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Burning Down the House


 -- Published: Friday, 24 June 2016 | Print  | Disqus 

By Jeff Thomas

Recently an article appeared in Forbes magazine that recommended a universal basic income (UBI) for all citizens. The writer, who is from the UK, argues that,

“We can indeed afford a UBI at an entirely reasonable level within the confines of the amount that we already tax. So thus the question moves on to the next point: do we actually want one? At which point I say yes, obviously we do, as I have been saying for some years now. Simply on the basis that a UBI would be vastly better than the cruel, almost wicked, welfare states that we currently have.”

The author picks US$13,000 as the appropriate number that he feels should be granted to all US citizens over the age of twenty one and placed automatically into their individual bank accounts in monthly installments, for the rest of their lives.

Since this concept is unquestionably socialistic in nature and encourages the government’s role as nanny-state to an even greater degree than it already operates, the reader may understandably raise an eyebrow at reading it in a publication such as Forbes. Whilst I would agree, I would add, in all fairness, that, today, the article might also have been acceptable in that old British stalwart, The Economist.

The Economist was established in the UK in 1843 and, for well over a century, could be counted on to reflect the principles of classical economics. When I was growing up, it was read religiously in our household and the subscription continued for generations. That tradition ended in the late nineties. The reason was that the older writers, each of whom had an exceptional grasp of fundamental economic principles, were retiring or dying off and were being replaced one by one by younger writers, many of whom had been educated at the London School of Economics (LSE) or similar institution, where, today, Keynesian economics has become a mainstay of the curriculum.

Were Adam Smith alive today, he might be inclined to say, “Economics is simply an explanation of the function of money. Keynesian economics does not fall within that definition. It is an exercise in the distortion of economic principles, intended to promote a political end – that of socialism, to which Mister Keynes was devoted.”

Of course, these are my own words and the reader is encouraged to question them and consider whether I’m correct that Adam Smith might indeed take this view.

As stated above, we’re witnessing the same deterioration of economic principles across the pond in the US in such formerly reliable publications As Forbes. Is this a coincidence, or is there an overriding reason why the same anomaly should develop on one side of the Atlantic as on the other?

Forbes was founded by B.C. Forbes in 1917 and was later taken over by his sons, particularly the colorful Malcolm. Upon his death, Forbes fell to grandson Steve. But Steve Forbes is now nearing 70 and is likely to soon exit the Forbes stage. As he and others of his generation bow out, they will also be replaced by those who have been educated at LSE and similar institutions. (Today, Keynesian theory is predominant in universities on both sides of the Atlantic. As a result, we now have generations of Keynesians in politics, journalism and economics, almost to the total exclusion of classicists.)

But, let’s return to the Forbes article. Is the writer’s position really all that irrational?

He posits that, if an individual were to receive a UBI of $13,000, courtesy of his government, his economic life would be improved. Quite so. He then extends this assumption to the effect that, if all adult citizens were to receive this unearned increment, they would all benefit, so the economy as a whole would be healthier.

Unfortunately though, the premise does not hold up under extension. If all citizens were to receive the UBI, a new levelling would take place within the economy. This is similar to an increase in minimum wage, wherein, if all employees receive a pay rise, all manufacturers and service providers will have increased costs, which have to be passed on to consumers – the same consumers who just got the pay rise. On balance, no one experiences an improved livelihood. Likewise, if all citizens received a UBI, the cost of living would rise to meet it, leaving no one better off.

Further, the classic mistake of empowering the government to take charge of the change would have its effects. In every case, when a nanny-state increases the weight of its boot on the neck of the economy, the economy becomes less vibrant, to the detriment of all citizens except those connected directly to the government. Keynesian theory has it that major changes can be made to the economy in isolation, with little or no effect on the economy as a whole. This flawed assumption is a major contributor to the failure of Keynesianism. In truth, any variable affects the whole in some way.

But, returning to the overview, we may wonder why those publications that were once so well-informed, are deteriorating together. The answer lies in the little-understood historical fact that each nation has a shelf-life. It begins its rise as a result of determination and a strong work ethic. It then rises to a level of productivity, which in turn, creates prosperity. This abundance leads the population to become easy prey to empty political claims that largesse from the state can enrich all. Largesse results in complacency, which then turns into apathy.

After a nation has peaked and a majority of the people have traded in their work ethic for the undeliverable promise of ever-increasing governmental largesse, the decline is set in stone. When this has taken place, it’s not only the work ethic that’s in a terminal decline. The nation heads inexorably downward in other ways.

Publications decline in quality, partially because the more well-informed authors are retiring and are replaced by those with a less-global understanding. But the readership also deteriorates, as, increasingly, the potential audience is eager to hear more empty promises, along with theories that support them. (Joseph Schumpeter and his fellow Austrians would be unlikely to be hired by The Economist today.)

Historically, when a nation goes into a terminal decline, it is not just one aspect of its existence that declines. Moral values, sound economic principles, productivity, an independent media and basic freedoms all tend to decline with it.

Today, many of those who anticipate an economic crash speculate whether, after the crash, someone will press the re-set button, allowing the game to simply start over. Unfortunately, this is not the way history tends to work.

Since a decline envelops all aspects of socio-economic and political existence, it amounts to “burning down the house.” The nation, if it remains together at all (they often don’t) cannot just do a little remodeling. The nation must be completely rebuilt – moral certitude, a sound economic foundation and a return to productivity, all of which require the presence of basic freedoms to drive them. This often takes generations to accomplish and many nations never return to their former levels of prominence.

So, is the situation hopeless? Well, in the words of Karl Kraus, “The situation is hopeless, but not serious.” In any era, some nations are in decline, but there are always others that are on the rise. When those in power begin to douse the floorboards with gasoline, it’s an indicator that a change of address should be considered.

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Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man and Strategic Wealth Preservation in the Cayman Islands.


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 -- Published: Friday, 24 June 2016 | E-Mail  | Print  | Source: GoldSeek.com

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