Friday, February 10, 2012

"Halftime in America" Misses the Point

This year's Super Bowl commercial that is "the talk of the town"--the emphatic, yet implicit rallying call for one of Chrysler Group LLC's major shareholders: the US Government--has at its heart the core of the Keynesian economic thought. Namely, in the The General Theory on Employment, Interest and Money--the bedrock of current mainstream economic teaching--Baron Keynes relegates the laws of economics to "animal spirits" present within people. These "spirits", rather than rationally based judgments, according to the General Theory, prompt us to make optimistic economic decisions (p 161-162). No wonder the general public sees economists as cooks. In the vein of Keynesian Animal Spirits, "Halftime in America" attempts to stir up the "bull inside of us," and put the "bear" into hibernation. It asks us to believe that everything will work out, just because it has in the past. This is like praying for a good crop, without having worked the fields all summer. True enough, people did believe in the power of spirits to provide irrigation, fertilizer and seeds to supply their food for thousands of years. As they grew more informed, from instances of free-marker trial and error, our ancestors realized that "spirits" had very little to do with the plenty-fulness of their crops. Indeed, people learned that certain laws in Nature hold true, and that they were wiser to spend their time obeying those laws, rather than believing in the bounty that is ahead.

Unlike John Maynard Keynes, Adam Smith, David Ricardo and the "Austrians", followers of Carl Menger,  tended to seek out the laws of Nature that pertain to economics. As a result they've come to a series of conclusions: goods and services constitute wealth, not money; productive labor creates wealth; government intervention leads to more government intervention; people are not necessarily good or bad in nature, but everything they do is with a self-interested motive to improve their own being; government regulation tends to suppress economic growth, and when the option is available, to drive capital out of the jurisdiction and into one where conditions are more favorable for profit; prohibition gives rise to crime, government corruption, and it does not suppress the intended activity; economic prosperity demands a proper division of labor, in accordance to the needs of the market; bad money drives out good money, and unsound currency inevitably suffers destruction at the hands of the issuing authority due to the abuse of inflating the money supply for short-term political gain; economic equation is very difficult under an unsound monetary regime, and flat out impossible under a socialist regime; and future expectations shape present decisions. Unfortunately, these laws are frequently overlooked when government policies are made.

Belief or spiritualism, have not been found to constitute economic laws. What is necessary for economic prosperity, as a subitem of future expectations, is trust. Before an "economizing person" (as Carl Menger labels participants in the economy) makes the rational decision to engage in economic trade, he needs to trust that his counterpart in the transaction will provide the payment agreed upon and that that payment will not be a "rubber cheque." Further, if an economizing person is to invest a part or all of his wealth in equipment with which to produce merchandise that makes his customers better off, he needs to trust that his investment will be secure from theft or confiscation. This necessity gives rise to the rule of law. Finally, that same economizing person needs to trust the government of his jurisdiction that it will not embark upon policies that will cause the incomes of his potential customers to decline.

To be sure, despite people's tendencies to flock to religion, superstition or sorcery in times of uncertainty, these actions offer a little more than a momentary piece of mind. However, America's current problem is rooted in the lack of trust, and in order to solve it, trust must be restored. Presently, entrepreneurs do not trust the Government when it pleads that America's is a free-market economy. More so, they cannot trust a Government whose head campaigns on an ideological slogan embedded in the belief that entrepreneurs do not "pay their fair share." While Obama and his leftist supporter point to earlier times when the US government confiscated a larger share of individuals' wealth through taxation and the US economy still grew, they forget one very large point: the emerging economies! Until recently no jurisdiction outside of Western Europe, North America, Japan, South Korea and Australia offered security to entrepreneurs to place their investments in. The explicit presence of Communism ensured that the governments of these countries could hold investors hostage. However, jurisdictions like China and India have become trustworthy enough for entrepreneurs to consider them viable alternatives. The inclusion of these two countries in the sphere of potential investment markets has increased the available potential global workforce; and have made the formerly leading countries not as relatively attractive for investment. To any reasonable person, this fact ought to suggest that the interventionist wizardry of the past, simply won't work this time around.

Not all hope is lost. "Halftime in America" could turn out to be true--but if and only if the right policies get instituted. Those policies, doubtless would have to closely adhere to the laws of economics outlined above. Chrysler's shareholder needs to plough the fields, sow the seeds and dig the irrigation channels. Expecting America to become the bustling, rampantly growing economy again by lighting incense to our bull and bear statuettes every night will be only as effective as a rain dance.

Some really clever guys found a much more entertaining way of criticizing JM Keynes. I hope you enjoy this as much as I did.

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