At the beginning of the book economics in one lesson) that too many economists have never read, a non-economist named Henry Hazlitt remarked that economics is “haunted by delusion.” Hazlitt is understating, and if he were alive, he would certainly admit it. We’re talking about a profession that almost unanimously believes that all of the wealth destruction, mutilation, and murder that occurred during World War II actually pulled the US out of the “Great Depression.” “Haunted by delusion” does not begin to talk about how bankrupt the “economy” is today.
What is disappointing is that even professional thinkers sometimes go astray. Take the excellent Allison Schrager of the Manhattan Institute. AT City magazine a part that properly debunked the “slow-growth philosophy”, Schrager conceded too much in debunking. She argued that “defrosters are right that endless consumption is not sustainable.” Why so easily succumb to something that is so obviously untrue? And to be clear, the notion that “endless consumption is not sustainable” is wrong.
We know this simply because production precedes all consumption. Anytime and anywhere. No school of economics can circumvent this truth. No doubt simple thinkers will say that children consume in abundance without producing as the supposed beneficiaries of the government do, but the simple answer to what is simple is that productive parents usually guarantee the purchase of their offspring, while those who get purchasing power from the government are signed by you and me. All consumption is preceded by production. Repeat this over and over.
At this point, it would be a blatant lie to suggest that “endless consumption is not sustainable.” It is assumed that Schrager would like this line not to be reprinted in Wall Street Journal if only because she needs to know it’s not true. Moreover, what today reads as “endless consumption” will seem deprived in comparison with the future. Combine the growing division of labour around the world with the trillions of robotic “arms” that will continue to make up the workforce, and we are on the cusp of productivity that will make a wildly prosperous present look like Haiti compared to where we live. head translation.
What is decisive for all this future production is that it will result in consumption. There is no escape from this truth. This is so simple because no act of saving ever reduces demand. Assuming that the surge in savings reflects all the surplus created for huge production surges, then purchasing power is never idle. What is not spent will be given to those willing to spend through financial intermediaries.
More recently, Schrager has written that increased government spending will exacerbate what she sees as inflationary pressures. The bet here is that she again doesn’t mean what she wrote. To be clear, government spending is a huge tax that undermines the economy. Perhaps the worst tax of all is if we remember that there are no entrepreneurs without capital.
At the same time, government spending does not represent new demand, as Schrager seems to argue. See above. Every demand is preceded by production. If the government puts money in people’s pockets in such a way that the intended beneficiaries demand things, someone by definition reduces purchasing power. The Keynesian multiplier is a myth and it is unrealistic to think that Schrager will revive it. Nevertheless, her argument against more government does. The opinion here is that it should stick to the basics: government spending is a tax.
If not, then she gives in again. Indeed, if government spending represents new demand causing “inflation”, then logically, the lack of government demand caused by tax cuts would similarly lead to “inflation”. In fact, none of the scenarios will be, since inflation is a currency phenomenon.
In other words, inflation is the devaluation of a currency. That the latter did not happen during the presidency of Joe Biden is history, but the Republicans ignored it. Schrager isn’t afraid to criticize Republicans, and you sincerely hope she starts writing about the fallacious inflation arguments put forward by the Republican Party, which would rather voters forget how much her political heroes (including a man in the White House in 2020) supported lockdowns. which were the source of today’s price pressure.