Saturday, June 26, 2010

Wall Street Journal on the (hopeful) end of Keynesian "stimulus"

Those who don't learn from history are doomed to repeat it. Such is the case with Keynesian economic theory. Named for the famous 1930's British economist, this holds that government can end recessions, or in his time, depressions by engaging in massive deficit spending. This is really a crackpot theory, but it has been a great excuse for governments to do what they want to do anyway - spend lots of your money.

The mere fact that it has never worked anywhere in the world, and has made things worse time after time, was no reason for the Obama administration not to try it again. Apparently using a new word, "stimulus," was supposed to make everyone forget Keynesian-ism's sorry history. What is unfortunately not surprising is that the media, with its utter ignorance of basic economics, has led the cheer-leading squad for this tired old fraud.

Now, however, according to this Wall Street Journal article, Obama is likely to have a hard time at the G-20 summit selling Europe on recovering from its massive Keynesian hangover by drinking from the same bottle.

As the above chart shows, when comparing tax cuts versus increasing spending to improve the economy, there really is no doubt which is the correct strategy.

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