Obama wants to spend tax money to “create” jobs in the sagging economy. [h/t Instapundit] He is clearly working from a Keynesian model in which government borrows saved money and hires unemployed people to do make-work. The employed people spend the saved money and the economy revives.
Seems like a good idea except that Keynes was wrong.
Entire libraries have been dedicated to Keynesian theory, but for our purposes we can boil it down to the core idea that the movement of money itself through the economy (as people traded) creates a good economy. In Keynes’ model, recessions and depressions occurred when people saved too much and spent too little. This caused the money to stop moving. Government could “prime the pump” of the economy by taking the saved (and thus static money) and spending it. He famously summed up his idea by saying that the government could stimulate the economy by simply burying large amounts of money in the ground and then letting people dig it up again. The money spent to dig up the money would drive the economy again.
However, the mere movement of money itself is not what drives the economy. We use money as an accounting tool in order to calculate the relative exchange quantities of goods and services. Money is information. The movement of money allows people to communicate to one another the value they place on different economic activities. Each individual exchange passes information from one human being to another.
Money communicates information not by its movement by rather by the differences in prices. It is analogous to the way in which analog phone wires carry information by fluctuations in voltage from moment to moment. Keynes was like a naive individual who discovered that phones lines carry information with electricity and then decided that if he pushed more electricity through the line he would convey more information. In reality, all he would get is a squeal. Likewise, arbitrarily moving money through the economy does nothing if that movement does not transmit information about the real value of different economic choices.
People who spend time digging up money the government buried in the ground do not stimulate the economy. Instead, they introduce information into the economy saying that digging holes in the ground has a higher priority than other things people could be doing. Likewise, Obama’s idea to “create” jobs by repairing infrastructure or building alternative-energy project will merely skew the information transmitted by the money spent to make other activities look less of a priority. Obama’s programs will produce a loud squeal of noise in transmission of economic information.
We are currently facing a major planetary recession because the government interfered in the economy’s prioritizing by making housing appear much more important that it should have been. Now Obama wants to dump yet more noise into the economy’s flow of information.
He will make the recession longer and all us collectively poorer in the long run.