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Keynesian Economics…the liberal fantasy

The economic picture continues to darken, even though the stock market has come off it’s lows experienced earlier this year. There is still little evidence that the stimulus plans have had any real impact. Unemployment continues to rise month after month and threatens to exceed 10% very soon. Our budget deficits have ballooned out of control and the pace that we are adding to our national debt is quickening. So why is the Obama administration continuing to put it’s faith in an economic belief system (Keynesian Economics) that has been proven wrong? Answer: Liberals never believe that what they are doing is wrong, just that they haven’t been able to do enough of it.

Keyens and his followers believe:

Increases in spending, such as an increase in government outlays, increases total spending by a multiple of that increase. A government could stimulate a great deal of new production with a modest outlay if:

  1. The people who receive this money then spend most on consumption goods and save the rest.
  2. This extra spending allows businesses to hire more people and pay them, which in turn allows a further increase consumer spending.

I read a great article on the Keynesian multiplier effect and how in today’s environment, that multiplier is less than one meaning that the GDP actually shrinks for every dollar that the government spends. From the Wall Street Journal:

“The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin. In ongoing research, we use long-term U.S. macroeconomic data to contribute to the evidence. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.”…Read the rest of the article.

This shift to spending more and more money by an inefficient and irresponsible entity (the federal government) will only lead to higher and higher deficits. According to the Heritage Foundation, we will be spending more on welfare in the next year than we spent on the Iraq war under Bush.

We need to get back to our founding principals which is that individuals know how to redistribute wealth more responsibly than the federal government. Cut the tax rates, eliminate the corporate tax, and reign in spending and we will see a period of growth that is unrivaled in modern history.

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