Here is a letter to the USA Today:
Ensuring the survival of the euro, Mr. Kelemen and Mr. Jones offer a remedy that will abdicate more power to central planners at the European Commission by “strengthening eurozone governance” (Why the EU, and the euro, will survive, 8-30-11).
Unfortunately, the irony is that the inception of the euro put European nations on this very collision course currently playing out across the continent. While free trade amongst Europeans is beneficial, creating a single currency forces a symbiotic relationship between countries. The failure of one nation (Greece, for instance) consequently drags on the economies of those that are thriving, like Germany.
Moreover, a lack of currency competition between sovereign states creates bubbles in the marketplace. With one centralized currency, the signs of a failing economy in a few isolated nations will go relatively unnoticed until a tipping point has already passed. Strong economies like Germany can carry the weight for the entire European Union and the euro, but when a crisis emerges, those same economies of strength are now obliged to bail out the weaker ones.
If the suggested prescription for the European Union is more lending and borrowing, the consequences will be softer money floating around and a devaluation of the euro – hence inflation. Nations that built strong economies are now subject to the collateral damage stemming from irresponsible policies of a few bad apples – all due to currency interdependence.
Craig D. Schlesinger
*co-authored with Craig D. Schlesinger
Attempts to reinforce the certainty of John Maynard Keynes’ economic theories and characterize his critics as illiterate shows a disheartening lack of knowledge while besmirching his greatest intellectual rival and critic: the lesser-known Austrian economist Friedrich A. Hayek. Hardly an illiterate, Hayek won the 1974 Nobel Prize in Economic Sciences and authored the best-selling book, The Road to Serfdom, in addition to other influential works on economics, law, and political philosophy. While we encourage Keynesians to read up on Hayek, we know they wont, so here’s a free lesson…
His differences with Keynes stem from the inevitable knowledge problem suffered by those tapped to centrally plan the economy. No matter the brilliance of technocratic planners, vital knowledge is dispersed throughout millions of market actors, which cannot possibly be attained through central planning committees. Hayek asserted, “The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.”
The two further disagreed about the state in which markets exist. Keynes believed market economies were entities to be managed and controlled. However, Hayek argued markets exist in an organic state, where individuals come together spontaneously, acting on “the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess,” as reflected in a freely moving price system. Prices then serve as the proper indicator of supply and demand signaling to consumers the true costs of goods and services. Market competition serves as the mechanism for accurate coordination of such a pricing system.
Hayek’s counter to Keynesian stimulus further damages the conventional wisdom of economic thought. Claiming that if natural occurrences like adjustments in partiality or technological change alter prices, market actors would in turn be forced to reestablish the mechanisms in which they organize with others in the marketplace. As the price of goods change, re-organization will occur spontaneously rather than artificially. On the other hand, monetary disturbances (i.e. Keynesian stimulus and the flooding of markets with money by central banks) distort signals by creating unsustainable inflation. As a result, central banks cannot continually ‘ease’ markets with printed money, which in turn perpetuates the boom-bust business cycle. These artificial interventions expanding the money supply are a major driver of America’s financial predicament.
As it currently stands, world economic policies continue to move in Hayek’s direction. Since the fall of the Soviet Union, the vast majority of its former satellite states moved from centrally planned economies to free-market systems – creating prosperity previously unseen. Even China, one of the last stalwarts of socialist-style economic planning, significantly opened its markets and realized massive increases in economic growth and wealth as a result. As societies progress, Keynesian economics continually prove ineffective when compared to the spontaneous order of free markets.
Here is a letter to the St. Petersburg Times:
The case for “a massive stimulus” is extremely flawed (Think big on economy, August 11). We’ve tried this same approach in perpetuity, hoping for different results. The rationale put forth echoes assertions like, ‘the other stimulus wasn’t large enough.’ It didn’t work for Herbert Hoover or FDR, nor has it worked for George W. Bush and President Obama.
Recklessly printing money coupled with “serious tax hikes” will not increase economic output, or create jobs. Accelerating the rate of growth of inflation is the only outcome of major stimulus.
The mechanism for creating jobs and increasing economic growth is to provide a level playing field, with certainty in the marketplace. If the federal government truly desires to tackle our economic woes, it can start by eliminating the income tax on individuals and corporations, and replacing it with a consumption tax.
This simple measure will instantaneously create jobs and increase the rate of growth of investment and savings without eliminating the social safety net for those truly in need.
Craig D. Schlesinger
Here is a letter to the Chicago Tribune:
Suggesting the members of the Federal Reserve are the only “grown-ups” in the room providing “leadership in the storm” is rich with irony (The Fed didn’t blink, August 10). Granted, the Fed’s job is difficult; however, central economic planning is always difficult since it hasn’t worked throughout our nation’s history.
Inflation is not a “distant threat” – it is a perpetual threat. Since the passage of the Federal Reserve Act in 1913, the money supply has been in an almost constant state of expansion. The value of the dollar suffered as a result, losing nearly 90% of its value. The recent rounds of quantitative easing further expand the money supply while achieving no economic benefit as markets continue to slump and growth remains anemic.
Furthermore, the policy of bailout economics is as far from responsible as it gets. Creating trillions of dollars out of thin air to prop up failed institutions is antithetical to free market capitalism by interfering in the natural boom-bust business cycle, eschewing the necessary market self-correction. We are currently experiencing the repercussions – while banks are doing great, the federal government is teetering and the American people bear the burden.
Regardless of any “pressure” on the Fed to take action in the wake of the debt deal, S&P downgrade, and subsequent market reactions, their previous behavior led us down this road. Reckless money printing and manipulation of interest rates will not bring about “maximum employment and stable prices.” Only market demand can determine wages, prices, interest rates, and the like – not the Federal Open Market Committee.
Craig D. Schlesinger