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According to a Washington Times article, “American reliance on government at all time high,” the Great Recession and America’s comprehensive welfare state has given us this astonishing fact:  “… for the first time since the Great Depression, Americans took more aid from the government than they paid in taxes. ”    In short, America has become a nation of consumers and not producers.  The scales have been tipped…for now.  The American people’s living standards and our economic liberties are in grave jeopardy.

If entitlement spending continues to increase at unprecedented rates, because in the aftermath of the housing and financial busts the economy under performs markedly, then the rallying cry in the White House, Congress and in state houses across the land will echo for years:  We need more stimulus to create jobs.

The political establishment’s ideology–they call it pragmatism–is to spend our way to prosperity, asserting that the federal government’s stimulus will boost employment.  The Keynesian legacy is alive and well on both sides of the aisle in the Congress, and governors, from California to New York, who are grappling with multi-billion dollar deficits, are calling for more stimulus dollars to prop up their welfare/redistribution programs.  In short, the American economy is continuing down the road to serfdom.

To combat the ideology of welfarism, redistribution and easy money, we have to defeat the economic myths that are all around us.  For example, the author of the Washington Times article perpetuates one of the common economic myths when she writes:  Economic growth typically depends on consumer spending, which is fed by wages, rents, interest and other forms of income. But the tentative revival of consumer spending in the second half of last year appears to have been fed largely by an extraordinary flood of government spending, as growth in other kinds of income has disappeared”  (Emphasis added.)  Not true.

Economic growth depends on savings and investments, and free markets.  As Ludwig von Mises pointed out:

“Economic progress is the work of the savers, who accumulate capital, and of the entrepreneurs, who turn capital to new uses. The other members of society, of course, enjoy the advantages of progress, but they not only do not contribute anything to it; they even place obstacles in its way.”

Clearly, government policies that encourage spending undermine the long-term health of the economy.  Capital goods  are the mother of prosperity.  Consumption is the result of production.   Thus, we need to explode another widely held belief that government spending in a recession will prop up the economy and steer the economy to sustainable prosperity.

And as Mises keenly observed:  “For it is an essential difference between capitalist and socialist production that under capitalism men provide for themselves, while under Socialism they are provided for.”    In short, we are fast becoming a “socialist state” according to Mises’s insights.

And another myth that has to be buried is that easy money will also stimulate the economy and create long-term prosperity.  Ludwig von Mises’s cogent analysis on the dire consequences of easy money has been ignored by policymakers, legislators, and of course the economics profession.

“…governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.”

In other words, get ready for the next depression.  The Federal Reserve’s zero interest rate policy will lead to another bout of “excesses’ that will end badly, as all artificial booms always do.  And when the next ’emergency occurs, let us remember F.A. Hayek’s warning: ” ‘Emergencies’ have always been the pretext on which the safeguards of individual liberty have been eroded.“