The Seven Deadly Economic Sins

The seven deadly sins of Christianity are serious “capital” sins because they spawn sinful behavior in general. The seven economic sins of economic policy destroy capital, undermine wage rates, and lower the standard of living. They actually kill people via poverty, malnutrition, suicide, and the like.

Three quarters of Americans think the economy is in bad shape. Optimism for the future is fading fast. Economic problems are getting worse by the day. While pundits do not agree and people are at each other’s throats. The usual solution to each individual problem is more government spending when the government is broke, can’t pay its bills, and is regularly adding trillions to the national debt. It can be overwhelming.

The good news is that all seven problems emanate from the same source. The cause is monetary inflation which is exogenous and removable from society. It’s not a natural and necessary element of society. Only the Austrian School of economics has a comprehensive analysis that ties this all together with cause-and-effect analysis.

In mainstream economics the problems are siloed into compartments, described statistically, and the solutions usually call for a greater quantity and new varieties of the same failed treatments. Keynesian, Monetarists, and Modern Monetary Theorists all support monetary inflation in some form and, of course, politicians and the political elites benefit from inflation.

Austrian economists analyze the economy theoretically and deductively rather than the mainstream’s mathematical and statistical approach. Austrians seek to understand cause-and-effect relationships down to the level of the individual to understand social order (and disorder) established by economic laws based on incentives. Other economists study each problem separately to calculate aggregate numbers that hide the problem and don’t provide a resolution.

Higher Prices

Of the seven major problems the one that is easiest to isolate and for which there is general agreement across party lines is the impact of higher prices on family budgets and small businesses. Everyone from President Donald Trump to New York City Mayor Zohran Mamdani know that affordability is the number one issue with Americans.

This problem is distressing when you have to stop buying something altogether just to make ends meet or to meet a payroll.

Higher prices or “inflation” is caused by the government’s Federal Reserve printing money. This is really one of the oldest-known teachings of economics dating back 500 years. However, in recent decades the definition of “inflation” has been changed from money printing to increasing prices.

This change in definition covers up the true cause of higher prices and allows the blame to be shifted to things like covid, the Russians, and greedy corporations. Here, economists, politicians, and government employees are all doing the bidding of the political elites who grow ever richer from the process. Austrian economists stick with the age-old causal definition of inflation: “too much money chasing too few goods.”

Inequality

Economic inequality is an expanding problem. The rich are getting richer; the poor are getting poorer. The middle class is falling further behind and shrinking fast. The social belief that the next generation will do better than the last is fading quickly. The expanding gap between rich and poor is a priority, but vexing issue. Most people correctly recognize that the problem cannot be solved by spending more on discrimination, opportunity, or education.

Austrians see this second issue as clearly related to the first. The biggest winners get the new money before prices begin to increase. The biggest losers only get higher prices. The mechanism the Federal Reserve uses to increase the supply of money reduces the interest rate, by making more money available for banks to lend. So, the banks get their raw material at a discount and the biggest borrower—the federal government—is the big winner.

The lower interest rate also raises asset prices. Stocks, bonds, and real estate all go up when interest rates go down. Wage rate increases only come at the end of the inflationary process, lagging behind the prices of everything else. Money printing inflation helps the rich and harms the working class.

Boom-Bust Cycles

Inflation is not a stable, predictable process, but it’s one that politicians would like to control to ensure their reelection. Lowering interest rates stimulates debt accumulation, business investment, real estate construction, consumer durables, but is a drag on individual savings. It creates more spending and excitement in the short term but creates bad decisions and more debt for the longer term.

As the new money circulates through the economy, costs and prices increase and inflation-adjusted incomes decline. The investment plans which once looked so promising are now disappointing and many of them fail, leading to unemployment and bankruptcy. Most economists are completely befuddled by recessions, but for Austrian economists it’s an expected result of manipulating the money supply.

Big Government

Nothing is more frustrating than the growth of government relative to the population or even the size of the economy. A major cause is money printing. Citizens vote against taxes and sometimes even revolt against taxes. Bond markets recoil against wasteful government spending sprees and debt when rates increase on a gold monetary system.

Unbacked paper money printing frees the state to spend without opposition. Citizens get new benefits and new services without having to pay any kind of higher price, so they want more government spending. Support for new government programs falls by half when voters know the price they will have to pay for a government benefit.

Not only does government provision cost much more than competitive market provision, but the lack of competition means that costs tend to increase faster than other goods and services in the economy. Money printing substitutes for tax money and greases the wheels of government spending.

National Debt

The ability to print money at no cost also leads to increases in the national debt. This occurs through three channels, the combination of which has led to increasing budget deficits, a ballooning national debt, and now interest payments on the national debt are a top item in the nation’s budget. Most economists applaud the government’s ability to use this massive borrowing to stimulate the economy and address social ills.

The first channel is the notion of borrowing to address important social issues now, to stimulate the economy through a “multiplier” process, all before costs go up (i.e. higher prices), when the economy returns to trend growth. This is the old Keynesian economics folklore that you can use printing and debt during a recession to get more than you have to pay for.

This is more propaganda than economics, because this dark magic rarely works. The second channel does work. Here, the US government receives a lower interest rate than everyone else because its debt is backed up with the power to print money to pay off maturing bonds. The US government always pays a lower interest rate because its ability to pay is ultimately backed by the printing press.

The third channel is not discussed in public, but it is the most potent economic force in both politics and the economics profession. Here, the argument is that government borrowing and a large national debt is a good deal for citizens because the debt can be paid off in inflation-depreciated dollars. That is an open omission that inflation is a policy that undermines citizens and people who lend to the government.

Economists are phobic about the possibility of deflation (i.e. prices falling in general), because that means paying back the debt with more valuable dollars. That would ruin the whole Keynesian game they want to play, but historical evidence suggests that deflation is good for the economy and the standard of living.

International Conflict

Big government and various socializing programs reduce our standard of living directly and indirectly. They insidiously reduce capital investment which reduces wage rate growth. As the economic drag of government starts showing up in our pocketbooks, politicians will often latch onto the idea of a “beggar thy neighbor policy.”

With this policy, the government prints money to intentionally drive down the value of its currency, the US dollar. This hairbrained idea holds that devaluing the dollar will make our exports less expensive to foreigners, spur export sales, and increase jobs. Of course, the policy fails to recognize that it simultaneously makes our goods and foreign goods more expensive for Americans and raises our overall cost of living. The US used this policy on a colossal scale on the Bretton Woods system (1945-1971) and it completely decimated our once-dominant manufacturing sector.

This same beggar-thy-neighbor policy is a major reason for tension between the US and China. It is the major impetus to tariff protectionism, trade wars, and—as the great Ludwig von Mises showed—can end in horrific military conflict. Austrian economists see the gold standard as putting nations on the same independent monetary system.

Moral Decay

I list moral decay last, not because I think it is the least important issue facing society. I certainly do not think that is true. Rather, it is because I do not feel adequate as an economist to judge such issues. I do offer up this piece of analysis for your judgement:

Here, I am looking past the issues of the state passing out benefits to rich and poor alike, or that monetary inflation—like counterfeiting—is a deeply fraudulent activity carried on in the name of the government.

I am sticking with the impact of money printing, reducing interest rates and causing a nation’s currency to be debased or devalued over time. This hampers the ability of the individual to save, build, and proliferate. It provides a systemic incentive to spend on consumption and to go into debt. This pattern easily becomes a habit, and the general habit becomes a social norm. Everything denominated in dollars erodes beneath our feet like quicksand.

Austrian economists refer to this issue as time preference. People with low time preference can control their urges to consume, delay satisfaction, are better planners, and think more broadly about their impact on the future and their reputation with others. People with high time preference are more compelled to consume and are irritated by postponements of satisfaction. They live for the moment and are generally unconcerned by considerations of the future. Some even revel in the self-destruction of their character and reputation. Strictly speaking, this preference relates to economic decisions, but it doesn’t take a brain surgeon to see that this “devil may care” attitude has implications for “moral” decisions as well. Money printing is the central force for both economic and, hence, moral decay.

Conclusion

Austrian School economists have exposed the cause of the seven deadly economic sins: government inflation of the money supply. The inflation policy is conducted by the government’s central bank: the Federal Reserve in Washington, DC. Both political parties are complicit in this deception with the political elites. The Federal Reserve has bought off much of the economics profession so that, officially, we neither know the cause of or solution to our economic problems such as higher prices, the business cycle, and the cause of economic inequality.

Ludwig von Mises famously noted that the semantic deception of Marxism starts with redefining the word and that “Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil.”