Arguing Against Absurdity

Don Boudreaux, over at Cafe Hayek, argues that those

"who argue that, because only a small percentage of the stimulus funds have actually been spent so far, the stimulus plan cannot be credited with whatever economic buoyancy we’ve seen lately,"

do so invalidly. He goes on,

"I believe that this argument is incorrect. A good Keynesian can (and should) point out that the very expectation that such massive government expenditures will happen goes a long way toward relieving the economically depressing anxiety of consumers, employers, and investors. That the spending hasn’t actually happened yet is less significant than the expectation that it will happen."

I argued in this same blog,

"... this presuppose[s] that consumers, employers, and investors are a) knowledgable about where the stimulus money will go and how deeply it will affect their own interests, and b) confident that it will be spent effectively[.]

Considering how fast the $787 billion, 1588-page 'stimulus' bill was rushed through congress, I think (a) is impossible. I doubt the authors of the bill have such knowledge.

I would say that (b) is a stretch, too, even if consumers, employers, and investors aren't well-versed in political economy, and don't realize the utter inefficiences that pervade bureaucratic management. That is, unless they KNOW that they will be directly subsidized in some way, (b) doesn't hold much water. Consider that the Cash-for-Clunkers could have had no effect whatsoever on purchases. I'm not saying that particular program was effective in the long run, but it undeniably bolstered sales while it was in effect, thus exacting the supposed end it was supposed to. Notice Democrats are calling it a 'success.'

The "expectations" argument gives too much credence to the power of government spending. I don't see that it is there, and thus I would be willing to say that you could use the argument that the stimulus plan has been ineffective, unless (a) and (b) could be proved."

Just because the premise (the stimulus plan) is Keynesian, doesn't mean the burden of proof is put on dissenters. Rather, the opposite. If Keynesians claim truth, they must be able to explain the ins-and-outs of their policy prescriptions and how they work.