Thursday, November 6, 2008

Keynesian Fairy Tales Cripple Irish Economy

The popular tourist image of Ireland as a fairy-ridden country with mystical and unexplainable events occurring regularly is partially true . . . in the worst possible way. According to today's Irish Independent ("Jobless rate 'will hit 320,000," 11/06/08), Taoiseach Brian Cowen predicted that the unemployment rate in Ireland could go as high as 300,000 or more by next year. Mr. Cown was quoted as saying that the projected increases in unemployment are "regrettable," but not surprising in view of the global economic situation. The solution?
"Employment creation remains a priority for the government. The creation of quality, well-paid jobs will come predominately from two sources - foreign direct investment and indigenous enterprise."
This is partly right but (in the worst way possible) is horribly wrong, although completely consistent with the entrenched Keynesian myths that have befuddled economists and politicians for most of the past century. Keynes was unalterably convinced that investment could not take place until after consumption had been cut and savings accumulated. This is a myth, as Dr. Harold Moulton proved in 1935 in his book, The Formation of Capital. Dr. Moulton proved beyond the shadow of a doubt that periods of increased investment had been preceded not by decreases in consumption (necessary to save), but by increases! Keynes thought that money could not be created for investment, but that the State could create money to spend. Moulton proved that Keynes was wrong — but politicians still assume Keynes was right!

What does Moulton's work mean for any economy? First, of course, with a properly designed and regulated financial system that integrates the commercial banking system with the central bank and a just tax system, there is no need for direct foreign investment except with regards to the importation of new technologies. Using commercial banks and a central bank properly results in as much money and credit as needed to form capital, and creates a currency backed with hard assets in the form of productive technology, farms, industries, and other goods and services.

Thus, "indigenous enterprise" can provide a domestic economy with all that is necessary for sound and stable economic growth without the need for foreign investment.

The only proviso is that, as proposed under the Capital Homesteading plan developed by the Center for Economic and Social Justice, ownership of the new productive projects must be spread broadly throughout the country — the goal should be every citizen an owner of capital, with the "four pillars of an economically just society" firmly in place to protect and enhance the dignity of each person:
Limited economic role for the State,
Free and open markets,
Restoration of the rights of private property, and
Widespread direct ownership of the means of production.
It's at least something to think about, as nothing else seems to be working.

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