From Crush the Street, by Colin Bennett
In an article from Alasdair Macleod, he points out an interesting argument that many have pondered before. Why do state educated and paid-for economists get paid for something they are rarely right about? As an economics graduate and student of the field, I’ve pondered this question myself. It seems that the “group think” mentality may override the profession. Ivy League professors who were economists and central bankers now teach their classes the same Keynesian model. Keynesians are born and cycled through the global economic paradigm, leading us through the artificial world we now know. Government economists always look to blame the economic woes on the private sector. The private sector is always ahead of the state in terms of technology, corruption of money, and taxation.
State economists are trained to look at Gross Domestic Product (GDP) as the antipathy of how the economy is doing. In this narrow-minded approach, growth is confused with progress. Alasdair Macleod states, “Growth is the expansion of the balance sheet total, reflecting an increase in the amount of money spent in the economy between two dates. Progress, on the other hand, is the improvement in the living standards we get from more efficient production and technology.” In America and large parts of Europe, technology has evolved business production, ultimately raising the purchasing power for many goods. Even though the Atlanta Fed routinely downgrades its estimates for GDP and loans have fallen amongst financial institutions, we’ve still made progress. Brexit was a classic example of how the European Central Bank thought their GDP forecasts were accurate, and how did that turn out?
Neo-Keynesians believe in state intervention through large budget deficits in order to produce artificial aggregate demand greater than Say’s Law. Say’s Law states that in a world where we divide our labor, we produce to consume. The essence of this law is that if we are not able to produce so that we can consume, someone else must produce. Macleod states, “The role of money is to facilitate the exchange of production for consumption in both its forms, no more than that.” It follows, then, that a change in the quantity of money does not change this mechanism. Instead, it only creates distortions in aggregate demand and causes the reflation narrative to subside. Keynesians also believe that increased purchasing power over time is bad for the economy, as evidenced by central banks’ willingness to expand money and credit. By increasing money and credit, the official GDP statistic also increases, but so does debt. If central banks do not spend on aggregate demand, they direct where the funding is placed. State direction almost always leads to business redundancy and zombie businesses. Businesses lobby politicians, and the productive capital moves away from the competitive businesses to the state businesses. This changes the normal economy from where the consumer is king and the business is the servant to where the consumer is told what to buy.