Monday, March 14, 2011

My letter to the Telegraph re: Economic Fallacy

Subject: Economic Fallacy
Date: Mon, 14 Mar 2011 05:52:48 -0400

re: Japan could emerge stronger from the catastrophic quake, by Tom Stevenson

Dear Sirs:
Mr. Tom Stevenson is the latest financial "expert" to be blinded by the illusions of monetary expansion. In his column on Sunday, March 13 he stated the following:

"In the short term, the impact on the Japanese economy will be negative...Further out, the rebuilding effort will probably stimulate the economy via construction and other capital spending. The net impact on GDP might be positive, not the least because the Bank of Japan quickly made it clear it will provide whatever liquidity is required."

This is the nonsensical conclusion that one draws from blind adherence to Keynesian economics, which equates demand-side monetary expansion with an increase in the well-being of an economy. By this logic one should rejoice at the destruction of war and natural disasters that destroy capital and lives. Perhaps we all should burn down our homes, factories, and shops, so that our central banks can shower us with pieces of paper, making us feel oh-so-rich! Japan needs savings, not spending, to obtain the capital it will need to rebuild. Monetary expansion does not create new capital. It is nothing more than an accounting fiction, made possible by the ability of central banks to create fiat money out of thin air.

Patrick Barron

1 comment:

  1. Professor Barron,

    Thanks for the link. I posted a comment under the article at the Telegraph website, as follows: "Perhaps all of the countries having currently depressed economies would be helped by having the local police break the windows of all the shops on the high street so that those nations might experience an economic boom amongst the glaziers."

    Pax et bonum,
    Keith Töpfer