I enjoyed reading your Friday (Feb, 23) column, “Romney’s Economic Closet.” You confirmed what many of we free market types have been asserting for months, namely that Mitt Romney is really one of your fellow travelers, a neo-Keynesian dressed up as an unrepentant free market guy. In other words, it takes a Keynesian to know a fellow Keynesian.
In your column, you cite Romney asserting that less government spending would slow “economic growth.” In the very narrow sense, less government spending would reduce nominal GDP, because government spending is a major component of measuring aggregate economic activity. However, less government spending would be a tonic for the economy because it would free up resources that would be better used by business owners and corporate decision makers in the private sector to create products we want.
In addition, less government spending would reduce the deficit, end the Federal Reserve’s monetizing of the debt, thus slowing down the debasement of the dollar, a concern of the average household whose real income has been pulverized by the Fed’s monetary inflation. Why you do not have any sympathy for households which are experiencing price inflation in the supermarket, at the gas pump and at other retail outlets is puzzling inasmuch as you are a self-proclaimed champion of the “little guy.”
In both the short and long run, government spending does not create wealth. Government spending is just that…spending. Real wealth is created by investment in more efficient means of production and innovation. New products, think Apple, Google, Facebook, software, Amazon, Whole Foods, Trader Joe’s, Costco, Stryker, etc. In other words, free human beings who are able to coordinate the factors of production create wealth by providing the masses with things they want. Isn’t that what economics professors teach undergraduates?
Romney may be the GOP presidential nominee after all is said and done, and thus the American people would have a choice between a Democratic Keynesian and a Republican Keynesian in November. Keynesians in both major political parties would still be in charge of economic policy as they have since the 1930s.
The results of Keynesianism are all around us–a $15 trillion national debt, $1 trillion federal budget deficits, monetary inflation that has debased the value of the dollar more than 80% since President Nixon on August 15, 1971 ended the last link between the dollar and real money, gold.
Keynesians should take “ownership” for the state of the U.S.economy with pride. Their “trickle down economics” prescription of higher and higher government spending, zero interest rates and massive deficits are unsustainable in the long run. But then again, Keynes said “in the long run, we are all dead.” True, but not very insightful regarding economic policy. The U.S.economy will not be on a path of sustainable prosperity if we continue to implement the Keynesian paradigm of tax, spend, borrow and print money with abandon.
In other words, we must abandon Keynesian “central planning ” and the crony capitalism practiced by both political parties, and allow the greatest engine of prosperity, the free enterprise system, to flourish.
Professor of Finance
Ramapo College of New Jersey