What you should know about economics and why your liberty depends on it.

Why Not More Government Bailouts for Us All?

I’m sure we all would like to believe that our government can create prosperity by simply handing out more money.  Wouldn’t it be great if, like the businesses “too big to fail”, we could all receive big government bail-outs?

But why stop at only giving us a few hundred dollars or maybe even a few thousand?  If giving big business and bankers billions will save our economy, why not at least give each of us a hundred thousand or so?  Then we could really go out and spend our economy back to health.  The new administration and congress would be heroes; they would receive our undying devotion, right!

But wait, you say I’m just being ridiculous!  There’s no way the government could afford to give each of us $100,000.00.  Why even if they only gave us $100K per family that would still be something like ten trillion dollars (10,000,000,000,000.00, using 100 million families just for simplicity sake).  But, so what!  And let’s not worry about the increase in the quantity of money creating more inflation; that’s in the future anyway.  Let our kids deal with that.  So what’s the big holdup here; stimulate us!

Big business and the bankers get billions and give millions to their key people.  Are we selling our loyalty to government too cheaply?  A few billion here, a few billion there, and the next thing you know, our nation is nearly $12,000,000,000,000.00 in debt.  But that’s OK.  Don’t we just owe this money to ourselves anyway?  Can’t the government just make more money?  Can’t “they” just take it from "the rich”?

My question is: “what makes you think government has any money to hand out in the first place?”  Or a better question: “Why do the people in charge of our government and their supporting economists believe they can hand out money just by creating new money at will (or taxing it away from our productive class)?”

I think we can thank John Maynard Keynes (1883-1946, pronounced Kanes) and the Keynesian school of economics for giving our “leaders” the ammunition to subvert our economy into support for “big government”.  The root of Keynesianism is simple: “spending is the engine that drives our economy.” And government spending is just as effective as personal spending.  In fact, from the politician’s standpoint, it’s even better because it gives government more control over us by buying our votes to promote their own agendas.

The Keynesian economists want to blame too much savings and not enough spending for our current financial situation.  If we, or the government, would just spend more, we could solve all of our economic problems.  We could create new jobs (mostly government jobs) and increase our society’s production, if we would just spend more.

Here’s the rationale as I see it.  Our GNP (gross national product) is about $14 trillion annually; we only owe about $12 trillion.  So we owe less than 1 year’s production.  What’s so bad about that?  If everyone gives up all of our production for just one year, we could be out of debt by this time next year. Unfortunately, our GNP is measured using the same Keynesian mindset; i.e., "spending is the proper measurement of economic stability or progress."

How much of our GNP is actually spending as opposed to real production, I’m not sure.  But I will give you an example.  I do know that the “official” military budget for 2010 is $534 billion, not counting congressional appropriation throughout the year.  I estimate that military spending for 2009 is nearly $1 trillion (700 bases in 130 countries and the “war on terror” in Iraq, Afghanistan, Iran and maybe Pakistan).

Military spending, along with all the other government employment and even things like the hidden business cost of compliance with government regulations, all make up part of our GNP.  So obviously, from a Keynesian viewpoint, we can easily increase our GNP (thereby decreasing the debt to production ratio), if we just keep spending more.  But does that make sense to you; that spending our individual production for the cost of government programs increases our individual prosperity!

Is Keynesianism correct?  Can we spend our way to prosperity?  In order to answer these questions, we need to take another look at some basic economics.  In my book “Economic Vampires Parasites and Cannibals” I give the basic formula for all economic actions.  It is “Production minus Consumption equals Capital.”

Another way to show this equation at a more personal level would be to replace Production with “Productive Work” Consumption with “Spending” and Capital with “Savings” thus “Productive Work minus Spending equals Savings”.  The more we spend, the fewer savings we have for our future production, consumption and prosperity.

Capital or savings are what we need to improve our economy, not spending.  Future production and our prosperity depend on savings.  If we recognize that all government spending is the Consumption part of our economic formula, then government spending uses up our Production and diminishes (confiscates) our individual Capital (savings).  How can more of our production being redirected to government, resulting in more destruction of our individual potential Capital, be a good thing?  It can’t and it isn’t.

On second thought, maybe we should just stop all of these phony bail-outs.

Harry Harmon
Economic Vampires Parasites and Cannibals