Great Britain has a Labour government at present. The Chancellor of the Exchequer is Alistair Darling. He is responsible for economic and financial affairs of the government.
Labour is "left." We expect Keynesianism from the left. So it is no surprise that Darling has just proposed that Great Britain spend its way out of its recession. He wants the government to spend on housing, energy, small businesses, schools and hospitals. He will increase borrowing to finance the spending.
I don’t know about you, but I for one am simply tired of hearing the same old tired and worn out nostrums that do not work. I felt exactly the same when Bush provided a one-time $160 billion tax cut financed by borrowing and upon hearing recently that the Congress was getting ready another "stimulus" package. I am surprised that these counter-productive measures have any political mileage left in them at all. I have the impression, which is purely intuitive, that this generation of politicians believes even less in these measures than any of their predecessors. They act like zombies who are going through the motions. Among the public, if there is any support at all, it shows up in tiresome columns written by partisans who can’t find anything else original to say. Keynes is dead. Keynesianism is dead. And yet it lives on like some kind of engine that won’t stop clacking even after the key is removed from the ignition.
President Nixon told us "We are all Keynesians now." By "we" I guess he meant we politicians, because he could not have meant Austrian economists. Nixon spoke truth on that one, with that qualification. This is proven by every Republican administration and especially by the current Bush administration. This is proven by the response of George Osborne, who is the "shadow" chancellor from the Conservative side that is out of power. The Conservatives are "right."
Osborne threw a tidbit of a supply-side policy, which was that small businesses be allowed to postpone paying their value-added tax bills for six months. But this is Keynesian deficit spending too. If the government does not cut spending, it has to borrow the funds. Sounds awfully like Darling, who at least had the courage to say that the government would borrow. Osborne should have proposed getting rid of the taxes altogether, or lowering their rate, and cutting government spending by the same amount or more. This Austrian remedy would spur the private sector and actually work!
All the politicians and columnists can now have a public discussion of what to spend the government’s taxes and borrowings on. No one will question the wisdom of spending more and borrowing more, a policy that cannot possibly end a recession and can only lower social welfare by streaming society’s scarce resources to the lowest return projects that anyone can devise.
They ought to invite the U.S. Army Corps of Engineers in. They are experts at this. I have seen them build million-dollar jetties into the Atlantic and dredge sandbars in a small inlet to produce a harbor for a few pleasure boats. The jetties proceeded to alter the currents so as to destroy a pristine neighboring sandy beach which is now covered with rocks. The harbor silts up and has to be dredged every so often. This is a constant drain on the town’s resources.
Lord Jones, who seems a politician whose affiliation is cloudy or in the middle, applauded Osborne’s plan and then reverted to undisguised Keynesianism. He suggested that Darling should invest in "infrastructure projects which facilitate the productivity of the country…airports, railways, and roads." He left out harbors, canals, and river passages.
Yvette Cooper who works in the Treasury assured everyone that the Government would keep spending although its tax revenues were declining. She referred to this spending as "investment." Government has stolen the language of business and now pretends to be some sort of business. If this is investment, I’d like to sell my stock, please. Do I have a stock certificate in government? The attendant borrowing went unmentioned, although this diversion of resources undermines private investment.
The representative of a lobby group for London called London First, one Lady Valentine, plugged for the 2012 Olympics and Crossrail. Her stunning logic: "When we were in boom time they were absolutely vital for expansion. And actually now that things have turned down they remain even more vital, if anything, for building our way out of the situation we are now in." Go float a couple of bond issues yourself, Lady Valentine. Send me a prospectus so I can look at the prospective risks and cash flows.
Fruit attracts fruit flies but at least we do not have to listen to their flimflam. The public trough is a source of hokum, hypocrisy, and hype. Government stimulates sophism and snow jobs.
Imagine that in a recession the government were to deregulate the economy and cut its own spending in half while cutting taxes by the same amount. It is completely obvious that the economy would before long embark on a boom with a solid foundation. Isn’t this part of the story behind the booms in Russia and China when the Communists disappeared or altered their policies? Don’t politicians the world over know this? Of course they do. They are pulling the wool over the public’s eyes by insisting that they do not cause recessions and that the best remedy for recession is even more government spending.
We’d all be far better off dissolving the government, and if that is too radical, then limit them to marching in parades, unveiling monuments, and greeting foreign dignitaries.
Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.