In the latest Commentary magazine, James K. Glassman remarks on a curious development: After the economic meltdown dealt a ?severe setback? to free-market capitalism, the liberal response has left the public unimpressed:
John Maynard Keynes argued in 1933 that in a deep recession, consumers and businesses were too frightened and broke to spend and invest, so it was up to government to do the job with massive public-works projects and short-term tax cuts. Following Keynes?s theory, Congress and the White House enacted the American Reinvestment and Recovery Act of 2009, which allotted $787 billion to a potpourri of stimulus programs to invigorate the economy.
In an article in Commentary (?Stimulus: A History of Folly?) in March 2009, I recounted the discouraging history of Keynesian stimulus and predicted its failure this time out as well. The surprise, both to me and I?m sure to those who planned, advocated, voted for, and implemented the stimulus package, is just how quickly the American public came to recognize the sweeping nature of the failure.
The reasons for the failure, and for the literally depressing pessimism that the failure seems to herald, were first described 160 years ago by Frederic Bastiat in his essay ?The Seen and the Unseen.? Bastiat was describing the effects of economic actions, including public spending. That spending leads to results that are ?seen,? meaning, in the case of the current stimulus, the jobs of medical residents, teachers, road builders, and the like?jobs created or preserved by stimulus dollars. Then there is the matter of what is ?unseen??meaning all the money government used for those projects that has been diverted, through taxes or borrowing, from other uses.
Usually, the public is too dazzled by the seen to take account of the unseen. So politicians often get away with saying they have ?created? this or that many jobs by spending taxpayers? money. Few follow the trail back to where the money came from or project it forward to divine the consequences. That was not the case this time. Quite the opposite, in fact.
In the current crisis, advocates of stimulus and of government intervention in general have been badly hurt by two developments. First, the short-term effects of the stimulus?the ?seen??have been extremely disappointing.
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More disastrously for the Democrats, the ?unseen? became ?seen? almost immediately, in the form of metastasizing budget deficits. In order to spend all that money it didn?t have, the federal government was, of course, forced to borrow.
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Americans are worried about this rising debt, and they have reason to be. As the CBO puts it, ?Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels.?
