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November 07, 2010 at 07:00 PM
By the time you read this column, the 2010 midterm elections will have passed. If the predictions of political commentators and polling outfits bear fruit, the results will be what you now know: an overwhelming vote for Republican candidates and a repudiation of Democratic legislative victories.
Hence, we can expect efforts when the 112th Congress gets underway in January to “repeal and replace” the health care and Wall Street reform acts. And we should expect no more talk of fiscal stimulus plans–at least not of the size of the $787 billion American Recovery and Reinvestment Act of 2009–as federal, state and local governments seek to reign in burgeoning budget deficits.
The Case for Spending
One can debate the merits of the first two laws. But in respect to fiscal stimulus, the case is clear: We need more of it–much more–to lift people, millions of people, out of unemployment, put the economy on a sustained path to recovery and, yes, boost business prospects for your own life insurance and financial services practices.
But don’t take my word for it. The need for government intervention during economic downturns and (as now) weak recoveries have long been touted by experts since John Maynard Keynes, a British economist, first advocated using fiscal tools to counteract the adverse effects of recessions and depressions.
Keynes argued, that “aggregate demand”– the sum of consumer spending, investment and government expenditures–determines the level of economic activity. When the first two are at depressed levels during recessions, then government spending (particularly in the form of public works projects) is needed to restore an economy to full employment.
This lesson of Keynesian economics seems to have fallen on deaf ears of late.
Getting it Right
