Tuesday, February 28, 2012


I'm just being facetious with the title here. A not so subtle reference to Frank's latest strawman.

I feel Frank either doesn't understand the argument against Keynes or isn't representing it accurately. There's a lot more to it than simply the idea that the threat of future higher taxes incentivizes people to save and not spend. Frank debunked this argument and I won't bother with trying to build it back up. Instead there are many good reasons not to want the government to engage in stimulus spending.

First is that the government cannot give to anyone anything that it does not first take from someone else. So any money that the government pumps into the economy it has to eventually take back out. A Keynesian might argue that this is necessary to give the economy a boost in the short run to return prices back to their previous levels or create some other boom in another sector. However, prices serve a vital function in the economy. They are key to allocating scarce resources. Prices are the signals to individuals, producers and consumers alike, that help them make decision about how much and what to consume or produce without perfect knowledge of the economy. When the government pumps money into the economy it is not dolled out to everyone evenly. Some sectors of the economy receive the stimulus while others do not. This distorts the price signals entrepreneurs use when deciding what to invest in. Previously unattractive investments begin to appear profitable. And so the economy begins once again to move in an unsustainable direction.

Distorted prices too far away from real market values are precisely what cause a bubble to pop. As efficient prices are at allocating scarce resources, they cannot perfectly reflect the resources available in the economy. People always speculate though. It is inherent in how entrepreneurship works. Business people invest their money thus taking a risk. When people speculate about future profitable areas of the economy, this creates a bubble. Eventually, however, those businesses that cannot compete are weeded out and only those that can make a sustainable profit at lower prices survive.

These are only some reasons why stimulus spending is the disease, not the cure. For more on this I would recommend reading more about the Austrian Business Cycle Theory.

There is one other topic I would like to speak on that Frank gives very little credibility. In one simple and short paragraph he dismisses the possibility of a society without government. He states that any territory not governed would quickly be conquered by other territories with governments. I would concede this point if there was no one occupying and owning this territory. However, why couldn't there be a society where people's property rights are respected? They could be protected by the expectation of the community. I am not well equipped nor is this is not the time to argue for Anarcho-Capitalism, but I do not dismiss it so readily. I recognize the necessity for rule of law. But sometimes the codification of rules gives them undue credibility and gives certain individuals absolute authority. Government is just a collection of individuals. Why are they any better equipped to make decisions for other people than each person is for themselves? If we are to have a government it should simply establish a rule of law and a standing army to protect the interests of the citizens. It should be decentralized and as local and as limited as possible. I have a serious ideological problem with trying to achieve the ends of a peaceful society through the inherently coercive force of government. When government gets too large, people begin to engage in favor seeking and look to it to solve the problems of the world. I would argue that we should look outside of government to solve our problems. Government should be instituted simply to protect individuals' natural rights, nothing more. Any further duties government takes on are likely to further infringe on property rights and liberty. For more on this I would recommend Frederic Bastiat's short essay "The Law." And I would love any recommendations for readings on anarcho capitalism or small government structures.


  1. Would you support a balanced budget ammendment? Basically, government spending spending would be equal to tax revenue.

  2. I think I would support that. It would also be good to have tax dollars separated by their intended use. So if governments are to maintain roads, the gas tax is taken into an account solely for road maintenance. When your income is taxed it goes into an account specifically for social security and cannot be used for anything else. I think that would make the tax system and government more transparent.