The View From 1776

Mr. Herbert is about as far left in his liberal-progressive ideology as any writer in today’s mainstream media.  Yet he has glimpsed enough of the truth to identify consumption floated by excessive debt as a cause of our present economic woes.

Read the whole column: Stop Being Stupid.

All conservatives, I believe, will wholeheartedly second Mr. Herbert’s assertion that, “Somehow, over the past few decades, that has become the American way: to pay for things — from wars to Wall Street bonuses to flat-screen TVs to video games — with money that wasn’t there.”

There are, however, important points of divergence reflecting Mr. Herbert’s economic paradigm. 

The picture that Mr. Herbert conveys is of an economy that is, and should be, collectivized and managed by a coterie of experts in Washington; an economy in which individual people and businesses are incapable of making beneficial decisions for themselves; an economy in which only the government has the right to and the ability to make proper choices for use of scarce economic resources.

A few phrases from his column illustrate the point:

... top government officials and financial titans who were supposed to be guarding the nation’s wealth…

We shipped American jobs overseas by the millions and came up with the fiction that this was a good deal for just about everybody. We could have and should have taken the time and made the effort to think globalization through...

“We,” he says, meaning apparently the Federal government, should regulate the process of business globalization.  Just after World War II when countries were still devastated by the war, this was known as currency control, under which no one could exchange his local money for foreign currency or make any kind of investment outside his country without the approval of government ministers.  When currency controls finally were lifted, international trade bloomed and standards of living rose rapidly.

There is broad agreement that we have no choice but to go much more deeply into debt to jump-start the economy. But we have tremendous choices as to how we use that debt.

We should use it to invest in the U.S. — in a world-class infrastructure (in its broadest sense) to serve as the platform for a world-class, 21st-century economy, and in a system of education that actually prepares American youngsters to deal successfully with the real world they will be encountering.

We need to invest in a health care system that improves the quality of American lives, enhances productivity…

We need to care for our environment (if long-term survival means anything to us)...

And, finally, we need to start living within our means and get past the nauseating idea that the essence of our culture and the be-all and end-all of the American economy is the limitless consumption of trashy consumer goods.

The elitist perspective of liberal-progressivism is clearly revealed in Mr. Herbert’s phrase “limitless consumption of trashy consumer goods.” Since the inception of socialist doctrine in Revolutionary France of the early 19th century, socialist intellectuals have maintained that ordinary citizens are offered too many choices of consumer goods.  The assumption is that bureaucratic regulators can manage the economy more efficiently than individual people and businesses and that one means of making the economy more efficient is to limit the numbers of products and services offered to the citizenry.

It’s true that a free-market economy produces a profusion of products, some of which are trashy.  But that is an inseparable part of the liberties for which the colonists fought in 1776.  The right of entrepreneurs to produce things that consumers will buy (apart from criminally connected items) was one of the intentions of the Bill of Rights, which endeavored to protect private economic and political liberties from arbitrary government action of the type favored by liberal-progressives.  Think of the Boston Tea Party, sparked by a British order requiring Boston citizens to purchase taxed tea from a handful of merchants selected by the crown.

Mr. Herbert uses the familiar liberal-progressive-socialist term “investment” for expansion of government regulation, for example a nationalized, socialized health care system. 

Investment, by definition, is expenditures intended to increase future production efficiency and output.  Socialized medicine does nothing of the kind.  It merely transfers money from wealthier people to poorer people, as determined by Federal bureaucrats, while overlaying the process with costly regulations administered by tens of thousands of paper shufflers who add not a whit to the real GDP.  In farming terms, this is known as eating your seed corn.

Liberals as a whole, perhaps not Mr. Herbert, assume that greater funding for teachers’ unions will improve our students’ level of academic achievement.  In reality, Federal funding for education since the inception of President Johnson’s Great Society has produced a steadily declining quality of education.  The only beneficiaries have been the teachers’ unions and the liberal-progressive-politicians whose election campaigns the unions finance.

American education before the Great Society was incomparably better, in fact among the best in the world.  Education then was a strictly local matter, controlled by local school boards that were free to hire and fire teachers on the basis of competence.  And schools were free to expel disruptive students who were interfering with the opportunity of other students to get an education.

Mr. Herbert’s liberal-progressive-socialist paradigm makes it impossible for him to connect the economic dots that form a complete picture of economic reality.  This, no doubt, because the liberal-progressive-socialist economic paradigm is an entirely theoretical construct that must be forced into a box labeled social justice, i.e., redistribution of wealth to make us all equally poor.

Mr. Herbert seems not to recognize that his derogation of rampant consumption funded by debt runs into a head-on collision with one of the most basic doctrinal elements in liberal-progressive-socialism: the belief that consumption is the driver of the economy and that full-employment levels of consumption depend upon government deficit spending.

At bottom, all of the economic phenomena of which he complains originate in welfare-state, social justice programs funded by Federal deficit spending, which is financed by the Federal Reserve’s limitless expansion of the fiat money supply, with its inevitable inflationary effects.

History for centuries records the same set of phenomena attendant upon paying for government expenditures with fiat money that cannot be converted into a valuable commodity like gold.  Prices rise faster than wages, because inflation negatively impacts business costs, which retards job creation and wages increases.  As prices rise (think of the housing boom), money becomes worth less, leading people to save less.  In the early stages of rapidly increasing fiat money expansion (where we are now), interest rates decline, leading people to take speculative risks to attain investment returns high enough to offset the effects of inflation.  Because money steadily loses purchasing power, people are encouraged to borrow increasing amounts of money to fund consumption, expecting to be able to repay the debt in the future with ever cheaper money.

The bottom line is that Mr. Herbert unknowingly is damning the economic orthodoxy of his own liberal-progressive-socialism:  Keynesian economics.  In the 1930s, John Maynard Keynes propounded a discredited theory still advocated by liberals like Paul Krugman, which denounced savings as the cause of the Depression and recommended massive government deficit spending to offset private saving. 

In Keynesian doctrine, consumption expenditures, for anything from digging and filling useless holes to funding anti-business regulation, is the route to economic salvation.  This is the nature of President Bush’s earlier economic stimulus plan and of the incoming Obama administration’s $ trillion stimulus plan.