Editor’s Note: by John Tamny, RealClear Markets

The Marshall Plan was an abject economic failure. And that’s not just because Japan rebuilt itself after WWII without one. The more important truth is that central planning of precious resources that always and everywhere fails in good times hardly gains virtue during the bad.

What saved Germany after the war was the influx of human capital from around Europe (source: Reuven Brenner), not to mention all the East Germans escaping the central planning foisted on East Germany by the Soviets. Humans are always an input, while government control is always an economy-sapping cost.

Notable here is that the UK, though the recipient of the most Marshall aid, struggled economically post-war. See its lurch toward socialism on top of the socialism that was the Marshall Plan. Economists believe government spending boosts economic growth, but it’s always a cost because central planning weighs on ingenuity. The post-war failure of the Soviet Union and other countries brought under its control vivify this truth.

Which at the very least helps explain why New Orleans is smaller and poorer after Hurricane Katrina. Figure that its economy was never that big (in modern times, at least) to begin with, only for it to have $140 billion worth of federal spending foisted on it in Hurricane Katrina’s aftermath.

Stop and think about the number. And in thinking about it, imagine the impact with basic knowledge that central planning of resources is always economically harmful. If so, imagine the impact of $140 billion worth. Is it any wonder that New Orleans is worse off?

Despite these obvious truths, there will be resistance. There always is. Keynesianism dies hard, and the idea that substantial influxes of money meant to “rebuild” surely must improve the economic outlook. Except that it doesn’t, and it doesn’t because central planning fails every time for obvious reasons associated with the fact that central planning is the substitution of government knowledge for that of the marketplace.

That’s why foreign aid has never worked not just in countries that were recipients of Marshall Plan aid, but in other countries so unfortunate as to attract federal government funds to the detriment of receiving investor funds. And it’s not just foreign countries.

West Virginia is a monument to federal aid (for sport, check out the number of buildings in the Mountain State with Robert Byrd on them), and in particular the failure of government to improve anything with money. Out west in California, the Golden State thrives despite all the waste care of Sacramento. Stop and imagine how much richer California would be if Sacramento weren’t such a size planner of precious resources.

Which should be the point in contemplating State and Local Taxes (SALT), and federal deduction of same. The latent Keynes inside seemingly every conservative and libertarian causes individuals who would reject Keynes’s thinking in most instances to believe that a SALT deduction or credit amounts to a subsidy of California’s waste. More realistically, it’s an acknowledgement that government spending (central planning) bats 1.000 when it comes to economic harm, so let’s localize the harm of central planning as much as possible by reducing the federal tax bills of taxpayers fleeced locally.

That $140 billion in spending didn’t revive New Orleans is a statement of the obvious, while also a truly sad reminder that bad economic ideas have exponentially more lives than cats. Unknown is how many more cities, states, and countries will have to suffer the truth that contra the GDP altar at which economists worship, government spending (central planning) is a cruel barrier to economic growth.