Government economists issued their GDP report for the fourth quarter of 2010 on Friday. The report confirmed again that the largest and most aggressive test of Keynesian stimulus theory ever tried has failed.
President Obama and his advisers promised that a massive Keynesian “stimulus” in the form of Trillions in deficit spending would result in prosperity and jobs. Accordingly, they boldly gambled with America’s future. In 24 months since the beginning of the Obama Administration government debt has grown by $3.4 trillion, a whopping 32%. But the economy remains weak and unemployment remains at record highs.
If Keynesian stimulus had worked as progressives insisted it would we would be enjoying prosperity with full employment and rising wages. Instead this recovery from recession has significantly underperformed compared to previous recoveries, especially the Reagan recovery of the 1980s when government’s strategy was to lower taxes, deregulate and allow liberty to work.
GDP growth in the fourth quarter of 2010 was 3.2%, up slightly from the two previous quarters. This is certainly good news, but not nearly good enough.
The chart compares current, lackluster, GDP growth with the first six quarters of the nine years growth, prosperity and job creation that began after President Reagan’s 1982 tax cuts.
Presidents Reagan and Obama each inherited recessions that were similar in their length and severity. By one measure, unemployment rate, Reagan inherited a worse crisis than Obama.
But the similarity ends with policy responses and the resulting recovery
- The centerpiece of Obamanomics is the $814 billion “stimulus” diverting resources from private sector spending and investment to additional government spending, over and above the already bloated federal budget. This is textbook Keynesian doctrine that has utterly failed to do what the President promised, “jumpstart job creation.” President Reagan had no such program.
- Presidents Bush and Obama implemented a massive bailout to save Wall Street firms, and unionized car companies from the consequences of their own bad judgments. Reagan allowed the market and the bankruptcy process to clear away business failures quickly.
- Reagan pulled back government intervention and regulation, while Obama has dramatically expanded government interference in the private sector.
- Reagan worked with Democrats in Congress to enact broad based, sweeping tax cuts, leaving more wealth in the hands of the entrepreneurs who created it, to be reinvested in business expansion and job creation. For two years Obama promised large tax increases on investors and on the most successful small businesses to begin this month. At the last possible moment he backed away from that promise and signed legislation extending the current tax rates, but for only two years.
The Bottom Line
As the chart shows, quarterly GDP growth is has been a deep disappointment under the Obama-Keynesian approach. There is no reason to believe that the Obama agenda of massive deficit spending, threatening tax increases, government take-over of health care and subsidies to blue-sky energy schemes will ever result in a return to growth and prosperity.
The mission of the new Republican majority in the House of Representatives is clear. They must put an immediate end to the Obama/Keynesian experiment.