Yesterday I discussed a comment on the History of Economics website about the growing need to be wary about Keynesian economics and today there’s an article at the Wall Street Journal about the same thing, this one titled, Worse than Obamacare which it is. Let me pull out two bits before I get to my main point:

In February 2009, he got $831 billion of stimulus spending. Not even seismographs can detect the results. Every speech he outputs about “middle-class folks” offers them the same solutions: more public spending on education, on public infrastructure projects and, even now, on alternative energy. As he tirelessly repeats what remain promises, the Labor Department’s monthly unemployment-rate announcement on Friday mornings has become a day of dread.

No one any longer expects an upturn in the American economy. Long, slow and tortured is now the way things are. And finally people are getting around to thinking that it may well be Keynesian theory that is in itself the problem:

You know the theory here: Spend a public dollar and you get $1.50 of economic output. It hasn’t happened, but Barack Obama is gonna crank his old Keynesian Multiplier, created during the 1930s in the era of the Hupmobile, until it sputters to life.

Well, you’ve been hearing from me from the start that it was never going to work and for some reason it has taken five years for the penny to drop. It was never going to work because the underlying Keynesian theory is false from surface to core. But it’s only obvious if you understand the economics that existed before Keynesian economics entered the scene and return to the specific proposition that Keynes derailed.

There are others who think they can see Keynesian economics off the lot through some other means but I don’t believe it. It is only if you understand the classical theory of the cycle and Say’s Law can you make sense of why the stimulus did not achieve a single one of its aims. Stimulating demand cannot work because you cannot stimulate demand by increased spending on anything at all. You can only increase economic activity through increases in value adding supply, the very thing no government can ever do. What governments do is waste and the effect is to deaden the economy, and the more waste there is, the deader it becomes.

In seeing that Keynes must go we are only half way there. The other half is to restore the economic theory that Keynesian economics replaced.

[My thanks to Julie for the WSJ link.]