Why do interest rates drop when Congress spends more?

The most likely reason is that Congressional spending multipliers are less than one, so the real  yield of the economy drops as government spends more.  It is an article of faith among Keynesians that  multipliers must be high because we in the private sector are not spending as much.  I have seen the evidence that Thoma has posted, and multipliers do drop off rapidly and there comes a time when low multipliers require negative stimulus, a reduction in Congressional spending.

Keynesians are in a bind because they want to spend money and can only justify that spending if we suffer some demand shock.   We tested that theory, and oil prices jumped along with oil imports.  We now get less oil because Obama has demonstrated that we use it inefficiently with Keynesian stimulus. That is a real constraint, not psychological.

I also notice that Krugman is back with the bad math, claiming the Taylor rule requires a negative interest rate in a positive definite economy:

Applying the historical Taylor rule right now, with inflation very low and unemployment very high, would mean that the Fed’s main policy rate, the overnight rate at which banks lend reserves to each other, should currently be minus 5 or 6 percent. 

He uses the historical parameters to get that number, so maybe we have the problem right there.  Economists failing to make the same adjustments to inflation that the private sector is making. I suggest that Paul fix the bad math, then redo the numbers and he will find that the good math generates the yield curve we now have, positive definite.

As far as resource constraints what can I say that I have not said before.  We know that we suffer energy shortages, we have looked at that issue from so many angles it is not worth repeating the arguments.  When we suffer an energy constraint, the economy will have lower yields in response to higher spending; unless we increase energy efficiency.