Can We Spend Ourselves from Recession to Prosperity? By John C. Goodman

Why is the recovery from the Great Recession so slow?

Mounting evidence suggests there are two reasons: (1) We are discouraging employers from hiring and (2) we are discouraging the unemployed from seeking work.

Public policy uncertainty has been shown to be a major cause of employer reluctance to hire new employees, and the Obama administration has made the business community about as uncertain as they can be with ObamaCare, the Dodd/Frank financial regulation and more recently with its bizarre and totally unclear position on tax rates. At the same time we have greatly expanded the rewards for not working — so much so that University of Chicago economist Casey Mulligan estimates that half of the employment we are experiencing is because we are paying people not to work.

Yet there is another point of view. It’s old line Keynesian economics. A few years ago, most economists regarded this approach as a relic of the past. But the usual circumstances of our economic plight have given Keynesianism a breath of new life.

The Keynesians believe that our problems persist not because government is spending too much money, but because it is spending too little. And that’s despite the fact that the federal government is spending $1 for every 60 cents it raises in taxes. As Paul Krugman (the most prominent apostle) explained in The New York Times the other day, the burst of the housing bubble has caused ordinary people to retrench and pay down debt. This reduction in spending by the private sector must be offset by increased spending by the government.

Increased government spending on what? Most of the time, Krugman implies that it doesn’t matter. Certainly that’s what many Keynesians believe. Any spending is good. Really? Paying one group of workers to dig a hole and another to fill them back up would be good for the economy?

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  1. It’s actually worse than that. Paying them to dig a hole and then paying them to fill it back up is only good if no other hole diggers lose their jobs over it, and no business loses contracts over it. This is why the work is not just better if it is pointless, it must be reduced in effectiveness until the only thing that happens is the transfer of money. Otherwise, unintended consequences will arise from any work performed.

    Of course, Dems don’t care about unintended consequences.

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