Say Say Say What You Want

But don't play games with the economy. Writing in today's Journal, George Melloan explains that despite what Hillary Clinton may believe, there is no such thing as a free stimulus (or a free lunch) (free for all):

Keynesianism crashed in the 1970s, when the U.S. suffered slow economic growth and high inflation: "stagflation." There was nothing in Keynesianism to explain this phenomenon. But there was an easy explanation available in classical economics, the simple principles that Ronald Reagan -- who learned at an early age that he had to work to eat -- understood very well. The so-called "supply-side" movement was nothing less or more than a return to these simple principles.

The explanation was this: If a government hampers production through heavy taxes and economic regulation -- or by inflating the currency -- production will slow down and there will be less to consume. To revive production, government must reduce the tax and regulatory burden and kill inflation -- which Reagan did to such good effect. Tossing dollars from planes doesn't do it; neither did Hoover's attempts to help farmers through protectionism, which proved disastrous, nor FDR's unconstitutional scheme to help producers with price-fixing cartels.

Clearly stock markets around the world aren't cheered by all the current talk of stimulus and a further cheapening of the dollar: They know all too well how politicians can convert adversity into catastrophe. Instead, the right policy is to make the Bush tax cuts permanent and pull up regulatory weeds, like Sarbanes-Oxley. Sound money and relief for producers is the best anti-recession prescription. It worked in 1981 because it was good policy. Say's Law is just as valid today as it was 200 years ago.