Debunking Keynes

When Bastiat described, in his famous Broken Window analogy, what he called "What is seen, and what is not seen," he was really describing the entirety of what would later become the field of Keynesian economics. Keynes' macroeconomic theory of government intervention is indeed a bloated form of the same broken window analogy.

What is this broken window analogy I keep repeating?  In short, it says that destruction does not create profit.  This should be obvious to most poeple, but then it is not usually stated so clearly.  It is dressed up generally as follows: destruction of property necessitates repair - the payment for the repair is profit for the workman, and as he will then spend it on some other service or merchandise, the initial destruction is thus profitable for the economy as a whole.  It sounds almost reasonable when put this way, but you miss the rest of the picture - the unseen.  The owner of the destroyed property was unable to spend his money on something else - in other words, some other industry lost out because he needed to make repairs instead.  This other industry you might have supported is "what is not seen."  In reality, the owner loses wealth - his savings - and another industry he may have supported loses that support. 

Now for the reason I equate this to Keynesian market intervention.  In society, it is the people who hold the wealth.  We create, we earn, we save.  Government cannot do this - government creates no products, earns nothing, and saves nothing.  All government can do is confiscate property and redistribute it in some way. 

So let us now apply these two concepts to one of the obvious government interventions in the free market - bailouts.  When government wants to bail out a failing industry, it first must confiscate your wealth - it will do this with higher taxes or by borrowing money that you later have to pay back.  Next it directs these funds towards a that industry it wishes to prop up.  What it has done, then, is taken your wealth, and prevented you from choosing where to spend it.  You are the property owner who has lost his wealth, the bailed out industry is the workman who now has your money.  Further, "what is not seen" are those industries that you can no longer support because you "needed to make repairs."

Keynesians would have you believe that government spending is the same as individual demand; that when government spends a dollar, it is equivalent to you spending a dollar.  This quite clearly cannot be true, for when you spend a dollar, you also gain property!  When the government spends your dollar, you do not gain property. 

Contemporary economists, even nobel prize winners, push this ridiculous concept.  Paul Krugman said that a military buildup in anticipation of an alien invasion would end the recession.  This fits perfectly into the Broken Window analogy.  What industries would benefit from the huge confiscation of citizens' wealth?  Which ones would suffer?  Would you gain property?  In this case the military industrial complex would most certainly benefit - they would be the workmen.  You, on the other hand, would not be able to support another industry you might have otherwise supported.  Perhaps you won't buy that new car.  You gain no material wealth by the deployment of a surface to space missile either.

With this all said, I hope you will take it upon yourself to try to see all of "what is not seen" when some bureaucrat or politician pushes his latest intervention plan.