Wednesday, November 22, 2017

A Pecuniary Paradox



Today we look at one of the more bizarre, even baffling paradoxes that afflicts the modern global economy, albeit one that has become so engrained in monetary and fiscal policy as to rank as unquestioned — and unquestionable — dogma of The Great Defunct Economist, He Who Reigns Above All Other Economists, Alive or Dead.  In case the heavy-handed sarcasm hasn’t alerted you to whom we refer, that’s John Maynard Keynes.

The Great Defunct Economist
Keynes didn’t develop this paradox, but he did more than anyone else to embed it in public policy.  The triumph of the New Deal rendered opposition to it unthinkable, whether in politics or Academia.
And the paradox is?
That the tax system, something intended solely to raise money to defray the legitimate costs of government (another whole discussion), is being used to engage in “social engineering” and finance economic growth.  At the same time, the commercial and central banking system, designed and intended to ensure that the private sector always has sufficient liquidity to carry out transactions and finance new capital formation, is being used to cover government deficits.
Adding insult to injury, the role of government has expanded far beyond anything ever intended by our distant ancestors, who invented the State as soon as they came down from the trees (and possibly before).  As government tries to do more and more (and ends up accomplishing less and less), the cost of failure and incompetence has soared to heights as undreamed of as the modern level of control over each person’s daily life that was a principal cause of the rising costs of government in the first place.
Daniel Webster (without the Devil)
According to the projections published on the website of “U.S. Government Spending,” the percentage of GDP for the 2018 fiscal year is a little under 40%.  That means that government directly controls close to half the domestic economy by its stranglehold on money and credit, and probably a great deal more indirectly, for what amounts to near-total control of the social order by the State.  This leaves little for people to do for themselves.
It also means that 40% of GDP represents non-productive money creation and spending.  Thus, given a hypothetical $10 trillion GDP, which includes an inflation-adjusted $100 billion increase over the prior year, subtracting out government money creation and spending, instead of a $10 trillion GDP, we end up with a $6 trillion GDP.  Obviously, increased government spending does not represent real growth, for government produces nothing.
The underlying problem is that most people have lost ownership of any meaningful amount of capital.  Lacking property in capital, they lack power; “Power naturally and necessarily follows property,” as Daniel Webster pointed out.
Pope Pius XI
Consequently (such is the limited vision of the world of politics and Academia these days), the State has come to be viewed by many people — and, yet more dangerously, by those in control of the State itself — as the sole recourse for the non-wealthy, a situation crying out for correction.  As Pope Pius XI put it,
When we speak of the reform of institutions, the State comes chiefly to mind, not as if universal well-being were to be expected from its activity, but because things have come to such a pass through the evil of what we have termed “individualism” that, following upon the overthrow and near extinction of that rich social life which was once highly developed through associations of various kinds, there remain virtually only individuals and the State. This is to the great harm of the State itself; for, with a structure of social governance lost, and with the taking over of all the burdens which the wrecked associations once bore, the State has been overwhelmed and crushed by almost infinite tasks and duties. (Quadragesimo Anno, § 78.)
Is there any way out of this mess?  Are people to be at the mercy of a heartless private sector economic élite, or a brainless State political élite?  Is it possible to fund government and take care of everybody in a just manner?
Probably not — if you take that demand literally, as many do these days.  If the attempt is made to have the State take care of everyone’s needs, several problems arise, to say nothing of the egregious offense against human dignity as a result of forcing a condition of dependency on people.  The economy is shackled with growing government deficits (non-productive borrowing and spending), lower standards of living for those on fixed incomes or whose earning capacity has declined in competition with advancing technology or cheaper foreign labor, stagnant to declining real growth as government spending and stock market speculation absorb otherwise productive resources — among other problems.
How, exactly, did this situation come about?
#30#

3 comments:

peter maurin said...

More simply the reason for taxation is that the neoliberal economic model does not spread out the wealth generated to the vast majority of people...and also works to drive the costs of production down, including worker expense...

peter maurin said...

More simply the reason for taxation is that the neoliberal economic model does not spread out the wealth generated to the vast majority of people...and also works to drive the costs of production down, including worker expense...

Michael D. Greaney said...

That's a Keynesian view, and in Keynes's paradigm, the role of taxation is to give the State one more weapon to use in controlling people. Ascribing taxation to the wealth concentration allegedly caused by "the neoliberal economic model" (something Keynes assumed is actually good) is a bit off-base, as there has been taxation as long as there has been human society, and a need to defray the costs of government, regardless how small the political unit. The idea that taxes are for any other purpose is a collectivist notion that seeks to give more power to the State, when as human nature's only legitimate monopoly, the State is already too dangerous.