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The formula of:

Growth (gross domestic product) = consumption + investment + government spending + net exports

is straight from Keynes. One implication is that government spending of one dollar has the same effect on the GDP as the private sector spending one dollar.

Let me ask: How often does government go to the store and spend one dollar but gets less than one dollar of end-use value? The news is full of stories of government waste, where government pays millions of dollars for stuff that sits rusting in a warehouse because of some bureaucratic mistake.

How many of you go shop to find more than one dollar of value for each dollar you spend?

On balance, private business must gain more than one dollar of value for each dollar it spends. That difference is profit.

But when your economic theory says that one dollar of government spending is just the same as one dollar of spending from the private sector, then a wasteful government project has the same economic effect as a well run project. Digging holes and then filling them up is just as important as building a needed highway bridge. Giving money to Solyndra has the same effect as anything else.

But a key is also that each dollar comes from somewhere. If it was borrowed, the cost of servicing the debt comes from somewhere. And that somewhere is only the private sector, which is using all the dollars it has to make a profit. So, when government takes a dollar from WalMart in taxes, because WalMart makes a 3.47% profit on each dollar, unless government puts that dollar to work in an activity that earns greater than 3.47% profit, we are actually less prosperous, and wealth was actually destroyed by the government, even though the money was spent digging holes and filling them back up.

Austrian economists understand this. Keynesians cannot and don’t want to.