Can government deliver something for nothing?
Hillary and Say's Law
Excerpt:
"But this stimulus shouldn't be paid for," Hillary Clinton said to Tim Russert in a recent interview, when he reminded her that she'd omitted a price tag somewhere. Shouldn't be?
Say hello to that old ghost from the past we thought banished by Ronald Reagan in the 1980s. It's called "Keynesian Economics."
Ironically, even the brilliant John Maynard Keynes disowned it. After meeting with a group of Washington "Keynesians" in 1944, he said he was the only non-Keynesian in the room. His brainchild, government spending to stimulate demand, had been converted from its originally intended limited application to an all-purpose economic panacea by politicians, academics and journalists.
The fundamental principle of the Keynesians, one that Lord Keynes would have scoffed at, is that government can deliver something for nothing. To be sure, government does transfer income and wealth to favored constituencies, such as rice farmers or ethanol producers, from people who pay taxes. Washington calls that economic stimulus. The costless "stimulus" Sen. Clinton had in mind would be broader, although tilted toward low-income earners. The intent is to pump up consumer demand by showering "tax rebates" on people with a "greater propensity to spend."
Comment: Italized for emphasis!
Say's Law
Summary:
There can be no demand without supply. A central element of Say's Law is that recession does not occur because of failure in demand or lack of money. The more goods (for which there is demand) that are produced, the more those goods (supply) can constitute a demand for other goods. For this reason, prosperity should be increased by stimulating production, not consumption. In Say's view, creation of more money simply results in inflation; more money demanding the same quantity of goods does not represent an increase in real demand.
Comment: Government needs to get out of the way and free the markets with less regulation! Sending checks to citizens (there's a part of me that wants it for myself!), will just create more consumption, not more production. Since much of what is consumed is produced overseas, it will not even help U.S. factories!
Everyone, and I mean practically everyone, is saying how great the Fed was in their latest move. In fact, about the only negative I saw was that it was "too little, too late."
ReplyDeleteThere is a minority viewpoint out there (Buchananesque, Paul types) which states that increasing the money supply is the exact OPPOSITE of what should be done. Yes, in the short run this will stimulate the economy. But to others, and I lean this way myself, the view is that the biggest economic problem is the devaluation of our money. These moves by the Fed will only inflate (aka devalue) the dollar in the long run! Doesn't anyone else see this, other than the Buchanan/Paul types who are generally written off as nutcases?
Re: "the devaluation of our money"
ReplyDeleteGood comment and a real concern.
I personally am shocked by how the dollar has dropped.
The decades of deficit spending (blame it on the Democrats AND the Republicans) will haunt this generation AND the next!
Some (and it may be me!) who had planned to retire at 65 or 66, may find themselves working into their 70's!