If One Leech is not Enough, Try Two

In response to concerns that unemployment remains high despite the stimulus, President Obama said this:

"You can argue, rightly, that we haven't made as much progress as we need to make when it comes to spurring job creation." ... "That's part of the reason why I expect Congress to pass additional measures as quickly as possible."

The President's response assumes that the first stimulus worked, just not enough. That is possible, but maybe the Keynesian model that underlies the case for stimulus is just wrong.

Non-Keynesian perspectives suggest that additional spending or poorly designed tax cuts will harm the economy by distorting resource allocation.  More broadly, stabilization policy instills a belief that governments can moderate recessions, which encourages risk-taking and larger booms and busts.  A steady stream of  policy "remedies" creates uncertainty that discourages productive activity.

So maybe the treatment is worse than the disease.

Related Posts

Comments are closed.