Investor CAFÉ

Skousen CAFE: Make Austerity Your Friend

“The solution to our problems is found in business, outside of government.”
– Tony Blair, Milken conference 2013

“There is much revenue in economy.” — Ben Franklin

SPECIAL ANNOUNCEMENT: At 9 p.m. EDT tonight, I appear on John Stossel’s Fox Business (check local listings) show “Stossel” to discuss the growing debate “Austerity vs. Stimulus: Which is the Best Way Out of the Great Recession?”

I invite you to watch me debate Robert Kuttner, author of the new book, “Debtor’s Prison: The Politics of Austerity.” He and other big-government Keynesians have been attacking the policy of cutting back government spending, which they contend only will cause more unemployment and misery. They not only reject austerity, but insist on going into debt even more to stimulate the economy.

A slew of anti-austerity books have come out lately: “Austerity: The History of a Dangerous Idea”… “Why Austerity Kills”… followed by articles like this one from Paul Krugman, “The Case for Austerity Crumbles.” He specifically refers to Europe, where he claims cutbacks have pushed unemployment higher and made things worse.

But have Krugman, Kuttner and the social democrats won the day? Not so fast.

First of all, it’s important to note that Washington and most countries in Europe have talked austerity but have not had the guts to really follow through. “The sequester” only reduced the growth of U.S. government spending. Equally, there have been few real cuts in spending in Europe, including the United Kingdom. In most cases, the “austerity” involved sharp increases in taxes — even Keynesians oppose raising taxes during a slowdown. Government spending as a percentage of gross domestic product (GDP) is way up since 2007. That’s why Europe continues to suffer.

In fact, the only country in Europe that actually has cut government spending and taxes is tiny Estonia, and that nation is booming.

We must not ignore the benefits of austerity — eliminating waste in the private and public sector, rebuilding company balance sheets, improving labor and capital productivity, etc., and warning government at all levels to avoid excessive “Great Society” welfare programs and deficits that got us into this mess in the first place. Governments need to build rainy day funds so that cutbacks on essential government services are not necessary during the next downturn.

Smart individuals and families know they must live within their means and not get into excessive credit card debt or buy a house they can’t afford — it’s called prudent personal finance.

A government is no different. As Adam Smith stated, “What is prudence in the conduct of every private family can scarcely be folly in that of a great kingdom.” This quote is found in the direct center of Smith’s classic work, “The Wealth of Nations” published in 1776.

The key to any recovery is to encourage the private sector, which represents the majority shareholders in the economy and the creator of new jobs. The Keynesians hope to jump start business by running massive deficits and using easy-money policies, thinking such spending will increase aggregate demand. But the truth is that government spending is often offset by companies playing it safe, cutting back on private spending and building large cash positions (over $2 trillion now) in anticipation of higher taxes down the road, instead of investing funds in new projects and jobs. The crowding out problem is real.

My solution is more on the supply side: removing barriers to new production by cutting the corporate tax rate and curtailing new regulations (ObamaCare, Dodd-Frank, Sarbanes-Oxley, EPA, IRS). By reducing the deficit, more money is made available to the private sector, which is more productive.

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You Blew it! I’m Sick of Sic

Recently, I read an article by an erudite writer on the financial crisis. He cited a government official and placed the term “sic” near the end of the quotation. Here is the sentence:

“Just ask Gideon Gono, chief of the Zimbabwean central bank, who, reflecting bitterly on the world’s second-worst hyperinflation, wrote: ‘These interventions which were exactly in the mould of bail out packages and quantitative easing measures currently instituted in the US and the EU, were geared at evoking a positive supply response and arrest[sic] further economic decline.’”

For the life of me, I can’t figure out what’s so bad about the word “arrest” that it deserves to be labeled “sic.” Sic, of course, is the Latin adverb meaning “thus” (short for sic erat scriptum, “thus was it written”). It is typically used to note an erroneous spelling of a word.

Since much handwriting involved non-standard spellings, historians today usually note in the introduction of their books that the spelling is “as is” or has been standardized to modern spelling. That’s much better than constantly adding “sic” to every other sentence or word.

In the above case, “arrest” is not misspelled. I had to ask my editor — my wife Jo Ann, an English professor — what was wrong in this sentence. She replied: “It should be ‘arresting,’ to match the progressive verb ‘evoking,’ instead of just ‘arrest.’”

Oh, my, talk about picky.

Here is how my wife, the English professor, said she would have handled the situation… “arrest[ing] further economic development.”

“I would just correct the quote, using brackets to indicate that something was changed,” Jo Ann explained. “In fact, ‘sic’ indicates that the quoter has checked the source and is verifying that it is correct as written (let it stand). Simple typos and careless mistakes should be corrected with brackets.”

Unfortunately, “sic” is being used more and more as a form of ridicule or insult, a way of attacking an opponent’s philosophy or policies by trying to show how much smarter the writer is. In short, I’m sick of sic.

To read my e-letter from last week’s Eagle Daily Investor, please click here. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.

Yours for peace, prosperity, and liberty, AEIOU,

Mark Skousen

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