The Keynesian Non-Answer

Tibor R. Machan

The New Republic editorialized recently about the current economic mess and it is worth quoting it because the central passage is largely non-hyperbolic, non-polemical: “The classic response to [our current economic] situation, put forth by John Maynard Keynes in the 1930s, is for the government to spend money. During the Great Depression and then World War II, the Roosevelt administration and its allies did this in part by employing people directly, an idea that still makes sense even if it’s utterly unfashionable. But there are other ways to prime the pump. Government can invest in public works, whether it’s building roads or fixing up schools. It can put money in the hands of those who will spend it, by increasing public assistance or by targeting temporary tax relief to the poor and middle class. It can also supply money to state and local governments, which because of balanced-budget requirements are busy laying off first-responders, teachers, and other employees—making the unemployment problem worse.”

Notice that of course, the editors simply take it for granted that governments are authorized to engage in this kind of economic regimentation. Never mind that when citizens decide not to spend money they are doing it with what belongs to them and may indeed know what they are doing. But this doesn’t matter to the advisers of master planners. Such moral issues are to them trivial. They think like statists have always thought--what matters for them is only what the king, czar, or some other government aims for.

The history in the passage is wrong. Roosevelt’s Keynesian schemes didn’t work, as it has been shown by numerous economists. (See The Critics of Keynesian Economics [1960] edited by Henry Hazlitt, and Hunger Lewis’s Where Keynes Went Wrong [2009], among many works that critically and mostly dispassionately address Keynesian economics.)

Investing in public works is a complete illusion--most of such spending by government is directed politically; it’s nearly always graft, and what else could it be since government officials haven’t the faintest clue as to what the money they have extorted from the citizenry should be spent on. So the spending will be a response to the pleas of lobbyists and others who can be of help in reelecting the politicians.

Of course, balanced budgets are very rarely implemented. Politicians do not want their hands tied.

The citizens who taxes are extorted could, of course, spend their own funds or invest them or place them in banks that can lend them out all of which would end up employing people for purposes that actually fulfilled what the public wants. Indeed, it is only such spending that amounts to support for public works since the so called public works are nothing but made up projects that serve the agendas of the politicians and bureaucrats. (The editors are evidently unfamiliar with public choice theory for which Professor James Buchanan received his Nobel Prize. The idea is, simply put, that politicians and bureaucrats do not spend on public projects but on what they regard is important. It should also be considered that even those who would try to serve the public interest stumble upon the difficulty of knowing what that might be, seeing that the public is made up of millions of people who have hardly any common interests or objectives.)

I have never managed to appreciate why these people keep assuming that the judgments and actions of government officials are superior to those of the citizenry throughout the world where these Keynesian proposals are being made and followed routinely. I keep asking, “Who are these people whom we can trust with such tasks as running a country’s economic affairs?” Somehow thousands of intellectuals who would never entrust government with tasks such as censoring literature and newspapers nevertheless have no compunction about entrusting them with the very delicate and idiosyncratic tasks of directing people’s economic affairs. (I tend to think it is the ancient governmental habit, left over from feudal times.)