What Crisis is Being Solved?

According to calculations by Robert Barro, Harvard University economist, the stimulus package harmed the economy. Mr. Barro, concluded in the WSJ:

… viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.

The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake.

When in a hole, government, like everyone else, should stop digging. Apparently stopping is not a viable option.

Since the 1960s, government has claimed the ability to manage the economy. Some economists were bold enough to state that the business cycle had been tamed. Keynesian economics was the key that opened the door to full employment, low inflation and general economic bliss. With these tools, we were told, prosperity was assured.

It is unclear whether our leaders believed their own propaganda. The media did, or at least became willing accomplices. Newspapers report in a manner that supports the myth of government controlling the economy. Statements along the following lines are not uncommon: Clinton “gave” us a good economy, Bush “gave” us a bad one and Obama inherited Bush’s mess.

The reality is that government cannot give us anything without first taking it. They can make things worse with bad policies, but they cannot create wealth or growth. These come from the hard work and production of the private sector. Period.

After many years of claiming responsibility for the good times, government is faced with both an economic and a political crisis. If they were responsible for the good, then certainly they must be responsible for the bad. The false myth, helpful in the good times, has become a liability now. One can imagine a conversation at the highest levels of government going along the following lines:

Politician: “We have to do something to remedy this economic downturn.”

Economist: “Actually, sir, there is nothing that we can do. Attempts to intervene will make matters worse. The best solution is benign neglect. Any attempt to stimulate a recovery will be counterproductive.”

Politician: “I know that! You convinced me last week. But we have to do something!”

Economist: “Doing ‘something’ will make the economy worse.”

Politician: “We convinced the rabble that we control the economy. They believe we can solve the problem, so design a stimulus for me. The bigger it is, the better.”

Economist: “But it will harm the recovery.”

Politician: “They don’t know that. Better to give them what they want, harmful or not. It will help me. I will look compassionate and involved. They will never know.”