Thursday, November 08, 2012

Of Keynes, Military Spending, and Debt

A friend asks, via facebook:
If conservatives are suddenly so concerned about government spending cuts increasing unemployment, is it too much to ask to have everyone exhibit some intellectual honesty and accept the fact that Keynesian spending by the government CAN create jobs and stimulate the economy? The only honest intellectual debate that remains is do we want Keynesian stimulus spending producing weapons systems we'll eventually be tempted to use to destroy things and kill people or spend those same dollars creating jobs that would rebuild crumbling infrastructure that itself supports more economic activity here at home?

Putting it another way, if you're a child of this generation looking back on this madness from 2030 or 2040, would you prefer we left you the $100 billion dollar bill for some potholes and abandoned forward operating bases in Afghanistan or to revamp the flood prevention measures around a city of 6 million Americans? Your tax bill for your share of that $100 billion tab looks exactly the same, so what'll it be?
First, even Hayek, who knew Keynes back from WWI days -- they were actually friends -- will tell you that a quick burst of government spending can cause a short-term boost in economic activity.  But there is no hard evidence that shows that it acts as a "pump primer".   I know that's the theory, but I say it's wishful thinking.  You might argue that Keynes won a Nobel prize in economics, but I will counter that so did Hayek -- and they disagreed on almost everything when it came to economics.

I know that folks like Paul Krugman believe that the government borrowing money the economy has not yet produced, or pulling money out of the economy that it has already produced via taxation stimulates the economy. And every time it's tried and doesn't work, the Krugman crowd's response is that it's only because we didn't borrow or tax *enough*. I say it's ludicrous, but let's suppose, for the sake of argument, that it's true.

We have two questions to answer now, and they both ultimately have to do with the role of government.  1) Why don't we borrow $30 Trillion a year indefinitely, if our return on investment is going to be, what do they say, 1.5 ... we'll actually make $15 Trillion on the deal.  Hell, we could pay off the national debt in just a little over a year, so why don't we just borrow or tax $32 Trillion this year and be done with it?

It does sound quite ridiculous when you put it that way, but that is the logical end to that line of thought.  And where it goes wrong is that ... money isn't wealth.   Money is a representation of production.   Printing more doesn't make more production; it devalues money because it's more money representing the same amount of production.

Borrowing it is a little trickier, because what you're doing is betting.  You are betting that you can produce enough in the later to cover the money you borrowed, and more.

Aha! you say, this is what Keynes is talking about!  You *can* make more down the road than you borrowed, thus, it's ok if the government does this on our behalf!  QED!

Well ... no it isn't ok.  And why it's not OK is, among other things, moral hazard.  1) it puts the government in charge of picking winners and losers, and 2) the money does not come out of the pockets of the people doing the spending so the risk is not ultimately theirs, 3) it violates the tenet of equal protection under the law, and 4) it becomes a honey pot for nepotism, fraud, and waste.

Ah, you say, but it is no different than military spending!

Well ... yes it is.  Welfare programs, whether they be private or corporate, are not the purview of the Federal Government. It violates the intent of the Federal Government that the states created mainly for ... wait for it...

National Defense.

It was also created to protect our inalienable rights, and to regulate (that is, to make regular, ie, consistent -- but not to restrict) interstate commerce.  States couldn't charge tariffs on each other’s goods, nor could states charge different tariffs in international trade.  That is the meaning of the commerce clause, nothing more.

Now... we may disagree, and we have from practically the beginning, when and when not to use military force.  But most of us agree that we need a military, and it's really not worth having one if it isn't strong enough to overwhelm enemies in a battle -- and that further, having a particularly strong one will actually deter enemies from attacking us. And it's actually one of the main enumerated powers of the Federal Government.

When we get into a war, we should fight it to win, and sometimes that might mean borrowing money against future production.  This is the cost of war, but it is at least actually the job of the Federal Government.

By arguing that having a military just tempts us to use it, are we arguing we shouldn't have one at all, or that we shouldn't have a strong one, or that we shouldn't pay what it takes to win a war once we're actually in one?

If not, just what *are* we arguing?

That sometimes men with power are tempted to use it?  Actual conservatives are very clear on that.  It is the WHOLE PURPOSE behind the intent of limiting the power of the government.

Now it is also true that we do have people in the conservative movement often referred to as "neocons" (which literally means, "new conservatives") -- but let's talk about who they are.

They are former "liberals" (I still hate that statist progressives successfully stole that name from the original liberals, who are now called classical liberals ... conservatives only in that they are trying to conserve classical liberalism) ... they are former liberals who were convinced that the classical liberals were basically correct, and were relatively recently converted to the conservative side.  But they brought some  of their progressive ideals with them, one of them being that we should spread Liberty throughout the world.

I'm all for spreading liberty, don't get me wrong.  And I also don't have a problem with, as a byproduct of a war we got into for other reasons, we do our best to plant a little seed to leave behind and hopefully grow.  Certainly, spreading liberty in and of itself isn't a reason to go around starting wars.  I think even most neocons would agree. But that spreading is a noble thing to try once one has been started, I'll go along with that.

But we've digressed a little here.  The question was, is there a difference between borrowing and spending by the Federal Government for infrastructure rather than military spending?

However, I believe the question itself was intellectually dishonest, because the $100 Billion on roads and infrastructure isn't the main problem, and we're not talking about $100 Billion.   We're talking about $4 Trillion in 8 years under Bush which was bad enough, and so far an additional $6 Trillion under Obama in under 4 years (getting us up to $16 Trillion).  I think we can expect well over $20 Trillion by the end of his second term.

$100 Billion is six tenths of one percent of the problem. $4 Trillion of it is from fighting the two wars. The other $12 Trillion and probably $16 Trillion by 2020 went to .... roads????  Damn we must have some mighty fine roads.  As far as I'm concerned you can build the roads and levies and whatnot.  These things fall easily under the original intent of General Welfare.

But let's not pretend that conservatives are "suddenly" concerned about fiscal responsibility.  They always have been.   What you're really arguing for is absolution for Democrats' shopping list with out-of-control, rampant, extremely irresponsible spending using the tiny strawman of maintaining roads and bridges and implying conservatives would rather be killing brown people all over the world, as the Chris Matthews of the world like to pretend while they morally preen on camera.


tim said...

“…accept the fact that Keynesian spending by the government CAN create jobs and stimulate the economy?”

Based on…the fact the results have been the EXACT opposite? How much was the Stimulus? And the effects on the economy…?

It’s too bad we didn’t have history to teach…us…no wait…

Why must the free market be so complicated for some people?

Whitehawk said...

Sorry, when you are talking to a liberal/progressive tell them to pass a freakin budget then we'll argue.

Typical. No accountability for us thank you but since you want to be rational let me tell you what's wrong with that.

Is this a certain friend we graduated with?