You Can’t Spend Yourself Out of a Hole

It’s basic common sense. When you are low on cash, you don’t spend . . . you save. According to Keynesian economists, however, the way a government should handle a recession or depression is to start spending. The theory goes that government spending puts people to work, which gives them income, which gets spent, and the economic cycle gets moving again.

The problem is that Keynesian economics is as crazy as it sounds. On its face there’s a kind of a logic, but if you have even a simplistic understanding of how money works you know that it just doesn’t seem right. The reason is that the government, in order to pay for these initiatives, has to find money somewhere. It can just print it out of thin air, which leads to inflation and reduces the value of the money and further destabilizes the economy. It can also run up huge debts, which is better than fabricating money out of thin air but still leads to all kinds of long term problems. The debts have to be paid sooner or later.

Keynesian economics is a discredited theory, at least among economists who aren’t blinded by their own personal politics. It doesn’t work. It was attempted by President Franklin D. Roosevelt (D) during the Great Depression and, despite the over-simplified story they tell us in grade school, those efforts prolonged and deepened the economic calamity we found ourselves in. It most certainly didn’t help things, and we’re still paying the debts we ran up with all of FDR’s ‘New Deal’ programs 70 years later.

But in American politics, discredited theories don’t die easily—even with volumes of historical data to illustrate their real effects. President Barack Obama (D), like President George W. Bush (R) before him, is moving forward with incredible federal spending programs of unprecedented magnitude. Instead of calling it a ‘New Deal’, we call the components ‘bailout’, ‘stimulus’, ‘recovery’, and all kinds of other euphemisms. They are, however, the same old discredited efforts to spend our way out of a recession. It has never worked before, and it will not work now.

Charles Rowley of [my alma mater] George Mason University and Nathanael Smith of the Locke Institute, in a study endorsed by Nobel Prize winning economist James Buchanan, have joined in with the chorus of economists, politicos, and other observers to accuse Obama of following in Roosevelt’s footsteps and setting us up for a worsening financial calamity. We state the painfully obvious: you cannot spend your way out of a hole. It is a reduction in federal spending, not an increase, that will help to get through this difficult time.

Adding insult to injury, our government is now being lectured on economic policy by the Communist government of the People’s Republic of China. Perhaps the Obama administration should hire Cheng Siwei, since he seems to have a greater grasp of basic economics than the president or anybody in his cabinet.

Incredible. . . .

Scott Bradford is a writer and technologist who has been putting his opinions online since 1995. He believes in three inviolable human rights: life, liberty, and property. He is a Catholic Christian who worships the trinitarian God described in the Nicene Creed. Scott is a husband, nerd, pet lover, and AMC/Jeep enthusiast with a B.S. degree in public administration from George Mason University.