OCTOBER 26, 2011 by SHELDON RICHMAN
Television pundits increasingly express an attitude that is at once arrogant and ignorant: The people who oppose Keynesian economics—specifically an increase in government deficit spending to create jobs and jumpstart the economy—are the same kind of people who also believe that the earth is only several thousand years old (rather than 4.5 billion), that evolution is bunk, and that science is something to be feared. MSNBC’s Chris Matthews takes the strongest version of this position.
TV hosts of course are not authorities on economics, so when they judge Keynesianism as the only truly scientific economics, they mean two things: That is what a Keynesian taught them in school and that is what all their Keynesian friend-guests assure them is the case. Since they never invite a non-Keynesian economist on their shows, they insulate themselves against informed dissent from their faith. Who’s antiscience?
I know many people who (like me) reject Keynesian economics and embrace science (while realizing that scientists are prone like the rest of us to confirmation bias and career ambitions.) But Matthews & Co. say there are no such people.
This explains their intolerance to those who refuse to agree that in a recession government spending is indispensable to raising aggregate demand and restoring economic growth.
If you point out that every dollar government spends, whether taxed or borrowed, is a dollar removed from the private sector, the Keynesian pundit might agree but point out that business is not investing (true) and consumers are not spending (false)—so what’s lost?
The pundits’ blinders keep them from a broader perspective. Since all they know is the most vulgar rendition of Keynesian economics, they have no idea that two distinct factors now prevent economic growth. First, the boom (without which there’s no bust) was created by monetary, housing, and financial policies that to a great extent still exist. Government officials are trying to resurrect the housing industry, indicating that the ruling elite still does not realize that the industry’s pre-bust condition was the artificial result of misguided interventions. Widespread malinvestments—investments unjustified by real underlying conditions—have to be liquidated before economic growth can resume. Liquidation requires the costly but necessary adaptation and transfer of resources and labor to purposes for which there is genuine demand. This correction cannot take place if political responses to the recession get in the way by, say, discouraging saving.
Second, the government has created significant new regulatory uncertainties that chill the investment climate. With so many yet-to-be-written rules coming down the pike, why would anyone risk money now? A government regulatory regime is bad enough; one that can change at any moment is far worse.
Finally, the pundits are blind to the fact that government can’t create real jobs by design. It’s not that government can’t pay people to do things. But in economic terms, a job is not merely exertion in return for a paycheck. It’s activity that transforms resources from a less valued form to a more valued form in the eyes of consumers.
Keynesian pundits insist that a stimulus program to pay workers billions of dollars to repair schools, roads, and bridges would qualify as productive because people value those things. What’s missed is that we live in a world of scarcity and tradeoffs, and that we always make choices at the margin. Repairing a school may sound good in a vacuum (Which school? How elaborate a repair?), but not so good when something more valuable must be given up in exchange.
We all make similar tradeoffs in the marketplace, and we can do so intelligently because goods and services have prices. But government-produced goods and services are not priced and sold in the market. Instead, government collects its revenues by threat of force, and politicians and bureaucrats dispose of them ostensibly in the interest of the people but more likely in the career interest of those same politicians and bureaucrats. Without prices and free exchange—without entrepreneurship—we cannot know if what government produces is worth the alternative goods and services forgone. Putting the infrastructure into the freed market would correct this defect.
The Keynesian pundits, then, are wrong. The government need not be the spender of last resort because 1) producers and consumers would spend just fine if it would get out of their way, and 2) the government can’t be relied on to create, rather than destroy, value in its use of scarce resources.
* * *
In a move reminiscent of medieval times, the government of Atlanta has told independent street vendors they now owe tribute to a new monopoly contractor. Bob Ewing describes this outrage against economic freedom.
“Infrastructure” is the magic word for those who want the government to spend ever-more amounts of the taxpayers’ money. Richard Fulmer reminds them that this is no substitute for a free economy.
The American people continue to be plagued by unemployment. What is it exactly, and where does it come from? Warren Gibson starts a two-part series this month.
People favoring a tax-hike strategy for reducing the federal deficit point to the booming Clinton years for support. Arthur Foulkes takes a closer look at those years.
Russell Conwell was well known in the late nineteenth century for his inspirational speeches about entrepreneurship and self-help. Today he’s forgotten, but Harold Jones, Jr., is trying to change that.
Fed Chairman Ben Bernanke promises to continue his near-zero-interest-rate policy for another two years. But Christopher Lingle says that would be a disaster.
Failure can be painful, but not as painful as what results from a public policy aimed at preventing failure. Jack Knych and Steven Horwitz explain.
Communitarian sociologist Amatai Etzioni has been railing against libertarianism for at least 30 years but refuses to respond to rebuttals. Aeon Skoble gives him one more chance.
Our columnists have had fun coming up with topics for their sharp observations. Lawrence Reed remembers Samuel Tilden. Donald Boudreaux finds fault with economists. Stephen Davies uses debt and taxes to gauge political failure. John Stossel looks at some historical myths. David Henderson traces the causes of the 1967 Detroit riot. And Tyler Watts, reading Paul Krugman’s appeal for more government spending because it will create jobs, responds, “It Just Ain’t So!”
Our book reviewers have been absorbed in works about the financial crisis, a champion of the freedom philosophy, libertarianism, and capitalism.—Sheldon Richman