Perhaps We Should Tear Down Broadway—Or Start Another Chicago Fire

by Burt on August 1, 2011

Many Tea Party followers are closely watching the current debt ceiling debate. They wonder why some Democrats would want to discourage thrift and encourage more deficit spending—even on silly stimulus package projects like building turtle paths. When we watch the Democratic party stifle savings and urge more and more spending, many observers wonder if the Democrats may be trying to sabotage the country—intentionally causing the U.S. to go bankrupt.

Not so. Most Democrats believe that spending our way much further into debt is a good thing, which will help our country. They believe the ideas of John Maynard Keynes (1883-1946), the British economist named by TIME magazine as the greatest economist of the 20th century. To simplify, Keynes argued that when hard times occur, the government should eagerly build public works and other project to stimulate “aggregate demand.” In other words, in a recession, don’t save money–spend it, even if you have to go heavily into debt.

In promoting deficit spending, Keynes was very quotable. On British radio in January 1931, he discussed the emerging Great Depression and denounced saving money as creating a “vicious cycle” of poverty. If “you save five shillings, you put a man out of work for a day.” Keynes added, “Why not pull down the whole of South London from Westminster to Greenwich, and make a good job of it. . . . Would that employ men? Why, of course it would.”

To translate Keynes eighty years later, the U.S. should perhaps tear down Broadway, or start another Chicago fire to create jobs to rebuild these places. Of course, if this line of thinking really did improve the economy, no country would ever have to suffer financially. Simply tear down existing buildings and put people to work rebuilding them. Or, extending this new gospel, start wars: Lucky is the city to have an atomic bomb dropped on it, for it shalt be rebuilt quickly.

As Milton Friedman wisely noted, “There is no such thing as a free lunch.” Someone has to pay for it. And it takes mountains of tax dollars to rebuild cities. Instead, those tax dollars could have bought DVD players, iphones, flat screen TVs, or food for months. Those purchases would have created jobs for millions of workers all over the country.

The Democrats, and even many Republicans, still believe in Keynes. Forty years ago, Republican President Nixon said, “We are all Keynesians now.” Why? Because the U.S. was turning more and more to government-directed spending to create jobs. But as we found out by the end of the 1970s, this government spending dries up private spending and creates inflation, high taxes, and unemployment. President Reagan, who was not a Keynesian, turned to freedom to restore prosperity to America. He could have cut more spending, but at least he lowered tax rates and urged entrepreneurs to create new jobs and get America moving again. During the 1980s, we had huge economic growth that ended the Nixon-Carter recession. Today, however, as long as many economists and political leaders continue to believe in John Maynard Keynes, we will have many spenders arguing that we can prosper again only if we have government leaders spending much more than our country takes in, year after year.

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