Keynesianism Is Government Force Blocking Reality

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Here's a great example of using the right concepts and formulating a complex thought in a simple, retainable way. It's from Daniel Henninger's column in Thursday's Wall Street Journal:

"The U.S. and Europe have paid a high price for six years of stimulus that didn't stimulate, programmed consumption that fell short, regulatory expansions that froze private producers, and high tax-rate regimes that benefited the public-spending class and beggared everyone else . . ."

"Stimulus that didn't stimulate"-a great phrase. It could be partnered with: quantitative easing that didn't ease.

Foggy concepts like "stimulus" and "quantitative easing" hide what the government is actually doing. The "stimulus" being applied is fear, fear of the state's apparatus of compulsion, as Mises correctly referred to it. Government funding is extracted by force; government regulations are imposed by force. The symbol of government action is the gun. Were it not for that gun, no one would pay for the government's make-work schemes, and no one would accept the government's inflated paper. Gresham's law, "Bad money drives out good," operates only when people are forced to use the bad money. On a free market, Gresham's law works in a benevolent direction: good money drives out bad. You can't pay with bad money-unless the payee is forced by law to accept it.

Keynesian "demand stimulation" depends entirely on outlawing private, voluntary action-i.e., on the government's gun being used to make people act against their own best judgment. Without that gun, Keynesian schemes couldn't be put into operation.

Keynesianism is a theory about what kind of orders the state should issue to its serfs.

And look at the premise of what our benevolent masters are supposed to order. The government, Keynesians believe, has to intervene because producers are irrational (but government is rational). The premise behind "stimulus," "quantitative easing," and "pump-priming" is that businesses won't act in their own self-interest. They irrationally refuse to loosen up and invest. The government has to step in to curb their irrational non-exuberance.

Now, the government is reluctant to use direct force ("Invest or we'll seize your funds"), so instead it uses the indirect coercion of fraud ("Hey, good news: there's more capital out there than you thought! See the low interest rates?!").

Back on planet earth, when businesses are loath to invest, it's for a reason. Faking the supply of capital by padding it with fiat money doesn't wipe out that reason.

Note the schizoid process. First the government scares businesses, making them unwilling to invest; then the government reassures them that conditions are ripe for expansion, because the economy is awash in cash. Only, the "cash" is just play money, and the real situation is just as bad as the producers thought it was.

The same contradiction applies to government treatment of the banks: with the left hand, government shovels out fiat money to the banks; with the right hand, the bank regulators order them to be more leery of loaning. The irony is that both hands belong to the same institution: the Fed. It is the Fed that is dumping money into the banks, hoping they'll loan it out, and it is the Fed that sends the bank examiners to restrict the loans made by banks.

Consider a grand-scale contradiction facing the Left. Leftists hold that the same people who are unable to make rational judgments about anything-what foods to eat, who is a legitimate doctor and who is a quack, how much to save for their own retirement, whether to buy medical insurance or not, and what kind of education their children should be getting-these same people become as gods at election time. The same populace that the Left regards as dumb clucks, are not only to be given the authority to pick their leaders but in "the democratic process" they become infallible. "The people have spoken," they say after elections (more loudly when Leftists win). Vox populi vox dei.

Ayn Rand points out this contradiction in Atlas Shrugged, in fog-piercing style:

"You propose to establish a social order based on the following tenets: that you're incompetent to run your own life, but competent to run the lives of others-that you're unfit to exist in freedom, but fit to become an omnipotent ruler-that you're unable to earn your living by the use of your own intelligence, but able to judge politicians and to vote them into jobs of total power over arts you have never seen, over sciences you have never studied, over achievements of which you have no knowledge, over the gigantic industries where you, by your own definition of your capacity, would be unable successfully to fill the job of assistant greaser."

But, to coin a phrase, A is A.


Harry Binswanger is an Objectivist philosopher, and was a close associate of Ayn Rand. He blogs at  

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