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  •  Keynes and pizza (2+ / 0-)
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    BusyinCA, jamess

    My take on Keynesianism is more like this -

    There is no party because we are all unemployed and have no money. Pizza makers are not hiring workers to make more pizza because unemployed people aren't buying their pizzas, so if they made more pizza they couldn't sell it.

    So the government borrows money. Given that there is no investment being made in pizza ovens or anything else, holders of capital are happy to buy government bonds. The government uses the borrowed money to hire people.  It's not so important what they do, even if it is leaf raking - but surely there is something useful we can find for the new hires.

    These people now have the money to buy pizza and they invite their friends over and have a pizza party. The pizza makers see their sales go up and hire more pizza makers. The new pizza makers go and buy more pizza. The pizza makers open new stores and buy more pizza ovens.

    Note that this new government borrowing is not taking capital that would have been invested in businesses - i.e. "crowding out" -- since no money is being invested in anything in a recession.

    Note that the government is not making pizza it is leaving that to the private sector. The new hires would not be competing with the private sector but doing something that the private sector wouldn't do, such as repair roads, insulate houses, etc. But even if it is non useful work - the CCC was disparaged in the 1930s as leaf raking - it still results in people having more income.

    Note that there is no inflation if there is slack in the economy.

    Keynesianism says the government should be the borrower and employer when there is a recession, but not otherwise.

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