It’s been five years of this Keynesian mess with the notion that economies are driven from the demand side. At the start it was direct government spending. As an approach to recovery it has comprehensively failed as no one now denies. So we have now gone to the monetary policy approach with Quantitative Easing, pour money out into the economy and low interest rates will finally lift things up. Also not working but no one knows why. So here’s why, and odd that you have to come to this website to get the only sound economic advice available anywhere. But here is why. Economies are driven forward by increases in value adding supply and by absolutely nothing else. Others can tax, steal or otherwise appropriate the productivity of others and squander what they get. But this will NEVER lead to a recovery, not ever. So we have kept rates low and watched as nothing has happened. Unexpected to others but not to anyone who understands the classical theory of the cycle and Say’s Law.
Anyway, it’s that time of year again. Macro follies continue and no one seems to have learned a thing. And it’s not just consumer spending but all unproductive spending that is a draw down on productivity. Consumer demand is, of course, the reason for bothering with any production at all. But if we are thinking about growth and employment, consumer and government demand has nothing to contribute, nothing whatsoever. Nor does mis-directed investment spending. If you don’t understand why, ask someone to give you a copy of Free Market Economics: an Introduction for the General Reader for Christmas. It’s what I gave everybody last year so why shouldn’t you have a copy yourself?