How to Kill an Economy

[Guest]

By Bojidar Marinov | Published: September 15, 2010

If you are an economic adviser to the Obama administration, the solution to the famine in Ethiopia must be simple enough: Ethiopians must start eating. The more they eat, the more food they will have. And the more expensive and gourmet foods they buy, the more they will have. Then they should start buying more clothes, and clothes will appear in their stores. Then they should buy TVs and computers, and thus the production of electronics will appear in Ethiopia. They should start buying cars, travel extensively, and that will create an auto-industry, oil refineries, and gas stations. And so on.

In short, Ethiopians must stimulate the demand. They obviously don’t stimulate it if their economy is in such a bad shape. They don’t want to eat, drive cars, dress nicely, and throw lavish parties. There is no demand. And because there is no demand, there is no economy. Someone needs to tell them to stimulate the demand and spend themselves out of famine and destitution. Someone like Larry Summers, Obama’s “top economic adviser,” must go to Ethiopia and explain reality to Ethiopians: “Kick start the demand, folks.”

Someone with more common sense than Larry Summers might remark that there is no food in Ethiopia to start with. No one has produced it. Producers were destroyed or forced out of business in the last generation in Ethiopia by the Communist government and its economic experiments. There was a lot of demand – just as Larry Summers wants it. With government money – just as Larry Summers wants it. Eventually neither the demand nor the government money produced a stimulated economy. It all produced famine.

In fact, it was the government spending in Ethiopia that destroyed the producers. More and more government money on the market did not create more production, it created more inflation. The producers were paid with depreciating money, and even that depreciating money was additionally taxed or confiscated for the government spending sprees. Eventually it didn’t make sense to produce – production was an exercise in futility. Ethiopia was decapitalized. The once proud empire that defeated Muslim and European powers and exported 80 percent of its production of food is now starving.

Contrary to what Summers says, we don’t have “problems on the side of demand.” No economy ever had those problems. Human beings are human beings: they want more, they demand more. Their demand is always more than what anyone can produce. Eventually, if left to themselves, they will consume more than what is produced until there is nothing left. Our problems today are not caused by insufficient demand. We have the opposite problem: We have consumed too much, more than we have produced.

Demand that is greater than production is gluttony. And Larry Summers’ call to “stimulate demand” has a moral side to it: stimulate gluttony. His goal is to de-capitalize the American economy. And he knows that there are several ways to go about it but one is more effective than all the others: Stimulate gluttony. When you remove the moral and economic restraint on consumption, the economy becomes a huge orgy of destruction. The available capital of the nation is spent on producing for consumption, not on investing for the future. Less and less capital is directed toward innovation and building new production facilities because the increased consumption requires more of it going into short-term projects.

This is where money comes in as a restrictive factor: It places checks on uncontrolled gluttony. A person who doesn’t produce more than he consumes eventually runs out of money. He runs out of means for exchange to persuade producers to sell him more goods for consumption. His gluttony is restrained by the increased prices on the goods. The price system both gives information about how much something is valued and also serves a moral purpose: It warns the society when it has fallen into the trap of gluttony. A society that has sound money will never go too far in its gluttony.

But Larry and other Keynesians want to remove that obstacle. Money shouldn’t be a problem, they claim. The government must provide it so that the nation becomes more gluttonous and devour more of its capital. They are on a crusade: A socialist crusade to destroy everything that capitalism created in America.

There are several ways to de-capitalize a nation. Of course, its capital can be destroyed in a war. Or it can be taxed to oblivion. Or it can be directly confiscated. But de-capitalizing a nation by encouraging its citizens to gluttony is by far the most elegant and efficient way. They believe they are bathing in prosperity, while in fact they are destroying it. All that needs to be done, Summers suggests, is to remove the obstacle of money, and let the orgy begin. After all, doesn’t every one want to be prosperous and have more? Why not take advantage of it, here and now?

The TEA Party is wrong on one issue: It is not government spending that destroys the economy. It is private spending. The desire of individual Americans to have more and more is what is bringing the nation to collapse. Unless the TEA Party leaders expose this sad truth about our present reality, the economy is not going to recover. An economy of growing demand above savings and investments is an economy of destruction of capital.

The situation was similar in the last centuries of the Roman Empire. The Empire debased the currency to be able to spend more. But it is not so much the Imperial government as the individual Roman citizens who were spending and destroying their wealth. The Roman poet Juvenal denounces the vices of gluttony and uncontrolled spending in his fellow-Romans in the early 2nd century. More and more they preferred to spend their resources on short-term pleasures than on construction, investment, and long-term savings. Eventually the Empire was de-capitalized, and it fell.

In that orgy of consumption and spending, one institution arose that resisted the wide-spread gluttony: the Church. It preached against spending and lavish luxury, and it gave practical example. The first monasteries in Europe were not only centers of learning but centers of alternative economic life as well. Monks and bishops and Christian nobles and ordinary Christian families withdrew from the economic life of the Empire and practiced restraint and self-control. Unlike the hermits in the East, monks in the West did not practice unproductive separation from the world. They only practiced separation from a wicked economic system that was destroying its own children in its unlimited lust for pleasures. To the contrary, the monasteries and the church itself gave example of life devoted to production and very little consumption. Monks and priests preserved the knowledge of technologies for production, and they produced, but they accumulated and didn’t spend.

When the Empire fell, the Church had all the gold. And therefore made the rules.

This should be our Christian response to Larry Summers and his call for stimulating gluttony. The church must advise its members to stop unnecessary consumption. Every one of us individually must learn to live at the bare minimum, and save the rest in a form that won’t perish or devalue easily; or be taxed to extinction. Christians must prepare to deal with the coming collapse in the same way our spiritual forefathers did: by effectively refusing to participate in the gluttony. We must produce but not consume. We must plant and sow, but wait for the future fruit. We must invest in long-term projects and forgo present consumption. We must refuse to take advantage of government hand-outs and stimulus packages. And our churches must stop spending more and more money on inessential decorum. And our pastors should start preaching against gluttony; it’s about time we hear some real preaching from the pulpits.

The old rule that “we must live below our means” is not valid anymore. With the money so unpredictable and devoid of any sound basis, no one can know for sure what “our means” are. Just like in the Roman Empire, with the coins being debased indefinitely, no one knew how much they were worth, no one today knows how much his pay check is really worth. Therefore we must learn to live even lower than just “below our means.” We have been given to gluttony for too long. It is time to be on a diet.

Resisting government spending is good and necessary. But more important is resisting our own temptation to spend uncontrollably. Only by effectively exercising self-control we will be able to resist Larry Summers, Obama, and the rest of the socialist crowd in high places.

Otherwise, we will end up as Ethiopia did.

http://visiontoamerica.org/story/how-to-kill-an-economy.html