The Keynesians, led by Paul Krugman, keep shouting that the country needs much more federal spending to “stimulate” employment and bring us back to prosperity. In this piece, economist John Goodman explains why they are mistaken. In short, the Keynesians ignore the costs of government action. When you consider the foregone alternative uses for the resources employed and compare the costs with whatever benefit comes from the government project (which is often negligible or even negative), the result is that more government spending makes us poorer, not wealthier.
The Founders had at least an intuitive sense that this is true — they sought to establish a government that did just a very few things, thereby leaving the vast majority of the nation’s resources for use in the private sector, where individuals — who stand to gain from wise decisions but also to lose from bad ones — would make the optimal use of resources.
