As seen in Forbes.
At the beginning of a book (Economics in a lesson) that far too many economists have obviously never read, a non-economist named Henry Hazlitt observed that economics is “hunted by error.” Hazlitt was indulging in an understatement, and if he was alive he would surely recognize him. We’re talking about a profession that almost unanimously believes that all of the wealth destruction, mayhem and murder that was World War II actually lifted the United States out of the “Great Depression.” Hounded by sophism does not begin to tell how bankrupt the “economy” is today.
What is disappointing is that even the clear thinkers of the profession sometimes get it wrong. Take the excellent Allison Schrager of the Manhattan Institute. In one city newspaper piece that properly debunked the “philosophy of degrowth,” Schrager conceded too much while debunking. She claimed that “degrowths are right to say that endless consumption is unsustainable”. Why give in so easily to something that is so patently wrong? And to be clear, the notion that “endless consumption is unsustainable” is wrong.
We know it is simply because production is what precedes all consumption. Always and everywhere. No school of economics can circumvent this truth. No doubt the simple-minded will say that children consume abundantly without producing, as the so-called government beneficiaries do, but the simple answer to the simple is that productive parents generally guarantee the purchase of their offspring, while that those who obtain the purchasing power of the government are underwritten by you and me. All consumption is preceded by production. Repeat it over and over again.
At this point, it is totally wrong to suggest that “endless consumption is unsustainable”. The assumption here is that Schrager wishes the line had not been reprinted in the the wall street journal if only because she needs to know it’s not true. Better still, what reads today as “endless consumption” will appear helpless in relation to the future. Combine the world’s growing division of labor with the billions of robotic “hands” that will continue to enter the labor market, and we’re well on the way to a productivity that will make the hugely prosperous present look like that of Haiti relative to where we re headed.
What is crucial for all this future production is that consumption will be the result. There is no getting around this truth. This is simply because no act of saving ever subtracts from demand. Assuming a surge in savings to reflect all the surplus created on pain of huge jumps in production, purchasing power never sits idle. What is not spent will be transferred to those who wish to spend through financial intermediaries.
More recently, Schrager wrote that more government spending would exacerbate what she sees as inflationary pressures. The bet here is that she doesn’t think what she wrote again. To be clear, government spending is a huge tax that undermines the economy. Undoubtedly the worst tax of all when you know that there is no entrepreneur without capital.
At the same time, public spending does not represent a new demand as Schrager seems to assert. See above. Every request is preceded by a production. If the government puts money in people’s pockets in such a way that the supposed beneficiaries demand things, someone, by definition, has reduced their purchasing power. The Keynesian multiplier is a myth, and it is unrealistic to assume that Schrager would resurrect it. Yet his argument against more government does. The view here is that it should stick to the basics: government spending is a tax.
Otherwise, she concedes again. Indeed, if government waste amounts to new demand that causes “inflation,” then logically, a lack of government demand born from tax cuts would similarly cause “inflation.” In fact, neither scenario would be, since inflation is a monetary phenomenon.
In other words, inflation is a devaluation of currency. That the latter didn’t happen during Joe Biden’s presidency is a story, but it’s a story Republicans have ignored. Schrager isn’t afraid to criticize Republicans, who have yours hoping she starts writing about the fallacious inflation arguments made by a GOP who would rather voters forget just how much her political heroes (including the man in the White House in 2020) backed the lockdowns that were the source of today’s price pressures.
For press inquiries, contact Peter Vicenzi, PVicenczi@Freedomworks.org.