Remember when “liberal” became the insult of choice among Republicans?
Apparently, “Keynesian” has now taken on that status for Republican economists. Never mind that Keynesian is ill-defined (old Keynesian? new Keynesian? the Keynesian part of the neoclassical synthesis?)–making Keynesian a dirty word and applying it to those with whom you disagree has become the tactic of choice among Republican economists.
Take Friday’s Wall Street Journal opinion piece by Alan Meltzer of Carnegie Mellon University and–because WSJ‘s op-ed page seems to require that a quota of their opinion piece be penned by someone from it–the Hoover Institution.
A couple of this op-ed’s shakier assertions:
“Those who heaped high praise on Keynesian policies have grown silent as government spending has failed to bring an economic recovery. Except for a few diehards who want still more government spending, and those who make the unverifiable claim that the economy would have collapsed without it, most now recognize that more than a trillion dollars of spending by the Bush and Obama administrations has left the economy in a slump and unemployment hovering above 9%.”
In fact, there is a considerable body of evidence to suggest that the fiscal stimulus did have a positive effect on the economy. Fellow Hoover Institution denizen Ed Lazear is willing to credit the stimulus with boosting GDP by 3 percent–and if you can get 3 percent further away from the edge of a cliff, I am all for it. Even the fiscally conservative Economist magazine seems to think that there is room for additional stimulus.
Meltzer continues: “…Keynesian models totally ignore the negative effects of the stream of costly new regulations that pour out of the Obama bureaucracy…” The solution? “…announce a five-year moratorium on new regulations.”
Talk about unverifiable claims! The author is railing against reforms that have not yet been fully implemented (health care and Dodd-Frank).
Although we do have a number of silly and costly regulations (my personal favorite is Florida’s licensing requirements for interior designers) which should be eliminated, many make valuable contributions to societal welfare. If the government had done a better job of using regulation to moderate some of the excesses of the financial industry, we might have mitigated some of the worst consequences of the financial crisis.
According to the World Bank the US ranked fourth out of 183 countries in ease of doing business. Claiming that America’s businessmen suffer from the burdens of over-regulation–and erroneously blaming it on Keynesian economics–is a mistake.