The Wall Street Journal editorial board writes in The Keynesian Dead End:

Like many bad ideas, the current Keynesian revival began under George W. Bush.

Even the Wall Street Journal knows how toxic George W. Bush is, so they start by associating him with Keynesian. No mention is made of Bush's two huge tax cuts (for the wealthy) or the way that Bush and the Republican controlled Congress allowed the PAYGO law to expire, or the way they doubled the national debt in just 8 years. It wasn't until after Bush's Supply Side economic policies failed and the recession started that Bush went along with a mild package of $168 billion in spending and one-time tax rebates.

The cash did produce a statistical blip in GDP growth in mid-2008, but it didn't stop the financial panic and second phase of recession.

As if that mild stimulus package could undo the damage cause by the previous 6 years of Bush and the Republican Congress' bad economic policies. Should one expect it to undo the repeal of Glass–Steagall Act or the Housing Bubble or the Financial crisis of 2007–2010? It is a ridiculous suggestion yet here is the Wall Street Journal suggesting it.

They then move on the Obama's American Recovery and Reinvestment Act.

When Congress was done two months later, in February 2009, the amount was $862 billion. A pair of White House economists famously promised that this spending would keep the unemployment rate below 8%.

This is one of those Republican talking points that is intentionally misleading. What they don't mention is that the unemployment rate in February 2009 was already 8.2%. The economy was sinking so fast that over three million jobs were lost in the last five months of the Bush Administration, pushing the unemployment rate from 6.2% in September 2008 to 8.2% just five months later. Were the Wall Street Journal to mention that fact they would discredit their own talking point.

Seventeen months later, and despite historically easy monetary policy for that entire period, the jobless rate is still 9.7%.

The Wall Street Journal fails to mention that unemployment peaked in Oct 2009, just six months after the passage of the American Recovery and Reinvestment Act. The unemployment rate has fallen .4 percentage points since the peak.

Just to review the numbers that the Wall Street Journal does not mention, in the 3 quarters (9 months) before Obama's Stimulus the economy "grew" -2.7%, -5.4% and -6.4%. (the negative sign means the economy was shrinking). In the three quarters after passing the Obama's Stimulus, the economy improved by 5.7, 2.9, and 3.4 percentage points, a swing of 12 percentage points of GDP growth. Here's the chart:





Quarter GDP rate Change from previous quarter

Q3 2008 -2.7% -4.2

Q4 2008 -5.4% -2.7

Q1 2009 -6.4% -1.0 <-- Bush leaves office, Stimulus passes <br>Q2 2009 -0.7% 5.7

Q3 2009 2.2% 2.9

Q4 2009 5.6% 3.4

Source: Bureau of Economic Analysis



Yesterday, the Bureau of Economic Analysis once again reduced the GDP estimate for first quarter growth, this time to 2.7%

The Wall Street Journal won't show their readers those numbers because the conclusion is that Obamas American Recovery and Reinvestment Act turned the economy around. The Wall Street Journal cannot be accused of not knowing the Bureau of Economic Analysis numbers because they write:

2.7% is higher than the average growth rate in George W. Bush's 8 years.

As the nearby table shows, this is a far cry from the snappy recovery that typically follows a steep recession, most recently in 1983-84 after the Reagan tax cuts.

Notice how they don't mention that Ronald Reagan's tax cut was in 1981? The fact is the unemployment rate increased for nearly two years after Reagan's 1981 tax cut, going from 7.5% in January 1981 to 10.8% in November 1982. It wasn't until January 1983 that the unemployment rate started to fall. The fact is that unemployment peaked six months after Obama's stimulus package was passed versus neatly two years after Reagan's tax cut was passed.

Had the Wall Street Journal printed the full chart, here is what it would have shown:





Quarter GDP rate Change from previous quarter

Q1 1981 8.6% 1.0 <- Carter's last quarter <br>Q2 1981 -3.2% -11.8

Q3 1981 4.9% 8.1

Q4 1981 -4.9% -9.8

Q1 1982 -6.4% -1.5

Q2 1982 2.2% 8.6

Q3 1982 -1.5% -3.7

Q4 1982 0.3% 1.8



The larger lesson here is about policy. The original sin—and it was nearly global—was to revive the Keynesian economic model that had last cracked up in the 1970s, while forgetting the lessons of the long prosperity from 1982 through 2007.

The Wall Street Journal has simply written the first two years of Reagan's policies out of existence. Contrast that economic performance with Obama's record (above).Note also how Obama inherited an economy shrinking at a 6.4% rate while Reagan inherited an economy growing at an 8.6% rate.

Notice how the Wall Street Journal stops history at 2007 the start of the worst economic meltdown since the Great Depression? If George W. Bush's Supply Side economic policies had worked they would not have resulted in an ecoonomic meltdown.

The Reagan and Clinton-Gingrich booms

Clinton-Gingrich!!! Gingrich opposed Clinton's economic policies. Gingrich said that Clinton's budget would cause a recession (it didn't) and not balance the budget (it did). Yet when Clinton's policies work, the Wall Street Journal tries to credit Gingrich who opposed Clinton's policies.

The spending restraint began to end in the late 1990s, sound money vanished earlier this decade

The spending restraint ended when George W. Bush and the Republican Controlled Congress decided bypass PAYGO, then let PAYGO expire, so they could cut taxes (for the wealthy) without offsetting spending cuts and increase spending (Drugs, Iraq) without raising taxes.

Deep down, the Wall Street Journal editorial writers are not completely crazy. They offer this insightful paragraph:

Notice that we aren't saying that spending restraint alone is a miracle economic cure. The spending cuts now in fashion in Europe are essential, but cuts by themselves won't balance annual deficits reaching 10% of GDP. That requires new revenues from faster growth, and there's a danger that the tax increases now sweeping Europe will dampen growth further.

The Wall Street Journal is admitting that the Republican/Tea Party spending cuts won't fix the economy. They admit that "new revenues" are needed. Yet they don't say how. Maybe Santa Clause will bring it.

President Obama's tragic mistake was to blow out the U.S. federal balance sheet on spending that has produced little bang for the buck.

The Wall Street Journal will not admit that George W Bush left a $1.3 trillion budget deficit. They won't admit that Bush and the Republican Congress abandoned PAYGO, ran wars in Iraq and Afghanistan on credit, and doubled the national debt in 8 years. They blame Obama for the mess George W. Bush left. They will not admit that Obama got the economy growing again and producing jobs.

Speaking of jobs, so far this year the number of private sector jobs has increased by nearly a half million (495,000). How does that contrast with the Bush Administration? At the end of the Bush Administration there were 110,961,000 private sector jobs. Four years earlier (Jan 2005) there were 110,718,000 a net increase of 243,000 jobs in four years. The simple fact it more private sector jobs have been added in the first five months this year than in the last four years of the Bush Administration. Somehow the Wall Street Journal has missed that.

With the economy in recession in 2008 and 2009, we argued that some stimulus was justified and an increase in the deficit was understandable and inevitable. However, we also argued that permanent tax cuts aimed at marginal individual and corporate tax rates would have done far more to revive animal spirits, and in our view would have led to a far more robust recovery.

The Wall Street Journal fails to admit that George W Bush tried that an it failed miserably. Now the Wall Street Journal wants more George W Bush economic policies. They won't call them George W Bush economic policies as if readers won't notice.

What the world has now reached instead is a Keynesian dead end.

It is the Wall Street Journal editorial board that has reached the dead end. When the facts don't support their ideology they simply go into denial: pretending that the first two years of the Reagan Administration didn't exists, pretending that "Clinton-Gingrich" existed, pretending that Bush and the Republican Congress didn't abandon PAYGO and intentionally run up the deficit. By ignoring the facts it is the Wall Street Journal editorial board that is admitting they have reached the end.