Keynesian Economics Is Wrong: Bigger Gov't Is Not Stimulus

Based on a theory known as Keynesianism, politicians are resuscitating the notion that more government spending can stimulate an economy. This mini-documentary produced by the Center for Freedom and Prosperity Foundation examines both theory and evidence and finds that allowing politicians to spend more money is not a recipe for better economic performance.

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  News & Politics

[Mark Grisham]

If you consider "20 percent down to 15 percent", both numbers formerly unknown and simply horrendous, an "improvement" (after 10 years of by the time massive spending), that's up to you If you look at the data, you'll see that those 20 % were reached many months after the massive interventions began. As to the 95 % tax rate, nobody actually paid that, because there were so many loopholes. So, the major source to finance all this gvmt. spending was to go into debt - massive debt for those times.

[dLimboStick]

Who employed those 12 million men? Who paid for their employment? The government, perhaps? And the statement "That's why bewteen 1929 und 1940 there was merely no improvement despite gigantic, unprecedented govm.spending, because there was no draft" is simply not true. 20% to 14.9% is improvement, and when the government let loose the flood gates of spending for the war it went to 1.2%. The diff being, taxes were raised to 95% on top incomes to pay for spending.

[Mark Grisham]

I once held that position, too, since it was so 'obvoius'. Well, if you look at it more closely, some questions come to mind: How did the draft impact on unemployment? 12 Million men were taken out of the workforce, of course many if not most of them formerly unemployed. That's why bewteen 1929 und 1940 there was merely no improvement despite gigantic, unprecedented govm.spending, because there was no draft. Furthermore, this is the reason why many people believe "war is food for the economy".

[FletchforFreedom]

The FACTS about the poor economic conditions are actually very easy to find. Look up Higgs' definitive (and overwhelmingly accepted) "Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s" or Google "The Great Depression of 1946" which COMPLETELY refutes the "prime the pump" theory as, again, the largest austerity program ever (slashing of gov't payrolls and spending) resulted in one of the greatest economic booms in US history.

The debate is over (at least for most economists).

[FletchforFreedom]

As the unemployment rate is not the sole (or even key) metric of economic performance and, again, was lowered solely by massive unsustainable government intervention (mostly putting millions under arms). The unemployment rate actually fell to 14.2% in 1937 before climbing again (the Roosevelt Recession) - impossible if your theory were correct. Consumer spending and business investment TANKED, shortages were the norm, rationing was required - NONE of this is controversial.

cont

[dLimboStick]

"The economy during the war years remained in a shambles". I'm curious how you characterize the economy being a shambles, when the unemployment rate went from a high of over 20% in 1933, down to 14.9% by 1941 when the US entered the war, to a low of 1.2% in 1944 near the wars end. It's easy to say "the economy was a shambles" when you can't back the claim with facts. The facts are that government spending did "prime the pumps" and did start the flow as Keynes suggested.

[FletchforFreedom]

...and spending that would have made Hoover blush. The economy during the war years remained a complete shambles. The non-gov't sectors of the economy contracted and shortages and rationing were the norm (which is why the man who created the GDP calculation warned that it was useless during wartime). Only the vast increase in the military curbed inflation. It wasn't until government payrolls and spending were slashed in 1946 that the economy BOOMED.

[FletchforFreedom]

That's easy: entrepreneurship. The Great Depression began as the result of gov't manipulation of the money supply and was made worse by unit banking laws (chief cause of bank failures), protectionism (Smoot-Hawley) and gov't spending (FDR ran against Hoover's spending). The economy was recovering slowly before FDR's bank holiday (causing another round of failures), manipulation of the currency (particularly gold prices), the Wagner Act (which made unemployment skyrocket)...

cont

[dLimboStick]

So please explain to us, what was it that dug us out of the depression, if it wasn't government spending.

[FletchforFreedom]

As a) the video doesn't presume that the economy is static and b) Keynesianism not only didn't help the economy after the market crash in 1929, but demonstrably made matters much worse (prolonging the Depression for years and making it "Great"), perhaps the ignorance lies elsewhere...