Friday, February 01, 2008

The Meaning of Ron Paul (2)

My last posting, about Ron Paul, led to a reader, Bobby, posting a comment saying that should Ron Paul be the Republican candidate in this year's US general election, he, Bobby, will vote for him, since he finds intrinsically appealing, Ron's down-to-earth economic message.

Since whatever Ron Paul says, and what people say about what he says, is usually provocative, Bobby's comment provoked me into writing a reponse longer than is normal in such responses.

Having written it, I considered it suitable for a separate posting, so here it is:

Hi Bobby - You've obviously been taken in by Ron Paul's economic bromides, which sound so simple - too good to be true, you might say, and they certainly are!!!

You should know that Ron is a disciple of the Austrian and Chicago schools of economics, whose high-priests include(d) Friederich Hayek and Ludwig von Mises of the Austrian school; and Milton Friedman of the Chicago school. The philosophies of the Austrian and Chicago schools are, by the way, for all intents and purposes the same, saying, in so many words, that taxes and the size of goverment must be kept to the bare minimum, so that the businessman can throw off his shackles, and unrestrainedly do his stuff in the glorious world of the free marketplace. Thus the economy will grow by leaps and bounds, and we'll all have good jobs, and be prosperous and happy.

If you believe all this, then I'm not surprised you'd vote for Ron. You'd be foolish not to.

Ron would take us all back to the time of the Great Crash of 1929 and before, when public sector spending in most of today's industrialized countries was a mere 10% of GDP, instead of the on-average 35% it now is. If you belonged to the rich elite, you were fine. But if you belonged to the majority who were poor, you weren't so fine. Admittedly you didn't have to pay much in taxes, but you were likely to be poor, and very possibly unemployed because joblessness was at 25% instead of the 7% or 8% it is today.

This state of affairs continued up to World War Two, when unemployment suddenly dropped to almost zero, because there was an immediate huge demand for people to make guns, tanks, and aeroplanes, and to wield them as soldiers, sailors, and airmen. So there was work for everyone, despite the work not being for the most part particularly pleasant, and often downright dangerous. But it was still work, so you never had to worry where your next crust was coming from.

Amazingly, things went on humming after the war's end, when returning soldiers demanded changes from how things were. They wanted the good life as reward for their wartime sacrifices. Goverments could only ensure this by continuing to spend at much higher rates than before the war, so to keep money flowing through the economic system. This created a continuous demand for goods and services, which in turn created a continuous need for workers and consumers.

This is called Keynesian economics - after the economist John Maynard Keynes, who said that in order to ameliorate the sharp fluctuations of business cycles, governments must pump large amounts of money into the public sector to keep up a steady demand for goods and services and maintain full employment.

So to apply Keynesian economics became the accepted practice, and, as a result, the societies of today's "developed world" transformed from being blue-collar working-class societies into white-collar middle-class ones, and brought about the greatest economic expansion in history. This is how things still are. But because people always take things for granted, many took for granted the post-war prosperity, and complained about the taxes to maintain the Keynesian economic order. So they demanded that their taxes be reduced, and governments be shrunk, so the businessman could do his thing.

But most of those who led the demands to go back to the old ways, were academics and business professionals, who were only able to become academics and business professionals because of the huge expansion of public education in the post-war Keynesian world. It's a poor reflection on post-war education, that so many emerged not knowing much of history and economics.Thus they learned no lessons from the Great Depression, among them that Capitalism contains within itself the seeds of its destruction - one of the great observations of Karl Marx. So these glib children of the Baby Boom generation didn't understand that, but for the Second World War and the huge public-sector spending it entailed, the capitalist economic system would likely not have survived, for it just wasn't working. Capitalism had to be saved from itself through goverment intervention.

But fortunately, the likes of Ron Paul and his acolytes - the ones who complain the loudest about Keynesianism - are in the minority, for most of those in charge of governments today are Keynesians. Even that arch Republican, Richard Nixon, once famously said, "We're all Keynesians now". And George Bush is also unwittingly a "Keynesian", although he would probably never admit this, assuming he knows of the word, "Keynesian", which he may not.

But if, Bobby, you've read this far, and you still aren't convinced of the merits of Keynesianism, ask yourself why, after the huge stock market crash of 1987 - a crash proportionately as large as that of 1929 - there wasn't another Great Depression? Well, it was because, thanks to the Keynesian monetary institutions and systems set up after World War Two to prevent another world-wide depression, goverments were able immediately to pump many billions of dollars into the system, to maintain an uninterrupted demand for goods and services. So, after a hiccup, the system went right on ticking, and the stock market soon recovered. Other large stock-market fluctuations have since occurred. But, again, there was no world-wide depression. So the Keynesian system must be doing something right.

So, Bobby, I feel sure you now see that Ron Paul, who rejects Keynesianism, and wants the world to return to what it was before 1929, doesn't know what he's talking about when it comes to economics. This isn't to say he isn't a clever man, for he is, since he's a physician, and you must be clever to become a physician. So Ron would know much more about medicine than he would about economics. Well, yes, he's read some books about economics, the ones by Friederich Hayek and Ludwig von Mises of the Austrian school. But Ron's economic utterances are simply another example of a little learning being a dangerous thing.

If Ron would widen his reading to include books by the likes of John Maynard Keynes and John Kenneth Galbraith, he might learn how Keynesianism has saved us from economic disaster. And he might come to understand that the societies of the US and the other industrialized countries would, if they rejected Keynesianism, become as unequal as those of Indonesia, the Phillippines, Brazil, and South Africa, with their 30% unemployment rates. And he might become aware that whenever economic disparities within the industrialized countries have widened, their rate of economic growth has stagnated.

Lest you think I traduce Ron Paul unduly, I recognize that he's a good and public-spirited man who has contributed greatly to humanity by delivering many thousands of babies as an obstetrician, and performing free medical services to the poor. And his demand that the US dismantle its world-wide empire, bring all its soldiers home, and return to being the republic it once was, is wholly admirable. It is his stance on Iraq, and on US foreign entanglements, which has given him a somewhat high profile in the current presidential race. It's not his economics. And he has been a veritable breath of fresh air in the Republican debates, saying things that at least cause people to think.

You shouldn't, Bobby, take Ron Paul seriously when he says that the Department of Education, and the Federal Reserve, and the Income Tax, should be abolished. Ron can say these things, knowing he won't be elected president. If he were, perchance, the Republican front-runner, he'd be talking very differently. You can count on it.


And Now For Something Completely Different