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A Worthless and Destructive Proposal from the New York Times


The lead editorial in the New York Times today explains why the U.S. dollar is worth only about 5 percent of its value compared to when the Federal Reserve was established in 1913. The editorial doesn’t specifically address the U.S. dollar. Instead, it’s about the financial crisis in Italy. But the reasoning of the editorial provides an excellent explanation of the monetary debauchery that has long characterized American life.

The Times says that the solution to Italy’s financial woes lies with the European Central Bank. The Times says that the central bank should crank up the printing presses and start printing the money to purchase Italian bonds, given that investors are fleeing them en masse.

That’s precisely what the Federal Reserve has been doing for decades.

Here’s the problem. Like the U.S. government, the Italian government has been borrowing money for years, constantly adding to the government’s indebtedness. The total national debt has now gotten so high that speculators and investors are smelling the distinct possibility of default. They’re dumping their bonds and refusing to buy new ones.

Why has the Italian government been borrowing so much money? To pay recipients of welfare-state largess. Since the total tax revenue has consistently been less than the amount of the welfare payments, the Italian government has borrowed the difference.

Why not simply raise taxes to cover the difference, so that no borrowing would be necessary? Because people get angry when their taxes are increased. It’s easier to borrow the money because most people don’t worry about that. The attitude is that their children and grandchildren will have to deal with the debt, long after their parents and grandparents are dead.

But now Italy has reached a point where it can’t afford to raise the taxes to cover all its expenses, including interest on its massive debt. If it raises taxes, it squeezes the private sector, sending more businesses into bankruptcy, thereby shrinking the tax base and exacerbating the overall problem.

Now, doesn’t it seem like there is an obvious solution to this problem? Just dismantle the welfare state. Immediately terminate all welfare-state payments. That would at least reduce the amount of expenses needed to be paid.

But that idea is anathema to statists. It’s heresy. The welfare state is here to stay, they argue. It’s permanent. It is never to be questioned or challenged. Instead, people are expected to come up with solutions to make the welfare state succeed.

And that’s where the idea of monetary debasement comes in. Here, the state pays off its creditors with cheapened, debased dollars. It’s a way to cheat creditors of the money that is owed to them. It’s also a way to plunder and loot the citizens by reducing the value of their money. Inflation is a tax, pure and simple, albeit a secret, surreptitious one.

What the Times is recommending for Italy is precisely what the Federal Reserve has been doing for decades with America’s welfare-warfare state. As expenditures have soared for the welfare state and the warfare state, borrowed and the national debt have also skyrocketed.

Don’t forget that it was just recently that statists succeed in getting the debt ceiling raised here in the United States to enable the federal government to pile even more debt onto the backs of the American people.

Decade after decade, the Federal Reserve has accommodated the debt by printing the money needed to pay it, thereby cheating creditors and plundering the citizenry with a constantly debased currency.

The Times hopes that inflation will bring “growth” to Italy, but that’s ridiculous. If inflation could bring real economic growth to a nation, Zimbabwe would be extremely wealthy today. Inflation brings nothing but the artificial and destructive world of booms and busts, balloons, and monetary crises.

The only thing that brings genuine growth to a society is economic liberty, the antithesis of both the welfare state and the warfare state. With economic liberty, there are no welfare-state programs and no warfare-state expenses. People are free to engage in economic enterprise free of government control and free to keep everything they earn. As people save their money, those savings are converted into capital, which makes companies more productive, which raises wage rates and standards of living.

The statist paradigm is finished, and that’s a good thing. The Times’ pro-inflation proposal would only delay the inevitable and make things worse. For genuine growth and prosperity and liberty, Europeans and Americans need to abandon both the welfare state and the warfare state and embrace economic liberty and a constitutional republic.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.