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Deficits Matter

Wealth comes from production, not manipulation.

by James Leroy Wilson
September 30, 2004

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If there is one cultural problem in America, it is the attitude of otherwise intelligent people toward money - namely, Federal Reserve notes - our dollars. Most people, Repubican and Democrat, mainstream conservatives, neocons, and liberals all, believe that proper monetary and budget policy is the key to prosperity. America can grow wealthier not by what it produces, but by what it consumes.

At a gathering some weeks back, one person talked of being laid of having been laid off after working for a federal program. A sympathetic ear, blaming Bush's spending priorities, mentioned the money he now isn't earning is now not circulating in the economy, and the government is also losing his tax dollars.

Murray Rothhbard put the lie to this years ago. If a soldier is paid $10,000 and pays $1000 in taxes, he is a net tax consumer of $9000. This is common sense. One can debate the merits of the necessity of what my acquaintence did, but the simple fact is that the government consumes the productivity of the taxpayers of the private sector. The government consumes wealth, it doesn't produce it.

On the right, Dick Cheney, echoing Jack Kemp, said that the Reagan Administration's high deficits and robust economic growth proved that "deficits don't matter!" Conservatives then would point out that the economy under Clinton had less to do with the relativity budget hawkishness of Clinton and the Republican Congress (thanks to Ross Perot), but to the wise supervision of Alan Greenspan.

But what if the next Fed Chairman is unwise? The Volcker/Greenspan drive to keep inflation low misses the whole point. The catastrophe can be hidden to some degree in the short term, but in the long term foreign investors will recognize the increasing cheapness of the dollar and will stop lending to the USA and the American economy. The course for America's dollar is the course for Confederate money or that of many a once-affluent nation like Argentina.

When there are budget deficits, the solution is not to create more money out of thin air. Wealth is generated by mixing human labor with natural resources that produce something desireable for many human beings. The more access more humans have to these products, the wealthier we become. Wealth that can be found only in statistics, in the manipulation of currency, will over the long term be seen for what it is, the cheapening of the dollar, not the expansion of American wealth. Americans, through the combined evils of deficit financing and inflation, are transferring the costs of our consumption to future generations

It doesn't seem that anyone convinced of this could vote for either George W. Bush or John Kerry. But they will. Otherwise seasoned intellectuals and philosophers will do, too. Many skeptics of magic, miracles, and God will line themselves up to vote (probably for Kerry).

The allure, the illusion of The State, is that it takes credit for advances in our prosperity. It is the government policy, not the remaining productive capacity of individuals in spite of the government, that is to take credit whenever the economy booms. And, of course, it is the "greed" of corporate America whenever jobs are downsized or outsourced. The free market is never right; government is never wrong, and when government is wrong, that's because of selfish "special interests."

So we're left with absurdity within the American mind. Someone who disbelieves in natural miracles believes that government is capable of performing economic miracles. The doctrine that FDR faithfully guided us through the Depression, is believed whole-heartedly by those who would normally apply reason and wonder if not perhaps FDR's policies prolonged it. They will cite the substantial benefits of this or that government program, but not cite the overwhelming taxpayer and regulatory costs of those programs, which would demonstrate that we got little progress per dollar spent.

Where does wealth come from? The productive capacities of free individuals, or government planning? Reason indicates the former; the latter indicates a faith in government. And that is why I often accuse the State as not being "separate" from religion, but is a religion unto itself.

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