What I find remarkably… stupid, to put it bluntly, about Keynesian economics is that it only looks at consumption. “Aggregate demand”, in any discussion or explanation I’ve ever heard, is only focused on consumption of some sort, and in popular economics usually government consumption. Even so-called investment is really more of consumption, especially because most governments don’t follow the theoretical contraction during market booms and save. Today, saving is vilified. The central monetary authorities implement policies that encourage spending, especially spending on politically lucrative things like green energy and housing, by falsifying the return on those investments through inflation and wealth transfers.
The “capital” in capitalism is savings. The whole point of investing is to forego consumption in order to improve productivity and future gains in overall wealth. Keynesianism is not capitalism. Capitalism is future-minded. Keynes tells us to look only at the present.
I have a real problem with government spending because of the perversion of political incentives. In private investment, the incentive is to get a return – that is, to spend in a way such that the output is of greater value than the input. This is the foundation for creating wealth. People and projects that do this the best produce the highest returns and attract competition for capital. So in investment there are dual competing yet cooperating interests: demand for higher returns by those with capital and demand for lower premiums by those seeking capital. The person seeking capital wants the lowest premium (interest rate) so he can keep more of the value he produces and become himself a supplier of capital. The person with capital to invest wants the highest premium so he has more capital to turn around and reinvest. These examples are strictly monetary, and of course there is subjective value, especially in consumables. One may consider philanthropy a greater return than capital investment, and that is a subjective determination.
In contrast, the political incentive in a democracy or representative government is not to increase capital or wealth, but to increase popularity and the corresponding probability of retaining or increasing political power. In theory, popularity can be garnered by increasing overall capital, but in practice, as we have seen, it is easier simply to move wealth and buy votes. However, this wealth transfer usually decreases the overall wealth because of the overhead of enforcement – the government’s efforts are spent on transferring capital rather than productively increasing it.
Now, can some public goods that the government monopolizes be a positive return on investment? It’s possible, but hard to know because those public goods are rarely market priced. The price system is the only sure way to know just how much value people assign to any good or service, objective or subjective. If we want to know if roads and parks have a negative or positive net return, we should charge for them and see what the price market would bear. The argument to this is that the poor will not be able to use them if the price is too high. I have a two-part rebuttal to this. The first is that we shouldn’t assume the price would be so high as to exclude a meaningful portion of the population. Almost everyone can afford to go to movies or eat at restaurants, even if only occasionally, and those are not provided by the government. Secondly, even if the price point is too high, it could be made a two-tiered program where those who demonstrate need get reduced prices, and everyone else pays slightly more. Here you still have a price system, but those in the upper tier are also judging the subjective value of knowing that they are helping the poor by paying slightly more.
