Adam Smith Redeemed by European Apology
The Founding Fathers of the United States, when crafting the American System during the Federal Convention of 1787, shared the same economic vision as economist Adam Smith. The similarities between Adam Smith's The Wealth of Nations, and the Declaration of Independence are striking. Eleven years after the emergence of both documents, the Constitution of the United States capitalized on the emergence of the modern science of economics, incorporating Smith's conclusions into an American System that includes the right of economic, and political, self-determination.
The emergence of a free market system was a logical conclusion after the English Colonies, before independence, suffered under a tyrannical British system of mercantilism, where The Crown chose the winners and losers in business, based on which merchants played ball with the authoritarian British Empire.
The United States, as an individual-centric system, became a society based on ensuring the personal freedom of the citizens, using the incentive of individual self-interest to propel the economy into a free-market economic system that would encourage innovation, and progress.
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Competing economic theories fueled by massive government spending, and national debt, have always been a historically colossal failure, always resulting in the creation of fiat currency that deflates the value of the money as it enslaves the populace through inflation and schemes of leveling (redistribution of wealth).
Looking back on systems before emergence of the United States, economies stimulated by government spending always collapsed. Adam Smith recognized these financial arrangements as being a departure from common sense that were not economically healthy, while allowing the politicians to create an atmosphere that allowed them to manipulate the system through a constant series of boom-bust cycles. An economy based on government spending cannot build wealth, but instead requires governments to remove money from the economy through bills of credit, resulting in a deflation of the value of the currency.
The government-centric style of an economy was later branded as "Keynesian Economics," as the progressive era politicians bought into the myth and applied its failed principles to their own economies.
Heavy government spending has continuously proven not to work. Time and time again, the economic theory has failed. In the United States, be it under Woodrow Wilson, Herbert Hoover, Franklin Delano Roosevelt, Lyndon B. Johnson, Jimmy Carter, or Barack Obama, the increase of spending has led to a staggering economy that fails to create jobs, while artificially supporting the structure with fiat currency and a constant influx of borrowed funds.
As the tub fills, rather than stop the flow of spending, we keep raising the limit. Eventually, with a tidal wave of massive debt inevitably overpowering the system, the overload of deficit spending is ready to spill over, collapse the structure, and create an environment that no amount of borrowing can save. Fiat money without value attached to it is worthless, and the only way to stave off disaster, is to reduce spending, and encourage the free market economy through individual incentive to self-correct the failing catastrophe.
After the economic disaster of Woodrow Wilson's presidency, Presidents Harding and Coolidge used federal spending cuts, tax cuts, and a reduction in regulations against business to turn the economy around, resulting in one of the most prosperous decades in American history, the Roaring Twenties. The prosperity ended when Herbert Hoover returned us to massive government spending.
Historical examples prove that government cannot expand the economy through deficit spending because massive borrowing disrupts the vibrant economic activities of a free market economy. In Europe, where the destructive forces of big government spending has created an economic disaster that has led to chaos in a number of countries in the region, reality is finally slamming home.
When the United Kingdom decided enough was enough, and instituted austerity programs in an effort to reduce government spending, the leadership of the International Monetary Fund, true to their Keynesian allegiances, called the U.K.'s move a mistake. Now, reluctantly, IMF Managing Director Christine Legarde on BBC Television's Andrew Marr Show admitted that the organization of international bankers was wrong. "Clearly, the confidence building that has resulted from the economic policies adopted by the government has surprised many of us," said Legarde.
A year ago, the IMF's chief economist, Oliver Blanchard, said that the United Kingdom's plan to cut spending was a dangerous plan, and that the nation was "playing with fire."
The U.K.'s economy is growing at a rate of about 2.9 percent this year, the fastest pace among the Group of Seven nations.
Now, Legarde finds herself apologizing. "We said very clearly that we had underestimated growth for the U.K. and that our forecasts had been proven wrong by the reality of economic developments," she said.
Lagarde's assessment? The U.K. economic outlook is now "more sustainable" as investment joins consumption as an engine.
She now finds herself distancing herself from a European Commission call for higher taxes in the U.K., saying that the IMF doesn't "see a massive increase in tax as recommendable."
Once again, the economics of Adam Smith, and the great minds of early America, has been validated as the best strategy for a prosperous, and growing, economic condition. One wonders if the leadership recognizes the hard facts in front of them, or if their blind allegiance to ideology will force them to fail to recognize the reality of Adam Smith's economic strategies, and turn to massive government spending once again as prosperity attempts to emerge.
