Production is the End
“The economic goal of any nation, as of any individual, is to get the greatest results with the least effort. The whole economic progress of mankind has consisted in getting more production with the same labor,” began economist and author Henry Hazlitt in Chapter 10 of his book Economics In One Lesson, first published over 65 years ago.
According to Hazlitt, by maximizing production, full employment becomes a necessary byproduct. In short, said Hazlitt, “production is the end, employment merely the means.”
Unfortunately, this simple and obvious insight was lost on the United States’ central planners when the economy cracked in 2008.
Goaded by academic elites, like Paul Krugman, they set about to solve the unemployment problem with massive amounts of government spending without considering what productive value it would provide. They sought to stimulate new jobs by cranking up the printing press and directing and redistributing wealth through the visible and heavy hand of government.
Deficit spending, which had been out of control for decades, was rocketed into the fourth dimension. The budget deficit more than tripled and debt as a percent of GDP increased from about 70 percent to nearly 100 percent. The wizards in Washington promised jobs and a quick return to a 6 percent unemployment rate. Instead, they succeeded at making a magnificent mess of things.
Government Spending Failure
This week, while the nation watched the deficit ceiling stalemate in Washington with disgust, several economic reports confirmed the economy is slipping and sliding its way back into the abyss. After all this time housing and manufacturing are still faltering and there are no jobs to be had.
On Tuesday, for example, the Commerce Department reported that new home sales declined by 1 percent in June. And on Wednesday they reported that last month’s durable-goods orders had declined by 2.1 percent.
Miraculously, on Thursday, the Labor Department announced that initial claims for state unemployment benefits dropped 24,000 last week to a seasonally adjusted 398,000. Nonetheless, employment growth in May and June has been practically nonexistent, with an increase in nonfarm payrolls of just 43,000.
Obviously, the economic panacea of government spending has been a colossal failure. Washington’s big struggle to cut a deal to reduce spending and increase the debt limit has missed the point – the nation’s broke and all the debt based government spending is strangling a recovery.
Even the most aggressive proposals do not even come close to reducing deficit spending to pre-recession levels, which were already out of control. To do so would require cutting $1 billion a year, or $10 billion over 10 years. But even if this did happen, the government would still add $5 trillion – a 33 percent increase – to the national debt over the next 10-years.
Admit Defeat of the Social Utopia
By the time you read this, GDP data for June will have been published. We anticipate growth will be around 2 percent, or perhaps even less. A growth rate of 2 percent is not enough to reduce the unemployment rate. Moreover, attempting to boost growth by increasing the deficit is, for the first time in 17 years, not politically expedient.
More and more people seem to understand and loath what has been going on…
Central planners have arrested productive employment opportunities for vast quantities of the population. By directing investment away from productive actions and squandering it – and by artificially suppressing the price of money – they’ve limited the ability of many capable and intelligent individuals to provide for themselves and their families.
The results are evident: Growth is stagnant. Unemployment is elevated. And debt has exploded.
Despite how much they spend, the government can’t increase production. Only private enterprise can. Until production increases, a feeble recovery is the best outcome. So when will production increase?
Production won’t increase until the clever and cheeky fellows in government reign back their looting of the public purse and admit defeat in their misguided undertaking to manage economic growth, redistribute wealth, put the entire population on the government dole, and bring in the social utopia.
for Economic Prism