Writes Richard Salsman over at Forbes on How The Demand-Siders Ruined The U.S. Economy:
Both [Keynesianism and Monetarism] schools, while posing as academic rivals, in fact have far more in common than they admit. Both obsess about mere spending and consumption — the economy’s “demand-side” — to the neglect and harm of its all-important supply-side. What always drives a robust economy is not “consumers” per se but savers, investors, innovators and producers.
Whereas Keynesians claim a free economy is at risk of “over-producing” and under-consuming, Monetarists claim it is at risk of “deflation” due to insufficient money supplies. The Keynesians are always eager to boost what they call “insufficient aggregate demand,” typically by means of government deficit-spending, a policy they tout as “stimulus.”
Likewise, the Monetarists are ever-eager to counter imagined threats to demand allegedly posed by insufficient money-creation, and if necessary they’d resort to helicopters to dispense the needed money from above, a policy they call “quantitative easing.” Yet these demand-side schemes – Keynesian deficit-spending and Monetarist money-printing alike — only erode entrepreneurial and productive prowess. For example, today’s dangerously long duration of unemployment (39 weeks) reflects repeated extensions of jobless benefits, which Keynesians demand as a way to stoke more consumption, not extra jobs or output.
In truth, and contra-Keynesianism, mere consumption is the effect of production, not its cause; to consume is equivalent to using up or destroying wealth, not creating it anew. Likewise, and contra-Monetarism, the mere creation of fiat paper money (or bank reserves) by a monopoly central bank isn’t the same as creating real wealth; indeed, more often than not the effect — inflation — only undermines the wealth-production process, by distorting price signals, while simultaneously robbing unsuspecting money-holders of purchasing power.
Sadly, U.S. policymakers seem to be aping the crazy policies adopted by their Japanese counterparts starting two decades ago: gargantuan deficit-spending and money-printing. Keynesian and Monetarist policies can easily cross borders, much like viruses. Japan’s economy has stagnated during this time, not “in spite of” its demand-side schemes but because of them. Its government debt is now 200% of GDP, double what it was in 1996, and at the same time the Bank of Japan boosted the money supply by 158%. What good did any of this do? Japan’s NIKKEI today is half what it was in 1996, while its industrial output is higher by only 1%.
In this century so far America also has suffered a “lost decade” of sorts, due to the anti-prosperity schemes of both Keynesians and Monetarists; they’ve depressed the economic growth rate and saddled both current and future generations with massive and unparalleled deficit-spending and debt monetization. Together with a burgeoning mass of regulations, demand-side policies suffocate private-sector incentives to save, produce, invest and hire. Thus capitalists are on strike — and rightly so, since they face political assaults from both sides.