Keynesianism Delivers a Decade of Zero

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This past week
we celebrated the end of what most people agree was a decade best
forgotten. New York Times columnist and leading Keynesian
economist Paul Krugman called it the Big Zero in a recent column.
He wrote that “there was a whole lot of nothing going on in
measures of economic progress or success” which is true. However,
Krugman continues to misleadingly blame the free market and supposed
lack of regulation for the economic chaos.

It was encouraging
that he admitted that blowing economic bubbles is a mistake, especially
considering he himself advocated creating a housing bubble as a
way to alleviate the hangover from the dotcom bust. But we can no
longer afford to give prominent economists like Krugman a pass when
they completely ignore the burden of taxation, monetary policy,
and excessive regulation.

After all,
Krugman is still scratching his head as to why “no” economists
saw the housing bust coming. How in the world did they miss it?
Actually many economists saw it coming a mile away, understood it
perfectly, and explained it many times. Policy makers would have
been wise to heed the warnings of the Austrian economists, and must
start listening to their teachings if they want solid progress in
the future. If not, the necessary correction is going to take a
very long time.

The Austrian
free-market economists use common sense principles. You cannot spend
your way out of a recession. You cannot regulate the economy into
oblivion and expect it to function. You cannot tax people and businesses
to the point of near slavery and expect them to keep producing.
You cannot create an abundance of money out of thin air without
making all that paper worthless. The government cannot make up for
rising unemployment by just hiring all the out-of-work people to
be bureaucrats or send them unemployment checks forever. You cannot
live beyond your means indefinitely. The economy must actually produce
something others are willing to buy. Government growth is the opposite
of all these things.

are loathe to face these unpleasant, but obvious realities. It is
much more appealing to wave their magic wand of regulation and public
spending and divert blame elsewhere. It is time to be honest about
our problems.

The tragic
reality is that this fatally flawed, but widely accepted, economic
school of thought called Keynesianism has made our country more
socialist than capitalist. While the private sector in the last
ten years has experienced a roller coaster of booms and busts and
ended up, nominally, about where we started in 2000, government
has been steadily growing, because Keynesians told politicians they
could get away with a tax, spend and inflate policy. They even encouraged
it! But we cannot survive much longer if government is our only
growth industry.

As for a lack
of regulation, the last decade saw the enactment of the Sarbanes-Oxley
Act, the largest piece of financial regulatory legislation in years.
This act failed to prevent abuses like those perpetrated by Bernie
Madoff, and it is widely acknowledged that the new regulations contributed
heavily not only to the lack of real growth, but also to many businesses
going overseas.

Americans have
been working hard, and Krugman rightly points out that they are
getting nowhere. Government is expanding steadily and keeping us
at less than zero growth when inflation is factored in. Krugman
seems pretty disappointed with zero, but if we continue to listen
to Keynesians in the next decade instead of those who tell us the
truth, zero will start to look pretty good. The end result of destroying
the currency is the wiping out of the middle class. Preventing that
from happening should be our top economic priority.

the Ron Paul File

5, 2010

Dr. Ron
Paul is a Republican member of Congress from Texas.

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