Rich Tucker, in Townhall, gives the best reason why Obamanomics has failed:
Washington Post columnist Dana Milbank writes that conservatives have “managed to turn the Keynesian notion of economic ‘stimulus’ into such a dirty word that President Obama and his aides are afraid to let it escape their lips.” Ah, so, the main reason the stimulus is unpopular is because right wingers are talking it down? We must have an excellent public relations firm. Too bad the GOP didn’t use that firm to help it win elections in 2006 or 2008.
Keynesian economics is being assailed — not by a political party, but by events. Milbank omits the key feature of Keynesianism: the multiplier effect. Supposedly the power of government spending is that it unlocks other spending. For example, a road building project gives money to workers who spend it at other businesses who invest in new equipment, and on and on and on. Economists even have a mathematical formula that predicts a $150 billion expansion in GDP for every $100 billion the government spends.
Except it doesn’t work that way.
A key reason is that the government can’t “give” anyone anything. Every dollar it spends must be borrowed or taxed, thus leaving less money available for productive people. When federal spending climbs, smart people realize that taxes are likely to go up in the future, since everything must be paid for eventually. That makes federal spending a drag on investment, not an investment in and of itself. Milbank disagrees. “With business and consumers refusing to spend, Keynesian theory says it’s up to the government to stimulate consumption — by spending more or by using tax cuts to stimulate demand.”
Yet it should come as no surprise that, with a bunch of tax cuts set to expire at the end of the year, businesses are hoarding cash.
I remember listening to a lawyer supporting the Democrat Party’s position saying, “but it isn’t our money, it is the government’s money.” That attitude describes the problem in a nutshell. Democrats do not seem to understand that everything needs to be paid for, somehow. They see the government as the source of all benefits, without understanding that it is not the government that creates wealth, it is the people who create wealth and value. Everything the government takes from the source of wealth takes away the ability of that source to generate new wealth.