President Nixon raised eyebrows in 1971 when he declared, “I am now a Keynesian in economics.” The Republican president was referring to the economic theories popularized years before by Britain's John Maynard Lord Keynes, which came to be associated mainly with liberal Democrats advocating massive government spending to stimulate the economy. Keynesian economic theory was also at the heart of President Obama's $787 billion economic stimulus program in 2009, which he now wants Americans to believe saved or created six million jobs and sparked 2 to 3 percent growth in the GDP. In fact, Keynesian economics has worked no better for Obama than it did for Nixon, or any other president who tried it.
As Cato Institute Senior Fellow Daniel Mitchell points out in The Federalist, “Keynesian economics has a long track record of failure. It didn't work for Hoover and Roosevelt in the 1930s. It didn't work for Nixon, Ford, and Carter in the 1970s. It didn't work for Japan in the 1990s. And it hasn't worked this century for either Bush or Obama. But the Keynesians aren't fazed by these criticisms. No matter how poorly the economy performs during periods of Keynesian spending, they have an automatic response of just think of how much worse it would have been!'”
That's in essence the mantra Obama Democrats will be repeating over and over in coming months as the 2014 midterm elections draw near. The president inherited the Great Recession of 2008 from President George W. Bush, and once in office promised that his stimulus program would jolt the economy back into a growth mode. It would do so, he said, because his economic advisers projected that unemployment would drop below 8 percent and stay there. Instead, unemployment zoomed past 10 percent and remained at recessionary levels for more than three years. As a result, economic growth was anemic until recent months and remains unimpressive.
With Obama now claiming success for his stimulus program, it is important to ask why his economists’ projections were so badly flawed. Mitchell helpfully points to the reason: Being good Keynesians, the Obama advisers used models that assumed government spending always increases economic growth, and they further assumed that no economic harm results when the government takes a dollar out of the private economy to spend on public sector programs.
“In other words, Keynesian economics is the perpetual motion machine of the Left,” Mitchell explained. Such machines exist only in the minds of Keynesian academics and children in the thrall of fairy tales. When government takes a dollar out, it can never inject all of it back into the economy. There are always carrying costs, including the pay and benefits of the bureaucrats running the programs, as well as the inevitable waste and fraud that follows when economic resources are allocated on the basis of political considerations instead of investment returns. Come November, voters will have an opportunity to replace politicians who base their policies on economic fairy tales with leaders who will look to the real world for guidance.