Wednesday, June 30, 2010

No Recovery, Only Keynesian Economic Failure

By Douglas V. Gibbs

Keynesian Economics is a theory of total spending in the economy. The idea is to stimulate the system so that demand creates growth. Problem is, consumerism is not effective without growth in production, and government stimulus is an illusion that makes the economy dependent upon the spending, but it only delays, and worsens, the inevitable.

Keynesian Economics looks to the short run, but disregards the long run. However, in the long run, as the economy is artificially held back from collapse, the fiat money being created for all of the spending deflates the value of the money, and places the economy into a position of collapsing once the ability to spend is exhausted. When that moment is reached, the temporary support of the government spending stops and the total economy collapses, leaving the system catastrophically devastated.

Instead of pumping fiat money into the system, the way to correct economic difficulties is to allow failed companies to fail (the void will be filled by smaller competitors), reduce taxes, reduce spending, and reduce some regulations.

A reduction of taxes leaves more money in the system to utilize for production and consumerism. It has been proven multiple times that whenever you increase the taxes on an activity, you receive less of that activity. Whenever you decrease taxes, revenue increases, and the activity the taxes are attached to increases. Therefore, by increasing spending, which eventually leads to increasing taxes to maintain the spending, the manufacturing sector resorts to less activity to survive in the higher tax environment.

Spending is directly related to the strength of the money. If deficit spending increases, more money is placed into the system without value to accompany it. More currency with less value attached makes the money less valuable in the market, which in turn leads to inflation. Inflationary periods and the deflation of the money then can result in economic depression.

Regulations on businesses have many necessary attributes, but too many regulations has the same affect on business as does too much taxes - more regulations result in less activity. By reducing regulations, and making the private business sector more business friendly, production increases, new business is created, and less companies depart for foreign shores.

Obama's Keynesian economy has led to no recovery, and a continued increase in the unemployment rate. The stimulus has resulted in no recovery, the health care legislation has already resulted in increases in the cost of health care, his Cap and Trade plans will (as admitted by Obama) increase the cost of energy and fuel, and the only increase in employment has been in the public sector. The spending is unsustainable, and the potential of ultimate collapse of America's economy worsens with each policy and each passing month.

How is that good for America's economy?

-- Political Pistachio Conservative News and Commentary

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