As Opposed to So-Called Experts, the American People See the Failure of Keynes
When crisis was fully unleashed on the U.S. economy in 2008, the ideas of John Maynard Keynes were given a jolt of life. Massive government spending was going to “stimulate” and save the U.S. economy.
Despite the gross and glaring failure of these policies – given the deep recession and pathetic recovery we have suffered through for more than six-and-a-half years now – television talking heads, liberal commentators, a wide array of politicians, and, yes, many economists persist in the idea that government spending is a plus for the economy. This same group, of course, has blamed poor economic growth through the first half of 2013 on the federal government’s sequestration – again, ignoring the abysmal economic performance of recent years.
Interestingly, a sizeable majority of the American people has a better understanding of the economic impact of government spending than do these so-called experts.
A new Rasmussen Reports poll released on July 24 showed that 62 percent of likely voters “think the government should cut spending in reaction to the nation’s economic problems,” and only 23 percent believe that government should spend more to aid a struggling economy.
Unfortunately, Keynes never really went out of style in the halls of academia, politics and the media, particularly on the Left. Since “The General Theory of Employment, Interest and Money” by Keynes was published in 1936, countless students and economists have had their understanding of how the economy works distorted and disconnected from reality – especially when it comes to the idea that government can manipulate aggregate demand to effectively manipulate the entire economy.
But the fatal flaws for Keynes and his followers for these past eight decades are about the discounting of incentives, and ignoring where government must get its resources.
Keynesians ignore the disincentives for entrepreneurship, investment, and business expansion, and the resulting negatives for economic growth and job creation, that come with, for example, high taxes, burdensome regulation, increased government spending and debt (such as via the threat of future tax increases), and misguided monetary policy.
As for where government gets its resources, most people can grasp the simple fact that government spending means that resources must be extracted or diverted from the private sector, whether via taxes or government borrowing. And given that government functions under political incentives that generate waste and diminish productivity, then it becomes obvious that less government spending is a positive for the economy.
The American people – or at least 62 percent of likely voters – actually get it. Now, if only more politicians, economists and media members could clue in. Unfortunately, until they do, the economy will continue to be restrained by failed Keynesian economic thinking.
Raymond J. Keating is chief economist for a national small business organization; a weekly columnist with Long Island Business News; a former Newsday weekly columnist; and an adjunct professor in the MBA program at the Townsend School of Business at Dowling College.
Author of numerous books, his latest business and policy books are “Chuck” vs. the Business World: Business Tips on TV and Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship. Keating also is a novelist, penning a series of Pastor Stephen Grant thrillers.
His articles have appeared in a wide range of additional periodicals, including The New York Times, The Wall Street Journal, The Washington Post, New York Post, Los Angeles Daily News, The Boston Globe, National Review, The Washington Times, Investor’s Business Daily, New York Daily News, Detroit Free Press, Chicago Tribune, Providence Journal Bulletin, and Cincinnati Enquirer.