Earnest question: for the Keynesians can there not be a “sweet spot” that is irresponsible enough but not too irresponsible? Could these sort of comments be part of the ground-softening campaign to make $850 billion seem like a compromise…?
I’m largely basing my characterization of Keynesian economics on Krugman’s blog. I just received my copy of Keynes’ General Theory, and will be reading through it along with the chapter by chapter commentary on Marginal Revolution. I will be able to answer more authoritatively after Christmas break. It’s kind of sad, I’ve read up on Keynesian economics without reading *the* book on Keynesian economics. If you read the Krugman post I linked to, it’s clear that perception has a lot to do with the success of such a plan. In that case, you *want* to appear irresponsible. A ground-softening campaign is then a bad idea (economically, not politically).
Less earnest/slightly more stridently political note based on your characterizations: if we let WWII be called the last comparable stimulus program, I would say that the children and grandchildren ended up being done right by it.
First, don’t just leave out the New Deal, since that spending followed the Great Depression as well. It certainly counts as a stimulus plan (and there are those on the far left, not just on the right, that view the New Deal as a failure, I’d be happy to take either side’s perspective as to why). Tack on WWII, and you’ve got a lot of *time* to get out of a depression, with or without government help. You also had a complete revamping of currency. You also had the fact that most of the world’s production capacity was destroyed *except* for the United States. You also had people moving from unproductive farm land to productive farm land. You also had… well, you get the idea. It’s a little hard to isolate any one thing from that era. The US was really the only country that was better off economically after WWII (largely because of the fact that we didn’t have a lot of bombs dropped on our factories).
The idea that WWII was effective stimulus is also a little suspect. Every country but the US lost economically from WWII, and the US lost economically from every war except WWII. That’s not exactly a matrix of success.
The explanation is fairly simple: you spend capital to build a bomb. That bomb explodes—you no longer even have a bomb. That bomb, therefore, contributes nothing to your overall wealth, but did cost materials and labor that could have been spent on other things (wealth was most likely transferred during this time from everyone to the bomb maker via taxes and spending, but no wealth was created). The bomb making country is therefore poorer as a consequence of the war by whatever the cost of the bomb was. The country that received the bomb lost a building. That building, when rebuilt, cost labor and materials that could have been spent doing something else, just to reach a situation of wealth that existed prior to the bomb going off. As a consequence, the bomb receiver is a little poorer as a consequence of the war. If either country is better off, it is either an indirect consequence of the war (retraining an otherwise unemployable laborer, increasing the productive capacity of the nation to build more bombs), or it is despite the war. Of course, if the alternative is being the receiver of bombs and not spending the capital and labor delivering your own bombs, a case can be made that the correct economic course of action was taken. However, war itself is not economically stimulating.
