The New Ideological Divide: Stimulators vs Austereians
Economies do not grow because consumers spend; consumers spend because economies grow.
Despite the apparent deficit-cutting solidarity that emerged from this weekend's G-20 meeting in Toronto, it is clear that the great powers of the industrialized world have not been this philosophically estranged since the end of the Cold War. Ironically, in this new contest, the former belligerents have switched sides - the capitalists are now the socialists, and vice versa.
We now are witnessing a struggle between two camps that I playfully call the "Stimulators" and the "Austereians." Both warn that a worldwide depression will ensue if governments now make the wrong choices: the Stimulators say the danger lies in spending too little and the Austereians from spending too much. Each side also has their own economic champion: the Stimulators follow the banner of Nobel Prize-winning economist Paul Krugman, while the Austereians are forming up behind the recently reformed former Fed Chairman Alan Greenspan. (It is cold comfort to witness "The Maestro" belatedly returning to the hard-money positions that characterized his earlier years.)
In a recent Wall Street Journal editorial, Greenspan argued that the best economic stimulus would be for the world's leading debtors (the United States, UK, Japan, Italy, et al) to rein in their budget deficits, a strategy dubbed "austerity" by the press. Greenspan explains that because lower deficits will restore confidence, diminish the threat of inflation, and allow savings to flow to private-sector investment rather than public-sector consumption, the short-term pain will lead to gains both in the mid- and long-term. Rather than redistributing a shrinking pie, this approach allows the pie to grow. Greenspan's Austereian view has been echoed loudly in the highest policy circles of Berlin, Ottawa, Moscow, Beijing, and Canberra.
Meanwhile, in several articles for his New York Times column, including one today, Krugman has argued that those who push for austerity in the face of recession are either doing so for political expediency or out of a "crazy" fealty to archaic economic views. Krugman has apparently judged inadequate the trillions of dollars worth of deficit spending unleashed by the United States and European governments in the last 24 months. He believes our only remedy is to spend more - no matter how much debt results. Absent this, he claims, millions of workers "will never work again." Unfortunately, Washington has clearly aligned itself with Krugman and the Stimulators.
Reading straight from the Keynesian playbook, Krugman argues that cutting government spending now will simply send the economy back into recession. He asserts that by flooding the economy with money, i.e. "stimulus," governments can encourage consumers to spend. Once the spending creates better conditions, so the argument goes, the economy will be better positioned to withstand the spending cuts, tax hikes, and higher interest rates necessary to address the staggering deficits left behind.
Krugman proposes an enticing argument that is nevertheless built on rubbish. Economies do not grow because consumers spend; consumers spend because economies grow [for a detailed explanation of how this works, read my latest book: How an Economy Grows]. Investment capital comes from savings, and when governments borrow, savings are diverted from private investment. While it is possible for governments to invest as well, it is much more likely that the money will be spent on entitlements or "invested" in projects that may be politically advantageous but economically useless.
Any money spent by governments is not available to the private sector to invest. The Stimulators don't make this connection because they believe money grows on trees and that a printing press is a legitimate creator of wealth. However, printing money merely encourages people to spend their savings now rather than wait for it to lose value through inflation. This is okay to Stimulators, because stimulating "demand" by any means necessary is the only goal they can see.
What really grows an economy is not more demand, but more supply [also explained in my book]. The Austereian argument is that reductions in government spending will allow the private sector to generate the additional supply of goods and services. Europe seems to understand this; unfortunately, the US does not. Judging by the recent weakness of the dollar - not only against gold, but other fiat currencies, including the pound and the euro - the markets are coming to the same conclusion.
As sovereign-debt worries initially spread throughout Europe, the dollar benefitted. However, now that Europe has demonstrated a willingness to reduce its debts, while we have committed to make ours even larger, the sovereign-debt worries are moving west.
If Greenspan and the Austereians are correct, the stimulus will fail and leave us in a much deeper hole. As long as governments create bigger deficits, we will never have a sustainable recovery. Instead, we will be chasing our tail, and wearing ourselves out in the process. When we finally realize the folly of this approach, the austerity measures that we will then be forced to adopt will make those currently proposed by the Europeans seem relatively painless.
My guess is that before year-end, our stimulus-induced recovery will falter, prompting Obama and Congress to administer even more stimulus. After all, the Stimulators have no other answer. However, given the adverse reaction this will produce in the currency and debt markets, this next jolt will likely vindicate the Austereians, as the world witnesses its greatest power careen into inflationary depression.
Further Arguments Against the NYC Mosque
This argument requires one to understand the essential nature of Islam, its role in the world now and in the immediate future.
Bosch Fawstin / fawstin.blogspot.com In the last couple of weeks Objectivists have been debating whether our government should interfere with the construction of a planned Mosque near Ground Zero in New York City. The debate seems to have started on Facebook, then continued on Diana Hsieh’s Noodle Food blog and elsewhere. Leonard Peikoff then devoted an entire podcast to the issue, which sparked even more debate, both on Facebook, and back on Diana’s blog, where both she and Paul Hsieh have written posts reiterating and further explaining their disagreement with Leonard on this issue. In this post I offer some further considerations in support of Leonard Peikoff’s stand on this issue, and try to address some of the arguments raised by the other side. Note that I am not speaking for Leonard Peikoff on this issue, although I am arguing in support of his stand on it.
As I understand it, we are at war with those who are animated by an ideology — Islam — that declares war on us (the nonbelievers) and our way of life. Because they have declared war on us, we are at war with them, regardless of whether our government has chosen to formally or explicitly declare war on anyone. This war is more than a cultural war, because this ideology explicitly advocates the use of force in order to propagate its ideas and way of life. Most importantly, in my view, a significant number of Islam’s adherents have acted according to its teachings, killing thousands of Americans. And, by all accounts, they will continue to do so. Finally, it seems that the majority of Islam’s adherents are sitting by, silent, refusing to denounce the initiation of force by their fellow believers.
Nonetheless, it has been argued that, because our government has not explicitly declared war, then any of the potential ways that our government might stop the mosque from being built, within the context of our current legal system, would negate property rights. Why? Because without that declaration of war, property rights are presumably retained by those who own the land and intend to build a mosque there.
I think there are a couple issues here that prevent some Objectivists from wholeheartedly agreeing with Leonard Peikoff’s view.
First, I think that one’s understanding of the nature of Islam will affect whether one believes that building a Mosque in the United States is an exercise of property rights. So long as one believes in the existence of a predominantly peaceful Islam, with only some fringe elements (call them what you want) being responsible for terrorist attacks on the U.S., then one is more likely to believe that property rights are the relevant principle at stake. Of the Objectivists who I have seen weigh in on this debate in the past couple of weeks, those on the “anti-mosque” side seem to be better versed in the nature of Islam and Jihad.
There’s another issue, however: even if you agree that in reality, there is no property right to build a Mosque in the U.S., much less near Ground Zero, you might still think that you want the government to follow proper procedures – i.e., respect the ideal of the rule of law – before stripping any legal rights away from the owners of the property at issue. You might be concerned that, should proper procedures/precedents not be followed or set, then you will be statism’s next victim. I have a few thoughts on this.
We are good people living under a bad government in a time of war. Objectivists have argued, properly, that if our government was bad, in the sense of being an aggressor in war, then we should be prepared to suffer the consequences when another country acts in self-defense. However, here our government is not the aggressor, it’s the appeaser. Do we similarly have to sit back – in the name of the rule of law – and let ourselves be wiped out as collateral damage? One argument that has been made is that, because we’ve allowed our government to go down this path, we have to be prepared to accept the consequences. But note that the argument is not that we have to accept the consequences in order to preserve the principle of property rights; instead the issue, as I see it, boils down to the preservation of the rule of law. So what can be said about that?
First, there probably are good legal arguments that could be made to stop this, arguments that need not presuppose that our government has formally declared war. This approach is tricky, of course, because you can’t say that someone doesn’t have a right to property, simply because his views, which he plans to promote via use of his property, at root negate the principle of private property. Plenty of ideologies do that. So this gets back to the problem of recognizing the unique nature of Islam in this regard. To make the proper sort of legal argument I have in mind – something along the lines of a well-defined trade embargo, or perhaps a charge of conspiracy to commit a crime, or, as James Valliant has suggested, solicitation to murder – one has to recognize that the distinguishing characteristic of Islam as a religion is its doctrine of Jihad, which is, in effect, an incitement to violence, even though many individual Muslims aren’t violent and never will be. If you don’t believe this about Islam as such, then you will naturally reject this approach.
Some have doubted whether Islam can be distinguished in this way, and have told me that the holy books of other religions have similarly violent passages. I am not an expert on religion, but what I have seen is that Islam is, today, inciting a significant number of Muslims, on a regular basis, to commit terrorist attacks against the US. For every attack or planned attack we learn about in the news, imagine how many have been thwarted, that we never hear about. There’s probably more to say about this distinction, but to me, a call to kill in the name of Catholicism, today, would pretty much fall on deaf ears the way that “Kill in the name of the blue-green martians” would.
OK, so much for using good legal arguments to stop the Mosque. There is also the option of using bad legal arguments. And given that our government won’t declare war or even acknowledge who the enemy is, a bad legal argument is likely what we’d be in for. So what we’d ask the government to use is some sort of invalid law, e.g., a land use regulation, to stop the building of the mosque. Note that here, if you don’t make a principled distinction between Islam and other ideologies, depending on which invalid law you choose to deploy, you are in danger of setting a precedent that can later be used against any ideology that challenges the government. This is what many Objectivists are concerned about: the use of invalid law to stop this mosque as setting a dangerous precedent. A few considerations here.
Longer-term vs. shorter-term perspective. Again, I return to recognizing the nature of Islam. If you believe the worst about Islam, you will see that there will be no long term unless the propagation of this ideology is stopped whenever possible, by whatever means. Ask the question this way: Should we argue for the adherence to proper legal procedure in a context where:
- Doing so puts American citizens at potential tremendous risk, in the immediate future, plus
- Nowhere else in the government are those procedures being strictly adhered to anyway.
Consider some other things we might support only in the context of a mixed economy:
One Facebook friend raised the issue of cheering for Apollo 11, even though one knows that government should not be investing in space exploration. Rand discusses similar (albeit less inspiring) examples in her essay, “A Question of Scholarships,” where she argues that it is OK to take advantage of invalid laws (government scholarships and funding for research), so long as one advocates the abolition of such laws. Rand writes, “[A] scientist is morally justified in accepting government grants—so long as he opposes all forms of welfare statism. As in the case of scholarship-recipients, a scientist does not have to add self-martyrdom to the injustices he suffers.” Similarly, can’t we take advantage of whatever invalid laws might be used to stop the building of this mosque, so long as we consider any benefit to be gained thereby as retribution for all the damage done to us by a government that has not protected us, and so long as we advocate the abolition of these invalid laws?
Another example is that of promoting school vouchers. Given the context of public education, many promote school vouchers – using other people’s money to pay for your child’s private education – on the idea that we are at least moving towards relative freedom. One can argue that, here, using invalid laws to stop the building of the Mosque does move us towards relative freedom, in that it stops creeping Sharia law and indeed might even save our lives. But again, I think making this argument requires one to understand the essential nature of Islam, its role in the world now and in the immediate future.
I read Paul Hsieh’s post and I like his framing of the issue as a lose-lose situation which has arisen because the best option — that of our government declaring war against a properly identified enemy — has been taken off the table. I agree that there’s a judgment call to be made here, but if the choice is secular statism vs. Sharia law, I will pick the former. The goal of Islam’s consistent practitioners is the same as that of the secular statists: totalitarianism. The difference is that the Jihadists work to achieve this both via immediate violence, and via cultural infiltration/persuasion. The secular statists aren’t yet going the open immediate violence route. In addition, secular statism has less staying power than does theocratic statism, as Leonard Peikoff has discussed numerous times.
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