The Bottom Line: Stimulus plan relies on defunct economic theory

John Maynard Keynes once said, "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist." For someone who rode to the White House with a banner of change and a new way of doing things, one would assume our new president would not be hung up on disproven, outdated theory. However, the reasoning behind the stimulus package which President Obama has been so urgently lobbying for is rooted in none other than the defunct theories of Keynes himself. Not only will this stimulus plan fail to remedy our economy, but it will bring with it detrimental side effects, to boot.

So far, the plan consists of about a trillion dollars in new spending on a vast array of goodies such as tax credits, infrastructure, health care, education and dozens of pet projects, such as a gargantuan $2 billion for FutureGen to build a new power plant - the most expensive earmark in history. This plan contains a diverse mix of economic relief, new spending ventures, immediate spending and long-term spending. The whole rationale behind this enormous spending spree goes to back to Keynesian economic theory which advises a quick, temporary increase in government spending to alleviate economic downturns.

However, it has come to pass that Keynesianism has been tried and failed. Thanks to the discoveries of economists Milton Friedman and Edmund Phelps, we now know that when the government tries to stimulate the economy, it may cause a short-lived reprieve, but in the long run, only results in inflation. The attempt of our government to continuously pump-prime our economy per Keynesian theory led to the stagflation of the 1970s and the subsequent abandonment of its practice. Another drawback to the implementation of Keynesianism is that the use of fiscal policy - that is, the government's power to tax and spend - as an economic tool is now regarded as ineffective. This current stimulus plan best embodies its flaws. Fiscal policy works too slow and is often too late to offer relief when it is most needed. Any proposal must first endure painstaking procedure of getting a bill passed after dealing with the bickering and debating of our Congressmen. Then it must pass through a vast web of bureaucracy to be executed. In fact, the Congressional Budget Office estimates that only 21 percent of the stimulus package will actually be spent by next year. Too little, too late.

While it cannot herald immediate recovery, what this enormous spending proposal can bring us is even more debt at a time when we are already deep in the red. The fact that all the new spending programs it calls for have no sunset brings into question of how long this short-term relief will last. It is just as Milton Friedman said: "There is nothing so permanent as a temporary government problem." We are still stuck with spending programs from the New Deal that now threaten to drown us in debt. This proposal holds the potential to irreversibly increase the size and scope of our government. The parts of the bill that actually focus on the immediate future - the tax credits - probably won't do much to help us out anyway. The government expects us to take the money we receive and spend it, thus promoting growth. However, as Milton Friedman also showed, people's consumption is affected only by permanent changes in their income. Therefore, one could expect that the taxpayers will not spend more but probably be saved or used to pay off debt (just as they did with their last stimulus checks), neither of which garners substantial relief.

The reality is that there are really few things the government can do to help in a recession. The economy always has experienced downturns and always has bounced back. If our public servants are serious about providing real short-term aid and promoting long-run growth, they should propose permanent cuts in our tax rates. Christina Romer, Obama's own economic adviser, showed that while every dollar of increased government spending increases GDP by $1.40, every dollar saved from a tax cut increases GDP by $3. Such a permanent increase in the income of Americans could prompt them to increase their consumption and, accordingly, alleviate our current predicament. To minimize damage and escape future tribulations, our leaders should choose the long-term over the immediate and what is right over what may be convenient.