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  • WaPo Admitting Keynesian Stimulus Failed?

    Does unprecedented deficit-spending such as on highways stimulate the economy? For the last few years, some have argued it could. Some have argued it might. Some have argued it would if done right.

    We have consistently argued that deficit spending on highways or anything else intended to lift aggregate demand, and therefore jobs, must and would fail. The economic evidence that we were right has now been joined by the illustrious trio of The Washington Post, the Associated Press, and the esteemed Alice Rivlin, former director of the Congressional Budget Office and the Office of Management and Budget.

    Monday’s edition of the Post carries a story sourced to the Associated Press entitled, “Highway bills pitched as by lawmakers as job creators, but are they really? Economists say no.

    Notice especially the subject of the piece: federal highway spending. If ever there was a sympathetic topic for stimulus, it is infrastructure spending, especially highway funding. Remember, these were some of President Obama’s “shovel-ready” projects that turned out to be not so shovel ready, as he later admitted.

    So what went wrong? Why is this not short-term stimulus? The widely respected Rivlin explained it clearly and succinctly: “Investments in infrastructure, if well designed, should be viewed as investments in future productivity growth.”

    Exactly right—future productivity growth.

    She went on to say that if investments in infrastructure “speed the delivery of goods and people, they will certainly do that. They will also create jobs, but not necessarily more jobs than the same money spent in other ways.”

    Exactly right—a dollar spent is a dollar spent. A job gained here, a job lost there.

    This speaks to a longstanding flaw of highway spending arguments. Proponents argue that this spending creates tens of thousands of jobs, and they are half right. The other half is the tens of thousands of jobs not created (or saved) by shifting spending to highways from other areas in the economy. The valid argument about infrastructure spending is: If done right, it will lift future productivity growth, not current job growth.

    The central failing—the essential fiscal alchemy of Keynesian stimulus—is the belief that government can increase total spending in the economy by borrowing and spending. What Keynesians ignore is that we have financial markets whose job in good times and bad is first and foremost to shift funds from savers to investors, from those who have money they do not wish to spend today to those who have a need to borrow to spend as much as they’d like, whether on new business equipment, a home, or a car.

    There are no vast sums of “excess funds” just sitting around in bank tellers’ drawers waiting for government to borrow and spend them. Government borrowing means less money available to the private sector to spend. So government deficit spending goes up, and dollar-for-dollar private spending goes down. America’s resources are generally speaking spent less wisely, and the federal debt is unequivocally higher.

    If past is prologue, the current infatuation with Keynesian deficit spending as stimulus will fade, just as it always has in the past, in this country as elsewhere. Perhaps this simple WaPo article marks the beginning of the end for the latest incarnation of this fiscal folly.

    Click here to view this post in Spanish at Libertad.org.

    Posted in Economics [slideshow_deploy]

    9 Responses to WaPo Admitting Keynesian Stimulus Failed?

    1. Ralph Crossen says:

      The only problem with deficit stimulus spending as Obama proposes it is it will never work. The reason is very basic. If he proposes a new bridge he says will create hundreds of jobs, it really creates none at all. These jobs are union set aside PROJECTS not jobs. So the people in that union who are between projects and either collecting or working at smaller projects get shifted to that bridge job and after their trade is done with their work, they go back to collecting. Result: Net= no new jobs. If anyone thinks the unions hire more people when a project develops they are mis-reading it. Obama has no other way to really create jobs unless he hires more Federal employees which he has not been able to do in the past year as too many people are watching. Besides he was called out on that a couple of years ago and since then he has backed off expanding the Federal workforce. So he counts the projected people who will work on bridges, roadwork, Federal construction of courthouses and similar projects, and everyone buys this line as job creation. He is a fraud .

    2. cathy ward says:

      This conclusion is not logical. Isn't there a difference between spending borrowed money on a highway stimulus rather than on extended unemployment and food stamps? Rivlin provides the answer– the highway bill provides something positive for the future and rather than just spending money. Yes, it takes the dollars out of the private sector–but right now the private sector isn't doing much. A highway stimulus is not like throwing money at the Chevy Volt or other ill-advised green investments. Rather, it would be replacing aged infrastructure that is in desperate need of repair. And now, we can do it a lower cost, with the human capital that is currently idle.

    3. Alice M. Rivlin says:

      Twisting what I said about the jobs created by transportation infrastructure into a statement that stimulus failed is dishonest, unscholarly and reprehensible. I was asked by a reporter whether transportation infrastructure created more jobs than other kinds of stimulus spending. I said that transportation construction was not a superior way of creating jobs quickly, but that, if well-done, it was an investment in future productivity growth that created future jobs and income. Nothing in what I said could be honestly construed as a statement that stimulus doesn't work. Alice M. Rivlin

      • george says:

        We live in a high tech culture! Help me to understand how pumping money into an area that does nothing to stimulate jobs will help the technical area? The wording "transportation infrastructure" has a ring to it but this does nothing to help the big economic problems. Don't we already pay enough in taxes. Instead of money being provided for entitlements let's use that money toward infrastructure improvments.

      • GEORGE says:

        Should the deficit count as a stimulus?

    4. Shocked says:

      This is unbelievable! The author quotes Alice Rivlin extensively, calls her "esteemed" and "widely respected," and uses her words to bolster his thesis that deficit spending "must fail." He leads us to believe that this highly respected source agrees with him.

      And then, in a comment right below his article, Alice Rivlin herself says the author twisted her words and calls his piece "dishonest, unscholarly and reprehensible." I'm a frequent (and often satisfied) Heritage reader, but this is a disgusting betrayal of the reader's trust. The writer obviously assumed Ms. Rivlin wouldn't read the piece.

      Now that his esteemed source has called him out as a liar , will the author respond to her and to his readers? And if not, will Heritage stand for this lack of professionalism?

      • Bob Dole says:

        Dude this is the internet, the chances that that's actually Alice Rivlin are about as high as the chances that I'm actually Bob Dole. Just saying…

    5. Perry OK says:

      Any time you start spending more than you make. You need a plan on how to repay the overdraft. Current blind man policy is Raise Taxs.

      Who are you going to get money from when We the FEW retire or just quit and join the rest at the slop trough. It says in the bible “If you do not work you should not eat” as well as the Law of the Land.

      Sooner or later burro obama and his lemmings will get there just dues as the promised land is just over that cliff!

    6. Navyvetarmydad says:

      I am not sure how things were twisted Ms. Rivlin, because your correction post was exactly what I read and took from the article. The only difference was you attempted to defend Obama’s stimulus with your post.

      As a State/Federal certified Construction Inspector for a major city, I have watched the Stimulus and Shovel Ready sideshow with disgust. The bureaucracy and strings that come with the Stimulus money make nothing fast or shovel ready, causing delays of a year or more. The waste inherent with Government Administration causes the cost of each job created to cost the taxpayers many times what even the well-paid union workers see on their check.

      The rebuilding of America’s infrastructure needs to continue, but to deficit spend and tout it as a job creator is selfish and disingenuous. Obama has sold our children’s and their children’s futures to his highest donors and tells this BS to the gullible morons that still believe in him.

      I agree with you Ms. Rivlin, Transportation construction is not a superior way to create jobs quickly, but I will go further. It is not only a rotten way to create jobs; it is a way to divert taxpayer money to pay off Obama's political debt to the Unions.

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