Food For Thought

"Labor unions would have us believe that they transfer income from rich capitalists to poor workers. In fact, they mostly transfer income from the large number of non-union workers to a small number of relatively well-off union workers." - Robert E. Anderson

Tuesday, April 13, 2010

J. Keynes and the Pizza Parlor

John Maynard Keynes is the darling of Government Control so it's no surprise that his theories (Keynesian economics) are being trotted out again by the current legislature and administration. *YAWN*

I've already lost 99% of any audience I'd address with this opening line including, if I'm totally honest, myself. I'd find it more interesting to read the Software License Agreement on Windows Vista. What does get me interested, though, is when I see my taxes going up while the economy tanks. So I noodled on how best to make this personal.

So, here goes... let's pretend the economy's in the toilet (ok, not too much of a stretch, there). Since I'm salaried, I have to live within a budget. So I cut back and maybe go out to dinner less often, as do most of my neighbors. The restaurants in town have less business, so they get rid of some of their teenaged waitstaff and cut back. With me so far?

In the meantime, the guy down the street from me, who owns a local pizza joint, says, "Hmm, this is bad. Here's what I'll do... I'll hire the teens who were laid off. And my family will eat every meal at my pizza shop." Sounds like a good idea, on the surface. The folks in my small community see the teens getting hired back and the local pizza shop has customers in it all the time.

The problem is, while I'm happy for the pizza guy, its not going to make me want to go out more often. But hey, unemployment is down and the local pizza place is open, so no harm, no foul.

Now extend this a bit more. The pizza guy doesn't have the money himself to hire the teens and to keep patronizing his own place, so he asks everyone in town to chip in money every week -- for the good of the community. Actually, he goes to the town council and gets it set up that its mandatory for everyone to throw $100 a week into a fund to keep up this practice.

Wait, what? I just said I didn't have the money to go out to eat, so why the hell am I paying this guy to go out to eat and to keep the kids working?

Well, that's Keynesian economics in a nutshell.

The basic idea is that if the government (the pizza guy) spends money and creates jobs, that will encourage the private sector (the rest of the folks in my town) to start spending money. The problem is that the government doesn't have money of its own. In the words of John Coleman,

"The point to remember is that what the government gives it must first take away."

That is the pizza guy (the government) gets its money (taxes) from the community that it then redistributes in the hopes that everyone will think the economic troubles are over.

In point of fact, whats happened (and what any layman can see from the analogy) is that an artificial economy has been created that is separate from the real one. It's an illusion with the hopes of becomming reality. But in reality -- and history -- it doesn't work.

FDR and his "New Deal" is pointed to by apostles of Keynes as the perfect example of this economic theory in action. The problem is, FDR did not, in point of fact, get the U.S. out of the Great Depression. The New Deal, which was exactly Keynesian, was doomed to failure as even FDR himself knew. When Truman tried to reaffirm these policies in a postwar world, he was rebuffed by a congress that saw the handwriting on the wall. Instead, Congress cut taxes and lowered its own spending directly resulting in the boom of the 1950's.

Again with the stagflation and energy crisises of the 1970's, the Ford, then Carter administrations and a compliant Congress tried to spend their way out of the problems, increasing taxes. Only when Ronald Reagan came in, lowered taxes and slashed government spending did the economic swell of the 1980's take off. By this time, a number of economic theorists believed that Keynesian economics had had the final nail put in its coffin.

But now, those who (in George Santayana's memorialization) have "forgotten the lessons of history" have taken power, we're seeing the old Keynesian theories trotted out again. England's socialist-in-conservative-clothing Gordon Brown tried (and failed) to tax and spend the UK back into solvency. And the Obama administration and a compliant Congress are attempting the same thing in the U.S. despite warnings from all quarters of the economic analysis community.

The Dow is over 11,000 this week, but its clear that this is nothing but a 'false reality' like the pizza shop hiring all the teens. Even those on capitol hill acknowledge that they can't spend enough, fast enough and so will need to increase taxes even more.

One definition of clinical insanity is doing the same thing, over and over, with the expectation of a different result. If that's so, then the administration and legislature are clinically insane.
So obvious is this to even their own support base, the college-age crowd, that they're turning on the very people they helped put into power. Should they be representing us? They sure as hell shouldn't be representing me, and I'm taking the revolution into my own hands.

This is what I'm doing. What are you doing?

Note Bene: I've decided to keep that phrase "This is what I'm doing" in as many of my blog postings as possible to remind me that this must be a personal fight. But in the interest of brevity, I've updated and posted what my friend Steve calls the "We the People Challenge" (my Four Points) as a permanent part of the We The People blog page. So I won't be boring you with that each time.

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