Wednesday, February 27, 2013

Keynesian economics doesn't work? Or does it?

Sequestration Is “Terrible Policy” But Better Than No Spending Cuts At All: Ayn Rand’s Brook

Not surprisingly, the Ayn Rand Institute claims that Keynesian Economics "doesn't work."  Look around and we see high unemployment despite trillions in stimulus spending.  Look at Japan.  The problem is that we can't see what would have happened without all that spending.  Look at what happened in the Great Depression.  I think most people would agree that our economy appears to be better off than it was back then.  It's probably better off right now than it would have been without stimulus spending.

That said, government does need to come up with some way to reduce spending in a meaningful way.  This idea that the economy will grow enough to eventually pay our debts doesn't work, and isn't going to work this time either.  We do need cuts; I just don't think we need cuts now, and I think it's wrong to say that any cuts are better than no cuts.

One of the comments made in the video was that there was no way that World War II did anything to help our economy.  Yes, it raised GDP, but standards of living fell.  Another, toward the end, was that you can't raise standards of living by breaking stuff, or something to that effect.  Only, the way I see it, that's exactly what eventually did raise standards of living immediately after the war.  Standards of living were low because people weren't allowed to buy a lot of things.  Those things were rationed.  The government forced the diversion of resources toward supporting the war effort.  And demand for some things was, well, "pent-up."  So, when the war ended, U.S. industry had developed into an extremely efficient manufacturing machine, and people spent.  It turns out, you can increase standards of living by breaking stuff, just not immediately.

No comments: