Should we be scared of the government?
Government always caused fear and those who we now call “libertarians” always viewed public powers gaining momentum with unease since the expansion of a government’s remit has been interpreted by many citizens across the Western world as a rolling back of their own freedoms. For those who subscribe to this somewhat – to call it what it is – conspiratorial school of thought, room to manoeuvre for private entities is inversely proportional to the size of the government. Milton Friedman, Nobel winner in economics in 1976, who was nevertheless the father of monetarism and once shone throughout the world, would not have rebuked Bitcoin since libertarian thought was at the heart of his economic theory.
This major economist, throughout his career, worked to curate theories whose main aim was to limit government powers and to promote private initiatives, because he was convinced that they were stifled by public powers. The United States of America certainly have a tumultuous history marked by a civil war which came about because some States refused to recognise a federal power. This history and this splitting of the country are now more relevant than ever and remain a prominent relic of the two main political parties today. Friedman, as for him, transcended the political side of things in his economic thinking and went even further by projecting Machiavellian intentions onto governments that – according to him – exploit crises to support their economies with the aim of gradually and surreptitiously tightening their grip of control. A recession and even a very high unemployment rate were no justification, in Friedman’s eyes, for the government to intervene, with him much preferring an economic downturn to be treated with the monetary policy of central banks.
This approach – that since the 1980s has granted monetary policy unbridled powers – should be put into perspective given our current economic climate where central banks seem to be at the end of their tether, despite unprecedented action and intervention since 2007. Milton Friedman would today no longer be able to hide behind them and try to keep the government on its leash because interest rates cannot pass below zero. Having now reached this threshold, no one will lend to anyone at negative rates, just like no increase of liquidity is now possible due solely to the fact that central banks are buying up bonds, including Treasury Bonds. John Maynard Keynes had – before Friedman – clearly identified this issue and had as usual expressed it simply by explaining that the injection of money into an economy would have no stimulatory effect without investment and consumption. It was, as he said, “like trying to get fat by buying a larger belt”.
We therefore find ourselves, in 2021, at a crossroads because large expansionary public policies – and massive government intervention that would have Friedman turning in his grave – are absolutely vital in countering the depression that looms over us. It’s been years that our central bankers – Mario Draghi specifically – have been urging political leaders in this direction because they are well aware that a monetary policy is not capable, on its own, of heading off a crisis, and even less so of restoring long-term growth. As we can see, this head on collision of two economic theories – those of Friedman and Keynes – is now more relevant than ever. What’s more, Friedman himself – who was fully aware of the dire need for government in certain circumstances – penned an article in The Times on 31 December 1965 where he acknowledged that “we are all Keynesians now”. May our current political leaders heed his words.