Peter Schiff was one of the guys who saw through the smoke and mirrors of the economy early on this decade and had the courage of his convictions to go public with his thoughts and to position himself economically to take advantage of the downturn. He tends to raise the hackles of a lot of people but when he does have something to say, it’s probably worth listening to.

In the Saturday edition of the Wall Street Journal, he takes issue with the notion that the federal government must spend any amount of money and take any steps necessary to ameliorate the effects of the current recession. In this process, he maintains that free-market views have been largely pushed to the side.

Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can’t be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

Schiff goes on to describe what he considers to be the inevitable consequences of the current course of action. Specifically, he sees, as do many, an economy in recovery phase which is plagued by a vastly expanded money supply that leads to inflation and an economy with little momentum. In short, a rerun of the 1970’s stagflation but with much sharper edges.

Schiff then concludes by essentially call for the government to let the recession run its course.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it’s called a recession, and it’s not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.

If this were a run-of-the-mill recession, I might be inclined to sign onto Schiff’s ideas. Unfortunately, there is much more danger in our current situation and I don’t think that we have the luxury of following his dictates. Nevertheless, his ideas should not be completely ignored. Without a sense of proportion as to what we do to turn the economy around, we do risk creating a monster. Had we been a little more willing to follow Schiff’s prescription over the past twenty years and not taken such heroic measures to stave off minor downturns, we might not now find ourselves in this dilemma.