Tuesday, January 6, 2009

While we're waiting with baited breath...

... for the New New Deal stimulus package to kick in, let's acknowledge that the incoming administration intends to take a Keynesian approach to the Great Meltdown: using deficit spending to stimulate the economy.

One of the side effects, of course, of printing all that money will be inflation.

What's really interesting is to read what John Maynard Keynes himself had to say about that in 1919:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their people. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls ... become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished not less than of the proletariat. As the inflation proceeds ... all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless.


Notice that Keynes is more discussing government confiscation of wealth, not government redistribution of wealth.

Brian Shields makes the point in his dissection of President-elect Barack Obama's promise to create 3,000,000 new jobs, of which 80% will be in the private sector:

Ame- Hold up. 80% of 3,000,000 in the private sector? That means 20% of them will be government jobs. That’s 600,000 new government employees! What the heck are you going to do with hiring 600,000 new government employees? Is that the new Depression era public works program?


According to the Bureau of Labor Statistics, the Federal Government employs [excluding the Post Office] 1,800,000 civilian workers.

This means that President-elect Obama is proposing to increase the size of the Federal government by 25%, to 2,400,000 employees.

By means of comparison, only Wal-Mart and McDonald's (and this is counting global stats) employ over 1,500,000 workers; pretty much everybody else is well below 400,000, and the overwhelming majority are below 125,000. You can still make most of the "top ten" lists with about 35,000 workers.

So if you plan to take the size of the Federal Government from Wal-Mart to Wal-Mart plus GMAC plus Ford, you're going to have to transfer--technical term coming up--shitloads of money out of the private sector.

This is one of the forms of government confiscation of wealth that Keynes (the pre-1929 Keynes that you rarely hear about) was contemplating. Large business enterprises either have to pay for new employees out of profits or borrow money to do so. The Federal government doesn't have any profits to use for that purpose, so it borrows money from the private sector by confiscating it. When direct taxation won't work, inflation usually does.

6 comments:

Tyler Nixon said...

Sadly, I think we have reached a point in American federal governance in which those who actually viewed spending in real monetary terms (like a Bill Roth) have passed to the ages, replaced by smarmy power players who give a rip about the effects of their endless sky's the limit fiscal profligacy.

We have cute-ish, clever-by-half, bullshit artists who have no real concept of spending as real money any more. To them the spending power is not a solemn duty but an endless supply of goodies, available on unlimited credit, for them to dole out as is vogue for that election cycle.

We have gotten so far into the stratosphere of government largesse that no one can even grasp its scope, thus breeding a collective "damn the debt, we'll borrow and spend our way out of this" mindset.

Every set of transient players in the Exec Branch in recent decades, Obama being no exception, has a newer and grander agenda in which fiscal responsibility means no more than spending borrowed money the way they think is "responsible".

A hollow inflated husk of an economy is about the sum of what a New New Deal will bring us. If the first "Deal" had really worked, we wouldn't be calling for another "New" one today.

I am currently reading a biography of Madison by Irving Brant and I have been struck by how agonized the founders were, right in the midst of life-and-death revolution, by the plague of allowing public debt to go untended, much less grow to excess. They knew this was at the heart of the very faith and credit of the government itself.

Delaware Watch said...

I bet there won't be a significant increase in inflation because I don't think the economy will heat up as much as some people will believe.

"That’s 600,000 new government employees! What the heck are you going to do with hiring 600,000 new government employees? Is that the new Depression era public works program?"

This is laughable because if Obama only added, say, 2,000 more government employees that would still be treated by Libertarians w/ exclamation marks. Let's face it, folks, you simply posses no standards/principles for accessing when government SHOULD add employees and, likewise, when it should it SHOULD increase taxes. Instead you have doctrines opposing these come what may, doctrines that have no discernible give whatsoever. Not even an economic crisis sways you from your orthodoxy. I believe that hurts your credibility.

Bowly said...

Let's face it, folks, you simply posses no standards/principles for accessing when government SHOULD add employees and, likewise, when it should it SHOULD increase taxes. Instead you have doctrines opposing these come what may, doctrines that have no discernible give whatsoever. Not even an economic crisis sways you from your orthodoxy. I believe that hurts your credibility.

I might have left that slide (even though I thought it was rubbish) if you'd left the word "principles" out of it. Principles don't change--even during an economic crisis. You also fail to consider that some of us believe that libertarian principles are the best solution to the crisis, or that following those principles would have prevented it in the first place.

Libertarians do have principles, and my favorite summation is "Other people are not your property." Your lack of understanding of what libertarianism is continues. You look at the Libertarian party platform as a set of policies, and not as something that flows from libertarianism as a philosophy.

Asking a libertarian about "when government SHOULD add employees" is a bit like asking one "when SHOULD the government discriminate against blacks" (or gays, or Lutherans). It's nonsensical.

ChrisNC said...

Government bailouts, including inflation, benefit those at the head of the line, at the expense of those farther down, which is why big business loves government programs. And "economic heating" is NOT what causes inflation. Inflation is, by definition, the expansion of the money supply. Again, those that get the money FIRST get to use it before prices are bid up in response.

Tyler Nixon said...

Gosh, Dana, when are deficits enough for you and what are your limits, if any, to the size of government and its payroll?

I don't believe the onus is on libertarians to explain why the growth of an already out-of-control deficit government needs to be arrested.

The onus is on you, in specific detailed terms to justify its expansion on yet more credit further than any eye can see.

Anonymous said...

If any of you have small kids who watch Back At The Barnyard you will understand when i say everytime Dana says anything all i can think of is the red-headed kid on the show.