Let's Give Keynesian Economics a Try
A lot of people have been trying to make the case that Keynesian Economics has failed, because of our slow recovery and high unemployment.
What is Keynesianism? Well, basically it is the idea that the government should increase its spending during a recession, to stimulate demand and get the economy back on track.
Is that what we did? Well, we had a stimulus program, but most Keynesian Economists agreed that it was much too small. Was this a true, "Keynesian" stimulus program? If it was, then during the recession we should expect to see a large, temporary increase in government spending.
But it didn't happen. There was no spike in spending. Government expenditures barely even stayed on their normal course, because the stimulus act was much too small, and it was largely offset by budget cuts in other areas of the government. Even on a non-log scale, the graph still tells the same story. There was no Keynesianism.
A lot of people are frustrated that the unemployment rate has only dropped from 10% to 9%, and has basically been stuck at that level. Why has this happened?
This graph shows us that the private sector has added almost 2 million jobs compared to a year ago. That's pretty good! So, why isn't the unemployment rate dropping faster?
Because we're offsetting the private-sector gains by laying off all of our teachers and other public-sector workers. The government has shed almost a million jobs over the past year. That's the polar opposite of Keynesianism, which would call for an increase in government hiring when unemployment is high.
People love to blame the government, and say that we should downsize it. Well, that's what we've been doing, and it's not helping. I say it's time to put an end to the austerity measures and give Keynesianism a try.