Monday, June 27, 2011

Keynes Schmeynes

Note: the following was my rebuttal to a letter written to my local paper by one Robert Schewior, Ph.D., who took issue with my congresswoman's call to cut government spending in the name of economic growth. Dr. Schewior stated that every Econ 101 student knows - knows - that increasing government spending increases a nation's wealth. Uh huh.

Father of a Thousand Textbooks, All Wrong

Robert Schewior - Ph.D., Economics - wrote a rebuttal last week of Nan Hayworth's call to cut government spending to save our economy. It's a good thing Dr. Schewior told us about his credentials otherwise I'd have to dismiss his argument as tired academic tripe.

No wait, I'm going to do exactly that. His arguments are thoroughly discredited Keynesianism, the sort of nonsense no one takes seriously anymore outside of faculty lounges and the Obama administration. In fact, I went back to college to teach as an Adjunct Professor of Economics (there, slipped in my own credentials!) just to debunk this sort of nonsense, the sort of intellectual gruel that was force fed to me as an undergraduate. This edifice of 20th century economic thought fell to pieces the moment you left campus, but no one seemed to notice.

(Hey, wait, my parents paid good money for that degree! Well, I had a lot of fun, anyway, and I figured out pretty quickly that my economics profs would have trouble running a lemonade stand.)

Dr. Schewior, being a good Keynesian, believes that there's a simple, immutable formula that says the more money the government spends, the higher national income will rise. There's even a multiplier effect! If this were true, I submit that Greece wouldn't need a bailout and the old Soviet Union would have been the richest country on the planet. Hoover and Roosevelt boosted government massively and yet the Great Depression lasted a decade. Japan keeps spending and spending and remains an economic basket case. Even George Bush tried a dose of Keynes in 2001 and 2008 in the form of rebate checks, to no effect. And now Obama has tried one of the most massive Keynesian experiments in human history, the trillion dollar stimulus, and the economy has worsened. Doh!

The ever-dwindling number of Keynesians miss an obvious point: the money has to come from somewhere. The three options are print it, tax it, or borrow it. Printing it causes inflation. Taxing it means the private economy has less to invest and spend. Borrowing it, the most popular option, crowds out private borrowing and creates a liability our children must meet. Any way you slice it, government can't create wealth, and it can't stimulate the economy. "Aggregate demand," as the economists like to say, remains zero.

Actually, less than zero; government spending is a net drag on the economy. Think about it, when was the last time the government allocated money better than the private sector? The Obama stimulus is a great example. All that was stimulated was more government, not any sort of real investment. Government, at all levels, used the trillion dollars to go on a hiring binge, creating even more liabilities down the road in the form of pensions. How many bridges do you see being built? How many roads repaired? Government, remember, is run by politicians, and they never spend money without first considering its vote-buying potential.

Nan Hayworth has it exactly right: we need to decrease the size and scope of government if the economy is to grow again.

Don't let your kids major in economics if you value critical thinking.

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