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An economics lesson for congressional austerity advocates

As reported here [1] and elsewhere [2], conservatives in the U.S. Congress have been pushing the illusory medicine of austerity a lot in recent weeks. A draconian proposal to slash the federal SNAP program (i.e. food stamps) is just one example of this shortsighted approach in action.

The latest conservative proposals are, of course, predicated on the concept the “we just can’t afford” such programs. As retired Wake Forest economics professor Don Frey argued presusuaively in the following recent takedown of the Paul Ryan budet, however, the scarcity theory undelying the conservative budget proposals is simply and demonstrably wrong.  

Donald Frey [3]A basic economics lesson for Paul Ryan and his allies
By Dr. Donald Frey

WINSTON-SALEM – Recently, the Republican leadership of the U.S. House cancelled a vote on the Transportation, Housing and Urban Development bill (the ironic acronym is “THUD”) offered by their House committee. They knew the bill would fail because of the drastic spending cuts tailored to meet the unrealistic guidelines of the Paul Ryan budget adopted earlier this year.

This Ryan budget was unrealistic, not merely in a political sense, but in a far deeper sense. It was premised on the flawed idea of Malthusian scarcity. Recall that over two centuries ago Thomas Robert Malthus declared that population would always outstrip food production, back when food was the main component of the economy.

The result was a generalized fear of scarcity, a most influential driver of nineteenth-century thought. In this view, society was too poor for the government to do much except to dictate upon whom scarcity and hardship would fall the hardest.

Sound familiar?  All the deficit-fear that dominates the Ryan budget is really a fear of scarcity by another name.

In turn, the dictates of the Ryan budget guided the bill that failed last week. That is, like nineteenth-century policies, the failed bill was dictated by fear of scarcity.

In this Twenty-first Century reincarnation of Malthus’ ancient fear, the Ryan budget assumed that there is not enough productive capacity in America to meet our people’s legitimate needs. Perhaps in defeating the THUD bill, lawmakers showed signs that they recognize that the very premise of the Ryan guidelines is as wrong as Malthus was in two centuries ago.

How was Malthus wrong? Almost as soon as he wrote, scarcity began to melt away before two Industrial Revolutions, scientific agriculture and medicine, information technology, and still-emerging revolutions in biotechnology, materials science and more. In short, modern scarcity exists only when we choose to produce less than we could, usually through bad policies.

Despite being false, Malthus’ error lived on because it served a political purpose: it sidelined morality in the setting of public policy. Morality is about making ethical choices, but according to Malthus, nature allowed no choice. Starvation was a “scientific” certainty. Morality thus became irrelevant to policy. Instead, in good conscience, those who set policy could favor their patrons.

As the nineteenth century matured, Social Darwinists updated Malthus. They proposed that the only strategy against scarcity was that the “fittest” (read richest) should be allowed to pile up as much wealth as they could under laissez-faire policies. And perhaps some would trickle down. Any government initiatives merely interfered with private incentives and capital accumulation.

Sounds familiar. The Ryan budget mandates deep cuts in spending to meet the needs of our citizens, and our future productivity, in order to finance deep tax cuts for corporations and the wealthiest.

The Ryan mindset disguises its Malthusian roots by adopting a new language, just as the Social Darwinists adopted the language of evolution. In our era of Big Finance, even politicians speak the language of accountants: the fear of scarcity is recast as the fear of “deficits” and national “bankruptcy.”  The most culpable politicians even invoke hypothetical deficits that come from debatable projections for decades far into the future. Recall that the Enron scandal showed how bad accounting can be a tool of manipulation.

We should be thankful that the “austerity” mandated by the Ryan budget’s vision was rejected. In the modern era, a developed society has to choose scarcity for it to come true, which is where the Ryan guidelines are headed. In our times, hardships, poverty and famines exist, but are not facts of nature: they are usually failures of social policy, not due to an inability to produce enough. We need to look no further than Europe, which has chosen “austerity” and is suffering for it. The economic recovery is stalled and has caused great hardship.

Conversely, by many reports, Prime Minister Shinzo Abe of Japan, who is following a fiscal policy roughly opposite that of Paul Ryan, is having success in reviving that nation.

Perhaps the action in the U.S. House will mark the beginning of a rejection of the Malthusian error of scarcity, which ultimately prompts choices that actually lead, unnecessarily, to the feared outcome. Let’s hope so.

Donald E. Frey is a retired Wake Forest University economics professor, and author of America’s Economic Moralists: A History of Rival Ethics and Economics (2009).

Photo: Wake Forest University.