POLITICS: Stimulating your way out of economic crisis

DISCLAIMER: Not an MMORPG post. Stop reading if you think that MMORPG blogs should only contain MMORPG posts.

As I mentioned before, I'm Keynesian. That is, in an economic crisis like today I support the proposal of John Maynard Keynes that the government should pay people to dig holes and then fill them up. Or, even better, build schools and highways. The idea behind that is that if you gainfully employ people, they will have money to spend, which will restart the economy after a crisis.

I also support the idea that the government should intervene in the sub-prime mortgage crisis, see that the pain is shared between homeowners, banks, and the government, and ultimately enable more people to stay in the houses they built. It helps nobody if the homeowners leave their houses or get evicted for not being able to repay their mortgages, and then the bank still loses money because they can't find a buyer for the empty house.

But there is a limit to my support for government spending their way out of the crisis. When I'm reading in the New York Times about the poor guy who bought a house for $2.24 million and now can't afford it any more complaining that he isn't covered by President Obama's housing rescue plan, I'm not exactly feeling sorry for him. I'm not supporting government financing bonuses for bankers either. Financial stimulus is not there to support millionaires. Supporting millionaires is doing very little for the economy, because the richer you are, the less of the stimulus you end up spending.

At some point we have to realize that whatever stimulus there is, we cannot go back to where we were before 2007. The simple truth is that too many people spent more money than they could afford, more money than they earned. In the long run that is unsustainable, although Keynes famously said about that subject that "in the long run, we are all dead". So some painful adjustment will have to happen, the the biggest excesses of spending will have to die. Government should support people who are unemployed, or on modest incomes, not just because that is nice, but because ultimately it supports the economy. But it has no business whatsoever to finance people's million-dollar homes or pay for their yachts. Economic stimulus can prevent the recurrence of the worst events of the Great Depression, the long unemployment lines and soup kitchens. It cannot finance everybody living beyond their means.