An article by Stephanie Kelton of MMT fame titled, “Biden Can Go Bigger and Not ‘Pay for It’ the Old Way,” appeared in the New York Times recently. She cautions against increasing taxes to fund elevated Federal Government spending demanded by Biden and his Democrat cronies, and urges alternatives to avoid impinging upon the economy’s resource constraints in labour, material and equipment.
In her words, “Just as my son’s Lego projects are limited by the amount of bricks …we can’t squeeze more goods and services out of our economy once we’ve made use of all available resources.”
Kelton does laud Biden for increasing taxes on the erroneously designated ‘spending averse’ wealthy, but warns that such a measure may not be enough to curb the potential for soaring inflation as prodigious Federal Government spending programs activate and operate.
Kelton has this one issue right. The great blunder of Keynesian economics has been the inability of its adherents to acknowledge the noxious and inveterate inflation their policies create and propel in pursuit of the ‘full employment’ economy. At least, MMT advocates warn of such dangers and insist government act to stifle them.
Kelton sets forth a number of braking measures in place of taxes to free up or enlarge productive resources and capacity at home. She argues for the removal of tariffs on key industrial goods, abolition of fracking on Federal lands, grants and loans to encourage companies to return and invest in the US, fines on firms that set up offshore plants, and loosening of immigration to expand the labor force. With the resources of the nation expanded, engineered, and adjusted by government hands Kelton imagines a thriving productive nation, just like all those Soviet bureaucrats once did with their glorious five year plans.
The gaping flaw in the thinking of Kelton and like-minded Keynesians is their inability to admit government ever doing wrong, that there is a bad government expenditure. Private firms and individuals labor at answering the demands of markets, the needs of consumers. They are constantly revising and tinkering with products and services, devising and introducing novelties, shaving costs and adjusting prices in the battle to win over consumers. If business fails to answer the needs and demands of consumers, they disappear.
Not so government. Government rarely if ever acts with such purpose and energy. We witness the ubiquitous dearth and poverty inflicted on those living in economies dominated by government. Government endeavors in education, green energy, subsidization of electric vehicles, roads, bridges, ports are all deemed worthy regardless of cost. If government were to undertake a project of digging holes in the morning and filling them up in the afternoon, spending vast sums on chartering idle labor and consuming material and equipment while garnering nothing of value, Kelton would cheer.
I would like someone within or without the economics profession to explain how such a gargantuan and abhorrent waste of resources moves us closer to a goal of enrichment, to the objective as Kelton imagines it…“The Biden plan’s investments … leaving us with a better educated and more productive work force, more efficient railways, less congested roadways, improved technologies and much else.”
It is the dream of all central planners, yet reality furnishes relentless, punishing, and impoverishing disasters. Government programs squander large fractions of the resources of the community, thwarting its productive vibrancy and driving out investment and jobs: welfare programs that encourage idleness, a smothering regulatory apparatus, bloated government payrolls, environmental strictures, exorbitant minimum wage impositions, green energy costs, government supported union tyranny, military endeavors as the costly F35 program and foreign entanglements and excursions, the drug war, punitive taxes, tariffs and restrictions on foreign goods.
Perhaps Kelton and her Keynesian allies should delve into and reflect upon the worth and results of government endeavors in the quest for Full Employment. They should especially investigate why an unnaturally high level of unemployment exists when market actions should erase it. I often hear a person declare, “I can’t sell my home.” But one could easily sell his home if he allows the price to match or fall below the market level. Is it possible that many are unemployed because of inhibitions or impediments in the adjustment of wages to market levels?
Excessive wage demands by a small number of workers in a key industry in depressed economic circumstances could ramify throughout the economy. Union disruption of widely used steel production could cause weighty unemployment in many manufacturing firms reliant upon the crucial input. The recent disruption in supply of computer chips, essential for many consumer products, has suspended or slowed auto production across the United States. Broad government stimulus would be of little use in rectifying such singular and local issues.
And do the actions of government, now 40% of the economy, not interfere with and impede labor market mechanisms and resource constraints? I expect a large reduction in taxes, laws, regulations, would free the nation’s productive capacity and improve prospects for many of the unemployed. But curiosity in such matters is not a trait that big government loving economists exercise with any proficiency.
Kelton audaciously trots out a quote by Beardsley Ruml who supposedly said, “The dollars the government takes by taxes cannot be spent by the people.” The statement also applies to borrowed dollars since government never reduces its debts. But the entire question is not about dollars as Kelton herself admits. It’s about resources. And the nation takes a poignant hit when government annihilates scarce resources in pursuit of some barren objective. If government left resources in the hands of those who earned them or knew better how to use them, how much better off the nation and its citizens would be!
I estimate 80% of public expenditures, that is 80% of the resources commandeered by government in labor, material and equipment, go to waste. This is the grand, hulking problem. Not debt or deficits, but waste.
Government is an entity that grows without restraint. The signals for proper and worthy allocation of resources permitting unexcelled profits for all issue from free and unrestricted markets serving the needs and desires of consumers, not blind, awkward, arrogant and diseased bureaucracies.
