When challenger John Bell and Delegate Bob Marshall debated last week (see here), Bell twice cited economist John Maynard Keynes. To prove that President Barack Obama’s profligate spending makes sound economic sense, Bell cited the expertise of Keynes. Unfortunately, I doubt most people either understand or appreciate the sheer stupidity and idiocy of Keynesian Economics.
What is Keynesian Economics? Investopedia puts it this way.
What Does Keynesian Economics Mean?
An economic theory stating that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.Investopedia explains Keynesian Economics
A supporter of Keynesian economics believes it is the government’s job to smooth out the bumps in business cycles. Intervention would come in the form of government spending and tax breaks in order to stimulate the economy, and government spending cuts and tax hikes in good times, in order to curb inflation.
Because they support government intervention, Democrats almost invariably support Keynesian Economics. Conservatives do not. Conservatives understand that in practice Keynesian Economics just gives Liberals one more excuse to increase government spending.
Who was John Maynard Keynes? In a flattering profile written by Robert B. Reich, Time Magazine had this to say.
Yet Keynes’ largest influence came from a convoluted, badly organized and in places nearly incomprehensible tome published in 1936, during the depths of the Great Depression. It was called “The General Theory of Employment, Interest and Money.”
Keynes’ basic idea was simple. In order to keep people fully employed, governments have to run deficits when the economy is slowing. That’s because the private sector won’t invest enough. As their markets become saturated, businesses reduce their investments, setting in motion a dangerous cycle: less investment, fewer jobs, less consumption and even less reason for business to invest. The economy may reach perfect balance, but at a cost of high unemployment and social misery. Better for governments to avoid the pain in the first place by taking up the slack. (from here)
Keynes is the man who provided Liberal spenders an academically credible excuse for deficit spending. Ironically, Reich goes so far in defending Keynesian Economics that he credits World War II, not Franklin D. Roosevelt and the Democratic Party, with ending the Great Depression.
As the Depression wore on, Roosevelt tried public works, farm subsidies and other devices to restart the economy, but he never completely gave up trying to balance the budget. In 1938 the Depression deepened. Reluctantly, F.D.R. embraced the only new idea he hadn’t yet tried, that of the bewildering British “mathematician.” As the President explained in a fireside chat, “We suffer primarily from a failure of consumer demand because of a lack of buying power.” It was therefore up to the government to “create an economic upturn” by making “additions to the purchasing power of the nation.”
Yet not until the U.S. entered World War II did F.D.R. try Keynes’ idea on a scale necessary to pull the nation out of the doldrums — and Roosevelt, of course, had little choice. The big surprise was just how productive America could be when given the chance. Between 1939 and 1944 (the peak of wartime production), the nation’s output almost doubled, and unemployment plummeted — from more than 17% to just over 1%. (from here)
Please note Reich’s curious notion of “productivity.” By 1944 the United States had become a gigantic war machine, productivity then being ultimately defined by the ability to destroy and eradicate entire nations.
Prosperity did not actually return until the end of the war. When World War II ended, America finally emerged from the poverty of the Great Depression and the self denial required to win World War II. With the war’s end, government spending and economic control radically decreased.
After years of poverty and then war, Americans had had enough of government. To the surprise of many, the economy slipped quite easily from war to peace with very little government intervention.
So what did Keynes contribute? Keynes poorly written economic tome provided yet one more excuse for government to spend more money than we pay in taxes. When Democrats want to spend money we don’t have, they simply proclaim the virtues and necessity of Keynesian Economics.
In an earlier post, THE STUPIDITY CYCLE, I bemoaned the expected passage of a stimulus bill. What did that post say? Despite Reich’s claims to the contrary, there is no real consensus among economists about government’s role in the economy. Our politicians cannot explain how a stimulus bill helps the economy. Their theory and their numbers don’t add up.
What that post did not explain is why Keynesian Economics cannot work. What is the problem? Government spending and private spending have distinctly different motivations. Government spending is controlled by politicians. Instead of economic values, political gains motivate government spending. Instead of being central to government spending, profit and economic efficiency are incidental to government spending.
Consider what happens in the private economy. When we spend our own money, we want something of value. So almost every time money changes hands, more value is added of our economy. In fact, to get our hands on a dollar in the private economy, each of us has to work and contribute something somebody else needs. The farmer has to grow a crop. The railroad engineer has to take grain to mill. The trucker has to carry cereal to a grocery store. The grocery store clerk has to stock shelves and sell consumer products. And so forth.
On the other hand, when a conniving politician spends a dollar, the value he wants is influence. To satisfy a politician, government spending has to buy the votes he needs. That is why so much government spending involves entitlements and welfare. This is money given away to buy votes. As important as our votes may be, our votes add little value to our economy. Thus, much of the money government spends is wasted just to buy votes.
Charity, of course, is noble. In fact, it is because charity is too important and too costly we cannot entrust it to elected officials. Such have a conflict of interest that is just too obvious. Thus, when Bell proclaims the virtues of Keynesian Economics, we know he is unqualified for the job he seeks.
