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Henryk A. Kowalczyk

Henryk A. Kowalczyk

Posted: December 1, 2008 06:44 PM

The Lure of Keynesianism


In his recent column, Prof. Robert Reich is saying that the rich are getting richer and the poor are getting poorer; and that this is not good for the economy. I can agree.

As a remedy, Prof. Reich is recommending extended government spending. He does not say where the government should take the money from. It could be done by taxing the rich (which usually means slowing the economy, thus affecting the poor the most), or by printing extra money (which means inflation, thus also hurting the poor the most).

The key to a free market is the "free" part. The more freedom all market participants have, the less likely it is that wide disparities in wealth distribution occur. Government oversight means that for the sake of the good of society some market players have their freedom limited. But, who can afford to pay lobbyists to have their interests prevail in government decisions? Government intervention produces results opposite to the stated intent -- it limits the freedoms of small market players and empowers mega-corporations.

The way out of our crisis is to limit further the influence of government over the economy, so that even if someone could afford to buy political influence, there would be very little to sell. When problems arise because some market players have more freedom than others, the solution is not to limit freedoms they have, but to extend freedom to all market players. By giving more freedom to everybody, not only to those who can hire Washington lobbyists, we can revive the economic strength of the middle class, flatten the wealth distribution, and make the whole country richer in the process.

The free market could be seen as a cruel political concept. However, it is the "cruelty" of an accountant telling us that two plus two is always four, regardless of how we feel about it. By using terms like "fiscal hawks," Prof. Reich defines himself as motivated by those feelings, not the cold logic of an accountant.

Lastly, Prof. Reich writes: "Income-tax cuts go mainly to upper-income people, and they tend to save rather than spend." What happens to that money saved? Do they rot in the bank basements, or do they finance new ventures?

Behind Prof. Reich's reasoning is an everlasting longing for a harmonious society. Unfortunately, society is a part of nature, and as always in nature, there are quiet moments and stormy ones. What is the philosophical reason for the expectation that we should have only rosy days? What is the background for the conviction that we have the knowledge and means to protect us from periodic economic hardships? At my Marxism-Leninism classes, I was told that socialism is better as it protects us from the periodic recessions of the capitalist system. It was actually accomplished by putting the economy in permanent stagnation; something I experienced first-hand in my native Poland.

Keynesianism, in its very concept, is oriented toward preserving the existing order. It is a mitigated form of socialism. In the free market approach, after every storm new horizons arise, and new opportunities along with them. Biblically, we were advised to build an ark to navigate throughout the deluge. Not everybody built an ark, not everybody survived. We can support public policies helping more individuals to build the arks needed to navigate throughout current economic turmoil. Prof. Reich wants to put the government into the business of stopping the deluge.

In Prof. Reich's view, we have to give more of our money and relinquish more of our powers to bureaucrats, hoping that they will be smarter then we are and somehow bring back the sweetness of the prosperity of the last two decades.

In my view, we have to face the cruelty of the numbers telling us that some of the things we have been doing so far, or the way we have been doing them, do not add up. We have to endure the pain of change, and find new ways and new opportunities out of this experience.