Hillary Clinton – like George Bush – is on record saying that we shouldn’t pay for the so-called stimulus packages currently under discussion. And we’re not paraphrasing:
"But this stimulus shouldn't be paid for," Hillary Clinton said to Tim Russert in a recent interview, when he reminded her that she'd omitted a price tag somewhere.George Melloan, formerly of the Journal, writes in his old newspaper that Hillary’s statement implies a form of “Keynesianism.”
Named after John Maynard Keynes (d. 1946), the theory holds that government spending will stimulate the economy. One of Keynesianism’s corollaries is that the spending will pay for itself, since by stimulating the economy tax revenue will increase.
Keynesianism was the regnant economic theory throughout the 20th century. Unfortunately, though, Keynesianism doesn’t work.
Ronald Reagan ended Keynes’ domination over Washington. Why did Reagan do it? What did Reagan replace it with? And what needs to be done now?
The explanation was this: If a government hampers production through heavy taxes and economic regulation -- or by inflating the currency -- production will slow down and there will be less to consume. To revive production, government must reduce the tax and regulatory burden and kill inflation -- which Reagan did to such good effect. Tossing dollars from planes doesn't do it ...
Clearly stock markets around the world aren't cheered by all the current talk of stimulus and a further cheapening of the dollar: They know all too well how politicians can convert adversity into catastrophe. Instead, the right policy is to make the Bush tax cuts permanent and pull up regulatory weeds, like Sarbanes-Oxley. Sound money and relief for producers is the best anti-recession prescription. It worked in 1981 because it was good policy.
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