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Ed Driscoll

Keynesian Economics and ‘The Miracle of the 1940s’

February 18th, 2011 - 10:58 am

Megan McArdle explores “The Political Failure of Keynesian Economics:”

Last August I asked a question:  ”What if Keynesian stimulus works, but no one can ever actually afford to do it, short of something like World War II, where the government can tap into a patriotic outpouring of national savings by issuing bonds with negative real yields.”

When people like Paul Krugman say that almost $900 billion in stimulus didn’t work because it wasn’t big enough, you have to wonder if an adequate Keynesian stimulus is even possible.

Hey, as far as Keynesianism that’s “short of something like World War II,” Krugman’s reply would be why stop short? Go for the gusto! Go for “the miracle of the 1940s,” the euphemism for the bloodiest conflict in man’s history that Krugman deployed last year, which would make even Dr. Strangelove blush.*

In response, James Taranto noted at the time:

Former Enron adviser Paul Krugman, writing in the New York Times, steps into the WABAC machine and guides us through some truly improbable history:

Here’s the situation: The U.S. economy has been crippled by a financial crisis. The president’s policies have limited the damage, but they were too cautious, and unemployment remains disastrously high. More action is clearly needed. Yet the public has soured on government activism, and seems poised to deal Democrats a severe defeat in the midterm elections.

The president in question is Franklin Delano Roosevelt; the year is 1938. Within a few years, of course, the Great Depression was over. But it’s both instructive and discouraging to look at the state of America circa 1938–instructive because the nature of the recovery that followed refutes the arguments dominating today’s public debate, discouraging because it’s hard to see anything like the miracle of the 1940s happening again.

What Krugman calls “the miracle of the 1940s” is more commonly known as World War II, a ruinous conflict that cost some 60 million lives, including more than 400,000 American ones, and that entailed the near-extermination of Europe’s Jewish population.

World War II is sometimes called a “good war,” meaning that few dispute American intervention was necessary or that we fought on the right side. But this easy moral clarity is possible only because the Axis actions that started the war were unambiguously evil.

In April 2009 we noted that David Leonhardt, a Krugman colleague at the Times, had praised the economic policies of Germany’s National Socialist Party. Now Krugman calls World War II itself a “miracle.” The Old Gray Lady is in the grips of utter madness.

But this is all academic anyhow, as Jay Carney,the White House’s new press secretary told reporters yesterday that the White House’s stimulus goals “have been met,” as this video at Real Clear Politics, umm, highlights:

White House press secretary Jay Carney says the Recovery Act added several million jobs and lowered the unemployment rate. According to Carney, the “goals” of the stimulus package “have been met.”

A reporter asked Carney why unemployment is at 9% and not 7%, the percentage projected if the stimulus worked. Carney dismissed the question. “We’ve said repeatedly that we don’t want to relitigate the battles of the past,” Carney told the reporter.

If that’s success, I’d hate to see what they would consider failure.

And speaking of failed economics, Jeff Jacoby had a great article in the October issue of Commentary on “What public-sector unions have wrought,” which nicely sets up much of the backstory for the debacle in Wisconsin this week, if you’re hiding out at the Tilted Kilt with a few minutes to spare.

* Genghis Khan would probably OK with the phrase, provided the resulting carnage reduced global warming.

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