Tuesday, May 8, 2012

Mitt Romney is a Keynesian

For anyone in doubt about where Mitt Romney stands on economic issues, he has made it quite clear that he is a Keynesian.  Of course, anyone already paying attention should know this, but his latest comments at a town hall event in Cleveland leaves no doubts.

It is easy to get carried away using terms like "socialist" or "fascist".  The same goes for the term "Keynesian".  But his latest remarks are really the definition of Keynesian.

Romney said, "My job is to get America back on track to have a balanced budget.  Now I'm not going to cut $1 trillion in the first year."  This seems to be in reference to Ron Paul's proposal to cut $1 trillion from the federal budget in the first year.

When someone apparently asked "why not?" in the crowd, Romney then proceeded to give a response that is at the heart of Keynesianism.  He said, "The reason is, taking a trillion dollars out of a $15 trillion economy would cause our economy to shrink [and] would put a lot of people out of work."

So there you have it.  Romney doesn't want to cut government spending because it would cause our economy to shrink.  There are many good comments at the bottom of the article on this.  One commenter suggests that if Romney thinks cutting government spending will hurt the economy, then the opposite must be true and that increasing government spending should help it.

Several other people comment (correctly) that if the government doesn't spend that one trillion dollars, it doesn't take it out of the economy.  It simply allows people to spend it, instead of government.

Romney is supposed to be a businessman, but when it comes to economics, he is either a total fool or a liar.  In this case, he might actually be a fool.

The truth is the exact opposite of what Romney said.  Cutting government spending will get us back on the road to recovery much quicker.  It is what the American economy needs.  Every time the government spends a dollar, it is one less dollar in the hands of individual people in the marketplace.  When the government spends money, it is automatically a misallocation of resources.  There is no way that the government can know better how to spend money than each individual.

When the government spends money, it is diverting real wealth into less productive activities.  When consumers spend the money, they are getting exactly what they are knowingly paying for.  They are telling producers what they want.

Even if individuals decide to save more money (as opposed to the government spending it), it is still a benefit.  Real economic growth comes about through savings and investment.  If someone wants to save more money, there is probably a good reason for that individual to do so.  He is simply delaying gratification.  This temporarily benefits society by having one less person bid up prices.  It has the effect of making consumer goods cheaper for others.

When the federal government spends about 25% of the national income, this is a massive misallocation of resources.  It is going to administrative costs, wasteful projects, lobbyists, and welfare recipients.  It encourages less production for the future.  Even for projects that may seem decent and useful, it is still a misallocation of resources, as it does not fit the preference of every individual.

Romney has given us proof that he is a Keynesian.  He believes that cutting government spending would hurt the economy.  Is there much of a difference at all between him and Obama?

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