You may think I go on a bit about this Keynesian economics but it is the source of every government’s warrant to spend like there’s no tomorrow. So long as the universal view is that economies are driven by demand, there is no effective answer to decisions to spend. Since according to Keynesian theory, the spending ends up in jobs, and the multiplier effects ensure that, no matter what the original spending is on, it will lead to higher growth, even if the first round of such expenditure is a total waste, it all contributes one way or another to our prosperity. Once you have tossed Say’s Law aside – which specified that demand could only come from the supply of products whose revenues covered their production costs – there is no intellectual defence against public spending. Don’t you care about the unemployed? Are you not interested in economic growth? Then surely governments must spend to put people into jobs and raise our living standards.
No economist today has a ready answer to this that builds out of the economics we teach. Accept as valid that Y=C+I+G+(X-M) and you seem to me to be defenceless against public spending as a certain social good.
We worry about public sector waste, misdirected production, a tonne of money lost on useless green programs, a proliferation of public servants whose main role in life is to prevent other people from producing. We are apparently content to see government hand tax money over to businesses to complete projects that will never repay their costs. We do this because, at the back of everyone’s minds, there is the belief that it will all be to the good, as it stimulates growth and puts people into jobs.
Honestly, what is the reason not to do any and all of it if the Keynesians are right? Why not spend the money if it will create jobs that would otherwise not be there and stimulate faster growth that would otherwise have not occurred? It amazes me that whether this is actually true is never the issue. We discuss deficits and debt but the underlying premise, that public spending is good for growth, is never challenged. We build schools, hospitals, infrastructure and every dollar spent is seen as a net positive. But unless you understand in your very bones in what circumstances this is untrue, you will never rise up and bring this madness down. We are bankrupting our societies and slowly grinding our capital into the ground, but so long as we have Keynes to tell us it is all to the good, it will go on forever, until the collapse. And if Japan is anything to go by, it will continue even after that. If no one understands why it should be stopped, it won’t be.