The New York Times editorial page excoriated the European and Japanese governments–for not spending enough money. The newspaper is in near bankruptcy, yet it still advises governments to spend, spend, spend.
It is not enough to mock these editorials, given that it seems I might be piling onto yet another troubled company. The larger point is that our government, not to mention the mainstream of public intellectuals, is claiming that if it, as well as governments around the world, can spend enough, perhaps we can climb out of this recession.
If one believes that public intellectuals like Paul Krugman are beyond reproach, then there is nothing to read here. Should the U.S. government be able to print enough money and shove it out into the larger economy, then somehow that is supposed to magically lift the economy back into a state of prosperity, or at least preserve it until a recovery occurs.
It is time someone understood and told the truth. Actually, some people have been telling the truth, but many public intellectuals, not to mention newspaper editorialists and those who now hold power in Washington, have been telling a much different story: all it takes is a little more borrowing and spending. (Actually, they are saying that it takes a lot more borrowing and spending and that the printing press will work magic.) Unfortunately, people who tell the truth are neither in political power nor in control of the major editorial offices.
We have to remember that understanding the truth and power are not exactly synonymous. In fact, those who often have held power have not understood or told the truth, and that is what is happening today. Americans are being told that all it takes to make the economy recover is for the U.S. government to borrow trillions of dollars and direct it to be spent wherever the politicians wish.
It is intuitive to most people that we cannot spend our way to prosperity. For example, if I were to tell someone who was going through hard economic times that all it would take to pull them out of their troubles would be to obtain a few more credit cards and max out, they most likely would think I had lost my mind. Yet, we are told that governments somehow can spend profligately and create prosperity.
The reason that people seem to think governments can magically create prosperity is that governments have a legal monopoly on creating money. As I emphasized several weeks ago, the creation of new “money” by governments does not create wealth. Indeed, it does the opposite; it makes most people worse off than before the new money was created.
There is another reason that governments cannot spend a country into prosperity: an economy is not a perpetual motion machine that is driven by new money, despite what one might read on the New York Times editorial pages. Economies grow when entrepreneurs can take resources and create more goods than before. Period. They cannot grow any other way, and they certainly cannot grow when governments shower people with newly printed money. If that were the case, the countries like Zimbabwe, Bolivia, and Germany in 1923 would have been the richest countries in the world.
The U.S. economy will grow only when people begin to save money and entrepreneurs have the freedom to find new and improved ways to use resources. Unfortunately, the powers that be have decided otherwise, and we are going to have to learn some painful lessons–again.
