Politicians in particular have a problem – in good times, people vote for them, and in tough times … not so much.
The temptation is to delay the tough times until your successor can carry the can.
Poor old Keynes inadvertently gave politicians the answer they were looking for – the idea that during the downturn, the government should spend money into the economy to keep it going along nicely. Making sure that those lifeguards sacked from the Skegness lido can swiftly get jobs working at a government Skegness lido prevents them claiming the dole, and keeps them in the economy earning and spending until the economy washes out all the malinvestment and starts growing again. At which point the government Skegness lido closes and the lifeguards go to work at a lido somewhere where the biting Easterly wind doesn’t sandblast your skin off. The government has bridged the gap.
There’s one problem.
The government has no money of its own, so where will it get the money for their lido?
Well, Keynes said it should run a surplus during the good times and stash that surplus money away so it can be used during the downturn – a national rainy-day fund, if you will.
But guess what? Politicians don’t run surpluses.
Why would they? Every penny spent making lives better for voters today makes it more likely they will vote for you. And every penny saved against a rainy day makes it possible for your rivals to win votes tomorrow, by doing the same once they are in power.
So politicians don’t ever HAVE a rainy day fund. But that doesn’t stop them wanting to bridge the gap.
So they borrow the money.
And now what they are doing is not Keynesian, or even neo-Keynesian, but pseudo-Keynesian
By bridging the current gap with borrowed money, they simply make sure that the next gap will be costlier to bridge. Because the interest on the borrowing means that the gap will be wider.
But that’s not even the biggest problem – the biggest problem is that the gap is intrinsically important. We NEED it, to give us pause.
Whereas bridging it enables us to carry on being silly and prevents the misallocations from being flushed out – a lido remains operating in Skegness despite having no customers, and the lifeguards continue to work. Their lifesaving skills (which should be fruitfully employed elsewhere) stagnate at a lido with no punters. Their customer service skills deteriorate as the customers disappear, and what they learn instead is how to sit in a chair and stare into space. Their skills are degrading. Hysteresis, technically.
And so by delaying the collapse of the Skegness lido in pursuit of benign conditions for the voters, the government destroys the skills of our workforce.
Sowell was right – the problems we battle today were caused by the government’s interventions yesterday.
Surely using government to solve our problems is like a man quenching his thirst with seawater?
Alex Noble, “Drinking Brine”, Continental Telegraph, 2019-06-14.
February 28, 2023
QotD: Politicians respond to different economic incentives than the rest of us
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