“Mother’s gone too far.  She’s put cardboard over her half of the television.  We rented The Man Without a Face – I didn’t even know he had a problem!”

More important than the humor we find in Principal Skinner’s life sharing a house with his domineering mother on The Simpsons is the lesson to be learned – don’t live with your mother!  OK, maybe there’s a better lesson.  Seeing only half the picture can create a multitude of problems.

Noted economist John Maynard Keynes – widely considered the father of Macroeconomics – saw half the picture.  He focused purely on the demand side of the economic equation.  Today Washington ‘leadership’ does much the same and we’re all paying the price.

Keynesian economics ignores the supply side.  It places outsized importance on aggregate demand believing an extra dollar in the pocket of a consumer will generate a multiplier effect.  He buys something which creates income for someone else who, in turn, spends that dollar which creates income for someone else, etc.

Keynesian prescriptions for economic ills rarely work.  “W” wasted massive amounts of money via one-off tax breaks.  His successordid much the same via transfer payments (e.g. unemployment benefits) and direct spending (e.g. ‘stimulus’).

Putting cash into the pockets of consumers by artificially lowering interest rates, promoting programs like Cash for Clunkers and a home-buyer tax credit while propping up unsustainably expensive state/local governments cannot create a multiplier effect and do little to get an economy moving.

The current state of the housing industry is a microcosm.  People aren’t buying homes because interest rates are too high.  Mortgages are cheaper than ever.  People aren’t buying homes because they’re afraid they won’t have a job.  Putting more money into our pockets via cheaper mortgages isn’t the solution.

Keynesian economics is a failure because consumers do not respond to short-term, one-off, non-multiplying efforts.  These things do little more than shift the timing of activity.  True economic results are obtained by providing permanent supply-side incentives that create an environment for growth.  One need not look beyond The Tax Reform Act of 1986 which flattened marginal tax rates and broadened the tax base to see what happens when the focus is put on curing the disease – not putting a Band-Aid over the wound.

Consider the recent payroll tax cut.  For 2011 the Social Security component is reduced from 6.2% to 4.2%.  The problem is the cut was given to the employee.  No spending.  No multiplier.  Is there any wonder this has been an abject failure?  Have we heard anything about a single job being created by a firm hiring due to this tax break?  Had the break gone to the employer portion of the payroll tax there existed a real possibility of creating new jobs via a hiring incentive.  Simply put, incentives work best not on the demand-side but on the supply-side.

When will the folks in Washington wake up to economic reality?  Not any time soon apparently.  When President Obama isn’t busy demonizing anyone who earns more than $1 as greedy he’s terrifying businesses with health-care reform, Dodd-Frank, restrictive labor and environmental policies, etc.  Why would a business hire more workers in such a hostile and uncertain environment?  HeyBoeing, was Washington happy you wanted to open an assembly plant in South Carolina?

Keynesian economics, demonizing banks, hostility to business and punitive tax hikes don’t produce economic growth – they produce election results.  Are the folks in Washington interested in solving our economic problems or keeping their jobs?