Bad Economics On CNBC

It never fails to astonish and amuse me when Keynesians claim that cutting federal spending will send the US economy into a nosedive. Specifically, now, with our economic recovery still fragile, is not the time to contemplate serious federal budget cuts.

No, if anything, taxes must be raised in order to allow more spending without unduly increasing the deficit.

What nonsense.

But this is what you heard from Byron Wien on CNBC Wednesday morning. Wien was, at Morgan Stanley, a perennial investment bear. Almost as gloomy as the legendary Salomon Brothers chief economist, Henry Kaufman.

After hearing Wien spout this widely-heard nonsense, I checked his biography to see where his PhD in economics was from. Apparently, he doesn't have one. I found him credited only with a BA and MBA from Harvard.

Later in the morning, CNBC gave North Dakota Democratic Senator Kent Conrad its platform to repeat Wien's concerns. Conrad, too, has no advanced economics degree that I could find among his bios.

As I've written in prior posts, it seems that many pundits and, certainly, free-spending members of Congress, cannot acknowledge that economies have naturally-occurring cycles. That money not appropriated by or borrowed in the name of taxpayers, to be spent by Congress, will still exist on private balance sheets.

Government spending doesn't create long term employment, nor, per se, businesses. The same money, in private hands, does.

I understand why Conrad can't comprehend this, being a conventional tax-and-spend liberal Senator. But Wien, with his long tenure at Morgan Stanley, should know better. Much better.

If anything, recent economic research has shown a clear dampening effect on private consumption when federal spending is seen as increasing taxes via interest on debt.

The notion that federal spending can't be replaced by private sector spending, or that, if the money is saved by the private sector, rather than spent, it is a mistake, is just bad economics.

But it seems that many of the carefully-screened pundits you'll see on CNBC don't know this, and, basically, could care less.