Post by jgaffney on Oct 29, 2011 22:58:13 GMT -5
In Friday's WSJ, Allan H. Meltzer, a professor of public policy at the Tepper School, Carnegie Mellon University and a visiting scholar at Stanford University's Hoover Institution, explains "Four Reasons Keynesians Keep Getting It Wrong":
Those who heaped high praise on Keynesian policies have grown silent as government spending has failed to bring an economic recovery. Except for a few diehards who want still more government spending, and those who make the unverifiable claim that the economy would have collapsed without it, most now recognize that more than a trillion dollars of spending by the Bush and Obama administrations has left the economy in a slump and unemployment hovering above 9%.
Why is the economic response to increased government spending so different from the response predicted by Keynesian models? What is missing from the models that makes their forecasts so inaccurate? Those should be the questions asked by both proponents and opponents of more government spending. Allow me to suggest four major omissions from Keynesian models:
Here's the abridged version:
First, Congress and the administration should agree on a 10-year program of government spending cuts to reduce the deficit. The Ryan and Simpson-Bowles budget proposals are a constructive start. (Note to Republican presidential candidates: Permanent tax reduction can only be achieved by reducing government spending.)
Second, reduce corporate tax rates and expense capital investment by closing loopholes.
Third, announce a five-year moratorium on new regulations.
Fourth, adopt an enforceable 0%-2% inflation target to allay fears of future high inflation.
Now that the Keynesian euphoria has again faded, perhaps this administration—or more likely the next—will recognize the reasons for the failure and stop asking for more of the same.
Not very likely, as long as Queen Pelosi is minority leader and Chuck "Cereal" Schumer is the senior senator from New York.
Those who heaped high praise on Keynesian policies have grown silent as government spending has failed to bring an economic recovery. Except for a few diehards who want still more government spending, and those who make the unverifiable claim that the economy would have collapsed without it, most now recognize that more than a trillion dollars of spending by the Bush and Obama administrations has left the economy in a slump and unemployment hovering above 9%.
Why is the economic response to increased government spending so different from the response predicted by Keynesian models? What is missing from the models that makes their forecasts so inaccurate? Those should be the questions asked by both proponents and opponents of more government spending. Allow me to suggest four major omissions from Keynesian models:
Here's the abridged version:
1. Big increases in spending and government deficits raise the prospect of future tax increases.Rather than just leaving us hanging, Mr. Meltzer has his own list of suggested solutions:
2. Most of the government spending programs redistribute income from workers to the unemployed.
3. Keynesian models totally ignore the negative effects of the stream of costly new regulations that pour out of the Obama bureaucracy.
4. U.S. fiscal and monetary policies are mainly directed at getting a near-term result.
First, Congress and the administration should agree on a 10-year program of government spending cuts to reduce the deficit. The Ryan and Simpson-Bowles budget proposals are a constructive start. (Note to Republican presidential candidates: Permanent tax reduction can only be achieved by reducing government spending.)
Second, reduce corporate tax rates and expense capital investment by closing loopholes.
Third, announce a five-year moratorium on new regulations.
Fourth, adopt an enforceable 0%-2% inflation target to allay fears of future high inflation.
Now that the Keynesian euphoria has again faded, perhaps this administration—or more likely the next—will recognize the reasons for the failure and stop asking for more of the same.
Not very likely, as long as Queen Pelosi is minority leader and Chuck "Cereal" Schumer is the senior senator from New York.