Keynesian Policy Does Not Create Growth

Here’s a letter I sent to The New York Times.

To the Editor:

You write (“The Wrong Idea,” August 19, 2011) that Western leaders are “determined to handcuff fiscal policies—the main tools that can increase jobs, consumer demand, and economic growth.” Yet history shows that government “stimulus” does nothing of the sort.

FDR prolonged the Great Depression in the 30’s with market-distorting New Deal spending. Japan’s fiscal stimulus in the 90’s resulted in what is now commonly known as its “lost decade.” Bush’s ’08 stimulus failed to avert worsening crisis. And Obama’s $823 billion ‘09 fiscal behemoth was deemed ineffective even by his own Council of Economic Advisers.

It’s time we stop falling into the Keynesian fallacy that government profligacy can effectively guide markets. I’m glad that leaders in both the U.S. and Europe have begun to realize that.

Matthew Melchiorre

Washington, August 19, 2011

The writer is an Adjunct Analyst at the Competitive Enterprise Institute.