Ever watch a dog chase its own tail? Entertaining. Cute. Entirely non-productive.
Looking back over these last two years, one must ask: Is Keynesianism the equivalent of an economy chasing its own tail?
Under Keynesianism, fiscal policy is defined by how much cash is tossed at the economy. The stimulus can take the shape of one-off tax breaks, transfer payments, or direct spending.
We might pave over old roads. Structurally enhance buildings and bridges. Dig ditches with spoons. Whatever it takes to inject cash into the system and jumpstart the economy.
The political left has long adhered to the theory that additional stimulus will produce a multiplier effect that will in turn lead an economic recovery to become self sustaining. And over the last two decades the right has increasingly bought into this conceit.
Yet, with every attempt to validate the ideas postulated by Lord Keynes, we have simply shown that these concepts do not work in practice.
When President Obama agreed to a two-year extension of the Bush income tax rates last year, he managed to implement two Keynesian provisions as part of the package: extending unemployment benefits by another year and a one-year temporary break on the payroll taxes paid by employees.
Less than one year later, the administration is floating the trial balloon of placing that payroll tax where it should have been in the first place: with employers. Why? Because the tax break to employees, who make no hiring decisions, has done absolutely nothing for the job market.
And how many perfectly capable yet unemployed individuals have enjoyed an additional one-year sabbatical from the workforce? I realize that college graduates have a hard time adapting to the available jobs in the retail, service and hospitality industries. Mentally, that's a difficult leap to make.
Yet, when I overhear former pharmaceutical sales reps bragging about their "gym, tan and laundry" schedules as they enjoy tax-payer funded unemployment benefit vacations, especially in light of the worsening budget deficit issues, I get angry.
My four and eight year old sons will long be paying for those gym memberships.
Moreover, think of the other Keynesian policies that have gotten this economy nowhere.
Cash-for Clunkers? The auto industry enjoyed a temporary uptick which disappeared entirely when the incentives expired.
The tax break for first-time home buyers? Ditto.
How about the $800 billion economic stimulus package that was to return the U.S. economy to a self-sustaining growth path? To my understanding, most of the stimulus went to the pet projects that, while high minded, did little to stimulate the economy.
$500 tax cuts to the unemployed. Computerizing medical records. Checks written to ailing state governments-all of which are still ailing. $100 billion went to reducing state Medicaid costs to free up state money for other, more stimulus oriented spending. $80 billion was earmarked for "state fiscal relief."
Much of the stimulus went to infrastructure projects meant to boost employment and spending. While the jury remains out on the impact, I cannot help but mention that this money would have been better served elsewhere. Temporary projects run by near-bankrupt state and municipal governments do not strike me as sound economic policy.
Bernanke's Zero Interest Rate Policy seems to be flailing. And all of this additional regulatory oversight via Dodd-Frank is making it all but impossible for the banks and financial institutions to make money. No wonder investors are abandoning them like rats from a burning building.
I have no sympathy for these large financial institutions. But, we need them healthy if the economy is to recover. And these stricter banking regulations seem to be extending the financial sector's hangover.
The government was so interested in spanking the naughty child that it failed to allow the offender to make amends first.
There's been talk that JP Morgan may refuse to own mortgages because the after-tax, post-regulation costs of doing so are simply too high. When one considers that JP Morgan is the largest holder of mortgages, one begins to understand why investors are abandoning ship. Talk about unintended consequences.
These last two years may come to be known as the Age of Unintended Consequences. When ideals and ill-conceived programs drive economic policy, the unintended consequences begin to resemble mile markers passed along the road to some inevitable conclusion.
So much money spent on projects that, in hindsight, may bring little in the way of results. In fact, much of these policies, and Keynesian spending, resemble a dog chasing its own tail. Lots of energy expended. Little to show for it. Stay tuned.