Saturday, November 22, 2008

Hope and Keynes

OK, everybody try to act impressed by Obama's "new" economic recovery plan:
American workers will rebuild the nation's roads and bridges, modernize its schools and create more sources of alternative energy, creating 2.5 million jobs by 2011, Obama said in the weekly Democratic address, posted on his Web site. . . .
"We must do more to put people back to work and get our economy moving again," he said. More than a million jobs have been lost this year, he said, and "if we don't act swiftly and boldly, most experts now believe that we could lose millions of jobs next year."
This is nothing but orthodox Keynesianism, and it won't work, because Keynes was wrong. The secret to economic growth is not government "investment," it's increasing the capital supply. And it's not exactly a secret, either.

Obama has fallen for the 20th-century liberal fallacy that government spending or government-directed spending has some magical quality that private economic activity does not. Republicans have claimed credit for "job creation" by cutting taxes, but Obama's suggestion of "creating jobs" via government expenditure overlooks the fact that government doesn't create money out of thin air. There are three ways in which government can get money to spend: (a) by taxing, (b) by borrowing, or (c) by inflation. And all three involve harm to the private sector, thus Jefferson's maxim that the government that governs best is that which governs least. A tight-fisted Coolidge-style parsimony is always better policy in the long run than LBJ-style tax-and-spend liberalism.

Now, if Obama is determined to try to spend his way to prosperity (which won't work), it's at least nice to hear him talk about spending it on concrete-and-steel stuff like roads and bridges and school buildings. Take note, however, that the part of the country most in need of such "investment" are run by Democrats. There is a reason for this.

The social welfare policies of liberalism result in a greater share of revenue being devoted to government giveaways and to hiring more (unionized) bureaucrats. Spiraling costs for entitlements and personnel means less tax money for the concrete-and-steel stuff.

Go to a thriving Southern or Western state (North Carolina, Arizona, Texas, etc.) and you'll find yourself traveling on well-maintained modern roads, occasionally obstructed by construction of improvements -- extra lanes, upgraded exit ramps, repaving, etc. Now travel around the Rust Belt states and note the general dilapidation of the highways. You can't miss the poorly-designed freeway ramps built 40 years ago, or the narrowness of highway shoulders because the state went cheap on right-of-way acquisition.

The classic example of this syndrome is Washington, D.C. For 40 years, the District has poured its money into "programs" -- programs for the elderly, programs for teenagers, programs for drug addicts, programs for the homeless, programs for drug-addicted homeless teenagers, etc. -- and shortchanged its infrastructure. The sewer system is falling apart, and the streets are a lumpy patchwork.

Obama's Keynesian "pump-priming" expenditures will likely be targeted at states and localities that have squandered their own resources and neglected their own infrastructure. It won't result in economic recovery, but at least when it's spent on concrete-and-steel stuff, some of the money will end up in the hands of people who do actually work for a living, rather than worthless social-service bureaucrats.

And I guess Obama's more wild-eyed supporters will be disappointed to discover that the "Change" for which they were so enthusiastic turns out to be a discredited Keynesian agenda that was already obsolete when Hubert Humphrey was pushing it.


  1. We've just had 8 years of Keynesian economics from the idiot George Bush.

    How much discoordination of capital production and consumption can we survive given all the discoordinating "stimulus" the government keeps shoving down our throat?

  2. Ummnnnhhh...

    There's a lot of cast-iron water mains (and sewer pipes) which are at or close to their natural death.