The first coronavirus vaccines are being administered in Pittsburgh and around the world. It is welcome news after nine months of unprecedented upheaval.
If the vaccine is successful and this scourge can begin to be eradicated, it will clear the way for a badly battered economy to start its recovery process. But how “recovery” is effected will make all the difference in the world.
Will state and local leaders attempt to yet again exploit the pandemic in yet another perverse attempt to command the economy in their own social re-engineering vision?
Sounds as if Pittsburgh Mayor Bill Peduto already is proposing just that with his “Marshall Plan for Middle America” nonsense.
Or will our leaders, as they should, cut the red tape and allow the economy to roar back to life on its own?
We would prefer the latter, of course. For the fewer government hands having the hubris to believe they can “fix” things the better.
But the former likely has greater odds of prevailing, past being prologue. And as a Wall Street Journal columnist recently pointed out, the public should be particularly suspect of pols bearing taxpayer-underwritten “recovery” with sweeping promises of “multiplier effects.”
That is, the Keynesian theory (proffered long ago by liberal economist John Maynard Keynes) that government “stimulus” produces far more value – “multipliers” — than the face value of the stimulus amount.
Andy Kessler revisited the perverse theory in his Dec. 7 Journal column “A stimulus dollar is only a dollar”:
“The New York Times described this trend during the early days of the Obama administration. The financial crisis team of Jason Furman, Tim Geithner and (Lawrence) Summers were ‘carrying around this list of multipliers’ taken from a chart by Mark Zandi, chief economist for Moody’s Analytics.
“Every dollar spent extending unemployment insurance benefits would, the fairy tale went, boost the economy by $1.64. Sadly, a dollar in reduced corporate taxes would boost the economy by only 30 cents. But cheer up, every dollar spent on food stamps would spur a $1.73 increase in gross domestic product.”
“Mr. Zandi called it ‘bang for the buck’—the proverbial free lunch. It’s more like ‘dud for the dollar’ because it didn’t work. It never does. Multipliers are a canard, a Keynesian conceit.”
But you can bet we’ll be hearing this canary in the canard mine squawking at just about every level of government controlled by “progressives” as Covid-19 “recovery” plans are trotted out.
Continues Kessler:
“The theory of multipliers is based on the Keynesian view that poorer consumers tend to spend a large amount of increased income, and the rich less so. But multipliers are half a story.
“Someone has to put up the original money that allegedly gets multiplied, taking it away from the private sector and negating whatever dwindling chain of transactions are hypothesized. It’s like two waves canceling each other out—you can’t just do the math on the additive public wave and ignore subtracting the private.
“This demand-side theory omits the principle of productivity, the real driver of economic growth and prosperity.”
Or as American Enterprise Institute scholar Mark Perry characterized it back in 2013:
“It’s a simple but frequently overlooked and irrefutable fact that the only way the federal government can ‘stimulate’ (benefit) one group is to ‘de-stimulate’ (tax) another group. …
“(It) should be obvious that government stimulus can never really effectively create a net increase in jobs, income or wealth, but can at most only re-distribute and re-allocate jobs, income and wealth through confiscation of private resources.
“And in most cases, the government’s forcible redistribution will make us worse off because of government inefficiency and inability to re-direct private resources to their highest and best use.”
That is, only the free market can do that.
“But don’t expect the public’s and politicians’ faith in the fallacy of government stimulus to wane,” Perry wrote. “It’s a fallacy and fantasy of ‘getting something for nothing’ that is just too appealing.”
And whether the “stimulus multipliers” are hawked in Pittsburgh, Allegheny County or statewide, the result will be the same – a weaker economy that will make real recovery all that more difficult.
Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).
