AUSTRIAN ECONOMICS ADDICT

A Raytheon Tomahawk Block IV cruise missile during a U.S. Navy flight test at NAWS China Lake, California (Nov. 10, 2002) (Photo credit: Wikipedia)

THE KEYNESIAN MAGIC OF GOVERNMENT SPENDING

If we believe Keynesian economics, cruise missile strikes will help our economy, and the Syrian economy. First let’s look at how it is supposed to help our economy. By launching a couple hundred cruise missiles at roughly $1 million a pop, the Government will have to spend over $200 million to replace the missiles that are consumed in the attacks. Cruise missile maker Raytheon will be the beneficiary of the spending as they will get paid to produce at least 200 cruise missiles. Raytheon’s employees, stock holders, and the companies who supply parts to Raytheon, for these missiles, will have more money to spend, and as the money circulates through the economy it will stimulate even more consumption. As we all know consumption drives the economy, and if we can stimulate consumption through government spending there will be never-ending economic growth.

The same basic principle is in play as we look at how the Syrian economy will be helped by our cruise missile strikes. What ever our cruise missiles destroy, has to be replaced, whether it is buildings, vehicles, military equipment, and yes even the chemical weapons. Part of the collateral damage will be people, but if you look at it unemotionally, employment will improve because unemployed people will have to take the place of the employed who died. Employment will also improve as people will have to be employed to rebuild what was destroyed by the cruise missile strikes. Since Government only spends on important projects, for the common good, and the private sector spending is for frivolous things that individuals desire, our targeting of Government property will have an optimal stimulative effect for the Syrian economy.

We are consuming missiles when we launch them, and as we know consumption grows the economy. We could be selfish and create a stimulative effect for our economy only, if we launched these missiles into the ocean or a deserted place on the globe, but we are creating a secondary stimulative effect by dropping these missiles on real things. Fortunately for the Syrians we are targeting them, we could have chosen numerous other countries to stimulate with our cruise missile strikes.

BROKEN WINDOW FALLACY

As ludicrous as all this sounds this is how Keynesians really think. This thinking is a combination of a few fallacies. One is the broken window fallacy, which I have written about in this article titled, Hurricane Sandy And The Broken Window Fallacy. Here is an excerpt from the article, “The fallacy that it will be good for the economy because it will create jobs, is trotted out every time a natural disaster hits. The economy as a whole is less wealthy because of a disaster, because everything that is destroyed has to be replaced just to get back to even par. Scarce resources, capital, labor, and time that could have been used for new production, has to be used to rebuild or replace what was destroyed. Another article titled, A Tornado vs. The Fed, Which Is More Destructive, also addresses the broken window fallacy.

PRODUCTION VS. CONSUMPTION

Another fallacy, or maybe a misconception, is the belief that consumption is the beginning of the production process. I address this in this article titled, Consumption Depletes What Has Been Produced And Saved. Here is an excerpt from the article, “We become wealthier when we produce goods at a rate above what we consume.….production creates the wealth and savings which provides for a growing economy in the present and the future. Government spending, and especially the Fed’s counterfeiting of money, starts us down the road of consumption without corresponding production. People have been duped into thinking that this will create abundance out of a world ruled by scarcity.”

In another article titled, What Comes First Production Of Consumption, I write, “Consumption happens at the end of the production process. You can’t consume something that does not yet exist, and the only way a consumer’s good can exist is if someone produces it. Production is the act of creating wealth, while consumption is the act of destroying what has been created. Production always precedes consumption….. Stimulus spending, Government spending, Government investment, economic recovery plan, consumer spending, aggregate demand, Government job creation, shovel ready jobs, are all examples of words or phrases we use without understanding that they represent consumption, not production.”

The Keynesian ideas on spending, production and consumption seem true on the surface, however a little deeper analysis shows these ideas can’t hold up to scrutiny. We have to continually relearn these lessons, because politicians will use any trick in the book in an attempt to impose their superior wisdom on us.

This entry was posted on September 6, 2013 at 12:35 am and is filed under Econ. 201. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Broken Window Fallacy, Cruise missile, Government spending, Keynesian economics, Production and Consumption, Raytheon, Syria