Give Me Liberty

Ironically, it was Keynes who said:

“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”

Little that Keynes had to say, before that or afterward, proved so true. Keynes is dead. More importantly, even when he was alive, Keynes was DEAD WRONG. No competent economist today follows Keynsian thinking. Unfortunately we still have a few living economists who are already defunct (Paul Krugman come to mind?), and politicians, the consummate “practical men,” are still in their thrall. The stubborn fact remains that we cannot spend our way to prosperity.

The fatal flaw in Keynes’ theory of government stimulus was inflation. He assumed that a little inflation was a good thing, and could stimulate growth at no cost. But the bottom line is still the same: government cannot give to one without taking from another. Inflation is a tax, economically no different than any other tax, and not a magic money tree. It is not visibly collected like other taxes, but it removes value from the currency as surely as any other tax removes value from the economy. That is what has made inflation an irresistible temptation to politicians since the invention of politics, and also what makes it so insidious. Inflation takes indiscriminately from those who have savings, and adds nothing to the total wealth of the economy. And by punishing those who save, while sometimes benefiting those who spend beyond their means, inflation discourages the very productivity which benefits everyone. Way back in 1776, Adam Smith explained that wealth is productivity, not gold, not consumption, but productivity. Yet to this day, politicians (being practical men, at least when it comes to getting reelected) promote consumption and punish productivity.

Is it any wonder that we periodically suffer financial crises arising from such misguided government intervention in the economy? Before we legislate our way into an Even Greater Depression, let’s bury Keynes once and for all.