-By Thomas E. Brewton
Liberals propose to follow the same game plan that gave us stagflation in the 1970s.
As success with the military surge in Iraq increasingly belies their claim that the war is already irretrievably lost, liberals have changed the subject from Iraq to the economy and the rising possibility of a recession. Liberal Republicans and Democrats, as usual, prescribe Federal deficit spending and higher taxes on “the rich.”
That is the doctrine of Keynesian economics, which advocates consumer spending as the exclusive highway to full employment and prosperity. According to Keynes, consumer and business savings must be offset by massively increased Federal spending. What the money is spent for doesn’t matter; just flood the market with money created by bookkeeping entries at the Federal Reserve banks.
Keynesian economics failed to end the Depression. Its repetition, as we saw in the bitter experience of Great Society stagflation in the 1970s, discouraged investment in projects of long term value and led to speculations that promised high rates of return in the short-run.
For example, during the 1970s stagflation, is was only marginally profitable to build rental apartments, because the rate of return on those investments was far below the inflation rate. What occurred, instead, was an unprecedented boom in hotel construction, because room rates could be increased every day. By 1980, there was a shortage of rental apartments and an oversupply of hotels.
In the real world, the only road to non-inflationary economic growth is lower taxes, offset by reduced Federal spending, grounded on a stable currency.
Non-inflationary economic growth is not a product of consumer spending. It must be funded by business and consumer savings. Consumers who save will not max out credit cards and add to inflationary pressures. Businesses that save will make long-term capital investment in higher productivity that enables increased production of useful goods and services at lower cost. That higher productivity makes possible higher wages and an improved standard of living for everyone.
Federal deficit spending inevitably spurs inflation, which over time wipes out the purchasing power of people’s lifetime savings. Increased deficit spending is the way to go if we want to eliminate self-reliance and personal responsibility, while training people to turn to government for all their needs. That, of course, is a description of socialism.
Higher taxes reduce incentives to save, the only non-inflationary source of funding to grow the economy. Increased production funded by savings adds to consumer purchasing power when workers and suppliers are paid, without inflating the money supply.
In contrast, higher welfare-state handouts create artificial demand that merely raises prices, because of the time lag between the Fed’s out-of-thin-air addition to the money supply and increased availability of goods and services. That, of course, is a description of inflation.
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Thomas E. Brewton is a staff writer for the New Media Alliance, Inc. The New Media Alliance is a non-profit (501c3) national coalition of writers, journalists and grass-roots media outlets.
His weblog is THE VIEW FROM 1776 http://www.thomasbrewton.com/
Feel free to contact him with any comments or questions : EMAIL Thomas E. Brewton
I agree with most of what you said here however, I think you are being overly harsh in regards to what John Maynard Keynes said. I read his book from cover to cover, the man really did understand macro economics, however, like all great men, the disciples of his time didn’t necessarily understand or apply his theories properly. http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/ I will go so far as to say the Democrats misapplied his theories for their own poltical ends by pump priming the economy with pork barrel projects to justify their vote buying scams. The core argument of Keynes book was that the sole purpose of taxation was to be a brake upon the economy. The economy if left unrestrained in the “Libertarian” sense would run into excess producing boom-bust cycles and inflation. In fact, I would counter than the group of people who understood Keynes the best was Ronald Reagan and those like Bush who supported Tax Cuts to spur the economy. By releasing the brake somewhat via a tax cut, i.e. not confiscating money, the economy would have more capital to invest and spend thus starting a positive feedback allowing ever greater expansion.
As to the current proposed solution being floated for a non-existing recession I am very leary. It gives me great pause for concern that giving $800 per adult filer will set the precedent for the future. Listening to Schumer, there would be a cap or targeted income group to direct the money to thus cutting out the upper class. Giving money directly from the Treasury in the form of a means tested rebate is a Dems redistributionist’s wet dream come true and smacks of pump priming the economy. Our consolation is that at least if they choose to pump prime, the money going directly to the individual would be better spent than pork barrel projects stuffing the pockets of monied interests who happen to be big political contributors of the politicians voting for this.
The difference here between the proposed rebate versus a tax cut is that government has confiscated money via taxes and redistributed them in a planned economy fashion in what I would consider the least efficacious manner. Taking money from those who are the most efficent at making it, i.e. the wealth creators, and then giving it to the least productive members of society is extremely short sighted. I am really surprised that W and McCain have signed on this pact with the devil (Dems).