One Reason Why Keynesian Stimuli Aren't Working: They Aren't Keynesian

In The Washington Times, businessman Mike Whalen (who's associated the free-market think tank NCPA) writes up an interesting take on why various federal stimulus program have tanked like the Titanic (while causing few ripples on the way down).

His points are worth thinking about. 

According to the Keynesians, the remedy for today’s economic problem is for the federal government, as the single biggest actor, to “prime the pump.” As government money starts to ripple through the economy, consumers and businesses will be encouraged and cautiously respond with limited increases of their own. Vroom! The economic engine steadily revs up in billions of responsive steps until happy days are here again. This pump-priming reaction is termed the “multiplier effect.”

There are many reasons to doubt that the multiplier exists at all and if it does, it certainly isn't at the levels the Obama administration has claimed. As Reason's economics columnist Veronique de Rugy has pointed out, the administration claimed that one dollar of government spending would create as much as four dollars in economic activity while other economists were coming in with multipliers of between 0.8 and 1.2, meaning that each dollar of government spending might yield just 80 cents to $1.20 in activity. Even if accurate, that buck-twenty is nothing to write home about, especially given the fact that government spending has to be pulled out of some other part of the economy via current or future taxes or borrowing. Which casts huge doubt on the possibility of any stimulus to work.

But Whalen isn't simply dumping on Keynesianism, he's bent on pointing out that even its latter-day adherents are straying far from their master's theory. And in this, he's surely correct. As Allen Meltzer has argued, Keynes was against the very sort of large structural deficits that characterize contemporary federal budgets and policy, believing instead that deficits should be "temporary and self-liquidating." And Keynes believed that any sort of counter-cyclical spending by government should be directed toward increasing private investment, not simply spending current and future tax dollars on public works projects.

Or, to put it another way: If the federal government had a strong track record of responsible spending, it would mean one thing if it went into hock for a short period of time to goose the economy (again, whether this would work is open to question). It means something totally different when a government that spent all of the 21st century piling on debt and new, long-term entitlement programs responds to an economic downturn first by creating yet another gargantuan entitlement (Obamacare) and taking on even more debt in the here-and-now. This cuts in a Milton Friedmanesque, monetarist direction too. If the Federal Reserve had not been keeping money artificially cheap for the past couple of decades and it worked to lower interest rates and increase the availability of money in a given moment, that would mean one thing. Promising to keep rates low for the next couple of years - after years of loose money and statements that all those bubbles weren't bubbles at all  - doesn't mean the same thing.

Whalen again:

I think John Maynard Keynes would be horrified at the slavish adherence to this simplistic strategy by so many policymakers and economic thinkers, as his theory was much more complex. This thinking might be correct under circumstances other than those in which we find ourselves. If the ratio of our national debt to gross domestic product was low - say 25 percent - and the federal government had run surpluses before the downturn, this college freshman-level Keynesian analysis would have great weight. Put another way, if Uncle Sam were a rock-solid financial entity with low debt to value and he had judiciously used debt for capital improvements that were accretive in value, as the biggest dog on the porch, a stimulus might work.

But with a national debt of more than $14 trillion and unfunded, future “off the books” debt of Social Security and Medicare combined at $104 trillion in present value, according to the Dallas Federal Reserve, Uncle Sam ain’t the man he used to be. This in turn makes American businesses that are sitting on a pile of cash focus on deleveraging. The American consumer is doing the same. In fact, from where I sit, it appears as though everyone except Uncle Sam is working like mad to strengthen his balance sheets. The legitimate fear across the country is that Washington’s refusal to join our common-sense parade will result in higher taxes, more regulations, more inflation and Japanese-style stagflation. In other words, Washington’s attempts at stimulus through spending are having the opposite effect. Businesses and consumers stay hunkered down.

If the federal government announced a real road map to fiscal soundness, the impact would be truly stimulating. If American businesses and consumers saw that Washington was really cutting, not just reducing future increases, there would be tremendous relief and an increase in confidence across the country. Job creators would sing “hallelujah”; they would get off their wallets, start hiring, and then you’d see that Keynesian multiplier kick in.

Except, of course, that it wouldn't be Keynesian at all. Which I don't think anyone would care about.

Read the whole piece here.

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  • ||

    There are many reasons to doubt that the multiplier exists at all

    ____________________

    Like the fact that we spent $800 billion on the stimulus that didn't stimulate?

  • some guy||

    Poppycock! The multiplier effect absolutely exists. The problem is that the multiplicative factor is less than one (1).

  • Paul Krugman||

    Oooh that's not going to work with some of my proposals......so you're wrong!

  • ||

    The multiplicative factor is far less than 1 once government spending exceeds about 17% GDP.

    http://hotair.com/archives/201.....overnment/

  • ||

    Even if the multiplier existed theoretically, it would be eaten up the cost of government delivery of dollars (the "carrying" cost the government charges by it's employee's, red tape, monitoring, etc.).

  • ||

    Yes.

    The drag any government has on its economy is equal to the NPV of expenditures minus transfer payments.

  • ||

    the $800 Billion Stimulus pork, stimulated lots of things, for one the national debt. high gas prices, increased food prices and other goods and commodities and more unemployment(that right Obama is trying to send people into dependency, trying to make hopelessness, you cant be a man of hope unless you have the hopeless.. his calculation is, the more hopeless that he makes the more voters he will have)

  • ||

    If everything was perfect, Keynesism would work!

    All we have to do now is wait for everything to be perfect.

  • Tony||

    Typical utopian thinking.

  • fish||

    I think John Maynard Keynes would be horrified at the slavish adherence to this simplistic strategy by so many policymakers and economic thinkers, as his theory was much more complex.

    Yeah but would he be surprised that it would be deployed incompletely (spend furiously when things are bad...never pay down accruals when times are flush) by politicians and economic charlatans like Krugman?

  • ||

    They aren't slavishly adhering to any economic philosophy. They're using Keynes as an excuse to justify their right to take our money and spend it on things they want to spend it on. Like buying or paying off friends.

  • ||

    This is so true and the real thing that is hapopening. Lord Keynes wouild be appaled at this and would definitly fight back. (I hope)

  • k2000k||

    "This just in, Keynes reanimated to give his views on the current stimulus plan announced by the President!" Reporter with stupid hair, "Mr. Keynes, what do you think the government should do to prevent the economy from going back into recession."

    Zombie Keynes, "The actions taken by the governments of the world since my passing has convinced me that government stimulus cannot be administered to be properly sufficent so as to rebound the economy and keep the monetary flow continuning unabrupted as the actions of the administrators all too often poorly diverts the funds to ends that are not productive. Rather, at this point in time the proper action to be taken by world governments would be to allow entrepenaurs an easier time to generate captial."
    Reporter with stupid hair, "So uh...what your saying is...I mean it sounds a lot like Austrian economics."
    Zombie Keynes hands a twenty to Zombie Hayek, "Yes."

  • ||

    Ding ding ding ding ding!!!!!!

    Folks, we have a winner!!!

  • creech||

    I'd say Obama was practicing "voodoo economics" but that would probably be racist.

  • O2||

    why? bcause of the KGC heritage?

  • fish||

    What's Kentucky Grilled Chicken have to do with this?

  • O2||

    liburahls used to be nazi eugenicists

  • fish||

    ...used to be?

  • O2||

    i hate illinois nazis

  • mad libertarian guy||

    Now they're just malthusian gaia worshippers who would rather just kill everyone outright than force the "wrong" people to breed less..

    See Indian, White.

  • fish||

    Well now you've gone and done it....

  • NotSure||

    It is clear to almost everyone that governments spend when times are good and when times are bad. The standard leftwinger who supports Keynesian spending does not so because of the theories of aggregate demand, they do it simply because they support government spending no matter what the scenario.

  • ||

    Exactly! Keynes is an excuse, not a method.

  • ||

    not true. I'm what you would call a leftwinger (but not hard core left), however I strongly believe in limitations of government spending during periods of economic prosperity.
    I also believe in balanced budgets, but only when unemployment is lower than a threshold (a threshold that would be determined by those smarter than, but lets say around 6%).
    Finally, I believe that war should not be waged without a specific war tax to support it. If you're going to go off and spend billions in a country, you should know how you are going to afford it.

  • Apogee||

    You're not a standard leftwinger then.

  • ||

    You'd be the only one.

  • Thomas||

    You are a standard liberal, don't let these conservatives tell you otherwise. The typical right-winger in America is awful at math and history.

  • hmm ||

    So basically the theory is more complicated than its political supporters make it out to be and the entire theory is based on the whopper of the assumption that government and elected officials will not act in their own best interest.

    Well that right there is just fuckin' shocking.

  • ||

    Speaking of which, Obama is going to call for another $300 billion in, uh, something, just not "stimulus." It's all about the messaging, you know.

  • NotSure||

    At least he is not asking for 3 trillion, in fact the 300 billion almost looks like he is embracing austerity.

  • fish||

    At least he is not asking for 3 trillion....

    Wait till next July when his moribund poll numbers and faltering re-election campaign demand bold action.......he'll be back for the remaining 2.7 trillion. Somewhere Paul Krugman will be naked and fully turgid and already writing an article on "Why it simply wasn't enough"!

  • Jeffersonian||

    Reminds me of a verse to a rugby tune we used to sing:

    The village economist, he was there
    Penis in his hand!
    Waiting for the moment
    When supply would reach demand...

  • ||

    Get the printing presses warmed up.

    We printing bond certificates or straight dollars today boss?

  • ||

    No way the House signs up for this. And when the Democrats try to play the "Republican Obstructionism Card", the GOP will easily trump that card with the "Been There, Done That Card."

  • ||

    Report today is that part of the "plan" is to cut the employer side of payroll taxes. The Repubs might sign up for that, I suppose, but of course it is a bait and switch. All of these will be "paid for" by raising taxes on the "rich" in the out years. Funny how all Obama roads lead to that same destination.

  • twenty-something||

    At this point, I'm all for raising income taxes to Clinton era levels if it will get the Democrats to compromise on spending cuts. It will hurt the economy but not as much as a 1.5 trillion dollar a year deficit.

    Of course, for the Democrats to agree to cut 1.5 trillion from the budget, you'd probably have to raise taxes to 70% or some other ridiculous amount. I wouldn't be surprised if they tried for a 100% tax on incomes over 250,000...didn't FDR try that once?

  • WTF||

    Barabara Eden was hot. That is all.

  • fish||

    Tragic though...born without a navel!

  • T||

    You know, now that the alt-text brought up her bottle apartment, there wasn't a bathroom in the bottle. So I take it this means genies don't poop?

  • O2||

    genies poop flowers...& gold !

  • fish||

    That's why I scour the beach for the Genie Bottle every time I go out in my spacesuit!

  • ||

    How would you know that there wasn't a bathroom in the bottle apartment? There was no evidence of any bathrooms in any television dwelling until the Bunker house in All in the Family.

  • ||

    And then you only heard that there was one.

  • T||

    It was a round room surrounded with couches, Isaac. Where the hell was the shitter gonna be? Under a couch cushion?

  • ||

    Hey, she's magic. All she has to do is nod her head and an invisible door opens.

    Besides, where/s the crapper in all the other TV show dwellings? No sign of one, anywhere, zip, nada. :)

  • Fist of Etiquette||

    Everyone knows that I Dream of Jeannie was just Hollyweird's way of laying the groundwork for America's adoption of Sharia Law.

  • fish||

    Damn those crafty bastards!

  • Bill||

    No link???

  • WTF||

    Okay, here's a link.

  • Jeffersonian||

    Hubba, hubba.

  • Barely Suppressed Rage||

    Beat me to it. Barbara Eden was totally, smokin' hot. And she remained so well into her later years. Last pic I've seen of her showed her in her 60s and she still looked damn good.

    I always had the hots for her, particularly in that sheer, slinky little genie outfit.

  • Mainer||

    She's the answer to the age old question: Ginger or Maryann ?

    Genie !

  • hmm ||

    This idea is far from new. Hayek pointed it out years ago.

    http://www.youtube.com/watch?v=VqU-AZh-wqU

  • hmm ||

    Full interview -

    http://www.vimeo.com/4063439

  • ||

    Is everything perfect yet?

  • hmm ||

  • Tony||

    You mean we should raise taxes on the rich to pay for some of the stimulative spending? Or stop electing Republicans who bust the budget in good times?

  • shorter Tony||

    derp

  • NotSure||

    No, there should not be "stimulative" spending in the first place.

    One thing most people have forgotten was that in 2008 in Germany, Merkel was one of the few leaders who resisted the big stimulus funds other panicky politicians were passing (even being lectured by your supposed genius about the error of her ways). Germany clearly is no worse off without the mega stimulus.

    What the economy is to be able to purge the distortions and unviable industries, you can throw all the money you have got into things like the US post office, it will still not fix the reality that these things need to finally listen to the market signals, that something is wrong.

  • Tony||

    Germany's austerity measures are threatening to take Europe down, and the planet along with it. To the extent that Germans aren't suffering as much as people in other countries, it's a result of its strong social safety net. See? Spending works to keep people stable. What you're proposing is making regular people suffer for macro economic conditions they didn't have anything to do with, while, undoubtedly, not asking a single "austerity" measure from the corporate world or the wealthy.

    We can save money by ridding ourself of the post office, sure. We could save a lot more by getting rid of the defense department. Take away government largess there and see what "market signals" suggest we should keep around. Or maybe government services exist precisely because the market wouldn't sustain them alone.

  • NotSure||

    Pure crap, it is the economies of Greece, Italy, Spain etc. that are bringing it down, Germany is the one that is supposed to bail them out. Know your facts before you prove your utter ignorance to everyone. The normal people are the ones who have to pay for the stimulus in the first place moron, are you really that stupid ?

    Believe it or not, you can send letters without a post office ! The fact is that people do not need the post office anymore this is not market failure, this is a fact of technological progress making people not using it anymore.

  • Tony||

    Germany being in the position of bailing out weaker countries speaks to the success of austerity policy?

    Perhaps the post office could be done away with. But I don't think that should be because it was forced by blindly swinging a sledgehammer at the US budget, but because the overall situation was carefully studied for the purpose of modernizing the system.

  • fish||

    Atta boy...when all else fails misdirect!

  • ||

    Tony, by definition, "modernizing the systeme" means extinction for the USPS.

  • NotSure||

    The countries that are in dire straights all had much worser forms of socialist governments. Spain would probably be closest to the ideals that you want governments to implement. Greece is simply a cesspool of corruption, the politicians openly campaign on the "people before profits" slogan, and win.

    Germany did not do the stimulus and is fine. Iceland did not bailout its loser banks, and is also fine. So yes austerity works, stimulus fails.

  • Jeffersonian||

    What a stupid fuck you are.

  • ||

    Tony, are you sure it's not the rest of Europe's profligacy that's threatening to take Europe down, and that Germany might be the sensible one for refusing to be dragged down with it and the rest of the planet?

  • Red Rocks Rockin||

    Germany's austerity measures are threatening to take Europe down, and the planet along with it.

    Horseshit. The poor financial policies of the rest of Europe are threatening to take Europe down. Germans are simply not in the mood to encourage bad behavior.

  • ||

    I for one welcome the 4th Reich and our technologically superior, German cyborg overlords.

  • ||

    Dance sockpuppet, dance!!

  • ||

  • ||

    Yeah, no. That's not what this article is about, but congratulations on taking something as simple as don't spend when you've already overspent and turning it into one of your retarded ass talking points.

  • Mainer||

    "retarded-ass" talking points
    or
    retarded "ass-talking" points.

    works either way.

  • fish||

    Nope...no need to raise taxes on the rich....the money just goes to the government where it is wasted.

    Spend less Tony....spend less! The economy is going to suck either way but if we take our medicine now we might be able to keep one or two of the programs you hold so dear!

  • Tony||

    Are you suggesting that it's being put to productive use in the hands of the richest 500 people in America--who have more money than the bottom 150 million Americans?

    They must have earned it. That's proved by the fact that they have it.

  • fish||

    Tony if you can prove (or even suggest) that they came by it illegally than I suggest you dash a note off to Attorney General Place Holder and let him know. Other than that whether it's productive or not isn't your concern. The fact that you want it is insufficient.

  • Tony||

    So they rig the game in their favor, i.e., change laws, then say "look, I earned it, it's legal!"

  • Politicians||

    So long as we stay bought and the commerce clause stretches far enough!

  • fish||

    Which "rich" person changed the laws? Wait...that would be government that changed the laws wouldn't it? Again, If you think you can identify any ill gotten gains (c'mon lefty....even I know that this is the one area where your argument is valid...that the law as written allows this sort of bad behavior) this is where you should focus your efforts. Simply employing your same rhetorical tactic of desperately wanting to do good is not going to work. The "rich" are already three steps ahead of you and with the mobility of money you'll never catch them!

  • Tony||

    There is far too much influence of money on government, yes. It's the heart of most of our problems as a country.

    Libertarians' entire purpose for existing is to justify the ownership of government by wealthy elite, so thanks for all you've done.

  • fish||

    Libertarians' entire purpose for existing is to justify the ownership of government by wealthy elite, so thanks for all you've done.

    Yep...the Top Hat and Monocle squad wins again. You really shouldn't use your Republican argument on libertarians....it makes you look....less credible.

  • Tony||

    You guys should stop adopting every single bullshit Republican economic policy that comes along if you don't want to be confused with them.

  • fish||

    Again Tony weak sauce.....most of the regulars here would halve the DOD budget (Republican Pron) along with the majority of the useless social programs. I suppose you can keep Medicare and SS (Democrat Pron) until they collapse of their own weight. But you'll have to do better than using "You guys are really just Republicans in drag" as an argument without some evidence.

  • ||

    "Libertarians' entire purpose for existing is to justify the ownership of government by wealthy elite".

    Yes, Tony, my life's raison d'etre is crusading for the continued existence and expansion of the state.

  • Metazoan||

    Except in a libertarian world, money wouldn't have nearly the influence that it does now. Regulations = tools for the wealthy.

  • Untermensch||

    Libertarians' entire purpose for existing is to justify the ownership of government by wealthy elite, so thanks for all you've done.

    Even you know that is a load of manure, Tony. Even a cursory reading of Reason will show that libertarians are opposed to rent seeking and capture of government by business. I think most people here are bothered by the fact that GE, for example, can manipulate policies in its own favor to the disadvantage of competitors and enrich itself off the public teat. Your caricaturization of libertarianism is as weak as if I said that you liberals have the goal of wanting everyone to be on food stamps…

  • ||

    I'm confused by you Tony. At once you say we are completely ineffectual babies and simultaneously say it's our fault that the government is controlled by the wealthy elite. Which is it?

    Oh and all those rich Democrats sitting comfy on Capital Hill and 1600 Pennsylvania Ave. can be the first ones to line up and pay their fair share. Especially considering how many cabinet members owed massive back taxes.

    What's that? Only the rich people who don't agree with you should pay their fair share?

    Fuck you.

  • GeoffB||

    Your first paragraph, at least, is right on target. And unfortunately, Mr. Keynes' arguments for government controlling the economy at the macro level are a big part of what has brought this about: Once you give the government that much financial leverage and the taxing and spending powers are no longer to be used solely for spending purposes, there's going to be way too much money tied in with government.

    However, the ownership of the government by the wealthy elite is not something brought about by libertarians; it's brought about because, as Willie Sutton observed, that's where the money is.

  • ||

    And the funny thing is that it's Tony's buds that passed all those laws that fixed it for the rent seekers.

    Of course, none of them ever said they were handing out umpteen gazillion dollar subsidies to their cronies for their own benefit. No, it's always to create jobzzz....for the workerzzzz...and the childrenzzzz.

    Republicans, to their great discredit, seem all too often to go along as midwives to this legislation, but the parentage of practically all corporate welfare is solidly Democratic.

  • Tony||

    It is breathtaking how you guys just hand-wave away the entire past few decades of Republicans securing corporate influence over policy. Like somehow unions are more politically influential than corporations.

  • NotSure||

    So corporations are not spending more money on democrats, the evidence points otherwise.

  • Tony||

    They've been buying the Dems too. It was the Republicans who turned flagrant pay-for-play into a political philosophy and thus govern as if it's a good thing, though.

  • fish||

    On this I concur. Of course when you had both houses and the executive and were basking in the glow of victory correcting these problems wasn't really pressing.

  • Red Rocks Rockin||

    It is breathtaking how you guys just hand-wave away the entire past few decades of Republicans securing corporate influence over policy.

    As we all know, the Republicans have been in charge of every major government organ the past 30 years--that's why government has shrunk and spending has gone down every year since Reagan!

  • Tony||

    What makes you think Republicans are for less spending or shrinking government?

  • fish||

    Again...this isn't a republican site. You do know where you are don't you?

  • Red Rocks Rockin||

    What makes you think Republicans are for less spending or shrinking government?

    What makes you think the Democrats are for less corporate influence over public policy?

  • ||

    Tony, you bulshit your friends and I'll bullshit mine but let's not bullshit each other.

    The pinhead voters might believe the lies, but you and I both know that the real intent of liberal politicians (ie Roosevelt Democrats and Rockefeller Republicans) is to enrich their cronies. Either with direct cash subsidies or competition killing regulation.

    On second thought, maybe you really are too stupid to realize that, in which case I probably should even bother trying to communicate with you.

    So maybe I should just say, fuck off, plutocrat enabler.

  • ||

    In Soviet Russia, bullshit friends you.

  • Dick Fitzwell||

    Rich people change laws?!?! We need more laws to correct this!!! More government power is needed!!!!!

  • ||

    I think the problem of your argument is that you are setting it up as you state: austerity vs. tax increases. It's bigger than that: it's certainty vs uncertainty. It's hopefulness about the future vs despairing about the future.

    You don't get certainty and hopefulness by increasing burdens (taxes and regulations including those found in Obamacare) or doing temporary gimmick measures (cash for clunkers, porkulus).

    You do it by creating an environment where businesses and individuals believe that tax and regulatory burdens will be remain low (permanent tax rates, culture of reducing regulatory bs) so that businesses can hire based on medium and longer term certainty...

    and individuals can buy that tv or car based on better judgement that their future will be stable or improve.

    ---

    So then the solution should be: reduce government's influence over the market yes? Reduce the legal red tape that gives politicians more power to favor certain market players. 

    "Get out of the way" it's sometimes called. 

    A quiz for you Tony:

    Does Obamacare: a) reduce government's influence over the healthcare industry and create more avenues for HHS waivers, special deals and crony capitalism...

    or b) does it reduce government's influence of the healthcare industry and make it more likely that the only way a business can get ahead is through better service, reduction of costs and innovation?

    Does a "Green Jobs Initiative" a) give politicians more power by giving them a method to play favorites in a market -- such as Obama-political-donor-funded Solyndra sweetheart loans -- or b) gives politicians less control and leaves the power up to people choosing where best to spend their dollar?

    More power given to government a) encourages more crony capitalism or b) encourages less crony capitalism?

  • ||

    Man I really bungled that last post. Stinking iPad. Here it is again, better:

    So then the solution should be: reduce government's influence over the market yes? Reduce the legal red tape that gives politicians more power to favor certain market players. 

    "Get out of the way" it's sometimes called. 

    A quiz for you Tony:

    Does Obamacare: a) INCREASE government's influence over the healthcare industry and create more avenues for HHS waivers, special deals and crony capitalism...

    or b) does it REDUCE government's influence of the healthcare industry and make it more likely that the only way a business can get ahead is through better service, reduction of costs and innovation?

    Does a "Green Jobs Initiative" a) give politicians MORE power by giving them a method to play favorites in a market -- such as Obama-political-donor-funded Solyndra sweetheart loans -- or b) gives politicians LESS control and leaves the power up to people choosing where best to spend their dollar?

    More power given to politicians a) encourages MORE crony capitalism or b) encourages LESS crony capitalism?

  • Mr. FIFY||

    There isn't enough "rich people" money to dig us out of a $14-trillion hole, Tony.

    Bitch all you want about it, it still won't work.

  • Tony||

    True, but you could make a large dent. The only way to balance budgets is to drastically lower unemployment. More people off the dole and more people paying in. There is no known way to do that in a depressed-demand situation without increasing government spending in the short term.

  • some guy||

    The only way to balance budgets is to drastically lower unemployment.

    Or you could, you know, spend less. It worked as recently as 1999!

  • NotSure||

    Why should people want to leave the dole, when one gets free housing, food, health care, education, money to buy tvs and phones.

    This is purely anecdotal, but I once met somebody who weighed getting a job as a driver versus staying on the dole, guess which one he picked ? He liked playing computer games, so while being a driver would have meant he would have a bit more money, staying on the dole was better for him. These are the losers that people like you want to support, and somehow expect the economy to steam ahead ???

  • Tony||

    Are you suggesting that there's not 5 job seekers for every job opening, but that we've undergone a huge rash of laziness over the past 3 years?

  • NotSure||

    I am suggesting that there would be more jobs if money was not wasted on industries that destroy them.

  • KDN||

    Are you suggesting that there's not 5 job seekers for every job opening, but that we've undergone a huge rash of laziness over the past 3 years?

    Avoiding employment because you make just as much money on the dole and have increased time to continue seeking more gainful employment isn't laziness, it's a perfectly rational choice. So while you termed it in the most controversial way possible, the answer is, to a not insignificant extent, yes. It actually goes back to something Keynes wrote at great lengths about: the "stickiness" of the labor market.

    I was unemployed from Dec through May, making $600 per week. I could have gotten a job any time I wanted at Costco for $14 per hour, but that's half of what I had been making and less than I was currently making even though my occupation was "seeking employment." How does this situation discourage unemployment?

  • ||

    honestly, after 16 years of being a computer geek, I would gladly take a large pay cut if -

    1) I had enough money to live on - I really don't need many more toys.

    2) I had more free time to write, read, make electronics gear, play with my son, etc etc etc

    who wouldn't?

  • Red Rocks Rockin||

    There is no known way to do that in a depressed-demand situation without increasing government spending in the short term.

    Government spending has been increasing in both real and inflation-adjusted terms for decades--according to your logic, we should be at 0% unemployment because of that.

  • Tony||

    Tax cuts on the wealthy have also been lowered over that time, so...

  • ||

    So it really is just wealth envy for you, isn't it Tony? Cause tax cuts have been handed out to every income level for the last decade.

  • Tony||

    Yet unemployment is still high.

  • Red Rocks Rockin||

    Tax cuts on the wealthy have also been lowered over that time, so...

    They were also raised over that time, so...

  • Mr. FIFY||

    Aaaaand we're back to Keynesian "the more you spend, the more you grow!" bullshit...

  • mad libertarian guy||

    And MNG says that the political and economic philosophy of the left isn't based in envy?

  • O2||

    hey tony - r the wealthy [JOBZ] creators creating [JOBZ] yet ?

  • White Chief||

    I swear to God, I'll pistol whip the next person that says jobz!!

  • Watoosh||

    You do realize that funding a stimulus with taxes is not Keynesianism? It completely nullifies the point of DEFICIT spending - the government is supposed to have the purchasing power to inject liquidity into a depressed economy that isn't crowded out, and taking it away from the rich, in Bastiat's words, amounts to breaking windows.

    Of course the whole point of this article is to make the case that the government is too much of a mess to do a proper stimulus anyway, but proposing a tax increase on the rich wouldn't fix it. It just means you're a dumbass liberal.

  • Tony||

    While Keynes never embraced taxing the rich in a depression, the idea isn't totally unKeynesian, since the point is to stimulate economic activity. Money being saved (which the rich have the luxury to do) isn't being active.

    So taxing the rich is a compromise--we can raise revenues to cover debts and expenses without doing much to depress demand (since that money was being saved, not spent).

    What is totally foreign to any economic theory is the idea that we should do austerity without raising taxes. That makes no sense at all, especially when tax rates are at historic lows and tax avoidance at historic highs, if your aim is fiscal prudence. What it does make sense as is a means to achieve radical policy goals by force.

  • Red Rocks Rockin||

    Money being saved (which the rich have the luxury to do) isn't being active.

    Funny, I can save over 10% of my paycheck every two weeks, and I'm certainly not rich.

    Perhaps the shopping mall economic model needs to go the way of the buggy whip.

  • T||

    Money being saved (which the rich have the luxury to do) isn't being active.

    Fractional reserve banking, how do it work?

  • Mr. FIFY||

    The more you tax, the more you spend!

    Uh, or is it... the more you spend, the more you save?

    Fuck, Keynes was a douchebag. Who cares.

  • ||

    "Money being saved by the rich isn't active."

    Sure it is, if it's saved by being invested in the market via 401k, SEPs etc. If rich are buying Apple and Google and Coke stock, they are giving those companies (which are most efficient at turning cash into growth) greater ability to grow even more.

  • ||

    I think the problem of your argument is that you are setting it up as you state: austerity vs. tax increases. It's bigger than that: it's certainty vs uncertainty. It's hopefulness about the future vs despairing about the future.

    You don't get certainty and hopefulness by increasing burdens (taxes and regulations including those found in Obamacare) or doing temporary gimmick measures (cash for clunkers, porkulus).

    You do it by creating an environment where businesses and individuals believe that tax and regulatory burdens will be remain low (permanent tax rates, culture of reducing regulatory bs) so that businesses can hire based on medium and longer term certainty...

    and individuals can buy that tv or car based on better judgement that their future will be stable or improve.

  • T||

    The other half of Keynes, the running surpluses during the good times, never gets much play. For this reason, I decided anyone who wasn't calling for surpluses but wants simulus now and claims to be a Keynesian is lying.

  • ||

    While it's hard to imagine anytime soon that this country would have a real surplus - especially if you include the debt we currently promise future retirees: surplus probably isn't something to be encouraged either.

    We should never encourage our politicians to take in MORE than is needed to run the government.

    Limit the size and scope of government, be transparent about all costs including future obligations that should be on the fiscal books now, and pay your dang bills. If there is any $ leftover, give it back to those it belongs to for crying out loud.

  • Politicians||

    The first feature of Keynes is providing an excuse to spend.

    The second feature of Keynes is providing an opportunity to blame your predecessors for not running a surplus.

  • ||

  • fish||

    The full rhyme, sung by children bouncing a ball (similar to a Clapping game):

    Christ, Marx, Wood and Wei,
    Led us to this perfect day.
    Marx, Wood, Wei and Christ,
    All but Wei were sacrificed.
    Wood, Wei, Christ and Marx,
    Gave us lovely schools and parks.
    Wei, Christ, Marx and Wood,
    Made us humble, made us good.

    I thought I was the only one who was up on this....one of my guilty pleasures!

  • ||

    Kind of telling that Hollywood adapted all his novels except this one. (Well, that and the ill-conceived sequel to Rosemary's Baby--which is baffling, they love shitty sequels.)

  • ||

    One of Rosemary's babies sure does give one well known neurotic director a large woodrow.

  • Sparky||

    Excellent, something new to add to the reading list. Thanks.

    So far I think 1984 has the edge over Brave New World, but this one looks more interesting than both.

  • ||

    For dystopias, you might also look into We.

  • Scruffy Nerfherder||

    That novel disturbed me. Perhaps they should film it. Ah shit, who am I kidding, they would cast Keanu as the protagonist.

  • Untermensch||

    I don't have to know the novel or see a film to know that Keanu as the protagonist would doom it to pure, utter suckitude.

  • ||

    Thanks, SF.

    I may curse you for your links to Jezebel, but I always appreciate the additions to the reading list.

    Though when I'' get to it i don't know. I still haven't read everthing by PG Wodehouse and I'm not getting any younger.

  • Dick Fitzwell||

    I think SF needs the Operation.

  • fish||

    Actually it's not as good as either 1984 or Brave New World. It is interesting and makes for a light afternoon.

  • NeonCat||

    Kind of reminds me of Ian McDonald's Out on Blue Six, another computer run dystopia with rebels behind the wainscoting. I first read it after Cory Doctorow recommended it on BB. Can't stand the little socialist's politics but he does recommend some good books.

  • ||

    So, Obama only embraces the bit where you get to borrow.....hmmm. It's almost as though he's an ultra-left ideologue who simply wants to turn the United States into Belgium.

  • O2||

    and belgium's got great beer !

  • Red Rocks Rockin||

    In fairness, Belgium hasn't had a government in charge for quite some time. I doubt that's Obama's vision of the perfect society.

  • ||

    That's unpossible. Belgium has roads.

  • ||

    And...trainzzz

  • ||

    Belgium does not have a government only in the sense of that term as used in parliamentary systems. It still has all of its government departments with all of their bureaucracies intact.

    Government at this point is conducted by a caretaker government appointed by the King. Parliament still votes all the appropriations the bureaucracies want and the King gives his assent.

    It is also worth mentioning that Belgium is a federal state and as such it's provinces all do have governments as do the municipalities within those provinces.

    Not having a government at the federal level means that there is no one group in the parliamnet that can command absolute loyalty from enough members of parliament to execute its program. Hence only the day to day business of funding the ministries gets done. The upside to this is that no new laws will get passed. The downside is that, according to some, Belgium has a lot of laws that need to get unpassed and you kind of need a government, ie a majority with a mandate to do that.

  • Red Rocks Rockin||

    Of course, that isn't to imply that it's total anarchy in Belgium or anything like that. Hell, the vestiges of the Roman empire lasted for centuries in some cases due to what you cite--the presence of local bureaucracies that handled things at that level without relying on a centralized authority to direct their actions.

    As for laws that need to get unpassed, what will happen is that those local agencies will eventually just ignore those laws--if there's no way to enforce them, what good are they anyway?

  • Mr. FIFY||

    Not Belgium... pre-Berlin Wall-falling East Germany, minus the concertina wire.

    Maybe.

  • Franklin Harris||

    If Keynes is the Master, he should be played by this guy:

    http://www.monstershack.net/re...../cloak.jpg

  • Mainer||

    Manos: The Hands of Fate.

    MST3K...god i miss that show.

  • Mr. FIFY||

    Manos was the only movie worse than Plan 9 From Outer Space... and that's a tough one to beat.

  • GHRTSY||

    Money wasn't "loose" in 2008. When Nick gets into macro, he's as loopy as a LaRouche gold bug.

  • Scruffy Nerfherder||

    It wasn't lose if you were a small fry. But if you were a well-connected player, it was looser than your mom.

  • ||

    Correct. As Friedman pointed out, easy credit is often a sign that money is too tight. And I know I shouldn't feed the troll, but someone needs to point out to Tony that Germany (under the SPD) significantly reformed those 'social safety nets' to increase employment. And to make Tony's head explode I would like to point out that Germany has no capital gains tax!

  • ||

    No minimum wage laws either.

    Though, to be sure, it's nearly perfect from the persective of a trade unionista.

  • Luke Ho-Hyung Lee||

    The multiplier effect has existed, but with the existing outdated market or supply chain process in the Modern Information Age, it couldn't have been made.

    Please see: "Breaking Down the Economic Death Spiral – and Saving the World Economy" http://goo.gl/h0GHa

  • ||

    Keynesian spending doesn't work in today's U.S. because the means of production are mostly in other countries. It is that simple.

  • ||

    Keynes doesn't work for multiple reasons:

    1. Stimulus goes where goods are produced, not where bought.
    2. $14 Trillion in wealth lost in debacle and government can't replace that much
    3. Permanent deficits neuter any stimulus
    4. Government debt can reach a point where it counter-acts any positive stimulus debt

  • Red Rocks Rockin||

    Government debt can reach a point where it counter-acts any positive stimulus debt

    That's the biggest factor that people like Tony can't seem to grasp. Mathematically speaking, your rate of deficit spending/GDP can't exceed your nominal GDP rate for very long, because eventually the deficit spending can no longer keep the GDP propped up. Anyone who plots it out on a graph can see it.

    This game can go on for a long time--in our case, it's been since the 1960s--but sooner or later you run out of bubbles to blow.

  • Winston||

  • ||

    Governments really are in a jam. They have spent themselves to the point that Keynesian tools don't work. Austerity can run the risk of debt-deflation. Tax changes only make the first two worse.

  • ||

    You are quite incorrect with your analysis. Keynes had viewed the level of the stimulus to 'prime the pump' needed to be a ratio of calculated private investment. That has held true to the existing situation. This would also include concurrent private investment during the economic crisis, not only new private investment.

  • Jeremy Janson||

    Dear Cybil,

    Keynesianism is an economic model. Like all models, it needs to hold to its basic assumptions in order to be viable in its predictions. Its assumptions also need to be realistic.

    The chief assumption of Keynesianism is that government WILL keep a surplus going during good times, much like the fractional reserves that banks keep. This assumption has been violated, and so the model is invalidated.

    Sincerely,

    Jeremy Janson

  • ||

    Jeremy,

    All economic models only function within a vacume, that all variables are constant, which we both know is an impossiblity as well as a government having an actual surplus, do realize that a surplus is not a value at a moment in time, it is a projection. Keynes was very well aware of this and implimented 'saving functions', and 'the marginal effciency of capital'. The multiplier concept is basic, humans fundamentally consume, regardless of deficits or surpluses if they have money in their hand to consume, how can you argue that?

  • ||

    In Obama's case, it is not the keynesian economic model he and his administration are using.

    It's the Cloward & Piven model that Obama and his administration is using.

    Look it up, and connect the dots. He has had a plan all along, but it's not for us to see - yet.

    Seriously. Look it up. The US media would never expose this, since they've been complicit in his 2008 (and 2012) election campaign.

    With any luck maybe some foreign media like Reuters or something might publish the link between Cloward & Piven and Barack Obama; it's certainly there with the Clintons. They co-wrote the Motor-Voter legislation Billary signed in '93; there's even a WH phot of the two of them standing behind him when he signed it into law.

    Be afraid.

    And as a bonus, look up where and what Obama was doing in April 1983, shortly before he "found his calling" as a Community Organizer.

  • W.C. Varones||

    Indeed.

    I often say, "If Keynes comes back as a zombie, he's gonna rip the heads off the modern Keynesians and shit down their necks."

  • ||

    I see that some of you are actually defending Keynes. Even Keynes came to the conclusion that it doesn't work. Everybody seems to think that, if it's done right, it'll work. Maybe in a Socialist country, but, never in a free Capitalist Economy. In free Capitalism, it's a zero sum game. Even he admitted that it didn't work.
    The Liberals blind devotion to Keynesian Economics parallels with their insistence that Darwin's "THEORY" of Evolution PROVES that there is no GOD.
    Yet, Darwin, himself, said otherwise. He said that HE BELIEVED IN GOD, and that nothing he had seen had dissuaded him in his belief.
    It' called: The Big Lie, and Liberals use it on a daily basis.

  • ||

    When one ceases to believe in God, some 'theory' inevitably fills the religious void. Man by nature must have something to believe in, and when transcendence is driven out a different form of the numinous presents itself as a substitute. As always, idolatry is the beginning of both sin and heresy and when the intellect, or its products become the object of that idolatry, other products of the intellect are seen as forms of sin and heresy. This accounts for the dismissive anger and hatred that ends up being exhibited toward rival ideas.

  • ||

    Keynes was used as intellectual windowdressing to justify politicians buying votes using the good credit of the United States government.

  • Tom||

    This is exactly what I've been saying for over a year. I'm just a regular citizen who got fed up and decided to run. www.gradyforpresident.com.

  • ||

    It's very simple. As the debt to GDP ratio approaches 50% and the money is borrowed for the stimulus, the economy will hardly grow. The present situation is even more dire due to the fact the debt to GDP ration is approaching 100%.

  • ||

    Pump priming! A good metaphor. I recall when I was a kid there were lots of those rural hand pumps around, you pull the handle and water came out the spout. Sometimes it wouldn't draw and you had to pour some water in the top to wet the seal so it would draw. YOU DIDN'T KEEP POURING WATER IN THE TOP IN ORDER TO FILL THE WELL as Obama wants to do.

  • ||

    The main reason the Keynesian stimuli aren't working is because Keynesian stimuli have never worked, not on a large scale. It might work in small economies, but what might work in small economies may or may not scale to large economies.

  • LMADster||

    Today's Keynesians are "Reasels!"

    Reaseling #1—Priming the Pump: The most common rationale put forth for the interminable incurring of national debt is the Keynesian economic theory called “priming the pump.” John Maynard Keynes, a Depression-era economist, believed that the government should borrow and spend in order to stimulate consumer demand. Increased demand would then stimulate supply; suppliers would create jobs, raise incomes, and stimulate even more demand and so keep the economy growing.
    Keynes believed such stimulus should be the exception and not the rule it has become today and that economic stimulus should only be injected during economic contractions, not economic expansions.
    The ruling elite knows better. They believe that constant borrowing at a modest rate equal to the economic growth rate keeps the heart of the economy permanently primed and pumping. This belief is so strong it has become an article of faith among the “command economy” crowd. In fact, the European Monetary Union of 17 European social democratic economies has a standard 3 percent budget deficit entitlement/limit written right into its charter; Greece apparently didn’t get the memo.
    OK. Fine. Borrowing primes the pump. Got it. But based on our current $14 trillion debt and the European deficit standard of 3 percent, it appears that our pump is pert-near primed for the next 25 years. Include the $100 trillion in unfunded Social Security and Medicare liabilities and we are primed well into the next century. Said another way: we already have 100 years worth of Keynesian economic stimulation built into today’s economy and yet we still have over 8 percent unemployment and scant economic growth.
    Rea•sel \ˈrē-zəl\ verb To weasel out of or evade an obligation, duty, or the like with feint reasoning or by constructing a false, but ostensibly logical justification to obfuscate the weasel’s true motives. noun One who reasels.
    Page 126 of “LET'S MAKE A DEAL: A HAIL MARY PASS TO GET AMERICA OFF THE BENCH AND BACK IN THE GAME”

    Healthcare-for-All? It’s in there. Balanced budget? It’s in there. Carbon tax? It’s in there. Rational taxation? Amnesty? Border Security? Limited government? Social Security and Medicare solvency? It’s all in there; it’s all paid for and it’s all optimized.

    Blog: letsmakeadeal-thebook.com/

    Facebook: facebook.com/pages/Lets-Make-A-Deal-The-Book/143298165732386

    Twitter: twitter.com/#!/lmadster

    Amazon: amazon.com/Lets-Make-Deal-Jon-Mitchell/dp/0982975716

    B&N.com: barnesandnoble.com/w/lets-make-a-deal-jon-mitchell/1031386165

    Or just Google "LMADster"

  • ||

    If you presented Keynes, as a case study, what Obama did with $535 million in stimulous funds with Solyndra, where he dumped money on a company that was destined to just waste it, and go belly up, because Obama just believes in Green Jobs, Keynes would likely tell you that was insane, no President would ever recklessly waste that kind of money, and ask for a sane real life case study on which to comment! In short, Keynes never anticipated a President like Obama would be possible!

  • CJT1957||

    If they want to stimulate the economy, why not try useing the gas a deisel road tax, about 18cents a gallon for the reason it is collected, to maintain and build roads and bridges. We would have a good highway system if they did not rob this money to do other things....

  • ||

    There may have been a time when the government multiplier was as large as 4. But, like all economic parameters it follows the law of diminishing returns.

    When the government was small, increases in government spending probably had a large impact on the economy. For example, when the size of the US military was small and there existed a frontier, increased military spending in the form of troops and a fort probably had huge multipliers.

    But, with government spending taking up about 40% of our economy the "ripple" impact is negligible and there is no way that the multiplier is greater than one. There just is not a productive way of "investing" more government money.

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • Pugetkid||

    This time around the KBoom isn't the answer is because our illustrious leader have no clue as to what the future plan is to reduce the debt and thus no planning, no hiring and disaster awaits. Their only answer is to spend money and damn anyone who diagrees!

  • ||

    What are you trying to say?

  • ||

    The key is spending. If the federal government had not leveraged their own feel good programs for the poor by raiding Social Security, we would not be looking at the coming serious debacle as Boomers like me try to find a way to somehow salvage a short retirement at the end of our lives. Where nearly 20 workers supported one retiree when SS was conceived, the number is now around 2.8 and dropping. Later age of inception would help as would exempting those who are very affluent from using social security funds for greens fees and lottery tickets. More than that, we have a massive fraud problem in this country. Even a cursory analysis reveals countless people using fake identities and open identity theft to bilk the system. Many of these people are repeat offenders who trade goods and services for things that are not on the list of approved purchases. Many of these people are here illegally using services intended for our elderly to provide them with a comfortable lifestyle. This is wrong and a full accounting needs to be done. But this president is not interested in making sure users are valid-he just wants their vote.

  • Butts Wagner||

    Even if accurate, that buck-twenty is nothing to write home about, especially given the fact that government spending has to be pulled out of some other part of the economy via current or future taxes or borrowing. Which casts huge doubt on the possibility of any stimulus to work.

    A million times, this.

  • Mr. FIFY||

    The major problem with stimulus spending is not letting ALL companies bid for public-works projects. When it's just union companies getting the grease, it's even worse than nothing at all.

  • ||

    There's no federal law requiring companies bidding for public-works projects to be union. The requirement is that companies bidding for public-works projects getting federal funds must pay the "prevailing wage" which is usually established by referring to the collective bargaining agreements with local construction unions.

    AFAIK, no state has a union labor requirement either, although many do have their own "Little Davis-Bacon" laws that set wages on state projects at higher than the federal mandate which are already at higher than market levels.

  • ||

    He had me until this sentence:

    Job creators would sing “hallelujah”; they would get off their wallets, start hiring, and then you’d see that Keynesian multiplier kick in.

    Here we go again with the heroic "job creators" bullshit. The "job creators" are creating their jobs in China and India where people work cheap and if you dump a bunch of crap in the lake the government doesn't care. It ain't complicated.

    That said, I think it's true that Keynes is completely misunderstood. He's trashed constantly by people who really don't know a thing about what his theories were.

  • ||

    Looks like John Maynard had a little captatain in him.

  • Audrey the Liberal||

    John Maynard Keynes is The Master. You know, The Doctor's nemesis.

  • Some Guy||

    Obama is a Keynesian like Bush was a Hayekian.

  • ||

    Obanomics is to Keynesianism like a Jack Chick tract is to Summa Theologica.

    Sorry, I only know three jokes, and that one's my favorite.

  • ||

    With a review of the comments below, my interpretation of the responses is that it is not Keynes' economic model being scrutinized, yet, the man that utilized the theory into practice. Realize that a republican president had implemented a stimulus in the past, Eisenhower, with the sluggish economy during the post-war-period, he implemented the Federal-Aid Highway Act of 1954, how many republicans complained regarding that economic stimulus? Obama simply revitalized/updated the fruits of this act and more is needed.

  • Thomas||

    "Even if accurate, that buck-twenty is nothing to write home about, especially given the fact that government spending has to be pulled out of some other part of the economy via current or future taxes or borrowing. Which casts huge doubt on the possibility of any stimulus to work."

    Of course current spending takes away from future spending. Is this rticle trying to score point and sound smart by stating the obvious? The clear goal is to take money from a boom, such as the 1990's or 1950's, and use that money to rescue a time in turmoil, such as the 1970's or the Great Depression. This recession that started in 2007 needs to be rescue with money, and that money will come from the next inevitable boom in the future. (If you say no boom is coming, you admit your scientific ignorance.)

  • inblack||

    GDP - A tragic measure of success

    What is govt trying to do?
    - Govt is trying to improve the economy.

    How do you measure the economy?
    - By the GDP (Y) = C + I + G + (X − M)
    GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).

    What is the GDP?
    - It's a measure of Domestic Production ESTIMATED by counting spending.

    Does it matter what you spend money on?
    - No

    Does it matter what you produce?
    - No

    Does it matter who produces it or who spends the money?
    - No, as long as it is Domestic

    Given what govt measures, it is doomed to spend money recklessly.

    Given that GDP (spending) is what govt is measuring, if you do not spend your own money, they need to take it and spend it for you. Or, they need to COERCE you to spend it on products you neither want or need. Finally the FED will keep interest rates low to "encourage" spending vs saving.

    Remember - mindless spending is NOT good for the economy, it is good for the govt's report card which is GDP - a measure (incorrectly estimating economic output) by counting spending.

    The measure of the economy - GDP - is WRONG. The measure should be the measure of the value of products produced but it is not.

    Attempts to spend money and discourage savings cause the USA to produce junk that has low value. This junk has a low value to the rest of the world as well - which destroys the trade balance and ruins the currency.

    Producing expensive junk also makes companies uncompetitive. When USA companies cannot compete, they have to lay off workers or close their doors. This creates unemployment. The unemployed produce nothing.

    When the economy starts to recover by people saving and focusing on value products, govt's metrics go down - they panic and force more spending, further damaging the economy.

    When the unemployed struggle on their own to find work and make ends meet, the govt gives them money to stay unemployed (not produce) and spend money.

    Washington is failing because they don't know what they are doing. They are applying ignorant Keynesian short-cuts and formulas and getting the results they deserve.

    The bottom line is - you get what you measure and we measure spending.

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