Trying to raise my kids the best I can

Friday, February 20, 2009

Keynesian economics

I apologize that this blog is morphing into a political blog. sheepish grin. I'll try to get back to regular topics too.

But in the mean time, I just wrote a kick ass description of why Keynesian economics works (and why the Stimulus plan is a good idea). Enjoy.

Does Keynesian economics work?
Yes.


Basically, let's compare the three choices we have in a recession: "trickle down economics", "multiply up economics" (which is Keynesian economics), and the "do nothing" approach.


Trickle down: The rich get a tax cut. The argument is that they supposedly start a business with the money, which creates jobs and from there "multiply up economics" takes over and that's how the government gets its money back. But we've been living this experiment for a while now and that's not what happened. The rich had more money. It invested. The market was flooded with money to loan. If you had a pulse you were given a loan. People who shouldn't have been given loans were. They couldn't really afford that debt. The market crashed.

Keynesian economics ("multiply up"):
What happens when you invest in the lower class, by means of infrastructure building/job growth? The poor spend their money on food, shelter, and other necessities. Opportunities to make money off the poor proliferate. People will jump through hoops to start businesses and get a piece of the spending power of the lower/middle class. And at each level of spending, the government collects taxes. The payoff is paid back. The economy is stimulated and it costs little to nothing.

"do nothing approach": This just takes much, much, much longer. A lot of unnecessary pain and suffering.

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