Wednesday, October 27, 2010

Did the Cream Rise to the Top - or Something Else?

Economics has been called the “dismal science” for over 150 years.  This is unfair.  Outside of the Austrian school, economics, in parroting the methodology of the hard sciences, has forfeited its claim to being “scientific.” [here, here, and here] Since World War II especially, economists have been mostly apologists for government growth and propagandists for more of the same. [Also here, here, and here]

A panel of distinguished economists recently deadpanned that the recession ended in June, 2009.   And it did end, if you believe in the power of free lunches and consumption multipliers.

Just don’t count the unemployed and underemployed and people who have given up trying to get employed - or the long-employed incubating ulcers about pink slips.  Don’t get upset with the legions of college graduates who have moved back in with their parents or are waiting tables while a staggering student loan hangs over their heads.

Never mind that the world is running out of suckers to buy government debt.  Pay no attention to the decade-long rise in the price of gold, forget that Alan Greenspan told a meeting at the CFR that "Our choice is not between good and bad. It's between terrible and worse,” and that gold’s rise in price is like the dead canary in the coal mine, signaling “a problem with respect to currency markets globally,” forget that currencies will continue their plunge because new Fed policymaker Janet Yellen is yet another believer in the power of quantitative easing, that in terms of real debt the U.S. is the most insolvent nation among developed Western nations, that according to John Williams of, on the basis of Generally Accepted Accounting Principles, “total federal obligations as of September 30, 2009, stood at $70.7 trillion“ - nearly five times the GDP reported for fiscal 2009.

Never mind all this.  If we want to be part of the Establishment’s solution, we need to embrace the Keynesian belief that national politicians can create prosperity with more easing and spending.   

What might be the outcome of a continuation of government and Fed salvos?  Making it easier for people to spend money will likely get them spending money.  As retail sales pick up more temps will be hired.  GDP figures will expand, and the government will issue assurances about possible controls should prices rise too much.  The economy will flash like a hypernova, and Krugman and his Keynesian allies will glitter for awhile.

As shelf prices begin to shoot up, the government will threaten selected wealth producers about various cards it could play, none of them pleasant for such a small voting bloc.  Backstage at the local market, highly depreciated federal reserve notes will be swapped for whatever people can get their hands on.  Spending, in other words, will become a desperate act of saving.  There will be arguments in the media about whether we’re experiencing inflation or mass inflation, with general agreement that other than the usual loons, no one saw it coming because the Fed is doing what it pledged it would do, create more inflation, which is not the same as real inflation or mass inflation.

Bargain stress-relief solutions will thrive as more people feel poverty closing in on them.  Fat-cat federal spokespeople will deplore the spike in street crime.  International tensions will increase as governments continue playing beggar thy neighbor or in some cases bully thy neighbor.  The CIA might even start another war.  The usual suspects will get blamed for everything.  Throughout all this the do-something gang will be undeterred because whatever losses they might suffer are discounted by the fact that they’re still in charge.  And the “experts” who never see a crisis coming will tell us we must once again abandon free market principles to save the free market system.

What form will the abandonment take?  Whatever is politically expedient.  Americans could end up shackled to a one-world super-bank manufacturing meal tickets at will, though with everyone looking for a free lunch the meals might become indistinguishable from the tickets themselves.

Of course, none of this has to happen.

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