WEB Commentary Contributor Author: Mark Anderson Bio: Mark Anderson Date: October 25, 2008

Is saving bad for the economy?

Stiglitz, Krugman, Bernanke, Paulson, Bush, McCain, Obama, Congressmembers, and Senators seem to think so

Just how far we have drifted away from our founding principles is breathtaking. Prevailing opinion now says that the solution to our economic problems is that the government increase spending, since consumers can’t.

It is important to understand that the symptoms the government is trying to fight are of the government’s own making, through inflation (i.e., an expansion of the money supply not redeemable in a fixed amount of specie) and massive amounts of spending. The government’s great enabler is, of course, the Federal Reserve.

The pathological origin of our economic problems is inflation, which artificially lowered interest rates, thus sending misleading signals to the loan market and borrowers. We burned through capital and savings, and are now broke.

Common sense would say that one can’t spend their way out of insolvency, nor can one spend beyond their income. But in today’s Keynesian/inflationist paradigm, spending creates income. That’s right: pursuant to neo-orthodoxy, you can increase your income by spending. Of course, that isn’t true.

It is capital that produces wealth, and wealth which gives rise to income. One doesn’t spend money in order to create income. It is income that gives rise to spending. Thus consumers are dependent upon capital for income and the ability to spend, or even - God forbid - save. Simultaneously, capital is dependent upon savers to sustain the process of production.

The idea that aggregate spending can be, or must be, given a boost by the government is nonsense. Saving allows us to fund capital through investment, or spend in the future, since saving is the act of foregoing present consumption. Why do people believe that saving is destructive to the economy?

The reason why the market isn’t spending is because we are broke, thanks to the inflationary orgy over the last several years that made real interest rates negative. Thus it is every more imperative that we begin to save again, otherwise we will continue to burn through what remains of capital and savings.

Why is prevailing orthodoxy so far removed from common sense? Because of the belief that wealth is created on a printing press. Thus, pursuant to this calculus, by spending fiat money, this creates "income." A corollary of this flawed thinking is to believe that fiat-money - i.e., "money" not earned - can represent true capital-sustaining investment. Far from that being the case, inflation - i.e., Bernanke’s "liquidity" - actually destroys savings, capital, and wealth.

If the fiat-money regime keeps at it, what remains of productive and profitable free enterprise (real free enterprise, not subsidized enterprise) will be completely wiped out. It isn’t too late to turn back and do the right things, allowing for the economy to recover.

Here is a good prescription for economic recovery:

1)Politicians everywhere and anywhere need to dramatically CUT GOVERNMENT SPENDING - and cut EVERYWHERE AND ANYWHERE. Government spending is pure consumption, and only diminishes our welfare. Our quality of life will take a beating until we back to the basics and restore Constitutional governance.

2)De-regulate the economy. True de-regulation, not re-regulation. The solution to inefficiency and misfeasance is to allow open and robust competition, not restraining trade. Government regulations only suppress competition, and are thus fascist in nature.

3)The government needs to liquidate the alphabet soup of agencies and departments that stifle voluntary exchange, by doing such things as enforcing occupational licensing laws, or jailing naturopaths who offer truly beneficial treatments merely to protect the medical-industrial complex.

4)Stop letting the Federal Reserve inflate the money supply. Let prices fall as fast as possible until we are back to sound money, where the free market can set interest rates, which, by the way, would naturally be low if we weren’t so busy waging a war on...savers.

Mark Anderson

Webmaster, No Anthrax Vaccine

The following from the Leader Telegram

Paper money brings inflation The quotation from Benjamin Franklin in the letter (titled "Ensure honest money") published Monday does not reflect what happened to colonial fiat money. The phrase "not worth a continental" came about as a result of the runaway inflation caused by paper money issued by the Continental Congress from 1775 to 1779. This is why Article I, Section 8 of the U.S. Constitution gives Congress the power to coin money, not to print it. Article I, Section 10 of our Constitution limits states to only "gold and silver coin ... in payment of debts."

President Franklin Roosevelt’s executive order in 1933 confiscated U.S. citizen’s gold coins and stopped redemption of U.S. paper money for gold. In the 1960s, our $1 silver certificates stopped being redeemed. In 1965, our 90 percent silver coins were replaced by coins with no intrinsic value. In 1971, President Nixon stopped redeeming U.S. paper dollars when foreign nations wanted gold. We are now back on fiat money and the inflation that comes with it.

GERALD A. RUSCH