Saturday, June 26, 2010

The Keynesian Dead End

This is a tough lesson to learn:

The Keynesian Dead End - "President Obama's tragic mistake was to blow out the U.S. federal balance sheet on spending that has produced little bang for the buck. The fantastical Keynesian notion (the 'multiplier') that $1 of spending produces $1.50 in growth was long ago demolished by Harvard's Robert Barro, among others. That $1 in spending has to come from somewhere, which means in taxes or borrowing from productive parts of the private economy. Given that so much of the U.S. stimulus went for transfer payments such as Medicaid and unemployment insurance, the 'multiplier' has almost certainly been negative."

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