Posted by
Andrews on Friday, April 17, 2009 9:50:40 AM
Paul Krugman is back, and he is boldly
promoting Keynes' most insane idea. I have written before about the fact that Keynes' theories are at the root of many of our current economic problems, and that his absolute obsession with wasting money on government spending frenzies, but Krugman outdoes himself by praising the quote used most often to show Keynes as insane, the "coal mine" quote:
If the Treasury were to fill old bottles with banknotes, bury them at
suitable depths in disused coalmines which are then filled up to the
surface with town rubbish, and leave it to private enterprise on
well-tried principles of laissez-faire to dig the notes up again (the
right to do so being obtained, of course, by tendering for leases of
the note-bearing territory), there need be no more unemployment and,
with the help of the repercussions, the real income of the community,
and its capital wealth also, would probably become a good deal greater
than it actually is. It would, indeed, be more sensible to build houses
and the like; but if there are political and practical difficulties in
the way of this, the above would be better than nothing.
Leaving aside Keynes' dismissive and condescending attitude towards business and capitalism in general, does this make sense to anyone besides doctrinaire Keynesian economists? As I wrote in my post "
War Stimulates the Economy? Let's Nuke San Francisco!", there are many things that could create "economic activity", but they do not make us richer, just busier. In my post "
Jobs, Jobs, Jobs, and More Jobs" I mention that "jobs" are not an end in themselves, but a means to an end. I only wish economists who spent years getting their PhDs would understand this as well.
Oh, and before I leave the topic, let me address another Keynesian absurdity.
Beyond the government spending too little, nothing scares Keynesians more than falling prices, which they call "deflation". While consumers may enjoy them, as falling prices mean an increase in the real purchasing power of their incomes, the Keynesians think that "deflation" is the harbinger of economic collapse. Despite the fact that one of our more prosperous periods, the late 19th century, was characterized by strong growth and falling prices, the Keynesians insist that falling prices always mean the economy is tanking. (Why, well because Keynes' theories, self contradictory as they are, insist that the only means to wealth is absurd levels of monetary inflation and government "investment". No wonder the government types love him so much. I think philanderers would love a religion which espoused infidelity as well, but that wouldn't make it any more true than Keynes' economic theories.)
However, the falling prices, or actually the brief fall in prices followed by a stability, are also being used to excuse the massive growth in spending. The argument is that since prices are falling, massive spending can't be the cause of inflation.
What that ignores is that consumer prices are a lagging indicator, and that inflation does not hit all prices equally. As our inflation has been pumped into the financial sector and into reinflating the housing sector, they would naturally not hit the CPI immediately. Instead the inflation is being seen in the stock market and in slowly rising housing prices. Even if nothing were rising right now that would not mean there was no inflation. "Inflation" is simply an increase in money supply, not the rising prices. Rising prices may lag for some time during increases in the money supply. But they will rise. With trillions being printed in open market operations, it is only a matter of time.
So, some will ask, why did prices fall?
That si easy, with the collapse of the bubble, some slight confidence was restored to the currency, causing a slight drop in prices. Also, with inflationary worries (temporarily) calmed by the bursting bubble, the inflationary premium was removed from some prices, allowing a small general decline. Finally, with lagging sales, some companies are slightly decreasing prices to increase volume and move inventory, especially in industries with volatile stocks who would lose all value if not sold within a certain time. All have combined to produce a decline int he CPI. (Note for Keynesians, yes, in the his case the drop in CPI is tied to an economic problem, but in this case, economic problems
CAUSED the decline, not the other way around. Declining prices are, in themselves, no reason to worry.)
No, the truth is, our problems are caused precisely by what Krugman and Keynes advocate, fiat currency, inflation and excessive spending. the cure is equally simple. Restore our money to a
solid, commodity-based foundation, such as
the gold standard, return to
truly free banking, eliminate the
centralization of banking which
allows uniform inflation, eliminate
government "management" of the economy, and make government
live within its means. That alone will end the
supposed "inevitable" boom bust cycle.
POSTSCRIPT
When I wrote this, I initially made a typo and entitled it "Proof Keynes (and Krugman) Are Inane". I don't know whether I should have left that or corrected it.
POSTSCRIPT II
My criticisms of Keynes can be found in the posts "
Has No One Heard Of Lord Say?" and "
Protectionism Right and Left" and the links contained in them, though some of those are more on Keynes' protectionism rather than his advocacy of inflation. My thoughts on inflation in general and our current economic situation can be found in the posts "
Not Entirely to Blame", "
Inflation and Uncertainty", and "
A Thought on the Clinton Surpluses" and the links in them, especially in the lengthy postscripts.