I sometimes think the world is awash in “experts” who make a living telling others how to do something they, the experts, are patently incapable of doing themselves.
I cringe when I see a headline in the paper that includes the word “expert.” I gag when I read yet another piece by Krugmanites, those who preach the gospel according to Saint Keynes, arguing for greater growth in government, and yet more deficit spending.
All of them seem to exhibit a “What? Me worry?” attitude concerning our massive and massively growing public debt.
Yes, Paul Krugman has a Nobel Prize in economics. The late Yasser Arafat had a shared one in something called “peace.” Jimmy Carter has one of those, and Barack Obama, just months into his first term, was awarded one for — but let's not get into that. Today's column is about economics and how the experts are missing the boat.
Essentially, Keynesianism teaches that government has a responsibility to even out the hills and valleys of the business cycle. When the economy slumps, deficit spending should ratchet up, and tax rates should ratchet down. The Federal Reserve should expand the money supply by purchasing Treasury debt, and lowering the interest rate banks pay to borrow from the Fed. This should encourage investment and the hiring of labor. Theoretically, all this will jump-start a moribund economy. (How's that worked out over the past four or five years, do you think?)
When the economy accelerates at what the experts deem to be an unsustainable rate and inflation rears its ugly head, Keynesianism says that government should spend less and tax more. The Federal Reserve should sell Treasury debt and raise the interest rate, thus decreasing the money supply. The problem with Keynesianism is that in practice it doesn't work. The reason for its failure is as much political as it is economic.
The organic imperative for government is that, like a weed, it must grow to thrive and survive. It is thus easy to take the steps Keynesianism prescribes to waken a sleeping economy, and extremely difficult for any president or any Congress to do what is necessary to reverse those steps.
Couple this with the fact that the public sector is inherently incapable of directing capital to enterprise that efficiently contributes to economic growth (remember all those “shovel ready” projects?) and you get what you have now — a wasted five years that have delivered no real growth, no real decline in unemployment, and an added $6 trillion or so to a public debt spinning out of control.
Herewith, a little history in monetary policy from a most unexpected time and place, to wit: post-revolutionary Haiti.
When the Haitian revolution ended in 1804, the country was divided amongst the generals who had defeated the army Napoleon Bonaparte dispatched to reassert French control over what once was the richest colony in the New World. The French, as a class, were eradicated. Those who did not escape were slaughtered, almost to the last man, woman and child. (Not a few of those who did manage to leave Haiti made their way to Charleston.)
The general who inherited the northern part of Haiti, including the old French capital of Cap Francais, was a former slave named Henri Christophe. In 1811, he declared himself king. He established a new order of nobility and promulgated the “Code Henri” under which every adult man and woman in his kingdom was required to work “from daylight to eight o'clock, then one hour off for breakfast on the spot; from 9 to 12, then two hours off; and from 2 p.m. until nightfall.”
The lack of a circulating currency was solved, temporarily, by a most ingenious device. All ripe gourds, or gourdes in Haiti, were declared state property and collected by the Crown. The gourde was and is useful to the Haitian peasant in the manufacture of dishes, tools, containers, musical instruments, etc. Gourdes were then paid out as wages for work performed on state lands, or in exchange for home-grown crops. To this day, the unit of Haitian currency is called the gourde, though it has long since ceased to be an actual gourde.
To be viable in a well-functioning economy, currency must serve as a unit of account (i.e., a dollar is a dollar and a gourde is a gourde); a means of exchange; and, the characteristic most often ignored by monetary authorities, including our own, a store of value.
In 1820, Henri I suffered a stroke that left him paralyzed from the waist down. His subjects, even the nobility created by him, had grown disaffected. His currency, the gourde, no longer was accepted as a means of exchange or a store of value.
Informed that an armed mob was approaching his palace, Sans Souci, he shot himself. According to legend the bullet he fired into his brain was a silver one. Somehow, his wife and daughters managed to drag his body up to the Citadel, a fortress on a nearby mountain peak. Its ruins remain as what is undoubtedly one of the greatest architectural treasures in the Western Hemisphere.
Henri I was buried in an open lime pit on the ramparts of the Citadel. The spot is marked today by a small slab inscribed “Christophe, L'Homme.”
I suspect that when he died, Christophe, the man, was more aware of the fatal consequences of not preserving the scarcity and the purchasing power of the gourde than many “experts” in government, academia, and the Federal Reserve in our own country are of the crying need to keep the U.S. dollar king wherever and whenever it changes hands.
R.L. Schreadley is a former Post and Courier executive editor. He has traveled extensively in Haiti.