Onion WPA Joke Would Be Funnier if Krugman Wasn’t so Serious

| by Heritage Foundation

In an op-ed from last week, Paul Krugman again called for greater government control of the economy to combat unemployment writing: “A rational political system would long since have created a 21st-century version of the Works Progress Administration — we’d be putting the unemployed to work doing what needs to be done, repairing and improving our fraying infrastructure.” Well The Onion has some good news for Mr. Krugman, under the header Revamped WPA To Create 50,000 New Jobs By Disassembling, Reassembling Hoover Dam, they report:

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In an effort to boost the economy and promote job growth, representatives from the newly revived Works Progress Administration announced Thursday their plan to dismantle, piece by piece, the 3.25 million cubic yards of concrete forming the Hoover Dam, and then immediately rebuild it. “This is a vital initiative,” said WPA director Ted Doogan, who was appointed last week. “Systematically tearing down such a massive edifice will create at least 25,000 jobs over the next five years. And then reassembling it, using all the same pieces in the exact same configuration, will employ another 25,000 workers. America is back.” Other public works projects currently underway include the bulldozing of libraries, the burning of national forests, and the defacing of public murals, which will be followed by a massive plan to rebuild libraries, revive national forests, and repaint public murals.

We wish that proposals like Krugman’s were a total joke. Unfortunately there are just too many people in Washington who still believe that paying people to do dig ditches in the name of “economic stimulus” is good public policy. It’s not:

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Keynesians believe that government spending can make up this shortfall in private demand. Their models assume that–in an underperforming economy–government spending adds money to the economy, taxes remove money from the economy, and so the increase in the budget deficit represents net new dollars injected. Therefore, it scarcely matters how the dollars are spent. Keynes is said to have famously asserted that a government program that pays people to dig and refill ditches would provide new income for those workers to spend and circulate through the economy, creating even more jobs and income.

Economic data contradict Keynesian stimulus theory. If deficits represented “new dollars” in the economy, the record $1.2 trillion in FY 2009 deficit spending that began in October 2008–well before the stimulus added $200 billion more–would have already overheated the economy. Yet despite the historic 7 percent increase in GDP deficit spending over the previous year, the economy shrank by 2.3 percent in FY 2009. To argue that deficits represent new money injected into the economy is to argue that the economy would have contracted by 9.3 percent without this “infusion” of added deficit spending (or even more, given the Keynesian multiplier effect that was supposed to further boost the impact). That is simply not plausible, and few if any economists have claimed otherwise.

And if the original $1.2 trillion in deficit spending failed to slow the economy’s slide, there was no reason to believe that adding $200 billion more in 2009 deficit spending from the stimulus bill would suddenly do the trick. Proponents of yet another stimulus should answer the following questions: (1) If nearly $1.4 trillion budget deficits are not enough stimulus, how much is enough? (2) If Keynesian stimulus repeatedly fails, why still rely on the theory?

This is no longer a theoretical exercise. The idea that increased deficit spending can cure recessions has been tested repeatedly, and it has failed repeatedly. The economic models that assert that every $1 of deficit spending grows the economy by $1.50 cannot explain why $1.4 trillion in deficit spending did not create a $2.1 trillion explosion of new economic activity.