Today we look at one of
the more bizarre, even baffling paradoxes that afflicts the modern global
economy, albeit one that has become so engrained in monetary and fiscal policy
as to rank as unquestioned — and unquestionable — dogma of The Great Defunct
Economist, He Who Reigns Above All Other Economists, Alive or Dead. In case the heavy-handed sarcasm hasn’t
alerted you to whom we refer, that’s John Maynard Keynes.
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| The Great Defunct Economist |
Keynes didn’t develop
this paradox, but he did more than anyone else to embed it in public
policy. The triumph of the New Deal
rendered opposition to it unthinkable, whether in politics or Academia.
And the paradox is?
That the tax system,
something intended solely to raise money to defray the legitimate costs of
government (another whole discussion), is being used to engage in “social
engineering” and finance economic growth.
At the same time, the commercial and central banking system, designed
and intended to ensure that the private sector always has sufficient liquidity
to carry out transactions and finance new capital formation, is being used to
cover government deficits.
Adding insult to
injury, the role of government has expanded far beyond anything ever intended
by our distant ancestors, who invented the State as soon as they came down from
the trees (and possibly before). As
government tries to do more and more (and ends up accomplishing less and less),
the cost of failure and incompetence has soared to heights as undreamed of as
the modern level of control over each person’s daily life that was a principal
cause of the rising costs of government in the first place.
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| Daniel Webster (without the Devil) |
According to the
projections published on the website of “U.S. Government
Spending,” the percentage of GDP for the 2018 fiscal year is a little under
40%. That means that government directly
controls close to half the domestic economy by its stranglehold on money and
credit, and probably a great deal more indirectly, for what amounts to
near-total control of the social order by the State. This leaves little for people to do for
themselves.
It also means that 40%
of GDP represents non-productive money creation and spending. Thus, given a hypothetical $10 trillion GDP,
which includes an inflation-adjusted $100 billion increase over the prior year,
subtracting out government money creation and spending, instead of a $10
trillion GDP, we end up with a $6 trillion GDP.
Obviously, increased government spending does not represent real growth,
for government produces nothing.
The underlying problem
is that most people have lost ownership of any meaningful amount of
capital. Lacking property in capital,
they lack power; “Power naturally and necessarily follows property,” as Daniel Webster
pointed out.
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| Pope Pius XI |
Consequently (such is
the limited vision of the world of politics and Academia these days), the State
has come to be viewed by many people — and, yet more dangerously, by those in
control of the State itself — as the sole recourse for the non-wealthy, a
situation crying out for correction. As
Pope Pius XI put it,
When we speak of the
reform of institutions, the State comes chiefly to mind, not as if universal
well-being were to be expected from its activity, but because things have come
to such a pass through the evil of what we have termed “individualism” that,
following upon the overthrow and near extinction of that rich social life which
was once highly developed through associations of various kinds, there remain virtually
only individuals and the State. This is to the great harm of the State itself;
for, with a structure of social governance lost, and with the taking over of
all the burdens which the wrecked associations once bore, the State has been
overwhelmed and crushed by almost infinite tasks and duties. (Quadragesimo Anno, § 78.)
Is there any way out
of this mess? Are people to be at the
mercy of a heartless private sector economic élite, or a brainless State political
élite? Is it possible to fund government and take
care of everybody in a just manner?
Probably not — if you
take that demand literally, as many do these days. If the attempt is made to have the State take
care of everyone’s needs, several problems arise, to say nothing of the egregious
offense against human dignity as a result of forcing a condition of dependency
on people. The economy is shackled with
growing government deficits (non-productive borrowing and spending), lower
standards of living for those on fixed incomes or whose earning capacity has
declined in competition with advancing technology or cheaper foreign labor,
stagnant to declining real growth as government spending and stock market
speculation absorb otherwise productive resources — among other problems.
How, exactly, did this
situation come about?
#30#