In the turbulent times of Trump, it seems like an eternity, but last week, Gary Cohn, the president’s chief economic advisor, resigned from his position. President Trump had asked “Cohn directly” if he could be relied on to help implement tariffs. Cohn said no, by Bloomberg Politics’ telling. Hours later, he was out.

Asked and answered—also in the presence of Mr. Cohn, back in November of 2017—was another important question. At the Wall Street Journal CEO Council, august CEOs, a room full of them, were asked if they’d increase capital investment in American workers, pursuant to Trump’s business-friendly tax plan. A pitiful few raised their hands.

Globalist Gary, as he was known by the near-extinct Bannon faction of the West Wing, remained unperturbed. Formerly chief operating officer of Goldman Sachs, the affable Democrat had formed part of the Kushner-Cohn opposing axis, in this fractious White House. Cohn had helped pass the Trump tax plan, which—judging by the election outcome in Pennsylvania’s Trump friendly, 18th congressional district—might not have been a legislative chart-topper.

For Mr. Cohn, it’s always been big business above all. But Trump’s promise to pass tariffs, the kind Mitt Romney proposed in 2012, and George Bush passed in 2002—Cohn would not tolerate because, as big media keeps mouthing, “he’s a free-trade guy.”

Though it’s true that Cohn’s successor, TV economist Larry Kudlow, similarly bills himself “a free-trade guy”; untrue is the idea that the US, or any country, for that matter, practices the ideal of free trade.

Free trade is an unknown ideal. What goes for “free trade,” rather, is trade managed by bureaucratic juggernauts—national and international—central planners concerned with regulating, not freeing, trade; whose goal it is to harmonize labor, health, and environmental laws throughout the developed world. The undeveloped and developing worlds generally exploit and pollute as they please.

One of the promises Candidate Trump had made and hasn’t yet violated was to simply make these statist organs and trade agreements work for the American people. To wit, the president believes in reducing trade deficits.

Far be it from me to endorse tariffs as a means of reducing trade deficits. I am only here questioning the totemic attachment free-traders have to trade deficits, given that Americans live under conditions of systemic debt and state-managed trade that is anything but free.

If free trade is an unknown ideal, it is quite appropriate to question the alleged glories of an aggregate, negative balance of trade, in this “rigged system,” as Trump would say.

As to systemic debt: Yes, libertarians ought to oppose tax increases, which is what tariffs are. We hold that voluntary exchanges are by definition advantageous to their participants. Trader Joe’s, my hair stylist and the GTI dealer—all have products or skills I want. Within this voluntary, mutually beneficial relationship, I give up an item I value less, for something I value more: a fee for the desired product or service. My trading partners, whose valuations are in complementary opposition to mine, reciprocate in kind.

Ceteris paribus (all other things being equal), there’s nothing wrong with my running a trade deficit with Trader Joe’s, my hair stylist or my GTI dealer, as I do—just as long as I pay for my purchases.

And there’s the rub: The data demonstrate that we Americans, in general, are not paying for our purchases.Americans, reports Fortune.com, actually have more debt relative to income earned than Greeks. “Indebted U.S. households carry an average credit card balance of $15,706, according to NerdWallet. Corporate America is likewise heavily leveraged.

The Federal government is the definition of debt. The U.S. national debt is over $20 trillion without federal unfunded liabilities. Those exceed $210 trillion, by Forbes’ 2017 estimate. Total public debt as a percent of Gross Domestic Product, announced the Federal Reserve Bank of St. Louis, is 104 percent.

Our improvident government’s debts, liabilities and unfunded promises exceed the collective net worth of its wastrel citizens. Given these historic trends, it seems silly to dismiss the yawning gap between U.S. exports and U.S. imports as an insignificant economic indicator.

Because of decades of credit-fueled, consumption-based living, the defining, current characteristic of our economy is debt—micro and macro; public and private. Unless one is coming from the pro-debt Keynesian perspective, is this not an economically combustive combination?

Non-stop consumption—enabled by government monetary and regulatory policies—has coincided with a transition from a manufacturing-based economy to a service-based one; and from an export- to an import-oriented economy. For some reason, this reality continues to excite the febrile imaginations of Beltway libertarians.

Libertarians at CATO, for instance, love that, historically, America’s annual trade deficit has been rising: “[t]rade deficits do not cost jobs. Rising trade deficits,” they say, “correlate with falling unemployment rates. Far from being a drag on economic growth, the U.S. economy has actually grown faster in years in which the trade deficit has been rising than in years in which the deficit has shrunk.”

Much to CATO’s delight (presumably), the U.S. Bureau of Economic Analysis announced, in 2017, that “the goods and services deficit was $53.1 billion in December, up $2.7 billion from $50.4 billion in November, revised. … Year-over-year, the average goods and services deficit increased $6.1 billion from the three months ending in December 2016.”

In arguing their point, trade-deficit deniers point out, correctly, that America ran trade surpluses during the Great Depression. But from the fact that the US had trade surpluses during some very bad times—it does not follow that the nation’s current trade deficit is inconsequential as economic indices go. It could just as well mean that the economic fundamentals today are worse than they were during the Great Depression; since this country has never before been as deeply and systemically in hock as it currently is.

Far from comprising discrete parts, the economy is ineluctably interconnected. The trade deficit belongs to a nation enmeshed in debt.

Contra the Keynesians who control the economy—and whose thinking many free-traders appear to be propping up intellectually, in their indifference to credit-fueled consumption—real wealth is created not by printing paper money and galvanizing the globe’s governments to buy our government’s bonds, but by the production and consumption of products.

Considering that an abundance of goods, not money income, is what makes for an increase in wealth; it’s not unreasonable to want to see a natural shift take place in the U.S., from an economy founded on consumption and credit to one rooted in savings, investment and production.

©2018 ILANA MERCER
Townhall.com, The Unz Review, WND.com,
The Ludwig von Mises Centre for Property & Freedom,
Constitution.com
March 15

Media conservatives and liberals were agreed. The Republican brand, as National Review’s Jonah Goldberg put it, had been damaged by the debt-ceiling standoff.

Chuckie Krauthammer, another phony conservative, concurred. After badmouthing tea-party Republicans for attempting to leverage a partial government shut-down and debt-ceiling deadline to dilute ObamaCare, Krauthammer scolded “the media” for its biased coverage of the quixotic showdown.

Pot. Kettle. Krauthammer.

No sooner had the Senate voted, on Wednesday Oct. 16, to unconditionally reopen the spending spigot—seconded in short succession by Congress and the president—than an unabashed Dana Bash, chief congressional correspondent for CNN, cornered Sen. Ted Cruz (R-Texas). Her angle, like every other media mouthpiece in the country, was the futility of the fight Cruz had spearheaded:

As you well know, you have a lot of fellow Republicans really downright angry at you because, here we are, almost three weeks later, the strategy that you started out on to defund Obamacare as part of funding the government. They never thought it was going to work because the votes aren’t there. And here we are, reopening the government after a lot of bruising political warfare internally, and you got nothing for it.

More a leading suggestion than a journalistic question, Bash’s crude calculus—that outcomes, rather than principle, should dictate the political action pursued—was what Americans had been force-fed by her ilk over the past two weeks.

Throughout the so-called shutdown (unnoticed by hardworking Americans), Americans were exposed, day in and day out, to asphyxiating agitprop. The Taliban-like tea party caucus, they were told, was criminally negligent for refusing to allow the government to keep borrowing. Damned they were as “aging, white bigots” for daring to demand changes to a despised law, at the expense of the temporary furlough of 800,000 non-essential oink-sector workers, whose salaries are, on average, double that of the average wage in the country, and whose hefty healthcare and bankrupting retirement benefits the rest of the country can only dream of, but must pay for.

What Cruz had to say throughout the ordeal was not what Americans—who get most of their news from cable television and the news networks—got to hear. Repeated ad nauseam by these noisy, Democratic sleeper cells were the results of polls that reflected a media-manufactured consensus: “Republicans continue to get more blame than the Obama administration for Washington’s fiscal policy stalemate.”

Is there any wonder that infantile America mirrors its squandering government with respect to debt carried? “Like father, like son” goes a saying about the similarities between the behavior of parent and progeny. Like their government, Americans are debt-addled (the “fore horse for oppression and despotism,” forewarned Founding Father Thomas Jefferson). The total household debt in the U.S. stands at $13 trillion; student loans at $3.04 trillion.

If the media were moral, they’d have told Americans these truths.

If the media were moral, they’d have told Americans that the perennial debt crises are manufactured crises. That the U.S. government’s receipts are more than sufficient to cover its debt payments by a factor of approximately 10.

That the 14th Amendment (Section 4) of the U.S. Constitution prohibits a default on the country’s debt. That if the country were to default on the debt, it would be because President Barack Obama deliberately and maliciously chose to flout the Constitution (it’s the law of the land, unlike Obamacare), and not service the debt, so as to win a political battle.

If the media were moral, they’d tell America that it’s do or die. That capping the debt ceiling is perhaps the only way to compel a government that owes $17 trillion and carries “$70 trillion in off-balance-sheet liabilities” to make do with the loot it collects.

That the stock-market’s “confidence,” pursuant to lifting the cap on the debt, amounts to faith in confidence men; that soaring stocks in a debt-fueled, stagnant economy is a consequence of the confetti of funny-money raining down from the nation’s pantheon: the Federal Reserve Bank.

That non-stop monetary stimulus is the road to ruin—it results in a rise in prices, stocks included. Homes too. And that an increase in the price of an item is not the same as an appreciation in its value.

That the natural laws of economics dictate that Obamacare will increase both public and private debt.

That members of the media-monetary-military-congressional complex are immoral and have an allergy to the truth.

And that’s the honest to goodness truth.

The government “not paying for all sorts of things” is how Tom Foreman messily defined a default on the debt-ceiling for the Chicken Littles of his news network. In one of many doom and gloom debt-ceiling segments for state broadcaster CNN, Foreman forewarned that a default on the country’s debt “would not be just about D.C., but it could be about YOU.”

In the same phillipic, Foreman carelessly conflated a debt default with a failure to raise the debt ceiling before its Oct. 17th deadline. But then President Pain has been setting the tone for the media, having accused Republicans, in his “Oct. 8 news conference on the shutdown and debt limit,” “of refusing to “meet our country’s commitments, pay our bills,” and of generally precipitating an “economic shutdown.”

The notion, however, that not raising the government’s credit limit must necessarily result in a default on the debt is untrue. The government takes in approximately $250 billion a month in revenue. Servicing the national debt costs about $30 billion a month. Three trillion dollars is what the federal government expects to loot in the fiscal year that began on Oct. 1, 2013 and will end on Sept. 30, 2014.

On reflection, the U.S. Treasury collects enough to pay down the interest on the debt as well as a portion of the principal.

Claiming that the president is powerless to prioritize won’t wash either. “There is no constitutional feature that says the president cannot allocate revenues,” David Stockman told Lou Dobbs. Paraphrased, the director of the Office of Management and Budget under President Ronald Reagan said this: Unless President Obama orders it, there will be no default on the government debt, because Obama has the power to prioritize and allocate the revenue coming in. Oct. 17 is a phony date, designed to intimidate Republicans—and anyone trying to stand against a massive increase in the “public debt.” The Beltway is silent about the ability of the president to honor the country’s debt, because of an opposition to entitlement reform.

Not to be outdone, the president has further asserted that “… raising the debt ceiling … does not add a dime to our debt.” (I confess to being impressed with this bit of logic, coming as it does from a man whose reasoning skills are hardly robust.)

Too true. “Technically, having the credit limit increased on a credit card does not force you to spend beyond your means and end up with a higher balance on the credit card,” averred Professor Jeffrey Dorfman of the University of Georgia. “However, it makes it much more likely.”

Increasing the credit limit on the deadbeat U.S. government’s credit card—it owes 17 trillion gigabucks and counting—guarantees more spending.

The distinction between the country’s “debt obligations” to bondholders and its “expenditures”—what Foreman called “all sorts of things”—seems to befuddle the president. Said Obama: “… we’ve got a lot of other obligations, not just people who pay Treasury bills. We’ve got … senior citizens who are counting on their Social Security check … We have veterans …farmers who are waiting for loans.”

And there are the promises made under the Medicare and Medicaid programs. But these are promises, not debts. Spending programs are not to be equated with debt.

David Henderson of the Library of Economics and Liberty’s EconLog made quick work of this fallacy: The president “is effectively saying that if the government wants to spend x and has only enough money to spend 0.67x, then not spending on the other 0.33x is a failure to keep an obligation. In a political sense, that might be: the government has made a lot of spending promises to a lot of people. But in an economic sense, it’s not.”

What this president has excoriated as a Republican demand for ransom is entirely reasonable. It is not a first for one party to use a government shut-down or the debt limit to get a policy concession, added the Cato Institute’s Chris Edwards during a Fox-Business broadcast. President Obama and the Democrats excluded Republicans from the Obamacare negotiations. The Patient Protection and Affordable Care Act got no Republican votes in both Houses. Unilateral decisions on Obamacare made by Obama have been the order of the day. Using the levers available to them to get changes in a rotten law is hardly unusual or unreasonable on the part of the Republicans.

How nice it would have been had Republicans stood firm; had they refused to raise the debt ceiling—and horrors!—forced the government to balance its budget. Alas, they’ve already been shoehorned into “exploring … a short-term increase in [said] ceiling.” The forces arrayed against the GOP are formidable. There are just too many Americans grubbing for free stuff and a preponderance of Republicans eager to parcel it out in exchange for power.

Considering the U.S. government’s set-in stone spending, the real phony construct is the debt-ceiling itself. In the words of economist and philosopher Anthony de Jasay, placing a ceiling on the federal debt is “a measure whose only effect is to oblige the Congress to raise the debt ceiling every time the rising debt catches up with it.”

The following is the conclusion of my conversation with Benn Steil. (Read part 1.) Dr. Steil is senior fellow and director of international economics at the Council on Foreign Relations. His latest book is “The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order.”

ILANA MERCER: After reading a negative review of your book in The Times Literary Supplement,I decided to go cold turkey on what had been a guilty pleasure for over a decade. I did not renew my TLS subscription. The TLS had stupidly assigned the review to one Eric Rauchway, a left-coast history teacher. Rauchway would not let an argument favorable to the gold standard—yours—stand. Your case against the Bretton Woods system of “managed currencies” he turned on its head. Rauchway credited Harry Dexter White, one of Bretton Woods’ architects, with helping to lift the “cross of gold” from the shoulders of the world’s working classes. Since White was also a Soviet spy, Rauchway quickly concluded that the Soviets saved capitalism (an “unknown ideal” for a very long time). Sound money is suspect, but a Soviet spy is capitalism’s savior. How do you unpack that!?

BENN STEIL: You can’t get blood from a stone, and you can’t get logic from Rauchway’s review, just gobs of nonsense and libel (as I documented on on my blog). The review’s title, “How the Soviets saved capitalism,” is so inane that the only explanation for it is that Rauchway, or his TLS editors, fell in love with the sheer childish cheekiness of it. It certainly bears no relation to Rauchway’s account of Bretton Woods, nor that of anyone who can actually claim to know anything about it. Rauchway would no doubt mock the economist who wrote the following of the 19th century classical gold standard: “[t]he various currencies, which were all maintained on a stable basis in relation to gold and to one another, facilitated the easy flow of capital and of trade to an extent the full value of which we only realize now, when we are deprived of its advantages.” Unless, that is, Rauchway knew who it was – none other than J. M. Keynes.

MERCER: We can both agree that John Maynard Keynes’ opposition to WWI and his “bitterness over the terms of the peace” were admirable. Priceless too was Keynes’ description of President Woodrow Wilson as “slow-minded and bewildered”; a “blind and deaf Don Quixote.” (pages 70-71) On the other hand, also quite admirable was the following unflattering description of Keynes’ “General Theory of Employment, Interest and Money.” It comes courtesy of our author: “It is only slightly outlandish to liken the book to the Bible: powerful in its message, full of memorable, mellifluous passages; at times obscure, tedious, tendentious, and contradictory; a work of passion driven by intuition, with tenuous logic and observation offered as placeholders until disciples could be summoned to supply the proofs.” (page 88) Have Keynes’ disciples really delivered? It would appear that the Keynesian faithful have foisted on free-market capitalists an unfalsifiable theory. Evidence that contradicts it, Keynesian kooks enlist as evidence for the correctness of their theory.

STEIL: Yes, if the economy sinks, then Paul Krugman was right about the need for massive stimulus; if it recovers in the face of plunging deficits, from spending cuts and tax increases, then Krugman was right that deficits were not a problem. Heads he wins, tails you lose.

MERCER: Keynes assessed Karl Marx’s “economic value” as “nil… apart from occasional flashes of insight.” (page 87) I would venture that in the United States, Marxism has been far less destructive to free-market capitalism than Keynesianism. Marxists honestly wish for capitalism’s demise and say as much. We can fight such an enemy. Conversely, Keynesians have redefined capitalism and banished our definition therefrom. The Keynesians then proceeded to cripple capitalism so as to ostensibly save it. Positively Orwellian.

STEIL: Keynes said that “if economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.” Yet Keynes’s “General Theory of Employment, Interest and Money” had the effect of elevating economists to the status of technocratic wizards, even saviors. At Bretton Woods, Keynes also quite literally created the persona of the celebrity economist. Today, we are used to economists like Paul Krugman and Nouriel Roubini jetting around the world with eager journalists waiting on their every pronouncement. They owe it all to Keynes.

MERCER: A busybody. A planner. A Keynesian before his time. That is the impression I got of Harry Dexter White from your penetrating study. Not even from the unpublished handwritten essay you unearthed did I get the impression that White, who spied for the USSR, was a communist ideologue. Something occurred to me as I listened to the founder of PayPal—a patriotic, productive American who professes libertarianism—tout the merits of income distribution and progressive taxation to broadcaster Charlie Rose. Mr. PayPal sounded far more socialist than White, who, to go by your nuanced portrayal, was a “tinkerer, an engineer.” (page 20) Indeed, in his statement before the House Un-American Activities Committee, White better expressed the American Creed than most Republicans could today. All this was most revealing. It told me that even those who profess a love of freedom nowadays are less familiar intellectually with the American Creed than were freedom’s enemies during Bretton Woods.

STEIL: In terms of the economics White advocated for, he was boringly Keynesian. Yet, as that essay you mention illustrates, he believed passionately that the bold Soviet experiment with socialist economics was a success, and that the world would be moving in the direction of greater state control of industry and trade after WWII. He was also – which was not unusual in FDR’s Treasury – dangerously naïve about Soviet geopolitical ambitions and intentions towards the United States.

MERCER: How the mighty have fallen. The US, post WWII, was a creditor country that ran trade surpluses and rejected the demands of the Keynes camp that surplus countries be forced to reduce their surplus positions. (page 338) Libertarians generally dismiss the gap between U.S. exports and imports as an insignificant economic indicator. To me that sounds … Keynesian. Yes, I run a trade deficit with Costco, my hair stylist, or my GTI dealer. But I pay for my purchases. The data demonstrate that, in general, Americans circa 2013 don’t. What’s your verdict about America’s aggregate, negative balance of trade?

STEIL: I explain in the book’s epilogue why persistent American current account deficits were an inevitable feature of a U.S.-dollar based international monetary system, and why those deficits had, ultimately, to spell the demise for Harry White’s system – as it did in 1971, when President Nixon closed the gold window. Ending the dollar’s convertibility into gold should have, according to White’s thinking, which I explain at length in the book, ended the dollar’s global monetary role and precipitated economic chaos. Yet the globe limps on, on its fiat-dollar crutch, periodic financial crises notwithstanding.

MERCER: The US, a world superpower, is not the only country that has fallen from grace since Bretton Woods. South Africa, the superpower of Africa, is mentioned in “The Battle” as “the preeminent gold-mining nation.” (page 165) Prime Minister Jan Smuts was something of a power player on the international stage. Other than in Africa and in Hollywood, the South Africa of Mandela, Mbeki and Zuma—exposed in “Into the Cannibal’s Pot: Lessons for America from Post-Apartheid South Africa” —doesn’t count economically ever since the Anglo-American axis “delivered” that country from the likes of Smuts. Your book is replete with accounts of US hypocrisy. Any thoughts about my former homeland, South Africa?

STEIL: You’re taking me out of my depths, as I’ve only been to South Africa once in my life. But I would say this: one reason why I believe New York City has become so much more livable, even civil, since the Giuliani-Bloomberg era began is that tribal politics has died down immeasurably. I pray that the next mayor will be wise enough not to take us back to the bad old days of playing one group off against another for political gain. New Yorkers should be New Yorkers. Period.

MERCER: The American press’s commentary throughout the battle of Bretton Woods is quite a shock to the system for what it reveals about the same press’s prevailing intellectual bankruptcy, in 2013. Back then, the New York Times was scathing about “the British financial expert’s” advocacy of “deficit financing and cheap money.” Other major media had mocked the worthless “product of the printing press.” The same sources lambasted “currency devaluation and credit expansion,” and warned against helping a debtor nation (Britain) at the expense of US solvency? (page 166) Have at it.

STEIL: The famed Henry Hazlitt, a 19th-century style classical liberal, was from 1934 to 1946 the New York Times’ principal editorial writer on economics; he wrote a weekly column along with many of the unsigned economics editorials. This almost certainly explains the Times’ hostile position on Bretton Woods. It also seems fair to say that a Hazlitt could never reprise such a role at the Times today.

The following is the first part of my conversation with Benn Steil. Dr. Steil is senior fellow and director of international economics at the Council on Foreign Relations. His latest book is “The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order.”

ILANA MERCER: Congratulations on a beautifully written book, so carefully researched, with both archival and secondary material. Followers of the Austrian School of economics, as I believe we both are, have a reflexive disdain for John Maynard Keynes. Nevertheless, the portrait you drew of him was powerful and persuasive. For example, it is easy to sympathize with Keynes’ frustration with the American mind—so prosaic and anti-intellectual—during the critical Bretton-Woods negotiations. There is much to admire too about Keynes’ “unrelenting nationalism.” I had never before thought of Keynes as an English patriot, first. You, a Hayekian thinker, managed to humanize J. M. Keynes. How did that happen?

BENN STEIL: Thanks Ilana. I’m a great admirer of Hayek’s writing, as you know, but I’ve never been one to wear the Austrian (or any other) label. More importantly, “The Battle of Bretton Woods” is in large measure a parallel biography of Keynes and Harry Dexter White, and no biographer succeeds in engaging readers of any stripe without empathy towards his subjects. In the case of Keynes, I may not sympathize with his economics in the way that his greatest biographer, Robert Skidelsky, does, but I found it not in the least bit difficult to admire him as a gifted public intellectual and to warm to him as a human being, with all his obvious flaws and foibles. One aspect of Keynes that I tried to bring out is how fundamental his English upbringing and nationalism were to shaping both his economic and political thinking. He was a defective diplomat, no doubt, but he took to the role with ease and enthusiasm.

MERCER: My mistake. You were awarded the 2010 Hayek Book Prize, so I presumed you favored Austrian economics. But back to Keynes. As you reveal, he “never bothered with a [doctorate]; he hadn’t even a degree in economics,” and “he formally studied economics for a brief period” only. (page 61) His election to “a life fellowship at Kings College, Cambridge, at twenty-six” seemed to rely on familial membership in Britain’s intellectual peerage. Yet, as you contend, he amalgamated the qualities of “mathematician, historian, statesman, philosopher” “with a genius that no economist has ever matched.” (page 62) Guide the perplexed, please.

STEIL: It’s important to understand that in Keynes’s day, and particularly in the “Oxbridge” environment in which he was schooled, it was not abnormal to become an economics “don” without a Ph.D. Also, there was and still is a powerful element of “nature over nurture” in Oxbridge thinking about a person’s capacity, and the combination of Keynes’s natural polymorphic intelligence and lineage (his father was a Cambridge economist) no doubt influenced his tutor and patron, the great economist Alfred Marshall. Hayek was critical of what he felt was Keynes’s lack of knowledge of important elements of classical economics, which was – in Hayek’s view – partly due to the fact that Keynes did not read German, which was still an important language for economics theorizing in the late 19th century.

MERCER: By extension, I didn’t see in “The Battle of Bretton Woods” evidence for Keynes’ asserted brilliance. Clearly, John Maynard Keynes possessed an “effortless facility with words.” There were, moreover, a few wonderfully enjoyable quips that showed Keynes to be likeably bourgeoisie. Those of us on the Old Right can identify with what you call Keynes’ “Burkean conservatism.” Namely, his view that “society should never be forced to bend itself to abstract economic principles.” But public works, economic protectionism, cheap money, “deficit-financed government spending,” and “the animal spirits of the spendthrift in the service of boosting “consumption demand”: Where’s the genius in these? Doesn’t Keynesianism simply appeal to the worst in human nature?

STEIL: Keynes, I should emphasize, was not a redistributionist. He wrote, for example, that “the immense accumulations of fixed capital which, to the great benefits of mankind, were built up during the half century before the [first world] war, could never have come about in a Society where wealth was divided equally.” Keynes’s aim was to save capitalism, which we must understand was under great intellectual assault after WWI and the Russian revolution, and particularly during the Great Depression.

MERCER: Twice do you compare Keynes to Albert Einstein, writing that Keynes had “assaulted the intellectual orthodoxy of the economics profession the way Einstein had done with physics two decades earlier.” (pages 3, 89) However, for good or ill, Einstein unearthed laws of nature. Keynes’ theories perverted the natural laws of economics, did they not?

STEIL: I argue in the book that Keynes was transparently mimicking Einstein, whom he greatly admired, in titling his opus magnum “The General Theory” (of Employment, Interest and Money) – as in “The General Theory” of Relativity. Here’s the crux of the problem you touch on (somewhat brutally, in your second batch of questions) – Einstein’s induced laws of physics were falsifiable, whereas Keynes’s laws of economics were not. This is why economists can argue with such passion about the same phenomena decade after decade without the matters ever getting “settled.” I explain in my book economist Jacques Rueff’s critique of Keynes’s critical concept of “liquidity preference,” which underlies the whole intellectual structure of “The General Theory” as a universal theory. It matters who is right – if Keynes is right, then a depression can literally go on forever unless government steps in to substitute for fallen aggregate demand, whereas if Rueff is right, and depressions are manifestations of remediable policy failures (say, inappropriate monetary policy) or institutional blockages, then massive Keynesian fiscal interventions will cause new problems.

MERCER: You omitted another option derived deductively: the Austrian Business Cycle theory of Mises and Hayek, which is most assuredly correct. In any event, let us return to the character of Keynes. In your book you remark that, “What is striking is that Keynes did not support his position with economic theory. It was purely a matter of political viability.” (page 83) In 1917, British Prime Minister David Lloyd George captured the essence of Maynard’s “mercurial” mind, referring to him as an impulsive man who “dashed at conclusions with acrobatic ease,” and “rushed into opposite conclusions with the same agility.” (page 70) Again: Where’s the genius?

STEIL: Well, regarding the first quote you do cut out the middle of the sentence, which said “at this point in time.” The context was 1931, when, as I explain, Keynes’s stimulus ideas were a political nonstarter. So, he publicly backed import tariffs as, what he considered, a second-best policy alternative to revive the British economy in the face of internationally uncompetitive but sticky wages. Keynes, as a scholar, pundit, and government adviser, did dash back and forth during his career between positions he believed were fundamentally right and those he believed were better than the most likely alternative policy stance. As for Lloyd George’s comments, they are spot on. Despite fundamental shifts and reversals through time in Keynes’s thinking on matters such as the virtues of free trade and price and currency stability, his writing sustained one supreme constant: biting disdain toward those who remained wedded to either old heresies, as he saw them, or old orthodoxies. If consistency were a mark of genius, then Keynes was surely not one. But he was right about much in his career – important stuff, like deriving the grave economic and political consequences of British war debts, or of the Versailles treaty – and, when he was wrong, he was typically wrong with sparkling flair.

By now, Americans with a modicum of cerebral alacrity have a sense of the attitude among Washington State Democrats toward the immutable right of the people to keep their earnings. You all witnessed the despicable Jim McDermott’s intimidating verbal assaults, leveled at conservative property owners, during the House committee hearing on the den of iniquity and vice that is the Internal Revenue Service. For what is the seeking of “tax-exempt status” if not a plea, directed at our overlords who art in D.C., to keep more of what is rightfully ours?

What Edmund Burke said about the House of Commons in his day applies in spades to a House packed with the likes of Rep. Jim McDermott, D-Wash. “Designed as a control for the people,” the House has become a control “upon the people.”

And the trend extends to local governments, gone from which are the old-fashioned county governors, once devoted to low taxes and careful spending.

Here goes.

While trying to be neighborly, I made the mistake of being less than reverential about my property taxes in “The Evergreen State,” and in particular, the 51.4 percent appropriated for “State and Local Schools.” I was informed in high decibels that my husband and I, hardworking both, ought to thank our lucky stars for this valuable index—thousands paid per year toward “State and Local Schools”—for without it we’d be clueless about … the value of our home. (If anything, taxes distort market prices. But more about the curious fallacy of the benevolent property tax as a price signal in the housing market, in a follow-up column.)

Yes, siree. The bad tempered diatribe then swerved to the plight of local law enforcement, who, my interlocutor alleged, were powerless to police a squatter camp in the North Bend vicinity, for lack of resources. Some believe that twice did a man from this homeless encampment invade a homestead in the community.

We fork over thousands in property taxes per annum, yet, as was being asserted, the police were without the necessary funds to fulfill the State’s only constitutional duty: protecting the people. Naturally, where the State fails to carry out its sacred duty, as is almost always the case, The Tenth Amendment to the United States Constitution instantiates the individual’s natural right to do exactly what the heroic homeowners did to safeguard life and property: hasten the intruder’s descent into hell.

Commensurate with the value this Washington-State locality places on limited authority and republican virtues—none at all—law enforcement is not even itemized in the property tax bill issued.

The truth is that the lion’s share of our property taxes goes toward the ever-rising cost of pension and health-care for state employees and retirees. In this case, the teachers union locals. Government workers, moreover, are covered by rigid, “prevailing wage” legislation. This precludes the necessary flexibility in wage structure, so essential during an economic downturn.

According to Manhattan Institute scholar Steven Malanga, writing at RealClearMarkets, “public sector unions … have become the chief lobbyists for higher taxes and more government spending in America.” Malanga underscores that “public-sector unions especially have become the nation’s most aggressive advocates for higher taxes and spending. They sponsor tax-raising ballot initiatives and pay for advertising and lobbying campaigns to pressure politicians into voting for them. And they mount multimillion dollar campaigns to defeat efforts by governors and taxpayer groups to roll back taxes.”

“In Washington State,” notes Malanga, in a 2005 City Journal essay, “the powerful teachers’ union led a successful 2000 effort to win legislation mandating smaller class sizes, promising that it would cost taxpayers nothing, because surplus revenues could cover the program. This year, the cash-strapped state passed $500 million in new taxes to finance the mandate.”

In a Chronicles Magazine article titled “Memories of a Reporter,” professor Clyde Wilson, that great scholar of the South, described how the coming of the Great Society saw city and county governments across the country “blossoming into large bureaucracies under federal bribes and mandates.” In the process, “prudent and venerable crime-prevention methods” were destroyed.

In place of the old-fashioned, frugal, county governor came the “carpetbagger women” and their liberal, lick-spittle men. These sorts festoon most of the (televised) state and municipal meetings I’ve watched. Their pet projects have nothing to do with the small-government values aforementioned, and everything to do with shaping the locality in politically pleasing ways.

Law enforcement? Forget about it. Invariably do the wish lists of our enlightened technocrats run the gamut of more mobile libraries, free healthcare clinics, multicultural and youth outreach centers, and public recreational facilities.

As to the last, for the past year I’ve watched a typically lazy crew of government contractors take seven months longer than promised to complete a make-work scheme on a popular trail, from which all users were barred for the duration. I drove past the sorry sight every other day—en route to my new running grounds—and watched as these “workers” loitered about in packs, laughing and gesticulating at their idiot-pads for hours-on-end.

Fridays were often half-days or holidays. Rainy days meant days off. During the same time, a magnificent private development rose across the road from this government job-creation project. That high-end splendor took perhaps six months to complete, compared to the 1 year taken by the trailblazers of King County, Wash. This was A Tale of Two Sides of the City: Displayed on the one side of the byway were the miracles of private property; on the other the profligacy of the oink sector, bankrolled as it is in perpetuity by taxpayers, and subject only to the perverse and inverse incentives of the Bureaucracy.

The hideous make-work scheme, funded in part by the Federal Highway Administration, involved tarring a quaint, perfectly lovely trail (and, indubitably, destroying bird habitat). This wasteful monstrosity is fenced in like a prison and paved over like a highway.

In any event, contrary to my interlocutor’s baseless assertions, the alleged lack of funding for police in a rich tax base that pays through the proverbial nose in property taxes is, of course, a result of the perennial and inescapable misallocation of funds in centrally-managed, politically driven systems.

“No statist lies are safe from his scrutiny,” writes Lew Rockwell about economist Thomas J. DiLorenzo’s latest book. What follows is my conversation with professor DiLorenzo about, “Organized Crime: The Unvarnished Truth About Government,” and the timeless economic truths to which it speaks.

1. ILANA MERCER: A microscopic decrease in the increase in government spending has sent our overlords in DC into apoplexy. A cut in oink-sector spending, they’re claiming, will destroy the chances of an economic recovery. It is the exact opposite. You point this out in the chapter on “The Myth of Government Job Creation”: “Government spending increases unemployment because it crowds out so much private sector job creation” (p. 202). Explain with reference to the zero-sum nature of government spending—the cost of a government job, and Bastiat’s “What-Is-Seen-and-What-Is-Not-Seen” principle.

TOM DILORENZO: Every dollar that the government spends is a dollar that is not spent (or saved) by individuals, families, businesses, and entrepreneurs. Therefore, whenever government grows, private enterprise – the sole source of real job creation – shrinks and unemployment there rises. Each government job destroys several genuine, private sector jobs because of all the bureaucracy and red tape. For example, government may spend $200,000 to give one person a $30,000/year job. And government “jobs” are usually involved in doing something that no one but a few politicians ever voiced a preference for. Private sector jobs, by contrast, cannot survive unless they are part of an enterprise that succeeds in satisfying genuine consumer wants. By contrast, Keynesians like Paul Krugman would have us believe that prosperity is created whenever government takes money out of our bank accounts (with the threat of forcing us to live in a cage for years if we do not pay) and letting government bureaucrats squander the money instead. Part of the Keynesian mantra is that such spending could and should be on “anything” – it doesn’t matter, as long as it is government that is doing the spending. The biggest year of private sector economic growth in American economic history was 1946 when the nation was in the middle of a two-thirds reduction in federal government spending as the military was demobilized from World War II. This proves that the Keyensians were always dead wrong, but of course they and their political patrons ignore this reality.

2. MERCER: You quip: “In Washingtonese, if one proposes a $100 billion spending increase, and actual spending increases by ‘only’ $90 billion, they call it a $10 billion budget cut.” We’re in the grip of exactly this kind of a paradox. How is the “Washington Monument Syndrome” playing out in its “sequesteria” version?

DILORENZO: The “Washington Monument Syndrome” is an old bureaucratic trick that is so named because the head of the National Park Service closed down the Washington Monument – the most popular tourist attraction in Washington, D.C. – in the 1960s after Congress refused to fully fund his pie-in-the-sky spending wish list. Tourists from every state, on their annual vacations, called their congressmen to complain, forcing them to give the Park Service bureaucrat all the money he wanted. State and local governments routinely use this sleazy gimmick by immediately threatening to shut down police protection, garbage collection, ambulance service, school buses, and whatever else would impose the maximum pain on the public whenever there is talk of fiscal responsibility. The Obama administration has taken this to buffoonish extremes by threatening to close down airports, etc., were government spending to increase by about one percentage point less than they wish over the next ten years. No one in Washington has proposed cutting a single cent out of the federal budget despite the fact that the surest route to economic recovery would be to chop federal spending in half, and then in half again next year.

3. MERCER: Like tax havens, tax loopholes are ethical and efficient. Your point about efficiencies is especially good: “The time spent by citizens trying to legally avoid taxes is in fact a good investment of their time.” Decode the Orwellian Doublespeak of phrases like, “simplifying the tax laws ” and “revenue neutrality.”

DILORENZO: Politicians and statist economists intentionally confuse the public when they refer to proposed tax increases as “tax reform” and to tax cuts as “wasteful” or “unnecessarily complicated.” I have long agreed with Milton Friedman’s dictum that the cause of freedom and prosperity is always served by any tax cut, of any kind, at any time. One has to realize that the purpose of government is for those who run it to plunder those who do not. Depriving political parasites of revenue is always and everywhere a good idea. The rhetoric of “revenue neutrality” really means that under no circumstances should government – unlike everyone else in society – ever, ever spend a penny less next year than this year. Any tax reform should therefore never, ever, end up putting more money in the pockets of the public at the expense of the political parasite class.

4. MERCER: Expect the “compassion of the IRS and the efficiency of the post office” from Obama’s health care plan, you forewarn. But as Obama’s army of harpies at CNN would argue, his politburo of proctologists has involved itself in the insurance industry merely to enhance markets. Or, to “bring down costs.” Dispense with this idiotic notion.

DILORENZO: Government intervention always causes costs to rise and quality to decline. This has always been true; it has especially been true in the field of health care in places like Canada and Great Britain where healthcare was nationalized long ago. There is no reason to believe that the socialists in the Obama administration are better at socialism than were the Soviets, the Eastern Europeans, the Chinese, the Cuban government, or anyone else. The absence of a market feedback mechanism based on profits and losses guarantees government failure. Public choice economists refer to a “bureaucratic rule of two” with regard to governmental provision of any type of service, based on hundreds of empirical articles that show that, on average, a government takeover of any function will double the per-unit cost of providing the product or service.

5. MERCER: You write: “At the heart of the U.S. government’s continued takeover of the health care sector of the economy was a law passed during the Obama administration that would eventually drive the private health insurance industry out of business and transform it into a de facto nationalized industry.” Elaborate. Since, as you repeatedly warn, the natural laws of economics cannot be repealed, what will these health care exchanges achieve? How will they invariably be funded? What will be the cost to business? To the millions who’re losing coverage? Who will ultimately fork out for the per-head fee imposed on medical plans?

DILORENZO: The Obama version of health-care socialism forces insurance companies to cover people with expensive diseases without charging them higher rates to compensate for the additional risk. This effectively will force the insurance companies to pay out billions in health care costs, and then the Obammunists will impose price controls on the industry because that’s what socialists always do once they intervene in a market by forcing businesses to offer something for nothing, thereby driving demand through the roof. The price controls will cause massive bankruptcy, at which point the argument will be made that what is needed is “single-payer healthcare,” a euphemism for health-care socialism or government-run monopoly. In the meantime, they seem to be imposing hundreds of relatively small, hidden taxes to come up with the revenue to keep the scheme going.

6. MERCER: “The Obamacare Survival Guide” is a best-seller on Amazon. The market is producing survivalist literature to help Americans navigate the treacherous shoals of this law. What does it tell you? Like me, you must know plenty of Obama-heads (doctors too) who shrugged off the idea that further centralizing health care—a modest healthcare expansion totaling $2 trillion, I believe—would cost them anything at all. As The Lancet recently confirmed, in the UK’s National Health Service funding is inversely related to patient outcomes. You speak of “inputs” and “outputs.”

DILORENZO: I cited a study by the late Milton Friedman entitled “Inputs and Outputs in Medical Care,” published by the Hoover Institution some twenty years ago. In it the Nobel laureate economist showed that, historically, as government became more and more involved in health care by taking over hospitals and funding Medicare and Medicaid, inputs – in terms of money spent – skyrocketed while “output” in terms of patients served declined. He spoke of something called “Gammon’s Law,” named after a British physician named Max Gammon, who noticed that with healthcare socialism in England, increased “inputs” in the form of massive amounts of money spent always seemed to disappear “as though through a black hole” with little or nothing to show for it in terms of health care.

7. MERCER: You touch briefly on the “private component of GDP.” Free-market thinkers get that the private economy alone produces wealth. But no. GDP is a political construct, defined, tracked and manipulated by the D.C. political machine. Unpack the GDP gambit for us, down to its deceptive components.

DILORENZO: Including government spending in the definition of GDP was a creation of John Maynard Keynes, who defined it as C (Private Consumption) + I (Private Investment) + G (Government Purchases) + X-M (Net Exports). In so doing, Keynesians concluded that the most prosperous year in American economic history – 1946 – was actually a year of revival of the Great Depression with a precipitous drop in economic activity because of the huge decline in federal government spending after World War II. Of course, this was NOT a year of depression but an explosion of private investment, consumption, and job creation.

8. MERCER: About that elusive economic recovery: My colleague Vox Day (who sadly called it a day on WND) argued that, “The Great Depression 2.0 will be worse than its predecessor.” Day chalked that up to today’s unprecedented levels of debt, consumption and credit, private and public. It’s a hunch. But I think you’ll disagree.

DILORENZO: No one can predict something like this, especially since today’s economy is vastly different from the 1930s. Capital markets are much more sophisticated, for one thing, although government regulators by the thousands do their best to destroy them – and with them what’s left of American capitalism. Predictions like this always ignore the resilience of entrepreneurs. As the Austrian Business Cycle theory of Mises and Hayek contends, it is the boom period where all the damage is done in the form of “malinvestment” – in the latest bust this was mostly in real estate. During the recession or depression is when entrepreneurs are forced to become more efficient, more inventive, more creative – or else. This is how the Japanese recovered from something much worse than a depression – long years of war and the dropping of atomic bombs on their country – in a little over a decade.

Since the chicken-little metaphor is hackneyed, let us use the alleged lunacy of the lemming as a metaphor for the prattle that rises from the cattle that is America’s intelligentsia, in general, and on the fiscal cliff, in particular. “Alleged lunacy” because the idea that the adorable fury critter plunges periodically to its death, en masse, is a figment of another intellectual powerhouse: the think tank known as the Walt Disney Company.

From the late-night talk show hosts and their guests, to the daytime cable news comedians and their hangers-on: All are discussing the country’s impending and “horrifying” collective tumble down the thing called the “fiscal cliff.”

As the fiscal-cliff chant goes, the country is headed for an economic precipice due to a bundle of laws that will take effect at the bewitching hour of midnight, December 31, 2012. Only a compromise between our factioned overlords in DC, who enacted the law in the first place, will avert mass suicide.

Let us unpack this linguistic construct.

At least some of the noisy nomenclature refers to a package of spending cuts, “deep, automatic cuts,” by Barron’s telling, bundled in the Budget Control Act of 2011. About.com has counted “over 1,000 government programs – including the defense budget, Medicare,” and unemployment benefits (99 weeks’ worth), as slated for slashing, and concedes that the “deficit, as a percentage of GDP, would be cut.” “The federal budget deficit will be immediately cut in half, shrinking to approximately $641 billion in 2013 from the approximately $1.1 trillion in 2012,” estimates financier Peter Schiff.

I’m inclined to think of this “budget sequestration,” described by Wikipedia as “broad and shallow,” as no more than cuts to designated increases in spending.

However you slice it, why, pray tell, is this a bad thing? Even the country’s lying money mavens agree, on occasion, that cuts in state spending are good for the private, productive economy. Torture them on The Rack, and they will confess that unless US government spending is slashed, we run the risk of becoming Greece. (The truth is that the tipping point has been reached. We are Greece in denial.)

The country’s “wise” men have thus classified the government-cutting component of the fiscal free-fall as a catastrophe.

Let us continue to unpack this political portmanteau. The next component in the fiscal-cliff equation is private property seizures (tax hikes). Although the US government no longer pays for its obligations, it continues to borrow against the future earnings of its people. What is not borrowed or counterfeited by the Fed is confiscated from individual Americans.

Conveniently lost on the Republican quislings who are now weaseling out of their nominal commitment to refrain from additional theft of private property is the distinction between what is mine and what is thine: Taxes are private property plundered. The fiscal-cliff deal includes the expiration of a temporary reprieve previously granted to private property. The Bush tax cuts will sunset, as will the temporary payroll tax cuts and certain tax breaks for businesses. Also to take effect are taxes tied to President Obama’s health-care behemoth.

It is alleged that to fail to confiscate this private property is to add $3.18 trillion to the national debt. The notion, however, that one must “pay for tax cuts” is ridiculous—the government here (and everywhere) is the proverbial burglar promising to return stolen goods just as soon as its financial position has improved. If anything, tax cuts for high-income earners, who also pay for most of the plunder, are nothing short of a return of stolen goods.

Loot plundered from individuals will invariably vanish into the federal maw, where all funds are fungible and none are accounted for.

What should be obvious to the few who understand the natural laws of economics is that slashing government, however symbolically, is to be encouraged; the confiscation of private property to be vehemently opposed.

©2012 By ILANA MERCER
WND And RT
November 30