Destructionomics: Keynes is the key

By Frank Maguire

This article was originally published in my "The Liberty Tree," Fairview, Oregon. I have submitted it for re-publication now that we have experienced, first hand, under the Obama/Democrat-Progressives the system described in this article. FM

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy." Henry Hazlitt — Economics in One Lesson http://www.cooperativeindividualism.org/hazlittbio.html

French economist Frédéric Bastiat wrote his famous parable "What is Seen and What is Not Seen" in 1850. The moral of the story is "Destruction is not profitable." Concisely: Short-run ruination! http://www.econlib.org/library/Bastiat/basEss1.html

Henry Hazlitt, a writer who concentrated on economics, is called a Modern-Day Bastiat. He attacked the government spending theories of Lord John Maynard Keynes, perhaps the world's best known econometrician. Hazlett wrote about a "wide variety of economic problems: rent controls, minimum wage laws, the alleged benefits of war, public works, deficit spending...tariffs, and the assault on savings."

One of Keynes main postulates was that "an increase in savings can contract income and reduce economic growth." He also advocated government intervention in the marketplace "whenever necessary."

Keynes ideal economy was spelled out in his The General Theory. He advocated consumption — spending ourselves out of economic depression — and government make work projects. He encouraged British families to go "on a spending binge." He urged "Why not pull down the whole of South London from Westminster to Greenwich and make a good job of it.... Would that employ men? Why of course it would."

I think of this short-sighted understanding of capital accumulation, savings, and investment as Destructionomics. The discredited socialist-utopian notions of Keynes recommended deliberate deficit spending by government to jump-start the economy.

Keynes went so far as to claim that even wasteful spending by the government would be productive. "Pyramid building, earthquakes, even wars may serve to increase wealth." Though Keynes had many worshipping disciples, and still has, his ideas have been thoroughly discredited by history and by economists like Hazlitt, Rothbard, and Friedman — economists who took Bastiat's and Hazlitt's "What is Not Seen" counsel. Famous Austrian economist Friedrich von Hayek made the wry comment that "we have outlived the short-run, and are suffering the long-run consequences of (Keynesian) policies."

Keynes had a famous proponent in Paul Samuelson. He claimed that government spending is superior to savings because "100 percent of a federal program is spent, while only a portion of a tax-cut is spent — some of it is saved." This Samuelson named his "balanced-budget multiplier." Which, from what I have read seems to mean, take the people's money, give it to the government, which then funds its grand, socialist schemes and produces make-work projects, then it raises taxes to cover their destructionomic profligacy. Oh, I almost forgot, all the while raising their own sinecures. Voila! Tax enough, and you can balance the budget!

Samuelson declared war on uninvested savings which could leak out of the system and "become a social vice." This, observers called "hydraulic Keynesianism." Socialism and Statism is the current name for such thinking.

One critic of Keynes and Samuelson was Robert Heilbroner. Though he was originally a socialist, and "toyed with Marxism," Heilbroner, in his later years, after the collapse of the Berlin Wall and the fall of the Soviet Union, roundly refuted socialism. In an article in The New Yorker, Heilbroner wrote, "Socialism has been a great tragedy this century.... There is no doubt that the collapse marks its end as a model of economic clarity."

http://harvardsquarelibrary.org/cfs2/robert_heilbroner.php

In her book about Soviet socialism, Everyday Stalinism, Sheila Fitzpatrick described life under Marxist socialism. "With the abolition of the market, shortages of food, clothing, and all types of consumer goods became endemic. As peasants fled the collective villages, major cities were soon in the grip of an acute housing crisis, with families jammed for decades in tiny single rooms in communal apartments.... It was a world of privation, overcrowding, endless queues, and broken families, in which the regime's promises of future socialist abundance rang hollow."

Francis Fukuyama, controversial writer of "The End of History?" ( Summer,1989 issue of The National Interest), wrote in Time magazine, "If socialism signifies a political and economic system in which government controls a large part of the economy, then I think it is safe to say the likelihood of its making a comeback...is close to zero."

Economist Mark Skousen, in The Making of Modern Economics clearly points out the short-run, government spending, progressive taxation, anti-savings errors intrinsic to the Keynes, Samuelson theories. "Not only is (Keynesianism) historically unproved, but it is fundamentally flawed. The problem is that Keynesians treat savings as if it disappears from the economy, that it is simply hoarded or left languishing in bank-vaults uninvested. In reality, saving is simply another form os spending, not on current consumption, but on future consumption."

Skousen quotes Austrian economist Eugen Böhm-Bawerk: "For an economically advanced nation does not engage in hoarding, but invests its savings. It buys securities, it deposits its money at interest in savings banks, or commercial banks, puts it out on loan, etc."

Nobel prize winner Milton Friedman concluded after years of study that government "solutions" during the so-called great depression seriously exacerbated economic stagnation. He wrote that the "Great Contraction" was "produced by government mismanagement rather than any inherent inability of the private economy." So successful has Friedman been in convincing his peers, textbooks that had referred to the depression as "market failure" began to refer to "government failure."

It would seem that the plethora of volumes on the theory-wars of the economists, though interesting and time consuming, point back to one, simple aphorism of Ben Franklin: "A penny saved, is a penny earned." I would add my own adage: A penny earned is best a penny saved. Savings and investment bring long-run growth and security — in one's own affairs, and in national affairs. There's only one way to invest what has not been saved; print money, a.k.a. inflation.

The inexorable growth of government, at all levels, with their spend-tax mentality is Destructionomics.

© Frank Maguire