Sunday, February 1, 2009
This is just a quick link to follow -- an "aside." These are links to interesting things that, for one reason or another, I didn't place into a full posting. Click the link to visit the full article. Go to the blog index for a regular listing of posts.
Jeff Jacoby: Money for nothing won't grow the economy - '...Keynes died in 1946, but the Keynesian fallacy - that money for nothing (government spending without increased productivity) can boost the economy - lives on, impervious to the evidence disproving it. To be sure, many economists dismiss it - several hundred of them, including Nobel laureates Edward Prescott, Vernon Smith, and James Buchanan, issued a public statement last week calling it "a triumph of hope over experience to believe that more government spending will help the US today." But experience didn't dissuade 244 House Democrats from passing President Obama's massive spending bill, just as it didn't dissuade President Bush from signing last year's expensive "stimulus" legislation...'
This is really very sad, because both common sense and rigorous theory should steer us away from this thing, and there's no shortage of people who know this, and yet they must stand aside and watch this preventable catastrophe unfold.
Here's a little anecdote. My favorite coffee shop went out of business today. Business is a little slow, though not terrible, but their rent is too high. The rent is too high because the developer built the mall during the construction boom, when land and per-square-foot costs were at the highest. There's nothing the landlord can do to lower the rent. By summer, the developer will give up and the property will pass into the hands of the bank or someone else at a reasonable price. Probably better than a reasonable price. Then the rents will come down, the businesses will come back, and life will resume.
Now, anything the government does to delay this process will further damage the economy. They should be acting to speed it up instead. And if what they do in particular is spend a trillion $$, the consequences will be inflation and a business environment in which managers are paying more attention to what the government is doing than to running their business.
It'll be like someone is slashing away at the economy with a machete.
If there was ever an argument for the classic welfare safety net, this moment is that argument. Create an emergency benefits package, costing far less than a trillion dollars, including expanding medicaid and whatever else is called for. We can recover from that, as we have before, and it'll prevent the worst outcomes for individuals. But once politicians begin to control the economy directly, especially democrat politicians, it can easily be the beginning of a death spiral from which recovery would be much more difficult.