At some point this week Congress will most likely pass close to a trillion dollar stimulus package. This drastic measure, pushed hard by President Obama, will be in addition to the two trillion dollars Congress has already given away in the past year to "jump start" the U.S. economy. It may be also be just a tenth of what some economists estimate could become a ten trillion dollar government spending spree to fend off depression. The extraordinary 2009 spending policies passed by Congress are being based on economic principles called Keynesian Economics. John Maynard Keynes (1883 - 1946), a British economist, is often credited with the simplest explanation for the cause of the Great Depression, though his solution for getting out of it was for the most part rejected by his own generation.
Keynes believed in what he called "the circular flow of money." One person's spendings goes towards anothers earnings, and when that person spends his earnings he is, in effect, supporting another's earnings. This circle continues on and helps support a normal functioning economy. When the Great Depression hit, however, people's natural reaction was to hoard their money. Keynes believed that when people "stopped" spending, the circular flow of money collapsed and the economy came to a standstill - causing the Great Depression to deepen and lengthen even further. Most economists believe if it were not for World War II and the massive amount of manufacturing required to support a world wide war, the Great Depression could have extended well into the 1950's.
Keynes proposed a solution to end the Great Depression based on government. He wrote that governments should "prime the pump" with massive federal spending. By priming the pump he meant governments should "kick start" the money flow in the economy through governments actually buying things on the open market itself (i.e. real estate, banks, etc . . ) or by borrowing money to improve roads, bridges and public works. Keynes believed that once primed, the economy would once again see circle of money and their would be economic growth rather than contraction. Keynes ideas spawned a slew of interventionist economic policies proposed by liberal politicians during the Great Depression. But only government spending on "public works" eventually passed, and even then, under great opposition. The people of America in the 1930's just couldn't stomach government borrowing and spending that would increase the national debt, believing it would burden future generations.
When Keynes was asked, "Where will your economic theories and resultant government spending policies leave our country in the long run?" he gave his famous response:
"In the long run we are all dead."
In other words, Keynes didn't believe one should care about the long run as a nation. One should only think about the present. My economics professor at the university where I studied, a Keynesian himself, put it like this: "Why should the government care about borrowing trillions of dollars? When it comes time to pay, they can print money to pay what they owe."
Keynes flippant response brought him great criticism at the time. Why? Millions of people living in the 1930's and 1940's possessed different values than Keynes. These people, whom Tom Brokaw described as "The Greatest Generation," believed that a person should sacrifice for future generations. To them, the end was not death. They believed in legacy, future security and an eternal state. They had their eye on their own children and grandchildren. For this reason they revolted against Keynesian economics and a vast majority of the spending proposals liberals proposed in Congress during the 1930's and 1940's were rejected.
What has happened to our country since then? It seems that we as a people have gone from "the greatest generation" who sacrificed for the good of the future, to "the worst generation" who desire government to spend trillions to give us a better life, a better job, a better house -- and this transformation from selflessness to selfishness has occurred within the course of "a single generation."
May God help us all.
In His Grace,