Lebanon's Misery Exposes the Sickness of Modern Economics
(Ministry of Emergency Situations press service via AP)
Lebanon's Misery Exposes the Sickness of Modern Economics
(Ministry of Emergency Situations press service via AP)
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“If my son asks me for something and I can’t give it to him, I just can’t handle it.” Those are the words of Saad al-Din Dimasi of Lebanon, as spoken to Ben Hubbard of the New York Times.

Hubbard is covering the tragic economic implosion of Lebanon, and Saad is one of his subjects. In order to get gasoline, Saad puts his car in neutral with the automobile off “to preserve as much of his scarce fuel as possible.” The wait to purchase gas is endless at present, and it’s crushingly expensive given the collapse of Lebanon’s pound. The latter has eviscerated Saad’s income.

His job at a shoe company pays 1.2 million Lebanese pounds per month, which was once the equivalent of $800. Now it’s $80. Get it? Saad is broke. And with electricity from the grid rather intermittent, and with Saad only able to afford limited hours from a private generator, summer nights are rather brutal. As he relayed it to Hubbard, “As soon as the air-conditioning goes off, the mosquitoes come and then the heat.” You think you have it bad?

The tragedy unfolding in Lebanon right now is yet another indictment of modern economics. More than the credentialed with upturned noses want to admit, something-for-nothing has replaced basic common sense in gruesome fashion.

In the past, economics wasn’t a credentialed concept. Adam Smith certainly wasn’t a PhD. He just understood the basics of life.

Our ability to consume is a function of how much we produce, so reduce the burdens placed on production. Basically remove the tax, regulatory and trade barriers to work. As workers we’re importers from across the street and the other side of the world, so shrink all that gets in the way of the work we do.

Lebanon’s problem is that government has made itself a barrier. The latter is rooted in a modern economic belief that economic growth is a function of demand, at which point governments tax, borrow and subsequently spend in order to allegedly boost output. They have it wrong in Lebanon, and they have it wrong here in the U.S. Put another way, easily gulled politicians have been tricked by economists into believing that the more generous they are with wealth already created by others, as in wealth taxed or borrowed from the wealth creators, the more the economy zooms upward.

Except that there’s no growth to speak of from government consumption. Governments can only spend insofar as they extract wealth already created. See above. It’s just a reminder that there’s no such thing as government spending; rather governments with taxing and borrowing power politicize the allocation of precious resources; resources that would otherwise be allocated in market-driven fashion.

Yes, government spending is anti-worker. As Adam Smith put it, “It is by means of an additional capital only, that the undertaker of any work can provide his workmen with better machinery, or make a more proper distribution of employment among them.” Government spending is the waste of precious capital necessary for progress. It is a somnolent. Period.

Except that it’s not a somnolent in faculty lounges populated by economics PhDs who sniff haughtily at the mere mention of Adam Smith and other “dead economists.” The modern economics profession believes it can fine-tune growth with money taken from the growers. Lebanon is one of the profession’s many Afghanistans. And it doesn’t stop there.

To see why, consider the endless wonderment inside the Federal Reserve about how to get inflation higher. That the biggest employer of economists in the world is full of academics who naively believe economic growth is inflationary (quite the opposite, actually) is to somewhat miss the point. Whatever their definition, economists seek ever-rising prices given their worship of consumption. Unaware that consumption is the easy and fun part that can only take place after production, economists seek currency devaluation as a way to push prices up so that producers spend their paychecks with abandon so as to avoid higher prices down the line.

Economists are oblivious to what the non-PhD in Smith knew so well: savings power economic growth. Savings expand the capital base that make it possible for business owners to hire more, or provide their hires with better machinery. Economists literally think savings bring on contraction. In that case, devalue with gusto so that money always in decline will be spent before it declines more.

Lebanon is the Vietnam of the devaluationists who populate the economics profession. Of the tragically dense view that shrinking money boosts the “economy,” they foist this mean-spirited idea on those with the least all over the world. Smith would be aghast.

Indeed, it was so elementary to him that the “sole use of money is to circulate consumable goods.” Smith understood that with trade, it’s always and everywhere products and services for products and services; money merely the value agreement accepted by all producers as a way of moving goods and services around. We work for money, but we really work for what money can be exchanged for.

The tragedy for the Lebanese is that the money they’ve worked for has been devalued by a government eager to shift the burden of its borrowing and spending onto the very people harmed by the borrowing and spending. In other words, “economic policy” has burned the Lebanese twice, but really in all manner of ways.

Its desperation calls for a return to common sense, which is all economics is. It’s the economists who ruined economics, and whose ideas are bringing on all manner of global misery. So with Saad al-Din Dimasi and other struggling Lebanese top of mind, it’s time to toss modern economics and the credentialed proponents of same into the proverbial dustbin of history.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His new book is titled When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason. Other books by Tamny include They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers, The End of Work, about the exciting growth of jobs more and more of us love, Who Needs the Fed? and Popular Economics. He can be reached at jtamny@realclearmarkets.com.  

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