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Wednesday, November 21, 2012

Why Keynesian Economics is Pure Hogwash


Some economic theories—specifically those of Edward Keynes—say that government spending during economic downturns is good for the economy. In theory, this increase in the amount of money floating around in circulation in the hands of the people will cause them to spend this money on things. Other people will take this same money they just earned and spend it on other things, and this in turn will somehow spur the economy. Well, I'd say that this theory is just pure hogwash!

An epiphany struck me as I did my yearly Ebenezer Scrooge impression. In the entire world, who is it that best knows how my own money can be used most efficiently? Who best knows what I want, what I need, how much I owe, my hopes, my dreams, my fears, my likes, my dislikes, my fantasies, my follies, my foibles and on and on and on? The answer is of course, me!

Christmas is an example of inefficient Keynesian economic theory in action, and it's destructive. Some people save money all year, while others live paycheck to paycheck. Some people buy Christmas gifts with credit cards, while others use Christmas bonuses, or cash gifts from parents. Some people even pawn things like their car, their gun, or even their guitar. All so that they can buy other people things that those people may or may not want, may or may not need, may or may not even use. The end result of Christmas is broken junk filling up landfills. It's junk that never should have been made, never should have been bought, never should have been sold, never should have been given as a gift, and as a result, it finally winds up where all such inefficient things wind up: in a landfill. It may collect dust on a shelf or in a garage for a few years first, but it was junk the moment someone taped wrapping paper around it. Look around you at all the junk in your home and tell me that I'm lying!

Consider the school lunchroom as another example of this inefficiency in action: For a price—sometimes paid for by the parent, other times by the state—every child receives the same lunch. Some kids like some of the things on the tray, others like other things. When the bell rings signaling that lunch is over, consider how much wasted food has been dumped in the trash.

These things seem so obvious yet apparently nobody—certainly no one in our government—gives them the slightest consideration. I guess they're too busy deciding what's best for me to have time to think about silly things like the fact that nobody knows what's best for me better than I do.

So let's stop and think about stimulus spending. This is pure Keynesian economic theory put into action. Obama has spent four years trying this and it hasn't worked. We'd like him to stop but like a jackass with the bit in his teeth, it's going to take a two-by-four to the skull to get his attention.

Conservatives like to argue that Keynesian economics isn't proven, that it doesn't work, but I've never once heard a single person give a logical reason why it doesn't work. I intend to address that conspicuous logical anomaly today. I'm no genius. I'm no Ph.D. I have absolutely no credentials to back me up. Heck, I don't even have a job with the Fed. Keeping all this in mind, please, I welcome your comments; I welcome your arguments; teach me if you feel I'm wrong or give me a high-five if you think I'm right.

Here's why Keynesian economics is total hogwash: because there's no such thing as a free lunch. I know that sounds too trite, but wait, there's more. When a government tries to create a free lunch it attempts this in one of three ways: it dilutes its currency, it borrows money, or it increases tax rates. My argument is that these methods are all essentially the same thing: a nation basically selling itself in tiny pieces.

If you consider the intrinsic value of a nation you factor in annual tax receipts, yearly expenses, and debt. Just like with any complicated asset whether that be a house or a car or a business or even a corporation you can't just ignore one part of this complex equation and expect to correctly compute net worth. If you take out a second mortgage on your home, you have to understand that you now have more cash in your hand and less title to your home. This is simple math.

If your nation increases the number of dollars in circulation by simply printing more of them, then each dollar is worth less. In QE1, QE2 and now QE3 America sold—and is still selling—little pieces of the dollar, and every person who owns one is the poorer for it. Every dollar they print is a tiny piece of America sold away.

If your nation borrows money, it obviously has to pay that money back one day. That debt will come due and a nation's credit-worthiness is the single most important factor under consideration when computing the value of its currency. Either your country's money can be trusted or it can't. When a nation borrows money it is pawning away a piece of America that it promises it will one day buy back.

If your nation raises tax rates, then as a direct result people deliberately attempt to make less money to avoid these higher rates. Or they leave the country. Or they stop working. Or they find tax shelters. Or they give to charity. Your country tried to increase government earnings by raising taxes, but what they've done is sold away a piece of their tax base to retirement, to foreign countries, to tax shelters, to charities. They've sold away tiny pieces of America, and these pieces can never be recovered.

Every business person who makes a business decision takes all that I've just talked about into consideration whether he thinks about it in the same way or not. If you want to know why all that stimulus money absolutely and catastrophically failed, it's because captains of industry aren't in the positions they are because they're dumbass morons who just fell off some cabbage truck. Before they invest in an American city with American workers and an American clientele, they first have to believe that America is the very best choice. We've absolutely and catastrophically failed to prove that argument to them—going on four years now.

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