Tuesday, January 4, 2011
Keynesian Economic Theory, The Beast That Won't Die.
Sunday night of this week, I had the opportunity to sit down and have a political discussion with three college students. My interest in the topic of conversation was piqued when I overheard one of them positing the theory that we could balance our budget by gutting military spending. His contention was that we would be able to perform what ever social welfare programs we needed here with the savings from a bloated and unnecessary standing armed forces. It seems that last semester, he took a course in macro-economics at Case Western University. I illustrated the University for this reason. Case Western is typically listed near the top of most lists. It is usually in the same league as the Ivies. The academic requirements are very stringent, and the reputation of the University as a top notch place for children to get educated is solid. That being said, I was somewhat surprised that a student who had just finished a course in macro would be parroting the often discredited theory of Keynesian Economic Dogma. How is it possible, that we are still teaching this model to our students a full 80 years after it has been proven to be disastrously wrong? Do his parents realize that they are shelling out 50 grand a year to teach their child crap? More importantly to me, why won't the Keynesian theory die? The Keynesian's are like zombies from the classic George Romero movies, the, "Living Dead," films. Mindless creatures moving slowly which can't be killed but just move about the business of slowly consuming every sentient person in town.
Here is my theory. The Keynesian school of thought is wildly popular with politicians. This provides a terrific sounding collection of big words which justifies irresponsible behavior. Politicians love spending other people's money. They love providing pork projects to those who got them elected. They love spreading favors around to get re-elected. They love having a group of psychophants around to pour adulation upon them. What they don't love is the accountability that comes along with irresponsible spending. They don't love their constituency noticing that reckless spending has horrendous economic results.
Enter Lord John Maynard Keynes. His theory says, go ahead and spend money you don't have, it'll be good for the economy. It doesn't even matter what you spend it on, the stimulative effect will be the same no matter what. Even though it has never worked, we can trot it out and get the voters on board because it all sounds very cool. People like to be told, here is your share of a new, albeit a nonexistent pie, and you will get it for free. The problem of course is that it is not free. The deficit in this country is crippling, and the solution is to stop spending wildly asinine amounts of money on crap we don't need or want. Unfortunately though, our political leaders are addicted to power and the fruits of our labor. So like an alcoholic who is told that a glass of wine every day is good for his/her heart, Politicians will try to convince us that the way out of debt is to spend even more money we don't have. Make no mistake about it though, Keynesian Economic Policy is nothing more than our old friend, the Broken Window Fallacy, rearing it's ugly head once again.
Will somebody please kill off all of these gosh darned zombies already.