Republicans are getting traction by condemning the “stimulus”, as an outlandishly extravagant porkfest, as miserly and inadequate, and as a disaster that should not be repeated – an attack made all the more effective by the many radical Democrats who complain the porkfest was inadequate, and call for a bigger and better porkfest: “Stimulus II”
Obama’s approval ratings, though still high, are plummeting fast under this withering criticism.
In Japan, they are now on stimulus umpteen, the Japanese economy is not looking very stimulated, and the Japanese government is getting close to bankruptcy.
The porkfest is too small in that it takes the government a very long time, several years, between deciding to spend money, and the money actually getting into people’s pockets, so the only stimulus that has had any effect are the tax cuts – and the carbon bill looks suspiciously like an alarmingly large tax rise: “tax and raid”, as the Republicans are calling it. This is not very stimulating.
As for too large – well we cannot definitely say it was too large unless serious inflation or national insolvency sets in, and so long inflation remains subdued, people can always say it would have worked had it been larger.
My expectation is that it will not work, not matter how large, because this is primarily a Galt Strike, and only to a minor extent the inadequacy of aggregate demand that Keynes described. But this theory can only be tested if the Democrats put the pedal to the metal, and do enough stimulus that serious inflation sets in.
If inflation sets in without recovery in employment and investment, that will be compelling evidence in favor of the Galt Strike theory and against the Keynesian theory. But as long as inflation remains low, people can say of the American stimulus, as they say of the Japanese stimulus, that it would have worked if only it was tried hard enough.
If, on the other hand, the stimulus actually stimulates something broader than gigaprofits at Goldman and Sach, then that will be compelling evidence that Keynesianism or neo Keynesianism does describe the present economy accurately enough.
If inflation with high unemployment and stagnant investment, then I am proven right.
If low inflation with high unemployment and stagnant investment, then everyone can plausibly claim to have been proven right, though in fact nothing will be proven – the situation we now have with Japan.
If low unemployment and adequate investment, the Keynesians will be proven right.