They don’t say it in words, but the reality is that Say’s Law is right and Keynesian economics is junk science. A stimulus takes an economy backwards, makes things worse. This is not about this program or that. This is about the very principle of trying to revive an economy from the demand side based on unproductive forms of public spending. They also don’t use the phrase Say’s Law, and may not even be aware that Say’s Law was specifically designed to explain that a public spending stimulus not only will not work, but will make things worse. So read this from the front page of The Oz today: Stimulus a waste, damaged industries.
A damning Treasury-commissioned independent review of the former Labor government’s unprecedented spending response to the global financial crisis has found it was a “misconceived” waste of money, fundamentally weakened Australia’s economy, almost destroyed parts of the manufacturing sector and inflicted more long-term harm than good.
The review is also scathing of government failure on both sides of politics to address the budget crisis triggered by the $100 billion fiscal stimulus project, which has saddled the nation with the fastest-growing public debt in the world. “There is no evidence fiscal stimulus benefited the economy over the medium term,” says the paper, to be released today.
It says the stimulus was “misconceived”, with an emphasis on transfer payments and “unproductive expenditure such as school halls and pink batts”.
And I do wish to emphasise that this is not a critique of how things were done, but that these things were done at all. You want to understand the theory, you can either go back to John Stuart Mill or Henry Clay or any of the pre-Keynesian classics. Or you can read my em>Free Market Economics< in which it is all set down in cold print.