Why Arguing About Keynesian Economics is Dumb
I'm not going to try and give anyone a history lesson here. I want to keep this simple, because it's incredibly important that as many people as possible understand this.
If you're like most people, you've probably heard people saying bad things about something called "Keynesian Economics", but you're not quite sure what it is. You just know it has something to do with communism and the devil. Well, it's actually rather easy to explain, and I'd like to explain it to you so the next time someone says how evil it is, you can understand exactly how smart they are for hating it.
At its core, Keynesian economics focuses on something called a "General Glut". That's a fancy theory that someone invented to say: What if an economy wasn't growing as fast as it should because businesses are making the wrong decisions? Obviously this is silly, because the free market always makes the right decisions, but in the olden times economists argued about whether a "General Glut" could ever really happen.
A man named John Maynard Keynes said that it definitely could happen, specifically if businesses were afraid to hire employees because sales figures were low. Keynes said that if businesses stopped hiring for long enough, and unemployment got high enough that a lot of people didn't have jobs and couldn't afford to buy things, this might create a situation where the economy basically comes almost to a halt and grows much, much slower than it should.
Even though this was a silly idea that could obviously never happen, Keynes decided to think about what the solution would be, just in case it ever did. He realized that economies need to be driven by demand. In other words, someone needs to buy things. If businesses weren't spending money because they were afraid, and people weren't spending money because they didn't have any, then the only one left who could buy things was the government.
Yes, you heard that correctly. He thought that the only way to get out of a general glut was for the government to spend money. As silly as this seems, his ideas were popularized during the Great Depression. When the Great Depression first struck, Herbert Hoover did the smart thing and cut government spending. Unfortunately, for some reason the economy just got worse. When FDR came into office, his advisors wisely recommended he cut spending even more. He followed their advice, but stubbornly the economy refused to recover.
Then FDR was introduced to the "alternative medicine" of Keynesian Economics. Unfortunately, when he followed Keynes' advice to spend large amounts of taxpayer money, the economy rebounded. This made people think that Keynes might be right. The real truth is that the economic recovery coincided with the country's entry into World War II. While Keynesian Economists patted themselves on the back, telling themselves that Keynes was right and that Government Spending really can save the economy, the truth was that the economy was saved by the war because of all of the jobs creating building the tanks and airplanes the government was buying.
Worst of all, the Keynesian Economists tried to claim that when the government bought tanks and airplanes, that was just another example of Keynesian Economics creating jobs and kickstarting the economy. This sounds reasonable, but keep in mind those people are Keynsian Economists so they obviously don't know what they are talking about.
The fatal flaw with both Keynesian and Classical Economic models is they believe the worker is the center of the economy. Classical Economists value goods based on the cost of the labor to produce them. Keynsian Economists believe the economy is driven by demand. The truth is that the economy is driven by the job creators. Saying an economy is driven by the value of goods sold, or by the people buying the goods is like saying a business needs customers and workers. But that obviously isn't true, because if businesses couldn't exist without customers or workers then we wouldn't need to cut taxes for job creators and loosen regulations.
Another interesting point proving this is that Republicans have been laser-focused on the economy all year, and especially during the primary debates, yet no one has spoken at all about education. They say they are creating plans for the U.S. to create new jobs and take jobs back from overseas, but clearly they do not see education as important to achieving this goal. This is because they understand that the economy is driven by job-creators and not by workers or by demand, and certainly not by government spending.
On the communist side of the coin, Obama's so-called jobs plan includes funding for schools because he thinks it is important that Americans are educated and qualified for the high paying tech jobs that are constantly being created. This ties everything together: Government spending, educating the workforce, even raising taxes on job-creators. Obama obviously believes in Keynesian Economics, and doesn't respect the central role of job-creators in the economy.
If you listen to Obama you might come away thinking that Europe, the Middle-East, and even China had functioning economies for thousands of years primarily based around small businesses and driven by workers, demand, and even a fair amount of government spending. If you listen to Liberals you might think that it is crazy to put big businesses on a pedestal as "job creators" and pray to them, begging they create more jobs. The problem in either case is that you're thinking. Don't think at all, and then you'll realize Keynsian Economics doesn't make the slightest bit of sense.
AUTHOR'S NOTE: If you're confused after reading this, then I apologize. I have to admit, that was somewhat intentional. Think about things, google them, and don't fall into the trap of letting yourself believe someone else's opinion without really understanding it. If you took this post at face value, I would ask you give it another read-through.
