Straightening out Keynesians

John Maynard Keynes’ “spend your way to prosperity” theory is still alive and well even as we see the negative effects that the “stimulus” plans, designed based on his theory, have had on our economy. Commondreams.org author David Morris illustrates, in his August 7th article, some of the common misunderstandings that people have about economics.

Morris, like many progressives, equates government spending with “the economy.” Therefore, he concludes, cutting government spending must hurt the economy.

Nothing could be further from the truth. Government spending (at least the way our government does it) does not create longterm jobs or stabilize any sector of the economy; it only creates more debt and more problems. In the short term, according to Keynes, some deficit spending could help bolster a flagging economy. In theory, that might work. The problem, however, is that the money must be spent in the right way and under the right circumstances in order to produce any real benefit.

So how do you put money back into the economy in a way that effectively stimulates growth (or at least helps to mitigate a disaster)? I think that the only reasonable and fair way to do it would be as an across-the-board tax refund. That puts money into the hands of businesses and individuals alike and would create liquidity in both the consumer and producer markets.

The approach that the Bush and Obama administrations have taken is to pump money into banks and big businesses, which is absolutely the wrong way to do it. Shoring up failed industries and debasing the dollar with cash injections from the Federal Reserve is a quick way to end up worse then when you started.

What we need to do is wean people and corporations off of the government teat and let the markets balance out on their own. Once the country has paid off its debt and is running a surplus, then we can talk about planning for rainy days.

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