Macroeconomics sounds about as approachable as astrophysics. Something that should just be left to the really, really smart people at the Federal Reserve while the rest of us just mind our own business. But, it’s not. As noted economist Henry Hazlitt wrote, “when we study the effects of various proposals, not merely on special groups in the short run, but on all groups in the long run, the conclusions we arrive at usually correspond with those of unsophisticated common sense.”
Cut through the complicated math, eliminate the mile-long equations, and get down to the base conclusions that economics leaves you with and you’ll be amazed at how well they gel with common sense. And yet economists today, presumably very smart men and women, are advocating for outcomes that Hazlitt descries as “palpably absurd.”
For instance, take an example given by John Maynard Keynes in his book The General Theory of Employment, Interest, and Money, a book whose influence can still be seen in Obama administration policies.
“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.”
When you parse out the message through Keynes’ impenetrable writing style he was suggesting something rather simple. Digging holes, burying money, then digging up the buried money, will ultimately benefit society and create wealth. Listen to economists today and they’ll tell you to look at all the jobs that are created. Someone will be paid to dig the hole, someone will be hired to bury the money, and yet more people can be employed to dig it up again! Look at all the jobs.
But when you take a step back aren’t you left wondering, isn’t this ridiculous? We’re really going to dig holes and then fill them up again? Your common sense is yelling at you. And it would be right. Sure, it is easy to see the jobs being created. They are right there in front of you – the hole diggers and the hole filler-uppers. What you don’t see is the jobs that have been destroyed.
The problem with spending such as this is that the government is paying for people to dig the holes. The debt the government goes into to pay for the hole diggers must eventually be paid back in higher taxes. Higher taxes takes away disposable income from everyone, income that would have been spent buying goods like houses, cars, and televisions. Since people will be buying less of these products, we will employ fewer people to build our houses, cars, and televisions. The problem is that these lost jobs are difficult to see because they are spread thinly across a variety of industries. But the fundamental outcome remains the same – we’ve simply robbed Peter to pay Paul.
Given this seemingly simple reality and my own common sense I was very surprised (and distraught) to read that some liberal pundits were calling for more waste, fraud, and abuse in the Obama stimulus program.
The punditry followed the release of a government audit on the stimulus which found that it had historically low levels of waste, fraud and abuse. The average person cheered this as fantastic news (despite our suspicion that the results, finding that a mere two-tenths of a percent of stimulus projects required investigations, seemed unrealistically low.) But some liberals were actually upset at the news. For instance Matthew Yglesias of the prominent liberal website Think Progress had this to say:
“If we’re looking for things with a high multiplier – i.e., a large fiscal impact on GDP relative to the expenditure – then letting corrupt mayors embezzle money and hand it out as “walking around money” actually looks pretty good. The recipients of such funds presumably have a high marginal propensity to spend. . . [T]here’s obviously something to be said for doing cost-effective programs in a cost-effective way but you might get a bigger macroeconomic bang for the buck by building bridges to nowhere in a deliberately inefficient way.”
In other words, screw spending the money wisely, we should have been digging holes and filling them up from the start!
This should fly in the face of your common sense. In fact, the nonsensical nature of it should feel like a smack in the face. Just imagine how easy it would be to jumpstart any economy if all we’d have to do is dump truckloads of cash onto the feet of our most wasteful spenders.
But remember, they’re talking about your money! It may not seem like it now, because tax rates have yet to catch up with the crazy amounts of debt this Administration is building, but just you wait until the bill collector comes. You’ll look down at your tax bill, and the reduced amounts of services that the government is providing, and wonder to yourself why you’re having to pay more for less. To which Yglesias would want to emphatically say, “because we gave it to corrupt mayors!”
It’s an epically stupid concept, one that should undermine the concept of stimulus measures altogether. If inefficiency is good, waste is better, and fraud is best, what does that say about your ideas?
Nevertheless, some really smart people will agree with them. It’s all about the economic multipliers they’ll say. But remember, economics is, at its core, about common sense. Don’t let them talk you into the idea that digging holes and filling them up is actually intelligent. But if they do, come back and see me, I’ve got a bridge I’d like to sell you.
by Brandon Greife, Political Director of the College Republican National Committee