September 30, 2012
You have perhaps heard the complaint: Stimulus has not really been tried. The politics of recent stimulus packages worked up a mere weak sister of a Keynesian influx, a shadow of the full force required. Most of the money was squandered on the wrong things, much of it was tied up in strange timing protocols, wasted on tax cuts, and, besides, too little was dedicated to the task to do it right. We needed many trillions more!
Apparently, the many, many trillions in specifically monetary stimulus — bailouts, cheap interest rates, and quantitative easing — dont count.
This echoes Keynesian special pleading regarding the Great Depression, insisting, in the words of one historian, that [f]iscal policy . . . seems to have been an unsuccessful recovery device in the thirties — not because it did not work, but because it was not tried.
What todays Keynesians are saying — and what Keynesians have said in the past — is almost exactly what free-market economists have said about every bust-and-recovery after Warren G. Hardings austerity-plus-freeing-up-markets approach in the early 1920s (when the recovery proved amazingly swift): The problem since 1929 is not that the free market failed, but that it was not tried.
As a matter of historical record, the latter case is hard to dispute (though you will still hear Progressives dispute it): certainly the Federal Reserve (established 1913) was not a free-market institution, but, instead, a classic Progressive Era program, and its 1920s policies were not strictly directed towards monetary stability; and certainly Herbert Hoover viewed himself as a Progressive (and could sport awesome Prog cred), priding himself that, after 1929, at least he did not do nothing. Indeed, laissez-faire proper has not been the general practice of any major modern world power since the beginning of World War I. (It has been, at best, a talking point for some Republicans and an element of the Republican legislative mix, which has also included deficit spending as well as increase in regulatory and redistributive bureaucracy and a massive increase in public debt.)