Friday, October 23, 2009
Keynes lab rats?
A few weeks back I wondered about the logic of stimulus funds that don't seem to stimulate at all. Well, yesterday I might have stumbled across the answer, which seems to have something to do with all of us as ongoing lab rats for Keynesian economic theory.
Again, I'd love it if someone could explain it all to me like I were a three-year-old. If I have Keynes right, governments are always supposed to be in the business of printing more money out of thin air, and making the lending of money as easy as the snap of a finger. Then, when it all starts to bubble and burst, governments are supposed to keep doing the same thing, but do it up to ten times harder and faster.
Now, I've studied just enough of Keynes to know that governments are supposed to change fiscal policy according to fortune. For example, taxes should go down during tough times, and back up during good times when it's affordable to do so.
However, the problem with this prescription is that governments rarely tend to abide by it because, well, they're run by political people, and raising taxes and/or reducing spending is something they never like to do, and often only do so when forced to by reality — a la Clinton and Chretien during the 1990's.
So, an adherence to Keynes economic philosophy seems to involve the constant creation of more money and borrowing until it all falls down, at which point the same things you did to get you into the mess are to be done more so than ever before.
This is supposed to make for sound economic policy? Again, would love it if someone could eventually explain it to me like I was a kid or something.