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Incompetent economic commentator calls President Bush a dolt
Gerard Jackson
According to Anatole Kaletsky, associate editor of The Times and one of the world’s greatest economic thinkers, President Bush is a dolt. Of course, this is how the progressive side of politics treats conservative politicians, particularly if they are Americans and successful. To these arrogant and intellectually conceited les biens pensants it is an indisputable fact of life that conservatives are either stupid or evil. Therefore President Bush is stupid whereas President Nixon was evil.
Now there can be no doubt as to Mr Kaletsky’s brilliance. If he were an economic dolt would The Times describe him as “one of the country’s leading commentators on economics”? I’m afraid it would. The fact of the matter is that Kaletsky ranks as one of worst economic commentators it has been my painful duty to read.
Merely calling him a crude Keynesian can in no way describe how awful his economics is. I think his article Digging beneath the gloom (Murdoch’s Australian, 29 November 2001) revealed this fact with startling clarity. In it he regurgitated one of the worst of economic fallacies, one so bad that even the vast majority of Keynesians steer away from it — but not our clever and supercilious Mr Kaletsky.
He reasoned that policies severely restricting CO2 emissions would stimulate economic growth and employment because they would “have the effect on the world economy comparable to a large-scale war”*. This is almost Orwellian: war brings prosperity, peace bring stagnation.
Kaletsky thinks that war stimulates investment and employment. According to his logic, it not only cranks up the economy but the wholesale destruction that it causes creates greater and more advanced investments. This is pure bunk. Wholesale war leads to a massive destruction of life and capital. This obviously lowers living standards. Does anyone think that living standards were higher in Germany in 1948 than in 1938? Per capita consumption in Britain in 1948, for instance, was lower than in 1938 while in Germany many people were actually facing starvation.
Whatever put this absurd notion in Kaletsky’s head? As Henry Hazlitt pointed out with the example of his broken window, the likes of Kaletsky only concern themselves with the immediate effect, they cannot see that for anything to be replaced something must be sacrificed. (Economics in One Lesson, Arlington House Publishers, 1979).
When capital goods are destroyed by accident output falls. Now these goods can only be replaced from two sources: 1) Existing capital goods must be withdrawn from another line of production, thus lowering output there; or 2) savings must increase which also means a fall in consumption.
Economic growth basically means capital accumulation. Capital comes out of savings which in turn comes from forgone consumption. In other words, to save means to give up some present consumption in favour of greater future consumption. It should be patently obvious that bombing factories cannot increase the quantity of savings. In fact it lowers them because capital goods are also savings.
Even after a devastating war a country can still raise its living standings, Germany and Japan are proof of that. But the point is that it was not the war that did it but their high savings rates and comparatively free-market post-war policies. If Kaletsky is right it would pay Australia, for example, to thoroughly demolish its factories, offices, transport systems and even housing stock every few years. Looked at from this angle Kaletsky’s absurdity immediately becomes obvious.
One doesn’t need wars, thank God, to accelerate capital replacement and expand the capital structure. One just needs plenty of savings and entrepreneurship. Greater savings provides the necessary capital while entrepreneurship dissolves and recombines capital combinations in a way that increases efficiency and lowers the costs of production — and all without the need for mass bombings and the slaughter that goes with them.
What Kaletsky obviously doesn’t understand is that market processes are continuously destroying inefficient capital combinations and even destroying obsolete capital goods. This with the object of increasing output, not destroying it as in war.
Kaletsky’s silliness brings us to global warming. According to this economic wiz kid raising the cost of energy “will boost employment, investment and economic activity. . .” But how can it boost investment when investment can only come out of savings? Is Kaletsky saying that raising costs and lowering output raises savings? Or is he seriously suggesting that investment can exist without savings? After all, investment consists of the material means of production which can only come from forgone consumption, i.e., savings, which is the real cost of economic growth.
Kaletsky’s stuff is unbelievably bad. But on the basis of his outrageous nonsense he argued that we would all be better off materially if we swallowed green propaganda, as he seems to have done, and took a massive cut in living standards.
The test of a good economist is to be able to follow the secondary consequences of an economic decision. He is one who is not mesmerised by immediate effects at the expense of future consequences. Kaletsky is not a good economist. Moreover, I would go so far as to call him a dolt.
*Bastiat Frédéric (1801-1850) utterly demolished this fallacy in a pamphlet called What Is Seen and What Is Not Seen, published in 1850.
Gerard Jackson is Brookes’ economics editor
BrookesNews.Com
Monday 6 February 2006