Shovel-Ready Economic Myths

We can thank Barack Obama and the Democrats for one historic accomplishment: They have proved beyond any doubt that Keynesian borrow-spend “stimulus” is a hoax.

Government economists issued their quarterly GDP report on Friday, confirming what has become obvious to most Americans: the recovery is faltering and there is little chance of restoring the 7.8 million jobs lost since the beginning of 2008 until government dramatically changes course.

GDP growth in the second quarter of 2010 was an anemic 1.6%.  Third (current) quarter results are not likely to be any better and could even be negative.  The chart compares current, lackluster, GDP growth with the first ten quarters of the nine year growth era that began in 1983.

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 $860 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 and 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.  Obama and the Democrats promise large tax increases on investors and on the most successful small businesses.
  

The Bottom Line

As the chart shows, quarterly GDP growth is trending in the wrong direction under the Obama-Keynesian approach.  There is no reason to believe that allowing Obama and the Democrats to continue their policy of enacting stimulus after stimulus, including cash for clunkers, subsidies to home buyers, and subsidies to blue-sky energy schemes will ever result in a return to growth and prosperity.