Dan Henninger of the Wall Street Journal had an interesting article entitled, “Escape From Spending Hell.” In the article Henninger quoted a study done by Harvard University economist Alberto Alesina.
Henninger pointed out that Democrats have tried to discredit Reagan’s tax cuts as a way of reviving the economy. They want to return to the Keynesian idea that more public spending will revive our struggling economy despite the fact that history has demonstrated it does not work.
High levels of spending and high taxes did not get us out of the depression. There has been a multitude of studies beginning with Milton Friedman’s study in the late 1940’s on the fallacy of the Keynesian theory. Alesina’s study is the latest proof.
Alesina analyzed the measures taken by 17 different nations between 1978 and 2009 to revive their economies. In August 2012, he published his findings in a report for the National Bureau of Economic Research.
“The path back to stronger growth, argued Mr. Alesina, is a combination of significant, permanent cuts in public spending and relatively small tax increases, if any…” His study concluded that spending cuts are associated with mild and short-lived recessions, in many cases with no recession at all. But tax increases have been associated with prolonged and deep recessions. This is the opposite of Obama’s spend-more and tax-more solution.
The prime example is Canada. It initiated spending cuts without big tax increases. Our economy is stagnant while Canada’s has recovered.
So why does Obama, his economic advisors and the Democrats persist in beating a dead horse? Why do they ignore all of the studies and history that demonstrate that Keynesian economics does not work? I’m sure there are a lot of different opinions. What do you think?
Read my blogs for more information about what history has to say. Scroll down to:
“Impact of tax cuts and government spending cuts in 1920’s”
“Obama’s Stimulus Copy of FDR’s ‘Pump Priming’”
“Government Policies Prolonged Great Depression”
“History Lesson Ignored”