BALTIMORE, MARYLAND – Who are these guys?
We’re talking about the “12 Nobel Prize-winners” we mentioned yesterday, who supposedly (according to Senator Mazie Hirono of Hawaii) believe more government spending will reduce inflation.
What’s the theory? How does that work? When, where, how has it worked in the past?
We’ll look at those Nobelistas in a moment. But first, this morning’s big story. The Boston Globe:
Biden crosses liberals to renominate Powell as Fed chairman, keeping a crisis-tested veteran to tackle inflation
Senator Elizabeth Warren and several other high-profile Democrats publicly opposed giving Powell four more years as chairman of the central bank’s board of governors, but President Biden chose to nominate him anyway.
Crisis-tested? The big test came in 2020, when the feds tried to replace real output with fake money. It was a foolish program, now being paid for in higher consumer prices.
And Powell was right there, every step of the way.
Yes, he was “crisis-tested.” And he failed.
So, let’s now turn to the geniuses – the Nobel winners.
The first thing we notice is that it wasn’t just a dozen. There were 17 of them, guided by the lead-dog, Joseph Stiglitz. The September 20 Economic Policy Institute headline reads:
Seventeen winners of the Nobel Prize in economics sign letter in support of the President’s Build Back Better package
Ok… And here’s Stiglitz explaining why this isn’t going to be like every other federal boondoggle program:
The President’s economic agenda, the “Build Back Better” package being debated in Congress, would provide vital public investments in the nation’s physical and human infrastructure, as well as in our tattered safety net. These investments are long overdue – they were needed before the COVID-19 pandemic, and their necessity has been highlighted by the virus and the economic shock that came with it.
Here at the Diary, we’ve searched in vain for an example of a federal “investment” – in recent history – that has paid off.
As near as we can tell, World War II and the interstate highway system were the feds’ last successful programs…
And even as to them, we have our doubts.
Then came the Vietnam War (1955), the War on Poverty (1964), the War on Drugs (1971), Amtrak (1971), the War on Terror (2001), the War on Afghanistan (2001), the War on Iraq (2003)…
We remind readers that U.S. debt increased from $5.6 trillion to nearly $29 trillion between 1999 and 2021. That extra $23 trillion, invested by the federal government, was supposed to make us richer, not poorer.
And if those marvelous “investments” – the War on Terror… bailing out Wall Street, etc. – had worked, they would have paid dividends, allowing us to pay down our debt.
Instead, the “investments” were total failures… GDP growth rates slowed… and the debt grows bigger and bigger.
We also remind readers that when you pay for your “investments” with printing-press money, the most likely consequence is higher prices – which is really just a devious tax on consumers.
It takes money from consumers tomorrow so that money can be stuffed down ratholes today.
So, let’s see what these Nobelistas have to say for themselves.
There are two parts to their argument.
First, these spending programs will increase output… Stiglitz:
These are importantly supply side measures, increasing the ability of more Americans to participate productively in the economy, helping to improve our low employment-working age population ratio. Significantly reducing the fraction of children growing up in poverty and giving these children access to pre-K and college education will reap large dividends in years to come.
This is such a silly argument that we scarcely deign to reply.
There are only so many hours… so much savings… so many workers… so many skills… so many resources available.
The question is: Who decides what happens to them? Either people decide for themselves… or the feds make the decisions for them.
But there is no evidence, anywhere, anytime, anywhichway that when the feds spend the public’s money, they do so more efficiently or better.
To the contrary, every indication – both empirical as well as theoretical – shows us that the feds are terrible asset allocators.
No Inflationary Threat
And won’t this extra spending have to be financed with “printing press money”? And won’t it lead to higher prices… undermining any good that might otherwise come from the spending programs themselves?
“No,” says Stiglitz:
We need safe school buildings and bridges, and affordable child and elder care, whether inflation is 2% or 5%. With the investments being financed by tax increases, the inflationary impacts will be at most negligible – over the medium term outweighed by the supply side benefits; and their progressivity will help address one of the country’s critical problems, the growing economic divide.
The federal government spends far more today on schools – including college loans – than it did in the past. But where are all these better-educated, higher-earning, civic-minded taxpayers? They don’t exist.
Nor is the “supply” of goods and services increased by taking money from the people who earned it and giving it to other people.
Instead, it is diminished and impaired by perverse incentives and government inefficiency, corruption, and waste.
Still, Stiglitz pours on the blah, blah. “Investments.” “Social needs.” “Climate crisis.” And all of this can be accomplished “without presenting an inflationary threat.”
In what world does this happen? Where can you take money away from people… spend it on your pet projects… and everyone comes out ahead?
Where can you “print” money and not cause inflation?
How can the feds undertake a $5 trillion Build Back Better project without squandering most of the money?
If they get the money from taxing… there is no net gain. Some people win. Most people lose.
If they get the money from the “printing press,” the tab is eventually paid by consumers – in the form of higher prices.
And either way… real wealth is squandered.
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