The incredible myth of stimulus spending

Its' official: Deep cuts in federal spending are under way, $85 billion over the next seven months. The question we should all be asking soon is: Where are the jobs?” begins Center for American Progress senior fellow James H. Carr in his recent opinion piece for CNN.

By “deep cuts,” Carr means approximately 2.23 percent of federal spending, and he goes on to critique fiscal conservatism, repeatedly demonizing attempts to curb federal spending.

“The American public deserves better,” he concludes.

They do deserve better. They deserve to hear why federal budget cuts are important and why they will gradually — along with low tax rates and effective, swift spending cuts — result in a long-term private sector job growth explosion.

To begin, the approach Carr probably prefers has been the primary reason our recession has lasted the entire length of President Barack Obama's first term and continues to last into his second: Keynesian economics.

Government spending as a way to stimulate the economy has been resulted in major policy failures.

This approach has been tried before, most notably by President Franklin Roosevelt during the Great Depression.

Roosevelt's federal initiatives failed, despite benevolent ideological intentions. Through a series of organized federal expansions, Roosevelt successfully passed laws and spent federal money on government programs left and right in an attempt to curb the horrible economic conditions across the country.

In 1933, perhaps at the peak of the Great Depression, the unemployment rate was at an astounding 24.9 percent. Even after several years of federal spending, the unemployment rate remained at a staggering 14.3 percent in 1937, before jumping back up to 19 percent in 1938.

So what is our alternative? Fiscal conservatism, personal responsibility and bureaucratic accountability.

The job growth will be there, as Carr challenges, but it won't be an instantaneous fix. The private sector growth will come, but it will only come with friendly tax rates, and perhaps comprehensive tax reform that includes a flat tax (though maybe I dream too big).

Random federal spending cuts alone probably won't solve any problems.

Eliminating government waste by enacting smart, efficient spending cuts and keeping tax rates low to encourage private investment is a start to any economic recovery. Just ask Herbert Hooverand Ronald Reagan. Both were president in times of recession and both enacted variations of Austrian economics to help curve conditions.

Yet we don't talk today of their policy successes. instead, we talk about how the stimulus during the Great Depression wasn't quite big enough. Sadly, it seems as if everything can be fixed with more federal spending. How fiscally insane.

 

Reach this columnist at spmccaul@asu.edu or follow him on twitter at @sean_mccauley

 

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