If You Don't Want A Marxist Critique, Don't Argue Like A 19th Century Mill Owner
In today's Independent, Dominic Lawson argues against Keynesian economics in the provocatively titled A lesson from the Napoleonic wars[1].
Lawson says
In the case of an unproductive and unnecessarily bloated army, as in the thought experiment of Bastiat that Lawson refers to, then the argument has merit. However Bastiat begins the section with this important preface:
Taking into account this caveat, my response to Lawson's version of this argument is twofold:
1. Increasing government debt is a necessary sacrifice, indeed a necessary evil, in order to help the people the government is supposed to represent. This argument is better made here, albeit in reference to similar arguments to Lawson's made in the US, but referencing that influential economist Karol Jozef Wojtyla.
2. Cutting government spending and raising taxes is all very well, at the right time. Imitating an unreconstructed Keynesian for a moment, the problem is not that governments cut taxes and increase spending during recessions, but that they fail to increase taxes and cut spending during periods of sustained growth[3]. The reason for this is that growth is fueled by debt. To set up a business we borrow money against current assets and future profits. This is the way it always is, so that we don't have to save for 20 years to put our cutting edge idea into the market (or buy our own house).
I've previously asserted that no one can borrow money more cheaply than the government. In hard times borrowing money is expensive and difficult for individuals and businesses. The government can fuel growth more cheaply than private enterprise.
And to return to my point 1 again, the government might think about doing us a favour and using it's position as borrower of choice to keep people in work and doing useful work and maybe avoiding some of the increase in despair, poverty, illness, mental illness, crime and family dissolution[5] that usually follow unemployment. Just a thought.
[1] I say provocatively as the essay Lawson quotes from, That which is seen and that which is not seen, was published in 1850, some 35 years after the end of those wars. The author, Bastiat, was born and grew up during the wars, and these undoubtedly influenced his work, but it might be just as accurate to call it A lesson from the Second "Republic", the French Second Republic that is you ignorant scallywag. Frankly though, why not quote that bloke[2] who suggested destroying all mention of income tax when they abolished it after the Napoleonic wars, so that future generations would never know what desperate and awful measures they had to resort to. I paraphrase as I can't find said speech.
[2] Who I've failed to find the name of in 10 minutes of more and less specific googling, which might be why Lawson didn't quote him.
[3] Some of you may notice a negative feedback loop[4]: during good times, the government takes money out of the economy slowing the boom; during bad times it spends it again, lessening the bust.
[4] Those of you familiar with Joseph and The Amazing Technicolor Dreamcoat (or the book it's based on) may notice that this is similar to Pharaoh's response to the dream involving 7 fat cows and 7 thin ones.
[5] Is the coalition in favour of keeping families together by small tax breaks, or just the Conservatives?
Lawson says
It has, historically, been military adventures that have led governments into financial crises – and it is worth turning to an earlier such example in order to see the oddity of the argument that public expenditure cuts "take money out of the economy".
In the case of an unproductive and unnecessarily bloated army, as in the thought experiment of Bastiat that Lawson refers to, then the argument has merit. However Bastiat begins the section with this important preface:
To a nation, security is the greatest of advantages. If, in order to obtain it, it is necessary to have an army of a hundred thousand men, I have nothing to say against it.
...
If we confine ourselves to this answer - "The hundred millions of men, and these hundred millions of money, are indispensable to the national security: it is a sacrifice; but without this sacrifice, France would be torn by factions, or invaded by some foreign power," - I have nothing to object to this argument, which may be true or false in fact, but which theoretically contains nothing which militates against economy. The error begins when the sacrifice itself is said to be an advantage because it profits somebody.
Taking into account this caveat, my response to Lawson's version of this argument is twofold:
1. Increasing government debt is a necessary sacrifice, indeed a necessary evil, in order to help the people the government is supposed to represent. This argument is better made here, albeit in reference to similar arguments to Lawson's made in the US, but referencing that influential economist Karol Jozef Wojtyla.
2. Cutting government spending and raising taxes is all very well, at the right time. Imitating an unreconstructed Keynesian for a moment, the problem is not that governments cut taxes and increase spending during recessions, but that they fail to increase taxes and cut spending during periods of sustained growth[3]. The reason for this is that growth is fueled by debt. To set up a business we borrow money against current assets and future profits. This is the way it always is, so that we don't have to save for 20 years to put our cutting edge idea into the market (or buy our own house).
I've previously asserted that no one can borrow money more cheaply than the government. In hard times borrowing money is expensive and difficult for individuals and businesses. The government can fuel growth more cheaply than private enterprise.
And to return to my point 1 again, the government might think about doing us a favour and using it's position as borrower of choice to keep people in work and doing useful work and maybe avoiding some of the increase in despair, poverty, illness, mental illness, crime and family dissolution[5] that usually follow unemployment. Just a thought.
[1] I say provocatively as the essay Lawson quotes from, That which is seen and that which is not seen, was published in 1850, some 35 years after the end of those wars. The author, Bastiat, was born and grew up during the wars, and these undoubtedly influenced his work, but it might be just as accurate to call it A lesson from the Second "Republic", the French Second Republic that is you ignorant scallywag. Frankly though, why not quote that bloke[2] who suggested destroying all mention of income tax when they abolished it after the Napoleonic wars, so that future generations would never know what desperate and awful measures they had to resort to. I paraphrase as I can't find said speech.
[2] Who I've failed to find the name of in 10 minutes of more and less specific googling, which might be why Lawson didn't quote him.
[3] Some of you may notice a negative feedback loop[4]: during good times, the government takes money out of the economy slowing the boom; during bad times it spends it again, lessening the bust.
[4] Those of you familiar with Joseph and The Amazing Technicolor Dreamcoat (or the book it's based on) may notice that this is similar to Pharaoh's response to the dream involving 7 fat cows and 7 thin ones.
[5] Is the coalition in favour of keeping families together by small tax breaks, or just the Conservatives?
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