Commentary: Only the market can make wise spending decisions
This article first appeared in the St. Louis Beacon, Aug. 7, 2009 - Poor economists. Theirs is "the dismal science." Many of them spend their days creating charts and graphs no sane people care to understand. Why don't they quit noodling on obscure minutiae and shout aloud the truth about politicians and government spending, and so gain forever our love and respect?
I refer to the truth that politicians fraudulently use economics as a cover for their own nefarious ends, and so cause terrible damage to our way of life.
In the 1920s a fool, or, more accurately, a damn fool, named John Maynard Keynes came up with the economic theory that the government could even out the business cycle by increasing spending in weak economic times and decreasing spending in strong economic times. Keynes was a fool because he believed that in strong economic times politicians really would cut back on spending. That never has happened and never will happen.
When the economy weakens, politicians trot out "Keynesianism" as justification for piling on the spending. Witness current "stimulus plans." This spending takes money from hard-working taxpayers and rewards it in concentrated doses to political insiders, as well as their friends and family, and so enriches politicians and those in their circle. The politicians also get additional campaign contributions and so have a good shot (a) at re-election and (b) a continuation of fabulously intoxicating power. The result is that politicians use "Keynesianism" to ever increase spending.
The public occasionally gets outraged over particularly ridiculous expenditures, such as the Alaskan bridge to nowhere, but as a general rule taxpayers are busy earning money and so remain resigned to the suffering they endure from this political gamesmanship. The result is an ever-higher tax burden, which harms individual citizen's opportunities to spend their own money on what they want and to live their lives as they choose.
There is another problem with Keynesianism. That problem is that the government is ignorant about how to spend money. A couple examples, one local and one national, should make the point.
Consider our beloved downtown projects like the convention hotel and St. Louis Center. The pattern is familiar. Some developer says he has a grand vision to transform downtown. He promises to build a magnificent edifice to which people will flock and so make us all glamorous. But, oops, he doesn't seem to have quite enough money to do it on his own. The local politicians all get on board and agree that the project will indeed transform downtown. They offer tax incentives and pay many of the bills. The project gets built and the developer receives a fat "developer management fee." Three years later the project is empty, the debt is unpaid, the city is on the hook, and some other developer is hyping the next new project. Repeat.
The second example is the comical cash for clunkers program. The government offers people money for their old cars. The old cars get destroyed. This is insane. Poor people could use those cars!!! Old cars give poor people one of the critical freedoms the chattering classes enjoy, that is, the freedom to go where they want when they want. Only ignorant government people could think it a good idea to destroy working automobiles. Maybe the next idea will be to ask citizens living in old houses to step outside so that the government can bulldoze their dwellings and so improve society.
At the last, politicians and bureaucrats don't know what the market wants. Only consumers buying stuff and businesses risking their own capital should allocate resources. The miraculous price system, the system in which all information is wrapped up in one number, should direct the capital. Only then will people get what they want instead of what government officials think they should want.
Let's get back to the poor economists. Wikipedia defines their field as "the social science that studies the production, distribution, and consumption of goods and services." I would define it differently. I would say it is the "study of getting stuff."
(Maybe the economists should study their own incentives. They get jollies when politicians and bureaucrats call them for advice and put their names in the newspaper, but politicians and bureaucrats only call economists who advocate increasing government spending. So that is what most of them advocate).
Anyway, economists should scream from the rooftops that only the price system can provide proper incentives for investment, and only investment can raise the standard of living.
Aye, there's rub that deals the final smashing blow to Keynesianism. Productivity and growth are good. Stuff is good. We like swimming pools, nice clothes, electronic gizmos, yummy food and on and on.
But entrepreneurs and corporate business types will only engage in business activity if they believe that the economy will be stable going forward, so that if they risk capital to make stuff they will indeed have to bear the risk that no one will want to buy the stuff at a price that will be profitable, but they will not also have to also bear the risk that the government will tank the economy by spending resources on garbage no one wants, (or destroying stuff people do want like old cars), and so crush consumer demand.
Keynesianism, because it is used by politicians to cover their drunken-sailor spending, leads to economic instability, and so scares entrepreneurs and corporate businessmen out of the investment market. Economic disaster is the result.
Economists should to step back from their charts and graphs and shout into the knowledge-sphere the idiocy of Keynesianism. If they do so, the public will rally behind them, and maybe not think they are so dismal.
Bevis Schock is an attorney in private practice in Clayton.