I’m understandably fond of my video exposing the flaws of Keynesian stimulus theory, but I think my former intern has an excellent contribution to the debate with this new 5-minute mini-documentary.
[youtube D9kfMx8Llcc]
The main insight of the mini-documentary is that Gross Domestic Product (GDP) only measures how national output is allocated between consumption, investment, and government. That’s useful information in many ways, but if we want more output, we should focus on Gross Domestic Income (GDI), which measures how national income is earned.
Focusing on GDI hopefully would lead lawmakers to consider ways of boosting employee compensation, corporate profits, small business income, and other components of national income. Focusing on GDP, by contrast, is misguided since any effort to boost consumption generally leads to less investment. This is why Keynesian policies only redistribute national income, but don’t boost overall output.
The analysis in this video also helps explain why Obama’s so-called stimulus was a flop. The White House genuinely seemed to think a bigger burden of government spending was going to create jobs, but the real-world numbers show higher joblessness.
With any luck, this video will help them understand that Keynesian theory is based on the silly notion that you can get rich by taking money out of one pocket and putting it in another pocket.
Unfortunately, even that may not lead to better policy. Many politicians like Keynesian economics since it gives them a rationale for buying votes by spending other people’s money. What’s good for the nation is, at best, a secondary concern.
You may recognize Hiwa. She narrated a very popular video earlier this year on the nightmare of income-tax complexity.
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