April 15, 2009 The economy’s not dying. It’s just poorly<http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article6094001.ece> What will really harm our future wealth is a hyperactive state which takes on too much power Jamie Whyte
Those who favour “stimulating” the economy often employ a medical metaphor. The economy is a dying patient. Questions about the long-term effects of its treatment are irrelevant. All that matters now is keeping it alive. They are foolish to employ this metaphor. Economies cannot die. Even during the Great Depression of the 1930s the economy lived on. The gross domestic product of most industrial countries dropped by about 30 per cent. I am not sure how to translate that into the medical metaphor. Moving 30 per cent less? Losing 30 per cent of your body weight? Whatever: it is not the same as dying. So long as humans survive, we will have an economy. People will produce and consume food, shelter, clothes, entertainment and, with a little luck, much more besides. This means that stimulators draw exactly the wrong conclusion from the sick patient metaphor. We should be relatively unconcerned about the economy’s immediate future. We know it will survive. What matters is its long-term quality of life. Crippling a patient who would otherwise die may be worth it. But crippling an immortal patient who would otherwise have to endure a brief period of intense pain is not. Of course, each of us individuals will die, and some of us pretty soon. A 70-year-old may see little reason to sacrifice the next five years for the sake of long-term benefits. But not everyone is old. On the contrary, most people are so young that they are not even alive yet. Though we may care about them less than we care about ourselves, the billions of people who are members of “future generations” are no less important than we are, and much more numerous. So, despite near universal agreement that governments must do “whatever it takes” to avoid a severe recession, this is an absurd idea. Perhaps even a wicked idea. The important question about the kind of actions most governments are now taking – “bailing out” failed companies and massively increasing government spending – is what their long-term effects will be. Those few commentators who worry about long-term effects tend to focus on the debt burden created by stimulus packages. But this is a trivial and short(ish)-term issue. If there is no structural damage to the economy, servicing these debts will be reasonably easy. A stimulus package would simply transfer wealth from the nation’s future citizens to its present citizens. And that does not constitute a net loss to the population. Indeed, if the stimulators are right about the effects of their proposals on long-term GDP, even future citizens who bear the debt burden might be grateful for the transfer. Better to be rich with big but manageable debts than to be poor. These future citizens would be like people who had borrowed to get a medical degree. The serious question about stimulus packages concerns not the short-term accountancy, not the details of jobs today and debt tomorrow, but the structural effects on economies. Are stimulus packages really like borrowing to get a medical degree or are they more like taking brain-damaging drugs to eliminate an acute headache? The immediate structural effect of the bailouts, “green” subsidies and public works programmes that constitute the bulk of the “stimulus” will be to increase government’s role in the economy: specifically, in allocating resources to their various possible uses. Western governments already play a huge role in resource allocation – to education, healthcare, retirement savings and an almost unimaginable range of other things, including hand rails (health and safety regulations), chat shows (“public service” broadcasting) and ornamental urinals (arts funding). Now they are extending their powers to energy production (it shall be green!), to vehicles (they shall be locally made!) and perhaps, through their ownership and regulation of banks, to everything else as well (only the deserving shall receive capital!). Most pro-stimulators acknowledge the disastrous inefficiency and corruption of command economies. But, they insist, it is merely a temporary expedient. Once the crisis and the stimulating are over, we will return to a market economy. I fear they are wrong. In *Crisis and Leviathan*, the economic historian Robert Higgs shows that interventionist responses to crises, such as the world wars and the Great Depression, led to permanent increases in the role of government in the economy. America’s agricultural subsidies are a good example. Introduced as an emergency measure during the Great Depression, they persist today. Being both pro-markets and pro-stimulation seems to be the new Establishment position, the view of reasonable, *Economist*-reading people. These reasonable people fail to recognise that once powers are taken by the executive they are rarely relinquished. This is not only because those who seek power enjoy wielding it. A government intervention in the economy always has beneficiaries, who then lobby for its preservation. Perhaps it is true that the economic interventions governments are now making would be for the best if they were temporary. But it is naive to evaluate them on the assumption that they will be. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. 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