The Troubling Return of Keynesianism

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DECADES of macroeconomic research suggests that the Federal government's stimulus plan to return the U.S. economy to growth will not work. Indeed, the revival of old-fashioned Keynesianism to fight the recession seems to stem more from political expediency than modern economic theory or historical experience, maintain Ira Brannon, former senior advisor to the Treasury, and Chris Edwards, director of Tax Policy Studies at the Cato Institute, Washington, D.C., in Cato's Tax & Budget Bulletin.

The idea of using fiscal policy to boost the economy during a downturn was championed by John Maynard Keynes in the 1930s. He argued that market economies can get stuck in a deep rut and that only large infusions of government stimulus can revive growth. Keynes posited that high unemployment in the Great Depression was due to "sticky wages" and other market difficulties that prevented the return of …