Remember the media’s relentless criticism of the Bush Administration’s “groupthink” leading up to the Iraq War? Now the media is engaged in its own groupthink on how best to stimulate economic growth.
The great macroeconomic debate of the past century has been over the role of government in economic growth. Economists representing Keynesian, Supply-side, Monetarist, and Neo-classical theories have battled it out in academic journals, in university classrooms and in faculty lounges. Yet Time’s new cover story, “How to Spend $1 Trillion” declares that debate over. It states:
… [W]e all really do seem to be Keynesians now. Just about every expert agrees that pumping $1 trillion into a moribund economy will rev up the ethereal goods-and-services engine that Keynes called “aggregate demand” and stimulate at least some short-term activity, even if it is all wasted on money pits.
Apparently, Keynesian economics – the idea that government spending “pumps new money into the economy” – has suddenly been declared intellectual fact that “just about every expert” agrees on. Taking Keynesianism for granted, the article merely debates which form of government spending will get the most for the buck. And even there, Time accepts as fact a controversial economic model developed by economist Mark Zandi:
And while a recent study calculated that the average dollar spent on infrastructure ricochets into $1.59 worth of short-term growth — a bit better than aid to states or broad-based tax cuts and a lot better than tax cuts for businesses or investors — increasing food-stamp or unemployment benefits packs even more bang for the buck.
While Time won’t dare challenge the Keynesian theory underpinning the stimulus bill, even President Obama’s economic advisors have. Christina Romer, the incoming Chairwoman of the Council of Economic Advisors, has written that, “[C]ountercyclical fiscal policy is not achieving its intended purpose.” Why? “[I]t is difficult for fiscal policy to respond quickly to economic developments.”
Obama advisor Jason Furman has also criticized infrastructure “stimulus,” having written that “In the past, infrastructure projects that were initiated as the economy started to weaken did not involve substantial amounts of spending until after the economy had recovered.”
Other notable economists critical of the stimulus package include Nobel Laureate Gary Becker, as well as Robert Barro, Greg Mankiw, Arthur Laffer, and Larry Lindsey. Apparently none of them got the memo that Keynesian economic theory is now indisputable fact.
Perhaps Time could have examined why Keynesian policies failed to rescue the United States economy in the 1930s – leading President Roosevelt’s own Treasury Secretary Henry Morgenthau , Jr. to conclude that “We have tried spending money. We are spending more than we have ever spent before and it does not work.”
Perhaps Time could have asked why Japan’s ten Keynesian stimulus bills in the 1990s failed to rescue their sluggish economy.
Or, perhaps they could have looked into why the alternative approach of reducing marginal tax rates did help bring an end to the 1980-1982 recession, and created a surge of economic growth after the 2003 tax cuts.
Instead, groupthink reigns in the major media.