Save Us from Government Spending

If you’re a glutton for torment as I am, you watch cable-TV news shows most nights. These days the shows are feeding viewers a steady diet of 100-proof Keynesianism as the cure for our economic woes. Leading in this department is Chris Matthews of MSNBC’s “Hardball.” (I call it “Nerf Ball.” Matthews’s idea of a hardball question for a politician is, “Are you running for president?”)

Matthews declared last week, “We’re all Keynesians now,” and each night he pontificates on why the government must start to spend massive amounts of money, even though it doesn’t have massive amounts of money. We’ll worry about the consequences later. Why must it spend? Because we aren’t doing it and that’s putting the economy in recession. Someone has to spend, Matthews says, and the government is spender of last resort.

I don’t mean to pick on Matthews. Many other commentators say similar things. It’s as though they took a couple of college economics courses in the 1970s from a Keynesian professor and never wondered if anyone had ever challenged that approach to the subject. (“Friedman? Quaint. Mises and Hayek? Who?”) Since then they’ve had their worldview reinforced countless times by opinion makers they regard as authoritative, such as New York Times columnist Paul Krugman and most other op-ed and business writers.

It never occurs to the talking heads that their position makes no sense. Let’s begin at the most basic level. Government has no money it has not first “printed,” or taxed or borrowed from someone in the marketplace. (In today’s world of money creation, the government’s central bank can conjure up money without physically printing it.)

If the government prints it, prices rise, robbing the rest of us purchasing power, a form of taxation. It also distorts investment by artificially lowering interest rates. That doesn’t sound like a promising road to genuine recovery.

If the government taxes or borrows the money, the government clearly is not “injecting” liquidity into the economy when the bureaucracies spend it. It was already in the market! All the government did was move it around. (It will have to tax us later to pay off the debt.) Why is the government’s spending stimulating but not ours?