AND SOMEONE IS GOING TO HAVE TO EXPLAIN KEYNESIAN ECONOMICS TO ME!!!

[resident_evil]

I plead ignorance. Help!

How did we ever enter into a grand recession when government (under Bush) was spending money hand over fist before the crash. You'd think that all these countries around the world would be flush with cash given how their whole fiscal history is of year on year Keynesian economics. Spend, spend, spend.

 

[Joe Economist]

Keyesian economics works to the extent that the government is smarter than the public. It is possible that increased spending helps promote the economy. If the government invested in Microsoft in the 1990s the country would be much better off. The problem is that the government isn't smarter than the public, and flushes its spending down the toilet.

Debt is borrowing prosperity from the future. Debt shifts demand forward in time making today look better at the expense of tomorrow. A typical example is buying a car with a loan. You are buying a car today that you would have waited years to buy. That is great for the economic numbers today, but it is a net drain on future demand. This is why the housing bubble created so much problems for the economy. We pulled 2004 demand into 2001. When we got to 2004, we pulled demand from 2008. When we got to 2008, there was no demand left in the future to pull foward.