Who Says Keynesian Policy Doesn’t Work?

/ Jim Luke

It’s become fashionable, particularly among Republicans and Conservatives, to claim that Keynesian Policy doesn’t work despite the empirical record. Methinks they don’t know what Keynesian policies are analyses really are. Mark Thoma points out:

Issa: Everyone Knows That the Policies I Called for Don’t Work

Republican House member Darrell Issa has an op-ed in the Financial Times complaining that the stimulus did not stimulate (contrary to research such as this that finds “programs to support low-income households were highly stimulative, as was spending on infrastructure projects”). He says:

The abysmal results came as no surprise to those who knew that the Keynesian doctrine of spending your way to prosperity had been discredited decades ago.

Than it must of surprised him or, as is more likely, he doesn’t actually know what Keynesian economics is. This is what he said around the time when the stimulus package was put in place. His complaint is that the stimulus package doesn’t come online quickly enough, and doesn’t do enough for infrastructure (he also complains that the tax cuts aren’t permanent):

Economic Stimulus: There is bipartisan agreement for emergency spending on infrastructure and tax cuts that will create new jobs and reinvigorate private sector investments. Unfortunately, H.R. 1, the “American Recovery and Reinvestment Act of 2009,” falls short on both fronts. …

To respond to an emergency, you must act quickly. According to the Congressional Budget Office, only 7 percent of the $355 billion in discretionary spending included in the bill would be injected into the economy by the end of fiscal year 2009. By the end of 2010, only 12 percent of the funds set aside for highway construction will be spent.

Stimulus funds must be targeted to be effective. Only 3 percent of the $825 billion will go toward road and highway construction that creates jobs and aids individuals and private businesses alike. …

This bill will grow the government and miss an opportunity to reinvigorate the economy. An effective stimulus can be accomplished through tax cuts and targeted spending…

Targeted spending and tax cuts are effective stimulus, and he supports them, but we’ve known for decades that such Keynesian remedies don’t work? The mystery of the GOP’s credibility on economics continues…

As an note to the readers:  the economic success of Ronald Reagan’s policies in 1983-1988, following the horrible recession of 1982, are actually better explained and better fit a Keynesian analysis than a the predictions of so-called supply-side models and definitely better than New Classical models.  Reagan was really Keynesian, he just didn’t want to admit it and he preferred military spending and tax cuts for the upper income brackets to social spending.

2 thoughts on “Who Says Keynesian Policy Doesn’t Work?”

  1. Who says? Milton Friedman, Gary Becker, Ludwig Von Mises, Hayek, Bastiat, Bruce Folsom, the entire decade of the thirties, Henry Morganthau (FDR’s TressSec), The 2009 “stimulus” bill, etc, etc, etc.

  2. Hayek was friends with Keynes. He said that, although Keynes was a smart guy, he was a poor economist. He also said that even Keynes didn’t ultimately believe in “Keynesian economics”.

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