Naturally I disagree with much of the opposition and my well-meaning colleagues on the left in regards to Keynes and his school of economics. Many in this school of thought cannot accept the fact that Keynesian economics has never worked; it did not work in the depression nor has it worked any time since then. The only time stimulus has "worked" is after the economy has already recovered and then becomes overheated by the stimulus. Keynesian economics is an excuse for politicians to buy off special interest and voters with other people's money. Let me address some of the opposition's specific points.
First, stimulus spending creates jobs. False: stimulus spending financed by taxes substitutes relatively inefficient government spending for private spending, in other words government spending "crowds out" private spending. The opposition may disagree that public spending is less efficient but the recent analysis of the government spending does not support their point of view.
Second, many will tell you that it is not taxation but debt that is financing the government spending; thus it is not crowding out private spending. I maintain that government debt crowds out private borrowing and investment. Many of my anti-capitalist colleagues say that government spending is not crowding out private investment because interest rates are low. Therefore there is plenty of money to finance private investment. Unfortunately, in an attempt to protect depositors, and the government guarantee of such deposits, the bank regulators have increased the credit underwriting requirements on banks. Consequently, they are not lending to small and medium sized businesses.
Interest rates are low because the Fed is printing money and as a result significantly increasing the money supply thereby making money less expensive. The irony of artificially low interest rates is that it reduces the income of pensioners and savers. This in effect shifts money and consumption from savers and transfers it to the government who is borrowing at artificially low rates.
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