to come from somewhere. If taxes are raised, people will be poorer. If the money is borrowed, it must be paid back with interest, and anyone lending to the U.S. Treasury has less to spend on other items. As in other parts of life, there's no free lunch.

It was interesting to see them use the same expression as I did recently: There's no free lunch. An inherently conservative belief.

Don Boudreaux, the chairman of the economics department at George Mason University and contributor to CafeHayek.com, pointed out in an interview this week that economists still agree on many topics, such as the benefits of free trade and the harmful effects of price controls.

"Keynesianism was in fact not a good theory," Boudreaux says, referring to the theories of the late economist John Maynard Keynes that encourage government spending. "In the profession, Keynesianism was almost dead until the past few months. It was never dead in the popular mind. It's a flat Earth kind of theory. People look out and see the Earth looks flat, so it must be flat. By and large, macroeconomists rejected at least the standard Keynesian line. Now it's back and that's a real mystery."

The above two paragraphs are a refutation of Keynesian theory. As I wrote in a previous article, Keynesianism is essentially the idea that you can borrow and spend your way out of a recession. But the evidence available suggests it doesn't work. And the economist above says as much.

However, it's not really a mystery why Keynesian theory is back. It's back because the Democrats are back.

Update 2/9/2009: The CBO also suggested the stimulus plan could result in a long-term decrease in the economic output of the U.S., and that it was anticipating the recession would end in 2009 even without the stimulus package.

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