PCRW receive lesson in economics

Posted Tuesday, Mar. 18, 2014  comments  Print Reprints

Definition of Keynesian Theory:

Keynesian economics was developed by the British economist John Maynard Keynes during the 1930s in an attempt to understand the Great Depression. Keynes advocated increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Depression. Subsequently, the term “Keynesian economics” was used to refer to the concept. Keynesian economics is considered to be a “demand-side” theory that focuses on changes in the economy over the short run.

Prior to Keynesian economics, classical economic thinking held that cyclical swings in employment and economic output would be modest and self-adjusting. According to this classical theory, if aggregate demand in the economy fell, the resulting weakness in production and jobs would precipitate a decline in prices and wages. A lower level of inflation and wages would induce employers to make capital investments and employ more people, stimulating employment and restoring economic growth.

Definition of Supply Side Economics:

An economic theory holding that bolstering an economy's ability to supply more goods is the most effective way to stimulate economic growth.

Supply-side theorists advocate income tax reduction because it increases private investment in corporations, facilities, and equipment. Investopia.com

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Loren Spivack, known as the “Free Market Warrior,” gave a lesson in economics recently to the Parker County Republican Women.

Before you nod off at the thought of a pile of statistics coming your way, this was not the typical supply and demand discussion, but one in Keynesian economics.

On Thursday, Spivack told a moderately-sized group of women that for the past 80 years, the United States had been experimenting with this form of economics.

“John Maynard Keynes, who back in the 30’s said if you have a problem with your economy, if it’s in a recession you can fix it how? By dumping lots of money into it,” Spivack said. “We’ve been doing this for 80 years not and it’s never worked.”

He said people confuse money with wealth, but that money is not wealth, money is a tool used to measure wealth.

“When we confuse that, we end up with bad economic policies,” Spivack said. “A clock is a tool that measures time. Is a clock the same as time? No. If we leave the clock alone it measures time, if we mess with it - it doesn’t do anything at all.”

Spivack said if Keynes was right and the government, throwing a lot of money at the problem was the answer, then where does the money come from?

“There are only three places it can come: tax it, borrow it or print it,” Spivack said. “Taxing it really doesn’t make sense; in fact Keynes said not to raise taxes. His followers today have largely forgotten this but he said to cut taxes.”

He said that Keynes’ theory was to cut taxes, raise spending and that was how to fix the economy, that the key was “deficits.”

“Deficits are a good thing - the bigger the better,” he added. “This is the fifth anniversary of Obama’s stimulus and it has achieved nothing.”

Spivack said the problem with Keynes’ logic was that he was saying that government can stimulate the economy with borrowed money because they’re not taking it out - they’re putting it in.

“But where do you borrow the money from? Every dollar borrow must be lent,” Spivack said.

He said it usually involves people wanting to spend money they don’t have from the people who have money they don’t want to spend. Usually, there is a bank involved as a middle man.

“In the case of the government, it borrows so there is less money for anyone else to borrow - how could it be otherwise?” Spivack said.

He said to those attending that if they were worried that all the deficit was held by China, not to worry, that the U.S hadn’t “borrowed a nickle from them for years.”

“We are printing our entire federal deficit - all of it,” Spivack added. “The problem with that is if you make more of something, you reduce its value so in this case you destroy the value of the dollar.”

Spivack gave the example of the government of Zimbabwe, called Rhodesia in the early 60s. The country at the time was prospering, the value of their currency, slightly higher than the U.S. dollar. Today, a one trillion dollar bill can purchase a 24-ounce Pepsi.

He cited another example. In Cyprus, not long ago, the government took 10 percent of all revenue from every bank in the country to stabilize its economy.

“The U.S. government won’t be doing that, they have a much simpler way of doing it,” Spivack said. “Why take money out of the bank when you can print your own? They’re not going to take money out of the bank, they’re going to take the value out of the money.”

Spivack said that was what was wrong with America.

“We’ve become the richest country in the world and we’re on our way to becoming the poorest according to our balance sheet,” Spivack said. “We’ve forgotten the basic of economics, it’s about what we produce, what we create and how we innovate.”

Lance Winter, 817-594-9902, Ext. 102 Twitter: @LanceWinter

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