Liberals’ reading list: Keynes, Friedman and ... Twain?
Today’s geyser of federal spending may have some people thinking of buried bottles, and others of hovering helicopters. They really should be thinking of the Connecticut Yankee.
In the 20th century’s most consequential economic treatise, “The General Theory of Employment, Interest, and Money” (1936), John Maynard Keynes said:
“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines ... and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again ... there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties
FROM THE RIGHT
in the way of this, the above would be better than nothing.”
Besides, building houses would take more time than burying and excavating bottles, for which the government would get the excavators’ immediate gratitude.
Milton Friedman, Keynes’s rival for the title of the 20th century’s most influential economist, offered this thought experiment: “Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, collected by members of the community. Let us suppose further that everyone is convinced this event will never be repeated.”
But why would they think that today? Even in pre-pandemic normality, 72% of the federal budget was transfer payments. Today, America’s skies are darkened with government checks blotting out the sun, each trillion-dollar tranche of spending considered a “down payment” on the next.
The explanation for current government policy might be that Democrats have been reading “A Connecticut Yankee in King Arthur’s Court.” In Mark Twain’s novel, a 19th-century American is transported back to Britain in the year 528. Condemned to death, he remembers that an eclipse occurred on the date of his scheduled execution, so he amazes everyone and saves himself by vowing to extinguish the sun, and then promising to let it shine again if his demands are met.
Today, a post-pandemic boom, powered by pent-up demand for everything, is almost as predictable as a solar eclipse, so Democrats are promising to create the boom by showering freshly created money on a grateful nation. Perhaps Democrats remember Paul Samuelson’s prediction. In the grim war year of 1943, Samuelson, a future Nobel laureate, thought peace, too, would be grim: He anticipated “the greatest period of unemployment and industrial dislocation which any economy has ever faced.” What happened is known as the Postwar Boom.
The Federal Reserve promises to continue stimulative policy, nearzero interest rates, and its median growth estimate for 2021 is 6.5%, up from its 4.2% estimate three months ago. Low rates mean servicing the U.S. debt this year is projected to cost only $378 billion, about 25% of last year’s personal income tax revenue. Marc Joffe of the Reason Foundation says, “If interest rates return to the levels we saw during the 1980s, debt service costs would suddenly consume half the federal budget or more.”
Most economists say rates will remain low for the foreseeable future. In April 2008, the foreseeable future did not extend to September.