Saturday, February 22, 2014

The Progressive Art Of Single-Entry Bookkeeping

Dan Mitchell, at the International Liberty Blog, has written the best summary I've ever read of the failures of Keynesian economics. 

Go here. 

A slice....

To explain how this works, let’s briefly digress and explain Keynesian economics. This is the theory that you can jump-start a weak economy by having government borrow a lot of money and then “inject” this money into the economy. And that’s precisely what Obama did with the stimulus, mostly with more spending, but also with some tax cuts for favored constituencies. According to the theory, the money that is being spent by the government (and the recipients of tax cuts) will goose growth and create a ripple effect as producers hire people to deal with the increase in “aggregate demand.”
The Keynesians basically assume that there are no “opportunity costs” when government borrows money and spends it. That’s a bit of economic jargon, but it’s simply a way of saying that Keynesians think that money, for all intents and purposes, will sit idle and gather dust during an economic downturn in the absence of government.
This is a very nice theory…but only on a blackboard.
In reality, there is an “opportunity cost” when government borrows money and spends it. Resources are diverted from the productive sector of the economy. This might not be a problem if government spent money wisely, but stimulus schemes tend to reward interest groups with the most political clout. So instead of outlays for physical and human capital, which at least theoretically might improve the economy’s productive capacity, the White House directed the bulk of the stimulus to redistribution programs and handouts to state governments.

Yeah.  What he said.  Everything looks rosy as long as you restrict your analysis to what Kevin Williamson recently called "The Occult Art Of Single-Entry Bookkeeping". 


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