Saturday, February 21, 2009

There's no stimulus in the "stimulus package"

It's interesting that there is really no historical evidence of increased government spending causing an improvement in our economy or the economies of countries around the world, while there is ample evidence of the opposite. So why do liberal economists and the media mindlessly call the Democrats' spending plans a "stimulus package" without pointing out this fact?

Consider the following examples:

Roosevelt's "New Deal", which tripled the fraction of GDP spent by the federal government on a myriad of make work schemes, was so unsuccessful that Henry Morganthau, Roosevelt's Treasury Secretary said,

"We have tried spending money. We are spending more than we have ever spent before and it does not work... We have never made good on our promises. I say after eight years of this Administration we have just as much unemployment as when we started. ... And an enormous debt to boot!"

Japan's numerous stimulus packages of the 1990's didn't jolt Japan out of it's worst economic performance since World War II. On the contrary, Japan stumbled along far behind its neighbors while "stimulating" the economy by spending so much that Japan has the highest government debt to GDP ratio of any advanced country. No country has tried harder to use government spending as a "stimulus", and few countries have so convincingly demonstrated that "stimulus" spending simply doesn't work.

Another example of increased government spending arose during the late '60's and 1970's in this country. Those old enough to remember the "guns and butter" debate during the Vietnam War know that high government deficits then led to the "stagflation" crisis of the late '70's, in which high inflation combined with high unemployment and low growth.

As a final example, look at the economic performance of Europe for the past 30 years. If increased spending by governments improves the economy, why have European countries, which have been "stimulating" their economies by government spending at levels substantially above ours, consistently lagged far behind the United States in unemployment, job creation, and economic growth for decades? Europe is a perfect example of the "stimulus" theory taken to its logical conclusion, and its failure is complete.

Keynes' idea of government spending to stimulate an economy seemed like a reasonable theory in the 1930's, but almost 80 years of experience has proven beyond any doubt that it simply doesn't work, and in fact, makes things worse. It's the economic equivalent of giving amphetamines to someone with the flu. It may briefly relieve some symptoms at the expense of the patient's ability to recover.

If there was ever a fraudulent scheme foisted on the American public, this is it. Obama and his liberal friends have tried to justify massive increases in government spending based on a theory that has been overwhelmingly refuted by the evidence. It is a measure of the economic ignorance of the public that anyone buys this snake oil.

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