THE IDEA IS “GOVERNMENT KNOWS BEST”

29 04 2012

Authored by William Robert Barber

Keynesian economic philosophy suggests there is only one remedy for a docile economy and that is growth.  Austerity, so say the Keynesian disciple, disables growth. This prospective is tethered to the belief that since private enterprise is not stimulating the economy (reasons unimportant), growth can only be achieved by government spending. Therefore theoretically, to follow this principle to its extreme, a national government (by Keynesian mandate) is to print sufficient fiat currency to “kick-start” the economy.  The only cautionary note is that once the economy has “taken off” the government must withdraw from its depository intervention before provoking runaway inflation. Keynesians do acknowledge that some inflation, a controllable percentage – say one to two percent – is helpful to restoring a vibrant economic environment.

Setting aside the Keynesian theory and the in real terms value of its effectiveness, I do believe that the process of flooding the economy with cash actually stimulates political craft and extralegal favoritism, multiple varieties of corruptive behavior; and most damaging, the voluminous printing of fiat currency will feed the monetization of debt.

Monetization of debt is where the government issues debt to finance spending this debt purchased by the central bank leaving the monetary system with an increased supply of base money. When the national government monetizes its debt the outcome invariably is an increase in the monetary base. The increase in cash, over a period of time, will shift the aggregate demand curve to the right leading to a rise in the price level. Some will label such a financial exercise as an inflation tax; creating a condition whereby debt is financed by creditors. This monetization technique is a simultaneous reevaluation to debtors lowering the original funds owed as the overall value of creditors’ fixed income assets drop. In other words, as the value of the US Dollar drops in purchasing power inflation automatically cheapens the debt owed.

In its finality the Keynesians’ policy answer to an economic downturn is to monetize the federal debt; in so doing, debt, private and public is monetized. The Keynesian model has been the practice expressed by both political parties and at each occurrence the value of the dollar has been the fare. The depreciation of the dollar’s purchasing power is best expressed in the purchase of oil from OPEC member nations. Those that court this approach to managing an economic downturn point out that since the US Dollar is worth less than, let’s say, the Euro exports will rise and the current account deficit will abate. This kind of thinking is for sure imaginative, but in fact it is naïve and wholly incorrect (if anyone is interested in why I have made this statement ask and I will answer).

The liberal progressives love the economic theories of Mr. Keynes. Because one cannot adapt his theories into practice with increasing the size and operational scope of the central government. The Keynesian philosophy requires economic planning at a national level; this requirement brings in the wonks, super brains of academia, statism, elitism, and the moral righteousness only afforded by those who know better than most and can therefore rise above the fray of common practice.

I do not know any citizen that would reject an economic policies even if sponsored by the national government that actually financially enhanced the life of every American. I just do not believe that government, given absolute control of any and all moneymaking income, could enhance the life of every American. In fact I believe there is a proportionate scale wherein increase government intervention degrades instead of improves a citizen’s life. But let’s really get crazy here and suggest that government, if given the authority, could enhance the lives of America’s citizenry, I would consider the price of government control too high a price and decline the idea.

I’ve often wondered if a minimum wage is such a good idea, and it is the poor and disenfranchised such a law is designed to protect. Why not make the minimum wage twenty-dollars an hour? Why not simply make poverty a crime and force the government to directly pay the poor a salary above the poverty number? Well, of course if that was done government middle men and their infernal bureaucracy would be short changed. Unions would complain because the number of public employees would be halved and politicians would have that much less to promise.

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