Yet Keynesian economics has “perplexing durability,” probably because the theory tells politicians that their vice of profligacy is actually a virtue.
Jeff Jacoby explains why this is poisonous economic analysis.
Could anything be more absurd? The shattering losses caused by hurricanes, earthquakes, forest fires, and other calamities are grievous misfortunes that obviously leave society poorer. Vast sums of money may be spent afterward to repair and rebuild, but society will still be poorer from the damage caused by the storm or other disaster. Every dollar spent on cleanup and reconstruction is a dollar that could have been spent to enlarge the nation’s reservoir of material assets. Instead, it has to be spent replacing what was lost. …No, hurricanes are not good for the economy. Neither are floods, earthquakes, or massacres. When windows are shattered, all of humanity is left materially worse off. There is no financial “glint of silver lining.” To claim otherwise is delusional.
“The economy isn’t a machine, and the government can’t force it to act like one”
Back in October, Will Wilkinson of the Niskanen Center wrote a very interesting – albeit depressing – article about the potential futility of trying to reduce the size of government. He starts with the observation that government tends to get bigger as nations get richer.
“Wagner’s Law” says that as an economy’s per capita output grows larger over time, government spending consumes a larger share of that output. …Wagner’s Law names a real, observed, robust empirical pattern. …It’s mainly the positive relationship between rising demand for welfare services/transfers and rising GDP per capita that drives Wagner’s Law.
I’ve also written about Wagner’s Law, mostly to debunk the silly leftist interpretation that bigger government causes more wealth (in other words, they get the causality backwards), but also to point out that other policies matter and that some big-government nations have wisely mitigated the harmful economic impact of excessive spending and taxation by having very pro-market policies in areas such as trade and regulation.
In any event, Will includes a chart showing that there certainly has been a lot more redistribution spending in the United States over the past 70 years, so it certainly is true that the political process has produced results consistent with Wagner’s Law. As America has become richer, voters and politicians have figured out how to redistribute ever-larger amounts of money.
There’s a lot of speculation in Washington about what a Trump Administration will do on government spending. Based on his rhetoric it’s hard to know whether he’ll be a big-spendin…
…allowing everyone to pursue all the opportunities they can in the marketplace, with the minimal level of taxation and regulation, will create generalized prosperity. The value of cutting taxes is not just cutting them for higher income groups, but for everyone. Letting everyone keep more of the value they create through exchange means that everyone has more incentive to create such value in the first place, whether it’s through the ownership of capital or finding new uses for one’s labor.
Now that we’ve dispensed with the silly left-wing caricature of trickle-down economics, let’s discuss how there actually is a sensible way to think about the issue.
I don’t want to imply that there’s some moral equivalence between Hillary Clinton and Willie Sutton. Perish the thought!
After all, I’m sure Willie Sutton never expected gratitude from his victims.
If I had to summarize my views on fiscal policy in just two sentences, here’s what I would say.
- Government spending undermines growth by diverting labor and capital from more productive uses to less productive uses.
- Tax rates on productive economic behaviors such as work, saving, investment, and entrepreneurship should be as low as possible.
Since innovation, risk-taking, investment, entrepreneurship, and hard work are the keys to long-run growth, it certainly seems that the tax code shouldn’t be punishing those things.
She (Hillary) wants voters to adopt and us-vs-them mentality, so she demonizes successful people and implies that their wealth is somehow illegitimate.
In part, she is perpetuating the traditional leftist myth that the economy is a fixed pie and that the rest of us have less because someone like Bill Gates has more.
Source: Hillary Clinton, Willie Sutton, and Class-Warfare Tax Policy | International Liberty