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capitalism

John Maynard Keynes: Sounds Good in Theory, Silly in Real Life

by John Galt on February 27, 2010

I have said it before, and I will say it again: The government doesn’t create jobs. They take money from one person, and give it to another. That’s not job creation; if anyone else did that, it would be called theft. So why do governments around the world insist on “stimulus spending”? Two reasons: governments justify their existence by spending, and they still believe in John Maynard Keynes.

If the president, or prime minister, or whomever was to say “government is a waste, I’m cutting it to the bone”, he would be effectively terminating his own job. Conversely, the more he spends, the bigger the government becomes, and the more power he has. Would you rather be the CEO of a million dollar company, or a billion dollar company? Obviously the bigger the company, the more power it has, and the more powerful is it’s leader. Government grows to increase the power of the people running in it.

It would take a leader of great intestinal fortitude to actively cut the size of government. That would mean fewer jobs for his cronies, less spending, and less power. No-one gets in to politics to destroy the very institutions they want to control, so government will never shrink on it’s own.

Of course they justify ever growing government spending by quoting the work of John Maynard Keynes, the early 20th-century economist. Keynes essentially believed that individual people were stupid (he referred to their behavior as “animal spirits”), but that the government was smart, and therefore the government should be making all of the decisions. In boom times, the government would spend less. During recessions, the government would deficit finance and spend more to stimulate the economy, and end the depression.

There are two problems with this theory.

First, it doesn’t work in practice. Have you ever known a government to spend less? During boom times they spend a lot, and then during a recession they spend even more. When boom times return, they keep spending. Spending is never cut, debt remains forever (or at least until the currency collapses).

Second, Keynes theories have never been proven to actually work. That’s right, there is no proof that anything Keynes has proposed actually works. There have been no independent academic studies proving that governments are smart and people are stupid. In fact, all of the evidence would appear to prove the exact opposite.

Keynes supporters will give you a line of drivel about the “multiplier effect”. The government spends a dollar, but that creates, say, $1.50 of economic activity, as that dollar buys goods and services throughout the economy. The $1.50 in new economic activity is, according to Keynes supporters, more than enough to repay the original $1 in government borrowing, and so the economy is now better off by 50 cents. The theory, of course, is ridiculous.

In real life what actually happens is that the government borrows $1, but of course with interest over the course of many years will end up paying back $2 or more. The government creates a new program to spend the dollar, so a lot of the $1 is spent on government bureaucrat salaries, offices, supplies, and other expenses that have no value to the economy. Perhaps 50 cents filters through to the real economy, where it is spent, and perhaps generates 20 cents in new tax revenue. Hardly seems possible that 20 cents in tax revenue will be enough to repay the $2 in debt and interest created, does it?

Of course my example is simplistic, but you get the point. The government has nothing to lose, nothing at risk, so they can spend my money wherever they want. That’s in direct contrast to a private business person, who risks everything, and is therefore highly motivated to keep expenses low, and to earn a profit. And that, of course, is the secret to recovering from a recession: get government out of the way, and let private enterprise decide where risks should be taken, take those risks, and actually expand the economy.

And yes, I realize that if it wasn’t for the government mucking in the economy we wouldn’t have recessions in the first place, but that’s another story for another day.

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The Government Doesn’t Create Jobs

by admin on December 4, 2009

Here is a great quote from a Bloomberg story on the Obama job summit:

Sense of Urgency

Valerie Jarrett, a senior White House adviser, said the president “feels a sense of urgency” about unemployment and the summit is part of an “ongoing effort to jumpstart the economy and create jobs.” She said other forums would be organized around the country.

At the same time, Jarrett said the administration is constrained by a budget deficit that reached a record $1.4 trillion in the fiscal year that ended Sept. 30 and is projected to be $1.4 trillion again this year.

“There are definite limitations to what the federal government can do,” she said in an interview.

Ya think? Ya think there are definite limitations to what the federal government can do? Here’s the problem, Valerie: the President is trying to “jumpstart the economy and create jobs.” That’s the problem. A President cannot create jobs. All a President can do is take money from someone, and give it to someone else. That doesn’t create jobs.

What creates jobs is a business man or woman who takes a risk, invests some time and money, and creates a product or service of value that people are willing to pay for. If the business is successful, the owner hires people to serve their customers. That’s how jobs, and wealth, are created. If the owner makes a bad product, or performs a bad service, the business fails, and the owner loses their investment. That’s capitalism. There are winners, and losers.

Here’s a trivia question for you: in the entire range of human history, how many jobs has government created? Answer: none. Zero. Zilch.

But wait, you say: what about all of those construction workers employed to build roads; are they not jobs created by the government? No, the government taxed me, to get the money to hire the people to build the roads. If they hadn’t taxed me, I would have more money, which I would have spent, or invested, and I would have created jobs.

And what about President Obama, who got elected on a promise to withdraw troops from Iraq and Afghanistan, and is now doing the opposite, with a “surge” of 30,000 more troops on the way. A surge? Who is this guy; George W. Bush? Here’s a quote, from Der Speigel’s report on his speech announcing the increased war effort:

Extremists kill in the name of Islam, he said, before adding that it is one of the “world’s great religions.” He promised that responsibility for the country’s security would soon be transferred to the government of President Hamid Karzai — a government which he said was “corrupt.” The Taliban is dangerous and growing stronger. But “America will have to show our strength in the way that we end wars,” he added.

Unfortunately for Mr. Obama, the average person is now gradually realizing that rhetoric is empty, and only actions matter. The average person on the street understands that the “war” in Afganistan is an un-winnable war. The Russians occupied for many years, and left in defeat. The Americans (and Canadians, and others) have been there since 2001, and despite the most sophisticated weaponry in the world, and billions of dollars, and thousands of lives lost, nothing has changed. A fancy airplane is no match for a local who knows which cave to hide in. We haven’t found Bin Laden, and we won’t win this war (which really isn’t a war; I don’t recall Afganistan ever attacking us).

The sad truth is that the words “Bush” and “Obama” are interchangeable. Both have engaged in un-winnable wars for political reasons, and both will continue to spend money to stay in power. Obama’s plan is exactly the same as W’s: big surge now, that can be drawn down to declare victory just before the next election. It didn’t work for W, and it won’t work for O.

Sorry to be such a downer, but government’s don’t create jobs.

They tax, and they fight wars.

So spare me the job summits, and spare me the “surges”, and, Mr. Government, stand aside so that real people can take risks and create real jobs.

The Party’s Over

by John Galt on September 23, 2008

Pat Buchanan wrote a great article today; his basic premise is that the party is over. For the last few decades we have lived beyond our means. We have financed everything with debt. We don’t save a dime anymore.

The left argues that this is a failure of conservative capitalism, that we need more government involvement in our lives. That’s ridiculous. Does anyone really believe that our problems were caused by Wall Street being cautious and prudent?

Living Beyond Our Means

No, our problems are caused by living beyond our means, and by believing that government can save us. Here’s Mr. Buchanan’s conclusion:

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.

What the Greatest Generation handed down to us — the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved — the baby boomers, oblivious and self-indulgent to the end, have frittered away.

Sad, but true; you can read the full article here.

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