On the Matter of Economic Growth, Mickey Levy Is Double Counting
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On the subject of government spending, economists could analyze the world much better if they were intimate with a basic truth: no act of saving ever subtracts from demand. What we don’t save doesn’t sit idle, rather it’s shifted to others with near-term demands. They pay a rate of interest for the pleasure.

This is something to keep in mind given Berenberg Capital Markets economist Mickey Levy’s recent assertion that “It’s too early to assess whether President Biden’s industrial policies will lift productivity or improve standards of living relative to their costs.” No, that’s not true. Political allocation of precious capital is logically an economic somnolent simply because when politicians spend, they’re substituting their highly limited knowledge for that of the marketplace itself. Put more bluntly, they’re centrally-planning the direction of precious physical and human capital. That this will weigh on growth is a blinding glimpse of the obvious.

Even if Levy could fiddle with numbers in such a way (more on the false accounting that is GDP in a moment) that would “prove” growth born of President Biden’s policies, such a view would still be stalked by a far more important unseen. As in what kind of advances would have taken place if ferociously exacting market forces had driven the distribution of resources over knowledge-deficient politicians. Government spending saps economic advance, period. Yet Levy plainly disagrees.

While he acknowledges once again that it’s “too early” to assess the impact of Biden’s stabs at central planning, he says it’s “clear” that Biden’s policies “are currently stimulating economic growth.” No, they’re not. Levy is double counting. He glosses over an even more basic truth that governments don’t pull the “demand” they pass around from outer space, rather their power to provide handouts is a direct consequence of their arrogation of our production to themselves.

In Levy’s defense, he’s not alone in believing that there's a free lunch. Economists generally believe as he does, that while it’s “too early” to assess the long-term effects of government spending, there’s no doubting that it adds to growth. GDP says so, don't you know? Except that GDP is nonsense. The simple truth is that all demand is a consequence of supply, and governments supply nothing on their own. Instead, they supply what they’ve first extracted from the productive. Translated, their swagger isn’t their own. They can only spend, and yes, roll out mind-numbingly obtuse “industrial policies” insofar as they extract resources from the private sector first. When economists claim GDP is boosted by government spending, they’re double counting. The growth already occurred, hence government spending. Levy and his fellow PhDs want to count what already happened twice. Even the most crooked of accountants would blush.

Levy concludes in favor of the Fed centrally planning the short-term cost of credit as a way of mitigating the allegedly inflationary impact of an “unprecedented $5 trillion in Covid spending,” which is the economist once again double counting. Governments can only “demand” or redistribute demand insofar as the productive have less demand. There’s no getting around Say’s Law. Demand once again isn’t pulled from outer space as Levy’s models imagine as much it emerges directly from supply. Which is why prices or the “price level” can never be boosted by government spending. The supposition springs yet again from double counting.

Which is what Levy’s opinion piece amounts to. Not only does it violate basic common sense, it’s the picture definition of a math equation that concludes 2 + 2 = 8.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His latest book is The Money Confusion: How Illiteracy About Currencies and Inflation Sets the Stage For the Crypto Revolution.

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