Keynes Was An Idiot

Krugman’s theory, that we need government spending in order to restart the economy, seems to be bolstered by history but fails the test of logic. FDR’s spending program did not restart anything, it merely allowed an economy to stay the course until WW2 came along, as is pretty much confirmed by Krugman’s editorial in today’s NY Times.

It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.

To me that suggests that the recession is at held bay only so long as you continue the government spending, and that is not a recovery at all. FDR's spending had been ongoing for more than six years, at what point would his attempt to balance the budget not been "premature?"

Krugman suggests that consumer buying will restore the economy, that it is the economy in fact, but if it is the government’s money they are using for that buying then the economy survives only as long as the government continues to pour money into the mix. Recovery from the depression of the thirties didn’t really occur until American production powered the rebuilding of a war-shattered world in the 1950’s.

Recovery of a real, sustainable economy is not going to occur until we are producing, and I don’t pretend to know precisely how that happens. I certainly don’t imagine that is going to occur as a result of the government providing temporary jobs, or pouring money into an economy based on credit and consumer spending.

Government provision of jobs may be, and I think is, necessary as a stopgap measure but not, as Krugman suggests, as a means of “restarting the economy.” If we’re going to do it, we should be focused on what we are trying to accomplish with it. In losing the focus on its purpose, we wind up doing it badly, and spending money that serves little purpose at all.

High speed rail projects are a case in point. That kind of project expends far too much on real estate and raw materials acquisition, which add essentially nothing to the economy, and provides relatively few jobs for the amount of money expended, which is the baseline purpose of the stimulus to begin with. It may be good social policy when money is available to do it, but it’s a damn poor means of providing jobs pending an economic restart.

Other nations seem to be focused on subsidizing manufacturing, and we complain about that. Boeing complains about the Air Force tanker deal because the EU subsidized the builders they were competing against. Our steelmakers complain because the steel we import is subsidized by the government of the countries in which it is made. We just complain, and focus more on how our government needs to spend more on “providing jobs so that consumers can spend,” and wonder why our factories aren’t building anything.