The Economics of Mass Destruction-Parts I and II

The Power of Capital

The most valuable economic substance in the world is capital. It is not “money” if we define money as pieces of green paper. Governments cannot create wealth by printing money. If they could we wouldn’t have to work.

The formation of capital plus a culture of entrepreneurship is the only way to create economic well being. When government policies destroy capital it diminishes everyone’s economic well being.

Capital is saved wealth. If you produce goods and you make a profit and save the profit, then you have created capital. Ditto with your labor. If you spend all of your wages, you’ve saved none of the wealth created from the goods you made and you have no capital.

It takes societies a long time to create and amass capital. In the U.S. we have a dynamic financial infrastructure to generate wealth/capital. It started with the rights guaranteed by the Constitution, but it took about a century to create our wealth-creating financial infrastructure. While you can criticize it all you want, wealth is widely distributed in America when one compares our standard of living to elsewhere.

This financial infrastructure is called capitalism.

Our current economic policies are destroying capital and our well being. These policies are now globalized. They are the Economics of Mass Destruction.

International Coordination of Economic Policy

I have a folder entitled “Supranational” in which I keep research related to international regulation of the world’s economy. As I anticipated, after the Crash nations joined together to coordinate economic policies and  the regulation of financial activities.

The conformance of economic policies was rather automatic. Most of the world’s economic ministers, especially those of the G-20 countries, have adopted familiar Neo-Keynesian/Neoclassical policies of fiscal and monetary stimulus. In most countries the results of these policies have been as disappointing as ours.

Monetary Stimulus

Look at monetary stimulus. It is no coincidence that central bank interest rates of advanced economies are historically low; they all are trying to create massive monetary stimulus to revive their economies. Higher interest rate countries such as the BRICs with less stable economies either have more trouble selling sovereign bonds on the international markets or are attempting to thwart rising prices.

Central Bank Interest Rates

Fiscal Stimulus

Almost all these countries engaged in fiscal stimulus as well. The Bush Administration committed about $700 billion to the various bailout schemes. Then the Obama Administration came up with a massive Keynesian spending program (initially $787 billion). Other countries followed:

Type of Stimulus as a Percentage of GDP

Note this subsidies chart doesn’t reflect the U.S. TARP and related bailouts. Source the OECD

Financial Regulation

The last piece of the globalization of economic policy was to increase regulation over financial activities. The post-Crash drive to coordinate financial regulation was unified by the theory that the cause of the Crash was Wall Street: the investment banks, investment companies, hedge funds, the big “banksters,” and insurance companies. Not to mention greed and overpaid executives. If governments admit any fault it is that they failed to adequately exercise their existing regulatory powers.

Which means that many of the laws passed here are or will be similar to those enacted in other major countries. For example, the Dodd-Frank financial overhaul act contains many rules that had been discussed with G-20 counterparts. “Forum shopping” or the “you can run but you can’t hide” policy, was a major factor. The new bank capitalization rules of Basel III are an outcome of the Crash. No treaties are required to accomplish most of this legal conformation; meetings between economics ministers and their regulatory staffs were all that was needed and individual governments did the rest.

The Failure of Regulation

Unfortunately our new laws (Dodd-Frank) fail to address the primary cause of the Crash: the Federal Reserve itself. Its years of easy money policy kicked off the massive credit boom that landed on the housing market because of U.S. government policies that encouraged capital to flow into residential real estate. The boom ended when the Fed raised rates.

I don’t mean to spare Wall Street in my criticism; they failed in many ways, primarily their faulty risk models. But, while they pushed the scheme forward, they didn’t cause the boom or the bust. History shows us that cheap money from central banks, or from banks or sovereigns pre-existing central banks, always have caused these boom-bust cycles. Just because the Fed took over doesn’t mean that bad banking theories changed.

The Globalization of Failed Economic Policies

The purpose of this article is not meant to be an exposé of an international conspiracy or secret cabal to control the world. These policies are the logical conclusion of theories of economics and political organization that have been taught in our universities before our oldest citizens were college freshmen. Some of these ideas even trace back to Ancient Rome. Sub sole nihil novi est.* These ideas were developed in Europe, but took root and flowered in our best universities. Because of the stature of America’s academic institutions, which stature is founded on capitalism’s prosperity, it is no surprise that these Neo-Keynesian ideas have spread throughout the world.
*There is nothing new under the sun.

You may believe this regulatory coordination and conformation is a good thing because it gives enterprise a more stable regulatory foundation in which to operate. Or that it is necessary to prevent another crash. Or that regulators have superior knowledge and can be trusted to properly guide economies. But that is not the case.

The serious economic problems we have are the direct outcome of mainstream economic thought and these ideas now operate worldwide. If one studies economics in London, or Paris, or Rome, or Beijing, the lessons are very much the same. If one examines the policies of the EU and its member states or China or Japan, they are remarkably similar.

Perhaps the term the “Economics of Mass Destruction” is a bit of hyperbole, but I am giving fair warning that we Americans, the most dynamic capitalists and the primary drivers of the world economy, are heading for long-term economic decline if we continue with the same Keynesian doctrine that got us into the current historically big mess.

While it is nice to believe that emerging economies such as Brazil, Russia, India, and China will take up the slack, I am not convinced they yet have in place the cultural and financial resources that have made America the world’s leader.

Because of the globalization of these ideas, it now appears that the whole world will rise or fall on these policies.

The Fallout of Economic Conformity

The logical conclusion of these failed policies is economic stagnation. Here is what massive government spending and taxation has done to our economy:

  1. Total government (federal, state, and local) share of the economy has exceeded the tipping point, estimated to be between 15% and 20%, which is the point when it hinders economic growth. Presently total government spending for 2010 is estimated to be about 47% of the economy.
  2. Taxation must rise substantially in order to pay for government debt, health and welfare entitlements, and other fixed government costs. The 2010 estimate of federal, state, and local taxes amount to about 30.4% of GDP (about $4.480 trillion).
  3. Our total government debt (federal, state, and local) is estimated to be $16.635 trillion for 2010, approximately at 114% of our GDP (2010 E$14.623 trillion). Of total government debt, federal debt is estimated to be $13.787 trillion in 2010.

f=federal govt.; s=state govt.; l=local govt.

The larger the share of governments’ take of capital out the economy, the less money there is available for businesses and consumers. The less capital available for the private economy, the less it will expand, and the result will be a decline in GDP.

While progressive utopians believe that taxation of the “rich” is acceptable to fund social benefits, mathematics, demographics, and the laws of economics prove them wrong. Progressives have yet to understand that government produces nothing.

The table, below, shows tax rates of many major economies as a share of their GDP. The welfare states have taxes approaching 50% of their economies, with the median in the high 30th percentile. The U.S.’s tax burden on the economy of 30.4% is less than most of these countries. While we ramp up our welfare state which assures higher taxes, Europe’s welfare state services are crumbling and face drastic shortfalls as their GDP falls, as their populations age, and as their companies find better conditions abroad.

The Economics of Mass Destruction

The Organisation For Economic Co-Operation And Development (OECD) is an economic think tank put together by 33 countries of which the U.S. is a member (see above chart for members). Most members are economic powers. China and India are not members. It generates a lot of data, but very little useful research. It is located in Paris and has 2,500 international staff members. They take a rather hard Keynesian line. One need only look at their logo to see where they stand:

The OECD just came out with their Interim Economic Assessment, “Recovery slowing amid increased uncertainty said the headline. They, like the Obama Administration are realizing that their Keynesian policies are failing.

The world economic recovery may be slowing faster than previously anticipated, according the OECD’s latest Interim Economic Assessment. Growth in the Group of Seven countries is expected to be around 1½ per cent on an annualized basis in the second half of 2010 compared with the previous estimate of around 2½ per cent in the OECD’s May Economic Outlook.

The OECD says the loss of momentum in the recovery is temporary although uncertainty has increased. …

If the slowdown reflects longer-lasting forces bearing down on activity, additional monetary stimulus might be warranted in the form of quantitative easing and commitment to close-to-zero policy interest rates for a long period,” the OECD said. “Where public finances permit, planned fiscal consolidation could be delayed. [my emphasis]

It is clear that the OECD does not understand what is happening. Otherwise they wouldn’t need to suggest more fiscal and monetary stimulus if they really believed the “loss of momentum in the recovery” was only “temporary.”

Its announcement sounds almost as if the Fed had written it. Here’s what Chairman Bernanke said on August 27, 2010:

Overall, the incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat weaker than most FOMC participants projected earlier this year.  …

We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.

The Obama Administration is proposing more government fiscal stimulus spending to boost the economy.

The only thing these policies have achieved is the destruction of capital.

The Fed and other central banks have been printing money to pump liquidity into their economies. These policies aren’t working. Credit is declining, money supply is declining, and the creation of fiat money is destroying capital by devaluing currencies.

Massive government spending on politically favored projects adds nothing to the economy and destroys more capital. One need only look at U.S. stimulus spending at Recovery.gov to see where the billions are going. If it worked the economy would be growing and unemployment would be declining. The opposite is happening.

How does repairing a highway in Ohio lead to economic growth? The answer is that it won’t; once the money is spent, the repair jobs go away and the capital is gone.

Is it possible that the private economy would find better things to do with that capital? We need to ask what the person whose capital was taxed away by the government was going to do with it. I am sure that the answer would be that it would be preserved or used for new economically viable businesses. Only savings, not spending, creates capital for renewed growth by private enterprise.

Eventually governments run out of capital if they dominate their economies long enough. High taxes and a welfare state lead to lower incentives to produce and lower incentives to save. Most of these countries are still spending the capital earned in former, freer market economic times. If they destroy enough capital they will go bankrupt and plunge their economies into serious depressions.

The outcomes of policies that destroy capital will vary from country to country, but none of them will be good. In the U.S. we can look forward to stagflation: years of high unemployment, low productivity, and rising inflation. Japan will continue its 20-years of low productivity and deflation. China will experience capital destructive boom-bust cycles. Germany may be the sanest of all by ignoring the conventional Keynesian wisdom by cutting government spending.

A sobering thought is that these capital destroying policies are being exported to developing countries as well. As these economies emerge from controlled economies to freer systems, they need time to amass capital to drive their growth. Most advanced economies experienced a century or more of rather hands-off capitalism before they turned into welfare states and regulated economies. China cannot morph into a dynamic capitalistic economy by burning up capital of its entrepreneurs through graft, wasteful spending, and harsh regulations.

There is no refuge from the world’s plunge into massive capital destruction. At one time in history you could flee to countries with freedom and free markets, such as America. With the globalization of Neo-Keynesian economics, there is no refuge. Watch out for EMDs: the economics of mass destruction is here.

* * * * *

For those who wish a printable PDF of the entire article, go here.

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33 comments to The Economics of Mass Destruction-Parts I and II

  • mitch

    but it makes work for the glazier…

  • “once the money is spent, the repair jobs go away and the capital is gone”

    But at least we get to keep the debt! Aren’t we LUCKY!?
    As alluded to by the previous commenter, we are all living the disastrous calamity of the broken window now. How could we be so foolish?!

  • Bearster

    Great article Jeff, but why did you say:

    “…20%, which is the point when it hinders economic growth.”

    Doesn’t taking 19% out of the productive sector to pour down the various welfare drains hinder growth? Or 17%?

    • The Rahn Curve measurement isn’t that accurate. I understand your question being that government is not an efficient way to do anything. But, putting that aside, it seems that government can take a certain amount out of the economy before it really is a drag on growth. I would put the number much lower, say 10-12% but that’s just a guess.

      • Bearster

        I am not quibbling about efficiency per se. Rather, saying that it is a tautology that whatever the gov’t takes from the economy, is by definition, taken from the economy. Some of it would have been consumed, so that portion does not affect the growth rate. But the larger share would have been saved and reinvested. That is the part that subtracts from future growth.

        And it necessarily happens from the first dollar the government takes. The government does not get a free pass up to some magic number, and only after that has been extracted is there a cost!

        • Buck

          Bear,

          Awaken from your slumber. The short answer to your question is ‘no’. Not only is the optimal level of government spending not a drag on growth, the Rahn Curve shows that taxation from zero up to a point are an investment that amplifies growth. Its almost the definition of how government can create wealth.

          PS – Thanks for the honesty here Jeff.

          Buck

          • Bearster

            Buck,

            Open your eyes and learn to see things in focus.

            No amount of statistics and aggregation can undo the reality that when you take money from someone, you prevent him from investing it. No amount of sophistry can undo the reality that when the government spends money it is allocated by a political process. How can anyone possibly look at government and think that the best and highest use of any resource is achieved?

            The Community Reinvestment Act, FDIC, legally-mandated ratings cartel of Moodys, S&P, and Fitch, SEC, and of course the artificially suppressed interest rates of the Fed created a bubble in real estate. This was not an “extreme” case that is counter to what the system is designed to do. This was the typical case of the system doing precisely what it was intended to do all along.

            It takes from those who produce something and gives it to those who did not.

            Housing bubbles, urban blight, the collapse of manufacturing, endemic high unemployment, erosion of savings, bridges to nowhere in Alaska combined with insufficient roadways in NY or LA, etc. This is what government produces when it takes outright (socialism) or takes control of nominally-private (fascism) capital.

          • Buck

            Blind Bear,

            Limited government with powers reserved mainly for the protection of citizens and their property is worth more than its cost to taxpayers. It is an investment. Reasonable people don’t even need to see the statistics to understand this.

  • Jim

    We may need another President Harding to straighten out all of this. Where can we find a man like that? Any ideas?

  • Bearster

    To clarify one point about the fallacy of looking at aggregates:

    An economist sees the following aggregates: (a) two people and (b) two steak dinners are eaten. He concludes everything is good.

    Anyone else sees a fat man in a restaurant eating two steak dinners, and a skinny man outside looking through the window.

    Or maybe another example, closer to home shall we say, is the dichotomy of “Wall St.” vs. “Main St.” Perhaps if you averaged their profit margins to form some sort of aggregate (maybe weighted by market cap?) you could show that, in aggregate, business profitability has not declined, or if my hunch about market-cap-weighting turned out to be true, you might even show that aggregate business profits are increasing! Does this tell you anything about reality? Or does this tell you about the flaws in the methodology of aggregates?

  • Bearster

    Ad Hominem Buck:

    You are switching the context. I have been pretty clear that I think the proper role of government is to protect the lives and property of its citizens. And this is not an “investment” by any usable definition of the word, but an expense. As you understand, it is a worthwhile expense. It is not wealth-creation, but more precisely protecting people from wealth destruction. Avoidance of a disvalue is not the same thing as creation of a value.

    But that has nothing whatsoever to do with your repeated claim that government can create wealth, redistribute wealth up to some magic number without impacting growth, etc.

    It’s also ironic that you are making another of my points for me: it is impossible to understand principles if one looks only at statistics. Thus my point about aggregates, GDP, etc.

    • Buck

      “I have been pretty clear that I think the proper role of government is to protect the lives and property of its citizens.” Implicitly you acknowledge that the stability created by this protection is wealth. Else, the cost would not be ‘proper’ or justified.

      “And this is not an “investment” by any usable definition of the word, but an expense. It is not wealth-creation, but more precisely protecting people from wealth destruction.” If you tried to tell a farmer that his tilling of the soil and application of pesticides, fertilizer, etc. was an ‘expense’, not an ‘investment’, and furthermore that his labor was not creating anything but merely protecting natural bounty from being destroyed, he would laugh you out of town.

      • Bearster

        By working your definitions, and working them hard, and adding in a bit of equivocation, you got to the point where you think that the absence of wealth destruction is wealth creation. The negative of zero is non-zero. This is what Ayn Rand called the fallacy of “reifying the zero”.

        If this is the best you can do to prove that the government can create wealth, and that there is an optimal percentage of people’s wealth that it should take, then consider this your delivery of Fail.

        By the way, the money the farmer spends each year to grow crops is not an “investment” but an “expense”. It does not belong on the balance sheet as an asset, but on the profit and loss statement. It may be perfectly justified in that it lets him produce more revenues but that does not make it an investment.

        • Buck

          “It may be perfectly justified in that it lets him produce more revenues but that does not make it an investment.” You agree that his intervention can increase the yield of an otherwise natural process (to an extent); this is all that matters, and this is what Rahn Curve theory states. The farmer creates wealth, or ‘value’ (your equivocation, per above). This is also the reason I chose this particular analogy: a ‘farmer’, one that is by definition ‘grounded’ and not intellectually divorced from reality, will just laugh at whatever you choose to label his actions. It is clear enough to everyone; the ‘farmer’ creates ‘wealth’. Government also creates wealth.

  • colin

    Buck sorry Bearster is right Governments do not create wealth the closest they get to it is creating an enviroment via apporporiate rules which helps the prvivate sector produce profits. However nowdays the rules and regulations and the cost of their administration have become a huge economic burden.

    • Buck

      Colin,

      If the ‘farmer’ per my example above is “creating an environment” which increases the yield of a natural process (crop), do you deny that he has a hand in ‘creating’ any wealth? To claim otherwise is like a strawberry taking for granted that he lives in a well fertilized land absent weeds and pests.

      Sincerely,

      Buck

  • Bearster

    I didn’t realize Buck was comparing a farm field to a human society!!

    There is not a single way in which they are analogous.

    It begins and ends with: humans are volitional individuals and farm fields are neither volitional nor individual. So whatever it is that a farmer is doing to his field to “cultivate” it would be an obscene, unjust, and violent act if performed on human beings by force.

    • Buck

      If a government creates the environment which increases the yield of a private economy, do you deny that it has had a hand in ‘creating’ any wealth? To claim otherwise is like a business purveyor taking for granted that he lives in a well protected, fertile land absent local mafioso and unchecked thuggery.

    • Buck

      This is what it begins and ends with: “I think the proper role of government is to protect the lives and property of its citizens.” If you readily acknowledge a “proper role of government”, you acknowledge the wealth/value that government creates.

  • Bearster

    Ya know, this reminds me of many years ago when I used to entertain debates with anyone and everyone. I remember a pattern I saw then, but haven’t seen recently because I don’t do those kinds of debates any more.

    It would go like this. I would introduce a concept that was obviously new to my adversary. This was usually to explain the specific nature of an error he was making. Shortly thereafter, every statement I made would meet accusations of whatever concept I had introduced to my debating partner.

    For example, I introduced the concept of equivocation to Buck. Now it comes back at me in a way that doesn’t really apply. But for some reason, they always feel the temptation to throw their opponents’ words around. Perhaps most of Buck’s sparring partners are really silly little people that he can intellectually dominate? Who knows.

    For the record, Buck, equivocation is when you use a word to mean one thing initially–often to establish that your principle is sound–and then a completely different meaning later–when you are trying to score your “cash value”. So Buck’s initial assertion was that government can “create wealth”. This is the argument of every kind of statist, from monarchist, to fascist, to communist. The government must take your money, see, because it will do better with it than you will. Just wait 5 years for the chicken to materialize in every pot. I called him on it. And now Buck is defending the idea of looting by appeal to a totally different (and opposite) idea! This idea is that men need liberty in order to produce, and liberty requires police and courts and such. This idea is true, but certainly is not the same idea that government “creates” wealth (the equivocation) nor is it the idea that the economy is optimized by the government taking X% of people’s productivity, no more and no less.

    How does one get from protecting the individual rights of life, liberty, and property to taking 20% (or 18.25% or whatever Rahn said)? One doesn’t. They are not the same thing. The purpose of equivocation is to trick people. It works well when people can’t keep track of the context.

    P.S. Equivocation doesn’t tend to work well with people who write computer code for a living! :P

    • Buck

      Self Professed Geek,

      Here is a metaphor which should make it clearer to you:

      The creation of a platform which serves as a backbone upon which additional wealth may be created, is obviously a “creation of wealth” to anyone but a jealous detractor.

      You can digress into your Rand Lexicon all day long in an attempt to avoid tackling the issue head on, but you are fooling no one.

      Also, you are the one who misapplies the concepts of ‘ad hominem’, ‘reification’, ‘stolen concept’, and even basic accounting (i.e. transfer of capital = ‘destruction’). I only brought myself to correct you on half of them, in the spirit of an attempt at productive discussion.

    • Buck

      And for the record, as one who “writes code”, you are then surely aware that the term ‘wealth’ has never been properly defined for the purpose of this discussion. This makes your accusations of equivocation unfounded; an obvious further attempt at misdirection from the crux of the matter.

  • Mitch

    There’s a strange sort of dogmatism in the statement “government cannot create wealth”, though inefficient and wasteful (as all large scale enterprises are) they can quite manifestly create “wealth” if regarded as things like a society with clean drinking water for all, and to use your example, paved roads in ohio.

    But, I understand that is not wealth, which is simply how many tiaras and big macs you have, and is simply re-distribution, and obviously wasteful redistribution of the money they might have spent on landscaping their garden, and as such creating real wealth.

  • Anonymous

    Hey Mitch, in The Road to Serfdom, Hayek makes some pretty good points on why roads, and other basic services that connect businesses are maybe not “better” provided by government, but are easier to be provided by government. I think his main point what that they are the connective tissue between real business.

  • Just Observing

    When Bearster refers to a pattern he saw several years ago, he is likely reminiscing about his glory days as the operator of IRC channel #AynRand, which he ran like a pretentious, paranoid, two-bit dictator with a severe case of napoleon complex.
     
    You have been warned.

    • Buck

      “As a brief aside, I’ve discovered that the word “just” conceals an
      alterior motive; the person using it wants the listener to think that
      the situation is plain and simple, when it’s not.”

      That’s ‘just’ plain hilarious, Bearster. LOL

  • Buck:

    I wish to clarify something. In the running argument with Bearster, I think there is some confusion with terms. I use terms in an economic context and sense. When I say the government doesn’t produce anything, that isn’t to be confused with the fact that the government may make things or provide services. “Production” in the private economy has specific meanings which start with capital and entrepreneurship in a for profit activity and end up with a voluntary purchase and sale. These are productive activities which, if successful, are lasting and create jobs and wealth (profits/capital). Now the government may deliver the mail which benefit us all but it is not the same thing because it isn’t a for profit enterprise. I don’t mean to start up an argument with you here, just pointing something out. I am sure you understand the difference. And to Bearster, I am not suggesting that private enterprise can’t deliver the mail more effectively: it obviously can and does. I’m just trying to make a point.

  • Buck

    Jeff,

    I agree with you, and I thank you for making clear here your thoughts on the matter. I do understand the difference, and this is precisely why I feel it is disingenuous and dangerous to make the broad and/or unqualified statement “government can’t create wealth” (‘Mantra’ herein).

    It is extremely misleading to call attention to the fact that an entity cannot achieve something without also disclosing that by definition the entity is also precluded from achieving it. What does it even mean for one to say, “Tiger Woods cannot score field goals,” or, “non-profits can’t create profits”? When you speak of economic versus general context and say (above) “… that isn’t to be confused with the fact…”, I can tell you right now it is most always confused with that fact, specifically amongst your audience.

    Most people intuitively understand that the public sector will generally not be as efficient as private by its very nature (its not subject to cleansing pressures of both demand and competition). Some, especially of a Libertarian leaning, are liable to interpret this to mean that theoretically government can provide no value since a privately run enterprise could always, in theory, do it better. As an example, Bearster is quite clear when he says that “government makes living more expensive… they don’t produce any value and cannot make a higher quality of life cost less.” Context seems obviously not the issue here. I also don’t think his line of thinking is anything at all unique, but quite commonplace.

    The danger then is that the Mantra, when not placed in its proper context, fuels the fire of viewing our government in absolute terms as a ‘looter’, a drag on growth, a parasite, even an enemy.

    I find the ongoing historical interplay between the two necessary sectors (public/private) fascinating. It is the characterizations of either in black and white that is nauseatingly unproductive.

    Thanks for the comment.

    Buck

    • I think my point was that only private enterprise can create wealth. Unless the government engages in for profit activities, it cannot by definition create wealth. It spends wealth. Again, whether or not the government takes my money to build roads is immaterial: yes I am getting a benefit of some value to me, but it is not creating wealth (i.e., profit.)

      Thanks, J

  • Buck

    Jeff,

    You’ve given me much food for thought! Sincerely. Here are some observations:

    The Mantra has now been reduced to a tautology: “Non-profits don’t profit”. It does not convey meaning; it is the redundant repetition of a definition.

    This is a result of an error of equating profiting or saving of wealth with the creating of wealth. Refer back to your money fable. The minute George has created his plow, he has created wealth, specifically capital wealth. Profit has nothing to do with it. When John saved up to purchase that plow, he reduced consumption to save or accumulate wealth for the trade. John did not create any more wealth, he accumulated more by consuming less of pre-existing production.

    Additionally, once George has gone into the plow business full-time, there can be no denial that he is in the business of creating real capital wealth regardless of whether he’s personally profiting from it, operating as a non-profit enterprise, or even operating at a loss (to a certain extent).

    Profiting/saving is thus shown to be completely divorced from creating. The government can create wealth when it builds roads, bridges, other public goods, and it can do it without charging you a profit margin.

    I understand that there has never been a universally accepted definition of wealth, even in the “economic context and sense”. I don’t know yet whether our conceptions of wealth even differ all that much. However, I can say confidently that profiting and saving of wealth are assuredly not the same thing as creating wealth.

    Buck

  • Davidw

    Wow, you guys truly are dense.

    Of course Keynesians know that if the economy was a full employment, then every dollar spent by the government comes at a cost of the private sector. This is such a basic concept that for you to assume that we don’t know this shows your ignorance. I mean, this is pretty much all you guys say, over and over again, and it is pretty annoying.

    The point of argument is that you think the economy is all the time at full employment – and that is the gist of the argument.

    And of course you can convince yourselves of this because no government is insane enough to practice libertarian government. But, blame us for our catastrophes, but then give credit to our successes – the world today has never been wealthier, never the middle class as large (well, say since Reagan screwed things up in 1980), never incomes so high, and in most countries the quality of life so large. Like I say, the US sort of screwed up since 1980, but still it is not doing half bad.