…so she says. The solution she proposes on her way out: Try it again.

Dr. Christina Romer’s economic speech today, marking her last speech as an administration official, is an admission that the fiscal stimulus package that she helped craft has failed.

Calling the economic recovery “insufficient”, she noted that a 0.6% drop in the unemployment rate still leaves unemployment unbearably high. “Real GDP is growing, but not fast enough to create the hundreds of thousands of jobs each month that we need to return employment to its pre-crisis levels,” she said.

The Obama administration’s fiscal stimulus was meant to boost aggregate demand and get the economy going again. Estimates of GDP show that the United States is still 6% under its pre-crash trend, and that her plan hasn’t worked as expected.

“The United States still faces a substantial shortfall in aggregate demand… this shortfall in demand, rather than structural changes in the composition of our output… is the fundamental cause of our continued high unemployment,” Romer told the crowd at the National Press Club in Washington, D.C.

Keynesian economics have been tried often and succeeded seldom-to-never. There is no logical underpinning by which they can work — think back to Winston Churchill’s quote about the man sitting in the bucket and lifting himself by the handle.

The merit to the theory is purely psychological. As Romer herself says,

While we’d all like to find the inexpensive, magic bullet to our economic troubles, the truth is, it almost surely doesn’t exist. The only surefire way for policy makers to increase aggregate demand in the short-run is for the government to spend more and tax less.

She got it half right.

We keep falling for this because we have a psychological need for some, as Romer said, “magic bullet.” We want to push one button, pull a sword from a stone, crush the witch under a house, and have everything be all better.

That, and we really aren’t in agreement about what needs to be done to save the economy because we aren’t in agreement about what an “economy” is. If you produce a good or service for your daily bread, you figure it’s your job to create wealth that did not exist before and the “economy” is the sum total of lots of people engaged in that effort. “Economy,” therefore, is an attempt. It is production throughput, hour by hour and day by day.

Other people see it a different way. If you’re someone who works but doesn’t produce anything through that work that didn’t exist before, you’re a non-producer and you’re going to be motivated to see that word differently. You make your living moving cash around, and you’re going to see the word as describing a state of liquidity. Maneuverability.

So if the problem is described thusly: Businesses have capital, businesses want to produce more, but they aren’t hiring because they’d rather figure out how to enhance the output without hiring anybody. Then — to a non-producer, the problem has everything to do with business’ reluctance to hire people, and nothing to do with the output. Get the people hired and the economy is “fixed.”

To a producer, especially one looking for a job, the question is going to be “once I/we/they manage to snag a job, how long is that job gonna last?” We live in a world in which a job isn’t a job if it’s just a temporary allowance to “free” money that’s going to trickle out in a few months when some program comes to an end.

Conclusion — and it is inescapable: The wrong people are in charge. They will not see this as a problem involving producers being obstructed, who require the obstructions to be moved. They earn a sort of “livelihood” that makes it tough for them to catch on to this. When they identify the problem of healing the economy, they think their job becomes one of increasing mobility of the cash, making it more easily moved from one entity to the next. They think that’s the mission.

And when it’s pointed out to them that this hasn’t worked — like, ever — their diagnosis of what was wrong, is that the wrong people were doing it. Now that we have new people who are wonderful, it’ll work and all we have to do is give it another go.

They will not change their minds about this. Ever. They are invulnerable to new evidence.

Coyote Blog (hat tip to Gerard once again):

…I have found a reason to love the Cash for Clunkers program: it is a fabulous demonstration project for just how utterly pointless government stimulus programs can be. Stimulus programs tend to be hard to evaluate in our complex economy — sort of like trying to calculate the effect of a butterfly flapping its wings on world climate. But since cash for clunkers only lasted a few weeks and hit only one industry, we can learn a lot about the effectiveness of government stimulus.
:
The dotted line simply averages the sales for the month of the clunkers program and the month after. I think it is pretty clear that we spent a few billion dollars making some used car owners happy (by overpaying for their vehicles) but did absolutely nothing to move the trend line in auto sales, as the program appears to have just pulled forward purchases rather than stimulated new ones.

Update: I took the liberty of zooming in and accentuating the visual, to really help get the point across.

Now then. Can we please stop arguing about this stuff that doesn’t work. It’s been given a more-than-fair shot, again and again and again and again and again and again. How many more times do we have to keep doing this; at some point you have to wake up and smell the coffee.

We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

— Winston Churchill

Keynesian economic theory, which says the most wonderful thing you can do to the economy in a capitalistic society is pool everybody’s money into a big pot by force and then spend it in some unified effort rather than let folks hang onto their wealth to spend as they please — was disconnected from life support yesterday, time-of-death recorded soon after. It was then wheeled down to the morgue and a tag was placed on its toe. We’re all going to stop arguing about it now. Forever. All the economists who’ve been promoting it for the last three quarters of a century…the ones that are still around, anyway…will be issuing an apology for wasting so much of our time, attention and resources.

At least that’s what would be happening in a sane world. In this one, we learn but we still don’t learn:

The government’s economic stimulus spending has already had its biggest impact and probably won’t contribute to significant growth next year, a top White House adviser said Thursday.

Christina Romer, the chair of President Barack Obama’s Council of Economic Advisers, said the initial jolt of the $787 billion stimulus expanded the economy in the second and third quarters of this year. But she said the remaining spending will simply keep the economy from slipping.

“By mid-2010,” she said, “fiscal stimulus will likely be contributing little to further growth.”

That was it. Yep. That’s all you get.

Down in that morgue, they might very well find out rigor mortis set in generations ago. What’s kept the corpse animated all this time? It’s an aristocrat’s pipe dream, not a commoner’s. That big pot…that coffer full of bills, change and gold bars that has to get spent somewhere. We need someone to make the decisions about where it’s supposed to go. As long as civilizations have stood, those who are well-connected and in command of resources have always wanted to be even better-connected, and in command of even more resources. Keynesian theory never really was a theory; it was a tactic.

Let’s just call this the failure it is, and resolve never to do it again. Face facts; if this sequence of events doesn’t demand that kind of an outcome, nothing’s ever gonna.