Duty Honor Country
You may be better of reading Keynes, the man who taught governments to spend their way out of an economic crisis in 1929. He said spending less would lead to more businesses going bust and more people losing their jobs. Keynes said governments should pump cash into big public works and building schemes. Jobs would be saved so people would feel more confident and spend more.
Here is a right wing columnist’s view of Keynes
Keynes’ view to seven essential propositions.
1. The economic system is naturally prone to periods of depression.
2. When one occurs, the system is not necessarily self-correcting.
3. Such depressions are not the result of individual choice. On the contrary, individuals en masse can become trapped in a depression which is in no one’s interest but which, as individuals, no one can counter-act.
4. This represents pure waste. Unemployed workers want to work, and businesses want to use their productive capacity. If they did, then the things they produced would be available for all to buy, and the incomes they received would enable them to purchase the products of others.
5. For individuals it may be appropriate to react to difficult times by saving more. Yet collectively this is a disaster. One man’s saving is another man’s reduced income. Extra borrowing by the Government, if it encourages more output, can be self-financing.
6. The key is aggregate demand. In normal circumstances it is possible to influence this by changes in interest rates. But there is a level below which interest rates cannot go and at that point conventional monetary policy is powerless. Moreover, even if interest rates can be lowered this may have no effect if people cannot or will not borrow.
7. At this point, aggregate demand can only be boosted by the Government borrowing more, either to spend directly or to give to others to spend via tax cuts or the like.
This Keynesian view first hit the world like a bombshell, then became accepted as commonplace to the point of banality, and subsequently was dismissed as irrelevant or dangerous. What went wrong?
Two things. First, although the Keynesian framework is a useful way of thinking about all economic conditions, it is both valid and truly radical only in depression conditions.
Second, the Keynesians went too far. Keynes’ treatment of inflation was sketchy at best. Understandably. In the Great Depression, inflation was scarcely public enemy number one. But the Keynesians took this a stage further. Some said inflation did not matter. Others felt that even though it did matter they would be able to control it through prices and incomes policies.
The result was that under Keynesian management the economy was operated at too a high a level of aggregate demand for too long and inflation was let loose.
They also underplayed the role of monetary factors, in stark contrast to the work of the master himself, much of whose writing concerned them. And they underplayed the adverse long-run consequences of public deficits. Advocacy of public borrowing to help get an economy out of depression became a relaxed attitude to public deficits in general.
They also overestimated the state’s ability successfully to manage aggregate demand, believing they would be able to fine-tune the economy. In the event, our poor ability to forecast, and the unpredictable nature of policy changes, meant that often actions designed to stabilise the economy in fact destabilised it. http://www.telegraph.co.uk/finance/c...solutions.html