At the beginning of a book (Economics In One Lesson) that way-too-many economists have plainly never read, a non-economist by the name of Henry Hazlitt observed that economics is “stalked by fallacy.” Hazlitt was engaging in understatement, and if he were alive he’d surely acknowledge as much. We’re talking about a profession that near unanimously believes that all the wealth destruction, maiming and killing that was WWII actually pulled the U.S. out of the “Great Depression.” Stalked by fallacy doesn’t begin to tell the story of how bankrupt “economics” is today.
What’s disappointing is that even the clear thinkers in the profession occasionally go off track. Take the excellent Allison Schrager of the Manhattan Institute. In a City Journal piece that properly debunked the “degrowth philosophy,” Schrager conceded too much while debunking. She asserted that “De-growthers are correct that endless consumption is not sustainable.” Why give in so easily to something that’s so plainly untrue? And to be clear, the notion that “endless consumption is not sustainable” is untrue.
We know it is simply because production is what precedes all consumption. Always and everywhere. No economic school can get around this truth. No doubt the simple in thought will say that kids consume abundantly without producing, as do alleged beneficiaries of government, but the simple answer to what is simple is that productive parents generally underwrite the buying of their offspring, while those who attain spending power from government are underwritten by you and me. All consumption is preceded by production. Repeat it over and over again.
At which point it’s resoundingly false to suggest that “endless consumption is not sustainable.” The guess here is that Schrager wishes the line hadn’t been reprinted in the Wall Street Journal if only because she has to know it’s not true. Better yet, what reads as “endless consumption” today will appear deprived compared to the future. Combine a growing division of labor around the world with the trillions of robotic “hands” that will continue to enter the workforce, and we’re on the verge of productivity that will make the wildly prosperous present appear Haiti-like compared to where we’re headed.
Crucial about all this future production is that consumption will be the result of it. There’s no getting around this truth. That is so simply because no act of saving ever subtracts from demand. Assuming a surge of saving to reflect all the surplus created care of enormous productive leaps, buying power never lays idle. What’s not spent will be shifted to those eager to spend via financial intermediaries.
More recently, Schrager has written that more government spending will exacerbate what she deems inflationary pressures. The bet here is that she yet again doesn’t mean what she wrote. To be clear, government spending is a huge, economy-sapping tax. Arguably the worst tax of all when it’s remembered that there are no entrepreneurs without capital.
At the same time, government spending doesn’t represent new demand as Schrager seems to assert. See above. All demand is preceded by production. If government is putting money in people’s pockets such that the alleged beneficiaries are demanding things, someone by definition has reduced spending power. The Keynesian multiplier is a myth, and it’s not realistic to presume that Schrager would revive it. Yet her argument against more government does. The view here is that she should stick to the basics: government spending is a tax.
If not, she’s conceding once again. Indeed, if government waste amounts to new demand that causes “inflation,” then logically a lack of government demand born of tax cuts would similarly result in “inflation.” Actually, neither scenario would since inflation is a currency phenomenon.
In other words, inflation is currency devaluation. That the latter hasn’t happened during Joe Biden’s presidency is a story, but it’s one that Republicans have ignored. Schrager isn’t afraid to criticize Republicans, which has yours truly hoping she begins writing about fallacious inflation arguments made by a GOP that would prefer voters to forget how much its political heroes (including the man in the White House in 2020) supported the lockdowns that were the source of today’s pricing pressures.