Government may create a demand for something nobody but it wants or needs. Or it may expend resources on something totally useless to anyone. The Government orders thousands of armored vehicles and the material and labor and capital needed to produce those tanks are gathered and the armored vehicles are assembled. These then are parked in a desert in California north or Reno, Nevada. "Demand/Consumption" of the tanks stimulated the production and supply of tanks. The tanks themselves benefit nobody. They are sitting in the desert.
The materials and labor to produce the tanks could have been used elsewhere in the economy. How was the tank production financed? People who want other things are taxed. The tax money is transferred to the people who made the tanks. They might as well just been given the money for doing nothing because what they did for the money benefits nobody. In fact it would have been better because the resources now sitting in the desert could have been used to make cars or air conditioners or any of variety of things people can actually use. According to Keynes, the tank builders will now take their paychecks and buy ice cream thereby stimulating ice cream production. Well, what about the people who were taxed to pay for the tanks? Don't they like ice cream?
All Keynesian stimulus does it distort the economy. It creates economic bubbles. It transfers wealth and resources to areas where they are not needed. One can say "consumption" is stimulated, but the question that is not answered is "Consumption of what?" Creating demand for something that is otherwise not needed is counterproductive. Let's say the government orders 500 tanks and the labor and resources are recruit to build them. It stimulates the economy as a result. The tanks get built. Now what? The stimulus ended. There is no way out. If the economy is dependent on artificial stimulation the distortions and misallocation of resources has to be perpetual or the reorganization and reallocation of labor and material the government was hoping to avoid will now occur. The end is ultimately and unhappy one. Everyone will be busy making things nobody wants and are taxed to keep themselves employed. Then it all stops. The Soviet Union died making weapons that did not work and uncomfortable shoes nobody wanted to wear.
[F]orce can only settle questions of power, not of right. - Clyde N. Wilson
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