The Keynesian Perpetual Motion Machine

Trigger and Freewheel - October 17, 2011

The search for the elusive Perpetual Motion Machine has persisted through history.  Such an apparatus could continue to run by it's own power once it was started, without the requirement of any additional outside energy.  Though many have claimed that they have invented such an apparatus over the centuries, it is not possible.  If it were, we would all be driving electric cars that charge themselves as they travel along the road.

I won't go into the detailed physics about why Perpetual Motion is not possible, because frankly, I'm not a physicist and don't play one on the Internet.  If you want the details, I'm sure you can find more than you want to know from a quick search on your favorite search engine.  But, for a simplistic view of the subject, let's look a the diagram below which provides a classic depiction of a Perpetual Motion Machine.  The idea here is that once the center wheel is started spinning in a clockwise direction, the arms attached to the wheel will swing out and the force of the weights attached at the ends will force the wheel to continue to move.  As the wheel turns, new arms will continue to swing out and drive the wheel.  Sounds plausible...if you only think about it for about 30 seconds.  The problem is that the force of the weights going IN must be overcome coming back OUT as they are dragged back up the other side.  Add the friction of the axle and other issues, and the machine eventually comes to a halt if no additional energy is used to keep it going.

"Okay," you say, "how does that apply to Keynesian economics?"  Well, let's look at this machine as the economy.  Politicians who extol the virtues of Keynesian-based monetary policy believe, among other things, that they can boost the economy by adding so-called Stimulus money into the economy.  But, they forget that government does not create the wealth that they put IN to the machine at the top of the cycle, they only take it OUT of the economy in the form of taxes, fees and tariffs.  Add the frictional drag from the bloated bureaucracy of the government itself, and the wheel soon slows and comes again to a stop.

The government solution to the slowing wheel is to add more Stimulus going IN...but where do they get the money?  Well, they can raise taxes...but the public will only stand for so much of that before they revolt and vote them from office.  So, for the past several decades, they have hid their source and done something even worse...they have borrowed the money.  This new borrowed money comes with the added frictional drag of interest.  Coming back OUT, the machine not only have to support the continued turning of the wheel and the drag of bureaucracy, but now the added debt service.  So any new government Stimulus has less and less of a positive effect on the motion of the economic machine.

Now I hear you saying, "How is that any different from the so-called Free Enterprise System?"  A very good question...you are a smart one.  While government only pulls wealth out of the economy, or borrows it, the Free Enterprise System creates new wealth.  This new wealth is created by taking the raw materials of business and, through ingenuity and hard work, turns them into products and services that are more valuable than their component parts.  This new wealth is the on-going new energy that the Free Market adds IN to the system to keep the machine turning.  Companies who create wealth have a vested interest in reducing the drag so they can take more profit OUT of the machine.  This profit allows their companies to grow and increase the new wealth they can add IN again.

Only the Free Enterprise System has demonstrated the on-going ability to continue to add the needed new energy to keep the economic wheel turning.  The failures of the economy have never been failures of Free Enterprise, but rather the failures of government.  When government adds drag to the machine through higher taxes or unreasonable regulation, it slows the wheel and reduces the profit companies can take OUT...thus reducing the new wealth they can add back IN. 

Yes, this is a simplistic analogy, but an accurate one.  The Keynesian models have been debunked over and over through the years.  One of the shining examples that Keynesians have held up as the success of their policies, FDR's New Deal, has come under scrutiny in recent years.  In fact, economists from UCLA have recently released the results of a four-year study of the FDR policies and their effect on the Great Depression.  Rather than saving us from the Great Depression, as Keynesians have always claimed, UCLA research found that  while the economy had been "poised for a beautiful recovery," that recovery was "stalled" by FDR's "misguided policies."  The study concludes that the FDR actions "thwarted economic recovery for seven long years."  One of the study's authors, Harold L. Cole, stated that their "work shows that the recovery would have been very rapid had the government not intervened."

Bringing things up to the present, The Washington Times reported that "The Congressional Budget Office on Tuesday downgraded its estimate of the benefits of President Obama’s 2009 stimulus package, saying it may have sustained as few as 700,000 jobs at its peak last year and that over the long run it will actually be a net drag on the economy."  So, since this was basically a failure, Obama wants to do more of the same...Typical.

There is no such thing as a Perpetual Motion Machine...or a successful government-driven economy.  Any one who believes there is, are a lot like the spoiled teenager in the comic at the top of the page who thinks it works as long as "someone" continues to pay the bill.