Sunday, September 11, 2011

Barack Obama's Keynesian laboratory

This administration is dominated by Keynesians as evidenced in their policies to "create jobs". What has been interesting to observe are their futile efforts, their lack of recognition that those efforts are futile, hence the "we just did not throw enough money at it." Indeed, Maxine Waters (D-CA) said that we need a trillion dollar jobs bill. What the president, his team and people like Rep. Waters refuse to recognize is failure. Such stimulus packages fail because they only evoke a short run and not a long run reaction from economic agents. Studies show that if households know that the stimulus is short term, they will not change expenditure patterns. Rather they use the stimulus to pay down debt. Businesses will do the same. Trying to encourage them to employ more workers will fail unless demand is adequate to keep those workers employed. The previous stimulus did not create new permanent jobs. The people hired, or rehired were terminated when the money went away because there was no change in long term demand. John Maynard Keynes is reported to have said when told that his theories were only relevant in the short term "In the long term we are all dead." So true but the long term is relevant to creating real jobs through policies that are not focused on the short run. I do not expect that this administration is capable of learning this lesson because large scale government is in the DNA of most liberals and the role of government dominates the thinking of Keynesians. For both, it has now become an article of faith and no evidence can dissuade them. One responder to a News-Sentinel article argued that every bit of evidence that I presented could be found lacking or manipulated. I gave up trying. The same is true with Keynesians and sadly the same is true with this administration.

1 comment:

tom said...

Good article, really enjoy yur blog, thanks tom