Tuesday, November 30, 2010

Consumer spending will not improve America

The government, in an attempt to spur economic growth, spent a lot of money trying to get consumers to spend more. A lot of modern politicians follow a brand of Keynesian economics, which argues that monetary policy can calm a recession or depression. It can be said that Keynesian economics advocates intervention to stabilize the economy, and this is very wrong. Spending will not get you out of a recession/depression, and only acts as a jury rig for later failure. This is an idea I've held for a while, but I'll frame it the way I read Daniel Hannan did in a recent post: consumer demand is a consequence, not a cause of economic growth.

Boosting consumer demand through spending in the Keynesian style does not increase GDP, it does not make the economy more productive. If you take a little from the taxpayers and then give it back, you haven't done anything. If you take money from private investors and reinvest it in consumers, you've just reallocated money. If you borrow from foreign countries, you can increase GDP at the expense of future debt. I liked the way the video put it: it would be like taking your retirement fund and using it to go to vegas. Instant gratification, long term problems.

If congress really wants to stimulate economic growth, you need to find a way to increase wage, profit, and other income. You can do that with lower taxes, lower government spending, free trade, and deregulation.


  1. Wonder what the American people think is useless spending? Social Security? Medicare? Medicaid? Military spending?

    I would advocate eliminating the US Department of Education for one thing; abolish No Child Left Untested, uh, make that Left Behind.

    How about getting out of Iraq and Afgahnistan? There's a thought.

  2. Both of those are equally good things to do. I would go even further