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The whole idea of Keynesian demand side economics is that in times of crisis, gearing up the demand through government spending will stimulate economy and help in recovery. Both, in Socialist and Capitalist economies, this idea has failed, time and again, almost everywhere in the world. There are reasons why demand side recovery attempts are destined to fail. First of all, economy does not grow with growth in demand. The best increased demand can do is to increase production. It does not create new markets and seldom results into any creative or innovative activity. The world has grown, and is where we are now because the creators, innovators, inventors, entrepreneurs and business owners created new products and services which created new markets and demands.
There was no demand for computers before the invention of computers. When computer was introduced into markets, people and businesses gradually started to realize potentially enormous benefits of using computers. So, a demand was generated and together with manufacturers and suppliers of computers totally new markets for computers came into being which have already generated trillions in a very short period of time and hundreds of millions are directly or indirectly employed in computers related businesses, professions and jobs. This is how the growth occurs. An additional revolutionary effect of computers has been that they have increased efficiency in almost every sector of economy. Individuals are getting paid better because thanks to computers, they are far more efficient and productive, now..
Same was the case with inventions like steam engine, automobiles, airplanes, TV, radio, gramophone and many others. All of these created their own huge markets and those markets than created lots of jobs. There is an argument that current technological improvement is replacing good paying jobs with less paid jobs and this is the reason why rich are getting richer and poor are getting poorer, and the gulf between rich and poor is widening.
This argument is as baseless as it can be. There is absolutely no way that new and expanding markets do not create demand for more of skilled labor. No doubt that workers are getting displaced from outdating markets and sectors of economy. But, those are the sectors which were getting saturated, anyways. If technology remained stagnant at that point, the whole new younger labor force entering into markets would have been without jobs. The technological advancement did not allow it to get that bad for younger people.
It is a fact that the situation for younger people is not good enough. Unemployment rates in younger people are very high. The reason for this very high unemployment in younger people is that the government regulations and taxes are not allowing employment sector to grow fast enough. 3.8 trillions of our 17 trillion dollar economy are getting dumped in huge government every year. Worst part is that even this 3.8 trillion is not enough for our government. It is still having an annual deficit of around a trillion dollars, every year. This trillion dollar deficit is basically being paid by deficit financing which means by borrowing and by printing money out of thin air. Deficit financing has serious adverse effects on the value of our currency, Dollar.
In simple terms deficit financing implies that there are too many dollars in circulation, devaluing the currency while interest on debt burden is continuously rising on our economy, as well. Currently, we are paying over a half trillion dollars in interest on debt every year and one dollar today values only at four cents in 1913 when federal reserve came into existence. Devalued dollar is causing inflation and increase in prices which are a huge drag on standards of living.
Interest on debt displaces available money from better uses. While excessively printed money is an indirect tax on us, interest on debt is one of the reason why we need to be taxed higher and higher. These high taxes are also a huge drain on economy, businesses’ capability to create jobs and individual consumption power. Reduction in individual consumption power due to taxes and devalued currency shifts the demand curve, further hurting businesses and jobs creation. Government regulations also favor monopolies. Under the influence of powerful and rich corporate lobbies lots of legislation is made specifically with the intention to kill the competition.
Many other regulations and taxes which do not have a direct intention to kill competition, necessarily do that as an unavoidable indirect consequence. It does not take a genius to understand, unless you do not want to that it is much harder for a start-up, early stage and smaller business to bear the cost of taxation and regulation compared to their larger, established and well-funded big, corporate counterparts. So, taxation and regulations keep competition out of business, guaranteeing monopolies for big corporations. This reduced competition does not only effects the prices, quality and variety of products and services available, it also has direct adverse effects on number of jobs created and the quality of those jobs available.
In the absence of smaller competition, big corporation may or may not hire anyone on any terms and conditions, they want. So, an artificial demand created through infrastructure jobs cannot and do not result into growth mainly because the negative effects of deficit financing and increased taxation surpass the effects of demand curve shift due to jobs created by infrastructure spending. Although, there is no doubt that a sound infrastructure is key to an efficient economy.
Contrary to what sold out politicians and big media tell us, the infrastructure can easily be built and maintained much more efficiently by private enterprise, and local and state cooperatives, as it was done in earlier days. Government did not build railroads which made the industrial revolution possible. Those were built by private companies. Government took over this role only later on and grossly messed it up. Private and contracted out airports, seaports, bus stations, roads, fire stations and detectives are still far more efficient than government run enterprise. So, why American economy cannot create enough jobs? It is because of, about a five trillion dollar burden and drag on economy called government.
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