Why people hate the Wall Street Journal

Because they consistently print opinion pieces that they must know are total nonsense. Jonathan Chait takes down today's piece by Stephen Moore. To add to what Chait says, first the truly crazy part of Moore's article:

The grand pursuit of economics is to overcome scarcity and increase the production of goods and services. Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production.

Mr. Moore: the Soviet Union was a communist, centrally-planned, non-market economy! Keynesian theory is a theory of market economies such as ours. The Keynesian argument says that firms respond to incentives, so when they see customers lining up they increase production in order to get more profits. That obviously wasn't going to happen in the Soviet Union since the central planners didn't really give a rat's a** about customers standing in line. It is equally true that lines of shoppers in the Soviet Union did not cause prices to increase - does this disprove neoclassical economics?

Now the merely ignorant:

Or consider the biggest whopper: Mr. Obama's thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical "multiplier"—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there's a fairy passing out free dollars.

But ignorant in a big way. Moore is basically dusting off the British Treasury view of the 1930s and employing it as if Keynes had not decisively demolished it in the General Theory. Ok, here's the logic. Suppose I decide to spend $10,000 to have a new roof put on my house. That creates a job for the roofer, does it not? Why wouldn't it?

- Well, maybe the roofer was booked solid so that to do my roof he has to cancel a job for another customer. In that case there's no employment effect.

- Or perhaps to buy the roof I had to cancel my plans to buy a car. In that case the roofer's employment is offset by unemployment in the auto industry.

- Or (and this is a little convoluted) perhaps when I took money out of the bank to pay for the roof, that caused the bank to be somewhat short of cash to lend out, so it raised the interest rates on loans and my neighbor who wanted to borrow to buy a car decided it was too expensive; there again unemployment in the auto industry offsets the new job for the roofer.

In a recession, none of those caveats apply. The roofer is not booked solid - he's spending long hours at home waiting for the phone to ring, and my job crowds out his time spent watching Nascar rather than someone else's roof job. I didn't have plans to spend the money on a car; in a recession people hoard money rather than spend it, so the money comes from savings rather than from spending on other goods. The bank didn't have to raise the interest rate on loans because the Federal Reserve is keeping interest rates fixed at near zero; the bank can acquire reserves from the Fed in essentially unlimited quantities to make all the loans it wants to at that rate.

Or as Keynes put it, the resources for the purchase of the roof come from idle savings and idle labor. No fairy is required: with 20 million or so people unemployed or underemployed, there are plenty of free resources to be drawn upon to finance purchases of whatever the government wants to buy. So it should do so.