When even Keynesians disagree

Sometimes you have to really laugh at at the Keynesians.  Sure, we tend to think that they are all Princeton professors who moonlight at a major metropolitan newspaper masquerading as a polemicist.  But oftentimes they are purported believers in the free market.  Case in point:

Al Angrisani, the former assistant Labor Department secretary under President Reagan, doesn’t see a turnaround in the jobs picture for entry-level workers and places the blame squarely on the Obama administration and the construction of its stimulus bill.

“There is no assistance provided for the development of job growth through small businesses, which create 70 percent of the jobs in the country,” Angrisani said in an interview last week. “All those [unemployed young people] should be getting hired by small businesses.”

There are six million small businesses in the country, those that employ less than 100 people, and a jobs stimulus bill should include tax credits to give incentives to those businesses to hire people, the former Labor official said.

“If each of the businesses hired just one person, we would go a long way in growing ourselves back to where we were before the recession,” Angrisani noted.

“They should carve out $100 billion right now and create something like $5,000 to $6,000 job credits that would drive the hiring of young, idled workers by small business.”

No doubt, he would classify himself as a capitalist, a free market supporter.  Perhaps.  But let’s look deeper at this pure Keynesian nonsense.

Granted, this article was really about the dire straits younger (I will never say “workers”, a marxist appellation) job seekers face.  While he does get this part right:

Angrisani said the stimulus money going to extending unemployment benefits is like a narcotic that is keeping the unemployed content — but doing little to get them jobs.

He says nothing of the minimum wage, nor the atrocious union labor policies which effectively block out entry level labor.

I agree, wouldn’t it be nice, golly gee, if all those small businesses would hire just one more employee, then we’d be out of this disaster.  But what is going to make them add one additional unit of labor.  My guess is when the cost of the additional unit is lower than additional benefits, or something along those lines.

Once again, Keynesian thought is full of fallacious assumptions and logical holes.  Will “tax incentives” work?  No.  Carving out an extra $100 billion?  No.

See, what the Austrian school understands, what should be so obvious, is that job growth is the result of, not the cause of, economic growth.  What drives economic growth is capital accumulation and expansion.  Simply adding more labor (yeah, Keynes’ one factor input.  You really have to wonder if he longed to live in the 11th century.) is adding less productive units to production.  Period.

Now, before someone asks about under-utilization, yes, unused capital needs labor.  And yes, the additional labor units might be just as marginally productive.  However, that’s not really the issue.  What has driven the unemployment rates up, what is so depressing about the current economic situation is the state of investment.

Now, I have many times here covered the importance of investment (see mises.org literature please, for much greater analysis) and how the terrible malinvestment the last decade has decimated the economy.

No incentive to hire is going to work.  No extra monies (besides, where does the money come from?  Do we just print it?  Do we borrow it?  Do we tax others?  C’mon, haven’t we gotten past the “gov’t can just spend money and …” argument?) is going to do anything other than delay the readjustment process.  Period.

The only thing that is going to create employment opportunities is investment and increases in the capital stock.  This article is only too imbued with the fallacious Keynesian spending/jobs/growth ideas which is clear in specifically ignoring business investment.

The most significant point about this article, is its greatest deficiency: the lack of understanding of what brought us to this condition.  The Austrians take a causal-realist appraoch to economics.  What Austrians understand (again, while swimming in a Keynesian cesspool) is that before you can address the results, you must understand the causes.  And the cause of all this is massive state intervention into the labor, capital, and money markets.

Now, I don’t need to go into (any more than I’ve already done numerous times here) how the leviathan state and monopolistic fed have so distorted economic decisions.  By now, it should be clear.  If not, go into my archives, or (much!!) better yet, spend a few hours (which will turn into a few days, and then some) at the mises.org repository.

Interventions caused the distortions, so by reason then, more interventions are necessarily the cure?

I just happen to find amusing all those Keynesians who really think that intervention IS free market economics.


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