Bernanke Recommends More Economic Insanity

Fed Chairman Ben Bernanke has just recommended more of the economic madness that has so-drastically harmed the nation.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by Congress at this juncture seems appropriate," Bernanke told the House Budget Committee.

In trying to explain why he thinks this will help, it's hard to know whether Bernanke is too thoroughly imbued with Keynesian economic theory or just plain insane. Lest I be accused of exaggeration, I point out that the fundamental characteristic of insanity is a cognitive break with reality so severe that the person can't distinguish reality from fantasy.

There is considerable reality by which to judge whether such a plan is feasible as a method of curing recession and preventing depression. It's not as if Federal 'stimulus' hasn't been tried before, after all. Hoover tried it. FDR tried it in a larger way than any President before him. LBJ tried it and Bush has tried it on a scale larger than anyone before him. In fact, in some way or another, the Feds have been trying it for almost 100 years.

All such attempts have not only failed to solve the problem of an economic downturn, they've only made it worse. It doesn't take a background in economics to equal that of the eminent Professor Bernanke's to see why it must be so. Simple common sense will do.

Government has no money of its own. All it gets, it gets from the citizens, either by way of taxes or by creating money out of thin air.

The first method proportionally reduces the amount private citizens have to spend and invest — the very people the plan is supposed to help and who are proportionally impoverished by the plan. Remember, the top 5% of income earners pay 60% of the taxes. The bottom 50% pay only 3%.

The second method is even worse, since it destroys the money supply. It reduces the value of dollars already held and distorts economic planning. If you think your dollars are going to be worth less in the future, you're more likely to spend them now than later.

But spending does not create wealth, it consumes it. Can you make yourself wealthy by spending half your savings now? No. Obviously not. But, you have a chance to increase it (at least somewhat, given the ridiculously low interest rates the Fed insists on championing), if you save it and invest it — unless the government reduces the value of your savings/investment by inflation faster than you can earn a return. If you can't create more wealth for yourself that way, there's no reason to believe the government can create more wealth for others following the same principle.

There is a third alternative. He may, in fact, be aiming at transferring wealth from one party to another.

"If Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," Bernanke said. "Such actions might be particularly effective at promoting economic growth and job creation."

As Mises explains it in Chapter 31 of Human Action (quoted by Peter Creswell on Not PC):

If the government taxes the citizens or borrows from them, it does not add anything to what the Keynesians call the aggregate amount of spending. It restricts the private citizen's power to consume or to invest to the same extent that it increases its own. If, however, the government resorts to the cherished inflationary methods of financing, it makes things worse, not better. It may thus delay for a short time the outbreak of the slump. But when the unavoidable payoff does come, the crisis is the heavier the longer the government has postponed it.

So, if he transfers it to the wealthy, so they can invest more or faster, he is simply removing their own wealth and giving it back to them (minus the government's cut, of course). Or, he can steal from everyone and transfer it to his preferred group. But he can only do that one of two ways, either by taxing (which he doesn't control, but can aid Congress to do by appearing as a leading economic expert), or by the printing press. In any case, it's easy to see that this third alternative reduces to the ones discussed above.

It simply beggars belief that Bernanke could fail to know these simple economic truths. Hence, it must be the case that he has either been brainwashed out of recognizing them by Keynesian theory — which employs sophistical arguments to 'prove' that governments can create wealth out of thin air — or he is simply insane.

But whatever his motives, or psychological status, he is radically mistaken if he believes that a government fiscal stimulus will, in general, create jobs and promote economic growth. It never has and never will. It will only continue to distort investment and exacerbate the problems we now face as a result of all the previous attempts.

This enlarged resurgence of the idea that large-scale economic problems can be solved by huge amounts of government spending is simply insane, even if its advocates are not. Or, it's bad theory, theory that will lead to harmful effects the opposite of their intentions. Outside the fantasy world of Keynesians like Bernanke, there's very little practical difference.