AEP Speaks for Himself

We are all Keynesians now, so let’s get fiscal.” This is one view according to Ambrose Evans-Pritchard from The Telegraph who believes the time is right for the UK government to loosen its fiscal stance.

 

KeynesAmbrose Evans-Pritchard is channeling JM Keynes these days (depicted above). Alternative media long regarded AEP as a rare exception in the mainstream press, willing to take on economic orthodoxy. We are happy to report that we had his number early on. First he outed himself as a monetarist and advocated money printing, and now he has apparently moved over to Keynesianism. Readers may want to review some earlier articles in this context: Parade of the Inflationists, Tapering Paranoia, and Anglo-Saxon Central Banking Socialism = Free Lunch.

Photo credit: Keystone/DPA

 

He suggests that the “Bank of England has done everything possible under the constraints of monetary orthodoxy to cushion the Brexit shock. It is now up to the British government to save the economy, and the sooner the better,” — argues the economics editor of The Telegraph.

According to Ambrose Evans-Pritchard, monetary policy is close to its limits. The Bank of England’s preemptive £170 billion stimulus package is brave — and unquestionably the right thing to do in these dramatic circumstances — however, given the present limitations of monetary policy he is of the view that only loose fiscal policy can address the shocks of Brexit.

Now even if one were to accept that Brexit has caused a shock, is loose monetary policy the necessary remedy? What is needed to offset a shock is to boost the pool of real wealth. Printing more money never does it. A looser monetary stance only dilutes the pool of real wealth and weakens the process of wealth generation.

So contrary to The Telegraph’s economics editor, the monetary pumping of the Bank of England is not a brave and necessary policy but rather — a policy that undermines the process of real wealth formation.

 

Government Is Not a Wealth-Generating Entity

To suggest that in order to save the UK economy the British government should lift its spending is to imply that the government is a wealth generating entity. In reality the projects that government undertakes are actually of a wealth consuming nature. The fact that the private sector does not undertake these projects indicates that they are of low priority to individuals.

 

Pyramid buildersBeware of pyramid builders and ditch diggers… today the pyramids may be profitable tourism attractors, but at the time they were erected, they were surely very low on most people’s list of priorities. Their construction devoured enormous resources, with no discernible benefit to the people alive at the time; resources the Pharaos obtained at spear-point, as it were.

Image credit: Sir John Gardner Wilkinson

 

The implementation of these projects is going to undermine the well-being of individuals, because they are funded at the expense of projects that are of a higher priority and would otherwise be undertaken in the private sector.

Moreover, whenever wealth producers exchange their products with each other, the exchange is voluntary. Every producer exchanges goods in his possession for goods that he believes will raise his living standard. The crux of the matter is that the trade must be free.

Government activities, however, are of a coercive nature; they are funded by forcing wealth producers to part with their wealth in exchange for less-desirable government services. Producers of wealth are forced to exchange more for less. Obviously this impairs their well-being.

 

obtaining resourcesGovernment in the process of obtaining resources.

Cartoon via beforeitsnews.com

 

Let’s assume that the government decides to build a pyramid and that most people regard this as a low priority. The people employed on this project must be given access to various goods and services to sustain their existence.

Now, the government is not a wealth producer, so it has to impose taxes on wealth generators — those individuals who produce goods and services in accordance with consumers’ priorities — in order to fund the building of a pyramid.

 

Government Spending Diverts Funding From What People Really Want

The more pyramid-building that the government undertakes, the more real wealth will be taken away from wealth generators. It follows that the level of tax — i.e., real wealth taken from the wealth-generating private sector — is directly determined by the size of government activities.

If government activities could generate wealth, they would be self-funded and would not require any support from other wealth generators, and the issue of taxes would never arise.

The essence of the previous analysis is not altered by the introduction of money. In the money economy, the government will tax and transfer the received money to various individuals who are employed directly or indirectly by the government.

Government employees can now exchange taxed money for various goods and services and engage in the consumption of real wealth without making any contribution to the real wealth formation.

The government can use various methods to divert wealth from wealth producers toward its activities. These methods — which can be summed up as “effective taxation” includes direct and indirect taxes and levies; borrowing from the private sector and monetary printing as a result of government borrowing from the central bank.

 

How Government Stimulus Destroys Wealth

However the method of diverting real wealth is of secondary importance. What matters here is that real wealth is diverted from wealth producers. The more that is diverted, the higher the effective tax imposed on the wealth-generating private sector is going to be.

 

road-to-recoveryGovernment has no secret stash of resources it can deploy: every cent it spends has to be taken from the private sector in some shape or form. Its spending diverts real resources from those generating wealth. As Ludwig von Mises noted: “[…] there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.”

Cartoon by Cox & Forkum

 

A superficial view could argue that borrowing from the private sector must not be regarded as taxation. However, when government borrows from the private sector, it cannot repay the borrowed real wealth. Only wealth producers who are borrowing from each other are in a position to repay from their future production of wealth.

All that government can do is to pay back borrowed wealth by means of newly created money, or through new taxes, or through new borrowing, thereby further impoverishing wealth producers.

Similarly, when government borrows from the central bank, it effectively causes the central bank to hand the government newly created money, which is employed to divert real wealth from the private sector.

One could argue that government could also borrow overseas, thereby reducing the burden on the private sector. Since it is not a wealth generator, however, the burden of servicing the foreign debt will fall on the private sector.

So how could the government help the economy? We suggest by actually cutting its outlays as much as possible thereby lowering the effective tax burden on the wealth generating private sector. With more wealth left at its disposal the private sector is likely to generate more wealth thereby strengthening the economy.

We can only suggest that the UK (and any other economy) should maintain their Keynesian loose fiscal policies at a bare minimum in order to allow for healthy foundations for economic growth.

 

Image captions by PT

 

Dr. Frank Shostak is an Associated Scholar of the Mises Institute. His consulting firm, Applied Austrian School Economics (AASE), provides in-depth assessments and reports of financial markets and global economies. He received his bachelor’s degree from Hebrew University, master’s degree from Witwatersrand University and PhD from Rands Afrikaanse University, and has taught at the University of Pretoria and the Graduate Business School at Witwatersrand University.

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Yanking the Bank of Japan’s Chain
      Mathematical Certainties Based on the simple reflection that arithmetic is more than just an abstraction, we offer a modest observation.  The social safety nets of industrialized economies, including the United States, have frayed at the edges.  Soon the safety net’s fabric will snap. This recognition is not an opinion.  Rather, it’s a matter of basic arithmetic.  The economy cannot sustain the government obligations that have been piled up upon it over the last 70...
  • Prepare for Another Market Face Pounding
      “Better than Goldilocks” “Markets make opinions,” goes the old Wall Street adage.  Indeed, this sounds like a nifty thing to say.  But what does it really mean?   The bears discover Mrs. Locks in their bed and it seems they are less than happy. [PT]   Perhaps this means that after a long period of rising stocks prices otherwise intelligent people conceive of clever explanations for why the good times will carry on.  Moreover, if the market goes up for...
  • The Future of the Third World
      Decolonization The British Empire was the largest in history. At the end of World War II Britain had to start pulling out from its colonies. A major part of the reason was, ironically, the economic prosperity that had come through industrialization, massive improvements in transportation, and the advent of telecommunications, ethnic and religious respect, freedom of speech, and other liberties offered by the empire.   The colors represent the colonies of various nations...
  • What Went Wrong With the 21st Century?
      Fools and Rascals   And it’s time, time, time And it’s time, time, time It’s time, time, time that you love And it’s time, time, time… - Tom  Waits   Tom Waits rasps about time   POITOU, FRANCE – “So how much did you make last night?” “We made about $15,000,” came the reply from our eldest son, a keen cryptocurrency investor. “Bitcoin briefly pierced the $3,500 mark – an all-time high. The market cap of the...
  • Bitcoin Forked – Precious Metals Supply and Demand Report
      A Fork in the Cryptographic Road So bitcoin forked. You did not know this. Well, if you’re saving in gold perhaps not. If you’re betting in the crypto-coin casino, you knew it, bet on it, and now we assume are happily diving into your greater quantity of dollars after the fork.   Bitcoin, daily – adding the current price of BCH (the new type of Bitcoin all holders of BTC can claim at a 1:1 ratio), the gain since the “fork” amounts to roughly $1,000 at the time we...
  • Czar vs. Pope
      Vladimir the Great Sums Up Pope Francis the Fake Vladimir Putin has once again demonstrated why he is the most perceptive, farsighted, and for a politician, the most honest world leader to come around in quite a while.  If it had not been for his patient and wise statesmanship, the world may have already been embroiled in an all-encompassing global conflagration with the possibility of thermonuclear destruction.   Vladimir Putin is sizing up Pope Francis with his “good...
  • Seasonality: Will Patterns that Worked in the Past Also Work in the Future?
      Historians of the Future Every investor makes trading decisions based on what happened in the past – there is no other way. What really interests us is the future though. After all, what happens in the future ultimately determines investment success.   When in doubt, you can always try to reach the pasture...  In Human Action, Ludwig von Mises described stock market speculators as akin to “historians of the future”. This is without a doubt the most trenchant definition of...
  • Bitcoin Has No Yield, but Gold Does – Precious Metals Supply and Demand Report
      Bitcoin and Credit Transactions Last week, we said:   It is commonly accepted to say the dollar is “printed”, but we can see from this line of thinking it is really borrowed. There is a real borrower on the other side of the transaction, and that borrower has powerful motivations to keep paying to service the debt. Bitcoin has no backing. Bitcoin is created out of thin air, the way people say of the dollar. The quantity of bitcoins created may be strictly limited by...
  • Is Historically Low Volatility About to Expand?
      Suspicion Asleep You have probably noticed it already: stock market volatility has recently all but disappeared. This raises an important question for every investor: Has the market established a permanent plateau of low volatility, or is the current period of low volatility just the calm before the storm?   All quiet on the VIX front... what can possibly happen? [PT] - click to enlarge.   When such questions regarding future market trends arise, it is often...
  • Why There Will Be No 11th Hour Debt Ceiling Deal
      Milestones in the Pursuit of Insolvency A new milestone on the American populaces’ collective pursuit of insolvency was reached this week. According to a report published on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter. This included an increase of $552 billion from a year ago.   US consumer debt is making new all time highs – while this post GFC surge is actually...
  • Will They Haul Off Trump’s Statue, Too?
      Confused by Shadows POITOU, FRANCE – This week, we are talking about theperishable nature of gods. Yesterday, the city fathers of our hometown of Baltimore let it be known that it was time to toss out the old deities.   The Robert E. Lee and Thomas. J. “Stonewall” Jackson Monument in Baltimore, which the mayor inter alia wants to remove. Suddenly it has become fashionable to erase the memory of an important part of US history all over the country. By experience, this...
  • Bad Ideas About Money and Bitcoin
      How We Got Used to Fiat Money Most false or irrational ideas about money are not new. For example, take the idea that government can just fix the price of one monetary asset against another. Some people think that we can have a gold standard by such a decree today. This idea goes back at least as far as the Coinage Act of 1792, when the government fixed 371.25 grains of silver to the same value as 24.75 grains of gold, or a ratio of 15 to 1. This caused problems because the market...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com