Speaking about the failing economy, President-elect Obama coolly diagnosed, “We understand that we’ve got to provide a blood infusion to the patient right now to make sure that the patient is stabilized, and that means that we can’t worry short-term about the deficit. We’ve got to make sure that the economic stimulus plan is large enough to get the economy moving.” Since the “patient’s” infusion would come from the patient itself (through either taxes or debt), “Doctor” Obama’s treatment may be more like an old-fashioned bloodletting than a true cure.
Obama, like many in Washington (in both parties), is a devotee of Keynesian economics, the ideas of British economist John Maynard Keynes. His theories were first published in 1936 and were quickly adopted by America’s big government progressives, like President Franklin Delano Roosevelt. One of the key theories of Keynesian economics is that during economic downturns the government can “prime the pump” by increasing its spending. Since Keynes’ theories increase the size and power of government, it’s no wonder his ideas have always found so many acolytes in D.C.
Keynesian economics has many critics however. Notable detractors include economists Milton Friedman, Robert Lucas, Murray Rothbard, and Henry Hazlitt. Austrian economist Friedrich Hayek criticized the collectivist approach of Keynesian economics, which requires centralized planning, which Hayek argued leads to totalitarian abuses.
Besides its push for bigger, more authoritarian government, Keynesian economics just doesn’t seem to work. As the Cato Institute, a libertarian think tank, points out: “[T]he notion that bigger government leads to more growth is theoretically suspect: any money that the government ‘injects’ into the economy with new spending (or tax rebates) must first be borrowed and diverted from private use. The economic pie gets sliced differently, but it is not any bigger.”
Many argue that the Great Depression wouldn’t have been as long or severe if it wasn’t for the Keynesian “cures” employed by the Roosevelt Administration. Later examples of Keynesian policy in practice haven’t fared much better. “Huge increases in government spending under both Hoover and Roosevelt did not help the economy during the 1930s, and more recent Keynesian initiatives—Gerald Ford’s rebates in the mid-1970s, Japan’s stimulus efforts in the 1990s, and President Bush’s rebates in 2001 and 2008—do not seem to have generated positive results,” states the Cato Institute.
Since our public debt currently stands at about $10.6 trillion, and the government is already racking up record deficits this year and no doubt next year, can we really afford to increase spending on anything, particularly for economic “cures” that don’t generally work? (To put that $10.6 trillion figure in some kind of perspective, remember that it took America the time period from George Washington to Ronald Reagan to accumulate ONE trillion in debt. We’re now on pace to add that amount of debt this year alone. With the looming crisis in Social Security and Medicare, that number is sure to go up.)
Dr. Obama, your “patient” is hemorrhaging. Before you apply your Big Government leeches, you might want to pay heed to the medical dictum, “First, do no harm.”