Lately we’ve been discussing some of our frustrations about the whole “stimulus” vs. “austerity” debate, and how tired the discussion has become. It’s the same old examples, and counter-examples every time.
Part of the problem may have something to do with obfuscation of terms, notably this whole idea of “demand,” which the Keynesians say is lacking, thus warranting government stimulus.
There’s probably something to that in the sense that with idle factories and laid off workers, there’s a bigger opportunity to make stuff than consumers seem to be pushing for.
But what does it mean when the government steps in and fills demand? Technically the government can’t make you (as a consumer) want more. And the government is really just the people. Technically the government doesn’t have any demands of its own. At best it’s a proxy for the people.
So when the the Keynesians talking about the government coming into stimulate demand, it’s not like the government has some reservoir of needs that it’s bringing the table. What they mean is that the government decides, via fiat, that some workers and factories will turn back on.
The Keynesians are right in that the government has an unlimited ability to do this, because the government doesn’t have any limits on what it dictates. If politicians decree a factory to be opened, and for taxpayers to transfer some of their wealth to the employees of that factory, it will happen.
But let’s be honest here. Nothing is being stimulated. All that’s happening is that the government is taking over more and more of the economy, so as to keep more and more of it “moving” by centralized dictat. If that’s the goal, then so be it, but to think that somehow demand is magically being created is silly.