According to economists and their media enablers, the Russian economy is booming and prices rising. The growth and its attendant ‘inflation’ is said to be a combination of soaring government spending on the war in Ukraine combined with domestic government spending meant to soften any economic blow from the war. If economists are to be believed, war and Keynesian waste have an upside: growth.
To all this, conservative economists in the U.S. surely have an answer, don’t they? Their historical (and correct, by the way) reply would be that governments have no resources. Say’s Law indicates that governments can only spend and redistribute spending power insofar as they extract spending and redistributive power from the producers of it first.
Emerging from the basic truth is that there’s no economic growth and no rising prices born of government spending. Instead, government spending is a consequence of economic growth. To then say that it stimulates prosperity is to double count. Prices can’t rise as a consequence of government redistribution of wealth simply because the pockets into which money is placed by governments can only be filled insofar as the pockets of those who produced the wealth in the first place are drained.
We’re talking basic stuff here. Here’s hoping conservatives get to work correcting the nonsensical analysis of what’s happening in Russia right now. Hopefully they add on that war by its very name is the stuff of economic decline as the very humans who drive all economic progress through division of labor and talent are exterminating each other instead of producing alongside one another. Conservatives are positioned to expose accepted economic wisdom as nonsense, while also embarrassing the Russians.
But wait, conservative economists can’t make these arguments. And they can’t because they’ve spent the past 2 ½ years redefining inflation in the way that economists and media members are defining it in Russia now. While conservatives achieved actual policy lift-off during the Reagan years when they embraced the Say’s Law truth about all supply emerging from demand, those days are gone. Eager to score cheap political points over voicing economic truths, they’ve embraced the very Keynesian double counting that they used to scorn. This has manifested itself with commentary suggesting that government spending under President Biden has fostered “excess demand” that has driven up prices. Not only is inflation no longer monetary in nature, the redefinition of the latter has occurred in concert with figurative “We’re All Keynesians Now” chanting that says government can lift the proverbial $100 bill from all of our pockets without actually lifting it. Put another way, our tax dollars will enable demand from others without shrinking our own demand.
If the description of what passes for serious economic analysis reads as ridiculous, that’s because it is. In both Russia and the U.S. Rather than focus on actual inflation (the falling ruble), economists and media members covering the Russian economy are pretending that the Putin government can power growth by extracting the fruits of growth from the pockets of the productive. And they’re saying this is creating an imbalance defined by “excess demand” relative to supply.
Oh well, in the past conservatives were positioned to point out that demand always and everywhere mirrors supply. The problem is that the past is the past. Eager yet again to score cheap political points born of the redefinition of inflation, conservatives have sold their policy souls in recent years. Inflation is now caused by people “buying things.” Get out your “Whip Inflation Now” pins from the Gerald Ford era. Conservatives seemingly have, and the Russians have seemingly stolen them.
Originally published at RealClear Markets