Government economists, in the decades since they have taken on the task of ministering to the economy, have become adept at curing our ills by semantic redefinition. We used to suffer from "depressions," but these have long since been redefined out of existence into "recessions." For a while, we were able to tolerate a series of recessions, secure in the knowledge that depressions were a thing of the bad old past. Now, however, "recessions," too, have become an embarrassment to the Establishment, and the Government has tried desperately to find a substitute name that will take hold. A few years ago, it came up with "rolling readjustment," but somehow that just didn't take; recently, the current recession has been dubbed a "sideways waffle." Anything to get rid of that dread word. In their search for semantic escape, however, the Government has encountered some problems. In the first place, a hallowed Keynesian definition of recession has been accepted for many years: a decline in "real GNP" for two successive quarters. What to do then, when—in the summer of 1974—it became all too clear that real GNP had indeed declined for those two magic quarters? A holding operation ensued, replete with the assurance that the statistics were a fluke, that the decline in the second quarter was slight, and that the third quarter of 1974 would find the economy booming again. The sharp decline of real GNP in the third quarter of 1974 has put the boots to that attempt.
In desperation, the government economists have suddenly rediscovered economic complexity. After decades of slavish concentration on the GNP, they have come to the quick realization that other economic indices also matter. We might hail this step as an advance toward reality on the part of economists, were it not for the strong odor of special pleading about the whole affair. At any rate, that didn't work either, since the other indicators are now clearly in bad shape as well.
But the semantic strains on our Establishment do not stop there—for a phenomenon which began as a cloud no bigger than a man's hand in the 1958 recession, and was redefined out of existence in the 1965-66 "mini-recession" and the 196970 recession, is now too big to ignore: the unwelcome phenomenon of inflationary recession. In each successive recession it has become clear that inflation has proceeded merrily, at an accelerating pace, even during recession, an event which violates all the standard and Keynesian canons of what a recession is supposed to look like. While the government has failed conspicuously to alleviate inflationary recession, they have succeeded in coming up with a new name, which conceals the unwelcome condition and makes it sound almost sexy: "stagflation."
Semantics or no, however, the advent of inflationary recession makes a mockery of the Keynesian vaunting of their ability to "fine tune" the economy out of trouble, to steer a careful path between inflation and depression. For the good thing about previous recessions was precisely the deflation (the fall in consumer price levels), since through the burdens of recession the consumers could at least benefit from the fall in the cost of living. Now, with their "modern tools," the Government and its economists have managed to eliminate—not recessions, mind you—but the one thing that used to make recessions palatable.
The major reason, of course, for the systematic semantic trickery and denial of reality by the Government (in brief, its lies), is to get itself off the hook before the potentially enraged voting public. A corollary reason has been to baby the public along until the problem disappears, after which the public's short historical memory could be counted on to forget the episode. Since recessions are generally short-lived, this strategy could work in the past, but not this time. Furthermore, since inflation has proved to be both persistent and accelerating, no amount of semantic or other evasive juggling has been able to talk that problem away. A third, and more respectable reason—an argument that has been advanced to make the lie "noble"—is that the Government is supposed to be inspiring confidence on the part of the public, and that confidence is what is needed to cure our economic problems. But confidence is itself a function of economic reality, and has no independent force of its own. Furthermore, the public tends on its own to be confident of economic prosperity until reality forces that confidence to ebb and disappear. An end to rising prices would do far, far more to restore public confidence in victory over inflation than any amount of gaseous verbiage emitted by our rulers. Furthermore, lies reap their own reward, and the credibility of Government is now happily at its lowest ebb in modern American history. What America needs most desperately for its economic health is for the Government to disappear into some rabbit-hole: to stop doing and stop talking. Only then will we achieve that prosperity without inflation that the Government has been promising for so long.
Murray Rothbard is professor of economics at the Polytechnic Institute of Brooklyn. Dr. Rothbard's viewpoint appears in this column every third month, alternating with the viewpoints of Tibor Machan and David Brudnoy.