Pipe Down Now Keynesians

It is the belief of Keynesians that government interference in the economy can lead to economic growth.  At first glance one can understand why this fallacy has been warped into practical economic thought.  This belief is a perversion of Basiat’s broken window analogy. Basiat claims that if a window is broken the funds used to fix the window help to provide a job for the glass manufacturer.  However, what is not witnessed is the reduction of the purchasing power of the person whose window was broken.  If said window was not broke then he could have used those funds to purchase other goods or services, which could have had the power to keep more people employed then merely the glass manufacturer. 

Keynesians pervert Basiat’s theory, by taking the theory one step further.  Keynesians believe that by having the government inject money into the economy this will lead to greater economic growth.  However, what is not seen is the potential damage being dealt to the other citizens.  Since the government has no funds of its own it either has to levy higher taxes the citizenry, borrow money from other nations, run up a higher deficit or inflate our currency, which reduces the purchasing power of our money. 

Our “leaders” in Washington have come to realize that raising taxes on the citizenry is not the best way for them to gain favor with the public, especially during the middle of an economic recession. So they will not readily go for the taxation route because this intern jeopardizes their chances at getting reelected.

Since our elected leaders won’t tax to raise the funds necessary to pay for the stimulus Keynesians call for they will turn to other countries to purchase our debt.  By doing this taxes won’t have to be raised immediately, and the deficit will seemingly be reduced.  However, what is not readily taken into consideration is the inherent threat to national sovereignty this possesses.  By having other nation purchase our debt they are inherently purchasing us.  It is sad to think that a nation that has fought so hard for freedom, that our leaders will beg other nations to enslave us.  For if our country was to act in a way that runs contrary to how the nations that we are indebted to, that nation could call in our debt and demand payment, which of course our government would not have.  This could then lead to either the government shutting down, a dramatic increase in taxes, the rapid inflation of our currency, and or the deficit will increase. 

It is no wonder that our deficit is rapidly approaching fourteen trillion dollars.  Our leaders believe that the creation of a higher deficit is the sexiest approach to take to pay for their “stimulus” because what a deficit really amounts to is an I.O.U. that will be paid for that will have to be paid for by our children and grandchildren.  By doing this our “leaders” can save their skin come time for reelection, and they get all the perks that come with brining home the pork to their state or district. 

However, despite how bad these previous approaches may seem nothing is as terrible as the final approach, which is the inflation of our currency.  The Federal Reserve is the instrument used to create inflation.  The Federal Reserve, either by cranking us the speed on the printing press or by electronically manipulating digits in the bank accounts of different banks and businesses, will inflate our currency, which reduces the purchasing power of every individual in our nation.  The inflation of the money supply leads to an increase of the prices of every good and service offered on the market, which means that one will not get the preverbal bang that he or she once got for his or her buck.  By inflating the money the citizenry will inherently be taxed a second time.  At least by being taxed outright the citizenry has the ability to throw out those elected officials that raise the taxes.  But do to the “apolitical” nature of the Federal Reserve, those official on the Federal Reserve board can do pretty much whatever they want and suffer no repercussions for it. 

So as one can see that no matter, which way one splits it Keynesian economic theory is simply disastrous.  Whether is be through higher taxes, borrowing money from other nations, the generation of higher deficit or the inflation of our currency.  The end result will be economic disaster and a loss of freedom.  So one is forced to ask the question is short-term economic growth worth the long-term repercussions of Keynesian economics. 

Professor Bernanke

While on winter break I was able to able to be reunited with my classmates from high school. During our traditional winter break reunion we regaled each other with stories of the successes and failures of our previous schoolmates.  After catching up on the gossip of the day we then entered into reminiscing of our high school glory days, and recollected various amusing stories about either shenanigans we or others participated in or other experiences that we will remember for the rest of our lives.  Upon further reflection I came to realize how very much students are like businesses and banks in that we each act in accord to our own whims and wishes based out of our own self-interest, and that our teachers were largely subjected to our passions rather then reverse. 

   In school, at any educational level, a teacher is placed in charge of teaching a classroom full of students.  Now, students act in very different ways in accord to their own individual agendas.  The teacher will sit down and create a curriculum and will try their best to lead the class in best accord with his or her plans.  However, depending on the student’s personal agenda will determine if the teacher can successfully be able to teach everything on his or her curriculum.  However some students will attempt to brown nose in order to gain favor with the teacher, and thus the teacher will be more willing to bend the rules or curve a grade to see that particular student succeed.  Other students will be loud and disruptive in hopes to either frustrate the teacher or amuse themselves because they have no particular interest in learning what the teacher has assigned to them.  As such the teacher has to stop the lesson to discipline the uncooperative student taking time away from lesson plan therefore forcing the teacher to change his or her plans in hopes to teach everything on the curriculum.  The teacher will try the best he or she can to keep the class on the path he or she has created but in the end they will find the experience to be a lot like herding cats.  However other things like weather conditions or school assemblies can be sprung on our teachers thus forcing them to make changes to their lesson plans.  The lesson to take away from this example is that whether or not he or she will be able to teach everything on his or her curriculum is completely out of their hands and therefore out to of their control. 

            In our economic system banks and businesses will act much like the students in the class.  They will act in accord to what they perceive is their best interest, or at least what is on their agenda regardless of what the central planner has set up for them.  In the realm of economic theory central planners always fail to address the information problem.  A free market is guided by the basic principle of supply and demand.  However there are unlimited amounts of variables that can affect this relationship at quite literally faster then the speed of light.  Humans are not omnipresent and cannot process and interpret every variable that is affecting this relationship let alone implement any sort of plan.  When they do interfere with this interaction, resources are misplaced, and all sorts of hell break loose and what results are inflation, unemployment, and economic stagnation.

            The Federal Reserve is an instrument of central planning.  In our country the Federal Reserve can literally pick and choose which bank or companies can succeed or fail due largely to how our banking system is set up.  The Federal Reserve is supposed to be the “lender of last resort,” however what history has taught us it that the Federal Reserve plays a much larger function.  In the past the Federal Reserve merely printed money, out of thin air, in order for businesses and banks to spend.  In doing so increasing the money supply which then devalues our currency.  The devaluation of money leads to inflation, which hurts those who have their money saved in certificates of deposit, also known as CD’s, or savings accounts.  This inherently reduces the purchasing power of those who have their money saved while at the same time increases the prices of goods and services.  However, presently with the creation of QE2, the Fed does not even have to print money it simply electronically manipulates digits in the bank accounts of different banks and businesses.  Regardless of how the “money” is created the end result is the creation of various boom and bust cycles, which leads to economic recessions and depressions. 

            The Federal Reserve is by its very nature a tool of the economic central planners.  As mentioned above the Fed has the power to play God in the respect that it can determine which businesses or banks succeed or fail or at the very least which institutions receive the Fed’s “money.”  However what central planners always fail to recognize is the fact that they are not God, but rather they are controlled by mere mortals like ourselves.  The central planners have it in their heads that they can better allocate resources better then the free market can, however history and reality has shown us that that is very far from the truth. 

Why I Write

     In George Orwell's classic novel 1984, one of the slogans used by the tyrannical government was, "Ignorance is Strength."  The people's ignorance surely is to the benefit of the state because if the people are uniformed then the government can run a muck with out them public being any less the wiser.  When the people are ignorant of the actions of the state then they can be herded and controlled into whatever the state demands of them. 
    It is because of this disturbing fact that have decided to pick up my pen against those who promote big government.  I have decided to pledge my life to promoting the philosophy of liberty.  Samuel Adams once said, “It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds."  The brush fires I hope to ignite are the brush fires of freedom, and I aim to spread that fire from sea to shining sea, until freedom becomes the law of the land