The Fork In The Road

A lot can be said for reading Hayek, Mises, and Sowell but the most important economist for our times is Milton Friedman. I cannot speak to the origins of the monetarist school of economics but I can tell you that at one point the school became one and the same with the work of Friedman.

To quote Friedman, "inflation is always and everywhere a monetary phenomenon." That simple statement has as many implications as just about any statement ever uttered. But let us narrow our focus to the matters at hand. National spending is not subject to the constraints of other spending. For-profit corporations, not-for-profit corporations, universities, municipalities, states, families and individuals cannot print their own money. Only nations can do that (we can sides step the merits of private currency for now.)

The nature of nations is such that leaders usually spend in an irresponsible manner. It's the way of the world. Nations commit economic suicide on a regular basis.

We can be a bit dramatic and say that eventually a free spending country faces a fork in the road but actually the fork is always there. Perhaps monetarism is better suited to nautical metaphor (Bill Ayers will appreciate that) than to pilgrim metaphor. But the choice is always there: Continue on a course of ever increasing spending or cease spending in a reckless manner.

What has to be emphasized and reemphasized is that both options are painful. If through some miracle Ron Paul were elected president, Rand Paul became Senate Majority Leader, Paul Ryan became Speaker of The House and Mrs. Paul replaced Ben Bernanke, the brakes would finally be applied. But it would be painful. We would have a recession that would drag on for months or even years. And yet, this would be less painful and less destructive in the long run than unbridled spending causes a Weimar situation.

But a necessary recession can be a tough sell for citizens who do no speak German or SchweizerDeutsch (not sure how Austrian speaking people would handle the situation.) The German collective memory focuses on the Weimar currency collapse that ushered in Adolf Hitler. America's collective nightmare is the Great Depression. America did not gain wisdom from The Depression but they did learn a couple of simplistic ideas. 1. Economic activity is good. 2. Economic inactivity is bad.

It is the American fear of economic inactivity that has lead to reckless spending. Washington does not distinguish between economic activity and work. Funding a Department of Education (or a Solyndra) creates jobs and generates economic activity. But does the Department of Education promote useful services and improve the education of America? You can answer that one.

Economists have used an addiction model to explain government spending. We can quit cold turkey and save our lives or we can delay a fate that will ultimately be much worse. One of the problems with this model is that withdrawal in the economic sphere lasts for months or even years. It's not a three day spin dry. No weekend cold turkey. Uh uh. This is a transformation where real people, even good people, get hurt.

A fiscal conservative will have a hard time making the case for the lesser of two evils. The media love hyperspending and Harvard students now walk out on economic courses that have "a conservative bias." Life sometimes has a conservative bias. Truth sometimes has a conservative bias. Economics does not so much have a conservative bias as conservatism has an economic bias.

A hard rain is going to fall. The best case scenario is a short, sharp recession. But I doubt if America has the political will to endure a short term period of inactivity. Our government funds a lot of waste but the beneficiaries of government waste buy automobiles and flat screens and cell phones. It won't just be the pigs who get slaughtered. Bad things will happen to good people.

Does Gingrich or Romney have the courage to discuss the necessary choices we have to make? If elected, do they have the courage to enact decisions that will be beneficial in the long run but brutal in the short term? I don't know. But it is time for the rest of us to acknowledge the difficult choices we have to make. A $15,000,000,000,000 debt cannot be painlessly erased.