Dana Milbank of the Washington Post wrote this weekend that critics of Keynesianism are somewhat akin to those who believe the earth is flat. He specifically cites the presumably malignant influence of the Cato Institute.

Keynes was right, and in this case it’s probably for the better: Keynes didn’t live to see the Republicans of 2010 portray him as some sort of Marxist revolutionary. …These men get their economic firepower from conservative think tanks such as the Cato Institute… What’s with the hate for Maynard? Perhaps these Republicans don’t realize that some of their tax-cut proposals are as “Keynesian” as Obama’s program. There’s a fierce dispute about how best to respond to the economic crisis — Tax cuts? Deficit spending? Monetary intervention? — but the argument is largely premised on the Keynesian view that government should somehow boost demand in a recession. …With so much of Keynesian theory universally embraced, Republican denunciation of him has a flat-earth feel to it. …There is an alternative to such “Keynesian experiments,” however. The government could do nothing, and let the human misery continue. By rejecting the “Keynesian playbook,” this is what Republicans are really proposing.

Milbank makes some good points, particularly when noting the hypocrisy of Republicans. Bush’s 2001 tax cuts were largely Keynesian in their design, which is one of the reasons why the economy was sluggish until the supply-side tax cuts were implemented in 2003. Bush pushed through another Keynesian package in 2008, and many GOPers on Capitol Hill often erroneously use Keynesian logic even when talking about good policies such as lower marginal tax rates.

But the thrust of Milbank’s column is wrong. He is wrong in claiming that Keynesian economics works, and he is wrong is claming that it is the only option. Regarding the first point, there is no successful example of Keynesian economics. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Japan in the 1990s. It didn’t work for Bush in 2001 or 2008, and it didn’t work for Obama. The reason, as explained in this video, is that Keynesian economics seeks to transform saving into consumption. But a recession or depression exists when national income is falling. Shifting how some of that income is used does not solve the problem.

This is why free market policies are the best response to an economic downturn. Lower marginal tax rates. Reductions in the burden of government spending. Eliminating needless regulations and red tape. Getting rid of trade barriers. These are the policies that work when the economy is weak. But they’re also desirable policies when the economy is strong. In other words, there is no magic formula for dealing with a downturn. But there are policies that improve the economy’s performance, regardless of short-term economic conditions. Equally important, supporters of economic liberalization also point out that misguided government policies (especially bad monetary policy by the Federal Reserve) almost always are responsible for downturns. And wouldn’t it be better to adopt reforms that prevent downturns rather than engage in futile stimulus schemes once downturns begin?

None of this means that Keynes was a bad economist. Indeed, it’s very important to draw a distinction between Keynes, who was wrong on a couple of things, and today’s Keynesians, who are wrong about almost everything. Keynes, for instance, was an early proponent of the Laffer Curve, writing that, “Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.”

Keynes also seemed to understand the importance of limiting the size of government. He wrote that, “25 percent taxation is about the limit of what is easily borne.” It’s not clear whether he was referring to marginal tax rates or the tax burden as a share of economic output, but in either case it obviously implies an upper limit to the size of government (especially since he did not believe in permanent deficits).

If modern Keynesians had the same insights, government policy today would not be nearly as destructive.

Here’s something else to consider about HHS Secretary Kathleen Sebelius’ threatening letter to health insurers who dare to tell their enrollees about how much ObamaCare is costing them.

Sebelius threatened insurers for claiming ObamaCare will increase premiums by as much as 9 percent. Yet there were no threats issued against the RAND Corporation when it estimated ObamaCare will increase premiums for young adults by an average of 17 percent beginning in 2014, or against Milliman Inc. when it likewise estimated premium increases of 10–30 percent for young adults. The reasons for the disparate treatment are fairly obvious. Sebelius has less power over RAND or Milliman, and bullies always find it easier to pick on the unpopular kid.

But an equally important implication is that Sebelius knows that ObamaCare’s largest premium increases are yet to come. Sebelius may be intimidating insurers now to prevent them from blaming those much larger premium increases on ObamaCare.

In the 2006 and 2008 election cycles, Republican candidates for Congress tried to save their bacon by running against immigration. In 2010, according to the Wall Street Journal this morning, a number of Democrats are trying to save their seats by running against trade. I predict the Democratic tactic will be as fruitless as the Republican effort before it.

Democratic incumbents have been running TV ads accusing their Republican challengers of favoring trade agreements, outsourcing, and tax breaks for U.S. companies that invest abroad. The charges are wrong on substance, as I address at length in my 2009 Cato book Mad about Trade: Why Main Street America Should Embrace Globalization, but running against trade has not proven to be a vote getter, either.

It is difficult to find a presidential or congressional election anywhere that has turned on trade. While most voters have an opinion on trade, the issue tends to rank down the list of top concerns, far behind the economy, jobs, and, in this election cycle, government spending and debt.

Demonizing trade is an especially odd campaign tactic in 2010. The recession of 2008-09 was not caused by trade, but by the bursting of the housing bubble. As the economy slowly recovers, trade has been one of the bright spots, with a healthy increase in exports fueling a revival of the closely watched manufacturing sector, as my Cato colleague Dan Ikenson blogged a few days ago.

Democrats running against trade should remember that the “Clinton economy” of the 1990s that they often speak nostalgically of restoring was built in significant part on the passage of major trade agreements and a robust expansion of trade.

On Friday, I blogged about HHS Secretary Kathleen Sebelius’ letter to the health insurance lobby, in which she attempts to stifle political speech by using the new powers that ObamaCare grants her to threaten health insurance companies that claim ObamaCare’s coverage mandates are one cause behind rising premiums. (Never mind that the insurers’ estimates — which project that ObamaCare will increase premiums in 2011 by as much as 9 percent — are in line with those put forward by HHS.)

Here’s a smattering of reactions from others.

• The Wall Street Journal: “The Health and Human Services secretary…warned that ‘there will be zero tolerance for this type of misinformation and unjustified rate increases.’ Zero tolerance for expressing an opinion, or offering an explanation to policyholders? They’re more subtle than this in Caracas.”
• Chicago Tribune: “President Obama’s health care reform plan, enacted in March, is not terribly popular with the American people…The administration can’t tell the public to stop grousing. It can, however, try to silence health insurers who have the nerve to say out loud what basic economic theory indicates…Apparently, harsh punishment is in store for anyone who refuses to parrot the administration line. But there is every reason to think this alleged libel is true.”
• Tyler Cowen: “Nowhere is it stated that these rate hikes are against the law (even if you think they should be), nor can this ‘misinformation’ be against the law…[The letter] is worse than I had been expecting.”
• Ed Morrissey: “Rarely have we heard a Cabinet official tell Americans to stay out of political debates at the risk of losing their businesses. It points out the danger in having government run industries and holding a position where politicians can actually destroy a business out of spite.”
• Michael Barone: “Sebelius is threatening to put health insurers out of business in a substantial portion of the market if they state that Obamacare is boosting their costs…The threat to use government regulation to destroy or harm someone’s business because they disagree with government officials is thuggery. Like the Obama administration’s transfer of money from Chrysler bondholders to its political allies in the United Auto Workers, it is a form of gangster government.”
• Eugene Volokh: “even if such action would be constitutionally permissible, it would be quite troubling, as would threats that seem to hint as such action: It would involve the Administration’s deliberately trying to suppress criticism of its policies, under a ‘misinformation’ standard that sounds highly subjective and politically contestable. (Consider [Sebelius’] reference ‘to our analysis and those of some industry and academic experts’ — what about the analysis of other industry and academic experts?) Perhaps I’m missing some important context here. But my first reaction is that this is ominous behavior on the Administration’s part, and seems to have both the intent and effect of suppressing criticism of the Administration’s policies — including criticism that simply expresses opinions the Administration dislikes, and makes estimates that it disagrees with, and not just criticism that contains objectively demonstrable ‘misinformation.’ ”

In The Wall Street Journal, economist Russ Roberts recently explained one of the main themes of Friedrich Hayek’s The Road to Serfdom:

When the state has the final say on the economy, the political opposition needs the permission of the state to act, speak, and write. Economic control becomes political control.

One need not agree with all of Hayek’s conclusions to see how ObamaCare is threatening political freedom.

I have a piece in the latest issue of Foreign Service Journal that details the ongoing clash of competing strategic interests among the United States, Pakistan, India, Iran, and other regional powers in Afghanistan . It’s a point I’ve belabored in the past (see here, here, here, and here, for example), yet it remains an understated problem in Washington’s Central and South Asia policy. C’est la vie.

Check it out!

We’re now three weeks away from the new Supreme Court term — I know you’re as excited as I am — and after a summer that included big opinions from The Nine, more confirmation hearings, and front-page district court decisions (on ObamaCare, immigration, and gay marriage), we roll into a fall full of even more legal intrigue. Indeed, the first Monday of October that marks the first high court arguments of the new season is pretty much the first day of school for us Court-watchers. And what better way to go back to school than to attend Cato’s ninth annual Constitution Day symposium this coming Thursday?

But don’t think that Constitution Day marks my re-emergence into the public sphere after a long six weeks slaving away at the Cato Supreme Court Review. No, that moment, when I opened my office door, shook off the cobwebs, and went forward into our glorious future came last week, with panels on ObamaCare and immigration reform at the University of Virginia and Liberty University, respectively. Those two law schools did a wonderful job in organizing and publicizing their events. And here’s the rest of my schedule through the end of October, many of which continue my ObamaCare debate challenge (events sponsored by the Federalist Society are asterisked):

• Sept. 13 at 1pm at Boston University Law School — Preview of the New Supreme Court Term*
• Sept. 14 at noon at Harvard Law School — Debate on the Constitutionality of Obamacare against Prof. Mark Tushnet*
• Sept. 17 at noon at Rayburn House Office Building B‑340 — Capitol Hill Briefing on the Supreme Court and Economic Liberty
• Sept. 20 at 5pm at Loyola University Law School (Chicago) — Panel on the Constitutionality of Obamacare*
• Sept. 21 at noon at Northwestern University Law School (Chicago) — Preview of the New Supreme Court Term*
• Sept. 22 at noon at University of Illinois at Urbana-Champaign — Debate on the Constitutionality of ObamaCare*
• Sept. 25 — George Mason law professor and Cato adjunct scholar Ilya Somin’s wedding — Please do congratulate him!
• Sept. 28 at 12:30 — University of Kansas Law School — Debate on the Constitutionality of ObamaCare*
• Sept. 29 at lunch — Kansas City Federalist Society Lawyers Chapter — ObamaCare and Missouri’s Prop C*
• Sept. 30 at 8:30 — Missouri Bar Association Annual Meeting — Panel on the Supreme Court
• Sept. 30 at 1pm — University of Missouri Law School — The Constitutionality of Obamacare*
• Oct. 4 at 10am — U.S. Supreme Court — First Monday!
• Oct. 5 at 5pm — Widener University Law School (Delaware) — The Constitutionality of Obamacare*
• Oct. 9 at 7pm — Washington Capitals home opener against the New Jersey Devils (I’m a season-ticket holder)
• Oct. 12 at noon — Lewis & Clark University Law School (Portland, OR) — TBD*
• Oct. 12 in the evening — Portland Federalist Society Lawyers Chapter — TBD*
• Oct. 13 at noon — Willamette University Law School — TBD*
• Oct. 16 at 6pm — University of Toronto Schools Centennial Gala (Go Blues!)
• Oct. 19 at noon — University of Southern California Law School (L.A.) — Immigration*
• Oct. 20 at noon — Chapman University Law School — Immigration*
• Oct. 21 at noon — Orange County Federalist Society Lawyers Chapter — TBD*
• Oct. 22 all day — Chapman University Law School Nexus Journal of Law & Policy Symposium — “Citizens Divided on Citizens United: Campaign Finance Reform and the First Amendment”
• Oct. 26 at lunch — Stanford University Law School — TBD*
• Oct. 27 at noon — University of the Pacific Law School (Stockton, CA) — Debate on the Constitutionality of Obamacare*
• Oct. 28 at 12:45 — University of California at Berkeley Law School — Debate on Judicial Activism*

If you come out to any of these events, please do come up and introduce yourself.

I touched a raw nerve with my post about Fidel Castro admitting that the Cuban model is a failure. Matthew Yglesias and Brad DeLong both attacked me. DeLong’s post was nothing more than a link to the Yglesias post with a snarky comment about “why can’t we have better think tanks?” Yglesias, to his credit, tried to explain his objections.

This leads Daniel Mitchell to post the following chart which he deems “a good illustration of the human cost of excessive government.”…this mostly illustrates the difficulty of having a rational conversation with Cato Institute employees about economic policy in the developed world. Cuba is poor, but it’s much richer than Somalia. Is Somalia’s poor performance an illustration of the human costs of inadequate taxation? Or maybe we can act like reasonable people and note that these illustrations of the cost of Communist dictatorship and anarchy have little bearing on the optimal location on the Korea-Sweden axis of mixed economies?

I’m actually not sure what argument Yglesias is making, but I think he assumed I was focusing only on fiscal policy when I commented about Cuba’s failure being “a good illustration of the human cost of excessive government.” At least I think this is what he means, because he then tries to use Somalia as an example of limited government, solely because the government there is so dysfunctional that it is unable to maintain a working tax system.

Regardless of what he’s really trying to say, my post was about the consequences of excessive government, not just the consequences of excessive government spending. I’m not a fan of high taxes and wasteful spending, to be sure, but fiscal policy is only one of many policies that influence economic performance. Indeed, according to both Economic Freedom of the World and Index of Economic Freedom, taxes and spending are only 20 percent of a nation’s grade. So nations such as Sweden and Denmark are ranked very high because the adverse impact of their fiscal policies is more than offset by their very laissez-faire policies in just about all other areas. Likewise, many nations in the developing world have modest fiscal burdens, but their overall scores are low because they get poor grades on variables such as monetary policy, regulation, trade, rule of law, and property rights. This video has more details.

So, yes, Cuba is an example of “the human cost of excessive government.” And so is Somalia.

Sweden and Denmark, meanwhile, are both good and bad examples. Optimists can cite them as great examples of the benefits of laissez-faire markets. Pessimists can cite them as unfortunate examples of bloated public sectors.

P.S. Castro has since tried to recant, claiming he was misquoted. He’s finding out, though, that it’s not easy putting toothpaste back in the tube.