The Santa Claus Principle
By L. Carlos Lara
This week’s news about President Joe Biden’s preparations for leaving office before the holidays should be another glaring example of why we need to intensify our efforts into doing all that we can to motivate each other into taking personal action toward protecting ourselves and our families. We should know by now that waiting on Washington D.C. to decide how to help us does not work and, nine times out of ten, once they do decide what to do, it only serves to impoverish us even further. Since we have already been inundated by the media with news of this latest financial scandal, there is no need to enumerate on all of the gory details. Bottom line is that we are footing the bill, again. However, there are still many who have difficulty understanding why our economic and political system continues with this kind of madness; perhaps this brief explanation may be of some help.
If you are anything like me you will notice first that most of our concern and disillusionment with our country rises up, not necessarily from each individual crisis that we learn about on a day to day basis, but rather from our own personal sense that something very precious and uniquely ours is slipping away. Most of us refer to this priceless gem as our freedom. Yes we still have it, but it is clearly slipping away. For example, not many of us would deny that we live in the greatest country in the world, yet most of us would agree that many things have definitely changed for the worst in our own lifetime. So it is more often the direction we are moving toward as a nation that displeases us and this is what we desperately want to stop.
So how do we stop it? That answer may need to be the subject of another article, but I think I will astound many of you right now by revealing to you just one or two incredible facts that may help educate you to what is really going on within our government’s political structure.
Point Number 1:
Did you know that the main driving force of economic policy makers at Government institutions, including the Fed, is totally contrary to even the basic economic principles which you would teach your own children? By this I mean that saving money, the one thing which every single American must be doing, is frowned upon by our monetary policy officials because it slows down the economy. In other words, they want us to spend our money and keep on spending it, no matter if it takes us deep into debt. Debt, you see, is not considered such a big problem at the higher echelons of our government institutions. But you and I know that at our family level, servicing debt is a big problem and it absolutely prohibits us from being able to accumulate cash reserves. With the national savings rate now below zero you can clearly see that the government is getting its way. When you add to this, additional government taxation (directly and indirectly) and the continuing devaluation of our dollar, it will not be long before the camel’s back is broken. And how, you may ask, did our nation come to embrace such a spending philosophy. Once again, that may be another subject of yet another article, but there is no question about the fact that a well informed citizenry who thoroughly understands our current monetary policy, with its numerous fallacies, unrealistic assumptions, and faulty concepts is the only way to ever challenge and launch a successful counter attack against it. Unfortunately, this is easier said than done for it is a complex maze of technical jargon, but for purposes of this brief article let’s at least name its source. The creator of this money philosophy was John Maynard Keynes (1883-1946).
Keynes’ writings and his views became the bedrock of all economic thought and policy making in America beginning with Roosevelt’s New Deal era right up to the present day. His ideas are much instilled in the thinking and writing of the most influential economists on Wall Street and in academia. It is the philosophy of our government’s economic structure and it is principally the main reason why I think we should know all that we can about it.
Point Number 2:
“It is important to recall that Keynesianism was born and was able to capture its widespread following under the impetus of the Great Depression of the thirties, a depression unique in its length and severity, and, especially, in the persistence of large-scale unemployment. It was its attempt to furnish an explanation for the events of the thirties that gained Keynesianism its popular following. By using a model with assumptions that restrict its application to a very short period of time, and completely fallacious in its dependence on simple aggregates (of expenditures and incomes), all Keynesians confidently ordered government deficit spending as the cure.” 2
Here we find a hint of the genesis of the authorization for continuous deficit spending along with the loose monetary policy that goes with it. Suffice it to say that as money is pumped into circulation to either jump start the economy, as in George Bush’s famous Stimulus checks, or to bail out the financial institutions of any current housing crisis, no real consideration is being given to the mounting national debt, or the after effects on the economy down the road. Invariably the prices on all consumer goods will rise simply because the value of the money is going down every time they do this. History proves that this is exactly what has happened. Make no mistake, it does create a glow of prosperity over the economy because all of a sudden everyone feels they have more money to spend, but this is always temporary. It is a form of deferment which does nothing more than stack up the problem for future generations. Additionally, this money pumping will enrich the early receivers of the new money, but always at the expense of the last receivers or no receivers at all. Its final consequences and net result is that it will not generate production, but on the contrary it will impoverish wealth generators.
What about government’s demand (spending) on goods? Does this give rise to more income? Government has an insatiable spending appetite. Just think about the size of government’s payroll, the buildings, the utilities, the expenditures for war, and all of those government programs; the spending is enormous! Does this spending help the economy? According to Economist Ludwig Von Mises, “…there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizen’s spending and investment to the full extent of its quantity.” 3
Point Number 3:
I would venture to state, with a great deal of certainty, that any elementary math school teacher would advocate to its students the necessity to save money for “a rainy day.” Why is it so difficult for our government leaders to reason that our nation must also operate with a true savings account that is continuously replenished? Savings is and always will be the capital that is necessary to fuel future production. It is an absolute necessity.
According to Von Mises,“An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off. The Santa Claus principle liquidates itself.” 4
Message of Hope
Now that it will always come down to dollars and cents. Yes, that’s right; it will always be about the money and who controls it. Make sure you are in control of your money. This too takes education. As John Quincy Adams said back in 1829, “All the perplexities, confusion and distress in America arise from the people’s downright ignorance of the nature of coin, credit and circulation.”
You must learn exactly how money really works in our society and learn it quickly. It should be obvious that you should be doing some things with your money that is radically different from what everyone else is doing. Deficit spending must stop at once and lost opportunity cost must be recaptured. Once you understand this, you’ll know exactly what to do. If you need help here, don’t hesitate to call me.
Finally, make every effort to teach this to your children because no one else will. It is certainly not coming from our schools. Virtually all financial education presented by the media flows from financial institutions through their experts. Many times these experts innocently perpetuate the problem not realizing that the information they are disseminating is clearly biased. Certainly, we can not expect that they will inform us of the economics of “lost opportunity costs” and “money velocity,” for by doing so they would diminish their control over our money. Add to this a government that spends money recklessly without the slightest care about going into debt, or ever thinking of paying off its debts because they can print money at will, and you have the poorest example of money management for your children. But they don’t have to follow that example, learn how to do it right and then show them how it’s done. For your children, possibly you then could be a “real” Santa Claus bringing a message of truth, security, prosperity and freedom.
References
1. John Maynard Keynes. The General Theory of Employment, Interest and Money, Macmillan & Co. LTD 1964
2. Murray N. Rothbard. Spotlight on Keynesian Economics written in 1947, Posted 5/10/2008, Ludwig Von Mises Institute
3. Ludwig Von Mises. Human Action. 3rd revised edition, Contemporary Books, Inc., p.744
4. Ludwig Von Mises. Human Action. Chapter 36 “The Crisis of Interventionism”