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Deflating Keynes

I saw this little tutorial on deflation and it went so well until the last part:

The government can inject money into the economy with massive spending.
This creates jobs and incomes.

Woops. This is Keynesian economics. Sounds fantastic on paper, but in practice it doesn’t work. I will now analyze each part to explain why it doesn’t work:

The government can inject money into the economy with massive spending.

Government only gets money two ways: Taxes and Selling Debt. If the government is collecting taxes and then giving it right back… that’s just a waste of time and money with no good result. It costs the government money to handle money (wages, electricity bills, etc), so if it takes in $100 there is NO POSSIBLE WAY it can give back $100.

Selling debt is something the US government could do until just recently. The only country that has enough cash hanging around to buy massive amounts of our debt is China, and they just announced August 15th that they aren’t really going to do that anymore. This means the only way the government can get money to “massively spend” is to monetize our own debt (buy out our own debt). This could very easily lead to hyper-inflation, and I think that’s the administration’s goal.

Furthermore, we’ve been massively spending for over two years now – since Bush – and even Keynes admitted that his strategy was not to be used over an extended period.

Next part:

This creates jobs and incomes.

If the money was gained via taxes it actually does the opposite of this. The government would be taking money away from companies that need it *today* and giving it back to the ones that are still in business at some point down the road. This may stimulate those few surviving companies to hire someone, but what about all those companies that went out of business in the meantime? Those are other people that are now laid off! They’d still have a job if the Government hadn’t taxed them out of work.

If the money was borrowed by selling debt to another country, then that doesn’t create the confidence that the little cartoon says it will. We’re talking about getting money from a communist country that is perfectly fine with murdering millions of its own people and treating the rest as chattel. If I needed $10 and some guy said, “here, I borrowed this from a murderer so you can use it. I’m pretty sure he’ll lend me more. I really need you to spend it wisely so that I can tax you in order to pay him back. Please don’t leave me hanging – he’s a murderer.”

The only real way to fix deflation is to lower interest rates and cut taxes, ease or remove regulation, STOP massively spending, let failing businesses fail, and in all other ways get government out of the business market. It can’t do anything but make a mess of things.

Categories: Politics, The USA
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