Thursday, April 3, 2014

Small Government Illusions (Pethokoukis Edition)

By Chris Rossini

As has been covered here before, AEI is one of those illusory "free market" think tanks. One of their economics writers, James Pethokoukis, helps to keep that illusion going today.

He has a piece out that really sounds innocent and hardly a libertarian will have a problem with it. Pethokoukis says that "The ultimate finance reform is smaller government."

That's correct.

He goes on:
If you are genuinely worried about the influence of Big Money on Big Government, the free-enterprise solution is to shrink the influence of Big Government. A government able to pick winners and losers through regulation, spending, or the tax code is a government worth influencing, whether through campaign donations or lobbying activities.

Boy, this guy must be the real deal. Free markets, economic liberty, government off our backs....this is the guy, right?


And that's why people who are new to the ideas of liberty can get tripped up in the minefield. There are a lot of illusions out there.

Pethokoukis is similar to a person who wants to live a gluttonous life, while keeping a slender waistline. What do I mean by that? Well, let me use Pethokoukis's own words.

He has written:
  • ...each time the Fed has engaged in a new round of bond buying, good things have happened.
  • ...the Fed has a critical role in ensuring macroeconomic stability. And the bank needs a leader who fully understands and embraces that reality.
  • Has the Fed been too easy? Heavens, no!
  • In 2013, the more aggressive monetary policy was, the better economies performed
Pethokoukis is a BIG printing press advocate. I bet if he had the chance, he'd love to type those 000's in himself. After all, the Fed never adds enough 000's!

That position, and that belief, nullify his earlier statement that was spot on. Here's why: As the Fed cranks up the magic money machine, who benefits the greatest? Answer: The first-receivers of the new money.

What does that mean? Well, imagine you, dear reader, have a magic money machine in your basement and are able to create money out of thin air. As the first receiver of that money, don't you think you are the one who will benefit most? Right away you're out spending like a madman.

You can't hide this new lifestyle from your friends. Obviously they're going to notice. So naturally, you're gonna have a lot of new friends who are going to want in. They're going to want to be the first receivers too.

The only thing different about the Fed is the scale. Whenever they crank up the magic money machine, crony pigs from all across the land descend on DC. Someone's going to get that money. Some groups are going to be the first-receivers, and it's inevitably going to be those who curry the most influence.

Pethokoukis's earlier words about shrinking government are true, but coming from him, they're empty. You're not going to shrink government and have a printing press with a little old lady named Janet handing out cash like they're pieces of candy.

Chris Rossini is on Twitter


  1. Nailed him. Thanks CR. you have the best posts on epj

  2. -- Pethokoukis is a BIG printing press advocate. I bet if he had the chance, he'd love to type those 000's in himself. After all, the Fed never adds enough 000's! --

    Pethokoukis must be looking forward when the Federal Reserve decides to issue the first Nuevo Dólar.

  3. "The ultimate finance reform is smaller government." ...No, the ultimate finance reform is NO government.

    1. Exactly....small (what ever that is) government always grows...and grows...and grows... You can't change the nature of something.