Twin Deficits!

By Gary North

 

There are two deficits that we hear about most: the federal government's deficit and the balance of payments of the United States. They are linked, but they are very different in their effects.

 

The federal deficit is seen by Keynesians as mostly a benefit and by Austrians as mostly a liability, and for the same reason: higher government spending.

 

The balance-of-payments deficit is seen by virtually all economists as a benefit for Americans and their creditors. Otherwise, the exchanges would not take place.

 

At some point, the twin deficits will become unsustainable. Then the debtors will have a choice: either default or else adopt a systematic reversal of policies: debt repayment. This means a federal-budget surplus and a balance-of-payments surplus. Balanced budgets won't do it. There will have to be surpluses.

 

That day is coming. That will be the day of reckoning — of counting up.

 

The participants give no indications that they believe that day is coming.

 

Neither did Greece's politicians in early 2010… (Read more)

 

Source: Mises.org

Keynes vs. Say

By Henry Hazlitt

Keynes's "greatest achievement," according to his admirers, was his famous "refutation" of Say's law of markets. All that it is necessary to say about this "refutation" has already been said by Benjamin M. Anderson, Jr., and Ludwig von Mises. Keynes himself takes the matter so cavalierly that all he requires to "refute" Say's Law to his own satisfaction is less than four pages.

Yet some of his admirers regard this as alone securing his title to fame:

Historians fifty years from now may record that Keynes' greatest achievement was the liberation of Anglo-American economics from a tyrannical dogma, and they may even conclude that this was essentially a work of negation unmatched by comparable positive achievements. Even, however, if Keynes were to receive credit for nothing else … his title to fame would be secure … [Yet] the Keynesian attacks, though they appear to be directed against a variety of specific theories, all fall to the ground if the validity of Say's Law is assumed.

It is important to realize, to begin with, as Mises has pointed out, that what is called Say's law was not originally designed as an integral part of classical economics but as a preliminary — as a refutation of a fallacy that long preceded the development of economics as a recognized special branch of knowledge. Whenever business was bad, the average merchant had two explanations at hand: the evil was caused by a scarcity of money and by general overproduction. Adam Smith, in a famous passage in The Wealth of Nations, exploded the first of these myths. Say devoted himself to a refutation of the second… (Read more)

Source: Mises.org

Why Are Gold Prices So High?

By Robert P. Murphy

Ever since Ben Bernanke began flooding the banking system with trillions of new dollars in the fall of 2008, economists and other pundits have disagreed on whether the US is in store for a grinding deflation or an accelerating inflation. Part of the disagreement stems from some people using the terms to refer to prices, whereas others refer to changes in the total quantity of money and credit.

However, even if we restrict ourselves to movements in the prices that average households face in the marketplace, there is still widespread disagreement. Although the overlap isn't perfect, typically the Keynesians warn that with high unemployment, the US runs the risk of a Japanese "lost decade" of flat consumer prices and stagnant economic growth. Many Austrians, in contrast, warn of a different decade: namely the United States during the 1970s, when Americans suffered high unemployment and price inflation.

To bolster their position, the Keynesians confidently point at the low yields on various government bonds, signaling that "the market" expects modest price increases over the coming years. In contrast, soaring gold and silver prices have been the trump cards for those Austrians predicting skyrocketing prices in general.

For a while the Keynesians had no adequate response to this. They suggested that… (Read the full article)

Source: Mises.org