It is time for Keynsians to abandon "stimulus" theory

It never stops amazing me that intelligent people still believe that the so called “stimulus” policy can actually work. There is zero evidence that it has done anything overall beneficial (obviously some individuals have benefited) and there is a great deal of evidence that it is harmful.

Veronique de Rugby of Reason Magazine provides a good metaphor to explain exactly how it has been harmful:

Imagine that I break my arm, but instead of getting a cast I take a big shot of morphine. The drug will make me feel better, but it won’t fix my arm. When the effect wears off, the pain will come back. And instead of being restored to their proper position, my bones will remain out of place, perhaps solidifying there, which will surely mean chronic pain in the long run.

Stimulus spending is like morphine. It might feel good in the short term for the beneficiaries of the money, but it doesn’t help repair the economy. And it causes more damage if it gets in the way of a proper recovery.

The evidence of failure is even clearer in Canada than the United States.

How can you claim that a stimulus accomplished anything when the vast majority of the money was never actually spent? The economy is recovering and the government has barely tied up its shoes. Is seems more than likely that the “stimulus” budget had no or little positive influence on the economy, it in fact seems obvious.

The only argument that proponents of this failed policy can pull together amounts to: it would have been much worse if we hadn’t spent this money. This is not based on any facts in reality. It is based, if it is based on anything, on the economic models that assume that “stimulus” theory is correct. So basically the only argument that they have is an assumption that they are right.

By the way, the same models predicted an enormous success that has not come to pass. Again de Rugby explains this failure:

Unless you believe that federal spending magically conjures up purchasing power (or that morphine heals bones), the total GDP will remain unchanged, because the federal government has to borrow the stimulus money from either domestic or foreign sources. This borrowing in turn reduces other areas of demand.

Stimulus spending does not increase total demand. It merely reshuffles it, leaving the economy just as weak as before—if not weaker, since it also increases the national debt. By trying to ease the pain, the administration may well have made the patient worse.

It is time that all serious people admit to themselves that “stimulus” theory is debunked.