Progressive Intolerance

The Goal Is Freedom
Progressive Intolerance
Talking to themselves.
Sheldon Richman
Posted August 19, 2011

Television pundits increasingly express an attitude that is at once arrogant and ignorant: The people who oppose Keynesian economics -- specifically a massive increase in government deficit spending to create jobs and jumpstart the economy -- are the same kind of people who also believe that the earth is only several thousand years old (rather than 4.5 billion), that evolution is bunk, and that science is something to be feared on principle. MSNBC's Chris Matthews takes the strongest version of this position. To him even skepticism about catastrophic climate change is a sign of hostility to science, although a good number of scientists are skeptical.

It may not seem worth the time to expose the fallacies of cable television's talking heads, but since they are the source of what so many people "know" about public policy, the time is well spent.

TV hosts like Matthews of course are not authorities on economics, so when they judge Keynesianism as the only truly scientific economics, they mean two things: That is what a Keynesian taught them as undergraduates and that is what all their Keynesian friend-guests assure them is the case. Since they never invite a non-Keynesian economist on their shows to debate (Republican consultants don't count), they insulate themselves against all informed dissent from their faith. Considering this policy against head-to-head discussion, who's got the antiscientific attitude?


Simply Ignored

If someone doesn't fit their mold, he or she is ignored or vilified. I know many people who (like me) reject Keynesian economics (and are skeptical about catastrophic climate change) while embracing science. (Yet we realize that scientists have the same the foibles and temptations we all are prone to, such as confirmation bias and career ambitions.) But Matthews & Co. say there are no such people. The pundits can't even acknowledge good faith in their opponents.

This explains the intolerance shown those who refuse to agree that in a recession government spending is indispensable to raising aggregate demand and restoring economic growth. (Conservatives are not necessarily better. See my article on conservative Keynesians.)

If you point out that every dollar government spends, whether obtained through taxation or borrowing, is dollar removed from the private sector, the Keynesian pundit might agree but point out that business is not investing and consumers are not spending – so what's lost? The other night Matthews suggested that business may be sitting on its $2 trillion in cash in order to damage Obama's presidency. So to Keynes's animal spirits Matthews adds animosity to Obama in explaining why the economy is at a virtual standstill.

The pundits' blinders keep them from a broader perspective. Since all they know is the most vulgar rendition of Keynesian economics (Keynes wasn't quite as bad as the Keynesians, writes Mario Rizzo), they have no idea that two distinct factors prevent now economic growth. First, the boom (without which there's no bust) was created by monetary, housing, and financial policies that still exist. Government officials are trying to resurrect the housing industry, indicating that the ruling elite still does not realize that the industry's pre-bust condition was the artificial result of misguided interventions. Fed-depressed interest rates and easy-housing programs induced widespread malinvestment -- investments unjustified by real underlying conditions -- which have to be liquidated before economic growth can resume. Liquidation requires the costly but necessary adaption and transfer of resources and labor to purposes for which there is genuine demand. This correction cannot take place if political responses to the recession get in the way.


"Regime Uncertainty"

Second (as if that weren't enough), the government has created significant new uncertainties that chill the investment climate. (This is what Robert Higgs calls "regime uncertainty.") Obamacare and the Dodd-Frank law mandate the writing of hundreds of new rules governing employer-based health insurance and financial transactions. Why would anyone risk money in a new venture with so many yet-to-be-filled gaps in the regulatory environment? A government regulatory regime is bad enough; one that can change at any moment is far worse.

Finally, the pundits are blind to the fact that government can't create real jobs. Let's be clear what this means. It's not that government can't pay people to do things. It does that all the time! But in economic terms, a job is not merely exertion in return for a pay check. It's much more: activity that transforms resources from a less-valued form to a more-valued form in the eyes of consumers. For the sake of irony, I'll quote Karl Marx: "A thing cannot have value, if it is not a useful article. If it is not useful, then the labor it contains is also useless, does not count as labor and hence does not create value" (Capital, volume 1, emphasis added).

Keynesian pundits insist that a stimulus program to pay workers billions of dollars to repair schools, roads, and bridges would qualify as productive because people value those things. What's missed is that we live in a world of scarcity and tradeoffs, and that we always make choices at the margin. Repairing a school may sound good in a vacuum (Which school? How elaborate a repair?), but not so good when something more valuable must be given up in exchange.


Market Prices

We all make similar tradeoffs in the marketplace all the time, and we can do so intelligently because goods and services have prices. Prices enable each of us to engage in economic calculation, that is, to make rational tradeoffs aimed at obtaining higher values (subjectively appraised) in exchange for lower values.

But government-produced goods and services are not priced and sold in the market. Instead, government collects its revenues by threat of force, and politicians and bureaucrats dispose of them ostensibly in the interest of the people but more likely in the career interest of those same politicians and bureaucrats. Without prices and free exchange we cannot know if what government produces is worth the goods and services never produced. (We can say that the freedom lost is not worth the cost.) Putting the infrastructure into a marketplace void of privilege and subsidy would thus make economic sense.

The Keynesian pundits, then, are wrong on all counts. The government need not be the spender of last resort because 1) producers and consumers would spend just fine if it would get out of their way, and 2) the government can't be relied on to create, rather than destroy, value in its use of scarce resources.

http://www.thefreemanonline.org/uncategorized/progressive-intolerance/