Chart of the Day: Keynesian Economics

They say a picture is worth a thousand words, but in this case, we figure it’s worth about $4 trillion, which is the total of stimulus spending at home over the past five years.  Arthur Laffer, of Laffer Curve fame, prompted this post with a worthwhile Op-Ed in today’s WSJ, The Real Stimulus Record.  We had lunch with Mr. Laffer in NY last year, and while I wouldn’t necessarily agree with each of his views on the economy, it’s nice to see someone take a stance these days, rather than simply point the finger at the other guy.  The bottom line is sadly obvious in the table below, which shows increases in government spending from 2007 to 2009 and subsequent changes in GDP growth rates. Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus.  “Quite simply, government taxing people more who work and then giving more money to people who don’t work is a surefire recipe for less work, less output and more unemployment.”

Capital will go where it is best served.  Printing money, renovating government offices and stimulating “clunkers” may look like growth for a while, but it is not the stuff that wealth is made of.  Wealth is created by investment.  Rather than continue the ongoing debate of how much stimulus spending is needed, perhaps we should be focused on the quality of said spending. Unfortunately, as long as we think in terms of “spending” rather than “investment,” we are doomed to end up as another statistic on the table above.  The recent tone of our US President does not leave me with a lot of confidence:

“If you were successful, somebody along the line gave you some help.  There was a great teacher somewhere in your life.  Somebody helped to create this unbelievable American system that we have that allowed you to thrive.  Somebody invested in roads and bridges.  If you’ve got a business — you didn’t build that.  Somebody else made that happen.  The Internet didn’t get invented on its own.  Government research created the Internet so that all the companies could make money off the Internet.”