Anti-Logic and the Keynesian Stimulus

American political culture always seems to be celebrating the anniversary of something, be it JFKs assassination (we just passed the 50th anniversary of that sad event) or the signing of some (mostly bad) legislation. The latest political activity to be enshrined with an anniversary is the so-called stimulus, the $800 billion monstrosity passed five years ago ostensibly to put America back to work.

Not surprisingly, the New York Times has editorialized that any criticism of the spending bill at least any criticism which says too much was spent is a Republican myth and falsehood. Not only was the Stimulus a legitimate piece of legislation, sniffed the NYT, but it also:

prevented a second recession that could have turned into a depression. It created or saved an average of 1.6 million jobs a year for four years. (Where are the jobs, Mr. Boehner.) It raised the nations economic output by 2 to 3 percent from 2009 to 2011. It prevented a significant increase in poverty without it, 5.3 million additional people would have become poor in 2010.

Like all examples of the Broken Window Fallacy, the spirited defense of this spending bill is based upon accounting methods that count the people hired through stimulus spending as new jobs but fail to note how others might have lost their own means of employment. Now, this was a bill that, among other things, had workers rolling sod into the grass median of I-68 (which is near my home) in an area where runoff collected from tons of salt thrown onto roads by state highway crews (our area receives a lot of snowfall). Not surprisingly, within a year, all of the new grass was dead.

I liken the stimulus to throwing a bit of lighter fluid onto a pile of soaking wet wood. The flames pop up for a few seconds, but then disappear as the effects from the fluid go away. (No, repeated douses of stimulus fluid do not ultimately gain traction and then lead to a miraculous economic recovery.)

If Beltway political culture permits any criticism of the Holy Stimulus, it is this: the stimulus wasnt big enough. Intones the NYT: The stimulus could have done more good had it been bigger and more carefully constructed.

The rest of the editorial is a compilation of near-plagiarism from Paul Krugmans columns and blog posts, and it reflects how Keynesian anti-wogic works. The logical narrative goes as follows:

Should one question the Keynesian premises of this awful syllogism, the standard answer is: America had full employment during World War II. (Robert Higgs has thoroughly debunked this enduring myth.) But, then, so did Germany and the U.S.S.R., according to Keynesian standards, but no one envies what people there experienced!

The problem that occurs when one wishes to interpret the results of the Stimulus is not due to bad politics. To put it another way, Stimulus spending always will confer political benefits, given that the money is transferred from taxpayers to preferred political constituents. Those footing the bill include both present and future taxpayers, since they will have to pay later for the public debt incurred to pay for present stimulus spending.

I make this point because the stimulus always has been presented as a government action that improved general or overall economic conditions, as opposed to being a political wealth-transfer scheme. The NYT editorial drips with what only can be a religious faith in the whole system, as though politicians seeking votes are going to carefully construct a process that is aimed at making certain political constituencies better off but at the expense of other constituencies.

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Anti-Logic and the Keynesian Stimulus