Do any of you good citizens remember John Maynard Keynes (pronounced Cains)?
Keynes was the noted British economist who, following WW II, was the father of modern deficit spending. His thesis was that if a nation is experiencing a recession, or stagnancy, it should spend itself out of its recession. How? By issuing long-term government bonds with high enough interest rates to entice those who have money to invest in those bonds, giving government lots of cash to spend on job-creating projects like infrastructure, national defense, education, plus the usual list of unnecessary government programs, all aimed at stimulating economic growth. It's accurate to say that for many years, and even today in the minds of some egalitarian diehards, John Maynard was, and is, elevated to the status of secular sainthood.
However, as with all good things, too much is too much! And when his economic ideas began to spread to America, we went absolutely crazy, spending ourselves silly throughout the years from 1955 through the 1980s. That's how we accumulated our great national debt in the trillions of dollars. Every politician from the 1950s on, until Ronald Reagan, ignored the mounting debt saying, "Why worry? We only owe it to ourselves, don't we?"
Beginning with the Reagan administration, although outnumbered by spendthrift Democrats who dominated the house and the senate, serious attempts were made to balance the budget, but it couldn't be done until much later when the Republicans won the House of Representatives in the 1990s for the first time in more than 30 years. Their "Contract With America" was the beginning of the end, at least temporarily, of deficit spending per the teachings of John Maynard Keynes.
Now you must understand that old John Maynard wasn't so stupid as to think any nation could continue deficit spending indefinitely. The piper eventually has to be paid, and Keynes well understood that. His basic idea of spending a nation out of a recession was OK once in awhile except that government had to know when to back off, but it didn't. So thanks to ignorant politicians, John Maynard has been largely discredited by the majority of today's economists, except Alan Greenscum, er Greenspan, who is a closet Keynesian. But being the scrupulous sneak-thief that he is, Mr. Greenspan has figured out a clever twist. More on that later.
Now the greatest economist of all time, that is, the only one who always bounces back from intermittent periods of obscurity within the fickle economics establishment, is Ludwig von Mises, the father of capitalism. And by the way, for those of you who may be interested, the von Mises library, which contains all that he ever published including those hundreds of documents taken by the Russians at the end of WW II, now resides at Hillsdale College in Hillsdale, Mich. It could be said that von Mises was the original supply-sider, long before Laffer.
What all of this is leading up to, and as usual I'm leading up to something, is that today Alan Greenspan is mounting a new charge into deficit spending, but this time without involving the government. Greenspan and today's politicians, are far too clever to openly revive government sanctioned deficit spending which for some time now has been the political kiss of death with most Americans. Instead, Greenspan and Bush want you and me to deficit spend, running up our personal debt in order to stimulate the economy out of one of its normal, periodic, overdue recessions. and the sad part is that it's being done to mollify the stock market barons, and for political reasons such as the elections three years from now. Every time the government tries to fine-tune our economy, the intended results get reversed. If government would just get out of the way and reduce taxes, the private sector would once again get itself in gear. It would have to.
Whenever interest rates are lowered to artificially low levels as they are now, it is unhealthy because it penalizes savers who are the backbone of the credit system. And it encourages them to invest in a bloated securities market, bidding against each other for overpriced stocks which is a house of cards, and has absolutely nothing to do with prime-moving economy. The stock market doesn't lead the economy, it follows the economy! Moreover, easy borrowing spawns thousands of new personal bankruptcies which have to be paid for by somebody, ultimately by us savers through higher taxes and higher fees for services to support the losers. Everybody knows this recession isn't Bush's. Why can't he just t let private enterprise correct it as it always will. Phony interest rates will surely come home to roost, and he isn't going to like where.
Bob Thomas is a local businessman, past member of the Carson City School Board, the Nevada State Assembly and a former Nevada Appeal columnist.
