Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
Economics is not called the dismal science for nothing. Many professional economists go to great lengths to obscure simple truths inconvenient to their political masters. The media then promote these obfuscations, which are designed to appeal to a misinformed electorate. And that is the truly dismal part.
Much of the economics politicians peddle - and voters think they know - is pure bunk. For a different perspective, here are 10 common sense propositions I challenge political economists to refute.
1) Money is not wealth, but merely a claim on wealth. Printing more money does not create more wealth.
2) Counterfeiting money steals wealth from others. The theft is no less when a government does it.
3) Moving money from one pocket to another does not create wealth. This is true even when small amounts of money are quietly siphoned from the pockets of the many and loudly deposited into the pockets of the few.
4) Before wealth can be consumed, invested, or redistributed, it has to be created. Consuming existing wealth does not create more of it, nor does borrowing against future wealth.
5) Wealth is created when consumption is deferred in favor of profitable production. Profits generally require selling something for more than it costs to make.
6) Profits are rarely a sure thing. Every decision to forgo consumption and invest in production seeking future returns is a gamble.
7) Private investors investing their own money generally seek to maximize after-tax profits balanced against a chosen degree of acceptable risk. Investment decisions are sensitive to policies that affect this equation.
8) Private investors that consistently make bad decisions, thereby squandering their wealth, eventually lose the ability to make more investments.
9) Politicians often "invest" other people's money seeking to maximize the number of votes they can garner. Whether or not these "investments" generate a future return, or are just thinly veiled redistributions, is secondary because a politician's time horizon extends only until the next election.
10) Politicians acting as public investors who consistently make bad decisions can remain in office and continue making more "investments" as long as they convince enough voters to shift the blame for their failures onto others.
Are these propositions really so radical? It seems that way, given the remarkable persistence of inflationary Keynesian policy, the popular indifference to the risks posed by regulatory uncertainty, and the interminable calls for higher taxes on productive investments.
It's a pity that the Reagan-era supply-side policies that rekindled an economy mired in malaise, unemployment, and stagflation continue to be ridiculed as "trickle-down economics." As an alternative, we now have moved into the era of "trickle down inflation." Here's how it works.
Hundreds of billions of dollars counterfeited by the government and handed over to banks deemed too big to fail earn riskless returns from the carry trade, generating paper "profits" fueled by an explosion of government debt. These "profits" do nothing to create wealth as they merely move money from the pockets of all the taxpayers into the pockets of a few crony capitalists. But they do deliver a temporary illusion of false prosperity, which helps boost the reelection chances of political incumbents - even as they rail at the bonuses of the fat cats their policies are enriching. When this money explodes off balance sheets, as it one day must, double-digit inflation will have trickled down, but only after the bankers and politicians have profited from it.
Meanwhile, young companies that need cash to grow are starved of credit while mature companies sit on mountains of cash they are afraid to invest. In both cases, job growth is stifled, expanding the ranks of the unemployed to whom politicians can promise extended unemployment benefits in return for the votes necessary to maintain the policies that keep them out of work.
But wait, there's more.
"Investments" in unproven green energy technologies are being showered on companies run by politically connected campaign donors that sell products for less than it costs them to make. This produces nothing but a string of predictable bankruptcies. None of these failures reduce the ardor of government "investors" to do more of the same. Why? Because with the help of certain economists, failure can always be blamed on not spending enough.
Nothing seems to put a dent in the eagerness of politicians to throw other people's money at the next hare brained scheme promising renewable energy independence. Never mind that we are awash in domestic energy supplies spouting from newly drilled gas wells that these same politicians have been trying to plug.
Then there's the pipeline from friendly Canada, which has been blocked in a futile effort to keep that oil in the ground. Instead the oil will be diverted to China, which has been accused of manipulating its currency to commit the dastardly crime of selling us more for less as they lend us the money to make it possible.
All of the above will continue as long as politicians believe it will buy votes. Voters will be unlikely - or unwilling - to figure out what is really going on as long as court economists and their media enablers succeed in misleading them.
To paraphrase the Gumpster, that rare American immune to bamboozlement, dismal science is as dismal science does.