There’s an editorial from last week’s Wall Street Journal entitled, The Keynesian Dead End: Spending our way to prosperity is going out of style. (In fairness, many plans implemented as “Keynesian” would probably shock Keynes, himself. To reflect this truth, the WSJ refers to recent policies Neo-Keynesian. Emphasis on the “neo,” I wouldn’t wonder.)
The Journal writes that
For going on three years, the developed world’s economic policy has been dominated by the revival of the old idea that vast amounts of public spending could prevent deflation, cure a recession, and ignite a new era of government-led prosperity. It hasn’t turned out that way….
Like many bad ideas, the current Keynesian revival began under George W. Bush. Larry Summers, then a private economist, told Congress that a “timely, targeted and temporary” spending program of $150 billion was urgently needed to boost consumer “demand.” Democrats who had retaken Congress adopted the idea?they love an excuse to spend?and the politically tapped-out Mr. Bush went along with $168 billion in spending and one-time tax rebates.
The cash did produce a statistical blip in GDP growth in mid-2008, but it didn’t stop the financial panic and second phase of recession. So enter Stimulus II, with Mr. Summers again leading the intellectual charge, this time as President Obama’s adviser and this time suggesting upwards of $500 billion. When Congress was done two months later, in February 2009, the amount was $862 billion. A pair of White House economists famously promised that this spending would keep the unemployment rate below 8%.
Seventeen months later, and despite historically easy monetary policy for that entire period, the jobless rate is still 9.7%. Yesterday, the Bureau of Economic Analysis once again reduced the GDP estimate for first quarter growth, this time to 2.7%, while economic indicators in the second quarter have been mediocre…. this is a far cry from the snappy recovery that typically follows a steep recession, most recently in 1983-84 after the Reagan tax cuts.
There’s a local version of this idea, in Whitewater, Wisconsin: commit to public spending programs to “partner” with business and create jobs. It’s been a failure, however heady the ride for politicians and bureaucrats who’ve played with millions of taxpayer dollars along the way. Gentlemen who would not have access to such large sums in a private occupation have had quite a run at the expense of productive, private residents.
There’s almost nothing to show for our municipal administration’s efforts, these several years. More and more of the City of Whitewater’s time over the next few years will be spent rationalizing blunders in tax incremental spending (blunders the vast majority of Wisconsin communities have not made), or looking for the Next Big Thing to obscure and divert attention from previous, disappointing projects.
Whitewater has three principal choices: admit this was a mistake and chart a new course, muddle along trying to explain away current mistakes, or double down on even more absurd and wasteful projects. There are so few honest, introspective men among Whitewater’s politicians and bureaucrats that there will be no change of course, toward reform. The city will either muddle along, or foolishly gamble on riskier projects.
We were not the place for the vain ambitions of small-town bureaucrats, anymore than any place should be, and less than other towns could be. We lag similar towns in prosperity and well-being, and we will only fall father behind on our present path. A clean and decisive break, to a significantly smaller municipal government, is our way out. Whitewater won’t take that course soon today, but one day she’ll have no choice.