Politicians just love stimulations.

The government plans to inject RM60 billion into the economy. It will do so under 4 main thrusts as the finance minister says. The description is very apt- after you stimulate, you thrust. You might be forgiven into thinking our economic managers were doing something else when formulating our economic strategies.

In this short article, I am just trying to instigate some thinking. As we all know, the rage now is to embrace Keynesian economics. Starting from when Milton Friedman first uttered it to when Nixon famously rephrased the term, Keynesian economics is now on the ascendency.

Politicians and civil servants liked the ideas of Keynesian economics. They give them excuses and reasons to meddle in the economic system. In Malaysia, meddling into the economy can also be a means to make hay while the sun shines. All too often, bureaucracy and other regulations provide opportunities to make money on the side.

What is the basic idea of Keynesian economics? It is the idea of deficiency in aggregate demand. Simply put, it says that private citizens routinely spend too little. After working to produce to earn incomes they neither spend nor invest those incomes. According to Keynesian economics, it's this failure to spend and invest that keeps AGGREGATE DEMAND too low. And with total demand too low, businesses can't sell all that they produce. So the economy contracts and unemployment rises.

The solution recommended by Keynesians is for government to spend whatever private citizens don't — for government to buy what private citizens won't.

I am just curious; could all this be a red herring to give the government reasons to disturb the market? Is it possible that such an explanation is to also provide the excuses to hide the weaknesses and flawed economic policies? That really, the falling aggregate demand is the product of economic mismanagement?

Let us see. Keynesian economics says that after people work, they neither spend enough nor invest enough. The question then, why should they? We have already defined and determined that people don't spend enough or save enough. So why should they earn higher income when they will not spend and invest? I can put it more graphically by asking why would people strive and take risks to accumulate pieces of paper that they stuff under inside their pillows.

Savings of course can be translated into investments. People don't save by hiding them in pillows. They save by placing them in banks, or loaned them to governments when they buy treasury bills and other bonds or other government IOU's. Savings can be invested in many other ways to earn returns for those who save.

Here is the poser. Could it be that the reason why people neither want to spend it now nor to invest any portion their savings is because too few trustworthy banks or other potential users of these savings exist?

Our next question therefore is what repels the investors? Or what can prevent banks from lending to investors who can earn returns for depositors? The common answer given by Keynesian economics, is because there's little demand from people, investors won't want to produce things. This reasoning may not be the only one or even the correct one. Investors shy away because it is also possible that government policies are excessively hostile to investment and enterprise.

The forms by which government policies are hostile to investments take many forms. In some countries, governments can nationalize industries and that scare investors away. In less extreme examples, investors' enthusiasm is often dampened by assaultive economics policies. Examples of these include high capital-gains taxation, burdensome regulations, lack of transparencies, and too much red tape, arbitrary regulations might well scare investors away.

I am willing to concede that they be grounds to accept falling aggregate demand as the reason for this recession. But I would also like the government to examine that maybe the slackening aggregate demand is the product of their assaultive economic policies- in the manner that I have outlined above? Could it be that the reduction in aggregate demand be caused by the government trying to circumvent the market? For example, why should the government intervene in the market by lending Valuecap RM5 billion so that it can save itself? Wouldn't it make more economic sense to allow the market to correct the anomaly known as Valuecap? Is it sound economic policy for government to save Valuecap by entering the market lending it RM5b? In my opinion, that's not sound policy because to do so would divert scarce resources from other uses more valuable to people and the country.

Could it be then, this RM60b stimulus package is the excuse for politicians to justify meddling further into the economy? And they can justify it intellectually by saying that's what Keynesian economics prescribes? In that process, the normal corrective adjustments in the market which could allocate resources more efficiently are thwarted? It will also mean that government's power over the private economy grows dangerously. In our country as the government becomes more invasive in a market economy, private investors get more intimidated. As government grows bigger, the power and patronage of politicians will too.

I am just thinking out loud, that maybe, this unholy alliance between Keynesian economics and opportunistic politicians is fueling today's enthusiasm for fiscal stimulus. Are we being suckered? I hope not for this country's sake.