Do you recall the courtroom classic in which the prosecutor says to the person in the box: “Just yes or no please, have you or have you not stopped beating your wife?” Yes of course means that you were beating her. No means you are still beating her.
Debaters and politicians know that if you can control the terms of the debate, you will have won it. Sometimes the effort by politicians to insinuate their own loaded language into the dialogue becomes ridiculous.
Here’s a recent case in point. The new French President, Francois Hollande, campaigned on a theme of less “austerity” and more “growth.” On being elected, he promised both France and Greece more “growth.” President Obama and other leaders at the G-8 meeting liked this terminology and agreed that less “austerity” and more “growth” is needed.
But what do these terms actually mean? Translated, “austerity” refers to a reduction in government deficit spending, which the Europeans are attempting to accomplish almost entirely through tax increases, with little or no reduction in government spending. “Growth” means an increase in government deficit spending.
So an increase in government deficit spending is synonymous with “growth.” The two terms are identical and either term may be used interchangeably without explanation. President Obama will no doubt use this formula extensively in the campaign. He will say he is for “growth” and his opponent is against “growth.”
Of course, as any student of economics knows, there is little logic and no empirical evidence to support the idea that government borrowing to spend promotes growth, especially when so much borrowing has already taken place. There is plenty of reason to think that government money printing and deficit spending lead instead to bubble and bust, and therefore prevent economic growth.
Still you have to hand it to M. Hollande and now President Obama. Calling an increase in borrowing to fund government deficits ” growth” is a lot smoother than calling money printing ” quantitative easing.” QE has the merit, like “growth,” of obscuring the real terms of the debate. But “growth” rolls off the tongue so much more easily and will sound good to the average person.
Meanwhile it is not just the politicians of the left who are trying to do something about the current revulsion against soaring government debt. Creative Keynesian minds are at work. Robert Shiller, leading Yale economist, would like to increase government deficit spending even further, but recognizing that the political climate is against it, has a fallback idea. Why not just increase taxes on the wealthy and immediately spend every dime of the revenue. That way, the deficit won’t go up and the economy will still be stimulated by the spending.
Shiller is a very smart man. There is no doubt about that. But isn’t it remarkable that he apparently believes the government spending will help the economy even more than the private spending or investment which has been precluded by the new taxes. In effect, we are to take money from experienced and successful investors, people who really know how to create jobs and are motivated by the profit system to do so, and give that money to politician spenders and investors, and lo, it will help the economy recover.
Maybe Shiller thinks these politician spenders and investors, in Keynes’s words, decide matters based on ” long views,…[ the] general social advantage,…[and] collective wisdom.” This idea defies history and experience, but even if politicians did decide matters that way, they still wouldn’t be able to run an economy.
Shiller’s new idea is almost as bad as the earlier brainstorm of leading Keynesian academics that the Fed needs to gin up inflation so that interests rates would be come even more negative than they are. The originator of this idea, Harvard economist Greg Mankiw, who in addition to being a former George W. Bush CEA chair, also happens to be one of two named economic advisors to George Romney, has been coy about how much extra CPI inflation he would like to see. But his Harvard colleague and co-author of This Time is Different, Ken Rogoff, has explained that they are thinking of about 6%.
Even Keynes never advocated giving away money to that degree. He did advocate zero % interest rates, but not -6% interest rates. That really raises the art of giving away money, generally to government cronies, to a new level. Of course it also assumes that the bond market will just go along with it and keep buying debt securities offering such a return.
The one thing that all these Keynesian remedies have in common is a desire to control prices. Unfortunately it is this very lust to control prices that is giving us the “austerity” and ” lack of growth” that M. Hollande, President Obama, and the other members of the G-8 so deplore.