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Thursday, August 24, 2006

Supply side economics works

Roll back Keynesian nonsense and socialist economic management

by StFerdIII

Supply side economics is never taught in high school or university because it works. The educators and demagogues of socialism and determinism have never been too interested in facts and reality, preferring theory to practice. Demand side economics epitomized by the intellectual hubris of Keynes, posits that managing aggregate demand or consumer purchasing power through government programs will stimulate the economy and overcome capitalism’s so-called ‘structural defects’. Keynes was adamant that the wise seers of government could allocate resources, redistribute monies, and insulate consumers and thus voters, from the vagaries of ‘predatory capitalism’. The only thing illuminating about Keynes has been the utter nonsense that reality has made of his theorems. But in post modern sensitive states like Canada or Europistan Keynes’ ideas die a hard and slow death it appears and they are making life hard for supply-siders in the US.

If you want to place Keynes and demand side theorems in perspective just remember that in the preface to the 1936 German language edition of his magnum opus, 'General Theory', Keynes told his German readers that his theories were much more suited to a totalitarian state, like the one the Nazis had in place, than to a free market. This should acquaint people with Keynes’ view of the world – a view not driven by a quest for freedom or responsibility but for a state managed society composed of people much like himself – all-knowing seers of invincibility. That Keynes was wrong on every single major economic issue related to what causes inflation; the impact of the Gold Standard; the economic consequences of the 1919 Versailles peace treaty; and what caused the Great Depression is a commonplace never elaborated upon in the teaching professions. For instance Keynes blamed the Depression on insufficient aggregate consumer demand, when high tariffs, high taxes, curtailed money supply and high interest rates caused the stock markets to sell [as one would expect when trade and corporate profits are expected to contract] in 1929, and then two years later the general economy to enter a long period of contraction.

Neo-Keynesian economists, such as the influential Paul Krugman who writes for the New York Time, regularly use Keynes as part of the apologia for government intervention and socialism. Krugman for instance is adamant that the stability of the world economy mandates government micro-management of the micro-economy including the raising of monies to fund contra-cyclical make work projects and programs of income egalitarianism. He advocates in short a more extreme version of what afflicts Europe. A brief survey of prosperous economies; wealth creation and the factors that cause economic and social growth make a mockery of such simpleton ideas. Economies, societies and individuals function best and are able to help the poor and unfortunate more, in a competitive, open environment. Government management of economies leads to social and economic disasters like the implosion of Japan post 1990; Euro-sclerosis post 1965; and Sweden post 1975. While none of these areas of the world are as badly off as Africa or the failed states of South America, they are certainly functioning less effectively than North America and far below their potential.

Instead of teaching Keynesian nonsense and subscribing to the pro-Europistan view of ‘economic-man’, educators and politicians should be reading and disseminating the theories found in pre-Keynesian times. The greatest period of economic growth and innovation in human history was in late 19th century America. This epoch created more wealth and greater social benefits than any 50 year period ever recorded. The base principles of laissez faire capitalism were practiced and whilst trade was certainly subject to government interference, tariffing and corruption, it was far less expansive then what exists today. By stimulating supply through low tax rates, access to capital and stable money rates, and coupling competent monetary management with legal protection; codes of conduct and morality; competition and free trade agreements, a government will do more to stimulate poverty reduction, social service support and wealth creation than anything contemplated through Keynesian practices. A history of dynamic societies proves the above.

We all would be better off if we read the pre-Keynes period of economic reality and theory. For example in 1912, Ludwig von Mises's ‘Theory of Money and Credit’, was published. Among other things, Mises explained more coherently and correctly than Keynes did, why depressions occur and what should be done about them. In 1931 Mises's student F.A. Hayek published his ‘Prices and Production’ outlining and developing Mises's theory. Hayek then followed in 1941 with ‘The Pure Theory of Capital’. Hayek's contributions were rewarded with a Nobel Prize in economics in 1974. These two Austrian economists – part of the ‘Austrian’ school of economics – are front and center in the struggle between socialist control and freedom. One could do hardly do better than spend time rereading their facts, logic and analysis.

The modern day example of supply side economics indicates its power. Thanks to tax cuts on income and investments the US has experienced 5 years of 3.5 % GDP growth; full employment; a 20 % increase in economic size [while Europe has stagnated]; and rising disposable incomes. All of this while fighting two wars and spending huge amounts of money on security; disaster relief; buying votes of old people; and giving vast amounts of money to politically important groups, businesses and eco-interests. Without tax cuts the massive spending increase in the US would have triggered an economic contraction. Bush and the tearful, hug-prone 'compassionate conservatives' are only able to spend like drunken sailors thanks to supply side tax cuts and economic vitality created by a reasonably stable monetary environment. The repudiation of Keynes cannot be clearer. Yet the socialists, the smarmy politicians and swaggering arrogants, who claim technocratic leadership of society, will argue with moral smugness, that the caring compassion embedded in Keynesian socialism is a preferred model.

It is of course nonsense but the postmodern world has never felt comfortable with facts, reality or what really benefits the great unwashed mass. This is why Keynesianism is so hard to eradicate – society has been taken over by the screaming socialists and haughty postmodern elite. However, for society to progress and for freedom to take root, we need to divest ourselves from the incoherent theories of a man who had sympathy for the economic model implemented by the Nazis and roll back the state through supply side economics. There is no other choice.