The Fallacy of Keynesian Economics

The Progressive politician is in love with Keynesian economic theory, big government spending may sound Keynesian, but is it really, and does it work?

For those unfamiliar with Keynes, he believed that traditional free market systems were inherently inefficient, leading to surplus and waste. Keynes was all for government control of an economy and the means of production, no wonder the Progressives subscribe to his ideas. Keynes also believed that spending was the driving force of an economy, and that government could influence high unemployment through short term spending. The key was short term spending, where deficits would be repaid as soon as unemployment reached appropriate levels. Progressive big government policies with its excessive spending and regulation are not Keynesian economics, but actually Marxist. However, herein lies the fallacy of Keynesian theory, that the government can somehow take from the economy, in the form of taxes, deficits or inflation, and return it to the economy and create growth. The best analogy I have heard is like taking a bucket of water from the deep end of a swimming pool and dumping it into the shallow end and expecting the pool to get deeper. What with government inefficiency, waste and corruption it would be more like a bucket with a hole in it. Either way, the pool does not get deeper; the total wealth of water or in the case of money in an economy stays the same. No growth, study the case of these Progressive policies of the 1930’s, a continued recession leading to the Great Depression. Just like the no-growth economy of the last two years under another FDR-like Progressive, Barack Obama.

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As they say, the proof is in the pudding, and every time this progressive Keynesian model has been tried, it has failed, and failed miserably. From Wilson’s policies after WWI, to FDR and making the great depression worse, to Carter and now Obama, big government spending has killed the economy, not rescued it. Yet, Progressive politicians still think that government needs to step in and fix us. For some reason, doing the wrong thing as seen as better than doing nothing, but nothing is what we need. Get out of the way of the people and we will solve our problems. On the other hand, conservative free market policies, smaller government, lower tax rates, such as Coolidge, Kennedy and Reagan, all passed, have each and every time led to huge economic booms, the Roaring Twenties are a perfect example how in a couple of short years after Wilson’s economy destruction, Coolidge summoned in a decade of huge economic expansion. For those who want to learn a little more: It is true that free market economies, based on free individuals can be inefficient, but Keynes belief that this is a problem is flawed. For example, let us say that the demand for widgets has increased over time. In a free market, widget prices will increase until such time that new widget producers enter the market. Here is where Keynes would say too much capacity entered the market creating surplus and inefficiency, but in the free market, this surplus would lower the price of widgets. The lower price would create a new market for the lower priced widgets, such as maybe a new product using the lower priced widgets or a demand from a market that could not afford widgets at a higher price. The market, while chaotic, does balance itself. The only role government should have is as referee, officiating over corruption and criminal activity, creating a level playing field for all economic activity, but then our government can’t police the corruption it creates and cannot resist picking the winners and losers in our economy. Keynes did not operate in a vacuum; the ideas of Karl Marx were becoming very popular amongst the intellectual elite. Leaders like Woodrow Wilson were looking at the Russian Revolution with something akin to awe. The American experiment, so far, was very chaotic, with booms and busts on a regular basis. Couple this with the fact that even before the founding of this nation, our people were divided over the subject of self-rule vs. big government; our patriots not only had to fight the British on the battlefield, but those loyal to the crown in the cities and farms for supplies and support. It is no wonder that a movement such as Marxism, with the stated goal of helping the little guy, could take root in the United States in the form of Progressivism, a movement whose real goal is total government control of the economy, and hence every facet of our lives. The Soviet experiment made slaves of every man woman and child to the government, and Progressives of both political parties are driving this nation over the same cliff.