In the August 24th Wall Street Journal, Harvard Professor Robert Barro penned a hard-hitting op ed: “Keynesian Economics vs. Regular Economics.” He contrasts the lessons of standard economics with some of the unsubstantiated claims of Keynesian economics. He zeroes in on the idea that transfer payments provide economic stimulus.
Transfer payments in the guise of food stamps, unemployment benefits, and income redistribution generally have been the centerpiece of this administration’s policy to stimulate the economy. Barro quotes Agriculture Secretary Vilsack’s claim that the multiplier effect of food stamps is close to 2.
Trouble is, as Barro notes, “there is zero evidence that deficit-financed transfers raise GDP and employment – not to mention evidence for a multiplier of two.” As regular economics teaches, deficit-financed transfer payments must be paid for by future taxes. Future taxes bear on present plans, and depress spending. Additionally, transfer payments diminish the incentives to work and that depresses GDP.
Read Full Article »