Eugene Robinson- Full of Economic Fallacies

Eugene Robinson- Full of Economic Fallacies
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Stop me if you heard this one before.

A well regarded political commentator writing for one of the nation’s leading (and floundering) newspapers is troubled.  No matter how many times his pen touches the paper for millions to read, his ideological opponents show no signs of being convinced.  You see, the world economy is still sputtering along with unemployment at intolerable levels.  Some nations, that is mainly those periphery countries of the Eurozone, have adopted cruel austerity measures to bring cumbersome government debt under control.  Public expenditures have been cut with some parts of the welfare state up on the chopping block.  What these fools don’t realize is that these policies put the brakes on desperately needed economic growth.  Without the private sector spending itself to recovery, it’s up to our exalted political leaders to carry us through to salvation.  This should be common sense.  After all, there is hardly an economic textbook used in major universities that doesn’t teach this same approach.

Do the unlearned buffoons who want the state to lessen its dominating clutch on the economy not realize that it takes more debt to reduce debt?  That living within one’s means is crazy talk? How can they possibly be confused with this enlightened reasoning?

Sorry, the above characterization isn’t Paul Krugman.  Notwithstanding his more than decade long prolapse into political hackery and Franklin Roosevelt aggrandizing, the Nobel Laureate used to have a relatively decent grasp what constitutes enriching economics.  Eugene Robinson of the Washington Post, on the other hand, is the master of false dichotomies.  Like the Luddites of 19th century England, Robinson has a history of regarding industrialized advancement and elimination of tedious labor employment as the great antagonist of the working man.  Had he been alive during the era of the stagecoach, there is no doubt the Pulitzer Prize winner would fire off column after column on the impending cataclysm to society the automobile would bring.  The multitude of new jobs and opportunities of employment that result from a budding automobile industry, and ensuing expansion of transportation capabilities, are not even a consideration.  The choice is less overall jobs with the automobile or more with the horse and buggy.

The same myopic tendency is applied again in Robinson’s recent Post column which makes the case for a rigid division between government spending to boost growth and spending cuts to curtail it.  He writes:

But putting a chokehold on government spending at a time when economies are just sputtering back to life — as the austerity fetishists have tried to do in Europe, and as Republicans solemnly pledge to do in the United States — is monumentally self-defeating. Governments end up magnifying the constituent parts of the economic crisis, not minimizing them.

In Britain, the economy was growing when Prime Minister David Cameron took office two years ago. Adhering to the platform of his Conservative Party, Cameron took the austerity route with a host of gloom-and-doom budget cuts. Now unemployment is rising and the economy appears to be slipping back into recession. Nice job, Tories.

That loud chorus of “Duh!” you just heard came from the many leading economists who have been screaming at political leaders for years now that we’ll never cut our way out of this economic slump and instead must grow our way out. It is obvious that deficits, debt loads and entitlement spending have to be brought under control — but equally obvious that the necessary adjustments should be made when the economy is going great guns, not when it’s gasping for air.

The above would be convincing if Prime Minister Cameron had in fact cut spending by an significant levels.  According to The Guardian, U.K. government spending as a percentage of Gross Domestic Product was 40.9% from 2007 to 2008 when the financial crisis began to set in.  From 2011-2012, it is estimated the percentage jumped to 46.2%.  From 2007-2008, total government expenditures amounted to £ 582.90 billion.  For 2011-2012, total spending amounted to £ 702.60.  Meanwhile the raising of income tax for top earners to 50p has actually resulted in decreased revenues.  And then there is the massive money printing and expansion of fiduciary credit still being employed by the Bank of England.  The latest date shows that as of March, the Consumer Price Index in England reached 3.5%; if you believe the government’s distorted statistics of course.

Some austerity!

Yet these are the same “austere” polices being carried out in the highly indebted nations of the Eurozone.  True labor reforms to liberalize parts of the economy much in need of a boost in competitiveness aren’t being enacted.  Deficits for Euro area governments are still being run up despite all the demagoguery over heartless cuts in spending.

(Chart via Veronique de Rugy)

And as President of Americans for Limited Government Bill Wilson points out:

In Italy and Spain, which have been dependent on tens of billions of cash infusions from the European Central Bank (ECB) to refinance their debts, cuts are hardly anywhere to be found either. In Spain, spending was cut by just €11 billion in 2011, a mere 2.3 percent reduction. In Italy, spending actually increased by €4.3 billion.

Both countries borrowed an additional €117 billion last year alone, raising their combined debts to €1.939 trillion. So, no austerity there. Just debt slaves.

In Greece, spending was cut by just €6.3 billion from 2010 levels. In Portugal, just €4.8 billion. Ireland only trimmed €2.2 billion off its 2009 levels…

If there is a recipe for stagnating economic growth, it is tax hikes, increased government spending, and no actual relaxing of crippling red tape and labor regulations.  Even worse is the continuation of massive injections of liquidity into the Euro area banking system which not only indirectly finances further debt accumulation by heavily indebted governments but prevents much needed liquidation of malinvestment such as mortgage securities that was a repercussion of previously cheap credit.

In spite of his distorted view of imposed austerity, Robinson still maintains that the choice is between government supported growth or idleness resulting from slashes to spending.  Such a choice is, in a word, hogwash.  It assumes that the state is an absolute necessity in facilitating economic growth.  That without predatory lawmakers forever on the chase to throw tax money at political interests, then there could be no actual economic expansion.

This false dichotomy must assume that government spending is not a burden on the economy.  Because the state only functions off what it first seizes from the private sector then it must follow that any cut to spending leaves additional resources to the more productive segments of society.  After all, private transactions are necessarily mutually beneficial, less they would not be engaged in to begin with.

There is no better demonstration of this general rule than the sparsely referred to Depression of 1920-1921.  According to investing legend (and snappy dresser) Jim Grant writing in the Washington Post:

Our Great Recession ended 2½ years ago, according to the official cyclical timekeepers, but you wouldn’t know it by a glance at the news. Zero percent interest rates and $1 trillion in “stimulus” notwithstanding, the U.S. economy can hardly seem to heave itself out of bed in the morning. Now compare this with the first full year of recovery from the ugly depression of 1920-21. In 1922, under the unsung stewardship of the president best remembered for his underlings’ scandals and his own early death in office, the unemployment rate fell from 15.6 percent to 9 percent (on its way to 3.2 percent in 1923), while constant-dollar output leapt by 16 percent. After which the 1920s proverbially roared.

And how did the administration of Warren G. Harding, in conjunction with the Federal Reserve, produce these astonishing results? Why, by raising interest rates, reducing the public debt and balancing the federal budget. Let 21st-century economists rub their eyes in disbelief. Eighteen months after the depression started, it ended.

The Depression of 1920-1921 isn’t given a mention in public school textbooks precisely because it goes against the narrative that without the state, society would crumble and we would all be left clawing out a feeble existence in caves.

Creating the divide between impoverishment and deliverance via government deficit spending serves only one purpose.  It is to put the state and those who reside in its whole host of bureaucracies on the pedestal of adoration.  For it is only they, the elected thieves disguised as intrepid leaders, that can spend our way to the land of abundance with money they never owned or legitimately earned.  Perpetuating this falsehood is Robinson’s real agenda.

Under true austerity, the actual sufferers would be those who live parasitically through the state.  This includes politicians, large financial institutions holding government bonds, retirees receiving payments from pension entitlement programs, welfare beneficiaries, industries such as agricultural which receive subsidies, the media that covers whatever ruling regime is in power in order to garner a favored position, and all those ruffians who are cut a check to do the state’s violent bidding.  All have a stake in preserving an unsustainable status quo.

And all will invoke imageries of catastrophe and spin illogical theory to back their position.  Eugene Robinson, who falls into this category, is just another literary contortionist desperately trying to keep the state in a favorable light.

  • SirTenenbaum

    European austerity is indeed the greatest myth in circulation about the crisis in Europe.

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James E. Miller is editor-in-chief of Mises Canada and a regular contributor to the Mitrailleuse . Send him mail

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