A year ago, President Obama warned the American people that the financial crisis was dire and required a whole new approach to government spending. Obama argued that the government must help America spend its way out of the recession, and his economists, using Keynesian multipliers, argued the “stimulus” would keep unemployment below 8.2 percent (PDF).
Conservatives were skeptical, and pointed out that many of the government jobs would take a year or more to materialize, but Obama replied that we must be patient and keep spending. Conservatives pointed out that many of the stimulus projects were wasteful, and pork-ridden, but the consistent response from supporters of the President’s plan was that any stimulus is better than no stimulus. The economist behind the administration’s theory of stimulus pending, the late John Maynard Keynes, argued that any spending is better than no spending, famously saying that the government could bury money and let people dig it up and this would be superior to not spending at all. Obama supporter and Nobel laureate Paul Krugman has publicly endorsed this position.
Since then Obama has promoted this idea consistently – stressing that his stimulus is “saving” jobs and boosting demand despite the growing gap between his promises and the reality. And Obama is still introducing new programs such as his “green jobs” program with the justification that they will “create jobs.” Despite failure after failure, the promises and rhetoric never changed…
Now that the failure of the stimulus bill is becoming obvious, and public opinion has turned against it, Obama is touting a spending freeze in his 2011 budget: “As we focus our efforts on spurring job creation and jumpstarting economic growth, we also have to change business as usual in Washington and restore fiscal responsibility.”
Wait: If government spurs job creation by spending, even on digging holes and filling them up, then how can one advocate both the first part, and the second part, of that sentence? That kind of doublethink can hurt the brain.
What new theory lies behind the timing of this sudden advocacy of budget restraint? It certainly is not Keynesian theory. Keynesian theory would suggest continued loose fiscal policy, since unemployment is still around 10 percent. Remember: digging holes and filling them in is “stimulus” and hence is better than nothing, for Keynesians.
A spending freeze is “Hooverism” and is the worst thing that one can do during a recession; during a recession government must use deficit spending, and the more deficit spending the better. Now, in any case the spending freeze is tiny, but if it were a true attempt at fiscal responsibility, this would be a curious policy turnaround.