One reason we have so few ideas about job creation is that up until recently, the U.S. economy had been growing so well for so long that few economists spent much time studying it. (They’re trying to make up for it now. See the chart on the next page.) With no new theories, Democrats dusted off the big idea from the Great Depression, John Maynard Keynes’s view that government can create jobs by spending a lot of money. The stimulus, however, has to be borrowed, and it has to be really, truly huge — probably something like $1.5 or $2 trillion — to fill the gap between where the economy is and where it would be if everyone was spending at pre-recession levels. The goal is to goad consumers into spending again. And President Obama’s jettisoned $400 billion jobs package, hard-core Keynesians argue, is nowhere near what it would take to persuade them.
Many Republicans follow the more fiscally conservative University of Chicago School, which argues that Keynesian stimulus can’t heal a sick economy — only time can. Chicagoans believe that economies can only truly recover on their own and that policy interventions only slow the recovery. It’s a puzzle of modern politics that Republicans have had electoral success with a policy that fundamentally asserts there is nothing the government can do to create jobs any time soon.
This is actually a pretty good explanation of the big policy differences between the two camps.
I would also add that there is a big difference in the way both camps perceive government, with the Keynseans believing government can do some good things whereas the Chicago school seems to be hostile to the government in general.