Tim Kane tells us:
Ironically, the harshest critics of Obama are also overly optimistic. The White House wants to believe the stimulus is working. The critics want to believe the stimulus wasn’t necessary because the economy is getting better already.
No, that is not what the harshest critics believe. The harshest critics, such as myself, believe that the Keynesian description of the crisis only addressed a small and unimportant part of the truth, thus stimulus could only have a small and unimportant benefit. The economy is not “starting to get better alreadyâ€, rather it is only beginning to go bad.
The crisis was originally well described by the Austrian model of recessions – we discovered that we were erroneously over investing in the finance and housing sectors, that the value supposedly created by financiers and real estate agents was largely phony, and that many of the customers for housing were unable or unwilling to pay, and that as a result of CAFE and other restrictions on new cars, new cars were less useful than old cars. As a result, we got a diminution not in aggregate demand but in demand in particular sectors, which cannot be remedied by aggregate stimulus, but only by labor and capital mobility.
The continuing crisis is well described by the “Atlas Shrugged†model, rather than the Austrian or Keynesian model: the government smashes capitalism causing the economy goes to hell. Thus, for example, a substantial part of the stimulus package was to impose burdens on employers who lay off workers, which of course increases, rather than decreases layoffs.
Our new permanently high level of unemployment will resemble the permanently high unemployment of many European countries.