Liberals' Plan to Stimulate Inflation
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Posted: 01/17/08
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Liberals' Plan to Stimulate Inflation
By Thomas E. Brewton
Liberals propose to follow the same game plan that gave us
stagflation in the 1970s.
As success with the military surge in Iraq increasingly belies their
claim that the war is already irretrievably lost, liberals have
changed the subject from Iraq to the economy and the rising
possibility of a recession. Liberal Republicans and Democrats, as
usual, prescribe Federal deficit spending and higher taxes on "the
rich."
That is the doctrine of Keynesian economics, which advocates consumer
spending as the exclusive highway to full employment and prosperity.
According to Keynes, consumer and business savings must be offset by
massively increased Federal spending. What the money is spent for
doesn't matter; just flood the market with money created by
bookkeeping entries at the Federal Reserve banks.
Keynesian economics failed to end the Depression. Its repetition, as
we saw in the bitter experience of Great Society stagflation in the
1970s, discouraged investment in projects of long term value and led
to speculations that promised high rates of return in the short-run.
For example, during the 1970s stagflation, is was only marginally
profitable to build rental apartments, because the rate of return on
those investments was far below the inflation rate. What occurred,
instead, was an unprecedented boom in hotel construction, because
room rates could be increased every day. By 1980, there was a
shortage of rental apartments and an oversupply of hotels.
In the real world, the only road to non-inflationary economic growth
is lower taxes, offset by reduced Federal spending, grounded on a
stable currency.
Non-inflationary economic growth is not a product of consumer
spending. It must be funded by business and consumer savings.
Consumers who save will not max out credit cards and add to
inflationary pressures. Businesses that save will make long-term
capital investment in higher productivity that enables increased
production of useful goods and services at lower cost. That higher
productivity makes possible higher wages and an improved standard of
living for everyone.
Federal deficit spending inevitably spurs inflation, which over time
wipes out the purchasing power of people's lifetime savings.
Increased deficit spending is the way to go if we want to eliminate
self-reliance and personal responsibility, while training people to
turn to government for all their needs. That, of course, is a
description of socialism.
Higher taxes reduce incentives to save, the only non-inflationary
source of funding to grow the economy. Increased production funded
by savings adds to consumer purchasing power when workers and
suppliers are paid, without inflating the money supply.
In contrast, higher welfare-state handouts create artificial demand
that merely raises prices, because of the time lag between the Fed's
out-of-thin-air addition to the money supply and increased
availability of goods and services. That, of course, is a
description of inflation.
Thomas E. Brewton is a staff writer for the New Media Alliance, Inc.
The New Media Alliance is a non-profit (501c3) national coalition of
writers, journalists and grass-roots media outlets.
His weblog is THE VIEW FROM 1776
http://www.thomasbrewton.com/
Email comments to viewfrom1776@thomasbrewton.com
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