While waiting for my doctor I was watching CNN (the only way I will watch CNN), and I was struck by how absurdly partisan their economic analysis is. I missed part of the story, but where I picked up the story they were reporting on polls about Obama's proposed bailout. Apparently, voters would be much happier about the bailout were it accompanied by a tax cut. However, never happy to hear those two words used together, the CNN staff had followed up with questions about how the tax cut would be used, finding out that only about 20% would spend the money, while the remainder would either pay down existing bills or save the money.

And that was where CNN showed their incredibly bizarre Keynesian take on things. True to their liberal, "consumerist" theories, they saw only those who spent their refund as "stimulating the economy", according to their take either saving or discharging debts would ahve no economic impact. Of course, this is not unique to CNN, this sort of absurdity is at the basis of those silly "stimulus checks" we received, and seems to motivate a lot of economic thinking in government circles. However, I would have thought that a serious news channel (which CNN pretends to be) would have at least one opinion other than the doctrinaire government position that consumer spending alone (along with deficit spending by the government) stimulates the economy.

Let us look at the two non-consumer alternatives. If consumers save their money, what does that mean? It means they put their money into our ailing banking system. As the primary worry about the economy is a lack of liquidity, why would it be a bad thing for banks to have a sudden infusion of free cash, in the form of new savings? Why would that not "stimulate" the economy? Even if they did not lend it out to producers, but only used it to support new consumer spending, would that not be a good thing? Of course, CNN seems to adopt the neo-Keynesian silliness that "savings" means hiding money under a mattress and discount savings as a source of spending for other individuals, and just discount savings. Then again, that is why Keynes' theories have been so destructive everywhere they have been tired seriously, the denigration of savings tends to create a relatively self-destructive society, bent entirely on immediate consumption and ripe for collapse.

And what if consumers pay off debts? Surely, most think, that won't stimulate the economy. But think about what that means. It means money once loaned to the consumers is now repaid and free to be loaned out again. In other words, just as with new savings, thsi creates the liquidity we keep hearing is lacking in our system. Though it is not exciting, and it seems a boring, stodgy use of money, repaying debts is surely as stimulating to the economy as either savings or consumer spending.

The problem here, and the problem with the Keynesians in general, which unfortunately includes most government economists, is they see nothing but the immediate effect. They see someone buying consumer goods and think it stimulates the economy, while they see a man putting money in a bank or paying off his credit card and think "that money is lost". they cannot look beyond the immediate act and see what the impact is two or three steps in the future. They seem to think any use of money that is not immediate consumption somehow takes the money out of the system and renders it inert. But the truth is, unless you do hide it under your mattress or bury it in your yard, no money is ever inert. Someone, somewhere will loan out every dime. (Possibly under truly bizarre inflationary or deflationary circumstances this may not be true, but we are not yet in that sort of situation.)

Then again, what do I expect from CNN? There is a reason I never watch them voluntarily. That they mimic the bizarre Keynesian theories of the government economist (and sadly many of the academic economists as well) should come as no surprise.

POSTSCRIPT

Those interested in this post may enjoy my two posts "Monetary Issues Made Simple Part I" and "Monetary Issues Made Simple Part II".You can also find a list of almost all my writing on the bailout in the postscript attached to my essay "History Repeating Itself". Finally, as Keynes' primary concern was to revive something akin to the protectionist fallacies of mercantilism, though in this specific case that is not relevant, I suggest reading the essays listed in the postscript attached to "Cheap Lighters, Overseas Dumping and Monopolies". Finally, as FDR was the greatest presidential proponent of Keynes, I recommend "Government Cheese?" and "War Stimulates the Economy? Let's Nuke San Francisco!". Then again, Keynes' theories were even more consistently applied by Carter, whose massive inflation is chronicled in "Memories of Jimmy", and by Nixon, whose blame for our economic woes is described in "The Theory That Wouldn't Die". I am sure there are other examples I am forgetting, but that should cover most of the highlights.