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Dana Milbank, a new Washington Post columnist, thinks Republican politicians "managed to turn the Keynesian notion of economic 'stimulus' into such a dirty word that President Obama and his aides are afraid to let it escape their lips."
He blames "think tanks such as the Cato Institute" for not agreeing that Keynesian theory is so "unassailable" and "universally embraced" that daring to question the elixir of deficit spending "has a flat earth feel to it."
Milbank forgets that Keynesian Democrats, including the recently departed OMB director Peter Orszag, constantly hectored Republicans about the evils of budget deficits while Reagan or Bush was in office.
UC Berkeley economist Brad DeLong wrote a 2004 paper for the Center for American Progress assailing Bush's budget deficit. "A bigger deficit means less investment in America," he wrote; "And less investment in America means slower economic growth." DeLong quoted Bush adviser Greg Mankiw who likewise argued that, "government budget deficits reduce the economy's growth rate."
Milbank now claims Mankiw supports the exact opposite idea — namely, that budget deficits "stimulate" the economy's growth rate. Unfortunately, any theory that explains everything must also explain nothing.
The Republican alternative to more fiscal stimulus says Milbank, is for government to "do nothing, and let the human misery continue." Any doubts about the efficacy of fiscal stimulus, he argues, were discredited by the remarkable discovery that recessions still happen: "Economists offering alternatives to Keynes devised mathematical models showing how markets would behave efficiently. But those ideas collapsed along with everything else in 2008."
This is ignorant nonsense. Efficiency never meant markets can't be surprised and crash. Besides, academic criticism of fiscal stimulus is mainly based on fact, not theory.
Apologists for the 2009 spending spree point to an August paper by Ben Page of the Congressional Budget Office, "Estimated Impact of the American Recovery and Reinvestment Act." The only part of that paper worth reading is the Appendix: "Evidence on the Economic Effects of Fiscal Stimulus."
Page confesses that, "In analyzing ARRA's economic effects, CBO drew heavily on versions of the commercial forecasting models of two economic consulting firms. ... Because they emphasize the influence of aggregate demand on output in the short run, the macroeconometric forecasting models tend to predict greater economic effects from demand-enhancing policies such as ARRA than some other types of models do."
Even short-run predictions from such models are notoriously lousy, so CBO simulations of what might have happened under different scenarios tell us more about the models' assumptions than about reality.
The end of the primary season arrived Tuesday amid growing signs that a grass-roots rebellion among conservative Tea Party activists may jeopardize Republican prospects for large-scale, recession-fueled gains from the Democrats. The stunning defeat of nine-term moderate Rep. Mike Castle, a former ...
Buried deep in the data tables of the Annual Report of the Medicare Board of Trustees last month is the authoritative documentation of the full amount of the draconian cuts to Medicare included in the ObamaCare health care takeover legislation. Medicare's own chief actuary has already publicly ...
It's been two years since Lehman Bros. failed (Sept. 15, 2008) and we still can't conclusively answer this question: What if the government had saved Lehman? Its bankruptcy was pivotal. Until then, deteriorating housing and mortgage markets had triggered what seemed a serious — but not ...
Massive government borrowing to finance expanded budgets is worse than silly; it is dangerous to our economic health. And polls show that most of the public doesn't believe that borrowing or taxing away money from the private sector to be spent on employing people in the public sector makes us more ...
Even as frustrations over partisanship in Washington grow, the partisanship itself only increases. How did this happen and when? Most search for answers in the personalities of the present — such as Ronald Reagan's ushering in a conservative resurgence in 1980. But the real answer lies in the ...
Posted By: UofC Booth(655) on 9/15/2010 | 9:48 PM ET
If we are going to get out of our economic slump we better ignore John Maynard Keynes and embrace Milton Friedman's economic ideas. Chile embracing Milton Friedman's economic ideas did wonders for their economy. They went to one of the worst economies to a very respectable economy.
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