The Same Keynesian Jobs Hoax In Reverse

Congressional Democrats and their supporters are alarmed by any discussion of spending cuts and are trying to convince us it would be disastrous to “slash” 2011 spending from $3.819 trillion projected by the Obama Administration all the way down to $3.759 trillion proposed by the new GOP majority in the House of Representatives.

Since the House of Representatives passed a bill that would reduce 2011 spending by about 3% we’ve heard dire job loss predictions from politically motivated “economists,”  including high profile Moody’s analyst Mark Zandi who said that the spending cuts would cost 700,000 jobs.

If you thought these “economists” have been immersed in scholarly analysis of the programs that would be cut to identify any jobs associated with each one, you’d be wrong.  That would be too much trouble when the real goal is political, to plant a vague perception in the mind of the public that something bad will happen if the year-over-year growth in government spending is “only” 8.8%, Vs the 10.5% demanded by Obama and the Democrats.

The prediction of job losses is based on the Keynesian economic theory that if government borrows and spends more the private sector creates jobs, and if government borrows and spends less private sector jobs will be lost.

The same theory was the basis of a report issued by the Obama economic team two years ago to sell the $800 billion stimulus.  Mr. Zandi endorsed that report and agreed with it’s predictions.

As the table shows, the largest Keynesian stimulus ever attempted was a spectacular failure and decisively discredited the theory that government can drive job creation and prosperity by borrowing and spending.  Yet the same economists now predict an economic slowdown and job losses based on reverse application of the same theory.

In fact, historical data demonstrate an inverse correlation between government spending and job growth.  The chart below tracks the rate of job creation during  the largest spending cut in US history.

Because of the war, government spending had exploded from  $9 billion to $91 billion in four years.  Millions of civilians were employed manufacturing guns, tanks, ships, aircraft, uniforms, boots, etc. When the war was over in 1945 the government immediately ceased buying war material and quickly discharged millions from military service.

If today’s political-media “economists” had been there in 1945 they would have warned that any spending cuts would spell disaster for the economy, that unemployment would skyrocket.  They would have been wrong.

Federal spending dropped 68% in three years.  The number of jobs increased by 21% over the same three years.   Never before or since have workers enjoyed such a sudden increase in demand for their services.

Progressives like President Obama and the Democrats in Congress love Keynesian economic theory because it helps them justify what they would do anyway, expand government.  But our actual experience doesn’t validate Keynes’ notion that government, by gobbling up an ever larger share of GDP, and wielding ever more control over the private sector, can create jobs and prosperity.

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