We heard from President Bush (GOP) and from President Obama (DEM) that the government must spend more to make up for the drop in our spending that started in 2008; this will get the enervated economy going again. This is named: “Keynesianism” after the clever mountebank who sold it to the British government a bit before the Great Depression. They made him a Lord in gratitude; previous economists had been preaching against government involvement.
Right; suppose Farmer John’s cornfields support the little town of which Clever Clarence is (part time) Mayor. John has a crop failure from a drought year and everybody’s hurting.
Clarence says he will save them all. He will have the town spend more, making up for John’s shortfall and the local economy will come back to even again. John doesn’t understand much but farming and he knows people are hurting — his family is eating next year’s seed corn to avoid starving — so he agrees.
Clever Clarence then raises taxes, to acquire the extra money for the extra spending. He hires a new clerk to keep track of the new spending. He has created a job. The new spending fills in the spending gap left by John. But …things don’t get better.
The new taxes go into the economy at the expense of John, who pays them from funds already depleted by drought. He might have used those funds to put in a new well for more water, but the government has taken them. He, and ultimately the town that depends on his farm, are worse off than before after the new money is spent. Keynesians talk a great game but in the real world of finance, we still can’t get something from nothing. Keynesianism is a political racket, a grift, a scam. Snake oil. Back during the Great Depression, when it didn’t work either, they called it: “Priming the pump.”
Some will insist that when the Fed helps the U.S. government spend more by printing new money, that makes it different. That claim should be spread over Farmer John’s corn, it’s as good as what the bull produces. Fed printing dilutes existing money, reducing its purchasing power; we call it ‘inflation.’ Maybe you’ve noted the price of groceries and gasoline lately?
Economics for, not ‘Dummies’ but for realists. Politicians are realists … about politics. They hire economists to bamboozle us about economics. Which is why as a taxpayer, you now owe over $150,000 plus interest as your share of the debt the pols have run up, spending money they don’ have that you therefore, owe. And we keep reelecting them …