spending – Crash Course Criticism

Episode #13 – Recession, Hyperinflation, and Stagflation

It’s been a while, I know. I’m still about 4 episodes behind, but I’m about to start publishing my posts on a fixed schedule to catch up, and so you know when to expect them. Stay tuned for more info in the next post.

As per usual, this episode of Crash Course was a mixed bag of good, bad, and glossed-over economics. I’m going to start with the most egregious mistake:

Military Spending

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Getting out of the depression took nearly a decade, and it wasn’t really monetary policy that put an end to it. It was the massive government spending of World War II.

But Adriene! Remember what you said in Episode 1?:

Military spending in the United States is over $600 billion per year. That’s close to what the next top 10 countries spend combined…the opportunity cost of [each] aircraft carrier could be hospitals, schools, and roads.

I realize now that Crash Course believes any and all government spending is good for the economy, including things that do not benefit the public generally. If you remember back to their discussion of opportunity cost in week one, every dollar spent (either by government or private persons) could be spent somewhere else (also either by government or private persons). So why would Crash Course think that military spending can help get the government out of depressions?

In short: Keynesianism. We talked about the show’s Keynesian Presuppositions before, but this makes it clear: Crash Course believes spending is what fuels the economy. When people are not spending, governments need to step in and (tax and) spend for them! If you recall, we critiqued this idea in episode 5, so I won’t go through it again, but in short: saving also fuels the economy.

Monetary Balance

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An increase in the money supply can have two effects. It can increase output or increase prices or some combination of the two. Inflation starts when output is pushed to capacity and can’t rise much further, but policymakers continue to increase the money supply. In theory, once output is maximized, the more money you print, them more inflation you’ll get.

This theory, stated as fact here in Crash Course, is one of multiple ideas of how the money supply affects the economy.

First, the “output or price” dichotomy is generally not how most economists think of money printing. All economic schools of thought believe that money printing will always increase prices, but some economists think that the boost to output is worth the pain of rising prices. It’s not an either/or scenario; it’s an “is it worth it” scenario. Sometimes the price inflation doesn’t occur immediately, but as the money circulates, prices will rise.

The Austrian School however, argues that money printing will distort the economy, flooding money into certain areas and creating bubbles, only to eventually crash and do even more harm than if the government had not interfered at all.

Hyperinflation

Crash Course rightly puts some of the blame for hyperinflation on central banks who print money to oblivion, but they also seem to blame consumers:

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After a couple of years of doubling prices, people started to expect high inflation, and that changed their behavior. Say you’re planning to buy a new refrigerator, and you expect prices to rise quickly. You buy it as soon as possible before the prices have a chance to change, but with everyone following that logic, dollars start to circulate faster and faster and faster.

Economists call the number of times a dollar is spent per year the velocity of money. When people spend their money as quickly as they get it, that increases velocity, which pushes inflation up even faster.

Consumers do not create inflation (central banks do), but they can speed up or slow down how long it takes for the newly printed money to affect prices. If the central bank printed a bunch of money but kept it out of circulation, prices would not rise, but when that money starts to circulate, then prices rise. Once the new money is out there, it can take a long time or a short time for that to affect prices, but the eventual rise in prices is due to the initial money printing.

But Crash Course seems to think that consumers’ eagerness to spend is what pushes prices up, even if the printing has stopped.

Let’s imagine an economy without a central bank setting interest rates, and instead, interest rates were determined by the market. If something like this were to happen and everyone quickly spent their money as soon as they received it, businesses who wanted large loans would have a very hard time getting them, since money is being spent instead of saved. The most in need of loans would be willing to pay a premium for it, and banks would offer high interest rates to encourage people to save money, so they could lend it out to businesses. People would eventually stop spending as much as they notice that it would be more beneficial to save their money and collect a high interest rate.

Once a central bank enters the picture, interest rates are held artificially below the market rate, encouraging people not to save and for banks to borrow more newly-printed money from the central bank for a low rate.

Later in the video, Crash Course uses the same logic to talk about rapid deflation: consumers’ expectation of lower future prices keeps them from spending and sends prices further down. It’s a much harder argument to make for them, and we’ve already covered this argument in this post.

Stagflation

Crash Course correctly identifies what Stagflation is: when the economy is not improving but prices rise quickly. But when they explain the United States stagflation, they miss a key point:

The US experience Stagflation starting in the 1970’s after a series of supply shocks, including a rise in oil prices, and believe it or not, a die up of Peruvian anchovies, which were important for animal feed and fertilizer.

I’ll pick the “not” option. Natural disasters and supply shocks can have negative (or stagnant) effects on the economy, but these do not cause the inflation part of the stagflation formula. What does this have to do with central bank money printing?

It was very surprising to hear an entire section on Stagflation without mention of the Bretton-Woods System and the United States’ complete removal from the gold standard. That’s almost like talking about the 2008 financial crisis without mentioning FEHA or Fannie Mae.

Bretton-Woods was a monetary system that the United States had from 1944 to 1971. It was a quasi-gold standard, where the government still fixed the price of US dollars to gold. The Bretton-Woods System also establish the US Dollar as a reserve currency, and allowed foreign countries to trade their US dollars for gold at the fixed rate.

Throughout the 1960’s, US money printing made many international countries nervous about the dollar’s viability, and many of them exchanged their US dollars for gold. Eventually, the United States ended its international dollar/gold exchange, thus ending the Bretton Woods system and creating free floating fiat currencies across the globe.

Naturally, the end of the Bretton Woods system caused the US dollar to plummet in value relative to foreign currencies. It became very expensive to import items and for US companies to do business internationally. The resulting strain on international trade caused prices to soar in the United States.

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Crash Course Episode #9, Deficits and Debt, Part 1

In this week’s episode of Crash Course Economics, the hosts talk about deficits and debt. This episode might have better scheduled if it were before the videos on Keynesian Macroeconomic Policy, where they talked about deficits and debt, only to define the terms later.

Debt and Spending

Crash Course opens the episode by defining the terms debt and deficit, and explaining how the United States has the largest debt of any country, but the US debt as a percentage of GDP is not as high as a few other countries whose economies are doing fine, namely Japan. However, the major concern isn’t the current size of the debt, but the growing deficit.

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Most economists are not worried about the borrowing that the US has done already, because they are too worries about the borrowing they’re going to do.

This is true, and as shown in the graph above, the US deficit is scheduled to increase through in future decades as government spending increases.

In the “too much spending vs. not enough revenue” argument, Crash Course shows that revenue (i.e. taxes, fees, tariffs, etc.) is set to increase (as a percentage of GDP) in the coming decades, so this is “not the problem”. While this is a subjective political argument (socialists and progressives might say that taxes are not high enough), we’ll assume that what she meant was that the increasing deficit is caused by increasing government spending, not decreasing revenue.

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To de-politicize the spending issue, our co-host Adriene gives her explanation of which side is right when it comes to the question of “Where is there too much spending?”:

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Let’s look at where the government actually spends its money. Conservatives might complain “It’s obvious! Handouts!” Liberals will say “It’s obvious! Defense!” Well, they’re both wrong. So who’s the biggest recipient of federal dollars?

Grandma and Grandpa. The government spends about a quarter of the budget on Social Security, and another quarter on healthcare programs. A lot of that goes to retired people on Medicare. They deserve it! They worked hard. And those are the programs that are expected to grow as baby boomers retire and live longer. Defense and other discretionary programs are actually projected to shrink slightly as a percentage of GDP.

First, let’s ignore the out-of-place and opinionated commentary of “they deserve it! They worked hard.”

Second, while retirement spending is scheduled to increase significantly, so is defense.

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The graph above shows the nominal costs of the Department of Defense. Until about 2022, there is an increase in spending. After that, it will stay at about 600 billion per year.

However, Adriene is right that Defense will shrink as a percentage of GDP, as you can see in the graph above. So if we’re looking at the cause of the increase in the deficit, as opposed to the already large deficit/debt or spending in general, she is correct.

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Also, if tax-funded healthcare for the elderly is one of the leading causes of the increasing deficit, are conservatives actually wrong when they complain about “handouts”? I understand that Crash Course tries to remain politically neutral, but if the argument is between handouts vs. defense being the cause of a rising deficit, and you explain that Medicare is a primary cause, conservatives (in this case) are not wrong.

Also, in the liberals vs. conservatives argument, rarely have I heard the argument phrased within the context of defecit as percentage of GDP. Liberals are usually arguing that there is and has been too much defense spending generally, and conservatives argue against handouts being such a large part of the budget generally.

Debt and Borrowing

Our co-host Mr. Clifford explains how the US finances its debt:

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First, to borrow, you need lenders, people who have decided to save money and loan it out, rather than spend it on something else. But there is a finite amount of money that savers can lend, and most of that savings is borrowed by the private sector, which is consumer that take out car loans and businesses that pay for things like factories and computers.

When the government runs a budget deficit, it borrows from that same pool of savings. And if the government continues to borrow, many economists worry that there will be fewer loans available for businesses, and that will hurt the long-run growth of the economy.

This is a huge misrepresentation of how government fuels its debt. Here is a graph that accurately shows who hold the government debt:

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As you can see, domestic private investors, like what Mr. Clifford was talking about, account for less than 15% of government debt. The largest portion (34%) comes from international investors, which could be foreign governments or foreign citizens who are lending money to the US government and hoping to be paid back when the bond matures.

Federal Accounts accounts for 28%. This is where the government essentially borrows money from itself. Since different departments have different budgets, and some don’t necessarily need to spend it this year (for example, the budget that holds the Social Security deposits you’ve contributing to and hoping to get back eventually), other departments can borrow from those accounts and promise to pay it back later.

The Federal Reserve accounts for 14% of the debt. This is when the government creates money with a push of a button and buys treasury bonds (which is what you get when you loan money to the government). When the loans matures, the money is then just put into the treasury.

This is a big misrepresentation by Crash Course, and I was very surprised that they described US debt holders as only domestic lenders. How did this script get through production without someone saying “maybe we should say that this is only about 15% of debt, and there are many other ways the US finances its debt?”

We’ll pick back up with the rest of the video in Part 2. Stay tuned to see what Crash Course says about interest rates, and scenarios when spending might not get out of control.

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Crash Course Episode #8, Fiscal Policy and Stimulus, Part 1

Crash Course’s most recent video on Fiscal Policy and Stimulus has its ups and downs. The show’s hosts acknowledge the controversy surrounding Keynesian economics, but not before treating the ideas favorably. The show equates free market economics with antiquated (and wrong) medical science, and presents only two (both government-centered) economic policies as the potential solutions to national recessions. Let’s start from the beginning:

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Recessions vs. Unemployment

Crash Course spends the first few minutes of the video talking about what it means when a country is in a recession, followed by a brief history of recessions in post-WWII United States.

The episode notes that dips in the economy correspond with rising unemployment, and unemployment is linked to a number of other negative societal factors: namely suicide, domestic violence, and social upheaval.

Fortunately, Crash Course also mentions that unemployment is not the only potential monster to the economy. The show gives equal time to discussing the problems with inflation:

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High inflation can be just as bad. Rising costs wipe out savings and have been the root of protests and riots around the world…

…Many economists argue that policymakers should intervene in the macroeconomy in order to promote full-employment or reduce inflation.

Without directly saying so (at least not yet), the show implies that large-scale unemployment and inflation happen naturally, and government policy may be necessary to fix these problems.

As I wrote about in last week’s episode on inflation, inflation doesn’t just happen naturally in the market. Widespread price increases happen from new money being created and flowing through the economy. When Crash Course says “many economists argue that policymakers should intervene in the macroeconomy,” they should also clarify that government monetary intervention has already occurred, and now people are considering if fiscal economic intervention is necessary.

To give them credit however, they are correct that unemployment would still occur in a free market. All schools of economic thought would agree that as industries are constantly growing and shrinking, and people get laid off when their industry shrinks. The real question between schools of thought is how a very high unemployment rate occurs, and whether government intervention prevents this from occurring (or causes it to occur).

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Expansionary/Contractionary Policy

Before mentioning that what they are about to explain is debated between schools of economic thought, Crash Course explains Keynesian fiscal policy as generally agreed upon by economists. They later use examples from the 2008 recession to illustrate how this method of thinking is practiced in the United States, explaining away common objections to their example:

In 2009 the US government launched a huge stimulus program in response to the financial crisis. Despite that, employment and GDP both fell. That sounds like a failure, but the majority of economists think that the situation would have been far far worse without that stimulus.

I mentioned this in a previous post, but if a scientist declares his hypothesis to be true, and then despite their own contrary experimental results, still declares his hypothesis to be true, there’s no use trying to convince him. They will declare themselves the winner regardless.

Keynesian fiscal theory is based on two main assumptions: decreasing taxes and increasing government spending help the economy (and the reverse hurts the economy). Their own admitted problem is that helping the economy in this way requires the government to increase their debt, which will be paid back in better economic times.

Taxes hurt the economy. This is agreed upon by all economic schools of thought, even the communists. When you take away wealth from a people, what is left is worse off than before.

Government spending helps the economy. Freemarketeers may disagree with me here, but hear me out: government spending, per se, generally helps the economy. The problem is that government spending necessitates taxes in one form or another. Free market theory argues that money is better spent in the market than by governments, not that government spending (again, per se), doesn’t do anything good for anyone.

The problem is, you can’t have government spending without taxes, and while Keynesian expansionary policy may seem like you can have your cake and eat it too, issuing debt in the present is the same as taxing the future. Keynesian economic policy taxes the future for government spending and lower taxes in the present.

Since the increase in present government spending has to come from somewhere, this policy shifts spending from the future market to the current government. Since freemarketeers argue that any shift from the market (present or future) to government necessarily makes the economy worse off, freemarketeers oppose Keynesian fiscal policy.

So what’s up with the video’s comments on Austerity and the Multiplier Effect? Stay tuned for Part 2.

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The Business Cycle, Crash Course Episode #5

Economies grow and recede. Recently, people have related economic recessions to bursting bubbles. In 2001, the United States saw the Dot Com bubble burst, and in 2008, there we saw the housing bubble burst. The ebbs and flows have been a part of every economy since people started keeping track of economic data. But why does this happen?

Depending on which economic school of thought you prefer, you can have many different answers. Communists might argue that recessions are caused by capitalists acting in their own self-interest and taking advantage of the working class. For example, in 2008, banks were giving loans to people who could not afford to pay them back. When people stopped paying the loans back, money that was relied on was not there, and the economy suffered.

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While this explanation of recessions (which can be summed up in one word: greed), is a catch-all for an incredibly complex economic dynamic that occurred over several years, it is not adequate. A real look into the business cycle would explain not just how the past recession occurred, but why recessions will continue in the future.

Crash Course and Keynesianism

We mentioned before how Crash Course, while admitting that there are different theories for economic phenomena, favors one in particular for macroeconomics: Keynesianism.

To be fair, the Keynesian explanation of the business cycle is also what is taught in your average economic textbook, so we shouldn’t be too surprised. It is explained in the video using the common analogy of a car:

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If we imagine the economy as a car, then GDP, employment, and inflation are gauges. A car can cruise along at 65 miles per hour without overheating. Safe cruising speed is like full employment; unemployment is low, prices are stable, and people are happy.

But if we drive that car too fast for too long, it’ll overheat. In an economy significant spending increases GDP, causing an expansion. Unemployment falls and factories start producing at full capacity to keep up with demand.

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Since the amount of products that can be produced is limited, people start to outbid each other, resulting in inflation. Eventually, production costs increase as workers demand higher wages and the economy starts to slow down. Businesses lay off a few workers. Those workers spend less, causing the businesses that produce the goods that they would otherwise buying to lay off more workers.

This is a contraction. The economy is going too slow. Eventually things stabilize, production costs fall as resources are sitting idle, and the economy starts to expand again. This process of booms and busts is called the business cycle.

A lot of this explanation is fluff, but the essential explanation of the business cycle can be cut down to the following:

People start to outbid each other [for resources], resulting in inflation. Eventually, production costs increase as workers demand higher wages and the economy starts to slow down.

Essentially, the price of raw materials increases, and workers demand higher wages. The combination of the two hurts business, which starts the downturn. Let’s take a look at these two separately:

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1. Increase in the Price of Raw Materials

Resources are scarce, and businesses have to compete for these resources. When businesses are doing well and demand more of these scarce resources, the price must increase, since the supply cannot increase. The increased price weakens the businesses.

But businesses can also forecast the prices of raw materials. In fact, many businesses hire people to do exactly that. Rising prices like these should come as no surprise to businesses, and if they are expected, they would be accounted for in a way that minimizes damage to the business.

Additionally, rising prices in the provision of raw materials would signal to the market that more resources need to be devoted to it. The raw materials business is booming in this scenario, so the industry would be hiring workers as the demand for their resources increases. The market would be shifting jobs from one area of the economy to another, which is normal. I don’t see how unemployment results from this.

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2. Workers Demand Higher Wages

This is a huge assumption: over time, workers demand higher wages, so employers choose to increase wages, and have to lay off some workers as a result.

This just doesn’t happen. An employer will usually do what’s good for the business, and if it’s a large company with shareholders, the owner has a fiduciary duty to do what’s good for the business. In other words, if the CEO of a company knowingly does something that will hurt the business, he/she gets sued.

Sometimes, employees are paid less than what the employer would pay, and the demand for higher wages results in higher wages. This often happens in a boom economy: employees have many job options, forcing employers to pay them more to keep them at their current job. But if the employer cannot afford to give higher wages (and we know this because increasing wages would result in lay offs), he won’t, and in many cases, he legally cannot.

Wages are determined by the amount of value created, how much the employer is willing to pay, and how much the worker is willing to work for. The worker’s demands alone does not determine his/her pay, and businesses likely will not weaken themselves because the employees ask it.

3. The Spending Spiral Takes Care of the Rest

While the cause of the downturn is debatable, Crash Course’s explanation of the result is rather accurate. Once businesses start losing money, they start laying off workers, who spend less in the economy, so everybody hurts.

Please note that this is a different situation from that my last post, where money is shifted from spending to saving. In the current case, spending and saving is replaced with nothing.

The Role of Government

According to Crash Course (and many economics textbooks), the above explanation is what naturally happens in a free market economy, and economists generally favor the government to step in to fix it (again using the car analogy):

When I’m driving my car on the highway I like to use cruise control to regulate my speed. So why don’t we have cruise control for the economy? Well, many economists think that the government should play a role in speeding up or slowing down the economy. For example, when there’s a recession, the government can increase spending or cut taxes so consumers have more money to spend.

Proponents of this policy argue that it would get the economy back to full employment, but it has its drawback: debt.

Increasing spending or decreasing taxes (absent other changes) would increase the debt, which Crash Course will get into in another video.

My problem is the assumption that government must have nothing to do with the cause of the recession; it is only shown as the possible solution.

Crash Course Criticism will get into alternative business cycle theories and the other possible causes of recessions when we get to the videos on the Federal Reserve. We have a lot to talk about here. Stay tuned.

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Deflation, Episode #5: Macroeconomics

This episode of Crash Course was a major one: Macroeconomics. This is the big picture of economics, and as the hosts accurately mention in the beginning of the video:

If you ask three economists the same question, you are likely to get three different answers. “But how,” you ask, “can the dismal science be so subjective? Well, economics is not a traditional science because it’s nearly impossible to control all the different variables like all the social sciences.

Way ahead of you, Crash Course. Economics is not like physics, and the lack of variable controls frustrates everyone.

While Crash Course correctly notes that economics is pretty subjective, they do not hesitate to claim some debatable economic theories as fact.

Deflation

When prices fall, everyone is happy, except some economists (including those at Crash Course):

Deflation seems like it would be a good thing, but most economists see falling prices as a bad thing. Falling prices actually discourage people from spending since they might expect prices to fall more in the future.

Less spending in the economy means GDP is going to decrease and unemployment is going to increase, and that becomes a vicious cycle. So severe recessions are actually accompanied by deflation because the demand for goods and services falls.

There’s a lot to unpack here, so let’s go through a couple main points they make:

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1. Falling prices makes people expect prices to fall more in the future

When a consumer sees a lower price, he might think three things: 1. The price is low and will continue to get lower 2. The price is low and will stay that way, and 3. The price is low only temporarily, and the price will increase in the future.

The fear of deflation relies on only option 1 being true, and the other two options not being true. While I can see option 1 as being a possibility, I have yet to hear an explanation of why the other two options could not also occur. People perceive falling prices in different ways; why do we assume that everyone will assume that prices will continue to fall? If the economy is an enormous complexity to most people, why do we assume they they will be able to accurately predict the future economy? Professional economists can’t even do that!

But let’s even say that number one is true, and people will expect prices to fall.

2. When people expect prices to fall, they will not buy products now

Every year, there are a number of products that people expect to get cheaper in the future:

How much will the new iPhone cost when it is released next month, and how much do you think it will cost a year from now? Does this stop people from getting the iPhone as soon as it comes out?

Clothing companies release a new season’s collection, and nearly all of the clothes will be on sale within the next two to three months. Does that stop people from buying the clothes as soon as they come out?

People still buy products, even when it’s a near-certainty that it will be cheaper in a couple months. Some people do hold out for prices to fall, but does this collapse the industry when new products are released?

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3. If people reduce spending, the economy will suffer

If people decide to put money in the bank and wait, instead of spending money now, what happens? Certain industries do suffer, namely those in the business of providing consumer goods as opposed to capital goods. Simply stated, consumer goods are the stuff you buy to enjoy, and capital goods are the goods that are used to make consumer goods, such as machinery to make products, buildings to house companies, etc.

So when you decide to save, consumer goods places like Amazon, Disney World, and your favorite Italian restaurant will suffer, but does that mean that the entire economy will do poorly?

Where Does Saved Money Go?

When you put money in the bank, it doesn’t just sit there. Banks lend out their money to people and business who eagerly want to spend that money for themselves (to buy a house, for example) or business. Your money in the bank actually ends up going to those who are the most eager to spend it (and are likely to pay the bank back).

So saving does not weaken the economy; it merely shifts the economy toward capital goods instead of consumer goods. Wal-Mart may contract, but steel and construction companies will prosper, and jobs will move from the former to the latter.

Less overall spending is generally an effect of a bad economy, not the cause. People being laid off have both less to spend and less to save, but it is not their original saving that caused the economy to bust.

Nonetheless, there are times when there is high unemployment, and businesses cut jobs without other jobs opening in different parts of the economy. If less spending doesn’t cause the economy to weaken, then something else must be the cause. We will get to that when we look at Crash Course’s explanation of the Business Cycle.

The Circular Flow of Products, Resources, and Money

How do goods, money, and resources circulate between individuals, business, and government? Crash Course explains it and uses this graph to represent the circular flow:

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Notice anything strange in this illustration?

Both households and businesses give and receive in the cycle, since people receive money (which are used to buy goods) for their labor, and businesses receive labor for the money the pay to their employees.

Government, however, only gives money in this graph. Since government does not create wealth (it only takes and redistributes it), the graph is missing the arrows of money going from households and businesses to the government (i.e. taxes).

I’m not the only one who noticed the error in this graph. Josh, a fan and commenter of CCC, mentioned this in the comments of the previous article:

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Nice catch Josh.

To be fair, Crash Course does mention taxation when explaining the graph, however:

Where does the government get the money? Well, they get some of it from taxing households and businesses, and they get some of it from borrowing, but we’ll talk about that later.

Maybe because the government gets its money from both taxation and borrowing, they did not want to include any representation of the inflow of money before explaining borrowing. This is the only explanation I can think of.

While Crash Course’s illustration does contain a clear error, it is not as crude as economist Paul Krugman’s illustration, which he presented to his Econ 348 students at Princeton:

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In Krugman’s example, people just pass money back and forth to each other. The exchange element is completely missing.

Keynesian Presuppositions

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John Maynard Keynes is probably the most influential economist in currently-practiced economic policy. Among the Keynesian marks left on economics is the idea of the necessity of government intervention to moderate the booms and busts of the economy. As the theory goes, governments must spend during a recession to stimulate the economy.

This idea makes a lot of sense if you’re hearing it for the first time. When you’re tired, coffee helps you get back to normal, and similarly, if the economy is down, you need to kickstart it with some spending to get the ball rolling again.

Adriene alludes to this idea when she says:

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Economics is the government deciding whether to increase its spending when there’s a recession, and if it’s worth going into debt.

Usually the answer is yes, increase spending, as the United States did with its $831 billion Stimulus Package (also known as the American Recovery and Reinvestment Act of 2009).

The problem with testing economic theories is that you never know if it actually works. The 2009 Stimulus Package did not have the kickstarting effect that was predicted; the free-market economists said that this was because Keynes’s theory is wrong and government spending does not help the economy because a stimulus package would only take money from the more efficient private sector economy (through taxation) and transfer it to a less productive public sector economy. However, Keynes supporters argue that Keynes is correct and the Stimulus Package did work, and the situation would have been much worse if the government had not intervened.

Unfortunately, we’ll never know the truth empirically, since economics is not a physical science where you can have an identical “control group” economy to compare it to. And while Adriene’s point didn’t directly claim Keynes’s theory to be true, she did imply it. By presenting the downside of spending as “going into debt,” which isn’t necessarily true, she doesn’t mention what real dissenters of stimulus spending would argue: that stimulus packages are a net negative for the economy, even if the country doesn’t have to borrow money to pay for it.

Mr. Clifford makes another Keynesian presupposition when he posits this question as an example of macroeconomics:

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Will an increase in the money supply boost output, or just increase inflation?

Framing the question this way essentially presupposes that increasing the money supply can boost output, but the risk is that it may also increase inflation.

This is also derived from Keynes’s theory of government intervention for a recessed economy: increasing the money supply (i.e. creating money and buying financial products with them) will give more money to banks who then lend out that money to people for long-term capital projects (building construction, investing in companies, etc.). Now there’s more money circulating in the economy as more people get to borrow money to fund their projects, and the financial industry is booming because they are the first ones to get the newly-printed money. However, printing money runs the risk of prices increasing as the dollar becomes less valuable. The Keynesian theory describes money creation as a balancing act; the government needs to print just enough to kickstart the economy, but not too much to create an inflation problem.

Again, real dissenters from Keynesian economic theory (or at least those who follow the Austrian Business Cycle) would argue that increased inflation is not the only risk of increasing the money supply. As the Austrian theory goes, money printing distorts the economy, shifting production from consumer goods (like stuff you buy at CVS) to capital goods (projects that banks give big loans to). The shift is harmless at first and may even appear to boost the economy, however, this distortion that provokes an artificial boom will ultimately result in an even greater bust. In other words, the cups of coffee you drank to wake you up will leave you with a bigger caffeine withdrawal the next day.

With these two examples, it’s not too hard to see a preference toward Keynesian macroeconomics, but who can blame them? Keynesianism is widely-practiced in countries around the world and is supported by many economists.

The least they can do, however, is correctly present the real concerns about Keynesian policies, and not the Keynesian concerns about Keynesian policies.