Keynesianism is just an ideology to hide corruption and political patronage

From The Economist 
http://www.economist.com/debate/days/view/283

It used to be the case that most economists agreed on the major policy issues. This consensus was built through a long accumulation of empirical evidence. While any individual contribution can be criticised, it is more difficult to refute a large number all showing the same results. The force of evidence, for example, had convinced the vast majority of economists that fiscal policy was too slow and inefficient to be used in a countercyclical way. This consensus is so old and well-established that it was reflected even in my undergraduate courses when I took them in Italy more than 25 years ago.

So what has happened now? Why, all of a sudden do well-respected economists, like my opponent, advocate policies that have little or no empirical support? Why do they invoke interventions they cannot justify on economic principles? Why do they claim we should all be Keynesians?

This reaction is not just the result of compassion for the extreme situation we are in right now. Nobody disputes that unemployment subsidies and food stamps should be used massively to alleviate the enormous pain and suffering an increasing number of Americans are experiencing. So the question is not whether to pay idle workers (we pay them anyway), but whether to support them with an unemployment subsidy or to pay them to dig useless holes in the ground and then pay them to cover them up. Unless the project they work on is really valuable, the second strategy seems really silly. Not only are we wasting shovels and trucks in useless projects, but we are also wasting the most valuable resource: human time. While it is terrible to be unemployed, it is still preferable to the status of forced labour. But isn't it exactly what Keynesians want?

Of course, there are plenty of valuable projects the government can invest in. With over-congested roads and non-existent public transportation systems, it is not hard to identify a valuable use of public money. But these projects should be argued on their own merits, not as a stimulus. If the government were careful to undertake a cost and benefit analysis of all its projects, their realisation would naturally be countercyclical. When unemployment is high and the cost of raw material is low, a lot of expensive public projects would immediately become very appealing, especially if we incorporate, as we should, that the government's additional cost of employing an unemployed worker is close to zero.

Unfortunately, the Obama administration's stimulus package has very little cost and benefit analysis. It was a rush to sneak in the most wasteful projects. In fact, once you buy into the Keynesian logic, it is optimal for a politician to sneak into a stimulus package the most useless projects. The useful ones will be approved anyway. The stimulus justification becomes the best way to sell the unsellable. And since they are by choice the most unlikely projects, they are also the ones less ready and less likely to be implemented any time soon.

Even worse, when the stimulus idea removes the budget constraint, it is harder to contain the lobbying pressures. I come from a country where at every recession the government ends up subsidising the national car company. I thought this was corrupt, but unique to Italy. Unfortunately, I am learning this is true in the United States too. The only difference is which the most politically powerful companies are. Is this good Keynesian policy or corrupt policy? I would vote for the latter. Keynesianism is just a convenient ideology to hide corruption and political patronage.

To be fair, this is not just a problem of the Democratic party. As Brad DeLong says, the Republicans, who now want to portray themselves as the major defender of fiscal conservatism, were happy to spend and run large budget deficits when they were in power. That Republicans have committed the same crime does not make it less of a crime. Politicians like to spend others' people money when they get to spend it, not when their opponents spend it. They oppose their opponents running a deficit not out of concern for future generations, but out of mere self-interest: their opponents' deficits reduce the amount of money they will be able to spend when they eventually return to power. The most pernicious aspect of Keynesianism is that it provides a moral justification for the party in power to spend our money. That is the reason why we should not be Keynesians now or, for that matter, at any other time.

Full text can be found here