June 19, 2014

Economic Wrongheadedness from National Review

By In Articles, Economics

Kevin D. Williamson writes at National Review that “current economic policies aren’t working” and his article offers a shockingly lame analysis and no prescriptions.  This is the problem with mainstream economic commentary –and commentary of other policy issues as well. It seems that few know what is going on yet they are continuing to put forth article after article of repetitious and empty talking points.  National Review, as many old-time libertarians have pointed out, has a lot of rhetoric but no substance.  And rhetoric without substance indicates a desire for political opportunity, centered around a specific party.  In National Review’s case, it is the GOP.

As is increasingly popular, Williamson pretends to be critical of the Fed, but from all appearances he doesn’t know why, exactly, he should be.  The title of his piece is “An Increasingly Expensive Chicken in Every Pot,” which suggests he is going to overview the inflationary epidemic in the economy.  He then writes:

If you hew to the conventional wisdom that dominates policy thinking at the Fed and elsewhere, a little inflation in the economy, or even more than a little, is an excellent thing, a contributor to growth. Even assuming that that is the case (the contrary view is a distinctly minority inclination), inflation still imposes real costs on consumers.

He gives himself away when, in typical National Review form, he dismisses [NOTE: see Williamson’s comment at the bottom for the correction on this point –CJE] dissent against the pro-inflation doctrine as a “distinctly minority inclination.”  At any rate, this is his only mention of the Fed in the entire piece, which purports to show how current economic policies aren’t working in America.  But the Fed is everything.  The Fed is the primary suspect and it has long ago been convicted by the free-market economists of the last century.  Worse, he uses a definition of inflation that is politically helpful, but also deceitful.  He writes of the rising Consumer Price Index (CPI) that “this inflation is associated with economic-stimulation policies that encourage growth and thereby leaves most people better off….”  But this is wrongheaded because the rising CPI is not inflation.  The rising CPI is the result of inflation.  It is the “economic-stimulation policies,” that is, the money creation, that is the inflation.  The rising CPI is caused by the inflation-stimulation.

This is important as it eliminates any honesty in the Federal Reserve’s claims that they don’t see any inflation.  This is only true because they have redefined their terms.  Every monetary expansionism is by definition inflationary, whether or not the highly manipulated CPI sees an upward shift.

Now, our author does notice what millions of Americans across the nation are experiencing: “[s]hrinking economy, declining real wages, big grocery bills.”  This is a great moment to lambast the Fed, to explain how cheap money has eroded the economy’s capital stock which prevents (contrary to the Picketty thesis) production and therefore lowers real wages and shrinks the economy.  But there is no mention of the Federal Reserve and no specific mention even of poor economic policies that are leading to such ugly results.  The only prescription he gives later on below is that policymakers should work to “accommodate reality.”  But how?  And what is reality?

The reality is allegedly globalization and automation.  These “realities… ensure that while the technologically sophisticated and highly skilled elites will continue to thrive, living better than they ever have, things look rather grim for everybody else.”  We are not told exactly what “policymakers” should do about these things. This is nothing but empty rhetoric. It is all very meaningless.

In fact, the article gets even more confusing after we are informed of the “realities.”  For instance, we are told that these “factors… are not especially responsive to policy.”  Then, three sentences later we find the prescription mentioned above: “But what policymakers can and should do is to work to take into consideration those new developments — to accommodate reality, in other words.”

It seems then that the suggestion is that policymakers should consider or accommodate a reality which is ” not especially responsive” to their policies.

Williamson also engages in highly politicized non-statements that are intended to rile up the Republican base on issues that are near and dear to them:

Technology is changing the way we educate, but our policymakers resist those changes rather than making use of them. While California’s union-goon teachers are fighting like rabid badgers to defend the medieval institution of tenure and seniority rules built on a 19th-century model, Starbucks is helping its baristas pay tuition at Arizona State University’s innovative online bachelor’s degree program. One of those business models has a future — and one does not.

This is very revealing. Rather than taking the free-market or liberty perspective on this (end public education and, short of that, slash budgets –perhaps start with 75%), our author complains that policymakers aren’t investing in new technology on behalf of the public education sector.  The political hackery occurs when he refers to the teachers as “union-goon teachers.”  That they are.  But no suggestion to wipe out the problem by eliminating the publicly funded teachers?  Instead, Williamson indicates that he wants the State to mimic the activity of a free-market institution.  This is a very tempting idea for those that tend to be attracted to capitalism.  But capitalism it is not.  Rather, it is a State-led effort of aiming for what can only be justified by private enterprise.  The is no true pricing in government purchases and government “investments.”  There are no individual decision makers that are faced with trade-offs between a variety of market options.  Individuals who are making decisions of when to part with, and when to hold on to, their hard earned money.  Instead, when governments try to mimic these activities, there is a bureaucracy using other people’s money to pay for services provided by the politically connected.  How could Williamson possibly know where the money is best utilized?  He can’t.  He can only know where is own money should go.  The State cannot represent the accurate economic demand of the multitudes.

At any rate, Williamson’s paragraph is one of cheap complaint against the Democrats and their special interests –in this case the Unions.  Nothing systematic, nothing foundational.  Perhaps this is why “current economic policies aren’t working:” because there is never anything new from the Left or the National Reviews of the Right.  Democrats and Republicans can sling mud at each other all day and then sit back and wonder why the economy is covered in dirt.

In the final paragraph, we read:

Even the most committed partisans of the government-stimulus model of economic policy understand that such policies are at most a short-term fix. Long-term growth comes from investment.

While true, this statement is unhelpful without an explanation as to why there is no investment, why investment is a long term fix, and what will attract investment in this economy.  All it is is an assertion.  However, one gets the eerie sense that the purpose of stating that “growth comes from investment” after a discussion of the inefficient education sector is to advocate government investment.  After all, the author says that the “stimulus” model of policy is wrong.  So what about the “investment” model of policy?

From the free-market perspective, I might counter: what about no more policies?  What about expunging government intervention into the economy. It’s not working because the government is trying to make it work.

And if anyone wants to understand why the economy continues is down spiral without investigating the Fed and its monetary manipulations, he is wasting his time.  Perhaps the mainstream ought to learn from “distinctly minority inclinations” like those from Ron Paul and the Austrians Economists.

Written by C.Jay Engel

Editor and creator of The Reformed Libertarian. Living in Northern California with his wife, he writes on everything from politics to theology and from culture to economic theory. You can send an email to reformedlibertarian@gmail.com
  • Kevin D. Williamson

    ‘He gives himself away when, in typical National Review form, he dismisses dissent against the pro-inflation doctrine as a “distinctly minority inclination.”’

    You’ve misunderstood; that’s my inclination, but it is not a common one among professional economists.

    • cjayengel

      Fair enough Mr Williamson. I can’t believe you read this! One doesn’t expect a small time blog like mine to attract readership from professional columnists. So thanks for stopping by.