Spending without stimulus
Growing up I attended a religious high school, which I found as enjoyable as a daily visit to the dentist. Nevertheless my parents sent me there because the school was academically rigorous. I struggled through classes, but my GPA salvation came via my ability to ace all religion classes, required every semester.
The religion courses weren’t puff classes, by any means — few other students managed such success. My performance was so exceptional so as to make me a finalist for the “student of the year” award upon graduation. This success had nothing to do with any innate understanding of church doctrine, but rather was largely a result of a rhetorical trick I discovered my freshman year — namely, that the phrase “manifestation of Christ Jesus” (the order did matter) invariably resulted in full credit for nearly every single exam question in every single class. Whether it be Church History, Church Doctrine, Church Sacraments, or the New Testament, as long as I slipped that phrase into any long-winded answer, I was fine. I didn’t learn what the word “manifest” meant until years later, incidentally.
Many politicians use a similar crutch when defending their various spending plans. Need to justify $100 million for brain research? Such research might be a good idea in and of itself, they aver, but it’s also “stimulus.” Why relax food stamp eligibility? “Stimulus.” Why build more infrastructure? You know the answer.
In the 1970s, macroeconomics had an existential crisis when it became obvious that neither the Federal Reserve nor the federal government could perpetually stimulate aggregate demand. The result of their attempting to do so was stagflation, an existence which could not be explained by the standard Keynesian precepts of the time. Eventually, economists came to embrace an entirely new model (what came known to be known as Rational Expectations) to describe the world, which held that the government cannot consistently fool people into working or spending more than they otherwise would. To get economic growth, the economy needs workers to become more productive, and the path to that is to encourage more investment in capital — the physical capital of plant and equipment, the intellectual capital of research and development, and the human capital of education and training. Today, very few economists consider themselves Keynesians.
Of course, just as there are no atheists in foxholes, there are few politicians who don’t embrace the Keynesian prescription of spending more money whenever the economy falters. However, entering into the fifth year of an economic expansion that has remained tepid despite an almost unprecedented fiscal and monetary expansion ought to be enough to dissuade people that more consumer spending is the key to economic renewal. Don’t count on it, though.