The Destructive Power of Keynesian Spending Plans

Source: Mises Institute.

The writer uses the concepts of productive and non-productive consumption to show that government spending is inherently destructive.

I would add that some destructive spending is both necessary and desirable. Military defense spending, for example, deters war; judicial spending enables domestic conflicts to be resolved; and so on. The benefits far outweigh the costs.

Still, the costs are real and they are unavoidable.

44 thoughts on “The Destructive Power of Keynesian Spending Plans

  1. ” . . . to show that government spending is inherently destructive.”

    Typically shallow “Austrian” analysis that only seems to make a little sense with simplistic examples. For example, to stimulate the failing economy the author sets up the straw man of the government paying people to dig holes? Huh? Why not pay them to build and repair highways, bridges, ports, and other infrastructure. Is the government spending money to build a bridge “inherently destructive?” Pretty clearly not. If an analysis leads to a nonsense conclusion then that is your signal to question the logic.

    Take the potato farmer and the baker. How does the analysis work if the potato crop fails so he gets $10 from the government to buy bread? Without that “printed” money the baker, too, would have to cease producing. And would no longer need to buy flour from the mill who in turn would not longer need to buy wheat from the wheat farmer. A downward economic spiral stopped in its tracks by that “printed” $10. Was that spending “inherently destructive?”

    Liked by 1 person

    1. RE: “Is the government spending money to build a bridge ‘inherently destructive?'”

      I addressed this question in my comments on the article. Yes, it is inherently destructive, but the bridge may be both necessary and desirable, with benefits that outweigh the costs. The relevant question is, Why should the government pay to build the bridge?

      RE: “Take the potato farmer and the baker. How does the analysis work if the potato crop fails so he gets $10 from the government to buy bread?”

      It works just fine. Just answer the question, Where did the government get the $10?

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      1. “The relevant question is, Why should the government pay to build the bridge?”
        Because people need jobs and the community needs a bridge.

        Where did the government get the $10?
        It does not matter. Borrow it, print it. Austrian economic “thinking” is crippled by an archaic view of what “money” is. There is NOT a fixed amount. The actual money supply is a complex function of many factors.

        How is government spending to produce something that is “both necessary and desirable” in any way “inherently destructive?” That makes no sense whatsoever. Words have meaning and you are ignoring what they mean in your eagerness to trash government spending.

        Liked by 1 person

        1. RE: “How is government spending to produce something that is ‘both necessary and desirable’ in any way ‘inherently destructive?'”

          I already addressed this. Government spending is a cost. There can be benefits.

          The essay explains that “productive consumption” pays for itself, whereas “non-productive consumption” does not.

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          1. Everything that gets produced has a cost. You are going in circles to prove nonsense – that government spending is “inherently destructive.” Government spending to build a bridge is no different than a for-profit company spending to build a bridge.

            This “analysis” in this essay is a word salad and nothing much more.

            Liked by 1 person

          2. RE: “Government spending to build a bridge is no different than a for-profit company spending to build a bridge.”

            Only to the muddle-minded. Government obtains the money it spends by force, private enterprise as a result of voluntary transactions. The difference has profound consequences, the main one being that government competes with private enterprise for capital. In effect, when government builds the bridge, a bridge-equivalent is not built in the private sector.

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          3. One of us is “muddle minded.” With all due respect, that is you. Now, rather than continuing to defend the nonsense proposition that government spending is “inherently destructive” you are switching gears to blather about “force” and how government spending crowds out private capital. It doesn’t. That once again betrays a anachronistic understanding of the nature of “money.” The supply is NOT a fixed amount. The real economic cost is when productive resources such as people are idle. If the government prints money and pays them to produce something of value that is the opposite of “destructive.”

            Liked by 1 person

        2. RE: “If the government prints money and pays them to produce something of value that is the opposite of ‘destructive.'”

          It would nice if government could do that, but it can’t. In your own example, “printed money” reduces purchasing power, creating a direct offset to production. On balance there is no net production at all.

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      2. “Why should the government pay to build the bridge?”

        That’s an easy one. The Constitution says so. In 1787 it was post roads. But, as you must remember, we are no longer living in 1787.

        Well, not ALL of us.

        Liked by 1 person

  2. I wrote a guest editorial for the Pilot a few years back on this, Keynes would be horrified by what is done now in his name.

    https://www.pilotonline.com/opinion/columns/article_442f66b9-1902-5887-a448-ccc92615cd92.html

    I call what we have now ‘pseudo-Keynesian economics’ as it is not used as he intended to prop up the economy when it is slow, it is used in good times and bad to create the illusion that the economy is healthier than it really is.

    One of the most destructive things stimulus spending is that it interferes with creative destruction. Some businesses are poorly run or obsolete, and propping them up by creating excess demand keeps them from disappearing and passing their assets on to someone who will use them better.

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    1. I agree with you that the folly of “pseudo-Keynesian economics” is very real. It has been practiced by Republican governments for decades – most notably by Donald Trump whose massive deficit spending (before the pandemic) was the very opposite of what Keynes would have prescribed when the economy was already at full employment.

      Liked by 1 person

          1. I didn’t bring it up. I commented and wrote the editorial pointing out that what we have been doing since Carter was not what Keynes intended.

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        1. Well, you could have at least given some credit to Bill Clinton, whose budget he passed on the Bush showed a surplus. Of course, that was the selling point for Bush, Jr. to give a massive tax cut, double the debt and here we are.

          Republicans care not a whit about deficit spending so long as we borrow to pay for it.

          Interestingly enough, President Obama wanted to drop the corporate tax rate, but Republicans did not want to give him any kind of a win. I believe the sought after rate was 28%. That is rate being considered, but not cast in stone, by President Biden.

          Liked by 1 person

          1. I disagree. Deficit spending is injecting money into the economy. If we borrow in good times and bad, we defeat the purpose of Keynesian policies.

            My contention is that it is more realistic to paygo than to cut taxes and still spend (or injecting money into the economy).

            Liked by 2 people

          2. It is important to consider the source of the spending funds: tax revenue or borrowing.

            Every time we cut taxes, spending and borrowing went up. Since Reagan.

            So the issue is that we have revenue available at the top in good times (and, apparently bad times, since the wealthiest among us made a killing in the trillions during the pandemic).

            So we can replenish if we really wanted to.

            Liked by 2 people

          3. The stimulus spending in good times is harmful regardless of whether it comes from taxes or borrowing.

            Moribund businesses are rescued either way, Failure of badly run, or obsolete, businesses is as necessary as fire is to the forest.

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          4. I think you misunderstood. The spending would be to boost economic troubled times like crashes and pandemics.

            The money to be replenished is what I was talking about. It is there, just not available.

            Liked by 1 person

          5. …”that was the selling point for Bush, Jr. to give a massive tax cut, double the debt and here we are.”

            You left out starting a war with Iraq that we were sold on the basis that oil revenue would pay for it.

            Liked by 1 person

          6. “Republicans care not a whit about deficit spending “…

            Knew I forgot something.

            They don’t care a whit about deficit spending when they are in power. But as soon as the Democrats in power the deficit chicken-hawks come out of their roosts and scream about the deficit spending.

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          7. RE: “Deficit spending is injecting money into the economy.”

            The essay makes clear that no money is added. Specifically, the quantity of dollars goes up in relation to the quantity of goods produced, making the dollars devaluated, or worth less, in purchasing power.

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          8. UH, no. You are stuck with the idea that there is a set amount of money and a set amount of goods. You are also assuming full employment. None is true. If the government prints money and pays idle people to make goods – say a bridge – then there is money added AND goods added. And that does not even consider the knock on effect of the increased economic activity where the new money creates demand for the production of new goods. And so on. The driver of ALL economic activity is people with money who need or want to spend it.

            These “Austrian” cries of gloom and doom are nothing new. Their dire predictions keep failing and their answer is always the same – just you wait.

            Liked by 1 person

        2. “Always partisan with you.”

          Bullshit!

          President Clinton raised taxes and reduced the deficits he inherited.
          President Obama was faced with the situation where the stimulus of deficit spending was vital. And, still, he reduced the deficits he inherited.

          It is only the Republican policy of borrow and spend under Reagan, GWB and DJT which were what you described – deficit spending without a legitimate purpose.

          The partisanship is your attempting to blame “EVERY President” contrary to the actual history.

          Liked by 2 people

          1. “Clinton benefited from the “Peace Dividend” Reagan left him.”

            Funny how you left out the President immediately AFTER Reagan. Who was also Republican.

            Historical context, Don. Ignoring it removes a lot of credibility from your argument.

            Liked by 1 person

          2. Bush the Elder was just there to ceremonially accept the surrender of the USSR after Reagan defeated them.

            Bush might have had a second term had to stood by Reagan’s principles, but he threw it away by trying to work with Democrats in the false belief that the press would support reaching across the aisle.

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          3. Did you delete your other comment? I was replying to it and it disappeared.

            The first Gulf War was fought with weapons and munitions left over in Europe from the COld War. The ammo was close to its ‘best if used by” date anyway.

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          4. We had a lot of military hardware in Europe and a lot of ammunition stored there to counter the Soviet Union. When the USSR ceased to exist, those assets could be redeployed to Kuwait, We did not have to go out and buy new tanks or bombs.

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          5. “We did not have to go out and buy new tanks or bombs.”

            Not to fight the war, but I think that the stockpiles and worn out equipment had to be replenished when it was over. By Clinton. Again, no “peace dividend” to explain reduced deficits. Just fiscal responsibility.

            Liked by 1 person

          6. But there was no need to replenish them. With the threat from the USSR and the Eastern block eliminated, we had twice as many tanks as we needed and tons of munitions no longer needed and nearing the end of their shelf life.

            You could think of it as an ordinance disposal war.

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          7. And if there were truly any kind of “peace dividend” our budget would not consist of the massive defense spending we have see over the decades since.

            A true “peace dividend” would allow the country to cut defense spending and invest in things outside of national defense.

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          8. With all due respect, you are ridiculous. You accuse me of being partisan for citing facts while you push your “alternative fact” that “EVERY President” since Carter has be doing this.

            Clinton RAISED taxes without a single Republican vote. That is the opposite of pumping deficit money into the economy which is what you are accusing him of having done.

            It does not matter what happened to tax revenues under Reagan. They went up less than spending. The fact is that he pumped deficit spending into the economy.

            https://www.politifact.com/factchecks/2019/jul/29/tweets/republican-presidents-democrats-contribute-deficit/

            The pattern is clear. The party of fiscal responsibility is the Democratic Party.

            Liked by 2 people

          9. “Bush the Elder . . .”

            The point about the elder Bush was not who defeated the USSR but about your claim that Clinton balanced the budget on a non-existent “Peace Dividend.”

            “Reagan defeated them.”
            Just like the rooster causes the sun to rise. You have argued that a command economy such as was practiced in the USSR is doomed to failure but NOW you want to give Reagan credit for it failing? That is a dog that won’t hunt even though it gets trotted out all the time.

            Bush lost his second term based on foolishness and statesmanship not bad press coverage. The foolishness was his categorical “read my lips” promise to not raise taxes. The statesmanship was his breaking that promise AND his deciding to leave Saddam Hussein in place.

            Liked by 1 person

          10. “But there was no need to replenish them”

            And yet, they were replenished. There was no significant cut in DOD spending during the Clinton years. The budget for FY 1993 (Bush’s last) was $317 Billion. By FY 2001 (Clinton’s last) it was at $332 Billion. It’s lowest level during those eight years was still at $288 Billion.

            No “peace dividend.”

            https://www.macrotrends.net/countries/USA/united-states/military-spending-defense-budget

            Liked by 1 person

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